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11 Harv. Negot. L. Rev. 473
Harvard Negotiation Law Review
Spring 2006
Case Comment
FROM PROTECTION TO FAVORITISM? THE FEDERAL POLICY TOWARD ARBITRATION VIS-À-VIS
COMPETING STATE POLICIES
Jane VanLared1
Copyright (c) 2006 Harvard Negotiation Law Review; Jane VanLare
Introduction
The recent Fifth Circuit decision in Lim v. Offshore Specialty Fabricators, Inc. 1 addressed the contentious issue of whether
an international forum selection provision is enforceable despite a countervailing state public policy. The case followed a
series of Louisiana state and federal personal injury cases involving foreign seamen working for U.S. or international
corporations, whose employment contracts included an international arbitration clause, a subset of forum selection clauses. 2
The Convention on the Enforcement of Foreign Arbitral Awards 3 (hereinafter “Convention”) and federal maritime law
govern such arbitration clauses. Some courts in this line of cases have applied the Convention to enforce the international
forum selection clauses in seamen’s contracts. Meanwhile, others refused to compel enforcement, citing a Louisiana state
statute which proclaimed a state public policy against forum selection clauses in employment contracts. 4
In Lim, the issue of whether or not to enforce an international arbitration provision resulted from a conflict between the
Convention and the Louisiana state statute. The defendant corporation argued that the forum selection clause was enforceable
because the state statute was preempted by the Convention, a federal treaty. The *474 plaintiffs, on the other hand, cited the
seminal case of M/S Bremen v. Zapata Off-Shore Co.,5 which held that although forum selection clauses are prima facie
valid, they may be invalidated if their enforcement would contravene a strong public policy of the forum in which the action
originated. The Louisiana state statute declares such a public policy.
The Fifth Circuit sided with the defendant and enforced the international arbitration provision in Lim’s employment contract,
ruling in favor of preemption of the state statute. In response to Lim’s use of M/S Bremen, the court pointed to the strong
federal public policy in favor of enforcing international arbitration agreements as first expressed in the Federal Arbitration
Act (FAA)6 and subsequent U.S. Supreme Court decisions, and later extended to international arbitration by the Convention.
The Fifth Circuit concluded that the federal public policy outweighed state public policy. This ruling closed U.S. courts to
seamen who seek to pursue their claims in American fora, but whose employment contracts contain an international
arbitration clause.
One year prior to Lim, a similar case came before the Fifth Circuit. In Dahiya v. Talmidge International, Ltd., 7 an Indian
seaman was injured while on board his ship and brought suit in Louisiana, despite a forum selection clause in his
employment contract which required all dispute resolution to occur in India, Singapore, or at a location chosen by his
employer. The district court refused to enforce the foreign arbitration clause, citing the Louisiana state public policy against
forum selection provisions.8 The defendants appealed, but the Fifth Circuit refused to rule on the merits of the case, stating
that it had no appellate jurisdiction.9 The case thus left unresolved the issue of whether the Louisiana state public policy
could prevent the enforcement of a foreign arbitration provision. In Lim, the Fifth Circuit reconfronted the issue that it
refused to address in Dahiya.
Lim exemplifies the increasing enforcement of forum selection provisions by courts. Moreover, the case suggests the
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declining status of the public policy exception outlined in M/S Bremen. While cited in numerous cases involving
international forum selection clauses in the context of M/S Bremen, the public policy exception *475 rarely prevents the
enforcement of a forum selection clause. The balancing of various federal and state public policies with the federal public
policy in favor of arbitration typically leads to victory for the latter.
The Lim case does not, however, address another potential barrier to the enforcement of international arbitration
provisions--the broad nature of Louisiana’s public policy. In the context of the FAA, state statutes that apply generally to all
contracts and that do not directly target arbitration are not preempted. Unlike many of the state statutes that were struck down
during the development of the national policy in favor of arbitration, the Louisiana statute does not explicitly target
arbitration. Instead, the statute prohibits all forum selection (both arbitration and not) in employment contracts. Interestingly,
this issue has not been raised by the parties or the courts in litigation involving seamen, including the Lim case.
Both the weakening of the M/S Bremen public policy exception and the absence of the generality argument point to the
growing likelihood that forum selection provisions will be enforced by the courts even when contrary to state public policy.
In the process the original goal of the national arbitration policy embodied in the Federal Arbitration Act--to “place
arbitration agreements ‘upon the same footing as other contracts”’10--may be superseded by an increasing favoritism toward
arbitration.
I. Lim v. Offshore Specialty Fabricators, Inc.
A. Facts and Procedural History
A seaman, who is a citizen and resident of the Philippines, brought suit in the Eastern District of Louisiana against his
employer, a Louisiana corporation. The suit soon became a collective action, which included approximately one hundred
other seamen. The claim alleged minimum wage and overtime violations under the Fair Labor Standards Act (FLSA).11 The
employer, Offshore Specialty Fabricators (hereinafter “Offshore”), moved to dismiss for lack of subject matter jurisdiction
and improper venue, claiming that the terms of the seaman’s employment contract required arbitration of *476 the claim in
the Philippines and that the Convention required enforcement of the arbitration clause.12
The plaintiffs argued that the forum selection clause was unenforceable for three reasons: (1) arbitration is not required in
seamen’s wage litigation, (2) FLSA claims stem from U.S. law and, therefore, cannot be arbitrated in another country, and
(3) enforcement of the forum selection clause would contradict Louisiana’s public policy, which explicitly prohibits forum
selection clauses in employment contracts.13 The plaintiffs relied on the test articulated in M/S Bremen to support the public
policy exception argument. In M/S Bremen, the Supreme Court ruled that forum selection clauses are valid unless they
contravene a strong public policy of the forum in which the action was brought. 14 In this case, a Louisiana statute specifically
expresses a strong public policy of forbidding forum selection clauses in employment contracts. 15
Ignoring the plaintiffs’ first two arguments, the district court denied the motion to dismiss on the basis of the third argument,
agreeing with the plaintiffs that the public policy exception developed in M/S Bremen applied in this case and precluded the
enforcement of the arbitration clause.16 The defendant then filed an interlocutory appeal to the Fifth Circuit.
