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Monday, April 16, 2012

New York Convention and Jones Act Do Not Overcome Motion to Compel Arbitration in the 11th Circuit

11thCircuitSealOn April 10, 2012, the Eleventh Circuit Court of Appeals issued an unpublished opinion addressing the types of defenses a party contesting enforcement of an arbitration agreement can make and at what times those arguments can be raised under The United Nation Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).  In Castillo-Arauz v. Carnival Corp., the court affirmed per curiam, the District Court’s order to compel arbitration.  The plaintiff, a seaman asserting negligence claims under the Jones Act against his employer, Carnival Cruise lines, will now have to arbitrate those claims. 

The seaman, Roy David Castillo Arauz, suffered an injury while working aboard the Carnival ship “Destiny.”  His employment agreement calls for arbitration in Panama City under Bahamian law.  Nevertheless, Arauz filed his claim in Florida state court, and Carnival removed to the Southern District of Florida, where it moved to compel arbitration. 

Cruise ShipArauz contended that the arbitration provision is unenforceable because it violates the public policy of the United States.  For support, Arauz cited Thomas, a 2009 decision of the 11th Circuit, which held unenforceable an arbitration agreement that called for the application of foreign law in a foreign venue.  

In response, Carnival stipulated that it agreed to allow for the application of U.S. law to Arauz’s Jones Act claim.  This, the District Court found, eliminated the public policy concerns contemplated by the court in Thomas, and justified compelling arbitration, which it did. 

After the District Court issued its order to compel the arbitration but before Arauz filed his appeal, the Eleventh circuit decided another arbitration clause case, Lindo. In Lindo, the court held that only standard breach of contract defenses “that can be applied neutrally on an international scale” can invalidate an arbitration agreement during the arbitration-enforcement stage. The court cited its 2005 decision in Bautista and noted that Thomas- decided in 2009- violated the precedent that Bautista had established.

Arauz argued that a public policy defense does exist during the arbitration-enforcement stage pursuant to the New York Convention.  The Court stated that Arauz had acknowledged that his argument is foreclosed by Lindo and that the Court is not in a position to overrule the case.  

The Court declined to consider Arauz’s alternative claim that the agreement is unconscionable and that unconscionability is a standard breach of contract defense since he did not raise the issue in the District Court.  In any case, the Court indicated that the argument would fail since the Bautista court rejected the same argument, reasoning that the doctrine of unconscionability cannot be uniformly applied across the member countries to the New York Convention.  

[JT & Justin Berggren]

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