Enforceability of Arbitration Clauses

Enforceability of Arbitration Clauses in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): On October 18, 2011, the U.S. Court of Appeals for the Ninth Circuit affirmed a lower court's denial of a motion to compel arbitration. Smallwood v. Allied Van Lines, 660 F.3d 1115 (9th Cir. 2011). The Court of Appeals held that foreign arbitration clause in the contract at issue was unenforceable in light of the exception to arbitration created by Congress in the Carmack amendment. The case was brought by Mr. Smallwood after Allied Van Lines (“AVL”) shipped certain of his property—including firearms and ammunitions—to the United Arab Emirates (“UAE”) when he intended that property to be stored in the United States. This misdirection led to Smallwood's arrest and imprisonment in the UAE. AVL sought to compel arbitration under the foreign arbitration clause in the shipping contract. The interaction of the Carmack Amendment, 49 U.S.C. § 14706, with federal arbitration law is discussed in the opinion of the Court of Appeals, excerpted below with footnotes omitted.

Developments

III. Discussion AVL argues that the district court erred for either of two reasons: (1) the Carmack Amendment permits foreign arbitration clauses; or (2) the Federal Arbitration Act requires enforcement of the arbitration clause even if it conflicts with the Carmack Amendment. We reject both arguments.

A. The Carmack Amendment The Carmack Amendment governs the terms of interstate shipment by domestic rail and motor carriers. See [Regal–Beloit Corp. v. Kawasaki Kisen Kaisha Ltd., 557 F.3d 985, 990 (9th Cir.2009), rev'd on other grounds, ––– U.S. ––––, 130 S.Ct. 2433, 177 L.Ed.2d 424 (2010)]. Carmack was enacted in 1906 as an amendment to the Interstate Commerce Act. See id. It has since been amended repeatedly, but its purpose has always been “to relieve cargo owners 'of the burden of searching out a particular negligent carrier from among the often numerous carriers handling an interstate shipment of goods.' ” Kawasaki, 130 S.Ct. at 2441 (quoting Reider v. Thompson, 339 U.S. 113, 119, 70 S.Ct. 499, 94 L.Ed. 698 (1950)). Part of the relief guaranteed to shippers was “the right of the shipper to sue the carrier in a convenient forum of the shipper's choice.” Aaacon Auto Transp., Inc. v. State Farm Mut. Auto. Ins. Co., 537 F.2d 648, 654 (2d Cir.1976).

When interpreting Carmack:

Our analysis begins, as it must, with the text of the statute in question. Azarte v. Ashcroft, 394 F.3d 1278, 1285 (9th Cir.2005). Under the “plain meaning” rule, “[w]here the language [of a statute] is plain and admits of no more than one meaning the duty of interpretation does not arise, and the rules which are to aid doubtful meanings need no discussion.” Carson Harbor Vill., Ltd. v. Unocal Corp., 270 F.3d 863, 878 (9th Cir.2001) (en banc) (quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917)).

Campbell v. Allied Van Lines Inc., 410 F.3d 618, 620–21 (9th Cir.2005) (alteration in original).

Carmack's statutory scheme is clearly intended to protect shippers from being forced to submit to foreign arbitration as a condition of contracting with a carrier of household goods. To begin with, Carmack expressly prohibits carriers of household goods from contracting around the statute's requirements. See 49 U.S.C. § 14101(b)(1) (“A carrier providing transportation or service subject to jurisdiction under chapter 135 may enter into a contract with a shipper, other than for the movement of household goods described in section 13102(10)(A), to provide specified services under specified rates and conditions.”). It is undisputed that AVL is a carrier of household goods and therefore prohibited from contracting around Carmack's conditions.

Details

AVL's foreign arbitration clause would allow AVL to compel Smallwood to arbitrate, probably in the UAE. We have held that “foreign arbitration clauses are but a subset of foreign forum selection clauses in general.” See Fireman's Fund Ins. Co. v. M.V. DSR Atl., 131 F.3d 1336, 1339 (9th Cir.1997) (internal quotation marks omitted). The parties' foreign arbitration clause plainly contravenes Carmack's directive that Smallwood have recourse in the enumerated venues unless he agrees to arbitrate elsewhere after the dispute arises.