B. Holding
The Fifth Circuit reversed and vacated the district court’s ruling. 17 The court first noted that foreign arbitration clauses
constitute a “subset of foreign forum selection clauses in general.”18 The court recognized that the Convention, as a treaty
made pursuant to the Constitution and laws of the United States, trumped contrary state *477 law under the Supremacy
Clause in Article VI.19 Since the Convention requires the enforcement of arbitration clauses, the court found that it supported
enforcement of the international arbitration clause in this case.
The court then considered the plaintiffs’ argument that Louisiana’s public policy against forum selection clauses served as an
exception to the enforcement of the forum selection clause. Under M/S Bremen, a forum selection clause may be
unreasonable when “enforcement would contravene a strong public policy of the forum in which suit is brought, whether
declared by statute or by judicial decision.”20 According to the plaintiffs, the Louisiana state statute expresses a public policy
that should bar the enforcement of the arbitration clause under M/S Bremen.
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The Fifth Circuit rejected this conclusion, reasoning in the following manner. First, the court argued that the applicable
“forum” is the United States, not Louisiana. Appealing to Black’s Law Dictionary, the Fifth Circuit argued that “forum” is
broadly defined as “[a] court or other judicial body; a place of jurisdiction.”21 Though the plaintiffs assumed the relevant
forum was Louisiana, the language of the Convention in fact implies that relevant forum is the United States.22 The Fifth
Circuit noted that the Convention “mirrors” the public policy language of M/S Bremen by allowing a court charged with
enforcing an arbitral award to refuse enforcement if “[t]he recognition or enforcement of the award would be contrary to the
public policy of that country.”23 Because the relevant forum is the United States, M/S Bremen requires the balancing of
federal public policy, rather than the state public policy, against the arbitration clause. Unlike Louisiana’s public policy, the
federal public policy in favor of arbitration supports the enforcement of the forum selection clause.
Second, the court reasoned that even if the term “forum” did apply to Louisiana, the court would still need to balance federal
public policy against state public policy. The court noted, “Repeatedly, Congress has endorsed arbitration clauses, first
through passage of the FAA, and then through adoption of the Convention and implementation of the Convention Act.
Likewise, federal courts have supported this strong policy in favor of arbitration.”24 The court asserted that *478 the strong
federal public policy in favor of arbitration outweighed Louisiana’s public policy against forum selection clauses. The court
also cited precedent for enforcing arbitration provisions in the context of seamen litigation.25 The Fifth Circuit stated that
even though the Louisiana Labor and Worker’s Compensation Code explicitly proclaims the state’s public policy in all
employment contracts,26 it must still be considered in conjunction with federal public policy. 27 Balancing the two, the court
deemed the federal public policy to be of greater weight.
C. Conclusion
The Lim court thus decided that the federal policy in favor of arbitration outweighed the Louisiana public policy against
forum selection clauses. This case followed several state court decisions and a federal district court ruling in Dahiya v.
Talmidge International, Ltd.28 in favor of enforcement of foreign arbitration clauses. The Fifth Circuit’s dismissal of Dahiya,
however, added some ambiguity as to the court’s view on the Louisiana public policy and its relationship to the federal public
policy in favor of arbitration. Lim resolved this ambiguity, reinforcing the supremacy of the federal public policy.
*479 II. The Federal Arbitration Act and the Convention on the Enforcement of Foreign Arbitral Awards
Congress passed the Federal Arbitration Act (FAA) in 1925 in response to state courts’ reluctance to enforce arbitration
provisions.29 In subsequent decisions, the Supreme Court interpreted the FAA to have established a strong pro-arbitration
federal policy, continuously strengthening the barrier that a state court must overcome to strike an arbitration provision. In
Moses H. Cone Memorial Hospital v. Mercury Construction Corp., the Supreme Court held that the “Arbitration Act
establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of
arbitration.”30 Decisions following Moses interpreted this case as one of the first cases to establish a “liberal federal policy
favoring arbitration.”31 The following year, in Southland Corp. v. Keating, 32 the Supreme Court held that the FAA applied
both to federal and state courts and “reaffirmed the notion that the FAA is substantive law that will preempt conflicting state
law. The Court also noted that state public policy defenses that attempt to interfere with arbitration procedures would not
stand.”33 Finally, in Gilmer v. Interstate/Johnson Corp., 34 the Supreme Court established a strong presumption in favor of
arbitration that can be overcome only if the *480 plaintiff meets the burden of proof by demonstrating that the arbitration
clause was intended by the legislature to be waivable.35
In 1958, thirty-two years after passing the FAA, the United States became a signatory to the United Nations Convention on
the Recognition and Enforcement of Foreign Arbitral Awards, and ratified and implemented it by the Convention Act of
1970.36 The FAA and the Convention Act constitute Chapters one and two, respectively, of a single statute known as Title
9.37 In case of a conflict between the FAA and the Convention Act, such as in cases involving international commercial
contracts, the Convention Act supersedes the FAA. However, the FAA supplements the Convention to the extent that it does
not conflict with the FAA’s provisions.38
The Convention Act thus extends the national pro-arbitration policy to international arbitration agreements. 39
The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to
encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the
standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries. 40
*481 Section 202,41 as interpreted in Sedco, Inc. v. Petroleos Mexicanos Mexican Nat’l Oil Co., lays out four requirements
that must be met to compel arbitration under the Convention Act: “(1) there is an agreement in writing to arbitrate the
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dispute, (2) the agreement provides for arbitration in the territory of a Convention signatory, (3) the agreement arises out of a
commercial legal relationship, and (4) a party to the agreement is not an American citizen.”42 If these four requirements are
satisfied, the court must compel arbitration.43
There are minor differences between the FAA and the Convention Act. Unlike the FAA, the Convention Act does not cover
arbitration agreements among U.S. citizens unless they involve property that is located abroad. 44 Moreover, unlike the FAA,
the Convention Act grants federal courts original jurisdiction. 45 Overall, however, the preemptive powers of the FAA and the
Convention are similar with respect to arbitration, the distinguishing feature being that the FAA applies to domestic
arbitration agreements, while the Convention covers international ones.
