International Law

Combination of Arbitration and Non-U.S. Choice of Law Provisions Contrary To Public Policy; Defendant Permitted To Stipulate to U.S. Law to Compel Arbitration

By Louis M. Solomon

Alcalde v. Carnival Cruise Lines, Case No. 10-24457-Civ-Moore/Torres (S.D. Fla. July 2011) [enhanced version available to subscribers], is another in the line of recent cases struggling with the interplay between the public policy favoring arbitration of international disputes and the freedom of contract permitting parties to select non-U.S. law to govern their dispute even where a U.S. statutory claim is barred as a result.   The plaintiff here is a citizen and resident of Peru alleging injuries sustained while employed on a Carnival vessel.   His contract contained a broad arbitration clause, a Peru choice of law clause, and a severability clause.  He brought a Jones Act claim, among others, and the Court determined that the plaintiff could not bring a Jones Act claim under Peruvian law. 

The District Court made the following rulings pertinent to international litigation and dispute resolution:

First, the case was properly removed from state to federal court by reason of the New York Convention.

Second, the Court was willing to entertain a challenge to the enforceability of the arbitration provision.  The Court addressed Rent-A-Center, West. Inc. v. Jackson, 130 S. Ct. 2772 (2010) [enhanced version / unenhanced version available from lexisONE Free Case Law], which compelled arbitration of an employee's claim against his employer because the contract at issue contained an arbitration delegation provision and, pursuant to that provision, the employee's claim that the entire contract was procedurally and substantively unconscionable had to be resolved by the arbitrator.   The instant case, however, which challenged the arbitration provision itself, would be considered by the Court.

Third, the Court followed the Eleventh Circuit's decision in Thomas v. Carnival Corp., 573 F.3d 1113 (11th Cir. 2009) [enhanced version  / unenhanced version ], which held that an arbitration clause that precluded a seafarer's claims under the federal Seaman's Wage Act was contrary to public policy.  The Court concluded that no different result should be reached with respect to the plaintiff's Jones Act claims.  The Court analyzed the cases decided since Thomas and decided that a "broader application" of the Thomas holding was appropriate ("a holistic reading of Thomas indicates that the Eleventh Circuit's reasoning applies with equal force to claims brought pursuant to the Jones Act").  The District Court, however, did not analyze the line of authority (going as far back as Transunion v. PepsiCo, Inc., 811 F.2d 127 (2d Cir. 1987) [enhanced version ], in which the author was counsel) holding that forum non conveniens dismissal of claims in favor of non-U.S. jurisdictions was not precluded even if the plaintiff would lose the ability to assert a federal claims as a result.

Fourth, the Court permitted the defendant to invoke the severability clause to excise the non-U.S. choice of law provision in the agreement and force arbitration, with the stipulation that U.S. law would apply to the plaintiff's Jones Act claim.  The District Court stated:  "This Court cannot cast aside the fact that the Parties agreed - by contract - to arbitrate their disputes".

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