Waiver of the Right to Remove in Forum Selection Clauses Subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards - William E. Marple and Andrew O. Wirmani

• Publication year: 2011

Waiver of the Right to Remove in Forum Selection Clauses Subject

to the Convention on the Recognition and Enforcement of

Foreign Arbitral Awards

by William E. Marple* and Andrew O. Wirmani**

I. Introduction

Three federal appellate decisions have now addressed whether, in cases subject to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention),¹ parties may agree to waive their right to remove to federal court through forum selection clauses.² In all three cases, each court held that to be enforceable the waiver must be expressed in "clear and unequivocal"

* Of Counsel, Jones Day, Dallas, Texas. Indiana University (A.B., 1970); Indiana University Maurer School of Law (J.D., 1973). Member, State Bars of Indiana (inactive) and Texas.

** Associate, Jones Day, Dallas, Texas. University of Texas (A.B., 2002); University

of Texas School of Law (J.D., 2006). Member, State Bar of Texas.

The views expressed herein are solely those of the Authors.

1. June 10, 1958, 21 U.S.T. 2517 [herinafter New York Convention]. For a discussion of the provisions of the New York Convention and its applicability in the United States through the Convention Act, 9 U.S.C. §§ 201-208 (2006), see Susan L. Karamanian, The Road to the Tribunal and Beyond: International Commercial Arbitration and United States Courts, 34 Geo. Wash. Int'l L. Rev. 17 (2002).

2. Ensco Int'l, Inc. v. Certain Underwriters at Lloyd's, 579 F.3d 442, 443 (5th Cir. 2009); Suter v. Munich Reinsurance Co., 223 F.3d 150, 154 (3d Cir. 2000); McDermott Int'l, Inc. v. Lloyds Underwriters of London, 944 F.2d 1199, 1200 (5th Cir. 1991).

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terms or meet some other heightened standard of scrutiny.³ These court decisions present several significant points. First, the decisions of these courts to deviate from general principles of contract construction and analyze the waiver issue under heightened scrutiny is out of step with the principles established by the Supreme Court ofthe United States for construing forum selection clauses in international contracts and arbitration provisions generally.⁴ Second, these decisions conflict with the well-recognized ability of foreign commercial entities to draft such clauses with clarity to avoid waiver of the right to remove.⁵ Third, the court decisions are at odds with the international business community's preference for liberal enforcement of forum selection clauses, as the provisions of the Hague Convention on Choice of Court Agreements (Hague Convention)⁶ points out.⁷ Finally, the decisions impose a preference for federal court adjudication on parties' privately negotiated agreements that is absent from the text of the New York Convention.⁸ However, contrary to the prevailing judicial view, the intent of parties to waive their right to remove in cases subject to the New York Convention should be determined-as it would be in any other case-by applying ordinary principles of contract construction.

II. The New York Convention and the Convention Act

Through amendments to the Federal Arbitration Act (FAA),⁹ Congress implemented the New York Convention.¹⁰ The New York Convention requires enforcement of arbitration agreements and arbitral awards made in foreign countries.¹¹ Commonly called the Convention Act,¹² the amendments apply to "commercial" arbitration agreements

3. Ensco, 579 F.3d at 448 ("[W]hether the Policies meet the McDermott waiver standard is properly answered under the 'clear and unequivocal' test. . . ."); id. at 449 ("[A] waiver of the right to remove under § 205 must be 'express' or 'explicit.'") (Owen, J., concurring in judgment only) (quoting McDermott, 944 F.2d at 1209); Suter, 223 F.3d at 158 (holding that "there can be no waiver of a right to remove under the Convention Act in the absence of clear and unambiguous language requiring such a waiver"); McDermott, 944 F.2d at 1209 ("we will give effect only to explicit waivers of Convention Act removal rights," and "we adopt the express waiver rule. . . .").

4. See, e.g., Bremen v. Zapata Off-shore Co., 407 U.S. 1, 15 (1972).

5. See, e.g., Suter, 223 F.3d at 164-65 (Alito, J., dissenting).

6. June 30, 2005, 44 I.L.M. 1294 [hereinafter Hague Convention].

7. See generally id.

8. Suter, 223 F.3d at 157-58 (quoting In re Tex. E. Transmission Corp., 15 F.3d 1230, 1243 (3d Cir. 1994)); see New York Convention, supra note 1.

9. 9 U.S.C. §§ 1-307 (2006).

10. Karamanian, supra note 1, at 18.

11. Id. at 33 & nn.102, 106.

12. 9 U.S.C. §§ 201-208 (2006).

