Jason P. Minkin and Jonathan A. Cipriani (BatesCarey LLP)

In Atlantic Marine Construction Co. v. United States District Court for Western District of Texas,[1] a unanimous Supreme Court of the United States ruled that a valid forum selection clause should be “given controlling weight in all but the most exceptional cases.”[2]  Thus, the Court announced a deferential standard for enforcement of these clauses, including such clauses that call for arbitration abroad.[3]  This standard continues to impact international marine insurance disputes, as seen most recently in Hill v. Assuranceforeningen Skuld (Gjensidig).[4]  The district court in Hill enforced a Norway arbitration clause against the wife of a deceased Jones Act seaman who sought to enforce a judgment against the shipowner’s insurer in Guam.

Background

The defendants, referred to jointly in the Hill decision as “Skuld,” are associations of shipowners that provide mutual insurance to their members in connection with the operations of their vessels.  One defendant is a Norwegian entity and the other Bermudian, both with principal places of business in Norway.  Skuld’s Protection and Indemnity Rules (P&I) provide for arbitration of disputes in Norway.  Skuld insured Majestic Blue Fisheries, LLC (Majestic Blue), a Guam entity that owned the F/V Majestic Blue.  The F/V Majestic Blue sank on the high seas, killing Captain David Hill.  A jury in the District of Guam heard the widowed Amy Hill’s wrongful death suit against Majestic Blue and issued a verdict in her favor in excess of $3 million.[5]   Majestic Blue appealed.  Hill filed a direct action against Skuld in the District Court of Guam after Majestic Blue allegedly refused to pay the judgment and failed to provide security to stay execution of the judgment.

Skuld moved to dismiss Hill’s suit on multiple grounds. It is relevant here that Skuld sought dismissal under the doctrine of forum non conveniens on the grounds that Guam law and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention)[6] required Hill to arbitrate her claims in Norway, given the Norway arbitration and forum selection clauses in Skuld’s Rules.  A federal magistrate judge issued a report recommending, among other things, that the Guam district judge deny the motion to dismiss for forum non conveniens, but that the case be stayed and Hill compelled to arbitrate in Norway after perfecting service and the underlying appeals were resolved.[7]

District Judge’s Decision

After reviewing objections and briefing from both sides, the district judge adopted the report’s recommendation that the dispute be arbitrated in Norway, but reversed on the forum non conveniens issue and concluded that the case should be dismissed instead.

In reaching its decision, the court noted that the forum non conveniens analysis first requires a determination of whether an adequate alternative forum exists.  Finding that Hill had not properly objected to the report’s conclusion on this point, the court found that Skuld had “met their burden of showing that Norway is an adequate alternative forum” because Skuld “is subject to service of process in Norway and Norway also permits direct actions against insurers.”[8]

The court then addressed the next phase of the forum non conveniens analysis: a review of the “private interest” and “public interest” factors.  Quoting Gulf Oil Corp. v. Gilbert,[9] the court noted that the private interest factors include “the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive,” including issues of enforceability of a judgment.[10]  The public interest factors include “(1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized controversies decided at home; (3) the interest in having the trial of a diversity case in a forum that is at home with the law that must govern the action; (4) the avoidance of unnecessary problems in conflict of laws, or in the application of foreign law; and (5) the unfairness of burdening citizens in an unrelated forum with jury duty.”[11]

The court noted that, under Atlantic Marine, the presence of a valid forum-selection clause in a contract “changes the calculus” for the forum non conveniens analysis in three ways.  First, the plaintiff’s choice of forum receives no weight, and the burden shifts to the plaintiff to establish that transfer would be unwarranted because she has essentially agreed to the venue specified in the insurance contract prior to the litigation.  Second, private interests are not considered. Third, the transferee venue is not required to follow the law of the original venue.[12]  As a threshold matter, the court concluded that it was irrelevant that Hill is a third-party claimant rather than a party to Majestic Blue’s insurance contract with Skuld since, under the doctrine of equitable estoppel, a party claiming the benefits of a contract cannot avoid its burdens.[13]

Acknowledging that it did not have to consider the private interest factors under Atlantic Marine, the court nonetheless observed that one of those factors—enforceability of judgments—weighed in favor of dismissal.  The court noted that while the United States, like Norway, is a party to the New York Convention, it is not a party to any treaty allowing for enforcement of its court’s judgments abroad.  Hence, were Hill to obtain a judgment against Skuld in the United States, she would still need to obtain a Norwegian judgment to enforce the U.S. judgment’s terms.  That could prove difficult, since any such U.S. judgment would have been obtained in disregard of the New York Convention and the provisions in Skuld’s Rules calling for arbitration in Norway.[14] Thus, the Norway arbitration and forum selection clauses weighed further in favor of transfer under the forum non conveniens analysis.

