Jurisdiction Issues

Court Compels Arbitration Under the New York Convention and Dismisses Case in Windstorm Insurance Claim Dispute

July 1, 2019 by Benjamin Stearns

The underlying insurance policy was issued by Certain Underwriters at Lloyd’s London and contained an arbitration clause. The court applied the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention) under the FAA. The court found that all four requirements under the Convention were met. The court easily determined that there was a written agreement and that the agreement arose out of a commercial relationship. With respect to the requirement that the agreement provide for arbitration in the territory of a signatory of the Convention, the court found that the requirement was met where the insurance policy (although separate from the arbitration clause), provided that “any action brought against [the insurer] must be in the United States of America, ‘in a court having proper jurisdiction.'” And regarding the final requirement of the Convention, that a party to the agreement is not an American citizen or that the commercial relationship has a reasonable relation with a foreign state, the court found it was met because a portion of the insurance policy was subscribed to by Lloyd’s Syndicate 2001, which is wholly owned by a company that is organized and principally based in the United Kingdom.

Although Section 3 of the FAA states that district courts “shall” stay proceedings pending arbitration upon the motion of a party, the court found that it is appropriate to dismiss the lawsuit where all of the issues presented are arbitrable and the plaintiff has not requested a stay. The complaint only raised one claim, which the court found subject to arbitration, and the plaintiff did not respond to the motion to compel or otherwise request a stay. As a result, the court dismissed the complaint with prejudice.

German Int’l Sch. of Fort Lauderdale, LLC v. Certain Underwriters at Lloyd’s, London, No. 0:19-cv-60741 (S.D. Fla. May 14, 2019).

Second Circuit Adopts Standard for Determining Subject-Matter Jurisdiction Over Motions to Confirm Arbitration Awards Under FAA Section 9

June 18, 2019 by Alex Silverman

The Second Circuit Court of Appeals recently held as a matter of first impression that a district court properly looked to the substance of an underlying dispute in determining whether it had subject-matter jurisdiction over a motion to confirm an arbitration award pursuant to Section 9 of the Federal Arbitration Act (FAA). The parties are members of the Bobov Hasidic Jewish community in Brooklyn. The petitioners claimed to own trademark rights in the word “Bobov” and commenced arbitration to prevent the respondents from using the mark in connection with a new Hasidic community. The parties agreed to arbitrate before a rabbinical tribunal, which issued an award in the petitioners’ favor. The petitioners sought confirmation of the award in federal district court under Section 9 of the FAA. After concluding that it had subject-matter jurisdiction over the matter, the district court confirmed the award, and the Second Circuit affirmed.

Although the Second Circuit had not previously addressed whether federal courts have subject-matter jurisdiction over motions to confirm under Section 9, it had addressed the issue in the context of a petition to vacate under Section 10. In that case, the court adopted the “look-through” approach used by the U.S. Supreme Court to determine whether a district court had subject-matter jurisdiction over a petition to compel arbitration under Section 4 of the FAA. The Supreme Court instructed district courts to “look through” the petition to the substance of the underlying controversy to assess whether it implicated federal law. The Second Circuit in the current case found no reason not to apply the same standard to a motion to confirm under Section 9. Applying that standard here, it held that because the underlying controversy raised questions of federal trademark law, the district court “unquestionably” had subject-matter jurisdiction over the matter. The court then concluded that the district court properly confirmed the arbitration award, particularly given the extreme deference that courts must afford such awards.

Landau v. Eisenberg, 922 F.3d 495 (2d Cir. 2019)

Eleventh Circuit Finds Removal Jurisdiction Is Included Within Federal Subject-Matter Jurisdiction Under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards

May 21, 2019 by Benjamin Stearns

In 2001, Del Monte International GmbH and Inversiones y Procesadora Tropical INPROTSA, S.A. entered into an agreement for the production, packaging, and sale of MD-2 pineapples, a variety of pineapple that Del Monte had developed and which subsequently became the most popular pineapple in the world. The contract included an agreement to arbitrate as well as an agreement that, upon termination of the contract, INPROTSA would either destroy or return its stock of pineapples to Del Monte. However, when the agreement expired in 2013, INPROTSA sold the MD-2 pineapples to third parties rather than destroy or return them to Del Monte.

Del Monte initiated arbitration and was ultimately awarded approximately $26 million and an injunction against INPROTSA’s continued sale of the MD-2 pineapple. INPROTSA filed a petition to vacate the award in Florida state court. Del Monte removed the case to federal court and filed a combined motion to dismiss the petition to vacate and cross-petition to confirm the award. After some “procedural detours,” the district court granted Del Monte’s cross-petition to confirm the award.

INPROTSA appealed, arguing that the district court lacked subject-matter jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, among other issues. INPROTSA argued that there are only two causes of action that may be brought under 9 U.S.C. § 203, the jurisdictional provision of the statute implementing the Convention: (1) an action to compel arbitration; and (2) an action to confirm an arbitral award. According to INPROTSA, because a petition to vacate an arbitral award is not one of the recognized causes of action, the federal court did not have subject-matter jurisdiction over the case.

