Opinion ID: 605536
Heading Depth: 3
Heading Rank: 2

Heading: The Arbitration Exception

Text: 26 Section 1605(a)(6)(B) of the FSIA provides an exception to sovereign immunity in cases where a foreign state has agreed to arbitrate and the arbitration agreement is or may be governed by a treaty signed by the United States calling for the recognition and enforcement of arbitral awards. 4 CBV argues that it may enforce the arbitration clause contained in the Charter Party against Novorossiysk as a third party beneficiary to the Charter Party, and that this clause is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 3 (the Convention). 27 The United States became a party to the Convention in 1970 and Congress soon enacted implementing legislation, codified as Chapter II of the Federal Arbitration Act, 9 U.S.C. §§ 201-208 (1988). Congress vested federal district courts with original jurisdiction over any action or proceeding falling under the Convention, having deemed such an action to arise under the laws and treaties of the United States. 9 U.S.C. § 203. See also Dworkin-Cosell Interair Courier Serv., Inc. v. Avraham, 728 F.Supp. 156, 158 (S.D.N.Y.1989) (the Convention vests United States' district courts with original jurisdiction ... over actions concerning '[a]n arbitration agreement ...' ). Furthermore, the statute states that [a]n arbitration agreement ... 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. 9 U.S.C. § 202 (emphasis added). 5 28 As the 9th Circuit stated in Ministry of Defense of the Islamic Republic of Iran v. Gould, Inc., 887 F.2d 1357, 1362 (9th Cir.1989), cert. denied, 494 U.S. 1016, 110 S.Ct. 1319, 108 L.Ed.2d 494 (1990), three basic requirements must be met for a district court to find jurisdiction under the Convention: the award (1) must arise out of a legal relationship (2) which is commercial in nature and (3) which is not entirely domestic in scope. If a district court finds that these requirements are met, it must order arbitration unless it finds the agreement null and void, inoperative or incapable of being performed. Convention, Article II(3). 29 As the Supreme Court observed in Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15, 94 S.Ct. 2449, 2457 n. 15, 41 L.Ed.2d 270 (1974), 30 [t]he goal of the Convention, and the principal purpose underlying the American adoption and implementation of it, was to encourage recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries. 31 Thus, the Convention should be broadly interpreted to effectuate the goals of the legislation. Moreover, when the Convention is read together with the FSIA's arbitration exception, which gives jurisdiction if an arbitration agreement is or may be governed by a treaty, 28 U.S.C. § 1605(a)(6)(B) (emphasis added), it evinces a strong legislative intent to provide enforcement for such agreements. We agree with CBV that the Convention is exactly the sort of treaty Congress intended to include in the arbitration exception. If the alleged arbitration agreement exists, it satisfies the requirements for subject matter jurisdiction under the Convention and FSIA. 32 We believe the district court in this case erred in deciding that it could not assess CBV's third party beneficiary argument because it did not have jurisdiction to make this initial determination. Rather than considering the allegations to see if they gave the court subject matter jurisdiction, the court stated that regardless of the merits, the contractual arguments could not be addressed. According to the court, it lacked subject matter jurisdiction because there was no arbitration agreement. Cargill International S.A., 1992 WL 42194, at  5, 1992 U.S.Dist.LEXIS 2329, at -16 We find, however, that the district court was required to weigh the contractual arguments before it could determine that no arbitration agreement existed. 33  'Jurisdiction to determine jurisdiction' refers to the power of a court to determine whether it has jurisdiction over the parties to and the subject matter of a suit. If the jurisdiction of a federal court is questioned, the court has the power and the duty, subject to review, to determine the jurisdictional issue. 13A Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3536 at 535 (2d ed. 1984). See also Gould v. Pechiney Ugine Kuhlmann, 853 F.2d at 451 ([T]he district court has the power to resolve any factual dispute regarding the existence of subject matter jurisdiction.). 6 34 This is equally true in determining subject matter jurisdiction under the FSIA. As the Supreme Court noted in Verlinden, 461 U.S. at 493-94, 103 S.Ct. at 1971-72 (1983), 35 [t]he statute must be applied by the district courts in every action against a foreign sovereign, since subject-matter jurisdiction in any such action depends on the existence of one of the specified exceptions to foreign sovereign immunity.... At the threshold of every action in a district court against a foreign state, therefore, the court must satisfy itself that one of the exceptions applies--and in doing so it must apply the detailed federal law standards set forth in the Act. 36 Thus, the district court must look at the substance of the allegations to determine jurisdiction. In resolving the jurisdictional dispute, the district court must review the pleadings and any evidence before it, such as affidavits. Forsythe, 885 F.2d at 289 n. 6. See also Bowyer, 875 F.2d at 635 (District courts properly may look beyond the complaint's jurisdictional allegations and view whatever evidence has been submitted to determine whether in fact subject matter jurisdiction exists.) The district court, if necessary, may proceed to a trial on this issue. The Federal Arbitration Act, which applies to actions under the Convention where the two are not in conflict, 9 U.S.C. § 208, authorizes a summary trial to determine whether an agreement to arbitrate actually exists. 9 U.S.C. § 4 (1988). Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional de Venezuela, 802 F.Supp. 1069, 1072 (1992). See also Interocean Shipping Co. v. National Shipping & Trading Corp., 462 F.2d 673, 676-78 (2d Cir.1972), cert. denied, 423 U.S. 1054, 96 S.Ct. 785, 46 L.Ed.2d 643 (1976). 37 CBV alleges that CISA and Novorossiysk intended to make CBV a third party beneficiary of the Charter Party and in particular of its arbitration clause. Thus, to determine whether subject matter jurisdiction existed, the district court ought to have determined whether, if the facts as alleged by CBV are true, the arbitration agreement in the Charter Party was intended to benefit CBV. As we noted in A/S Custodia v. Lessin Int'l, Inc., 503 F.2d 318, 320 (2d Cir.1974), a Charter Party is just a species of contract, subject to the same rules of interpretation as any other binding agreement. Custodia, like this case, overturned a denial by the district court of a motion to compel arbitration based upon a finding, without an evidentiary hearing, that no arbitration agreement existed. 38 In order to enforce the agreement as a third party beneficiary, CBV must show that  'the parties to that contract intended to confer a benefit on [it] when contracting; it is not enough that some benefit incidental to the performance of the contract may accrue to [it].'  McPheeters v. McGinn, Smith and Co., Inc., 953 F.2d 771, 773 (2d Cir.1992), quoting Kyung Sup Ahn v. Rooney Pace, Inc., 624 F.Supp. 368, 371 (S.D.N.Y.1985) (in turn quoting Vazman, S.A. v. Fidelity Int'l Bank, 418 F.Supp. 1084, 1086 (S.D.N.Y.1976)). We note that if CBV is found to be a third party beneficiary to the Charter Party, it may be proper for the district court to enforce the arbitration agreement against Novorossiysk. See Progressive Cas. Ins. Co., 802 F.Supp. at 1074 (It is generally held by cases decided under the ... Convention that an enforceable arbitration clause may be included in a document or form incorporated by reference in the parties' contract.) Because the parties have not adequately addressed this issue in their briefs, however, we leave the arguments to them and the district court. We note in addition that Novorossiysk has preserved its objections to personal jurisdiction.