Archive for July, 2009

Newly-Discovered Evidence in Post-Award Proceedings

Friday, July 31st, 2009

Dear Readers:
A recent commentary by Dr. Georg von Segesser of Schnellenburg Wittmer, Zurich, posted on the Kluwer Arbitration Blog ( discusses a recent Swiss Federal Supreme Court case in which the Court denied a motion to vacate an award based on new evidence presented to the Court on an issue of fact determined by the Arbitral Tribunal. I posted on the Kluwer Blog a comment concerning how the same issue might be addressed by an American federal court. That comment is republished here.

Georg, I believe a U. S. Court would have reached the same result given this procedural history, but that U. S. courts would be generally more flexible that the Swiss Federal Supreme Court in admitting “newly-discovered” evidence at the enforcement/vacatur stage.
Article V(2)(b) of the New York Convention does not on its face address what evidence may be offered in support of an objection to recognition and enforcement based on public policy. Neither does Section 10(a)(1) of the U.S. Arbitration Act, which would apply if a U. S. court had jurisdiction to set aside the award. That section provides that an award may be vacated if the award was “procured by corruption, fraud, or undue means.”
If this were a U. S. award, and the application were made to set it aside, our courts require “clear and convincing evidence” of the procurement by fraud, etc, and they further require proof that the improper conduct would not have been discoverable by the exercise of reasonable diligence (by the aggrieved party) during the arbitration.
Based on the Swiss Federal Court’s ruling in regard to the interim award, I gather the facts here would likely cause a U. S. court to rule that there was a lack of reasonable diligence, and so the award would stand.
Were the issue presented in a U. S. proceeding to enforce a foreign award, one may wonder whether bribery in a private commercial context, as opposed for example to a government procurement contract, would bring about application of the public policy ground for denying enforcement under Article V(2) (b). One would also expect the “due diligence” principle to be applied with regard to newly-discovered evidence, by analogy to the requirements under Section 10(a)(1).

Hall Street and the Problem of Post-Award Litigation — Conference Paper for ABA Business Law Section Panel, Chicago, August 2, 2009

Friday, July 31st, 2009

Hall Street v. Mattel, and the Problem of Post-Award Litigation

By Marc J. Goldstein

Sixteen months after the Supreme Court’s decision in Hall Street Assocs. v. Mattel, Inc., 128 S. Ct. 1396 (2008), and despite the rivers of “ink” that have flowed in commentary on the implications of the decision, one may seriously ask whether the realm of post-Award judicial proceedings has really changed very much. And one may well ask, should that realm change more dramatically than it already has, and if so, how do we get from here to there?

For those who desire full-bore judicial review on the merits of the decisions of arbitrators, the Hall Street decision is of course a major disappointment. The holding of Hall Street is that in a case to which the Federal Arbitration Act applies, the parties may not by agreement invest the courts with broader powers of review than the FAA prescribes. But even within the four corners of the Court’s opinion, one finds something of a roadmap to expanded judicial review. The parties might agree, said the Court, that any motion to confirm, vacate, modify, or correct the award shall be brought only in the courts of a particular state and shall be determined according to the arbitration law of that state. Find a state whose arbitration law provides for expanded review on the merits, and subscribe. That option was of course widely understood before Hall Street, and I doubt that the decision has provoked a massive flight to state courts in the drafting of arbitration clauses.

Another alternative for expanded review, not discussed in the Hall Street opinion and little discussed in the commentaries, is drafting the arbitration clause to provide for an arbitral appeal panel with powers to review the “trial” arbitrator’s conclusions of law and findings of fact according to an agreed-upon standard.
This option, while legally possible, does require for effective implementation the thoughtful involvement of an arbitration lawyer before signing of the contract. If the parties are otherwise agreeing to arbitrate under a particular set of institutional rules, such as those of the AAA or CPR, to effectuate an agreement for appellate arbitration they must expressly opt out of the rules providing for the finality of the “trial” arbitrator’s award, and provide that such award shall not be final for purposes of any application for judicial relief in respect of the award until the agreed arbitral appellate process has been completed (or the time to invoke it has expired). But arbitral institutions have not leaped into the fray to offer services as administrators of appellate arbitration, or to promulgate rules of arbitral appellate procedure. One might infer from this that not very much of a market for appellate arbitration has emerged. Companies that covet the protection against error of appellate review will generally opt to litigate in the first instance before judicial tribunals.

