Opinion ID: 3044256
Heading Depth: 2
Heading Rank: 7

Heading: choice-of-law clause

Text: As an affirmative defense, Escobar contends that the arbitration clause in his employment contract is unenforceable because that clause requires his claims to be governed by Bahamian law. Specifically, Escobar asserts that: (1) Bahamian law 8 This Court’s precedents discussing the differences between Article II and Article V uniformly support the proposition that only Article II defenses are available at the arbitrationenforcement stage, while Article V defenses are available only at the award-enforcement stage accords. See Lindo, 652 F.3d at 1281. 14 Case: 14-11793 Date Filed: 06/25/2015 Page: 15 of 26 does not afford the same rights and remedies as American law, (2) this choice-oflaw clause results in a prospective waiver of his right to pursue statutory remedies under American law, and thus (3) his arbitration agreement violates public policy and should not be enforced. Escobar’s public-policy claim is based on what is called the “effective-vindication doctrine.” 9 In response, Celebration argues that, at this arbitration-enforcement stage, Escobar may not raise his foreign choice-of-law defense because it is a publicpolicy defense and not one of the traditional contract defenses applicable at this stage. Instead, Celebration contends, Escobar must wait until the awardenforcement stage before raising this argument. A. Escobar’s Public-Policy Defense is Premature at this ArbitrationEnforcement Stage Unfortunately for Escobar, a challenge based on public policy cannot be made at the stage of the proceedings in which the district court is considering whether to compel the parties to arbitrate, which is the stage at which Escobar’s case finds itself. At this present arbitration-enforcement stage of a Convention 9 See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19, 105 S. Ct. 3346, 3359 n.19 (1985) (stating in a footnote that “in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy”). The so-called effective-vindication doctrine “originated as dictum in Mitsubishi Motors,” where the Supreme Court actually declined to apply the doctrine. Italian Colors, 570 U.S. at ___, 133 S. Ct. at 2310. “Subsequent cases have similarly asserted the existence of an ‘effective vindication’ exception, but have similarly declined to apply it to invalidate the arbitration agreement at issue.” Id. (citations omitted). 15 Case: 14-11793 Date Filed: 06/25/2015 Page: 16 of 26 case, the only affirmative defense that a reviewing court can consider is a defense that demonstrates the arbitration agreement is null and void, inoperative, or incapable of performance, under Article II of the New York Convention. Lindo, 652 F.3d at 1276; cf. Bautista, 396 F.3d at 1301–02. And a null-and-void challenge to enforcing an arbitration agreement must be grounded in standard breach-of-contract-type defenses—such as fraud, mistake, duress, or waiver—which defenses can be applied neutrally before international tribunals. Lindo, 652 F.3d at 1276–77. Escobar’s public-policy defense—the effective-vindication doctrine—is not that type of defense. These traditional breach-of-contract claims do not include public-policy or unconscionability arguments. See id. at 1280–82; Bautista, 396 F.3d at 1302. In fact, “at the arbitration-enforcement stage, it is generally premature to make findings about how arbitrators will conduct the arbitral process, whether a claim will be heard, or whether the foreign-law remedies will be adequate or inadequate.” Lindo, 652 F.3d at 1279. In this regard, the Supreme Court’s decision in Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer is instructive because it involved a contract with a “Governing Law and Arbitration” clause that provided for Japanese law to govern the contract and required any contractual disputes to be resolved through 16 Case: 14-11793 Date Filed: 06/25/2015 Page: 17 of 26 arbitration in Japan. 515 U.S. 528, 531, 115 S. Ct. 2322, 2325 (1995).10 Nonetheless, the Supreme Court in Vimar explained: “At this interlocutory stage it is not established what law the arbitrators will apply to [the plaintiff’s] claims or that [the plaintiff] will receive diminished protection as a result. The arbitrators may conclude that [the U.S. statute] applies of its own force or that . . . [the U.S. statute] controls.” Id. at 540, 115 S. Ct. at 2329.11 Thus, any claim that an arbitration agreement prospectively waived a party’s right to pursue U.S. statutory remedies must be brought at the award-enforcement stage, not at the arbitrationenforcement stage. Lindo, 652 F.3d at 1282. 