DC Circuit Grapples With Decades-Old Arbitration Spat

WASHINGTON (CN) – The D.C. Circuit appeared baffled Thursday by an arbitration dispute between the Czech Republic and a lab company over a 1992 contract to fractionate blood plasma.

Diag Human SE, a Liechtenstein company that creates blood plasma derivative products, brought the underlying action out of the belief that the Czech Ministry of Health defamed it, took steps to destroy its business and and ruined its relationship with a fractionation company and ruined its relationship with a fractionation company.

Following arbitration, the Czech Republic paid a partial arbitral award of roughly $10 million in full, but proceedings reached an impasse in 2008 when arbitrators issued a final award.

Though an arbitral review panel eventually discontinued proceedings after concluding that it lacked jurisdiction, Diag Human argues that the panel had no authority to nullify the 2008 award.

Arguing for the company Thursday at an hour-long hearing of the D.C. Circuit, Allegaert Berger attorney Hyman Schaffer said the review panel was required under Czech law to first rule on the merits before nullifying an arbitral award.

Because the review panel decided it lacked jurisdiction, however, Schaffer said it never reached the merits.

“The award cannot be vacated,” Schaffer argued.

Babst Calland attorney Alana Fortna, who represents the Czech Ministry of Health, pushed back during the hearing on Diag Human’s assertion that Czech law must be applied here.

“Nothing in the Arbitration Act and nothing cited by Diag Human requires the district court to apply Czech law and delve into these issues,” Fortna said.

U.S. Circuit Judge Robert Wilkins picked up on Fortna’s line of reasoning, suggesting that it doesn’t matter if the review panel decided incorrectly.

“If we can ascertain what they did, and the effect of what they did – even if they were wrong in doing it – don’t we have to enforce it?” Wilkins asked. “Isn’t that the way that this works?”

“That’s correct, your honor, and I think you hit the nail right on the head,” Fortna responded.

Fortna went on to say that Diag Human overly focused its arguments on Czech law and what the review panel should have done. Neither matters, she said, in determining whether the award can be enforced.

U.S. Circuit Judge A. Raymond Randolph pushed back on that assertion.

“It seems to me perfectly logical and common sense that the background of Czech law enables you to interpret, or helps, in interpreting what they did,” Randolph said.

Fortna didn’t disagree, but stressed that the district court’s job was not to rule on the merits of the review panel’s decision.

But Wilkins wondered what they should do if they can’t figure it out the underlying rationale of the review panel: should the D.C. Circuit affirm the award or remand the matter and ask the district court to try again.

“Is this a rare instance where, where we – or the district court – should ask the review tribunal, ‘what the heck did you mean’ if we can’t figure it out,” Wilkins asked.

“Honestly, your honor, I think that’s probably a very unique and novel question that maybe has never come up,” Fortna responded.

Fortna then acknowledged the burden is on the Czech Ministry of Health to show that the award should not be enforced, after which Wilkins noted that her client would lose if they can’t decipher the review panel’s rationale.

“Isn’t that essentially depriving my client of the benefit of the resolution,” Fortna responded. “I mean they didn’t draft it. They can’t help if something wasn’t particularly clearly drafted.”

U.S. Circuit Judge Sri Srinivasan noted that, if Fortna wants to make use of the resolution in support of her client, she needs to be able to show that it warrants an exception to enforcing the 2008 award.

The matter ended up before the D.C. Circuit once before after Diag Human filed suit in the District of Columbia in March 2013, asking the court to enforce the 2008 award. But the district court dismissed the case initially in 2014. The D.C. Circuit sent the case back to the district court, which dismissed the case again last year.

U.S. District Court Judge Amy Berman Jackson had ruled in September that the 2008 award never took effect and so never became binding, and could not be enforced under the New York Convention.

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