Fifth Circuit Highlights the Jurisdictional Challenges of Enforcing a Foreign Arbitral Award Against a Non-Resident Award Debtor: Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A.
In a decision of potential importance to arbitral award creditors and debtors, the US Court of Appeals for the Fifth Circuit recently reversed a federal district court decision confirming an English arbitral award on the basis that the district court lacked personal jurisdiction over the award debtor.[1] The award debtor had sought to enforce its foreign award in federal court in Louisiana under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), as implemented by Chapter 2 of the Federal Arbitration Act. The New York Convention significantly limits the grounds for challenging a request for confirmation and enforcement, but it does not dispense with the requirement to establish that the court where confirmation is sought has jurisdiction.[2] This judgment reconfirms that jurisdiction is a fundamental requirement that should not be overlooked when seeking to enforce a foreign arbitral award.
Background
The underlying dispute arose out of a charterparty – a contract pursuant to which a shipowner agrees to hire or lease a ship or yacht to a charterer – between Conti 11. Container Schiffahrts-GmbH & Co. (Conti), a German company, and MSC Mediterranean Shipping Company S.A. (MSC), a Swiss company, pursuant to which Conti chartered its cargo vessel, the M/V Flaminia, to MSC. In July 2012, the M/V Flaminia was in the middle of the Atlantic Ocean in transit from Charleston, Louisiana to Antwerp, Belgium, when an explosion occurred causing a fire onboard that resulted in the death of three crew members and the destruction of the onboard cargo. The explosion was caused by auto-polymerization of the contents of tank containers laden with 80% divinylbenzene (DVB). Those containers had been at a terminal in New Orleans and stored outdoors for a period of nine days before being shipped. The carriage of the tanks had been booked by an employee in the Houston office of MSC (US), a wholly owned New York subsidiary of MSC.
Following the incident, Conti commenced arbitration proceedings in London against MSC. The tribunal found that MSC had breached the charterparty by failing to comply with the International Maritime Dangerous Goods Code. In its award, the tribunal awarded Conti approximately $200 million in total damages (the Award). Conti then brought an action to confirm its Award pursuant to the New York Convention in federal court in the Eastern District of Louisiana. MSC moved to dismiss for lack of personal jurisdiction.
The District Court Confirms the Award
A party seeking to confirm an arbitral award in the United States under the New York Convention must establish, as a threshold matter, that the court either has (1) personal jurisdiction over the award debtor or (2) jurisdiction over the award debtor’s property (i.e., so-called quasi in rem jurisdiction). To establish personal jurisdiction, three factors must be satisfied: (1) the defendant must purposefully have directed its activities toward the forum state or purposefully availed itself of the privileges of conducting activities there; (2) the plaintiff’s cause of action must arise out of or relate to the defendant’s contacts with the forum state; and (3) the exercise of jurisdiction must be fair and reasonable. The primary disagreement here was with respect to second factor.
MSC argued that the relevant underlying litigation in the personal jurisdiction analysis should not be its breach of the charterparty but, rather, should be the issue of where foreign arbitral awards are enforceable under the New York Convention. MSC relied upon the Supreme Court’s reasoning in Vaden v. Discover Bank [3] and Badgerow v. Walters[4] to assert that once an arbitration award has been issued, the original underlying claims are no longer operative in an enforcement action.
The district court rejected this argument, relying on decisions from four of its sister circuits that had established that a federal court could consider the defendant’s contacts relating to the underlying dispute that led to the arbitration in assessing whether it has personal jurisdiction.[5] The court also rejected MSC’s argument that the Supreme Court’s decisions in Vaden v. Discover Bank and Badgerow v. Walters forbids “looking through” the arbitration petition to the underlying dispute to assess personal jurisdiction. Those decisions did not relate to personal jurisdiction in the context of confirming foreign arbitral awards.
Having determined that it may look to the underlying dispute to determine personal jurisdiction, the district court analyzed the facts to determine whether there were sufficient contacts with Louisiana. The court concluded that the underlying claim (i.e., the alleged breach of the charterparty) related to MSC’s forum contacts because “[the DVB] could not have been on the FLAMINIA, and subsequently caused the explosion, if it was not loaded and shipped in New Orleans .” Accordingly, the court stated that “[t]he loading and eventual shipping of the [DVB] out of New Orleans by MSC constitutes a relationship among the defendant (MSC), the forum (Louisiana), and the litigation (breach of clause 78 [of the charterparty])”.[6]
Alternatively, the court concluded that MSC waived its personal jurisdiction defense by issuing a letter of undertaking (LOU) to Conti, pursuant to which MSC promised to pay Conti up to US$200 million on any final judgment entered by the Eastern District Court of Louisiana.