2011] FORUM SELECTION CLAUSES 503

between citizens of differing nations.¹³ "[T]he Convention Act 'demonstrates the firm commitment of the Congress to the elimination of vestiges ofjudicial reluctance to enforce arbitration agreements, at least in the international context.'"¹⁴

By granting state and federal courts concurrent jurisdiction over cases implicating the New York Convention, the Convention Act specifically contemplates that these cases might be filed in state court.¹⁵ Thus, state courts may hear cases subject to the New York Convention, but these cases may be removed to federal court under expanded removal provisions.¹⁶ Under the New York Convention, "[t]he procedure for removal ofcauses otherwise provided by law shall apply, except that the ground for removal . . . need not appear on the face ofthe complaint but may be shown in the petition for removal."¹⁷ Furthermore, a Convention Act case may be removed "at any time before . . . trial,"¹⁸ and the district courts have jurisdiction "regardless of the amount in controver-sy."¹⁹ Aside from these three provisions, Congress did not indicate that any special rules apply to removal or to forum selection clauses in Convention Act cases; thus, the Act does not include any heightened standard to effectuate a waiver of the right to remove.²⁰

III. Do You Trust Your Local Court?

In the most recent federal appellate decision addressing a waiver of the right to remove in a case subject to the Convention Act, Ensco International, Inc. v. Certain Underwriters at Lloyd's,²¹ two members

13. 9 U.S.C. § 202 ("An arbitration agreement or arbitral award arising out of a legal relationship . . . which is considered as commercial . . . falls under the Convention."); see also Karamanian, supra note 1, at 34-36 (discussing § 202 of the Convention Act).

14. Suter v. Munich Reinsurance Co., 223 F.3d 150, 155 (3d Cir. 2000) (quoting McCreary Tire & Rubber Co. v. Ceat, 501 F.2d 1032, 1037 (3d Cir. 1974)); see also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 n.14 (1985) (noting that the FAA "was designed to overcome an anachronistic judicial hostility to agreements to arbitrate").

15. McDermott Int'l, Inc. v. Lloyds Underwriters of London, 944 F.2d 1199, 1208 n.12 (5th Cir. 1999); see also 9 U.S.C. § 203 ("An action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States."); 9 U.S.C. § 205 (providing for removal "of an action or proceeding pending in a State court [that] relates to an arbitration agreement or award falling under the Convention").

16. 9 U.S.C. § 205; see also McDermott, 944 F.2d at 1208 n.12.

17. 9 U.S.C. § 205.

18. Id. The general removal statute requires removal within thirty days of service of

the complaint. 28 U.S.C. § 1446(b) (2006).

19. 9 U.S.C. § 203.

20. See 9 U.S.C. §§ 201-208.

21. 579 F.3d 442 (5th Cir. 2009).

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of a panel of the United States Court of Appeals for the Fifth Circuit agreed that a forum selection clause in an insurance policy between a United States company and its foreign insurer waived the right of the insurer to remove to federal court.²² The clause in question stated, "Any disputes arising under or in connection with [this insurance policy] shall be subject to the exclusive jurisdiction of the Courts of Dallas County, Texas."²³ In two earlier federal appellate decisions addressing the waiver issue, Suter v. Munich Reinsurance Co.²⁴ and McDermott International, Inc. v. Lloyds Underwriters of London,²²⁵ the United States Court of Appeals for the Third and Fifth Circuits held that the "service ofsuit" clause did not waive the right to remove to federal court because of ambiguity.²⁶ In McDermott the service of suit clause stated,

[Insurers] hereon, at the request of the [insured] will submit to the jurisdiction of any court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such court.²⁷

The difference between the two clauses is that the clause in Ensco provided for exclusive jurisdiction in Dallas County, Texas,²⁸ whereas the clauses in Suter and McDermott merely provided that the insurer would submit to jurisdiction in a forum in the United States without expressly providing for exclusive jurisdiction in that court or otherwise limiting the right to remove.²⁹ If the insured under the latter clause chose to file in state court, the only way to give effect to the clause would be to deem it a waiver of the right to remove. Indeed, if an insurer chose to bring suit in state court, an insured could not both file

22. Id. at 443, 449.

23. Id. at 443 (emphasis added). Judge Jolly dissented and argued that this clause was insufficient to waive removal despite the parties' agreement to "exclusive jurisdiction" in a Texas state court because it did not expressly state that the insurer waived its right to remove. Id. at 451 (Jolly, J., dissenting).

24. 223 F.3d 150 (3d Cir. 2000).

25. 944 F.2d 1199 (5th Cir. 1991).

26. Suter, 223 F.3d at 159-60; see McDermott, 944 F.2d at 1209-13.

27. 944 F.2d at 1200. The clause in Suter was substantively identical. See 223 F.3d at 153.

28. 579 F.3d at 443. The Fifth Circuit has held that designating the courts "of" a state refers only to state courts, not federal...