AVL raises a final argument based on analogy to the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. § 30701. COGSA is a regulatory regime for ocean carriage akin to the Carmack regime for motor and rail carriage. The Supreme Court has held that COGSA permits foreign forum selection clauses, see Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 541, 115 S.Ct. 2322, 132 L.Ed.2d 462 (1995), and we have extended that rule to foreign arbitration clauses, see Fireman's Fund, 131 F.3d at 1339. Sky Reefer and COGSA, however, are inapposite here. Whereas Carmack explicitly guarantees shippers certain venues to seek recourse against their carriers, COGSA only generally prohibits ocean carriers from using contracts “relieving [their] liability for loss or damage to or in connection with the goods, arising from negligence, fault, or failure in the duties and obligations provided in this section, or lessening such liability.” COGSA, § 3(8), 46 U.S.C. § 30701 note (quoted by Sky Reefer, 515 U.S. at 534, 115 S.Ct. 2322). Sky Reefer interpreted COGSA's prohibition on contracts lessening liability to apply only to the liability explicitly articulated in COGSA and not to extend to procedural issues affecting the shipper's ease of recovery. See 515 U.S. at 534–35, 115 S.Ct. 2322 (emphasizing the phrase “duties and obligations provided in this section”). Because Carmack expressly prohibits carriers of household goods from contracting around its venue provisions, and because Smallwood does not rely on a general prohibition on lessening carriers' liability, Sky Reefer and its interpretation of COGSA § 3(8) are inapposite to the U.S. interpretation of Carmack.

For the foregoing reasons we agree with the district court's interpretation of § 14706. Foreign arbitration clauses, except as provided in § 14708, are unenforceable under Carmack because they necessarily involve limiting shippers' choice of venues enumerated in the statute.

More about the Issue

B. Federal Arbitration Law AVL argues that the U.S. interpretation of Carmack conflicts with federal arbitration law. We have previously explained:

Federal arbitration law is codified in the three chapters of Title 9 of the United States Code. The Federal Arbitration Act (“FAA”), enacted in 1947, comprises the first chapter. See 9 U.S.C. §§ 1–14. The “Convention on the Recognition and Enforcement of Foreign Arbitral Awards,” implementing the treaty of the same name, was enacted in 1970. This statute, commonly called the Convention Act, comprises the second chapter. See 9 U.S.C. §§ 201–208. The third chapter, implementing the Inter American Convention on International Commercial Arbitration, is not relevant to this case. See 9 U.S.C. §§ 301–307.

Rogers v. Royal Caribbean Cruise Line, 547 F.3d 1148, 1152–53 (9th Cir.2008). AVL cites both the FAA and the Convention Act. The Convention Act was “intended to encourage the recognition and enforcement of commercial arbitration agreements in international contracts.” Sky Reefer, 515 U.S. at 538, 115 S.Ct. 2322 (internal quotation marks omitted). Indeed, “[i]t is well-settled that 'questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.' ” Balen v. Holland Am. Line Inc., 583 F.3d 647, 652 (9th Cir.2009) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). That preference, however, applies only if “there is no independent basis in law or equity for revocation.” Sky Reefer, 515 U.S. at 538–39, 115 S.Ct. 2322 (citing Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995)). “Like any statutory directive, the Arbitration Act's mandate may be overridden by a contrary congressional command.” Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987). “The burden is on the party opposing arbitration, however, to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue.” Id. at 227, 107 S.Ct. 2332.

When Congress intends to create an exception to the FAA, “such an intent 'will be deducible from [the statute's] text or legislative history,' or from an inherent conflict between arbitration and the statute's underlying purposes.” Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)) (alteration in original and citations omitted). As we have explained, the plain text of Carmack prohibits household carriers from forcing a shipper to agree to arbitrate his claims as a condition to contracting. Thus, there is “a contrary congressional command” that overrides the FAA's mandate to enforce arbitration agreements.

Enforceability of Arbitration Clauses in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): Conclusion The parties' arbitration clause is unenforceable under 49 U.S.C. § 14706 because it contravenes a shipper's right to select his forum after the dispute arises, and thus violates the plain language of the Carmack Amendment.

Enforceability of Arbitration Clauses

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See Also

• Private International Law
• International Civil Litigation
• Enforceability
• Arbitration Clauses