The court therefore confirmed the Award. MSC appealed to the Fifth Circuit arguing that the district court had erred in its analysis of personal jurisdiction and that MSC did not waive its personal jurisdiction defense by entering into the LOU.
The Fifth Circuit Agrees with the District Court’s Approach to Assessing Personal Jurisdiction but Reaches a Different Conclusion on the Facts
On appeal, the Fifth Circuit conducted a de novo review of the district court’s decision because it concerned a question of law. The Fifth Circuit first considered MSC’s argument that the district court had erred by basing its personal jurisdiction analysis on contacts related to the underlying dispute. The Fifth Circuit gave this argument short shrift, noting that it had been rejected by every circuit to have considered it.[7] It agreed with the district court that several decisions of other circuits had made clear that it was appropriate for a federal court to consider contacts related to the underlying dispute when evaluating personal jurisdiction over actions to confirm arbitral awards.[8] The Fifth Circuit also ruled that the Supreme Court’s decision in Badgerow v. Walters did not support MSC’s argument because that case related to domestic arbitration and subject matter jurisdiction, which were not at issue here.[9]
MSC contended that, even if it were proper to consider contacts related to the underlying dispute, the district court erred in finding personal jurisdiction based only on the fact that the tanks containing DVB shipped from the port of New Orleans. The Fifth Circuit agreed with this argument. It found that the purported contact with New Orleans resulted not from MSC’s activity but rather that of its subsidiary, MSC (US), and third parties. The only putative “contact” involving MSC occurred when its Belgium office approved the booking. The Fifth Court found that the evidence on the record suggested that MSC (US) and MSC in Switzerland are distinct entities, and that Conti had not presented any evidence to overcome the presumption of corporate separateness.[10]
On the question of waiver, the Fifth Circuit disagreed with the finding of the district court that MSC had waived any challenge to personal jurisdiction by entering into the LOU. It held that in contrast to other decisions where a waiver had been found, the LOU in this case contained conditional language pertaining to the district court’s jurisdiction, namely language to the effect that MSC agreed to pay only “after all appeals (if any)”.[11] The Fifth Circuit also held that there was no implicit waiver because the LOU stated that it was “given without prejudice to any and all rights or defenses MSC, its agents or affiliates have or may have in the Proceedings” , which included MSC’s defense of lack of personal jurisdiction.[12]
Accordingly, the Fifth Circuit reversed the district court’s judgment, and thereby put an end to Conti’s efforts to enforce its Award in Louisiana.
Comment
This judgment serves as a reminder that jurisdiction over a person or property is a critical prerequisite to the enforcement of foreign arbitral awards. In particular, for the purposes of proving personal jurisdiction, a party seeking to confirm and enforce an arbitral award in the US must show that the award debtor has sufficient forum contacts, and it will not be able to rely on the fact that a subsidiary of the award debtor is present or doing business in the state.
The Fifth Circuit’s finding on waiver also highlights the importance of carefully drafting forum selection clauses to avoid an inadvertent waiver, and the resulting loss of, valuable rights or defenses.
Finally, although it was not raised in this case, it is worth bearing in mind that the presence of assets within the jurisdiction may provide a basis for a court to exercise quasi in rem jurisdiction. Before commencing enforcement proceedings, parties should therefore try to identify the location of assets belonging to the award debtor as this will help identify an appropriate forum for the enforcement of the award and potential attachment of assets.
Jenner & Block has extensive experience in international enforcement actions, particularly concerning foreign arbitral awards, as well as with drafting complex forum selection clauses.
