“First Determine the Chapter”: The Fourth Circuit’s New Directive on Choosing Among FAA Chapters in Employers' Innovative Network, LLC v. Bridgeport Benefits, Inc.

Introduction

Employers’ Innovative Network, LLC (“EIN”) and its president Jeff Mullins sued a group of insurance-plan service providers after their relationship deteriorated. A contractual clause compelled arbitration in Bermuda, where the defendants (“Bridgeport Benefits,” “Capital Security,” and various affiliates and individuals) prevailed. Returning to the United States, the prevailing parties petitioned the Southern District of West Virginia to recognize and enforce the Bermudian award under Chapter 2 of the Federal Arbitration Act (FAA), the statutory chapter that implements the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The district court enforced the award; EIN appealed, asserting the arbitrator was biased. The United States Court of Appeals for the Fourth Circuit did not decide the bias issue. Instead, Judge Richardson, writing for a unanimous panel, vacated the judgment and remanded for factual development because the record did not establish which chapter of the FAA governs the controversy. The court held that before entertaining defenses or enforcing an award, a federal court must determine whether Chapter 1 (domestic and “commerce” arbitrations), Chapter 2 (New York Convention), or Chapter 3 (Panama Convention) applies—each chapter supplies different rules and different sets of defenses. This “chapter choice” analysis is now a mandatory threshold inquiry in the Fourth Circuit.

Summary of the Judgment

1. Exhaustion/Waiver Rejected. The panel held that appellants did not waive their right to oppose enforcement by forgoing an appeal in Bermuda. Exhaustion of foreign arbitral remedies is not required by the FAA.

2. Chapter Determination Required. The court explained the complex, overlapping scopes of FAA Chapters 1, 2, and 3. Because (a) most parties are U.S. citizens, (b) Capital Security’s citizenship is unclear, and (c) the record does not reveal whether the contractual relationship “envisages performance or enforcement abroad” or “involves property located abroad,” the panel could not tell whether the carve-out or the exception in 9 U.S.C. § 202 applies. Consequently, it is uncertain whether Chapter 1 alone, or Chapter 2, governs.

3. Different Defenses Under Different Chapters. If the case falls under Chapter 1 only, the “evident partiality” defense in § 10(a)(2) is available. If Chapter 2 applies, that discrete defense disappears and parties are limited to the narrower grounds in Article V of the New York Convention. Therefore the chapter choice is outcome-determinative.

4. Disposition. The judgment enforcing the award was vacated, and the case was remanded for factual findings on (i) Capital Security’s corporate citizenship and principal place of business and (ii) the foreign connections of the underlying contractual relationship.

Analysis

Precedents Cited and Their Influence

GE Energy Power Conversion France v. Outokumpu Stainless USA, 590 U.S. 432 (2020): Recognized Chapter 1 defaults apply unless displaced by Chapters 2 or 3. Fourth Circuit relied on this priority rule.
ESAB Group, Inc. v. Zurich Insurance, 685 F.3d 376 (4th Cir. 2012): Held § 202’s scope can reach arbitrations not qualifying under the Convention itself; cited to underscore textual primacy of § 202.
Cortez Byrd Chips v. Bill Harbert Constr., 529 U.S. 193 (2000): Confirmed Chapter 1 venue provisions are permissive; used to show Chapter 1’s reach includes foreign-seated awards.
Jones v. Sea Tow Services, 30 F.3d 360 (2d Cir. 1994) & Inland Bulk Transfer v. Cummins Engine, 332 F.3d 1007 (6th Cir. 2003): Illustrate divergent readings of § 202’s exception; the Fourth Circuit notes, but postpones, resolving that interpretive split.
Caperton v. A.T. Massey Coal, 556 U.S. 868 (2009) & Commonwealth Coatings v. Continental Casualty, 393 U.S. 145 (1968): Invoked to show deep U.S. public policy against biased adjudication—relevant to possible Article V(2)(b) “public policy” defense if Chapter 2 governs.