And so Hall Street does not appear to have wrought any widespread and dramatic changes in the way arbitration clauses are written. But what it may well have done, I believe, is to reinforce a movement, if not a clear trend, away from arbitration and back to the judicial system.

Disgruntled users of arbitration perceive that arbitrators fail to keep control of proceedings, and that arbitral institutions fail to keep control of arbitrators. The result, too often, is a bloated hearing record, too unwieldy for the arbitrator(s) to readily digest, and final awards that are flawed or superficial because the arbitrators’ task is simply too daunting. Corporations that have spent millions in legal fees and arrived at such results are prone to say “never again.”

But so much for the “dark side” of Hall Street and the state of the arbitral process. Within the arbitral community — the group of providers who believe arbitration can and often does produce appropriate outcomes at reasonable cost — the pressing question is whether Hall Street is a step toward the overall reduction of post-award judicial proceedings.

Indications from the decisions of federal appellate courts are that the rate of futile motions to vacate based on alleged manifest disregard of the law has not been affected to any significant degree. In the Second Circuit, the Court’s pre-Hall Street manifest disregard jurisprudence has been “reconceptualized as a judicial gloss” on Section 10(a)(4) of the Federal Arbitration Act. (Stolt-Nielsen SA v. Animalfeeds Int’l Corp., 548 F. 3d 85, 94 (2d Cir. 2008), cert. granted 2009 U. S. LEXIS 4345 (U. S., June 15, 2009)).That section provides that an award may be vacated if the arbitrators exceeded their powers, or so imperfectly executed them that no final and definite award was made. The Second Circuit, by reverse-engineering its manifest disregard jurisprudence into statutory form — taking to heart the Supreme Court’s musing that “maybe” the Court’s original use of the term “manifest disregard” was as a shorthand summary of the statutory criteria — has postponed any fresh judicial thinking within its domain about what “exceeding powers” actually means. In the Ninth Circuit, the position is that the manifest disregard doctrine was regarded, even before Hall Street, as a judicial construction of “exceeding powers,” so that no change in approach is required. So said the Court in the Comedy Club case (Comedy Club, Inc. v. ImprovWest Assocs., 553 F. 3d 1277 (9th Cir. Jan. 29, 2009)), upon remand for reconsideration in light of Hall Street.

An approach holding more potential for actual change in the legal landscape is that taken by the 5th Circuit in Citigroup Global Markets Inc. v. Bacon, 562 F. 3d 349 (5th Cir. 2009). The Court observed that, as a result of Hall Street, “the term itself [manifest disregard], as a legal term of art, is no longer useful in actions to vacate arbitration awards.” This approach strikes me as the most jurisprudentially sound, and also as the one most likely to force courts to develop “exceeding powers” jurisprudence systematically and on a case-by-case basis. It is jurisprudentially sound because it builds upon the Supreme Court’s most direct declarative statement in Hall Street about the Court’s original use, in Wilko v Swan, 346 U. S. 427 (1953) of the expression “manifest disregard.”. The Court said in Hall Street that, in its own jurisprudence, it has simply “taken the Wilko language as we found it, without embellishment.” (128 S. Ct. at 1404).

And if the Supreme Court has, for the moment at least, reduced “manifest disregard” to the status of a tantalizing phrase of undetermined meaning in a 56-year-old overruled decision, then lower courts are well-advised to approach “exceeding powers” challenges to arbitral awards without reference to a discredited body of non-statutory jurisprudence built up over five decades, from the humble(d) origins of that rhetorical flourish in Wilko.

The utility of discarding “manifest disregard” as a legal term of art should not be underestimated. Despite repeated judicial pronouncements limiting the doctrine, the words themselves have tempted generations of American litigators to seek judicial review of allegedly erroneous arbitral conclusions of law, conflating in their arguments “manifest” with “obvious” and “disregard” with “error.” This occurred despite the fact that, in its original incarnation in Wilko, “manifest disregard” was plainly used to refer to something that was not judicial review of arbitral awards for legal errors: ” [T]he interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation.” (Wilko, 346 U. S. at 436-37).

One might hope for the development of a nationally-consistent body of Section 10(a)(4) jurisprudence that arbitrators exceed their powers only when (1) their actions are not even arguably in furtherance of the contract that empowers them, (2) they purport to rule on the merits in a case over which they do not have jurisdiction, or (3) they purport to act at a time when they have exhausted their powers, and become functus officio, by rendering a final award in a case, or on an issue or issues in the case.

