In a case of first impression, the United States Fifth Circuit Court of Appeals affirmed a district court’s refusal to confirm a foreign arbitral award due to lack of personal jurisdiction. In First Investment Corporation of the Marshall Islands v. Fujian Mawei Shipbuilding, Limited, No. 12-30377 (5th Cir. revised Jan. 17, 2013), First Investment Corporation of the Marshall Islands (“First Investment”) entered into a series of contracts to purchase new ships from Chinese state-owned Fujian Shipbuilding Industry Group Corporation (“FSIG”) and Fujian Mawei Shipbuilding Limited, a private company that is owned in large part by FSIG (collectively, the “Fujian Companies”). According to First investment, the Fujian Companies breached the parties’ shipbuilding agreement by refusing to honor an option contract. As a result of the alleged breach, First Investment invoked an arbitration clause in the parties’ contract and an arbitration panel was formed in London under the rules of the London Maritime Arbitration Association. A three-member arbitral panel decided in favor of First Investment. One of the arbitrators, however, was unable to sign the award because he was detained by the Chinese government before a final draft was completed. His draft dissenting opinion was attached to a final arbitral award of $26 million. After the arbitral award was issued, First Investment attempted to confirm it in China under to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The Chinese court reportedly refused to confirm the $26 million award pursuant to Article V of the New York Convention because the detained arbitrator never reviewed the final draft. About one year later, First Investment sought to confirm the arbitral award against both the Fujian Companies and the People’s Republic of China in the United States District Court for the Eastern District of Louisiana. Although the court issued a default judgment in favor of First Investment, it was later vacated as a result of improper service. The Louisiana court then granted the Fujian Companies’ motion to dismiss the case for lack of personal jurisdiction. The court also dismissed First Investment’s petition against China for lack of subject matter jurisdiction. First Investment then appealed to the Fifth Circuit. According to the appeals court: …First Investment argues that the Fujian Entities, as foreign entities with no contacts in the United States, were not entitled to the protections of the Fifth Amendment’s Due Process Clause. First Investment further asserts that personal jurisdiction is not a valid defense under the New York Convention. Finally, First Investment argues that because the Fujian Entities were alter egos of the PRC, a foreign state over which personal jurisdiction was not required, the district court was wrong to dismiss the Fujian Entities. As to the first argument, the Fifth Circuit stated there is no case law to support First Investment’s contention that foreign entities without property in the United States are not entitled to due process protections. Instead, the court held, …[T]here is no basis to conclude that a party’s status as a foreign entity permits a court to ignore personal jurisdiction or exercise such jurisdiction without first establishing sufficient contacts between the defendant and the forum state. Next, the appellate court addressed First Investment’s claim that lack of personal jurisdiction is not one of the grounds on which confirmation of an arbitral award may be denied under the New York Convention. The court stated, Even though the New York Convention does not list personal jurisdiction as a ground for denying enforcement, the Due Process Clause requires that a court dismiss an action, on motion, over which it has no personal jurisdiction. See Pervasive Software, Inc., 688 F.3d at 220-21. Because the New York Convention, through its implementing legislation, is an exercise of presidential and congressional power, whereas personal jurisdiction is grounded in constitutional due process concerns, there can be no question that the Constitution takes precedence. The Fifth Circuit continued, Regardless of Congress’s intent in failing explicitly to include a personal jurisdiction requirement, a court is not thereby relieved of its responsibility to enforce those constitutional protections that guard a party from appearing in a forum with which it has no contacts. Finally, the appeals court dismissed First Investment’s argument that the Fujian Companies are merely alter egos for the People’s Republic of China by stating the company failed to meet the accepted “standard for establishing an alter ego relationship.” Because there was no basis to establish personal jurisdiction over the Fujian Companies or subject matter jurisdiction over the People’s Republic of China, the United States Fifth Circuit Court of Appeals affirmed the district court’s decision to dismiss the case.

