Stemcor USA Incorporated v. Cia Siderurgica Do Para Consipar, No. 16-30984 (5th Cir. July 11, 2018) addresses federal court jurisdiction based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and court enforcement of provisional remedies in aid of arbitration.
Federal Jurisdiction: Convention on Recognition and Enforcement of Foreign Arbitral Awards
Daewoo International Corp., a South Korean trading company, entered a series of contracts with American Metals Trading. All the contracts had arbitration provisions. Daewoo paid American Metals for pig iron, but American Metals never delivered it. Daewoo filed suit in federal court, seeking an order to compel arbitration and an attachment of the pig iron still possessed by American Metals.
Another American Metals creditor, Thyssenkrupp Mannex GMBH of Germany, attached the same pig iron in a Louisiana state court action. Then, Thyssenkrupp intervened in the Daewoo federal case, seeking to vacate Daewoo’s attachment.
The first order of business for the Fifth Circuit was determining whether federal courts had subject matter jurisdiction based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
The Fifth Circuit held that federal courts had subject matter jurisdiction. The two Convention jurisdictional requirements were met. First, there were arbitration agreements that fell under the Convention. Second, the dispute related to the arbitration agreements.
9 U.S.C. § 203 gives federal courts jurisdiction over all actions or proceedings falling under the Convention. And 9 U.S.C. § 202 provides: “An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention.”
The Daewoo arbitration “fell under the Convention” because the following four requirements were met: 1) a written arbitration agreement, 2) the written agreement must provide for arbitration in the territory of a Convention signatory, 3) the agreement to arbitrate must arise out of a commercial relationship, and 4) at least one party to the agreement must not be an American citizen.
The dispute “related to the arbitration agreements” because Daewoo sought an attachment of the pig iron in aid of arbitration. The Fifth Circuit held that federal courts had subject matter jurisdiction to issue “provisional remedies in aid of arbitration. See E.A.S.T., Inc. of Stanford v. M/V Alaia, 876 F.2d 1165 (5th Cir. 1989).
Provisional Remedies in Aid of Arbitration
Granting subject matter jurisdiction, the Fifth Circuit turned to the issue of whether Daewoo’s provisional remedy of attachment was permitted under Louisiana state law.
Thyssenkrupp, the intervenor, argued that Louisiana’s non-resident attachment statute did not allow the Daewoo attachment in aid of arbitration. The Louisiana statute provides that “[a] writ of attachment may be obtained in any action for a money judgment whether it is against a resident or a nonresident, regardless of the nature, character, or origin of the claim, whether it is for a certain or uncertain amount , and whether it is liquidated or unliquidated.” La. Code Civ. Proc. Art. 3542 (Emphasis added.)
The majority Fifth Circuit opinion held that Louisiana state law permitted attachments in actions seeking money damages. However, Daewoo’s suit to enforce arbitration was technically not pled as seeking money damages. “A motion to compel arbitration seeks an order requiring a party to take an action—namely, to arbitrate the dispute. Accordingly, a suit seeking to compel arbitration is not a ‘action for a money judgment.’” Daewoo’s attachment, therefore, was vacated.
A dissent by Judge Graves concluded that “the underlying action seeking to compel arbitration here is clearly an ‘action for a money Judgment’ under Louisiana’s non-resident attachment statute.” He, therefore, would have permitted the Daewoo attachment.
The clear “take-aways” from this decision are (1) this precedent favors federal subject matter jurisdiction for Convention grounded arbitrations, (2) “provisional remedies in aid of arbitration” are available, and (3) pleadings seeking provisional remedies must be drafted with extreme care. Mention need be made that this litigation may well not be over. Stay tuned.