But even a well-developed and predictable body of law about when arbitrators exceed their powers, and the expulsion of “manifest disregard” from the legal lexicon, will not deal with the fundamental problem. That problem is that post-award judicial proceedings cost a great deal and take a long time, and there is no provision in the Federal Arbitration Act for recovery of costs and attorneys’ fees by the prevailing party in post-award litigation. In my view it is long past the time when the English Rule rather than the American Rule should govern in proceedings under the FAA. The access-to-justice rationale that provides the historical justification for the American Rule should not apply where the parties have agreed, or adopted rules of arbitration that provide, that the arbitration winner shall or may in the arbitrator’s discretion recover legal fees from the loser. The FAA should provide that the rule on fee-shifting in post-award proceedings shall be what the parties have agreed, or if the clause is silent, then the same fee-shifting agreement or rule that governed the arbitral proceedings pre-award shall also govern any litigation post-award.

Such an amendment to the Act offers the best prospect to contain the epidemic use of post-award proceedings by well-financed parties to leverage settlements for less than the sums awarded against them by the arbitrators.

Marc J. Goldstein is a litigator and arbitrator based in New York. He has practiced independently since 2007, after 27 years spent mainly in a large international law firm. He concentrates his practice on international commercial disputes. He is a Fellow-Elect of the College of Commercial Arbitrators and a Fellow of the Chartered Institute of Arbitrators, and is on the international arbitrator rosters of the ICDR, CPR, SIAC, WIPO and CIDRA. He is a member of the North American Arbitration Committee of the ICC. He is also on the mediation panel of the New York Supreme Court Commercial Division. His widely-read Arbitration Commentaries can be found at

Replacement of the Deceased or Disabled Arbitrator

Tuesday, July 28th, 2009

The death or health-related resignation of an arbitrator during the course of the proceedings is a vexing problem that admits of no easy or fully satisfactory solution. If proceedings have been extensive in a complex case, the substitute arbitrator may never fully “catch up,” and may never fully gain the parties’ confidence that he or she understands the case. Yet starting the case over, or recycling to an early stage, may be a sacrifice of time and cost that one or both parties find unacceptable.

A recent federal district court case in New York (In re Ins. Co. of North America v. Public Serv. Mut. Ins. Co., 2009 U. S. Dist. LEXIS 55271 (S. D. N. Y. June 29, 2009)) addressed a special wrinkle on this problem: what to do when the resigned party-appoonted arbitrator, not yet replaced, returns to health and is able to resume duties.

Before I discuss the INA case, a short survey of international rules is in order. The issue of appointing a repacement is rarely difficult, with most rules providing for replacement according to the original agreed selection method. The more troublesome issue is what becomes of the prior proceedings. The perceived collision of two core values in international arbitration — party equality and procedural efficiency — have led to a variety of approaches.

ICDR Rule 11(2) provides that the reconstituted tribunal will decided in its sole discretion what if any proceedings shall be repeated. The UNCITRAL rules provide, in Article 14, that “if the sole or presiding arbitrator is replaced, any hearings held previously shall be repeated; if any other arbitrator is replaced, such prior hearings may be repeated at the discretion of the arbitral tribunal.” The UNCITRAL approach is followed, for example, in the Singapore and Kuala Lumpur rules. But several institutions have found the UNCITRAL approach inadequate.The Hong Kong International Arbitration Centre in its recently-enacted Rules for Administered Arbitration provides that “if an arbitrator is replaced, the proceedings shall resume at the stage where the arbitrator who was replaced ceased to perform his/her functions, unless the arbitral tribunal decides otherwise. ”
The arbitration rules of the ICC, Stockholm Chamber of Commerce, and World Intellectual Property Organization (WIPO), provide that in case any arbitrator is replaced, the reconstituted Tribunal will decide whether and to what extent proceedings shall be repeated.

United States law, notably in the federal Second Circuit Court of Appeals in New York, contains a “general rule” of long standing that upon the death of a party-appointed member of a three-member tribunal, the entire arbitration must be repeated before a new panel, save for any issue already finally decided in an interim or partial award.