III. Forum Selection
Prior to the Supreme Court ruling in M/S Bremen, forum selection clauses were generally not enforced as they “ousted the
jurisdiction of the court.”46 Quite revolutionary during its time, this decision reversed the long judicial history of striking
down forum selection clauses and began the modern trend of enforcing them in both domestic and international
agreements.47
*482 In M/S Bremen, the American corporation Zapata Off-Shore Company entered into an agreement with Unterweser, a
German corporation that owned a tug. Under the terms of the contract, Unterweser was to transport an oil rig from Louisiana
to Italy.48 The contract also contained a forum selection clause, ordering the litigation of all disputes in the London Court of
Justice. During the trip from Louisiana to Italy, a storm damaged the barge. Zapata filed suit against Unterweser for
negligence and breach of contract in a Florida admiralty court, 49 in spite of the forum selection clause. Unterweser moved to
dismiss for lack of jurisdiction or on forum non conveniens grounds, or to stay the action until its submission to the London
Court of Justice.50 The district court denied Unterweser’s motion to dismiss and, thus, refused to enforce the forum selection
clause on public policy grounds.51 The Fifth Circuit affirmed, likewise noting that the enforcement of forum selection clauses
was contrary to U.S. public policy.52
The Supreme Court reversed the Fifth Circuit’s decision. The Court pointed to the sophistication of the contracting parties
and the unreasonableness of insisting upon the litigation of all international disputes in U.S. courts. The Supreme Court stated
that forum selection clauses are prima facie valid and should be enforced unless the enforcement is shown to be
unreasonable.53 A contractual choice-of-forum clause may, however, be unenforceable if the clause would oppose a strong
public policy of the forum in which the suit is brought. 54 The Supreme Court failed to find such an opposing public policy in
this case.
In a notable decision following M/S Bremen, the Supreme Court upheld a forum selection clause in Carnival Cruise Lines,
Inc. v. Shute,55 extending the logic of M/S Bremen to consumer contracts. In this case, a passenger of a Carnival Cruise
Lines ship was injured while on board the ship. The forum selection clause, printed on the back of her ticket, indicated that
all disputes were to be litigated in Florida, Carnival Cruise Lines’s main place of business. 56 The passenger filed suit against
the cruise line in the District Court for the *483 Western District of Washington. The Supreme Court enforced the forum
selection clause, finding it both fair and reasonable.57 Unlike in M/S Bremen where the forum selection clause was
negotiated by two sophisticated businesses, the forum selection clause in Carnival Cruise Lines was neither negotiated, nor
was it agreed to by two sophisticated businesses. In fact, the forum selection clause was contained in a form contract that was
between two parties with a large bargaining power disparity. 58 Nevertheless, the Supreme Court enforced the clause, thereby
increasing the burden that a plaintiff must meet to demonstrate that a forum selection clause is unreasonable and should not
be enforced.59
Following M/S Bremen, the courts have employed a balancing test, weighing the enforcement of a forum selection clause
against the public policy of the forum in which the claim was brought. In Scherk v. Alberto-Culver Co.,60 the Supreme Court
opted to enforce an international forum selection clause despite a countervailing national public policy as expressed in the
Securities Act of 1933 and the Securities Exchange Act of 1934. In this case, a U.S. company, a purchaser of European
business entities, sued a German citizen, as seller of the business entities, to recover damages and other relief based on a
claim that it had been defrauded in violation of the Securities Exchange Act in connection with representations concerning
trademarks that were transferred as part of the sale. The seller sought to stay proceedings while parties arbitrated the dispute
before the International Chamber of Commerce tribunal as provided by contract. If forced to pursue their claim in the
Chamber of Commerce, the plaintiffs would not have been able to have recourse under section 10(b)(5) of the Securities
Exchange Act. The Supreme Court held that the arbitration clause would be enforced.
Likewise, in Bonny v. Society of Lloyd’s,61 the Seventh Circuit upheld an international forum selection clause in a securities
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transaction. In Bonny, several U.S. investors sued Society of Lloyd’s and other British entities for fraudulently inducing them
to become members of the Society.62 The plaintiffs argued that the enforcement of the forum selection clause, which required
resolution of all disputes in English courts, would deprive them of a cause of action under the *484 1933 and 1934 Acts,
thereby contravening U.S. public policy with respect to securities regulation. Applying the analysis of M/S Bremen, the
Seventh Circuit elected to enforce the international forum selection provision. 63
Increasingly, the courts have chosen to enforce forum selection clauses in international agreements, 64 with some
exceptions.65 Frequently, the analysis has echoed M/S Bremen, both in the invocation of the federal public policy in favor of
forum selection as well as in weighing this policy against competing federal and state public policies. Although the results of
such balancing have varied, courts are choosing more and more often to override competing state and national policies in
favor of arbitration. The Fifth Circuit’s decision in Lim reinforces this trend, compelling international arbitration in the face
of an explicit state policy against the enforcement of the forum selection clause.
IV. Cases Leading up to Lim
Lim follows a long line of cases in both state and federal courts of Louisiana involving the litigation of seamen against the
companies that employ them and those that own or insure the ship on which the seamen were injured. This brief history
features both the application *485 of M/S Bremen and the consideration of whether or not the Convention Act preempts state
statutes that regulate employment contracts. Until Lim, courts have differed as to whether or not to enforce a foreign forum
selection clause.
