Earth Science Tech, Inc. v. Impact UA Inc., Cromogen Biotechnology Corporation, Slavik Nenaydokh, and Michael Brubeck

At a glance

Parties

Earth Science Tech, Inc. (Florida) v. Impact UA, Inc., Cromogen Biotechnology Corporation (El Salvador), Slavik Nenaydokh and Michael Brubeck

Case no.

U.S. Court of Appeals, Eleventh Circuit, No. 19-10118 (D.C. Docket No. 9:14-cv-81622-RLR)

Court

U.S. Court of Appeals for the Eleventh Circuit, on appeal from the U.S. District Court for the Southern District of Florida

Underlying award(s)

Final Award of a JAMS International tribunal under the UNCITRAL Rules, seated in New York, in favour of Cromogen

Forum and rules

JAMS International arbitration under the UNCITRAL Rules, New York; Panama Convention and FAA Chapters 2 and 3

Treaty

Distribution Agreement arbitration clause; Inter-American (Panama) Convention of 30 January 1975

Court

Rosenbaum, Jill Pryor and Branch, Circuit Judges (per curiam, unpublished)

Sector

CBD hemp oil distribution

Outcome

The Court affirmed the district court's confirmation of the award and its denial of Earth Science's motion to vacate or modify it.

Amount

Final Award: $3,994,522.55, of which $3,763,200 was for the tort claims. Costs on appeal taxed against the appellant.

The dispute

Cromogen Biotechnology Corporation, an El Salvador hemp biotechnology company, appointed Earth Science Tech, Inc., a Florida company, as the exclusive U.S. distributor of its CBD oil under a Distribution Agreement of 5 June 2014. The agreement was governed by New York law and provided for JAMS International arbitration under the UNCITRAL Rules in New York. Earth Science cancelled the agreement on 21 August 2014, claiming the oil was not pure CBD. It also failed to forward four samples meant for another Cromogen customer, CBD Oil Depot. The tribunal found for Cromogen on breach of contract, conversion and tortious interference. Before the courts, Earth Science argued that the tort claims fell outside the arbitration clause, that the tort damages were miscalculated, and that the award could not be enforced because CBD oil was an illegal controlled substance.

Key holdings

1. The Panama Convention governs the award, because the parties are citizens of El Salvador and the United States, both parties to it. Under 9 U.S.C. §§ 207 and 302 and Industrial Risk, the Convention's enumerated defences are the exclusive grounds for refusing enforcement. FAA § 10(a)(4), a ground for vacating domestic awards, is not available, and the Court affirmed for that reason alone. pp. 8–11
2. Even if § 10(a)(4) applied, the challenge would fail. By incorporating the UNCITRAL Rules, whose Article 23 lets the tribunal rule on its own jurisdiction, the parties clearly and unmistakably agreed that the arbitrators would decide arbitrability. The Court therefore defers to the tribunal's finding that the tort claims were arbitrable. pp. 11–12
3. Modification for miscalculation under FAA § 11(a) is not one of the exclusive Convention grounds. In any event, the alleged use of the wrong cost of goods sold is not an evident miscalculation on the face of the award. It attacks the tribunal's method or its findings of fact, which the tribunal had already rejected when it denied the UNCITRAL Rule 38 application. pp. 13–16
4. The illegality defence fails, assuming it was not waived. Earth Science did not show that the CBD oil was proscribed under 21 U.S.C. § 812 in 2014; its own website advertised the products as legal. The 2018 Farm Bill also mooted the point, because it removed hemp-derived CBD with no more than 0.3% THC from Schedule I. pp. 16–18

Procedural history

1. 5 June 2014Distribution Agreement concluded between Cromogen and Earth Science.
2. 21 August 2014Earth Science cancels the Distribution Agreement.
3. October 2014Cromogen serves its Demand for Arbitration. About a month later, Earth Science files a breach-of-contract suit in state court.
4. 31 December 2014The suit is removed to the U.S. District Court for the Southern District of Florida under 9 U.S.C. § 302, which then stays it pending arbitration.
5. June 2015Cromogen files its Statement of Claim.
6. Final Award in favour of Cromogen for $3,994,522.55. The date of the award is not stated in the judgment.
7. 2 August 2018The tribunal denies Earth Science's UNCITRAL Rule 38 Application to Correct the Award.
8. The district court confirms the award and denies Earth Science's cross-motion to vacate or modify it.
9. 14 April 2020The Eleventh Circuit affirms and cancels oral argument.

Tribunal, counsel and experts

Decided by

• Jill Pryor Judge, U.S. Court of Appeals for the Eleventh Circuit

Experts

Michael Soudry (respondent)

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Keywords

• Panama Convention
• New York Convention Article V
• confirmation of award
• vacatur
• FAA § 10(a)(4)
• FAA § 11(a)
• arbitrability
• UNCITRAL Rules Article 23
• delegation of arbitrability
• JAMS International
• CBD oil
• hemp
• illegality
• 2018 Farm Bill
• tortious interference
• conversion
• Cromogen

Summary generated with AI from the published documents — refer to the award for the authoritative text.