In INA, the arbitration was conducted before a three-member tribunal under insurance industry rules that did not address the issue of replacement. The Respondent’s party-appointed arbitrator resigned with a grave illness just after the Tribunal had issued a unanimous decision granting summary judgment against Respondent on several issues including its principal legal defense. Under the applicable arbitration rules, that decision was non-final, and Respondent moved for reconsideration just prior to its arbitrator’s announcement of his need to resign.

Following the resignation, Respondent moved in court for a permanent stay of proceedings before the original panel, and to vacate the interim award granting partial summary judgment The Court initially granted the stay motion, invoking the “general rule” applicable upon death of a party-appointed arbitrator — unaware that, even before oral argument on the stay motion, the resigned arbitrator had sufficiently recovered to begin seeking new appointments (a fact known to Respondent’s counsel and not disclosed to the Court). When Claimant’s counsel learned of the resigned arbitrator’s return to health, it moved the Court to vacate its order staying the arbitration and to exercise its powers of appointment under Section 5 of the Federal Arbitration Act to reinstate the resigned arbitrator to the panel. Reliance was placed on Federal Rule of Civil Procedure 60(b)(2), permitting relief from a judgment order, upon presentation of new evidence that could not have been presented at the time of the original proceedings.

In the INA decision, the motion to vacate the Court’s original order staying the arbitration was granted. In practical terms, the parties were directed to resume where the arbitration had left off, before the reinstated original Tribunal.

The Second Ciricuit’s “general rule” that the death of a party-appointed arbitrator requires a new start with a new tribunal has its roots in the U. S. domestic tradition of partisan party-appointed arbitrators. But the rule has never been stated by the courts as one that applies only when the party-appointed arbitrators are not impartial. It has been explained as being necessary “to avoid forcing a party to proceed over its objection before a panel where its own arbitrator would not have the full benefit of participating in the hearings.” (In re Pemex – Refinancion v. Tblisi Shipping Co., 2004 U. S. Dist. LEXIS 17478 (S. D. N. Y. Aug. 29, 2004)). But the rule has been applied even where no evidentiary hearings have occurred, and so the influence of the party-appointed arbitrator’s advocacy role is evident. As the Court stated in the Pemex case: “Given the
crucial role that arbitrators play, from assessing the credibility of witnesses to serving as advocates for the respective appoint[ers] (sic), it makes sense that it is only in instances where a panel is completely without power to revisit an issue that the Court has approved the appointment of a replacement.” Id. at *19.
A much-cited decision from the early 1970s, in justifying the rule, refers to the party-appointee’s role as “an amalgam of judge and advocate.” (Cia de Navegacion Omsil, S. A. v. Hugo Neu Corp., 359 F. Supp. 898 (S. D. N. Y. 1973)).

And yet the rule has been applied by courts without explicit reference to the appointee’s impartiality or lack of it.

In the INA decision, no mention is made of whether the party-appointees were, by agreement, not impartial. One suspects that this was the case, as otherwise Claimant could be expected to have argued that the impartiality of the party-appointees should be a “special circumstance” justifying an exception to the “general rule.”

For the past five years since the revision of the ABA/AAA Code of Ethics, even in domestic arbitrations the party-appointees must be independent and impartial unless there is an express agreement that they shall not be. And so it is useful to underscore the provenance of the Second Circuit’s “general rule,” so that the courts may consider in future cases whether impartiality of the party-appointed arbitrators may lead to a different outcome in many cases.

The international rules mentioned above reflect a widely accepted norm that, at least within a Tribunal of impartial arbitrators, the discontinuity of having to replace a party-appointed arbitrator is not such a significant disadvantage in every case that a per se or presumptive start-over rule is warranted.

Further, even where the party-appointed arbitrators are by agreement partisan advocates, the Second Circuit’s “general rule” is arguably obsolete. The duration of the typical contemporary complex commercial arbitration is measured in years, making a start-over rule antithetical to arbitration’s aspirations to be a more efficient than court adjudication. Even in cases where an arbitrator dies after hearing testimony, in a non-routine case with multi-day hearings there will typically be a transcript if not also a video record. Parties appearing before arbitrators of a certain age or frailty have the ability to manage the risk of death or resignation by preserving the testimonial record. And where a partisan arbitrator has resigned, but months or years of further proceedings are likely, the replacement arbitrator can assume the advocacy mantle and the appointing party will not ordinarily face the prospect of deliberations on key issues without the benefit of effective advocacy within the Tribunal.

One might expect, or ar least hope, that when the Second Circuit is called upon to re-assess its start-over “general rule,” it will take these factors into account and adopt a more pragmatic case-by-case approach.

