“No Vacatur Outside the Seat”: Second Circuit Rules U.S. Courts Lack Subject-Matter Jurisdiction to Set Aside Foreign Arbitral Awards under FAA § 203

1. Introduction

Molecular Dynamics, Ltd. v. Spectrum Dynamics Medical Ltd., Docket No. 24-2209-cv (2d Cir. 2025) presented the Second Circuit with a seemingly simple but legally consequential question: may a losing party in a foreign-seated arbitration invoke a contractual New York forum clause and ask a federal court to vacate the award?

The underlying dispute stemmed from a 2013 medical-imaging joint venture. When relationships soured, Spectrum (successor to Biosensors) commenced arbitration in Geneva pursuant to Swiss Rules. In 2022 the tribunal rendered a Partial and then Final Award totalling roughly US $14.4 million (loan principal, interest, costs and fees) in Spectrum’s favour and rejected counterclaims exceeding US $170 million. Petitioners (Molecular Dynamics, SDBM, Chauncey) petitioned the Southern District of New York (“SDNY”) to vacate the awards, relying on (i) § 10 of the Federal Arbitration Act (“FAA”), (ii) Article V of the New York Convention, and (iii) a License Agreement clause conferring “exclusive jurisdiction” on New York courts “on matters concerning the Chosen Arbitration”.

The district court dismissed for lack of subject-matter jurisdiction, concluding—on the merits—that only Swiss courts may annul a Swiss award. The Second Circuit now affirms, but on a distinct ground: Chapter 2 of the FAA (§§ 201-208) never vests federal jurisdiction over a freestanding petition to vacate a foreign award at all. As a result, the court never reached the contractual forum-selection or substantive vacatur arguments.

2. Summary of the Judgment

Holding: A petition to set aside (vacate) an arbitral award rendered abroad does not “fall under” the New York Convention within the meaning of FAA § 203. Consequently, federal district courts have no subject-matter jurisdiction over such petitions.
Rationale: The Convention’s text addresses recognition and enforcement of foreign and non-domestic awards, not vacatur outside the seat. Article V(1)(e) contemplates annulment only by “a competent authority of the country in which, or under the law of which, the award was made.” Silence regarding vacatur elsewhere is restrictive, not permissive.
Result: The district court’s dismissal is affirmed; the exclusivity clause cannot manufacture jurisdiction; parties must seek annulment in the courts of the arbitral seat (here, Switzerland).

3. Analytical Commentary

3.1 Precedents and Authorities Discussed

CBF Indústria de Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58 (2d Cir. 2017) – distinguished foreign vs. non-domestic awards; elucidated primary/secondary jurisdiction framework.
Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15 (2d Cir. 1997) – recognised broad vacatur power of courts in the primary jurisdiction, and limited defences in secondary jurisdictions.
Karaha Bodas Co. v. Pertamina, 500 F.3d 111 (2d Cir. 2007) – articulated distinction between “primary” and “secondary” jurisdictions under the Convention.
Corporación AIC v. Hidroeléctrica Santa Rita S.A., 66 F.4th 876 (11th Cir. 2023) – sister-circuit authority confirming that only primary-jurisdiction courts may vacate awards.
Reddy v. Buttar, 38 F.4th 393 (4th Cir. 2022) – clarified jurisdiction vs. merits in Convention cases.
FAA provisions (§§ 10, 201-203) and Convention articles I, V, VI supplied primary interpretative material.

3.2 The Court’s Legal Reasoning

Statutory Text Approach
- FAA § 203 confers jurisdiction only over an “action or proceeding falling under the Convention.”
- Article I(1) defines the Convention’s scope exclusively in terms of “recognition and enforcement” of (i) foreign and (ii) non-domestic awards.
- Petitioners sought vacatur, not enforcement; therefore their proceeding does not “fall under” the treaty.
Interpretation of Convention Silence
- Convention expressly contemplates set-aside actions only in the primary jurisdiction: Art. V(1)(e) & Art. VI.
- Absence of any reference to vacatur in secondary jurisdictions is read as a deliberate limitation, consistent with the Convention’s enforcement-centric purpose.
Section 202 Does Not Expand Jurisdiction
- Petitioners pointed to § 202’s phrase that any “commercial” award “falls under the Convention.”
- The court explained § 202 merely codifies the U.S. commercial-relationship reservation adopted under Article I(3); it does not supersede Article I(1)’s class of covered cases.
Forum-Selection Clause Ineffective to Create Federal Power
- Even if parties could contractually designate a different venue, they cannot create subject-matter jurisdiction where Congress has withheld it.

3.3 Impact of the Decision

New Precedent in the Second Circuit: Confirms—perhaps more explicitly than any prior Second Circuit opinion—that FAA § 203 does not create federal jurisdiction for petitions to vacate foreign-seated awards.
Contract Drafting: Parties frequently embed New York forum clauses for “matters relating to arbitration” in international deals. After Molecular Dynamics, such clauses will not secure federal jurisdiction for annulment; parties must still proceed in the seat’s courts unless they seat the arbitration in the U.S.
Strategic Litigation: Losing parties cannot pre-empt confirmation by filing a U.S. vacatur action. Their sole proactive remedy is to attack the award before the seat’s courts; in the U.S. they must wait and raise Article V defences if and when the winner seeks enforcement.
Forum Shopping Curtailed: Decision undermines attempts to circumvent perceived seat-friendly jurisprudence (e.g., Switzerland, France) by shifting annulment to U.S. courts.
Uniformity Across Circuits: Aligns Second Circuit with Eleventh and Fourth Circuits, reducing circuit-splits on the issue and promoting treaty uniformity.
Potential Certiorari?: If other circuits diverge, Supreme Court review may be sought; for now, business certainty in financial hub of SDNY increases.

4. Complex Concepts Simplified

New York Convention: 1958 treaty requiring national courts to recognise and enforce qualifying international arbitration agreements and awards.
Foreign vs. Non-Domestic Award: Foreign = made (seated) outside the enforcing country. Non-domestic = made in the enforcing country but involving substantial foreign elements (e.g., foreign parties).
Primary / Secondary Jurisdiction: Primary = the seat’s country (or procedural law’s country); has broad power to annul. Secondary = every other Convention state; may only refuse enforcement on limited Article V grounds.
Vacatur vs. Recognition & Enforcement: Vacatur (set-aside) nullifies the award; recognition/enforcement converts it into a court judgment. Convention focuses on the latter.
FAA Chapter 2: U.S. statute implementing the Convention (§§ 201-208). § 203 grants federal jurisdiction only for actions “falling under” the Convention.
Subject-Matter Jurisdiction: Legal authority of a court to hear a particular class of case. It cannot be created by contract or consent.

5. Conclusion

The Second Circuit’s decision in Molecular Dynamics decisively answers a question that has surfaced repeatedly in international arbitration practice: U.S. federal courts are not open forums for setting aside foreign arbitral awards. By anchoring its holding in the text and structure of both the New York Convention and Chapter 2 of the FAA, the court fortified the primary/secondary jurisdiction dichotomy and reinforced the principle that the seat’s courts retain exclusive annulment authority. Practitioners must now counsel clients accordingly: if you agree to a foreign seat, you also agree to litigate any set-aside application there, no matter how compelling your New York forum clause may sound. The judgment consolidates uniform treaty interpretation, curbs forum shopping, and underscores the limits of party autonomy in the face of jurisdictional statutes.