First Investment Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., No. 12-30377 (5th Cir. Dec. 21, 2012).
Covington Marine Corp. v. Xiamen Shipbuilding Industry Co., No. 12-30383 (5th Cir. Dec. 21, 2012).
These cases presented the issue of first impression in the Fifth Circuit: whether a court may dismiss a petition to confirm a foreign arbitration award based on lack of personal jurisdiction.
Both cases involved shipbuilding contracts with Chinese shipbuilders. Contractual disputes were referred to London arbitration, which ultimately resulted in awards against the shipbuilders. The shipping interests filed suits in China to confirm the awards, and the Chinese courts declined to enforce one award on the ground that it was not in accordance with the agreement signed by the parties while the other action remained unresolved. The shipping interests then filed actions in federal court in New Orleans to confirm the awards under the authority of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The district court in New Orleans dismissed both actions.
In First Investment, the Fifth Circuit addressed the arguments that the foreign entities with no contacts to the United States were not entitled to the protections of the Fifth Amendment’s Due Process Clause and that personal jurisdiction was not a valid defense under the New York Convention. While the Fifth Circuit acknowledged that there have been statements in prior decisions to the effect that due process protections are not available to foreign entities without property or presence in the United States, the court noted that these cases were decided before the opinion of the Supreme Court in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011), which indicated that foreign corporations could avail themselves of the Due Process Clause. Therefore, the Fifth Circuit found no basis for a court to exercise personal jurisdiction “without first establishing sufficient contacts between the defendant and the forum state.”
In support of its argument that a party against whom confirmation is sought under the New York Convention cannot raise personal jurisdiction as a defense, the shipping interests argued that personal jurisdiction is not one of the seven grounds enumerated in the Convention on which confirmation may be denied. While the Convention does not specify personal jurisdiction as a defense, the doctrine of personal jurisdiction is a Constitutional restriction on the exercise of judicial power. The Convention is an exercise of presidential and Congressional power, but constitutional due process takes precedence. The Treaty cannot “authorize what the [C]onstitution forbids.” Thus, the court is not “relieved of its responsibility to enforce those constitutional protections that guard a party from appearing in a forum with which it has no contacts,” and the foreign entities were permitted to raise a personal jurisdiction defense under the New York Convention as a matter of constitutional due process. Consequently, the Fifth Circuit affirmed the dismissal of the confirmation proceeding.
Based on its decision in First Investment, the Fifth Circuit similarly affirmed the dismissal of the action brought by the shipping interests in Covington Marine.