The case of the day is Costa v. Celebrity Cruises, Inc. (S.D. Fla. 2011), involved a motion to vacate an arbitral award. The case repeats what I think is a mistake about the relationship between Article V of the New York Convention and motions to vacate or set aside awards made in the US. I am reporting on it primarily to call attention to the issue.
Costa, Fernandes, and D’Acosta, all citizens of India, were stateroom attendants employed by Celebrity Cruises. Their union had a collective bargaining agreement with Celebrity that contained an arbitration agreement. The three, asserting that Celebrity had breached the CBA by requiring them to share tips with other employees, demanded arbitration. Although the opinion does not say so, it appears that the seat of the arbitration was Florida.
The arbitrator’s award found that Costes, Fernandes, and D’Acosta were not entitled to relief because they had not exhausted the CBA’s grievance procedures before demanding arbitration. The three then sued in federal court, seeking to vacate the award.
The judge began by noting that the award was subject to the New York Convention and Chapter 2 of the FAA, because it was between citizens of India and a US firm. So far, so good. She went on to say that because the Convention and Chapter 2 governed, the exclusive grounds for vacating the award were those set out in Article V of the Convention. I think this was a simple mistake. Article V provides that “[r]ecognition and enforcement” may be refused in limited circumstances. But Costa et al. were seeking to vacate the award, and Celebrity, which moved to dismiss rather than pleading to the complaint, never counterclaimed for recognition and enforcement. So the standards of Article V, which govern vacatur, shouldn’t apply. Instead, the rules of § 10 of the FAA should apply. The best textual argument for this result is Article V(e)(1) of the Convention, which provides that the court can refuse recognition and enforcement if the award “has been set aside … by a competent authority of the country in which, or under the law of which, that award was made.” This seems pretty clearly to mean that the courts of the place of the arbitration have the exclusive competence to set aside awards, using their own law, and that courts in other states must recognize and enforce the awards unless the courts of the place of the arbitration have vacated them (or one of the other grounds for non-recognition under Article V is satisfied). Obviously I am just giving a nod to the argument here, and not fully spelling it out.
To be fair to the judge, the Eleventh Circuit case on which she relied, Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998), does seem to make the Article V grounds for vacatur the exclusive grounds for refusing to enforce a decision. In my view Industrial Risk is wrongly decided. I am not the only blogger to say so: Marc Goldstein made a similar point in 2009, citing several precedents to that effect:
The … holding that a federal district court in the district where a Convention award was made may consider a motion to vacate the award under Section 10 has been re-affirmed (expressly or by implication) in the Second Circuit several times. (E.g., Zeiler v . Deitsch, 500 F.3d 157, 164 (2d Cir. 2007); Sole Resort S.A. de C.V. v. Allure Resorts Management, LLC, 450 F.3d 100, 102 n.1 (2d Cir. 2006); Lucent Technologies, Inc. v. Tatung Co., 379 F.3d 24 (2d Cir. 2004); Banco de Seguros del Estado v. Mutual Marine Office, Inc., 344 F.3d 255 (2d Cir. 2003). Yusuf was also followed by the Sixth Circuit in Jacada (Europe), Ltd. v. International Marketing Strategies, Inc., 401 F.3d 701 (6th Cir.), cert. denied, 126 S. Ct. 735 (2005).
Gary Born also makes the point in International Commercial Arbitration: Commentary & Materials 726-27 (2d ed. 2001).
In any event, the court in the case of the day went on to refuse to vacate the award, holding that the arguments advanced by the seamen did not hold water. In particular, the court held that the seamen had no unqualified right, under maritime law, to be free from the grievance exhaustion requirement, and that the fact that Celebrity had previously moved to compel arbitration in an unrelated case where the plaintiffs had not exhausted the grievance procedure, without raising the issue, did not estop Celebrity from raising the argument here, nor did it violate US public policy.
But these holdings seem less important than the court’s mistake about Article V. This is a subtle issue, but one that other courts have gotten right, and that the Eleventh Circuit should reconsider. And it will have a chance to reconsider: this issue is front and center in the disappointed seamen’s brief.