Tag Archives: New York Convention

The Year In Review 2: New Parties To The Conventions

This is the second in my “year in review” series of posts. For those of you who keep track of which states are parties to which conventions—a handy thing to do—here is a list of the new state parties to the various judicial assistance conventions we cover here at Letters Blogatory.

Hague Service Convention

Malta, Morocco, and Serbia acceded to the Hague Service Convention in 2011, bringing the total number of state parties to 64.

Hague Evidence Convention

Malta and Morocco acceded to the Hague Evidence Convention in 2011, bringing the total number of state parties to 54. However, the United States has not yet accepted their accessions, so the Convention is not yet in force between the United States and either of the two new parties.

Hague Apostille Convention

Costa Rica, Oman, and Uzbekistan acceded to the Hague Apostille Convention in 2011, the 50th year of the Convention. The Convention has already entered into force in Costa Rica and will enter into force in Oman and Uzbekistan in 2012. Kyrgyzstan’s 2010 accession came into effect in 2011, though several states (not including the United States) lodged objections to Kyrgyzstan’s accession.

New York Convention

Liechtenstein acceded to the New York Convention in 2011. Welcome aboard, Liechtenstein!

Case of the Day: Ministry of Defense of Iran v. Cubic Defense Systems

Ayatollah Khomeini in front of an Iranian flagIf you need convincing of the strength of the public policy in favor of arbitration, look no further than today’s case of the day, Ministry of Defense & Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc. (9th Cir. 2011). In 1977, Cubic, a US corporation, entered into a contract with Iran’s Ministry of War for the sale and service of an air combat maneuvering range. After the Iranian Revolution, the parties agreed to terminate the contracts and that Cubic would try to resell the equipment, with the parties to settle accounts with each other at a later date. Ultimately, Cubic sold the equipment originally meant for Iran to Canada.

In 1982, the Ministry filed a claim against Cubic for breach of contract with the Iran-United States Claims Tribunal. Several years later, the tribunal found that it lacked jurisdiction to hear the dispute. The Ministry then initiated an ICC arbitration in Switzerland. The tribunal awarded the ministry more than $2.8 million in 1997. Cubic failed to pay, and the Ministry obtained confirmation of the award in the US District Court in San Diego.

Judgment entered in 1999, and Cubic appealed. The appeal was then stayed for a decade, while litigation over whether Iran’s judgment creditors could attach the Ministry’s judgment. The case was finally argued earlier this year, and the Ninth Circuit invited the United States to brief the issue whether confirmation of the award would be contrary to US public policy.

Cubic argued that the US had a public policy against “trade and financial transactions with the Islamic Republic of Iran,” noting the Iranian Asset Control Regulations, the Iranian Transactions Regulations, and the Weapons of Mass Destruction Proliferators Sanctions Regulations. Under these sanctions regimes, Cubic is forbidden to pay the award to Iran without a license from the Office of Foreign Assets Control. Cubic argued that the rule against payment of the award shows a public policy against confirmation of the award (even though the regulations contemplate licenses to authorize payments of an award of the Iran/US tribunal), and that more broadly, the sanctions show a public policy against any economic support of the Iranian government.

But the court (and, interestingly, the government’s amicus brief) rejected these arguments in light of the stronger policy in favor of the recognition of foreign arbitration awards. Although it recognized that the sanctions regulations prohibited payment of the award, it distinguished sharply between payment of the award, which enriches Iran, and confirmation of the award, which does not. The court also gave “great weight” to the government’s views as a correct statement of US public policy. In response to Cubic’s hypothetical argument that it would face an impossible situation if the award were confirmed and the government did not grant a license for payment, the court responded that Cubic could seek a stay of execution of the judgment.

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Case of the Day: Simmons v. Sabine River Authority

The Flood from the Sistine ChapelThe case of the day is Simmons v. Sabine River Authority of Louisiana (W.D. La. 2011). Simmons sued Louisiana government agencies and Entergy Corp. and affiliates on behalf of a purported class of landowners near the Sabine River. The claim was that the defendants caused a catastrophic flood by opening the floodgates of the Toledo Bend Dam in March 2001. The flood, according to Simmons, lasted forty days.

Simmons originally brought the action in the Louisiana state courts. The Louisiana governmental defendants filed preemptory exceptions of no cause of action (which, I take it, are the Louisiana equivalents of motion to dismiss for failure to state a claim on which relief can be granted), and apparently in order to save the claim, Simmons filed an amended complaint asserting claims under the Fifth and Fourteenth Amendments to the US Constitution. The state court thereafter dismissed the defendants’ exceptions.

Many years passed (the case was filed in 2002, the state court dismissed the exceptions in 2002, and before you know it, it was 2011). Simmons filed another amended complaint, this one asserting claims against Northfield Insurance Company and AEGIS, two insurers that allegedly had written policies that insured some of the damages asserted in the action. The defendants then unanimously filed a notice of removal, removing the case to the federal court.

The judge correctly found that the removal was grossly untimely under the statute governing removal in ordinary federal question cases. Simmons first asserted the federal claims in 2002, and the defendants had 30 days to remove. But the AEGIS policy contained an arbitration agreement that required arbitration (in the United States) of controversies arising out of or relating to the policy. The defendants asserted that the claim against AEGIS came within the scope of the arbitration clause and therefore cited 9 U.S.C. § 205 as an alternative basis for removal. The statute provides:

Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal. For the purposes of Chapter 1 of this title any action or proceeding removed under this section shall be deemed to have been brought in the district court to which it is removed.

Under Louisiana law, a statute allows an injured party to sue the wrongdoer’s insurer directly, and in such cases, the plaintiff can be bound by an arbitration clause in the insurance policy even though, of course, the plaintiff is not a party to the insurance company, and the judge found that under Louisiana law, the agreement bound the plaintiff. But the question remained whether the agreement fell under the New York Convention and whether the claim against AEGIS related to the policy, such that it fell within the scope of the arbitration agreement, as required by the statute for removal.

Did the Agreement Fall Under The Convention?

Under 9 U.S.C. § 202:

An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States.

Under Fifth Circuit precedent, the agreement falls under the Convention if: (1) it is in writing; (2) it provides for arbitration in a state that is party to the Convention; (3) it arises out of a commercial legal relationship; and (4) at least one party to the agreement is not a US citizen. All four factors were met here, and thus the judge concluded that the arbitration agreement fell under the Convention.

Did the State Court Litigation Relate To The Arbitration Agreement?

The more difficult question was whether the state court case related to the arbitration agreement. “Related” is construed broadly. AEGIS’s best appellate precedent, Acosta v. Master Maintenance & Construction, 452 F.3d 373 (5th Cir. 2006), supported removal, but in Acosta, there was also a dispute about the insurance coverage between the insurer and the insured; there was no such dispute in AEGIS’s case. However, in an unpublished district court decision, Adams v. Oceaneering International (W.D. La. 2010), Judge Melançon permitted removal where the only dispute was between the injured plaintiff and the insurer, not the insurer and its insured, and on the strength of this precedent, Magistrate Judge Kay found that the claim related to the arbitration agreement.

One oddity about the case was that the judge did not stay the case to allow an arbitration to proceed. It’s unclear from the decision whether AETNA intended to move to compel arbitration. If the defendants simply used the FAA’s removal statute to get into federal court without any intention of arbitrating the AETNA claim, I wonder if this doesn’t point to a weakness in the statutory scheme. Once a defendant removes a case to federal court on New York Convention grounds, shouldn’t it be required to arbitrate the claim?


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