Judicial Power to Change the Place of Arbitration?

Wednesday, July 15th, 2009

The US Fifth Circuit Court of Appeals, acting in a long-running contract dispute between an American shipbuilder and the Republic of Venezuela, has held that the Federal Arbitration Act (“FAA”) might permit a District Court, in proper circumstances and with sufficient statement of justification, to compel arbitration at a place of arbitration other than the one established in the contract, or to deny enforcement of the arbitration clause entirely based on political conditions at the agreed place of arbitration. Northrop Grumman Ship Systems Inc. v. Ministry of Defense of the Republic of Venezuela, 2009 U. S. App. LEXIS 15260 (5th Cir. July 9, 2009).

Whereas the outcome in Northrop Grumman was to remand the question of the place of arbitration to the District Court, and whereas the District Court at an earlier stage had compelled arbitration in its own federal judicial district in State of Mississippi, some comments on the principles that should guide the District Court are in order.

The Fifth Circuit, in stating the “general principles” that should guide the District Court, curiously omitted any reference to the New York Convention or Chapter Two of the FAA. The Court referred to its holding in Nat’l Iranian Oil Co. v Ashland Oil Co., 817 F. 2d 326 (5th Cir. 1987) that “a forum selection clause establishing the situs of the arbitration must be enforced unless it conflicts with an explicit provision of the Federal Arbitration Act.” 817 F. 2d at 332.

But the Fifth Circuit in National Iranian Oil had analyzed the issue under Chapter One of the FAA because Iran was not then a party to the New York Convention. The Court in Northrop Grumman does not mention that Venezuela, even at the time of the contract, was a member state of the New York Convention. And so the Fifth Circuit here neglects to refer to the Convention and FAA Chapter Two as sources of principles governing the enforceability of the parties’ contractual choice of Caracas as the seat of arbitration.

Article II (3) of the Convention states that “(t)he court of a contracting state, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the agreement is null and void, inoperative, or incapable of being performed. ”

The text of Article II (3) raises several issues that arise when, as in Northrop Grumman, a foreign party’s motion to compel arbitration is opposed on the basis that the agreed seat of arbitration is an unreasonable forum in view of political instability.

First, the plain meaning of Article II (3) would appear to permit a court to deny a motion to compel arbitration only if it may find that the agreement to arbitrate, and not merely the agreement on the seat of arbitration, is “null and void” or “incapable of being performed.” The answer to that question may depend on whether the agreement on the seat is viewed as separate and severable from, or completely integral to, the agreement to arbitrate. And the answer to that question cannot be ascertained until a court first decides what law is applicable to interpretation of the arbitration/forum selection clause.

The contract at issue in Northrop Grumman, between a US company and an instrumentality of Venezuelan Government, providing for arbitration in Caracas and (one may infer) application of Venezuelan law to the merits of disputes, seems an unlikely candidate for application of American contract law principles to determine the validity of the agreement to arbitrate. Yet the Fifth Circuit’s decision appears to assume that American contract law principles govern the question of whether the clause may be denied enforcement in whole or in part. Under potentially applicable transnational principles, the nearest analogs to common law doctrines of “impossibility” and “commercial impracticability” might not lead to the same conclusions as would be reached if American law were applied.

A second evident limitation on the power of a District Court is Section 206 of the FAA. That section provides: “A court having jurisdiction under this chapter may direct that arbitration be held in accordance with the agreement at any place therein provided for . . . .” The plain meaning of this provision would seem to negate the possibility of a District Court acting, in a Convention case, to compel arbitration at a place other than the agreed place, or to compel arbitration without reference to any place of arbitration if a place has been designated in the contract.

If these provisions, and the law applicable to interpret the arbitration/forum clause, lead to the conclusion that the clause must be enforced as written, is the aggrieved party without recourse? Not necessarily. If the forum clause is severable, the arbitral tribunal will have jurisdiction to interpret it. And the arbitral tribunal could hear and determine a preliminary contention that the place of arbitration designated in the contract has ceased to exist as a result of dramatically changed political conditions. If that determination is made, the agreement would stand, in its “reformed” state, as if no place of arbitration had ever been selected, and the authority competent to select a place of arbitration in the absence of agreement could select a seat.

Arbitration practitioners should watch with interest to see if the federal district court in Mississippi, on remand in the Northrop Grumman case, takes into account the relevant provisions of the Convention and Chapter Two of the FAA.