Background
The underlying dispute arose out of a charterparty – a contract pursuant to which a shipowner agrees to hire or lease a ship or yacht to a charterer – between Conti 11. Container Schiffahrts-GmbH & Co. (Conti), a German company, and MSC Mediterranean Shipping Company S.A. (MSC), a Swiss company, pursuant to which Conti chartered its cargo vessel, the M/V Flaminia, to MSC. In July 2012, the M/V Flaminia was in the middle of the Atlantic Ocean in transit from Charleston, Louisiana to Antwerp, Belgium, when an explosion occurred causing a fire onboard that resulted in the death of three crew members and the destruction of the onboard cargo. The explosion was caused by auto-polymerization of the contents of tank containers laden with 80% divinylbenzene (DVB). Those containers had been at a terminal in New Orleans and stored outdoors for a period of nine days before being shipped. The carriage of the tanks had been booked by an employee in the Houston office of MSC (US), a wholly owned New York subsidiary of MSC.
Following the incident, Conti commenced arbitration proceedings in London against MSC. The tribunal found that MSC had breached the charterparty by failing to comply with the International Maritime Dangerous Goods Code. In its award, the tribunal awarded Conti approximately $200 million in total damages (the Award). Conti then brought an action to confirm its Award pursuant to the New York Convention in federal court in the Eastern District of Louisiana. MSC moved to dismiss for lack of personal jurisdiction.
The District Court Confirms the Award
A party seeking to confirm an arbitral award in the United States under the New York Convention must establish, as a threshold matter, that the court either has (1) personal jurisdiction over the award debtor or (2) jurisdiction over the award debtor’s property (i.e., so-called quasi in rem jurisdiction). To establish personal jurisdiction, three factors must be satisfied: (1) the defendant must purposefully have directed its activities toward the forum state or purposefully availed itself of the privileges of conducting activities there; (2) the plaintiff’s cause of action must arise out of or relate to the defendant’s contacts with the forum state; and (3) the exercise of jurisdiction must be fair and reasonable. The primary disagreement here was with respect to second factor.
MSC argued that the relevant underlying litigation in the personal jurisdiction analysis should not be its breach of the charterparty but, rather, should be the issue of where foreign arbitral awards are enforceable under the New York Convention. MSC relied upon the Supreme Court’s reasoning in Vaden v. Discover Bank [3] and Badgerow v. Walters[4] to assert that once an arbitration award has been issued, the original underlying claims are no longer operative in an enforcement action.
The district court rejected this argument, relying on decisions from four of its sister circuits that had established that a federal court could consider the defendant’s contacts relating to the underlying dispute that led to the arbitration in assessing whether it has personal jurisdiction.[5] The court also rejected MSC’s argument that the Supreme Court’s decisions in Vaden v. Discover Bank and Badgerow v. Walters forbids “looking through” the arbitration petition to the underlying dispute to assess personal jurisdiction. Those decisions did not relate to personal jurisdiction in the context of confirming foreign arbitral awards.
Having determined that it may look to the underlying dispute to determine personal jurisdiction, the district court analyzed the facts to determine whether there were sufficient contacts with Louisiana. The court concluded that the underlying claim (i.e., the alleged breach of the charterparty) related to MSC’s forum contacts because “[the DVB] could not have been on the FLAMINIA, and subsequently caused the explosion, if it was not loaded and shipped in New Orleans .” Accordingly, the court stated that “[t]he loading and eventual shipping of the [DVB] out of New Orleans by MSC constitutes a relationship among the defendant (MSC), the forum (Louisiana), and the litigation (breach of clause 78 [of the charterparty])”.[6]
Alternatively, the court concluded that MSC waived its personal jurisdiction defense by issuing a letter of undertaking (LOU) to Conti, pursuant to which MSC promised to pay Conti up to US$200 million on any final judgment entered by the Eastern District Court of Louisiana.
The court therefore confirmed the Award. MSC appealed to the Fifth Circuit arguing that the district court had erred in its analysis of personal jurisdiction and that MSC did not waive its personal jurisdiction defense by entering into the LOU.