In the 1997 case of Lejano v. K/S Bandak,66 the Supreme Court of Louisiana held that a forum selection clause was
enforceable. In Lejano, a Filipino seaman was injured while on board a Norwegian ship owned by K.S. Bandak, a Norwegian
company. Although his employment contract limited the permissible fora to either Norway or the Philippines, Lejano filed
suit in Louisiana. Citing M/S Bremen for the proposition that forum selection clauses are prima facie valid, the Supreme
Court of Louisiana compelled the enforcement of the forum selection clause. 67 The court also noted that cases brought by
maritime plaintiffs in state court should be considered under federal maritime law and that only procedural issues may be
decided on the basis of state statutes.68
In 1999 the Louisiana legislature enacted an amendment to its Louisiana Labor and Workers’ Compensation Code,
prohibiting forum selection clauses in employment contracts. The legislature passed the amendment to overrule Lejano and to
establish jurisdiction over maritime claims.69
Following this amendment, the Louisiana Supreme Court in Sawicki interpreted the statute to establish a state public policy
against forum selection clauses. In that case, a Polish seaman was injured while working on board a Norwegian vessel off the
coast of Texas. The plaintiff brought suit in Louisiana state court. The defendant ship company and its insurer proceeded to
invoke the contract’s forum selection clause, which limited the acceptable fora to Norway and Poland. 70 Although the court
applied the same analysis as it had in Lejano (namely the M/S Bremen reasonableness test), the court’s reasoning resulted in
a different outcome for Sawicki due to the amended statute. 71 The Supreme Court found that the Louisiana statute
pronounced a strong state policy against forum selection *486 agreements.72 While maritime claims are governed by federal
maritime law, forum selection clauses are a procedural matter and, therefore, properly subject to state law. 73 Thus, the court
held that Louisiana’s public policy precluded the enforcement of the forum selection clause in the plaintiff’s employment
contract.74
Approximately one year later, the Louisiana Court of Appeal heard a case involving a Greek seaman who was injured on
board a ship off the coast of Louisiana. In Keramidas v. Profile Shipping Ltd., 75 the plaintiff sued in Louisiana despite a
forum selection clause requiring all claims to be brought in Cyprus. While the Court of Appeal initially enforced the forum
selection clause, it subsequently reversed its decision, pursuant to a remand from the Supreme Court of Louisiana instructing
it to reconsider in light of Sawicki.76
The federal courts first addressed the enforcement of foreign forum selection clauses in Dahiya v. Talmidge International,
Ltd.77 In this case, an Indian seaman was injured off the coast of Louisiana and subsequently brought suit in a Louisiana state
court. The defendants removed the case to federal court because the forum selection clause in Dahiya was international and,
therefore, fell under the Convention Act.78 Siding with the plaintiff, the district court found that Louisiana’s public policy
prevented the enforcement of the forum selection clause. The court denied that it had subject matter jurisdiction over the case,
and remanded it to state court.79 This in turn deprived the Fifth Circuit of appellate jurisdiction. 80
In a dissenting opinion, Judge DeMoss argued for appellate jurisdiction, invoking the federal public policy in favor of
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arbitration and stating that this issue was “too important to be denied appellate review.”81 He asserted that the outcome of
M/S Bremen is to compel arbitration, overcoming the Louisiana public policy against forum selection clauses. 82 Finally, he
argued that the Convention preempts *487 the Louisiana statute.83 Although Judge DeMoss’s reasoning failed to persuade
the majority in Dahiya, it served as a basis for the majority ruling in Lim.
V. Issues Raised by Lim
A. Erosion of the M/S Bremen Public Policy Exception
Both the Convention Act and the judicial precedent of M/S Bremen and its progeny allow for the non-enforcement of an
arbitration provision if such enforcement contravenes public policy. Lim makes clear that the countervailing public policy
must be that of the United States in cases governed by the Convention. Whether the public policy in question is that of the
United States or a state, however, the trend in the law is for courts to use M/S Bremen in support of the enforcement of forum
selection clauses, rather than as a potential barrier to the enforcement of such provisions in light of a contravening public
policy. Although courts recite the public policy exception outlined in M/S Bremen, rarely is the importance of this public
policy sufficient to trump the general federal policy in favor of arbitration.
Curiously, the Lim court reasoned that because the Convention Act has an exception for a countervailing public policy of the
“country,”84 the Act embodies the M/S Bremen analysis, merely replacing “forum” with “country.” However, it is unclear
why the language of the Convention statute should replace the M/S Bremen analysis. Given that applications of the M/S
Bremen balancing test have contemplated various states as fora (and, therefore, the states’ public policies), one could argue
that the case itself stands for a national public policy in favor of arbitration except where arbitration provisions contravene
either state or federal public policies. Under this interpretation, the logic of M/S Bremen (including the public policy
exception that has been interpreted to apply to state and federal public policies) would represent a public policy of the
“country” in which *488 the case originated for the purposes of the Convention Act’s balancing test.
Moreover, courts have not interpreted the Convention Act as indicating that the country is the only type of forum whose
public policy is relevant. In fact, the preemptive powers of the Convention Act have been balanced with certain state public
policies in the context of the enforcement of foreign arbitral awards (in contrast with the issue of whether arbitration should
be compelled in the first place).85 Limiting the interpretation of the Convention Act to consider only the country’s public
policy, therefore, is not ubiquitous, as the Lim analysis may suggest.
Thus, despite the courts’ frequent citing of the public policy exception, such analysis hardly ever leads to the
non-enforcement of the arbitration clause.86 This outcome seems to contradict the intent of the Supreme Court in M/S
Bremen and indicates the growing insurmountability of the challenges that a plaintiff faces in seeking to strike an arbitration
provision. Lim furthers the obliteration of the public policy exception as a barrier to the enforcement of arbitration by holding
that state public policy analysis is irrelevant for cases that are governed by the Convention Act.
