Welcome to a new week. Two cases today relate to the New York Convention, there is an interesting case involving service-of-suit clauses, and another raises a sort of strange standing issue that may simply be a procedural anomaly.
New York Convention
The Southern District of Florida, as a maritime center, decided two New York Convention cases late last week. Both essentially reaffirm that, in determining arbitrability, the Convention does not differ significantly from the Federal Arbitration Act.
Cheruvoth v. Seadream Yacht Club, Inc., 2020 U.S. Dist. LEXIS 196278 (S.D. Fla.) (Oct. 22, 2020) arises out of a “small cruise ship” charter contract between a Saudi resident and Florida and Bahamian charterers. The agreement called for arbitration in Oslo of “all disputes arising out of or in connection with this agreement. . . .” Defendants sought arbitration of Plaintiff’s claims of quantum meruit, breach of implied and oral contracts, and unjust enrichment. Plaintiff claimed the agreements were null and void because he had not performed certain conditions precedent required by the agreement. The court, Gayles, J., lays out the Convention’s prerequisites to compelling arbitration – there is an agreement in writing; the agreement provides for arbitration in the territory of a signatory to the Convention; the agreement arises out of a commercial relationship, whether contractual or not; and, either, a party to the agreement is not an American citizen or the commercial relationship has some reasonable relation to one or more foreign states. Assuming those elements are satisfied, the burden shifts to the party opposing arbitration to prove one of the “standard breach-of-contract defenses,” such as “fraud, mistake, duress and waiver – that can be applied neutrally on an international basis” [italics in original] – thus rendering the arbitration provision “null and void.” Applying the reasoning we find in FAA cases – arbitration is favored and, unless an attack as to the validity of the contract requiring arbitration is directed to the entire contract, the issue is delegated to the arbitrator – the court compels arbitration and dismisses the litigation without prejudice.
Isanto v. Royal Caribbean Cruises, Ltd., 2020 U.S. Dist. LEXIS 197318 (S.D. Fla.) (Oct. 23, 2020) is a Jones Act case brought by the estate of seaman who died from COVID-19, allegedly acquired while working on the Symphony of the Seas, one of defendant’s cruise ships. Royal Caribbean sought to compel arbitration under a provision of decedent’s employment agreement which required that “any dispute whatsoever. . . . relating to or in any way connected with the Seafarer’s service for the Owners/Company. . .” would be referred for arbitration in the Bahamas under the Convention. After considering the factors discussed above in Cheruvoth (both cases are governed by Eleventh Circuit precedent), Judge Bloom finds that the parties agreed to arbitration of the gateway questions which plaintiff raised. In addition, citing an extensive set of Eleventh Circuit precedents, the court rejects Plaintiff’s argument that, because of their tie to the Federal Employer’s Liability Act (FELA), Jones Act injury claims cannot be removed to federal court and arbitrated. While the case is routine, it demonstrates a court’s discretion in fashioning a remedy when it compels arbitration. While Judge Gayles in Cheruvoth dismissed the case, Judge Bloom here merely stays it, with a direction to counsel to report back after the conclusion of arbitration.
Montana Ass’n of Counties Property and Casualty Trust v. Certain Underwriters at Lloyds, 2020 U.S. Dist. LEXIS 196613 (D. Mont.) (Oct. 22, 2020) is also a New York Convention case and discusses the issues raised in the section above. What is more interesting, though, is the court’s discussion of the interplay of the arbitration clause and a provision which the court designates as a “service-of-suit clause.” The parties’ arbitration clause provided that “any dispute arising out of or relating to the interpretation, performance or breach of this agreement as well as the formation and/or validity thereof, will be submitted for decision to a panel of three arbitrators.” Elsewhere, though, the policy provided: “It is agreed that in the event of the failure of Underwriters to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Insured, will submit to the jurisdiction of a Court of competent jurisdiction within the United States.” The gravamen of the parties’ dispute is Lloyd’s alleged failure to make a payment to reimburse the plaintiffs for funds which they paid in settlement of wrongful imprisonment litigation. Plaintiff claimed the quoted provision created an exception to the arbitration provision, exempting claims related to amounts due from the Underwriters from that process. Applying the hornbook principle that a contract is interpreted so as to give effect to all its provisions, Judge Christensen holds that the clause, which he characterizes as a “service-of-suit” provision, merely deals with any potential personal jurisdiction issues in actions, such as an application to compel arbitration, against the Underwriters; it does not create a carve-out from arbitration itself.
