On 10 May 2016, the US Court of Appeals for the Eleventh Circuit addressed the question of whether a cruise ship employee who is injured on the job, and whose employment contract contained an arbitration agreement governed by the New York Convention and Chapter 2 of the Federal Arbitration Act, can bar arbitration by showing that high costs may prevent him from effectively arbitrating his federal statutory rights. The Eleventh Circuit referred to its New York Convention precedent that suggests but does not hold that a party may only raise such public-policy defense in opposition to a motion to enforce an arbitral award and not in opposition to a motion to compel arbitration. However, the Eleventh Circuit did not need to definitively answer this question, because plaintiff failed to establish that the costs of arbitration would preclude him from arbitrating his federal statutory claims. The Eleventh Circuit, therefore, affirmed the district court’s order compelling the parties to arbitration and denied the defendant’s motion for sanctions (Suazo v. NCL (Bahamas), Ltd., No. 14-15351 (11th Cir. May 10, 2016)).
Suazo, a Nicaraguan citizen, signed an employment contract with NCL to work aboard one of its cruise ships. The employment contract required arbitration of any dispute arising out of his employment with NCL in Nassau, Bahamas pursuant to the New York Convention.
Suazo had sustained injuries during the exercise of his duties aboard the Bahamian vessel Norwegian Epic and his medical care was terminated before he was healed. When NCL ignored requests to reinstate his medical care, Suazo brought suit against NCL in Florida circuit court in Miami-Dade County, asserting claims for negligence under the Jones Act and under general maritime law. NCL removed the case to the US District Court for the Southern District of Florida pursuant to 9 U.S.C. § 205, which allows for the removal of state court actions relating to an arbitration agreement that fall under the New York Convention. Thereafter, NCL filed a motion to dismiss and compel arbitration.
Suazo opposed NCL’s motion to compel arbitration. He noted that, although the employment agreement was silent as to who would bear the costs of arbitration for individuals who forego representation by the Norwegian Seafarers’ Union, NCL had said that it would require him to pay half of the costs of arbitration. He claimed that he was too poor to bear that cost and that, therefore, the district court should refuse to compel arbitration.
On 4 November 2014, the district court granted NCL’s motion and compelled the parties to arbitrate, retaining jurisdiction of the case in order to enforce the arbitration award “if appropriate”. The court reasoned that Suazo’s argument that he could not afford to pay the costs of arbitration invoked the “effective vindication doctrine” which was a “public policy” defense that could not be considered at the arbitration-enforcement stage under the New York Convention.
On appeal before the Eleventh Circuit, Suazo raised the following question: whether he may defeat NCL’s motion to compel arbitration by showing that he was too poor to afford the costs of arbitration. On 6 May 2015, NCL moved to dismiss the appeal for want of jurisdiction, suggesting that the district court’s order compelling arbitration was a non-final, non appealable order under 9 U.S.C. § 16(b). While that motion was pending in the Eleventh Circuit, NCL moved for sanctions, arguing that Suazo’s appeal was frivolous and that the Court should award it double costs and reasonable attorneys’ fees.
On 23 June 2015, the Eleventh Circuit denied NCL’s motion to dismiss, concluding that the order compelling arbitration was a final, appealable order and on 10 May 2016 it opined on Suazo’s question on costs and NCL’s motion for sanctions.
Eleventh Circuit’s Opinion
The Eleventh Circuit stated that Article V of the Convention governs only the “award-enforcement” stage and provides for a substantially broader set of defences that may be raised in response to a motion to confirm an arbitral award. One of Article V’s seven permitted defences is a “public policy” defense. This public policy defense, like the other Article V defenses, “applies only at the award-enforcement stage”. Therefore, parties must “wait until the award-enforcement stage to assert an Article V public-policy claim”.
Chapter 1 of the FAA governs domestic arbitration, and provides a broad array of defenses to the enforcement of arbitration agreements in the cases that it governs. However, the broad defenses applicable in the context of domestic arbitration are not generally available in cases governed by the New York Convention (Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 629 (1985)). The “effective vindication doctrine” is one defense that the federal courts have recognized in the context of domestic arbitration. The Supreme Court has never invoked the effective vindication doctrine to justify the refusal to enforce an arbitration clause in either the domestic or foreign arbitration context. Moreover, no court has ever applied the effective vindication doctrine to invalidate an arbitration agreement in the context of a New York Convention case.