Legal Reasoning

The panel undertook an exhaustive statutory construction of the FAA:

Default/Conflict Rules. Chapters 2 and 3 override Chapter 1 where they overlap (9 U.S.C. §§ 208, 307).
Mutual Exclusivity of Chapters 2 and 3. § 305 assigns one or the other based on whether a majority of parties are from OAS states that ratified the Panama Convention.
Nested Scope of Chapter 2 (§ 202). (1) Baseline: any “commercial” legal relationship (including those already in Chapter 1). (2) Carve-out: relationships entirely between U.S. citizens. (3) Exception: carve-out reinstated if property, performance, or “reasonable relation” abroad exists.
Citizenship Inquiry. A corporation is a U.S. citizen if incorporated or has its principal place of business in the U.S. The record’s inconsistencies regarding Capital Security’s principal place of business compelled remand.
Consequential Divergence of Defenses. “Evident partiality” (§ 10) exists only in Chapter 1; New York Convention affords no explicit bias defense, only public-policy and procedural-irregularity grounds.

Impact of the Decision

Mandatory Chapter Analysis. District courts in the Fourth Circuit must now expressly decide which FAA chapter applies before enforcing or vacating an award.
Burden on Petitioning Parties. Award creditors must plead and prove facts establishing Chapter 2 (or 3) applicability—citizenship, foreign property, performance abroad, etc.
Heightened Attention to Entity Status. The citizenship of LLCs, limited companies, and other foreign entities will receive closer scrutiny; counsel must prepare robust jurisdictional evidence.
Arbitration Clause Drafting. Parties should draft dispute-resolution clauses with an understanding that choosing a foreign seat does not guarantee Chapter 2 treatment unless the contract also presents foreign elements under § 202.
Potential Limitation of Bias Challenges. Where Chapter 2 applies, parties may lose access to the more lenient “evident partiality” standard, facing instead the narrow public-policy gateway of Article V.
Forum Strategy. Losing parties may strategically argue for Chapter 1 to unlock § 10 defenses; winners will attempt to maintain Chapter 2 status for a more deferential enforcement regime.

Complex Concepts Simplified

Federal Arbitration Act (FAA). A four-chapter statute: Chapter 1 (domestic & “commerce” arbitration); Chapter 2 (implements New York Convention, mostly international awards); Chapter 3 (implements Panama Convention); Chapter 4 (employment sexual-harassment carve-out; not relevant here).
New York Convention. A multilateral treaty obliging signatories to recognize and enforce foreign arbitral awards, subject to limited Article V defenses.
Arbitral Seat. The legal location of arbitration (often different from the physical hearing site); determines which national law governs the arbitration procedurally.
Evident Partiality (§ 10(a)(2)). A U.S.-specific statutory ground to vacate an award where an arbitrator’s bias is “evident”—a lower threshold than common-law or constitutional bias standards.
Public-Policy Defense (Art. V(2)(b)). A narrow Convention defense allowing refusal of enforcement only when enforcing would violate the forum state’s “most basic notions of morality and justice.”
Principal Place of Business. Under the “nerve-center” test (see Hertz v. Friend), the corporation’s headquarters where high-level officers direct overall operations.
Organisation of American States (OAS). Regional body; membership is a prerequisite for Chapter 3’s Panama Convention trigger under § 305.

Conclusion

The Fourth Circuit’s decision in Employers' Innovative Network does not resolve whether arbitrator Delroy Duncan’s alleged bias bars enforcement; instead, it establishes a more foundational rule: before a federal court can confirm, vacate, or refuse to enforce an arbitral award, it must identify the correct FAA chapter. This threshold determination is not academic—it dictates the palette of available defenses, the limitations period, and even the forum’s authority. By remanding for fact-finding on citizenship and foreign nexus, the court underscores that seemingly minute jurisdictional facts (an entity’s nerve-center, whether performance is abroad, foreign-sited property) can transform the applicable legal regime. Practitioners must therefore treat “chapter choice” as a pivotal element of arbitral enforcement strategy, and district courts now have clear instruction to do the same.