U.S. “Public Policy” As Basis to Nullify Arbitration Agreement: Beyond the Bounds of Mitsubishi?

Tuesday, July 7th, 2009

The U. S. Court of Appeals for the Eleventh Circuit has held that an arbitration agreement between a foreign seaman and his U.S. employer, proving for arbitration outside the U.S. under foreign law, was null and void becuase it prospectively waived the seaman’s rights under the federal Seamen’s Wage Act. Thomas v. Carnival Corp., 2009 U. S. App. LEXIS 14406 (11th Cir. July 1, 2009).

In Thomas, the court of appeals relied centrally on the much-discussed footnote dictum of the U. S. Supreme Court in Mitsubishi Motor Corp. v. Soler Chrysler-Plymouth, 473 U. S. 614 (1985). The Mitsubishi footnote states that, in case an arbitration clause and a contractual choice of non-U.S. law operate in tandem as a prospective waiver of the right to seek federal statutory remedies for antitrust violations, the Court would not hesitate to declare such an arbitration agreement null and void under the New York Convention, based on violation of U.S. public policy.

But the critical premise of the Supreme Court’s “prospective waiver” footnote in Mitsubishi was not the mere existence of federal statutory remedies, but rather that those remedies under the federal antitrust laws in particular were a fundamental feature of U. S. federal regulation of all private economic activity, and thus were a matter of fundamental American public policy. The Court in Mitsubishi noted that the basis of the pre-Mitsubishi doctrine of non-arbitrability of antitrust
claims was “the fundamental importance to American democratic capitalism of the regime of the antitrust laws. ” The Mitsubishi court quoted with approval the First Circuit Court of Appeals’ statement in Mitsubishi that “‘ a claim under the antitrust laws is not merely a private matter. The Sherman Act is designed to promote the national interest in a competitive economy; thus, the plaintiff asserting his rights under the Act has been likened to a private attorney general who protects the public’s interest. ” And the Supreme Court in Mitsubishi continued: “The treble-damages provision wielded by the private litigant is a chief tool in the antitrust enforcement scheme, posing a crucial deterrent to potential violators. ”

The “prospective waiver” Mitsubishi footnote is to be undertstood in this context, of a fundamental national public policy, and not merely a federally-conferred private remedy for a private wrong. This wouild seem to be clear from the complete text of the essential sentence in the Mitsubishi footnote: “(I)n the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy. ” 473 U.S. at 638 n.19.

In the past decade, the Supreme Court has referred to the scope of the “prospective waiver” doctrine only once, declaring in dictum earlier this year, in 14 Penn Plaza LLC v. Pyett, 129 S. Ct. 1456 (U. S. Apr. 1, 2009) that “a substantive waiver of federally- protected civil rights will not be upheld. . . .” That statement was made in the context of upholding the arbitration clause of a collective bargaining agreement that required arbitration of employment disputes.

The Eleventh Circuit’s decision in Thomas does not proceed on the basis that rights under the federal Seamen’s Wage Act are a matter of fundamental public policy. The principal right provided in that Act is that a seaman shall receive his wages on the earlier of 24 hours after the ship discharges its cargo or four days after discharge of the seaman from employment. This right, while an important economic protection for maritime laborers, lacks the broad social-ordering stature of the federal antitrust and civil rights laws.

The Eleventh Circuit attached no significance to this fundamental public-policy dimension of Mitsubishi, and in quoting its famed prospective waiver footnote, omitted by ellipsis the words “for antitrust violations” — leaving the impression that Mitsubishi broadly prohibits enforcement of a combined choice of forum and choice of law agreement that operates as a waiver of the right to pursue any federally-created statutory remedies.

That ellipsis was evidently inherited by the Eleventh Circuit in Thomas from the Supreme Court’s decision in Vimar Seguros v. M/V Sky Reefer, 515 U. S. 528 (2004). In Vimar, the Supreme Court held that a choice of law/choice of forum agreement to resolve maritime cargo disputes by arbitration in Japan under Japanese law was not unenforceable as a prospective waiver of provisions of the Carriage of Goods by Sea Act (COGSA) that restrict a carrier’s ability to limit liability. But the Supreme Court’s omission of the words “for antitrust violations” in Vimar was only meant to connote that the prospective waiver doctrine is not confined to the antitrust context. The Court gave no indication of an intent to extend the doctrine to all federal statutory remedies.

