By Brian Chihera

The Ninth U.S. Court of Appeals has reversed a district court’s order which had treated an order made by a Philippines arbitrator as a foreign arbitral award.

The appeals court ruled on an unusual situation.  It found that the case had been settled, and there was no outstanding dispute to arbitrate by the time the arbitrator got the case, and therefore nothing for the federal district court to confirm.

In Castro v. Tri Marine Fish Co., No. 17-35703 (Feb. 27) (available at http://bit.ly/2Zwoa8x), the three-judge appellate panel said that the arbitration decision was not a decision at all and should not be enforced under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention.

“We review foreign arbitral awards deferentially, but we do not blind ourselves to reality when presented with an order purporting to be one,” concluded Circuit Judge M. Margaret McKeown, writing for a unanimous Ninth Circuit panel. “To cloak its free-floating settlement agreement in the New York Convention’s favorable enforcement regime, Tri Marine asked an arbitrator to wave his wand and transform the settlement into an arbitral award. That is not sufficient to produce an award subject to the Convention.”

At the heart of the convention and related federal law, notes Circuit Judge McKeown, “is the principle insulating foreign arbitral awards from second-guessing by courts. But this appeal involves an even more fundamental question—whether we are presented with a foreign arbitral award at all. In the mine run of cases, the answer is uncontroversial: when it looks, swims, and quacks like an arbitral award, it typically is. Yet, in this unusual appeal, we have an arbitral award in name only. There was no dispute to arbitrate, as the parties had fully settled their claims before approaching an arbitrator.”

Michael Castro, a Philippines citizen, moved to American Samoa where he lived with his fiancé. Castro was employed by Tri Marine and worked in the company’s warehouse. He was offered a deck-hand position on a fishing vessel it owned, which he accepted.

The dispute between Castro and his employer started with an employment contract that was signed just before the fishing expedition launched. Both parties dispute the contents of what was signed. Castro said he believed that he was only signing a “a half sheet of paper with a few sentences on it” that designated the pay rate, and the employer contended that Castro signed an employment contract.

Castro, however, said that he signed the employment contract when he appeared before an arbitrator. The contract contained a clause which was applicable to all disputes or claims arising out of the employment on the vessel.

Castro injured his knee after falling down ship stairs two weeks into the trip, and immediately requested to be returned to American Samoa so he could travel to Hawaii for medical care. Tri Marine arranged for Castro to be treated in the Philippines, where he also underwent surgery for a torn anterior cruciate ligament and a torn meniscus. Castro also received physical therapy and his employer paid for the medical expenses and his monthly maintenance.

Castro approached Rhodylyn De Torres, a Tri Marine agent in the Philippines after his father had been diagnosed with kidney cancer. He negotiated a settlement of his disability claims in exchange for an advance of $5,000 to help pay for his father’s care. This was followed by an agreement in principle to release Castro’s claims in exchange for an additional $16,160.

Castro was accompanied by his fiancé when he went to see De Torres at her office to finalize the settlement. Castro was not aware of the fact that he was participating in an arbitration. Castro and De Torres both gave different versions of events of their meeting. Castro is not fluent in English and disputes that De Torres translated documents into Tagalog, the Philippine language. There was a dispute as to when the agreement was signed, although Castro did not dispute signing the agreement.

The settlement agreement signed between Castro and De Torres meant that he had released himself from any and all liability or claims. After the meeting on the release, Castro was told that he had to pick up the settlement receipt at the National Conciliation and Mediation Board, but in fact he was led to an arbitration.

Gregorio Biares was present as the arbitrator. This was the first time for Castro to be in an arbitration hearing and he was not aware of any dispute between himself and his former employer. Castro asserted that Biares hurriedly flipped through papers asking Castro to sign  and stating that the settlement was favorable to Castro. Biares reportedly told Castro that the settlement papers were “just a first payment.”

But there was no arbitral case filed by either party. Tri Marine provided Biares the release paperwork signed by Castro and a joint two-page motion to dismiss.

The New York Convention recognizes the enforcement of foreign arbitral awards. A court is obliged to confirm a foreign arbitral award unless the party resisting enforcement meets the substantial burden of proving one of the seven interpreted defenses.

The major question for the U.S. courts was whether there was an “arbitral award” that would fall under the New York Convention. In coming to its decision, the courts had to look at the definitions of “arbitration” and “arbitral award”.

The two terms, however, do not have definitions under the New York Convention and in the Federal Arbitration Act. Case law provided direction.  Using the definitions from American Law Institute’s Restatement, the Ninth Circuit decided that there was no arbitral award, tribunal or arbitration because the requirements of the parties’ arbitration agreements and the forum were not met.

Although the order was issued as an arbitral order, there were aspects of it that indicated otherwise. First, there was no dispute between Castro and his former employer Tri Marine. There was no genuine disagreement between the parties.  Therefore, they reached an agreement and there was no arbitral award handed down. Castro and Tri Marine had settled their dispute before they visited the arbitrator, with Castro releasing Tri Marine of any liability and all claims.

Arbitration is a consensual procedure, and there was no consent between Castro and Tri Marine to participate in an arbitration that was a meeting with a third party. Parties may waive contractual terms, but by his conduct, Castro did not have any intent to arbitrate the dispute in the Philippines. The meeting between the parties did not follow Philippines arbitral procedures.

The Ninth Circuit opinion stated that the parties’ free-floating settlement agreement did not transform into an arbitral award and the fact that there was an arbitrator present does not make it an arbitral award. The appeals court concluded that Tri Marine could seek to enforce the release as a contract matter, but the arbitrator’s order was not an award and it did not fall under a foreign arbitral award.

The author, a CPR Institute Summer 2019 intern, graduated last month with an LLM in dispute resolution from the University of Missouri School of Law in Columbia, Mo.