U.S. Supreme Court in May… Arbitration and International Litigation Not Far Away
Spring and the month of May seem to have inspired the U.S. Supreme Court (the Supreme Court) justices. In less than three weeks, the Supreme Court rendered three interesting opinions with respect to arbitration and international litigation:
- Bolivarian Republic of Venezuela v. Helmerich & Payne Int’l Drilling Co. (on FSIA pleading standards);
- Kindred Nursing Centers Partnership v. Clark (on whether state-law could require that a PoA expressly refer to arbitration agreements before an attorney-in-fact can bind his or her principal to an arbitration agreement);
- Water Splash, Inc. v. Menon (on whether the Hague Service Convention allows service of process by postal channels).
U.S. Supreme Court Rules on FSIA pleading standards
On 1 May 2017, the Supreme Court issued an 8-0 decision in which it clarified the pleading standards of the “expropriation” exception of the U.S. Foreign Sovereign Immunity Act 1976 (the FSIA).
The case began when Helmerich & Payne International (HMI), a U.S. company operating oil-drilling businesses in Venezuela, in conjunction with one of its subsidiaries, Helmerich & Payne de Venezuela (HMV), filed a suit in federal court in Washington, D.C. against the Venezuelan government and the national petroleum company, PDVSA, after the Venezuelan government had issued a Decree of Expropriation against HMV (click here for more information of the background of the case).
In response, the Venezuelan government and PDVSA moved to dismiss all claims arguing that the FSIA prevented a foreign sovereign nation from being sued in U.S. courts. HMI and HMV, on the other hand, argued that the U.S. courts should have jurisdiction pursuant to the “expropriation” exception under section 1605(a)(3) of the FSIA which provides that “a foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case […] in which rights in property taken in violation of international law are in issue“. The U.S. Court of Appeals for the District of Columbia Circuit sided with HMV and applied an exceptionally low bar standard to the expropriation exception, under which it was only possible to grant a motion to dismiss when the claim was “wholly insubstantial or frivolous“.
The issue put before the Supreme Court was whether the Court of Appeals had applied the correct standard in deciding that HMV had satisfied the requirements to invoke the expropriation exception well enough to survive Venezuela’s motion to dismiss.
In its decision the Supreme Court held that U.S. courts had jurisdiction to rule on the matter under the expropriation exception only if there was a “valid claim that ‘property’’ has been ‘taken in violation of international law‘”. According to the Supreme Court, however, a non-frivolous argument is insufficient under this view.
The Supreme Court held more specifically that, in accordance with international law, the FSIA reflected a restrictive theory of sovereign immunity, which grants the presumption of immunity. A non-frivolous reading would be too lenient in its application to the statute’s carved–out exceptions. According to the Supreme Court, the instance of this case (i.e. the government of Venezuela’s taking of its own national’s property within its national territory) is “often just the kind of […] public act (a ‘jure imperii’) that the restrictive theory of sovereign immunity ordinarily leaves immune from suit“. According to the Supreme Court, a non-frivolous standard would undermine the basic objective of FSIA.
At the end of the day, it can be concluded that, according to the Supreme Court, the “legally valid claim” test requires an actual finding by the court that property over which a legal claim is asserted has indeed been taken in violation of international law to support jurisdiction and proceed with the case. This determination facilitates a foreign sovereign’s challenge to claims brought under the FSIA.
The Supreme Court finds that requiring an express mention of arbitration agreement in a PoA violates the FAA
The second case to be discussed is Kindred Nursing Centers Limited Partnership v. Clark.
On 15 May 2017, the Supreme Court issued a decision in which it found that the Federal Arbitration Act (FAA) pre-empted a state-law contract rule that singled out arbitration by requiring that a power of attorney expressly refer to arbitration agreements before an attorney-in-fact can bind his or her principal to an arbitration agreement (click here for more information of the background of the case).
In this case, the respondents, Clark and Wellner, had completed paperwork with nursing homes and rehabilitation centers through their respective powers of attorney over family members in the nursing homes’ care. The respondents subsequently brought a case in local courts against the petitioners, alleging that a substandard level of care contributed to the deaths of the family members. The nursing homes, however, invoked an arbitration clause in the paperwork to prevent the case moving forward in the courts.
The Supreme Court, in a 7-1 decision, rejected the lower court’s decision, which held that only an express mention in the power of attorney to enter into an arbitration agreement is exercisable by the agent and binding to the principle. According to the Supreme Court, this specific authorisation requirement failed to put arbitration agreements on an equal plane with other contracts and violated the FAA’s longstanding prohibition against “singling out arbitration agreements for disfavored treatment“.
The Supreme Court reasoned that by requiring an express statement before validating an agent’s use of his power of attorney to release his principal’s right to go to court or have a jury trial, the state court had “adopt[ed] a legal rule hinging on the primary characteristic of an arbitration agreement“, and directly violated the Supreme Court precedent set in AT&T Mobility LLC v. Concepcion, which held that the FAA pre-empts state-law rules that discriminate against arbitration agreements, whether expressly or by relying on the agreements’ defining features.
The Supreme Court finds that the Hague Service Convention does not prohibit service of process by mail
On 22 May 2017, the Supreme Court unanimously decided that the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the Hague Service Convention) does not prohibit service of process by mail.
At issue in the case was Article 10(a) of the Convention, which reads: “Provided the State of destination does not object, the present Convention shall not interfere with—(a) the freedom to send judicial documents, by postal channels, directly to persons abroad“. The question was whether the phrase “send the judicial documents” incorporated sending documents abroad for the purpose of service, even though 10(a) lacks an express reference to “service“.
First, the Supreme Court determined that the key word “send“, according to Black’s Law Dictionary and its ordinary meaning, is a broad term that does not communicate excluding the transmission of documents for a particular purpose, in this case, for service. To support this reading, the Supreme Court added that the structure of the Convention limits its scope to the service of documents.
Therefore, according to the Supreme Court, any reading of Article 10(a) as concerning something other than the service of documents would be “quite strange” and would inappropriately render 10(a) mere surplussage.
Second, the Supreme Court determined that the word “send” applies to “the transmission of any judicial documents“, including but not limited to service of process. The respondent’s argument that Article 10(a) applies to serving only some documents (i.e. “post-answer judicial documents” but not “service of process“) was deemed a too narrow reading of Article 10(a), which governs the same set of documents as 10(b) and (c) and includes no otherwise limiting suggestion. Furthermore, the Supreme Court took into account that the “equally authentic” French language version, which “has consistently been understood to mean service or notice” (using the term “adresser“).
Third, to resolve any potential ambiguity, the Supreme Court also considered the Convention’s drafting history, the interpretation of the American Executive Branch and the views of other signatories (including holdings of multiple foreign courts). It then concluded that each of these sources strongly, often explicitly, suggest that Article 10(a) allows service through postal channels.
Having “unmistakably” demonstrated that Article 10(a) encompasses service by mail, the Supreme Court provided a note of caution about the limits of this holding. It did not hold that the Convention “affirmatively authorizes service by mail“. Rather, Article 10(a) provides that the Convention does not “interfere with […] the freedom to serve documents through postal channels“. Any party intending to serve another abroad by mail under the Convention must still meet two conditions: (i) the receiving state must not have objected to this form of service; and (ii) service by mail must be “authorized under otherwise-applicable law“.
PS: I would like to thank Kimberly King for her valuable contribution to this post – Quentin.