INPROTSA conceded that the district court had removal jurisdiction under 9 U.S.C. § 205, but argued that the scope of the court’s removal jurisdiction was not coterminous with that of its subject-matter jurisdiction. Effectively, INPROTSA argued that federal courts should be required to remand any case removed to federal court under § 205 that did not also have a federal jurisdictional basis under § 203.

The Eleventh Circuit disagreed on all counts. First, the court held that the Convention does not provide an “exhaustive list of actions and proceedings falling under the Convention” such that the court must inquire whether the action is one of the two types recited above. Rather, the relevant inquiry for the court is whether the action or proceeding “falls under the convention.” The court stated that an action or proceeding falls under the Convention for purposes of § 203 when the action “sufficiently relate[s] to an agreement or award subject to the Convention, such that the agreement or award could conceivably affect the outcome of the case.”

Second, although the court agreed with INPROTSA that removal jurisdiction was not necessarily coterminous with subject-matter jurisdiction, the court nevertheless determined that Congress intended to provide a federal forum for resolving issues implicating the Convention. The court reasoned that it would “make little sense for Congress to specifically authorize removal of cases over which the federal courts would lack subject-matter jurisdiction. … It makes far more sense to conclude Congress intended § 203 to be read consistently with § 205 as conferring subject-matter jurisdiction over actions or proceedings sufficiently related to agreements or awards subject to the Convention.”

Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte Int’l GmbH, 921 F.3d 1291 (11th Cir. 2019).

Court Finds Jurisdiction Over Petition to Confirm Arbitration Award in Dispute Between Liquidator and Foreign Reinsurer

April 29, 2019 by Benjamin Stearns

In the wake of the liquidation of Legion Indemnity Co., the Illinois Director of Insurance, as liquidator of Legion, and Catalina Holdings arbitrated claims originating under reinsurance agreements between Legion and a predecessor of Catalina. After the arbitrators ruled in favor of Catalina, Catalina filed a petition to confirm the award with the Northern District of Illinois. The Director moved to dismiss.

The court found that it had jurisdiction over the petition under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The arbitration agreement arose out of a dispute over reinsurance contracts, which are generally considered “commercial” under 9 U.S.C. § 2, and the contracts arose out of a relationship between a citizen of the United States and a citizen of the United Kingdom. Pursuant to 9 U.S.C. § 202, all arbitral awards fall under the Convention unless they arise out of “a relationship which is entirely between citizens of the United States.”

The court ruled against the Director’s argument that the Convention is reverse-preempted by the McCarran-Ferguson Act because the Convention did not “invalidate, impair, or supersede any law enacted by [the] State for the purpose of regulating the business of insurance.” Finally, the court found that Burford abstention would be inappropriate in this case. The Director argued, pursuant to Burford, that the court should “abstain from the exercise of federal review that would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.” There are two “essential elements” to this type of Burford abstention: The state must offer a forum where these claims may be litigated, and that forum must “stand in a special relationship of technical oversight or concentrated review to the evaluation of those claims.” The requisite elements were not present in this case and, as a result, the court refused to abstain.

Catalina Holdings (Bermuda) Ltd. v. Hammer, No. 1:18-cv-05642 (N.D. Ill. Mar. 22, 2019).

Discovery Under Section 1782 Denied Based on Finding That Chinese Arbitration Organization Was Not a “Foreign or International Tribunal”

April 8, 2019 by Benjamin Stearns

Section 1782(a) permits a person to seek a court order for the production of documents for use “in a proceeding in a foreign or international tribunal. …” To obtain discovery under the statute, the petitioner must meet three requirements: (1) the person from whom discovery is sought must reside or be found in the district where the application was made; (2) the discovery must be for use in a foreign proceeding before a foreign or international tribunal; and (3) the applicant must be either a foreign tribunal or an interested person.

Here, the court relied on precedent in the Second Circuit holding that when Congress enacted section 1782, “it intended to cover governmental or intergovernmental arbitral tribunals and conventional courts and other state-sponsored adjudicatory bodies,” but did not intend to cover “arbitral bodies established by private parties.” Based on this precedent, the court found that the China International Economic and Trade Arbitration Commission (CIETAC) did not qualify as a foreign tribunal under section 1782(a). While the court acknowledged that CIETAC was originally established in 1954 by the Chinese government, the court explained that: (1) CIETAC’s jurisdiction is derived exclusively from the private agreement of the parties to arbitration proceedings; (2) the parties, not the state, are permitted to choose their own arbitrator; (3) the arbitrator’s decision is final and binding upon both parties; and (4) CIETAC itself emphasizes it is “independent of the administrative organs of the Chinese government, and free from any administrative interference in handling cases.” The court also noted that permitting parties to seek discovery through American courts under section 1782(a) would undermine significant advantages of arbitration, specifically, its efficiency and cost-effectiveness, and thereby conflict with the strong federal policy favoring arbitration. The court therefore held that CIETAC is not a “foreign or international tribunal” within the meaning of section 1782(a).

In re Application of Hanwei Guo, No. 1:18-mc-00561-JMF (S.D.N.Y. Feb. 25, 2019).