12 10 Although this clause selected both the forum of dispute resolution (arbitration in Japan) and the choice of law (Japanese law), the Vimar Court referred to this provision simply as a “foreign arbitration clause.” 515 U.S. at 530, 115 U.S. at 2325. 11 In Vimar, the party seeking to avoid arbitration argued that the application of Japanese law in arbitration would operate to limit its rights under the Carriage of Goods by Sea Act. See 515 U.S. at 530, 115 S. Ct. at 2325. In concluding that the argument was premature at the arbitration-enforcement stage, the Vimar Court did not specify whether it reached that result based on the FAA or the Convention Act. See generally id. at 539–41, 115 S. Ct. at 2329–30. Indeed, the Supreme Court in Vimar did not indicate whether the New York Convention even governed the dispute at issue in that case, but merely noted the basic purpose of New York Convention when explaining that American “courts should be most cautious before interpreting its domestic legislation in such manner as to violate international agreements.” Id. at 538–39, 115 S. Ct. at 2329. In Lindo, this Court expressly applied Vimar’s “wait-and-see principle” to a case governed by the Convention Act. See Lindo, 652 F.3d at 1268, 1275–76. 12 In Lindo, the plaintiff seaman sued his employer in Florida state court under the Jones Act for injuries sustained on his employer’s cruise ship. 652 F.3d at 1261. The employer removed the action to federal district court, which granted its motion to compel arbitration pursuant to an arbitration clause in the employment contract. Id. at 1261–62. That contract called for the application of Bahamian law, which the plaintiff claimed violated public policy by waiving his Jones Act claims. Id. at 1262. This Court observed that “a statutory Jones Act claim does not affect the strong presumption in favor of enforcement of the choice clauses” in employment contracts. Id. at 1276. Affirming the district court’s enforcement of arbitration, this Court held that a plaintiff 17 Case: 14-11793 Date Filed: 06/25/2015 Page: 18 of 26 This conclusion accords with holdings by the Second and Fourth Circuits. See JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 167, 182 (2d Cir. 2004) (rejecting as “premature” a party’s argument that application of an arbitration clause would prevent the vindication of certain rights under the Sherman Act because the arbitration clause allowed for arbitration in London under English law); Aggarao, 675 F.3d at 373 (holding that a party to an arbitration agreement and attendant choice-of-law clause could not raise a public-policy defense, which was based on the prospective-waiver doctrine, “until the second stage of the arbitration-related court proceedings—the award-enforcement stage”).13 “cannot raise an Article V public policy defense at this initial arbitration-enforcement stage.” Id. at 1282. Rather, the plaintiff must wait to raise his public-policy argument until after the arbitrator rules, at which time “the record will show what legal principles were applied and what [the plaintiff] recovered, or did not recover, and why.” Id. at 1284. 13 In non-Convention Act cases that cite Vimar, the Fifth and Ninth Circuits have rejected arguments on the merits that certain contractual clauses, which select a foreign judicial (nonarbitration) forum and provide for the application of foreign law, violate public policy by undermining American statutory rights. See, e.g., Ambraco, Inc. v. Bossclip B.V., 570 F.3d 233, 238 (5th Cir. 2009) (in action to recover for damages to cargo, rejecting a defense to contractual clause—which required the parties to proceed in English courts under English law—because the party seeking to avoid the clause failed to prove that application of English law would violate public policy established by the Carriage of Goods at Sea Act); Fireman’s Fund Ins. Co. v. M.V. DSR Atl., 131 F.3d 1336, 1337 (9th Cir. 1997), as amended (Mar. 10, 1998) (in action to recover for damages to cargo, rejecting a defense to a contractual clause—which provided that the contract was governed by Korean law and required contractual disputes to be brought in Korean courts—because application of the clause would “neither lessen[ ] liability under the Carriage of Goods at Sea Act nor violate[ ] public policy”). In those cases, the plaintiffs raised public-policy defenses to the forum-selection and choice-of-law clauses prior to any foreign litigation, rather than when a party sought to enforce a foreign judgment. The defendants in those cases, however, did not raise the threshold issue of whether the plaintiffs’ public-policy arguments were premature at that stage. 