B. General Applicability Versus the Targeting of Arbitration
In the context of the FAA, there is arguably a second barrier to the enforcement of an arbitration provision--the idea that a
countervailing state public policy applies to all contracts and not simply those that contain arbitration clauses. Unlike the first
barrier, which involves the pure comparison of the pro-arbitration policy and a competing state or federal public policy, this
second barrier has not been explored in the context of seamen litigation. As with the first barrier, however, the prospects for
striking arbitration provisions (or forum selection clauses more generally) appear slim.
The FAA preempts any state law intended to limit the enforcement of arbitration clauses 87 and has a long history of trumping
state public policies intended to restrict the enforcement of arbitration *489 clauses.88 The preemptive powers of the FAA are
not absolute, however. They do not extend to state laws that invalidate various contract provisions “in general.”89 According
to section 2 of title 9, an arbitration provision will be enforced “save upon such grounds as exist at law or in equity for the
revocation of any contract.”90 For instance, state laws that invalidate all contracts (not only those containing arbitration
clauses), such as for reasons of fraud, duress, or unconscionability, are not preempted by the FAA. 91
What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not
fair enough to enforce its arbitration clause ... for that kind of policy would place arbitration clauses on an unequal ‘footing,’
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directly contrary to the Act’s language and Congress’ intent. 92
In other words, state laws that do not target arbitration in particular are not subject to preemption. 93
A state public policy against forum selection clauses is an example of a state statute that does not specifically target
arbitration provisions. As mentioned above, arbitration clauses are only a subset of forum selection clauses, which also
include choice of geographical fora provisions.94 Thus, an anti-forum selection public policy may in fact have as its primary
goal the prohibition of far away geographical fora rather than arbitration. It is possible to conclude then that the FAA cannot
trump a state public policy against forum selection if the latter is considered a “general” contract public policy rather than a
specifically anti-arbitration one. Until recently, there were relatively few cases that dealt with this issue, and it was unclear
whether the FAA’s preemptive powers would be strong enough to overcome a state anti-forum selection clause.95
*490 In the past few years the courts have addressed this issue in the context of forum selection clauses in franchise
contracts. In these cases, the trend is increasing enforcement of arbitration provisions despite competing state public
policies.96 In a number of such cases, the party seeking non-enforcement of the forum selection clause argued that forum
selection clauses are “general” and invoked the exception outlined in section 202 of the FAA, namely that state laws that
affect “any contract” are not preempted.97 Courts in several jurisdictions have rejected this argument, finding that state
policies against forum selection clauses do not apply to “any” contract but a rather narrow subset of them. Thus, they held
that the FAA preempts state public policies to the extent that they limit the enforcement of arbitration provisions.98
One may wonder if this trend contradicts the original purpose of the FAA of restricting states’ ability to strike down
arbitration clauses and putting arbitration on an equal footing with litigation. While it may be argued that state public policies
prohibiting forum selection provisions do not technically apply to all contracts “generally,” it is also true that they are more
general than specifically anti-arbitration provisions. What results is a state of the law that favors arbitration over litigation
rather than treating the two as equal forms of dispute resolution. For instance, in a state with a public policy against forum
selection clauses, a contract requiring (a) litigation (b) in a far-away geographic forum, would be deemed unenforceable
under the state statute. On the other hand, a contract calling for (a) arbitration (b) in a far-away geographic forum, would be
enforced because it would be preempted by the FAA. Some scholars have noted that the FAA’s preemptive powers may have
grown beyond the general versus arbitration-specific distinction.99
Interestingly, parties have not attempted similar arguments in the context of seamen litigation, either in cases that are covered
by the FAA or the Convention, including the plaintiffs’ arguments for the non-enforcement of the forum selection clause in
Lim. In fact, if *491 an arbitration provision fulfills the four requirements set out in section 202 and falls under the
Convention Act, it immediately becomes enforceable unless it contravenes the public policy of the forum country. 100 As
exemplified in the court’s analysis in Lim, state public policies are not only preempted, but they are also irrelevant to the
enforcement analysis. Thus, if the outcome of balancing state public policies and the FAA seems to favor arbitration, the
balance is further shifted in favor of arbitration in the context of international versus domestic arbitration provisions.
The reason that such arguments are not made in the context of seamen litigation may be because the Convention Act lacks a
section equivalent to the FAA’s section 202, which outlines an exception to the invalidation of state public policies for state
statutes that apply “generally.” However, the Convention Act is frequently treated as an extension of the FAA. For instance,
in Lim, the defendant argued that the Convention preempted Louisiana law by analogizing it to cases in which the FAA
preempted state laws.101 One could imagine a plaintiff engaging in similar analysis with respect to section 202.
The original purpose of the FAA was to make arbitration agreements equal in strength to other contractual provisions.
However, given the rulings in the cases discussed above, the U.S. courts seem to be favoring arbitration instead. In particular,
Lim illustrates how courts are more willing to enforce international arbitration clauses, where the FAA is only implicitly
invoked, than domestic arbitration provisions, where the FAA must be explicitly applied.
Conclusion
Cases involving forum selection clauses demonstrate the growing disconnect between the conclusions in M/S Bremen, which
permits the invalidation of an arbitration provision in certain circumstances, and its actual application in cases in which such
provisions are litigated. Whereas courts continue to pay lip service to the public policy exception as outlined in M/S Bremen,
rulings indicate that this exception does not present a serious challenge to the widespread enforceability of arbitration. The
Lim decision reasserted the federal public policy favoring the enforcement of foreign forum selection clauses, despite
conflicts with explicitly stated state public policy.
