By Lorene D. Park, J.D.
Sidestepping the question of whether, under the New York Convention, a party can raise a cost-based, public-policy defense in opposing a motion to compel arbitration (precedent suggests this challenge may be raised after
arbitration when opposing enforcement of an award), the Eleventh Circuit found that a cruise ship employee failed to show that the high costs of arbitration would prevent him from vindicating his federal statutory rights in an arbitral forum. Merely stating that he was from a poor community and did not have the money to pay for arbitration was not enough. Moreover, had he gone with a union-appointed attorney, the employer would have been contractually bound to pay the costs (Suazo v. NCL (Bahamas), Ltd.
, May 10, 2016, Marcus, S.).
The employee worked on a cruise ship, where he performed frequent heavy lifting. He was injured on the job in 2011 and received treatment for a herniated disc and compressed nerve. After his medical care was cut off in 2012, and the employer refused to reinstate it, he filed suit in a Florida state court for negligence under the Jones Act and general maritime law. After removing to federal court, the employer filed a motion to dismiss and compel arbitration.
Too poor to arbitrate?
The employee had signed an agreement requiring arbitration of any dispute arising from the employment relationship. The arbitration was to be conducted pursuant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). The agreement was silent on who would bear the costs of arbitration but incorporated an applicable collective bargaining agreement, which provided that the employer would pay costs if the employee was represented by the union.
Opposing the employer’s motion, the employee argued that the CBA required him to pay half of the costs of arbitration because he had foregone representation by the union. He was too poor, he claimed, to pay the thousands of dollars required. The district court granted the motion to compel, reasoning that the employee had invoked the “effective vindication doctrine,” which is a “public policy” defense that could not be considered at the early arbitration-enforcement stage under the New York Convention. The Eleventh Circuit affirmed.
The New York Convention.
The New York Convention is implemented through Chapter 2 of the Federal Arbitration Act (FAA), which creates two causes of action in federal court to enforce an arbitration agreement under the New York Convention: a motion to compel
arbitration under the agreement (9 U.S.C. §206); and a motion to confirm
an arbitral award (9 U.S.C. §207).
Certain defenses may be raised, but the New York Convention does not have a public-policy defense at the initial arbitration-enforcement
stage—though that defense is available at the subsequent award-enforcement
stage. The Eleventh Circuit noted that it has held that the Convention requires
that a motion to compel arbitration be granted if jurisdictional requirements are met (the agreement is in writing, provides for arbitration in a signatory state, arises from a commercial relationship, and involves a non-U.S. citizen or relationship to a foreign state) and no affirmative defense under the Convention applies.
Effective vindication doctrine.
With respect to domestic arbitration under FAA Chapter 1, the “effective vindication doctrine” is recognized on public policy grounds. This defense applies when arbitration effectively waives a party’s right to pursue statutory remedies. In a cost-based challenge, the party seeking to avoid arbitration has to show he faces such high costs that he is effectively precluded from vindicating his federal statutory rights in an arbitral forum. This has been invoked to avoid an arbitral award
, but not to avoid enforcement of an arbitration clause.
In this appeal, the parties disputed whether the employee could raise the cost-based, effective vindication defense to avoid arbitration. Though it had not yet ruled on that issue, the Eleventh Circuit detailed its prior decisions which provided some guidance, and which indicated that the appropriate time for raising an argument related to the payment of fees was after
arbitration, at the award-enforcement stage, if an employer tried to collect arbitral costs.
Employee failed to show denied access to forum.
That said, the appeals court found that it need not decide that issue here, because the employee fell “far short” of showing that enforcing the arbitration agreement would “effectively deny him access to the arbitral forum.” He submitted no evidence to the district court on the amount of fees he was likely to incur; his counsel simply opined that arbitration costs could exceed $20,000.
Moreover, the employee’s factual foundation for his “inability to pay” was insufficient. He provided only an affidavit stating that he lives in a poor community where it is “not easy to find work” and he does “not have money to pay for an arbitration, much less for an arbitrator’s salary” and does not have the means to pay “thousands of dollars.” This was not enough to show that unaffordable costs would deny him “access to the forum.”
Employee could have avoided costs.
The effective vindication defense also failed because the applicable CBA stated that, if the employee was represented by the union, the employer would “bear the reasonable costs related to the arbitration process from beginning to end.” It was only if he chose to initiate arbitration independently of the union that the CBA was silent on costs. Thus, the only reason the employee would be required to bear any costs was because he opted to retain private counsel instead of going with union-appointed counsel. Refusing to second guess the bargain struck by contract, the appeals court affirmed the order compelling arbitration.