The Eleventh Circuit noted that it reviews de novo a district court order granting a motion to compel arbitration. The district court was required to compel arbitration if the arbitration agreement satisfied the four jurisdictional prerequisites found in the New York Convention and none of Article II’s arbitration-enforcement stage defences applied. It was undisputed that the four jurisdictional prerequisites have been met. The parties agreed that: the employment agreement was in writing; the agreement provides for arbitration in Nicaragua, which has signed the Convention; Suazo’s employment with NCL was a commercial relationship; and Suazo is not an American citizen. Suazo argued, however, that the district court erred in compelling him to arbitrate because he cannot afford the costs of arbitration that he will be required to pay and, therefore, he would be unable to effectively vindicate his federal statutory rights in the arbitral forum.
The Eleventh Circuit stated that it has not decided whether a party can raise a cost-based effective vindication defense at the arbitration-enforcement stage under the New York Convention, and that it was not aware of no other federal circuit court that has done so. Nevertheless, three of its decisions provided substantial guidance (Bautista v. Star Cruises, 396 F. 3d 1289 (11th Cir. 2005); Thomas v. Carnival Corp., 573 F.3d 1113 (11th Cir. 2009); Lindo v. NCL (Bahamas), Ltd., 652 F.3d 1257 (11th Cir. 2011). The Eleventh Circuit also referred to Escobar v. Celebration Cruise Operator, 805 F. 3d 1279 (11th Cir. 2015) in which it was confronted with the same question presented in the case before it.
According to the Eleventh Circuit, because Suazo was attempting to defeat a motion to compel arbitration, he could only raise his cost-based effective vindication defense if it falls within the defences enumerated in Article II of the New York Convention. The Supreme Court has never applied the effective vindication doctrine and “no court  has applied it in the context of a New York Convention case.” The Eleventh Circuit has never determined whether a cost-based effective vindication defense could be raised under the “incapable of being performed” clause of Article II, and did not need to resolve that question in the case before it because Suazo has fallen far short of establishing that enforcing the arbitration agreement in this case will effectively deny him access to the arbitral forum.
In order to prevail on a cost-based effective vindication defense in a domestic arbitration case – assuming such a defense can be raised under Article II – a party seeking to avoid arbitration must “demonstrate that he faces such ‘high costs’ if compelled to arbitrate his claim … that he is effectively precluded from vindicating his [federal statutory] rights in the arbitral forum.”
Suazo’s factual foundation for regarding his “inability to pay [the arbitration] fees,” was insufficient. In any event, Suazo has not carried his burden of proving that it is likely that unaffordable costs would deny him “access to the forum”.
The Eleventh Circuit held that Suazo could not prevail on his effective vindication defense for a second and independent reason. The CBA between Suazo and NCL provided that, as long as Suazo was represented by the Norwegian Seafarers’ Union, NCL “shall bear the reasonable costs related to the arbitration process from beginning to end”. However, if Suazo chose to initiate arbitration “independently” of the NSU, the CBA was silent as to who must bear the costs of arbitration. On this record, it appeared that the only reason Suazo would be required to bear any cost in arbitrating his dispute with was is because he opted to retain private counsel instead of proceeding to arbitrate with union-appointed counsel. The agreement gave him a choice: arbitrate for free with the union-chosen representation, or pay his own way with counsel of his choice. Having chosen the latter course of action, the Eleventh Circuit would not second-guess the bargain struck in the contract and let Suazo eat his cake and have it too. Because the arbitration agreement and the CBA gave him the ability to arbitrate for free and thereby “vindicat[e] his [federal statutory] rights in the arbitral forum,” his effective vindication defense was unmeritorious.
Since Suazo has not established any basis on which to deny NCL’s motion to compel arbitration, the Eleventh Circuit affirmed the district court’s order compelling the parties to arbitrate the dispute. The Eleventh Circuit also held that sanctions were not appropriate in the case before it.
A more detailed summary and an excerpt of this decision, indexed and searchable according to the list of topics published in http://www.newyorkconvention.org/court+decisions/description will be published in the 2016 volume of the Yearbook Commercial Arbitration, published by the International Council of Commercial Arbitration (ICCA).
Source: Original Opinion available at http://www.pacer.gov