Public Policy Defense to Enforcement of Foreign Arbitral Award Requires Showing That Award Violates the United States’ “Most Basic Notions of Morality and Justice”

The United States has acceded to The New York Convention (the “Convention”), which requires participating nations to enforce arbitration agreements and foreign arbitral awards. Federal district courts generally enforce foreign arbitral awards unless a party establishes one of seven defenses enumerated in Article V of the Convention. One such defense is that an award is contrary to the public policy of the United States. In Sladjana Cvoro v. Carnival Corporation, the Eleventh Circuit considered this defense, ultimately holding that it only applies “when confirmation or enforcement of a foreign arbitration award would violate the forum state’s most basic notions of morality and justice.”

In August 2012, Sladjana Cvoro signed a seafarer’s employment agreement to work on a cruise ship owned and operated by Carnival Corporation. The agreement provided that all disputes between Cvoro and Carnival would be subject to arbitration and further that the agreement would be governed by the laws of Panama. During her employment, Cvoro began suffering from severe carpal tunnel syndrome such that she was unable to work. Carnival repatriated Cvoro to her home country of Serbia and selected physicians to continue treating the condition. As a part of this treatment, doctors in Serbia attempted corrective surgery, but the procedure only exacerbated the problem and caused permanent damage. Cvoro subsequently initiated arbitration against Carnival in Monaco, asserting claims under the Jones Act (a U.S. statute protecting seafarers) and U.S. maritime law for injuries caused by the negligence of her doctor.

In keeping with the parties’ choice-of-law provision, the arbitrator applied the laws of Panama and refused to apply the laws of the U.S. because Cvoro did not establish a sufficiently close connection between the U.S. and her claims. Under Panama law, Carnival could not be held vicariously liable for shore-side malpractice occurring after Cvoro left the cruise ship and, accordingly, the arbitrator denied Cvoro’s claim for damages. Unhappy with this result, Cvoro filed suit in the Southern District of Florida, arguing the arbitral award should be set aside under Article V of the New York Convention as violating the public policy of the U.S. to protect seafarers as “wards of admiralty.” The district court disagreed, holding “the distinctions between Panamanian law and U.S. law did not overcome the strong federal presumption to enforce arbitral awards, especially because Cvoro’s theory of vicarious liability is not an explicitly ‘well-defined and dominant’ U.S. policy ‘rooted in basic notions of morality and justice.’” Slip Op. 10.

On appeal, the Eleventh Circuit sympathized with the Cvoro, but held that “simply because a foreign arbitral award provides for a smaller recovery than may have been available under United States maritime law does not necessarily mean the award violates public policy.” Slip Op. 6. The court further noted that, although Cvoro was unable to recover under a theory of vicarious liability, she still received medical care and other benefits. Accordingly, the arbitral award “was not so inadequate as to violate this nation’s most basic notions of morality and justice.” Slip Op. 34. The Court’s decision highlights the difficulty of setting aside foreign arbitral awards on public policy grounds.

Author: John E. Sharpe

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