The Fifth Circuit Agrees with the District Court’s Approach to Assessing Personal Jurisdiction but Reaches a Different Conclusion on the Facts
On appeal, the Fifth Circuit conducted a de novo review of the district court’s decision because it concerned a question of law. The Fifth Circuit first considered MSC’s argument that the district court had erred by basing its personal jurisdiction analysis on contacts related to the underlying dispute. The Fifth Circuit gave this argument short shrift, noting that it had been rejected by every circuit to have considered it.[7] It agreed with the district court that several decisions of other circuits had made clear that it was appropriate for a federal court to consider contacts related to the underlying dispute when evaluating personal jurisdiction over actions to confirm arbitral awards.[8] The Fifth Circuit also ruled that the Supreme Court’s decision in Badgerow v. Walters did not support MSC’s argument because that case related to domestic arbitration and subject matter jurisdiction, which were not at issue here.[9]
MSC contended that, even if it were proper to consider contacts related to the underlying dispute, the district court erred in finding personal jurisdiction based only on the fact that the tanks containing DVB shipped from the port of New Orleans. The Fifth Circuit agreed with this argument. It found that the purported contact with New Orleans resulted not from MSC’s activity but rather that of its subsidiary, MSC (US), and third parties. The only putative “contact” involving MSC occurred when its Belgium office approved the booking. The Fifth Court found that the evidence on the record suggested that MSC (US) and MSC in Switzerland are distinct entities, and that Conti had not presented any evidence to overcome the presumption of corporate separateness.[10]
On the question of waiver, the Fifth Circuit disagreed with the finding of the district court that MSC had waived any challenge to personal jurisdiction by entering into the LOU. It held that in contrast to other decisions where a waiver had been found, the LOU in this case contained conditional language pertaining to the district court’s jurisdiction, namely language to the effect that MSC agreed to pay only “after all appeals (if any)”.[11] The Fifth Circuit also held that there was no implicit waiver because the LOU stated that it was “given without prejudice to any and all rights or defenses MSC, its agents or affiliates have or may have in the Proceedings” , which included MSC’s defense of lack of personal jurisdiction.[12]
Accordingly, the Fifth Circuit reversed the district court’s judgment, and thereby put an end to Conti’s efforts to enforce its Award in Louisiana.
Comment
This judgment serves as a reminder that jurisdiction over a person or property is a critical prerequisite to the enforcement of foreign arbitral awards. In particular, for the purposes of proving personal jurisdiction, a party seeking to confirm and enforce an arbitral award in the US must show that the award debtor has sufficient forum contacts, and it will not be able to rely on the fact that a subsidiary of the award debtor is present or doing business in the state.
The Fifth Circuit’s finding on waiver also highlights the importance of carefully drafting forum selection clauses to avoid an inadvertent waiver, and the resulting loss of, valuable rights or defenses.
Finally, although it was not raised in this case, it is worth bearing in mind that the presence of assets within the jurisdiction may provide a basis for a court to exercise quasi in rem jurisdiction. Before commencing enforcement proceedings, parties should therefore try to identify the location of assets belonging to the award debtor as this will help identify an appropriate forum for the enforcement of the award and potential attachment of assets.
Jenner & Block has extensive experience in international enforcement actions, particularly concerning foreign arbitral awards, as well as with drafting complex forum selection clauses.
[1] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A., 91 F.4th 789 (5th Cir. 2024).
[2] GSS Grp. Ltd v. Nat’l Port Auth., 680 F.3d 805, 813 (D.C. Cir. 2012); see also Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1121 (9th Cir. 2002) at 1121.
[3] Vaden v. Discover Bank 556 U.S. 49 (2009).
[4] Badgerow v. Walters 142 S.Ct. 1310 (2022).
[5] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A. No. 22-1114 (E.D. La. Sep. 7, 2022) at 6-8.
[6] Ibid., at 18.
[7] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A., 91 F.4th 789 (5th Cir. 2024) at III.A.
[8] Ibid.
[9] Ibid., at III.B.
[10] Ibid., at III.D.
[11] Ibid., at III.C.
[12] Ibid.
Footnotes
[1] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A., 91 F.4th 789 (5th Cir. 2024).
[2] GSS Grp. Ltd v. Nat’l Port Auth., 680 F.3d 805, 813 (D.C. Cir. 2012); see also Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1121 (9th Cir. 2002) at 1121.
[3] Vaden v. Discover Bank 556 U.S. 49 (2009).
[4] Badgerow v. Walters 142 S.Ct. 1310 (2022).
[5] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A. No. 22-1114 (E.D. La. Sep. 7, 2022) at 6-8.
[6] Ibid., at 18.
[7] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A., 91 F.4th 789 (5th Cir. 2024) at III.A.
[8] Ibid.
[9] Ibid., at III.B.
[10] Ibid., at III.D.
[11] Ibid., at III.C.