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*492 Lim left unresolved the relative importance of the arbitration component in the forum selection clause with respect to
balancing federal versus state public policy. The Lim opinion discusses only the federal policy for arbitration, failing to
consider the Louisiana statute’s provision on forum selection in general. Given such an enthusiastic invocation of the federal
public policy in favor of arbitration, employers might opt for an arbitration clause in all international forum selection clauses
even in the face of a conflicting state public policy.
The Lim court’s decision thus indicates that the FAA’s preemptive powers are continuously expanding. Furthermore, Lim
demonstrates that M/S Bremen has been limited in its ability to ensure a court-enforced public policy exception to arbitration
clauses. Lim strongly suggests, therefore, that to preserve this limit on the enforcement of arbitration agreements, a change in
federal legislation is necessary.
Footnotes
d1
J.D. candidate, 2007, Harvard Law School. Many thanks to David Welker and Margaret W. Elias for their help in editing this
article, and to William Nicholson Price II and Jordan Metz VanLare for their insightful comments.
1
404 F.3d 898 (5th Cir. 2005).
2
See Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995).
3
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2518 (codified at 9 U.S.C.
§§ 201-208 (1970)).
4
La. Rev. Stat. Ann. § 23:921(A)(2) (2004).
5
407 U.S. 1, 15 (1972).
6
9 U.S.C.A. §§ 1-16 (2006).
7
No. Civ.A. 02-2135, 2002 WL 31962151 (E.D. La. Oct. 11, 2002).
8
Id. at *1-2.
9
Dahiya v. Talmidge Int’l, Ltd., 371 F.3d 207 (5th Cir. 2004).
10
Jennifer L. Pilla, Agreeing on Where to Disagree: Jain v. De Méré and International Arbitration Agreements, 21 N.C. J. Int’l L. &
Com. Reg. 421, 425 (1996) (quoting H.R. Rep. No. 96 (1924)).
11
Fair Labor Standards Act of 1938, 29 U.S.C. § 201 (2000).
12
See Lim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898, 900 (5th Cir. 2005). The employment contract in Lim contained a
forum selection clause with two components: (a) specific geographical jurisdiction where litigation must take place (the
Philippines in this case) and (b) arbitration rather than litigation. See id. Interestingly, the court’s opinion entirely ignores the
geographical component and chooses instead to focus on arbitration.
13
Lim v. Offshore Specialty Fabricators, Inc., No. Civ.A. 02-2126, 2003 WL 193518, at *1 (E.D. La. Jan. 28, 2003). See also La.
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Rev. Stat. Ann. § 23:921(A)(2) (2004).
14
See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972).
15
See La. Rev. Stat. Ann. § 23:921(A)(2) (2004).
16
Lim, 2003 WL 193518, at *2-3.
17
Lim, 404 F.3d at 908.
18
Id. at 901 (quoting Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 534 (1995)).
19
Id. at 904 (citing U.S. Const. art. VI, cl. 2).
20
M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972) (emphasis added).
21
Lim, 404 F.3d at 905 (quoting Black’s Law Dictionary (8th ed. 2004)).
22
See id. at 905 (citing Convention, art. V, § 2(a); 9 U.S.C. § 205).
23
Id. at 904-05 (quoting Convention, art. V, § 2(b)) (emphasis added by court).
24
Id. at 906.
25
See Lim, 404 F.3d at 906 (citing Francisco v. Stolt Achievement MT, 293 F.3d 270, 274 (5th Cir. 1987); Bautista v. Star Cruises,
396 F.3d 1289, 1300 (11th Cir. 2005).
26
Id. at 905-06 (citing La. Rev. Stat. Ann. § 23:921(A)(2) (2004)). The Supreme Court of Louisiana interpreted this statute to
proclaim the Louisiana public policy against forum selection clauses in Sawicki v. K/S Stavanger Prince, 802 So. 2d 598 (La.
2001).
27
Lim, 404 F.3d at 906. The court also argued that even though the Louisiana statute evinces a public policy against forum selection
clauses, the facts of this case are inconsistent with the purpose behind the state’s public policy. The intent of the Louisiana statute
prohibiting forum selection clauses in employment contracts is to protect plaintiffs from having to litigate in an inconvenient
location. Id. at 906 (citing Testimony of Representative Jackson, Official Minutes of Louisiana Senate Committee on Labor and
Industrial Relations, Hearing on Senate Bill 915 (Apr. 22, 1999)). (Interestingly, this contradicts the analysis of the dissenting
opinion in Sawicki.) In this case, the plaintiffs are being forced to litigate in the Philippines, the country of their citizenship and
residence. The rationale of convenience underlying the statute therefore does not apply. The plaintiffs also proposed two
additional arguments in support of their claim, both of which were rejected by the court. First, the plaintiffs argued that arbitration
has not been required in the context of seamen litigation. Second, the plaintiffs argued that claims arising under the FLSA were
not subject to arbitration. See id. at 906-07. For the purposes of this Note, I will focus on the preemption and forum selection
issues.
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28
No. Civ.A. 02-21352002, WL 31962151 (E.D. La. Oct. 11, 2002).
29
Gilmer v. Interstate/Johnson Corp., 500 U.S. 20, 24 (1991); James Zimmerman, Restrictions on Forum-Selection Clauses in
Franchise Agreements and the Federal Arbitration Act: Is State Law Preempted?, 51 Vand. L. Rev. 759, 782 (1998) (“Before the
enactment of the FAA, courts regularly invalidated arbitration agreements, often without any actual scrutiny of the fairness of the
agreement. The typical rationale was that arbitration agreements were void or voidable at the will of either party because, if
enforced, they would ‘oust the jurisdiction of the court.’ The FAA supplanted this judicially-made law by requiring arbitration
agreements to be held to the same standard as all contracts.”). See also Jennifer M. Ralph, Case Comment, Unconscionable
Mediation Clauses: Garrett v. Hooters-Toledo, 10 Harv. Negot. L. Rev. 383, 388 (2005).