In January, the United States Fifth Circuit Court of Appeals upheld an arbitrator’s decision in a case that arose pursuant to a collective bargaining agreement. In Albemarle Corporation v. United Steel Workers AOWU Local 103, No. 11-31185 (5th Cir. Jan. 3, 2013), two Albemarle Corporation (“Albemarle“) employees were terminated for alleged safety violations. Their union, United Steel Workers (“USW”), represented the men in arbitration under the parties’ collective bargaining agreement (“CBA”). After an arbitrator ruled that the two men should be reinstated following a 14-month unpaid suspension, Albemarle sought judicial review of the arbitrator’s decision. In the case, Albemarle claimed the arbitrator exceeded his authority and his decision violated public policy. A district court granted Albemarle’s motion for summary judgment and vacated the arbitrator’s decision. USW then appealed the case to the Fifth Circuit. The Circuit Court stated judicial review of an arbitral decision that arises from a CBA is narrowly limited. According to the Fifth Circuit, so long as an arbitrator has arguably construed the parties’ agreement and acted within the scope of his authority his decision may not be overturned even if a court believes he committed serious error. Because there was no language in the CBA that required an employee be terminated as a result of a safety violation, the Appeals Court held the arbitrator’s reading of the contract was within the bounds of his authority. Next, Albemarle maintained that the arbitrator’s decision to reinstate the employees violated public policy. The Circuit Court stated that although a collective bargaining agreement may be unenforceable on such grounds, the “public policy must be explicit, well defined, and dominant.” The Fifth Circuit continued, In the present case, the Grievants made a serious error in the manner they reported the spill for which they are being strictly disciplined. However, the arbitrator at the same time found that the Grievants had no prior record of safety violations; that a gasket failure, and apparently not the Grievants, was responsible for causing the leak; that the Grievants reported the incident within five minutes to a security guard who quickly reached a supervisor; and that the spill was not cause for issuing emergency notifications. In light of the factual record, Albemarle does not articulate how the CBA, if read by the arbitrator to permit reinstating the Grievants after sanctioning them fourteen months lost wages, violates public policy. We find the public policy exception does not apply. Because the arbitrator’s decision was within the bounds of his authority under the parties’ CBA and did not violate public policy, the Fifth Circuit reversed the district court’s decision and upheld the arbitral award.

The following bills relating to alternative dispute resolution were introduced during the 83rd Texas legislative session. The last day of the regular session will be Monday, May 27, 2013. Click on the bill number to read its text and on the status link to find the bill’s legislative history. Senate Bills: SB 355 relates “to the powers and duties of the Title IV-D agency regarding the establishment, collection, and enforcement of child support and in connection with an application for a marriage license or protective order; providing an administrative fine.” Bill status. SB 296 relates “to the waiver of sovereign immunity for certain claims arising under written contracts with state agencies.” Bill status. House Bills: HB 33 relates “to alternative methods of dispute resolution in certain disputes between the Department of Aging and Disability Services and an assisted living facility licensed by the department.” Bill status. HB 167 relates “to the establishment, operation, and funding of victim-offender mediation programs.” Bill status. HB 399 relates “to the confidentiality of certain communications involving an ombudsman program established by an employer as an alternative dispute resolution service.” Bill status. HB 585 relates “to procedural requirements under the Property Tax Code.” Bill status. HB 586 relates “to the waiver of sovereign immunity for certain claims arising under written contracts with state agencies.” Bill status. HB 837 relates “to credit to certain ceding insurers for reinsurance ceded to certain certified assuming insurers.” Bill status. HB 899 relates “to certain rights of victims, guardians of victims, and close relatives of deceased victims in the criminal justice system.” Bill status. HB 937 relates “to establishing a restorative justice pilot program for juvenile offenders in certain counties.” Bill status. HB 1031 relates “to the confidentiality of certain communications involving an ombudsman program established by an employer as an alternative dispute resolution service.” Bill status. HB 1065 relates “to the right of an employee who is a victim of a crime to time off from work to attend court proceedings related to that crime.” Bill status. The deadline for filing new bills or joint resolutions is Friday, March 8th. Please stay tuned to Disputing for more Texas legislative updates!

Professor S.I. Strong, from the University of Missouri School of Law (and a friend of this blog) has published “Arbitration of Trust Disputes: Two Bodies of Law Collide,” 45 Vanderbilt Journal of Transnational Law 1157 (2012). Here is the abstract: Once considered nothing more than “mere” estate-planning devices, trusts play a large and growing role in the international economy, holding trillions of dollars of assets and generating billions of dollars of income each year. However, the rising popularity of both commercial and noncommercial trusts has led to an explosion in hostile trust litigation, leading settlors and trustees to search for new and less expensive ways to resolve trust-related disputes. One possible solution involves use of a mandatory arbitration provision in the trust itself. However, the unique, multiparty nature of trust disputes often makes this sort of arbitration highly controversial. This Article considers the various issues that arise when two separate bodies of law—trust law and arbitration law—collide, using recent developments in the field of international commercial arbitration to address some of the more intransigent problems facing trust arbitration. In so doing, this Article introduces a number of new judicial decisions not previously considered in the scholarly literature and brings a uniquely comparative and international perspective to the debate regarding the jurisprudential propriety of mandatory trust arbitration. The full text of the article is available to download, along with other scholarly papers by Professor S.I. Strong.