[12] Ibid.
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In a decision of potential importance to arbitral award creditors and debtors, the US Court of Appeals for the Fifth Circuit recently reversed a federal district court decision confirming an English arbitral award on the basis that the district court lacked personal jurisdiction over the award debtor.[1] The award debtor had sought to enforce its foreign award in federal court in Louisiana under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), as implemented by Chapter 2 of the Federal Arbitration Act. The New York Convention significantly limits the grounds for challenging a request for confirmation and enforcement, but it does not dispense with the requirement to establish that the court where confirmation is sought has jurisdiction.[2] This judgment reconfirms that jurisdiction is a fundamental requirement that should not be overlooked when seeking to enforce a foreign arbitral award.
Background
The underlying dispute arose out of a charterparty – a contract pursuant to which a shipowner agrees to hire or lease a ship or yacht to a charterer – between Conti 11. Container Schiffahrts-GmbH & Co. (Conti), a German company, and MSC Mediterranean Shipping Company S.A. (MSC), a Swiss company, pursuant to which Conti chartered its cargo vessel, the M/V Flaminia, to MSC. In July 2012, the M/V Flaminia was in the middle of the Atlantic Ocean in transit from Charleston, Louisiana to Antwerp, Belgium, when an explosion occurred causing a fire onboard that resulted in the death of three crew members and the destruction of the onboard cargo. The explosion was caused by auto-polymerization of the contents of tank containers laden with 80% divinylbenzene (DVB). Those containers had been at a terminal in New Orleans and stored outdoors for a period of nine days before being shipped. The carriage of the tanks had been booked by an employee in the Houston office of MSC (US), a wholly owned New York subsidiary of MSC.
Following the incident, Conti commenced arbitration proceedings in London against MSC. The tribunal found that MSC had breached the charterparty by failing to comply with the International Maritime Dangerous Goods Code. In its award, the tribunal awarded Conti approximately $200 million in total damages (the Award). Conti then brought an action to confirm its Award pursuant to the New York Convention in federal court in the Eastern District of Louisiana. MSC moved to dismiss for lack of personal jurisdiction.
The District Court Confirms the Award
A party seeking to confirm an arbitral award in the United States under the New York Convention must establish, as a threshold matter, that the court either has (1) personal jurisdiction over the award debtor or (2) jurisdiction over the award debtor’s property (i.e., so-called quasi in rem jurisdiction). To establish personal jurisdiction, three factors must be satisfied: (1) the defendant must purposefully have directed its activities toward the forum state or purposefully availed itself of the privileges of conducting activities there; (2) the plaintiff’s cause of action must arise out of or relate to the defendant’s contacts with the forum state; and (3) the exercise of jurisdiction must be fair and reasonable. The primary disagreement here was with respect to second factor.
MSC argued that the relevant underlying litigation in the personal jurisdiction analysis should not be its breach of the charterparty but, rather, should be the issue of where foreign arbitral awards are enforceable under the New York Convention. MSC relied upon the Supreme Court’s reasoning in Vaden v. Discover Bank [3] and Badgerow v. Walters[4] to assert that once an arbitration award has been issued, the original underlying claims are no longer operative in an enforcement action.
The district court rejected this argument, relying on decisions from four of its sister circuits that had established that a federal court could consider the defendant’s contacts relating to the underlying dispute that led to the arbitration in assessing whether it has personal jurisdiction.[5] The court also rejected MSC’s argument that the Supreme Court’s decisions in Vaden v. Discover Bank and Badgerow v. Walters forbids “looking through” the arbitration petition to the underlying dispute to assess personal jurisdiction. Those decisions did not relate to personal jurisdiction in the context of confirming foreign arbitral awards.
Having determined that it may look to the underlying dispute to determine personal jurisdiction, the district court analyzed the facts to determine whether there were sufficient contacts with Louisiana. The court concluded that the underlying claim (i.e., the alleged breach of the charterparty) related to MSC’s forum contacts because “[the DVB] could not have been on the FLAMINIA, and subsequently caused the explosion, if it was not loaded and shipped in New Orleans .” Accordingly, the court stated that “[t]he loading and eventual shipping of the [DVB] out of New Orleans by MSC constitutes a relationship among the defendant (MSC), the forum (Louisiana), and the litigation (breach of clause 78 [of the charterparty])”.[6]
Alternatively, the court concluded that MSC waived its personal jurisdiction defense by issuing a letter of undertaking (LOU) to Conti, pursuant to which MSC promised to pay Conti up to US$200 million on any final judgment entered by the Eastern District Court of Louisiana.