The Eleventh Circuit’s effort in Thomas to distinguish Vimar is also questionable in other respects. The Eleventh Circuit noted that in Vimar the Supreme Court considered the waiver claim premature because it remained possible that the arbitral tribunal in Japan would apply COGSA or provide equivalent protection under Japanese law. The seaman’s employment agreement in Thomas provided for the application of Panamanian law, and so the Eleventh Circuit was on firm ground in stating that an arbitral tribunal would not apply American law. But the court of appeals did not consider whether Panama law might be capable of affording remedies comparable to those offered by the Seamen’s Wage Act. Further, the Eleventh Circuit did not persuasively address an important element of the Supreme Court’s analysis in Vimar: the possibility of a “subsequent opportunity for (judicial) review” after completion of the arbitration. 515 U. S. at 540. That is to say, if a federal court might protect
statutory rights by refusing recognition of a foreign award that purports to impair them, then the court should be reluctant to deny enforcment of the arbitration agreement. The Eleventh Circuit considered that there would be no such opportunity later on if plaintiff did not obtain an award it its favor for some relief. 2009 U. S. App. LEXIS 14406 at *28-29. But it would seem evident that plaintiff could, after the arbitration, commence a separate action to assert a Seaman’s Wage Act claim in federal court, and the court would have the ability to deny res judicata effect to the award and to vacate in part its earlier order sending the claim to arbitration.

In summary, the Eleventh Circuit’s decision appears to extend the Supreme Court’s Mitsubishi public policy doctrine further than it has gone before and perhaps further than the Supreme Court has intended. The Thomas decision invites broader judicial intervention to block arbitration where U. S. parties have agreed to arbitrate under foreign substantive law, in potential derogation of their rights under federal statutes. This appears to be a undesirable retrenchment in the enforcement of agreements to arbitrate under the New York Convention.

Judicial Discovery Assistance for Foreign Arbitrations

Thursday, July 2nd, 2009

With at least some United States district courts willing to consider discovery assistance to foreign arbitral tribunals, developments in the law concerning such discovery are of considerable interest.

Some recent U. S. cases deserve mention.

In Marubeni Am. Corp. v LBA Y.K., 2009 U.S. App. LEXIS 12953 (2d Cir. June 19, 2009), the federal appeals court in New York affirmed a district court’s order granting a request to obtain discovery from a non-party witness, made by a party to litigation pending in Japan. In Marubeni, the party opposing discovery argued that the district court had abused its discretion by granting the discovery, because that court allegedly did not consider whether the discovery request was a circumvention of evidence-gathering rules in the Japanese court. The appellate court rejected this contention, and said that even though the record did not reflect whether the information sought was discoverable in the Japanese system, the U. S. Supreme Court in the Intel case expressly declined impose a requirement of discoverability in the foreign jurisdiction. (Intel Corp. v. Advanced Micro Devices, 542 U. S. 241 (2004)).

It is interesting to compare the Marubeni outcome to the decision of a district court in Indiana, in In re Kutzer, 2009 U. S. Dist. LEXIS 29771 (N. D. Ind. Apr. 8, 2009). In Kutzer, the applicant was a defendant in a recently-filed patent infringement action in Germany, and was seeking discovery from the plaintiff in that case. Applying the Intel discretionary factors, the court denied discovery assistance, holding that the party appeared to be seeking to circumvent discovery procedures applicable in the German court. Clearly applicants for U.S. discovery assistance face a more difficult road when they seek discovery from a party to the foreign action. Here the district court judge pointed out that German civil procedure did provide for some discovery from the opposing party, although perhaps not as broadly as in the U.S. system. The court took exception to the applicant’s decision to seek discovery through the U.S. courts before even testing whether adequate information could be obtained through the procedures in the German court.

A third notable decision, Norfolk Southern Corp. v. Gen. Sec. Ins. Co., 2009 U. S. Dist. LEXIS 49827 (N. D. Ill June 15, 2009), is one of minority of federal district court decisions after Intel to hold that Section 1782 does not apply to arbitral tribunals created pursuant to a private contractual agreement. This federal district judge in Chicago read Intel to support the view that, for an administrative or arbitral body may be a “tribunal” under Section 1782, its decisions must be subject to judicial review — as were the decisions of the entity involved in the Intel case, the Directorate-General for Competition of the European Community.