30
460 U.S. 1, 24-25 (1983); see also Zimmerman, supra note 29, at 767; AT&T Techs., Inc. v. Communications Workers of Am.,
475 U.S. 643, 648 (1986).
31
Gilmer, 500 U.S. at 20.
32
465 U.S. 1 (1984).
33
Robert Hollis et al., Student Article, Is State Law Looking for Trouble?: The Federal Arbitration Act Flexes Its Preemptive
Muscle, 2003 J. Disp. Resol. 463, 470 (2003). The issue of whether forum selection is a substantive or procedural issue is crucial
because it determines whether or not state law applies. If it is purely procedural, then state laws concerning forum selection apply.
If it is substantive, then federal law applies. See Ryan Kelly McLemore, Comment, Forum-Selection Clauses and Seaman
Personal Injury: A Modern Analytical Framework with International Emphasis, 25 Tul. Mar. L.J. 327, 352-53 (2000); Lejano v.
Bandak, 705 So. 2d 158 (La. 1997).
34
Gilmer, 500 U.S. 20.
35
Gilmer, 500 U.S. at 26. Thus, as Zimmerman notes, “Any state law which undermines this policy, or which singles out arbitration
agreements for suspect treatment, is in danger of FAA preemption.” Zimmerman, supra note 29, at 762. See also Thomas D.
Applewhite, Case Note, Ex Parte Jones: But Did You Contemplate Substantial Interstate Activity?, 45 Mercer L. Rev. 1423, 1423
(1994), (citing A.G. Edwards & Sons, Inc. v. Syrud, 597 So. 2d 197, 198 (Ala. 1992) (“However, the Federal Arbitration Act ...
preempts on public policy grounds any state law that denies enforcement of arbitration agreements.”)).
36
9 U.S.C.A. § 201-208 (2006).
37
Bautista v. Star Cruises, 396 F.3d 1289, 1292 (11th Cir. 2005) (noting also that courts frequently refer to Title 9 in its entirety as
Federal Arbitration Act and citing Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1440 (11th
Cir.1998)).
38
Beiser v. Weyler, 284 F.3d 665, 666 (5th Cir. 2002); Bautista, 396 F.3d at 1289 (citing 9 U.S.C. § 208 (the Convention Act
residual provision): “As an exercise of the Congress’ treaty power and as federal law, ‘the Convention must be enforced
according to its terms over all prior inconsistent rules of law.”’). See also Indus. Risk Insurers, 141 F.3d at 1440 (quoting Sedco,
Inc. v. Petroleos Mexicanos Mexican Nat’l Oil Co., 767 F.2d 1140, 1145 (5th Cir.1985)). For a discussion of some of the
differences between the FAA and the Convention, see Robert J. Gruendel, Domestic Law and International Conventions, the
Imperfect Overlay: The FAA as a Case Study, 75 Tul. L. Rev. 1489 (2001).
39
“In substance, the Convention replicates the Federal Arbitration Act.” Lim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898,
904 (5th Cir. 2005) (citing Sedco, 767 F.2d at 1140).
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40
Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974) (citing Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, S. Exec. Doc. E, 90th Cong., (2d Sess. 1968) and Leonard V. Quigley, Accession by the United States to the
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1075-76 (1961)).
See also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985); Gruendel, supra note 38, at 1494.
41
9 U.S.C.A. § 202 (West 2006).
42
Sedco, 767 F.2d at 1144-45; Francisco v. Stolt Achievement MT, 293 F.3d 270, 273 (La. 2002); see also 9 U.S.C. § 202 (listing
same requirements).
43
Sedco, 767 F.2d at 1145; see also 9 U.S.C. § 201 (‘The Convention ... shall be enforced in United States courts.‘).
44
9 U.S.C.A. § 202.
45
9 U.S.C.A. § 203.
46
McLemore, supra note 33, at 331 (citing Carbon Black Exp., Inc. v. The S.S. Monrosa, 254 F.2d 297, 300-01 (5th Cir. 1958)). See
also Walter W. Heiser, Forum Selection Clauses in State Courts: Limitations on Enforcement After Stewart and Carnival Cruise,
45 Fla. L. Rev. 361, 366 (1993).
47
Ray Y. Chan, Note, The Enforceability of Annulled Foreign Arbitral Awards in the United States: A Critique of Chromalloy, 17
B.U. Int’l L.J. 141, 214 (1999).
48
M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 3 (1972).
49
Id. at 3-4.
50
Id. at 4.
51
Id. at 6.
52
M/S Bremen, 407 U.S. at 8.
53
Id. at 10.
54
Id. at 15 (citing Boyd v. Grand Trunk W.R. Co., 338 U.S. 263 (1949)).
55
499 U.S. 585 (1991).
56
Id. at 587-88.
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57
See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593-95 (1991).
58
See Heiser, supra note 46, at 375-76.
59
Id. at 375-77.
60
417 U.S. 506 (1974).
61
3 F.3d 156 (7th Cir. 1993).
62
Id. at 157.
63
Bonny v. Society of Lloyd’s, 3 F.3d 156, 159-60 (7th Cir. 1993).
64
Jennifer M. Eck, Note, Turning Back the Clock: A Judicial Return to Caveat Emptor for U.S. Investors in Foreign Markets, 19
N.C. J. Int’l L. & Com. Reg. 313, 313 (citing Scherk v. Alberto-Culver Co, 417 U.S. 506 (1974) and Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985)). Robertson & Sturley note this trend with respect to maritime employment
claims. David W. Robertson & Michael F. Sturley, Recent Developments in Admiralty and Maritime Law at the National Level in
the Fifth and Eleventh Circuits, 27 Tul. Mar. L.J. 495, 515 (2003). See also Francisco v. Stolt Achievement MT, 293 F.3d 270,
274 (5th Cir. 1987); Triangle Trading Co., Inc. v. Robroy Industr., Inc., 952 F. Supp. 75, 80 (D.P.R. 1997) (stating that in
international context forum selection clauses may be enforced even if clause contradicts local public policy); Dahiya v. Talmidge
Int’l, Ltd., 371 F.3d 207, 219 n.10 (5th Cir. 2004) (DeMoss, J., dissenting) (“The Supreme Court has enforced every forum
selection clause in an international contract that has come before it.” (citing Vimar Serguros y Reaseguros, S.A. v. M/V Sky
Reefer, 515 U.S. 528, 540-42, (1995)); Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991); Mitsubishi, 473 U.S. at
640; Scherk, 417 U.S. at 519-20.).