The court therefore confirmed the Award. MSC appealed to the Fifth Circuit arguing that the district court had erred in its analysis of personal jurisdiction and that MSC did not waive its personal jurisdiction defense by entering into the LOU.
The Fifth Circuit Agrees with the District Court’s Approach to Assessing Personal Jurisdiction but Reaches a Different Conclusion on the Facts
On appeal, the Fifth Circuit conducted a de novo review of the district court’s decision because it concerned a question of law. The Fifth Circuit first considered MSC’s argument that the district court had erred by basing its personal jurisdiction analysis on contacts related to the underlying dispute. The Fifth Circuit gave this argument short shrift, noting that it had been rejected by every circuit to have considered it.[7] It agreed with the district court that several decisions of other circuits had made clear that it was appropriate for a federal court to consider contacts related to the underlying dispute when evaluating personal jurisdiction over actions to confirm arbitral awards.[8] The Fifth Circuit also ruled that the Supreme Court’s decision in Badgerow v. Walters did not support MSC’s argument because that case related to domestic arbitration and subject matter jurisdiction, which were not at issue here.[9]
MSC contended that, even if it were proper to consider contacts related to the underlying dispute, the district court erred in finding personal jurisdiction based only on the fact that the tanks containing DVB shipped from the port of New Orleans. The Fifth Circuit agreed with this argument. It found that the purported contact with New Orleans resulted not from MSC’s activity but rather that of its subsidiary, MSC (US), and third parties. The only putative “contact” involving MSC occurred when its Belgium office approved the booking. The Fifth Court found that the evidence on the record suggested that MSC (US) and MSC in Switzerland are distinct entities, and that Conti had not presented any evidence to overcome the presumption of corporate separateness.[10]
On the question of waiver, the Fifth Circuit disagreed with the finding of the district court that MSC had waived any challenge to personal jurisdiction by entering into the LOU. It held that in contrast to other decisions where a waiver had been found, the LOU in this case contained conditional language pertaining to the district court’s jurisdiction, namely language to the effect that MSC agreed to pay only “after all appeals (if any)”.[11] The Fifth Circuit also held that there was no implicit waiver because the LOU stated that it was “given without prejudice to any and all rights or defenses MSC, its agents or affiliates have or may have in the Proceedings” , which included MSC’s defense of lack of personal jurisdiction.[12]
Accordingly, the Fifth Circuit reversed the district court’s judgment, and thereby put an end to Conti’s efforts to enforce its Award in Louisiana.
Comment
This judgment serves as a reminder that jurisdiction over a person or property is a critical prerequisite to the enforcement of foreign arbitral awards. In particular, for the purposes of proving personal jurisdiction, a party seeking to confirm and enforce an arbitral award in the US must show that the award debtor has sufficient forum contacts, and it will not be able to rely on the fact that a subsidiary of the award debtor is present or doing business in the state.
The Fifth Circuit’s finding on waiver also highlights the importance of carefully drafting forum selection clauses to avoid an inadvertent waiver, and the resulting loss of, valuable rights or defenses.
Finally, although it was not raised in this case, it is worth bearing in mind that the presence of assets within the jurisdiction may provide a basis for a court to exercise quasi in rem jurisdiction. Before commencing enforcement proceedings, parties should therefore try to identify the location of assets belonging to the award debtor as this will help identify an appropriate forum for the enforcement of the award and potential attachment of assets.
Jenner & Block has extensive experience in international enforcement actions, particularly concerning foreign arbitral awards, as well as with drafting complex forum selection clauses.
Background
The underlying dispute arose out of a charterparty – a contract pursuant to which a shipowner agrees to hire or lease a ship or yacht to a charterer – between Conti 11. Container Schiffahrts-GmbH & Co. (Conti), a German company, and MSC Mediterranean Shipping Company S.A. (MSC), a Swiss company, pursuant to which Conti chartered its cargo vessel, the M/V Flaminia, to MSC. In July 2012, the M/V Flaminia was in the middle of the Atlantic Ocean in transit from Charleston, Louisiana to Antwerp, Belgium, when an explosion occurred causing a fire onboard that resulted in the death of three crew members and the destruction of the onboard cargo. The explosion was caused by auto-polymerization of the contents of tank containers laden with 80% divinylbenzene (DVB). Those containers had been at a terminal in New Orleans and stored outdoors for a period of nine days before being shipped. The carriage of the tanks had been booked by an employee in the Houston office of MSC (US), a wholly owned New York subsidiary of MSC.