The court then examined the public interest factors, concluding that they also weighed in favor of dismissal.  The court found that neither Norway nor Guam was shown to suffer more court congestion than the other, rendering that factor neutral.  The court also found that the Hill-Skuld dispute is not a “localized” Guam controversy, as Guam has “little interest” in a breach of contract action by a Florida plaintiff against a Norwegian company, particularly given that the only relevant Guam entity—Majestic Blue—had chosen to arbitrate in Norway under Norwegian law.[15]  For the same reasons, a local Guam jury would be unfairly burdened by having to serve in an essentially foreign dispute.[16]  Any issues of conflict of law weighed in favor of Norway because the choice of law clause at issue specifies Norwegian law.[17]

Having determined that Hill had not met her burden to oppose dismissal on forum non conveniens grounds, the court concluded that the parties’ arguments on all other grounds were moot, and that the case should be dismissed in favor of arbitration in Norway.  Finding that the magistrate judge had properly determined the New York Convention to apply, and that Hill had failed to object to that determination, the court ruled that her dispute was properly subject to arbitration in Norway pursuant to Skuld’s Rules.  Although Hill raised arguments based on waiver and reverse-preemption of the New York Convention under the U.S. McCarran-Ferguson Act, the court found these untimely and thus declined to reach them.[18]

Conclusion

Hill is a stark reminder of the deference that courts will give to valid foreign arbitration clauses under the New York Convention and Atlantic Marine.[19]  A relatively sympathetic plaintiff, not a party to the insurance contract, who had already obtained a judgment in the transferring venue’s courts, was nonetheless subject to an arbitration clause agreed to between the insurer and insured.  Marine insurers and practitioners should be aware of the Hill decision and the significant deference that courts will pay to foreign arbitration clauses under Atlantic Marine.  Presently, Hill is being appealed, which means there will be further argument on the disputed issues in the Ninth Circuit Court of Appeals.

[1] 134 S. Ct. 568, 2014 AMC 1 (2013).

[2] Id. at 581, 2014 AMC at 12 (Kennedy, J., concurring) (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 33 (1988)).

[3] Atl. Marine Constr. Co. involved a motion for change of venue under 28 U.S.C. § 1404.  The Supreme Court indicated, however, that the same standard should apply to a motion to dismiss based on forum non conveniens when there is a valid forum selection clause.  See Atl. Marine Const. Co., 134 S. Ct. at 582, n.8, 2014 AMC at 14, n.8 (“[T]he same standards should apply to motions to dismiss for forum non conveniens in cases involving valid forum-selection clauses pointing to state or foreign forums.”).

[4] Hill v. Assuranceforeningen Skuld (Gjensidig), No. 15-00025, 2017 WL 930060, 2017 U.S. Dist. LEXIS 34965 (D. Guam Mar. 9, 2017) (appeal filed, No. 17-15664, April 10, 2017).

[5] There was also a separate Limitation Action, in which the petitioner was not able to limit its liability.  See In the Matter of Majestic Blue Fisheries, LLC, As Owner of the F/V Majestic Blue Petitioning for Exoneration From or Limitation of Liability, 11-00032, ECF Nos. 212-14.  That action is currently on appeal. Id., ECF No. 227.

[6] June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 (codified at 9 U.S.C. § 201 (2012)).

[7] Report & Recommendation, ECF No. 73 (April 6, 2016).

[8] Hill, 2017 WL 930060 at *6, 2017 U.S. Dist. LEXIS at *15-16.

[9] 330 U.S. 501 (1947) (superseded by statute as stated in Am. Dredging Co. v. Miller, 510 US 433, 450 (1994)).

[10] Hill, 2017 WL 930060 at *7, 2017 U.S. Dist. LEXIS at *16-17 (quoting Gulf Oil Corp., 330 U.S. at 508).

[11] Id. at *7, 2017 U.S. Dist. LEXIS at *17-18 (quoting Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241 n.6 (1981)).

[12] Id. at *8, 2017 U.S. Dist. LEXIS at *20 (citing Atl. Marine Const. Co., 134 S. Ct. at 581-82, 2014 AMC at 12-13).

[13] Id. at *7, 2017 U.S. Dist. LEXIS at *18.

[14] Id. at *9, 2017 U.S. Dist. LEXIS at *22.

[15] Id. at *10, 2017 U.S. Dist. LEXIS at *25-26.

[16] Id. at *10, 2017 U.S. Dist. LEXIS at *26.

[17] Id.

[18] Id. at *11, 2017 U.S. Dist. LEXIS at *28-29.

[19] See id. at *12, 2017 U.S. Dist. LEXIS at *30-31.

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