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Declining to Compel Arbitration on Public Policy Grounds: Thomas v. Carnival Corp.

19 January 2010
Mayer Brown Article

In Thomas v. Carnival Corp., 573 F.3d 1113 (11th Cir. 2009) (per curiam), the US Court of Appeals for the Eleventh Circuit (which has jurisdiction over federal cases originating from Florida, Georgia and Alabama), relying in part on public policy grounds, reversed and remanded a trial court decision compelling the plaintiff, a head waiter employed by Carnival on one of its cruise ships, to arbitrate certain claims against Carnival. The case is significant because it takes what may be deemed a (perhaps unduly) broad view of when it is appropriate to decline to compel arbitration based on the “public policy” affirmative defense (pursuant to which recognition and enforcement of an arbitral award may be declined on public policy grounds) set forth in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).

In Thomas, the district court first determined that plaintiff’s statutory claim under the Seaman’s Wage Act was subject to the arbitration clause in the relevant employment contact between Thomas and Carnival. Pursuant to that clause, arbitration would occur in the Philippines and be subject to the law of the flag of the vessel — i.e., Panama law — “without regard to principles of conflicts of laws thereunder.” Plaintiff argued that he should not be compelled to arbitrate pursuant to this clause because, if he were compelled, he would be unable to bring his statutory claim under the Seaman’s Wage Act, in contravention of US public policy. The Eleventh Circuit agreed.

Article V of the New York Convention provides an affirmative defense pursuant to which “[r]ecognition and enforcement of an arbitral award may also be refused if . . . the [r]ecognition and enforcement of the award would be contrary to the public policy of that country [being asked to enforce the award].” To determine whether this public policy defense was applicable, the Eleventh Circuit looked to two Supreme Court cases for guidance.

First, the Eleventh Circuit examined Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 616 (1985), in which the Supreme Court held that an arbitration clause requiring arbitration of plaintiff’s Sherman Act antitrust claims in Japan did not violate US public policy because the parties had agreed that the Japanese arbitral tribunal would apply US law The Supreme Court explained in that case that “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.” Mitsubishi further held that if “the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies . . . we would have little hesitation in condemning the agreement as against public policy.”

Second, the Eleventh Circuit considered Vimar Seguros y Reaseguros v. M/V Sky Reefer, 515 U.S. 528 (1995), in which the Supreme Court held that it was premature to refuse to enforce an arbitration clause on public policy grounds, given that (i) it was unclear what law the arbitral forum would apply, and therefore unclear if the plaintiff would be denied the full relief available under the Carriage of Goods by Sea Act (COGSA), and (ii) if the plaintiff received lesser relief under Japan’s parallel statutory scheme, the US courts would have an opportunity to revisit the issue at the award-enforcement stage of the proceedings.

Relying on the foregoing precedents, the Eleventh Circuit concluded that the arbitration clause in Thomas was the type of “prospective waiver” of plaintiff’s statutory claims that Mitsubishi held would be a violation of US public policy. The court explained that, if enforced, the clause would “completely bar Thomas from relying on any U.S. statutorily-created causes of action,” which moreover would deny Thomas “one of a private litigant’s ‘chief tools’ of statutory enforcement—the Act’s treble-damages wage penalty for provision of late payments.”

In Thomas, the Eleventh Circuit distinguished Sky Reefer. In Sky Reefer, the US courts would have had a subsequent opportunity to address the public policy issues when determining whether to enforce plaintiff’s arbitration award, but in Thomas, the plaintiff would have no Seaman’s Wage Act claim at all if forced to arbitrate, and so likely would have no award, and therefore the US courts would not have an opportunity to revisit these public policy issues at the award-enforcement stage. That being the case, the Eleventh Circuit concluded that it was not premature to deny enforcement of the arbitration clause immediately on public policy grounds.

In several respects, the Eleventh Circuit’s decision is at odds with the approach taken in other circuits, where courts have been more reluctant to apply the public policy exception as a basis to decline to compel arbitration.

First, with regard to the footnote in Mitsubishi on which Thomas chiefly relies (providing that prospective waivers of certain US statutory rights will violate public policy), the Ninth Circuit has held: “we do not consider that footnote to be binding.” Simula v. Autoliv, Inc., 175 F.3d 716 (9th Cir. 1999) (citing Richards v. Llloyd’s of London, 135 F.3d 1289, 1295 (9th Cir. 1998)). Accordingly, in Simula, the court held that the argument that an arbitral tribunal could not provide identical relief to what a US court would provide on plaintiffs’ antitrust claims was unavailing.

Second, although Thomas asserts that plaintiffs will not be able to obtain treble damages absent a claim under the Wage Act, the Eleventh Circuit did not explore the applicable Panama law and whether it might have provided plaintiff with comparable relief (e.g., punitive damages), or whether any relevant differences might otherwise have been addressed (e.g., through a stipulation by the defendant). In International Marine Underwriters CU v. M/V Kasif Kalkavan, 989 F. Supp. 498 (S.D.N.Y. 1998), for example, the district court compelled arbitration notwithstanding that plaintiff would be required to proceed under Korean law instead of COGSA, in part because “[g]iven their stipulations, the liability of these defendants would not be lessened by requiring plaintiff to bring suit in a Korean forum . . . .”

Similarly, in Fireman’s Fund Ins. Co. v. Cho Yan Shipping Co., 131 F.3d 1336, 1340 (9th Cir. 1997), which Thomas cites in a footnote, the Ninth Circuit affirmed a decision compelling arbitration on evidence that Korean law would be at least as favorable to plaintiff as COGSA, explaining that “the question is not whether the foreign forum will apply COGSA itself, but ‘whether the substantive law to be applied will reduce the carriers’ obligations . . . below what COGSA guarantees.’” Additionally, the Fifth Circuit, in Ambraco, Inc. v. Clipper Faith MV, 570 F.3d 233 (5th Cir. 2009), enforced a forum selection clause requiring resolution in the United Kingdom in the absence of “convincing evidence” that a UK court would impermissibly limit defendants’ obligations under COGSA.

The Thomas  decision did not discuss the anti-waiver provisions in the Wage Act. See 46 U.S.C. § 10317 (“[a] seaman by any agreement other than one provided for in this chapter may not . . . be deprived of a remedy to which the . . . seaman otherwise would be entitled for the recovery of wages. A stipulation in an agreement inconsistent with this chapter . . . is void.”). As a result, it is not clear what role, if any, that provision should play in reconciling this decision with the more restrictive reading of the public policy exception to the enforcement of arbitration clauses generally or whether Thomas marks a deviation from the jurisprudence of enforcement or merely a special case under a specific statutory regime.


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