Following the incident, Conti commenced arbitration proceedings in London against MSC. The tribunal found that MSC had breached the charterparty by failing to comply with the International Maritime Dangerous Goods Code. In its award, the tribunal awarded Conti approximately $200 million in total damages (the Award). Conti then brought an action to confirm its Award pursuant to the New York Convention in federal court in the Eastern District of Louisiana. MSC moved to dismiss for lack of personal jurisdiction.
The District Court Confirms the Award
A party seeking to confirm an arbitral award in the United States under the New York Convention must establish, as a threshold matter, that the court either has (1) personal jurisdiction over the award debtor or (2) jurisdiction over the award debtor’s property (i.e., so-called quasi in rem jurisdiction). To establish personal jurisdiction, three factors must be satisfied: (1) the defendant must purposefully have directed its activities toward the forum state or purposefully availed itself of the privileges of conducting activities there; (2) the plaintiff’s cause of action must arise out of or relate to the defendant’s contacts with the forum state; and (3) the exercise of jurisdiction must be fair and reasonable. The primary disagreement here was with respect to second factor.
MSC argued that the relevant underlying litigation in the personal jurisdiction analysis should not be its breach of the charterparty but, rather, should be the issue of where foreign arbitral awards are enforceable under the New York Convention. MSC relied upon the Supreme Court’s reasoning in Vaden v. Discover Bank [3] and Badgerow v. Walters[4] to assert that once an arbitration award has been issued, the original underlying claims are no longer operative in an enforcement action.
The district court rejected this argument, relying on decisions from four of its sister circuits that had established that a federal court could consider the defendant’s contacts relating to the underlying dispute that led to the arbitration in assessing whether it has personal jurisdiction.[5] The court also rejected MSC’s argument that the Supreme Court’s decisions in Vaden v. Discover Bank and Badgerow v. Walters forbids “looking through” the arbitration petition to the underlying dispute to assess personal jurisdiction. Those decisions did not relate to personal jurisdiction in the context of confirming foreign arbitral awards.
Having determined that it may look to the underlying dispute to determine personal jurisdiction, the district court analyzed the facts to determine whether there were sufficient contacts with Louisiana. The court concluded that the underlying claim (i.e., the alleged breach of the charterparty) related to MSC’s forum contacts because “[the DVB] could not have been on the FLAMINIA, and subsequently caused the explosion, if it was not loaded and shipped in New Orleans .” Accordingly, the court stated that “[t]he loading and eventual shipping of the [DVB] out of New Orleans by MSC constitutes a relationship among the defendant (MSC), the forum (Louisiana), and the litigation (breach of clause 78 [of the charterparty])”.[6]
Alternatively, the court concluded that MSC waived its personal jurisdiction defense by issuing a letter of undertaking (LOU) to Conti, pursuant to which MSC promised to pay Conti up to US$200 million on any final judgment entered by the Eastern District Court of Louisiana.
The court therefore confirmed the Award. MSC appealed to the Fifth Circuit arguing that the district court had erred in its analysis of personal jurisdiction and that MSC did not waive its personal jurisdiction defense by entering into the LOU.