65
See Lipcon v. Underwriters at Lloyd’s, London, 148 F.3d 1285, 1295 (11th Cir. 1998) (stating that forum selection clauses in
international agreements should be invalidated where they contravene strong public policy of forum in which action originated);
see also MacPhail v. Oceaneering Int’l, Inc., 170 F. Supp. 2d 718 (2001) (court invalidated arbitration provision in part because it
violated Illinois’ strong public policy); see also Karlberg European Tanspa, Inc. v. JK-Josef Kratz Vertriebsgesellschaft mbH, 618
F. Supp. 344 (1985).
66
705 So. 2d 158 (La. 1997).
67
Id. at 167. See also Robert H. Murphy, Prosecuting and Defending Foreign Seamen’s Claims: The Defense Perspective, 3 Loy.
Mar. L.J. 45, 58 (2004).
68
Lejano v. K/S Bandak, 705 So. 2d 158, 163 (La. 1997).
69
Sawicki v. K/S Stavanger Prince, 778 So. 2d 620 (La. App. 4 Cir. 2000) (Plotkin, J., dissenting).
70
Sawicki v. K/S Stavanger Prince, 802 So. 2d 598, 601 (La. 2001).
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71
“The forum selection clause must be viewed in light of subsection A(2) of La. Rev. Stat. 23:921, a provision that was added to the
statute in 1999, subsequent to the Lejano decision.” Id. at 602-03.
72
Sawicki, 802 So. 2d at 604.
73
Id. at 604 (citing Lejano, 705 So. 2d at 164).
74
Id. at 606.
75
832 So. 2d 314 (La. App. 2002).
76
Id. at 315.
77
371 F.3d 207 (5th Cir. 2004).
78
Id. at 208.
79
Id. at 209.
80
Id. at 208.
81
Dahiya, 371 F.3d. at 216 (DeMoss, J., dissenting).
82
“The [Supreme Court in M/S Bremen] explained that the international contracting parties wanted to provide a neutral forum
beforehand, so that there would be no question as to what would happen in case of a dispute. This strong federal policy regarding
the validity of pre-dispute selections of forum arises from ‘sensitivity to the need of the international commercial system for
predictability in the resolution of disputes.”’ Sedco, Inc. v. Petroleos Mexicanos Mex. Nat’l Oil Co., 767 F.2d 1140, 1145 (5th
Cir. 1985)(citation omitted). This Court must also recognize the related, strong federal policy in favor of rigorously enforcing the
specific forum choice of arbitration and arbitration awards, as reflected by Congress in enacting the FAA and the Convention.” Id.
(citing Southland Corp. v. Keating, 465 U.S. 1, 10 (1984)). See also Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974).
83
Dahiya, 371 F.3d at 222 (DeMoss, J., dissenting).
84
Lim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898, 900, 904-05 (5th Cir. 2005).
85
See Andrew M. Campbell, Refusal to Enforce Foreign Arbitration Awards on Public Policy Grounds, 144 A.L.R. Fed. 481, § 14
(2005).
86
See supra notes 60-62.
87
Southland Corp. v. Keating, 465 U.S. 1, 10 (1984); see Hollis et al., supra note 33.
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88
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686 (1996).
89
See Zimmerman, supra note 29, at 780-81.
90
9 U.S.C. § 2 (2006).
91
KKW Enters., Inc. v. Gloria Jean’s Gourmet Coffees Franchising Corp., 184 F.3d 42, 50 (1st Cir. 1999) (citing Casarotto, 517
U.S. at 687).
92
Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281 (1995).
93
Zimmerman, supra note 29, at 762.
94
See supra note 2.
95
Zimmerman, supra note 29, at 767 (“Several courts have also held or noted in dicta that the FAA preempts provisions of state
franchise laws which restrict the use of arbitration agreements. In all of these cases, however, with the exception of those that deal
with statutes that restrict forum-selection clauses, the statute in question ‘singled out‘ arbitration agreements for suspect treatment
or outright prohibition, without any parallel restrictions on forum-selection clauses. Thus, these cases offer little insight regarding
preemption of statutes restricting forum-selection clauses.”).
96
Hollis et al., supra note 33, at 494.
97
Doctor’s Assocs., Inc. v. Hamilton, 150 F.3d 157, 160 (2d Cir. 1998); see generally KKW Enters., Inc. v. Gloria Jean’s Gourmet
Coffees Franchising Corp., 184 F.3d 42 (1st Cir. 1999); Alphagraphics Franchising, Inc. v. Whaler Graphics, Inc., 840 F. Supp.
708 (1993); Bradley v. Harris Research, Inc., 275 F.3d 884, 889 (9th Cir. 2001); Newman ex rel. Wallace v. First Atl. Res. Corp.,
170 F. Supp. 2d 585, 592 (M.D.N.C. 2001); Flint Warm Air Supply Co., Inc. v. York Int’l Corp., 115 F. Supp. 2d 820 (E.D. Mich.
2000).
98
Hamilton, 150 F.3d at 163.
99
See Zimmerman, supra note 29, at 761-62.
100 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517 (codified in 9 U.S.C.
§§ 201-208 (1970)).
101 Lim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898, 900, 904 (5th Cir. 2005).
End of Document
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