18 Case: 14-11793 Date Filed: 06/25/2015 Page: 19 of 26 Consistent with Lindo, Vimar, and these sister circuits, we conclude that Escobar’s public-policy argument (based on a foreign choice-of-law clause) is likewise premature at this arbitration-enforcement stage. See Lindo, 652 F.3d at 1280–82. There will be a subsequent opportunity for review at the awardenforcement stage to ensure that public-policy interests are adequately addressed. See Vimar, 515 U.S. at 539–41, 115 S. Ct. at 2329–30. But Escobar must wait to raise his public-policy argument until after the arbitrator rules, at which time “the record will show what legal principles were applied” and “what [Escobar] recovered, or did not recover, and why.” Lindo, 652 F.3d at 1284. B. Lindo Is Binding Precedent and Remains Good Law Escobar recognizes that Lindo dooms his present challenge to Celebration’s motion to compel arbitration. His response is that we should not follow Lindo. To support that contention, Escobar argues Lindo overlooked an earlier decision in Thomas v. Carnival Corp., 573 F.3d 1113 (11th Cir. 2009). Yet as Lindo expressly explained at length, Thomas itself did not follow prior circuit precedent in Bautista. See Lindo, 652 F.3d at 1277–80 (explaining that “Thomas failed to follow Bautista’s holding”). Bautista, which interpreted the types of defenses available to counter a motion to compel arbitration, held that Article II’s “null and void” clause applied only to traditional breach-of-contract defenses, such as fraud or mistake. See 19 Case: 14-11793 Date Filed: 06/25/2015 Page: 20 of 26 Lindo, 652 F.3d at 1278. Thomas, which neither cited nor acknowledged Bautista’s governing principles, therefore imported an Article V defense into Article II, in contravention of prior Eleventh Circuit precedent. Id. Accordingly, as it was required to do under the prior-panel precedent rule, Lindo correctly followed the earlier controlling decision: Bautista. Indeed, let there be no doubt: To the extent that Thomas and Lindo are arguably at odds, Lindo controls. Thomas also failed to follow Supreme Court precedent holding that it would be premature at the arbitration-enforcement stage to make a finding that a plaintiff will receive “diminished protection” in arbitration, even where the plaintiff seeks to assert U.S. statutory rights but the arbitration provision states that the claims will be governed by foreign law. See Vimar, 515 U.S. at 539–41, 115 S. Ct. at 2329– 30; see also Lindo, 652 F.3d at 1268–69 (discussing Vimar). Finally, Escobar contends that Lindo is inconsistent with Supreme Court precedent. We disagree. As to the earlier Supreme Court case relied on by Escobar—Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 105 S. Ct. 3346 (1985)—Lindo explained in some detail why Mitsubishi Motors’s dicta, which is found in a footnote and is now relied on by Escobar, was not inconsistent with Lindo’s holding. See Lindo, 652 F.3d at 1265–68, 1281–82. 20 Case: 14-11793 Date Filed: 06/25/2015 Page: 21 of 26 Contrary to Escobar’s claims, Lindo also is not inconsistent with the later case Italian Colors, where the Supreme Court acknowledged the effectivevindication doctrine. See 570 U.S. at ___, 133 S. Ct. at 2310. In fact, the Italian Colors Court noted that the effective-vindication doctrine originated as dictum in Mitsubishi Motors (where it had not been applied to invalidate the arbitration agreement at issue there) and was discussed in two other Supreme Court cases (but again not applied to invalidate the arbitration agreements there). See id. Likewise, notwithstanding its mention of this doctrine (on which Escobar seeks to rely), the Supreme Court in Italian Colors gave no further guidance on the doctrine’s application that would alter our previous understanding of it. See generally id. at ___, 133 S. Ct. at 2310–12. Importantly, the opinion in Italian Colors likewise declined to apply that doctrine, or any other rationale, to invalidate the arbitration agreement at issue. Id. at ___, 133 S. Ct. at 2310–11. In short, nothing in Lindo conflicts with either Italian Colors or Mitsubishi Motors.