The Fifth Circuit Agrees with the District Court’s Approach to Assessing Personal Jurisdiction but Reaches a Different Conclusion on the Facts
On appeal, the Fifth Circuit conducted a de novo review of the district court’s decision because it concerned a question of law. The Fifth Circuit first considered MSC’s argument that the district court had erred by basing its personal jurisdiction analysis on contacts related to the underlying dispute. The Fifth Circuit gave this argument short shrift, noting that it had been rejected by every circuit to have considered it.[7] It agreed with the district court that several decisions of other circuits had made clear that it was appropriate for a federal court to consider contacts related to the underlying dispute when evaluating personal jurisdiction over actions to confirm arbitral awards.[8] The Fifth Circuit also ruled that the Supreme Court’s decision in Badgerow v. Walters did not support MSC’s argument because that case related to domestic arbitration and subject matter jurisdiction, which were not at issue here.[9]
MSC contended that, even if it were proper to consider contacts related to the underlying dispute, the district court erred in finding personal jurisdiction based only on the fact that the tanks containing DVB shipped from the port of New Orleans. The Fifth Circuit agreed with this argument. It found that the purported contact with New Orleans resulted not from MSC’s activity but rather that of its subsidiary, MSC (US), and third parties. The only putative “contact” involving MSC occurred when its Belgium office approved the booking. The Fifth Court found that the evidence on the record suggested that MSC (US) and MSC in Switzerland are distinct entities, and that Conti had not presented any evidence to overcome the presumption of corporate separateness.[10]
On the question of waiver, the Fifth Circuit disagreed with the finding of the district court that MSC had waived any challenge to personal jurisdiction by entering into the LOU. It held that in contrast to other decisions where a waiver had been found, the LOU in this case contained conditional language pertaining to the district court’s jurisdiction, namely language to the effect that MSC agreed to pay only “after all appeals (if any)”.[11] The Fifth Circuit also held that there was no implicit waiver because the LOU stated that it was “given without prejudice to any and all rights or defenses MSC, its agents or affiliates have or may have in the Proceedings” , which included MSC’s defense of lack of personal jurisdiction.[12]
Accordingly, the Fifth Circuit reversed the district court’s judgment, and thereby put an end to Conti’s efforts to enforce its Award in Louisiana.
Comment
This judgment serves as a reminder that jurisdiction over a person or property is a critical prerequisite to the enforcement of foreign arbitral awards. In particular, for the purposes of proving personal jurisdiction, a party seeking to confirm and enforce an arbitral award in the US must show that the award debtor has sufficient forum contacts, and it will not be able to rely on the fact that a subsidiary of the award debtor is present or doing business in the state.
The Fifth Circuit’s finding on waiver also highlights the importance of carefully drafting forum selection clauses to avoid an inadvertent waiver, and the resulting loss of, valuable rights or defenses.
Finally, although it was not raised in this case, it is worth bearing in mind that the presence of assets within the jurisdiction may provide a basis for a court to exercise quasi in rem jurisdiction. Before commencing enforcement proceedings, parties should therefore try to identify the location of assets belonging to the award debtor as this will help identify an appropriate forum for the enforcement of the award and potential attachment of assets.
Jenner & Block has extensive experience in international enforcement actions, particularly concerning foreign arbitral awards, as well as with drafting complex forum selection clauses.
[1] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A., 91 F.4th 789 (5th Cir. 2024).
[2] GSS Grp. Ltd v. Nat’l Port Auth., 680 F.3d 805, 813 (D.C. Cir. 2012); see also Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1121 (9th Cir. 2002) at 1121.
[3] Vaden v. Discover Bank 556 U.S. 49 (2009).
[4] Badgerow v. Walters 142 S.Ct. 1310 (2022).
[5] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A. No. 22-1114 (E.D. La. Sep. 7, 2022) at 6-8.
[6] Ibid., at 18.
[7] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A., 91 F.4th 789 (5th Cir. 2024) at III.A.
[8] Ibid.
[9] Ibid., at III.B.
[10] Ibid., at III.D.
[11] Ibid., at III.C.
[12] Ibid.
Footnotes
[1] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A., 91 F.4th 789 (5th Cir. 2024).
[2] GSS Grp. Ltd v. Nat’l Port Auth., 680 F.3d 805, 813 (D.C. Cir. 2012); see also Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1121 (9th Cir. 2002) at 1121.
[3] Vaden v. Discover Bank 556 U.S. 49 (2009).
[4] Badgerow v. Walters 142 S.Ct. 1310 (2022).
[5] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A. No. 22-1114 (E.D. La. Sep. 7, 2022) at 6-8.
[6] Ibid., at 18.
[7] Conti 11. Container Schiffarts-GmbH & Co. v. MSC Mediterranean Shipping Company S.A., 91 F.4th 789 (5th Cir. 2024) at III.A.
[8] Ibid.
[9] Ibid., at III.B.
[10] Ibid., at III.D.
[11] Ibid., at III.C.
[12] Ibid.
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