## Facts

- Yusuf Ahmed Alghanim & Sons, W.L.L. (a Kuwaiti company) and Toys “R” Us, Inc. and TRU (HK) Ltd. entered a 1982 license/assistance and supply arrangement permitting Alghanim to operate Toys “R” Us stores and use trademarks in Kuwait and surrounding territories.
- Alghanim opened four stores in Kuwait between 1983 and 1988; the operations were consistently unprofitable over roughly eleven years.
- After the Gulf War, the parties attempted to renegotiate their relationship; Alghanim sought a joint-venture structure, while Toys “R” Us sought expansion under the existing license model.
- Negotiations failed, and Toys “R” Us sought to terminate; the dispute proceeded to American Arbitration Association arbitration initiated by Toys “R” Us in 1993.
- In arbitration, Toys “R” Us sought a declaration that the agreements were terminated; Alghanim counterclaimed for breach and sought damages including lost profits.
- The arbitrator issued a reasoned, lengthy award and granted Alghanim approximately $46.44 million in lost profits.
- In the Southern District of New York, Alghanim petitioned to confirm under the New York Convention; Toys “R” Us cross-moved to vacate or modify under the Federal Arbitration Act (FAA), arguing manifest disregard of law and contract.
- The district court confirmed the award and denied vacatur/modification; Toys “R” Us appealed.

## Issues

1. Whether, when confirmation is sought under the New York Convention for an arbitral award made in the United States, a federal court may apply FAA vacatur standards to a motion to vacate or modify.
2. Whether Toys “R” Us established a basis to vacate or modify the award under the FAA, including “manifest disregard of the law” or disregard of contractual limitations on damages.

## Decision

- The Second Circuit affirmed the judgment confirming the award.
- It held that FAA vacatur/modification standards apply to an award made in the United States, even though confirmation is pursued under the New York Convention.
- It held that Toys “R” Us failed to meet the stringent standard for vacatur, including failure to show manifest disregard of law or that the award lacked a rational basis.
- It left intact the lost-profits award to Alghanim.

## Legal Principles

- For an arbitral award made in the United States and falling under the New York Convention, the Convention governs recognition/enforcement, while domestic arbitral law (the FAA) supplies the standards for vacatur or modification in the country of origin.
- Article V(1)(e) of the Convention permits the seat’s courts to set aside or suspend an award under the seat’s domestic law, and other courts may refuse enforcement if the award has been set aside.
- “Manifest disregard of the law” is a narrow ground for vacatur; arguable legal or factual error is insufficient where the arbitrator engages the governing law and contract and reaches a rational result.
- Courts defer heavily to arbitral factfinding, contract interpretation, and damages determinations; disagreement with the arbitrator’s reading of the contract or lost-profits calculation does not establish excess of authority or manifest disregard.

## Conclusion

The Second Circuit held that FAA vacatur standards apply to a U.S.-made arbitration award even when confirmation proceeds under the New York Convention, and it affirmed confirmation because Toys “R” Us did not show manifest disregard or any other basis to vacate or modify the arbitrator’s lost-profits award.


Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys “R” Us, Inc., 126 F.3d 15 (2d Cir. 1997)