A recent decision by the Eleventh Circuit Court of Appeals has attracted attention within the arbitration community as it puts into question the enforceability in the United States of international arbitration agreements where foreign (non-US) law is the governing substantive law. The Eleventh Circuit also mistakenly references Article V of the New York Convention in its discussion of arbitration agreements, which are governed by Article II.

Though it addresses enforcement of an arbitration agreement, the Eleventh Circuit decision may be seen as about choice of law more than about arbitration.

The contract at issue in Thomas v. Carnival Corporation, No. 08-10613 (11th Cir., July 1, 2009), was a Seafarer’s Agreement (between Thomas, a seaman, and Carnival, a cruise line) which contained an arbitration clause that provided for arbitration in the Philippines and a choice of law clause that provided that Panamanian law would govern the Agreement and all disputes arising out of it. The choice of law clause specified that Panamanian law would apply notwithstanding the availability of claims under the laws of any other jurisdiction.

The Eleventh Circuit found that it was against public policy for the Seafarer’s Agreement to forfeit the rights of a seaman injured during his employment to pursue against the cruise line remedies available under the Seaman’s Wage Act and that the choice of foreign law and a foreign forum “operated in tandem” to do just that. The problem for the Eleventh Circuit was that the choice of Panamanian law excluded remedies provided to injured seaman in the Seaman’s Wage Act. The issue was, therefore, the contract’s choice of law clause more than the choice of forum. Even had the contract provided a US court as the forum for resolving disputes, the choice of law clause by itself would likely still have been stricken as counter to public policy.

Thomas is the latest example of the potential for harmful spillover into international arbitration of rulings by US courts designed for a different context, namely, consumer or employment disputes. The Eleventh Circuit understandably sought to protect a seaman by preserving the seaman’s US statutory remedies. Yet, because the Federal Arbitration Act and precedent required the Eleventh Circuit to treat seaman employment contracts as commercial contracts, the Thomas ruling becomes a potential precedent for international commercial disputes of any kind. Citing Thomas, parties may seek to escape otherwise valid arbitration agreements simply by declaring their intention to bring a claim based on a US statute.

Paul Friedland and Kirsten Odynski
White & Case LLP


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3 comments

  1. Paul and Kirsten

    The concerns you mention are serious ones; yours is a different and insightful reading of a case discussed in my Arbitration Commentaries on July 7, 2009. (http://arbblog.lexmarc.us — “U. S. Public Policy As Basis to Nullify Arbitration Agreement: Beyond the Bounds of Mitsubishi?”)

    What troubles me most about Thomas is the position that any waiver, in an arbitration agreement combined with a choice of law clause, of remedies conferred by a US federal statute, violates US public policy and brings about at least partial nullity of the arbitration clause. That is not what the Supreme Court said in the famous Mitsubishi footnote — and US law per Mitsubishi is in harmony with transnational principles that only an offense against fundamental (and some would say international) public policy will result in invalidation of an arbitration agreement or denial of recognition of an award under the Convention.

    You are clearly right that common law notions of unconscionability in some employment contracts motivated the Thomas decision. Perhaps other courts will distinguish the Thomas case on that basis.

  2. I’m not particularly troubled by Thomas (although I find myself less and less troubled by things generally as time goes on)—not only because of the peculiar employment context that you point out, and not only because every court until now—and every court in the future—will continue to say that footnote 19, in the words of the recent Grynberg case, is simply “inapplicable.”

    The real reason is that the opinion’s defects in performance are so transparent, for reasons everyone knows: The court says that it’s “undisputed that US law will never be applied,” because the contract “explicitly” so provided. But of course that was equally the case in Mitsubishi. There is no concession by the plaintiff in Thomas that US law will apply—but it’s quite conceivable, as the ICC suggested in Mitsubishi, that arbitrators would ultimately prefer not to interpret the choice-of-law clause as encompassing US mandatory law. And for the court to say that the “arbitrator is bound to effectuate the intentions of the parties irrespective of any public policy considerations,” is obviously to get things completely backwards—because the implicit assumption (impermissible, as we all know) is that it is the court, not the arbitral tribunal, which should do the work of interpretation with respect to what the parties” “intent” in fact was.

    One thing I really didn’t understand is this: The court says that if the arbitrators, following Panama law, wind up giving the plaintiff nothing, then there would be “no opportunity for review” later because there would be nothing for a US court to enforce. This is a familiar trope that completely escapes me: If the award in fact goes against him then the plaintiff, ignoring it, may and will bring suit on the claim in a US court. The defendant then raises the Philippine award as a defense to the suit, and asks that it be “recognized” under the Convention. The plaintiff thus can litigate the appropriateness of recognition under article V—which is obviously a form of “review.” No? So what can these people be saying?

  3. Hi Everybody,

    It is so intersting decesion made by 11circut .I would like to know more about this case whether Carnival corporation is appealing to higher Supreme court .If anyone know more about this case will be appreciater

    Thanks all of you
    Roy Robert

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