FR 8 Singapore Pte, Ltd. (FR8) v. Albacore Maritime Inc. (Albacore), et al., 10 Civ. 1862 (S.D.N.Y. 14 Dec. 2010), decided several important and recurring issues in international litigation, specifically regarding the enforcement of arbitration clauses (see the discussion of the general topic of securing jurisdiction to enforce arbitration clauses in our e-book, International Practice: Topics and Trends).
The underlying dispute involved the nondelivery of a vessel by FR8 to Albacore. Third parties (Prime Marine Corp.) did not sign the governing MoU, but FR8 sought to compel them to arbitrate the dispute as the alter ego of Albacore. All of the Albacore entities are Marshall Islands entities. The MoU designates English law.
The District Court’s rulings included:
- Although federal diversity jurisdiction was lacking, since there were non-U.S. entities on both sides of the case, the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1, et seq., provided independent subject matter jurisdiction since there was an unequivocal refusal to arbitrate, which is sufficient to ground jurisdiction on federal courts under Section 4 of the FAA.
- More significantly, the District Court addressed the choice-of-law issue as it applied to the veil-piercing/alter-ego claim, which was essential to determine in order to direct non-signatory Prime Marine to arbitrate. The District Court discussed two Second Circuit cases, Kalb Voorhis & Co. v. American Financial Corp., 8 F.3d 130 (2d Cir. 1993), and Smith/Enron Cogeneration Ltd Partnership, Inc. v. Smith Cogeneration Int’l, Inc., 198 F.3d 88 (2d Cir. 1999). Kalb, the District Court held, applied choice-of-law principles of the forum state, there New York. However, the District Court found that Smith/Enron “disavowed this approach” in international cases (i.e., those governed by the New York Convention). The Second Circuit stated that applying the choice of law rules of the forum state in order to determine the applicable body of law would “introduce a degree of parochialism and uncertainty into international arbitration that would subvert the goal of simplifying and unifying international arbitration law”.
- Most significantly, the District Court analyzed two other Second Circuit cases to describe as “less than crystal clear” the Circuit’s approach to applying either the law specified by the parties in their governing agreement or federal common law to the question of binding a nonsignatory to arbitration. (Motorola Credit Corp. v. Uzan, 388 F.3d 39 (2d Cir. 2004) (applying the law designated by the choice-of-law clause); Sarhark Group v. Oracle Corp., 404 F.3d 657 (2d Cir. 2005)(applying federal common law). The difference between those two bodies of jurisprudence is significant and possibly dispositive in this case, since under federal common law veil piercing for purposes of compelling a non-signatory to arbitrate required only domination, whereas under the law of the forum chosen by the parties in the underlying contract (here that of English law) was claimed to impose a much higher standard (arguably higher even than that subset of U.S. law requiring not only domination but use of the alter ego to commit fraud or possibly other wrongdoing).
- The District Court held that, even supposing the law might be different in the context of enforcinga non-U.S. arbitral award, in the context of compellingthe arbitration in the first place the law specified in the parties’ agreement governed (at least where it was a signatory trying to take advantage of the other clauses in the underlying agreement). On this basis the District Court applied English law, in part as a means of “ensur[ing] uniform application of arbitration clauses within numerous countries that have signed the New York Convention” – i.e., to discourage forum shopping. Unfortunately, the parties had not briefed English law on the subject of veil piercing. The District Court did observe that another Southern District of New York decision thoroughly surveyed the subject (we discussed this case our blog posting discussing relying on experts to determine non-U.S. law).
- Finally, the District Court, citing a 1987 Second Circuit decision in which this author acted as counsel and which is still good law (Transunion v. PepsiCo, Inc., 811 F.2d 127 (2d Cir. 1987)), the District Court held that, generally, forum non conveniens motions are decided on affidavits absent “sharply differing views” of the relevant facts.