Standing to compel arbitration
Midwest Division-MMC, LLC v. California Nurses’ Association, 2020 U.S. Dist. LEXIS 196268 (D. Kan.) (Oct. 22, 2020) is a strange decision that seems, in part, to be in search of a problem to solve. MMC, which operates Menorah Medical Center, advised its nurses that it would be amending their 401(k) plan benefits. The union filed a grievance and requested an arbitration panel from the Federal Mediation and Conciliation Service (FMCS). Two weeks later, MMC filed this declaratory judgment action, claiming the dispute was neither grievable nor arbitrable and seeking an order directing the Union to withdraw its demand from the FMCS. Shortly after commencing suit, however, MMC announced that it was not going to amend the plan and the Union both withdrew its grievance with prejudice and recalled its request that the FMCS appoint a panel of arbitrators. That would seem to moot the case and, in fact, after discussing the voluntary cessation exception, Chief Judge Robinson so holds. What is interesting is that the court also writes at length holding that, even if the matter were not moot, MMC would lack standing to bring the action as it has suffered no injury by reason of the Union’s demand for arbitration, since no panel had been empaneled. Doesn’t a declaratory judgment action, by its nature, often seek to obtain just such a ruling as to events that might occur in the future. For example, a declaratory judgment as to an insurer’s obligation to provide coverage arises because the purported insured might be required to make some payment in the future to an alleged victim of its tort. How is the obligation to face an arbitration panel, as might have been required of MMC, any less an “injury in fact” than such a potential financial exposure? In short, the opinion raises two questions. First, is the result right? Second, in light of mootness, why address standing at all?
Fees for a change of mind
The plaintiff in Viyella v. Fundación Nicor, 2020 U.S. Dist. LEXIS 196714 (S.D. Fla.) (Oct. 21, 2020) was slow coming to the arbitration table. After ultimately ceasing his opposition to FINRA arbitration, Viyella filed a motion under Rule 41(a)(2) of the Federal Rules of Civil Procedure for a voluntary dismissal of the action. While the court dismissed without prejudice, in light of the lengthy litigation which preceded plaintiff’s willingness to arbitrate (there were ninety-six docket entries in the case) Judge Altonaga imposed attorneys’ fees upon plaintiff, the amount thereof to be determined after further briefing.
Assignment of the right to arbitrate
Jones v. Financial Recovery Services, Inc., 2020 U.S. Dist. LEXIS 197517 (N.D. Ill.) (Oct. 23, 2020) is a standard arbitration case, in which Judge Lefkow compels arbitration under the terms of a credit card agreement. What is interesting is the history of assignments of the arbitration agreement. Plaintiff initially entered into a credit agreement with Credit One. She went into default and the account was sold or otherwise assigned six different times, until it ultimately reached LNV Funding, LLC, which she sued under the Fair Debt Collection Practices Act. (Perhaps, everyone along the way tried to collect the debt and, as it became staler, resold the receivable at an ever-steeper discount). What the case points out is that, while one might agree to arbitrate with an initial creditor, because of assignments the debtor never really knows whom they will ultimately meet in front of a panel.
Fall has definitely hit here in the Northeast and the leaves are mostly off the trees. To those of you in warmer climates, enjoy the outside. We are getting ready to hunker down up here. See you Wednesday.