The U.S. District Court for the District of Delaware’s recent decision in Landbridge Port Services (Hong Kong) Ltd. v. Notarc Port Investment LLC further deepens the split among U.S. federal courts regarding jurisdiction under the Federal Arbitration Act (FAA) over cases to enjoin or stay international arbitrations that fall under the New York Convention.[1]
The fundamental question is whether the mere fact that the case involves an issue of arbitration that is governed by the FAA is sufficient to provide federal subject matter jurisdiction. In Landbridge, the District Court found that 9 U.S.C. § 205, which permits defendants to remove from state to federal court actions relating to arbitration agreements or awards falling under the New York Convention does not independently confer federal subject matter jurisdiction over a case to enjoin an international arbitration. The decision is in line with the Second Circuit, but contrary to decisions in the Fifth Circuit. The Third Circuit has yet to weigh in on this question.
The District Court in Landbridge also declined to find federal jurisdiction under 9 U.S.C. § 203, holding that it provides only limited jurisdiction over actions to compel arbitration or to enforce awards, but not over motions to stay or enjoin arbitration. This aspect of the decision accords with an opinion of the Third Circuit, which indirectly addressed the issue, but splits from the Second Circuit, which has found a broader grant of jurisdiction under § 203.
This note examines the Landbridge decision and the federal courts’ varying interpretations of § 205 and § 203 of the FAA. It further highlights the relevance of the differing treatments of these sections to individuals and entities looking to stay or enjoin international arbitrations in U.S. courts. A&O Shearman regularly advises clients on how best to handle litigation related international arbitration in the U.S. and other jurisdictions.
Landbridge v. Nortac Port Investment LLC
Factual Background
The dispute in Landbridge arose out of a series of commercial transactions related to a port project in Panama. Plaintiff Landbridge alleged that it held a majority interest in Landbridge Holdings, Inc. (LHI), a Barbadian company that owned Panamanian subsidiaries which hold land and concession rights to develop the port project. Plaintiff argued that defendants illegally divested it of its interest in LHI and the port project through a series of illegal share transactions, eventually selling the shares through a trust to defendant Notarc Port.
In 2023, plaintiff sued in Barbados to unwind the transactions. Defendant Notarc Port subsequently initiated an arbitration seated in Panama against LHI and the trust under an arbitration clause in the Share Subscription Agreement. Plaintiff is not a party to the arbitration in Panama or to the agreement.
Procedural History and Decision
On February 9, 2024, plaintiff sued defendants in the Delaware Court of Chancery on claims of unjust enrichment, conversion and civil conspiracy, among others, and sought to enjoin the arbitration in Panama. On February 26, 2024, two defendants, with the consent of the others, removed the action to the U.S. District Court for the District of Delaware. On March 8, 2024, plaintiff moved to remand the case to Delaware state court.
Defendants argued that they were entitled to removal to federal court under two provisions of the FAA: (1) 9 USC § 205, which gives defendants the ability to remove any action where the subject matter relates to an arbitration agreement or award falling under the New York Convention, and (2) 9 USC § 203, which creates federal question jurisdiction over actions falling under the New York Convention.[2]
On March 27, 2024, the District Court granted plaintiff’s motion to remand the action to the Delaware Court of Chancery. It held that § 205, governing removal, does not independently confer federal subject matter jurisdiction and that there must be an independent jurisdictional ground. The District Court found that it was required to read § 205 narrowly, reasoning that the plain text of the section does not mention jurisdiction, unlike other sections of the FAA. It concluded that removal jurisdiction and subject matter jurisdiction are distinct and the presence of one does not guarantee the other. The District Court was also persuaded that it would be nonsensical for Congress to explicitly grant narrow original jurisdiction under § 203—permitting jurisdiction over cases falling under the New York Convention—but “to disguise a grant of broad jurisdiction to removed cases in § 205.”[3]
The District Court also rejected defendants’ argument that the case falls within 9 U.S.C. § 203 because of plaintiff’s motion to enjoin the Panama arbitration. The District Court found that § 203 only provides “limited jurisdiction to actions to compel arbitration and enforce arbitral awards,” finding no language in the FAA or New York Convention “granting the Court authority to enjoin a foreign arbitration.”[4] Accordingly, it held that “actions to enjoin or stay arbitration do not ‘fall under’ the [New York Convention] for purposes of § 203.”[5]
The District Court further recognized that “today’s decision may not be the end of the litigation of jurisdiction.”[6] It concluded that it was required to base its decision on the record existing at the time of the petition for removal; however, since the removal petition was filed, defendants had filed a motion to compel arbitration that, on its face, would grant jurisdiction under § 203.[7] Plaintiff argued that the motion to compel arbitration is frivolous and does not grant jurisdiction.[8] The District Court suggested that defendants could file a second removal petition following remand, but left it to defendants “to assess whether re-removal is appropriate under the circumstances and their desire to pursue it.”[9]
Circuit Split
There is disagreement among the U.S. federal appeals courts—primarily between the Second and Fifth Circuits—over whether § 205 of the FAA confers federal subject matter jurisdiction.
The Second Circuit’s view is that § 205 does not independently confer broad subject matter jurisdiction, but instead provides narrow federal jurisdiction over actions to confirm or vacate an award governed by the New York Convention.[10] A federal court in the Second Circuit, therefore, must have both removal and subject matter jurisdiction to hear a case removed from state court.[11] This view was also adopted by the District Court in Landbridge. Courts in the Second Circuit reason that § 205 only authorizes removal. It does not even include the word “jurisdiction,” a “contrast [that] strongly suggests that § 203 serves to create subject matter jurisdiction, whereas § 205 serves only to authorize removal.”[12] This “conclusion is especially compelling in light of the distinction between subject matter jurisdiction and removal jurisdiction that appears elsewhere in the United States Code.”[13] Further, they have found that interpreting § 205 to provide subject matter jurisdiction “would imply that federal courts have more jurisdiction to hear cases removed to federal court than cases brought originally in federal court.”[14]
On the other hand, the Fifth Circuit has held that federal courts have jurisdiction under § 205 “over just about any suit in which a defendant contends that an arbitration clause falling under the [New York] Convention provides a defense.”[15] The Fifth Circuit reasons that because the statute permits removal jurisdiction over any case that relates to an arbitration agreement, it also must permit subject matter jurisdiction over those cases.
Federal appeals courts also disagree on the breadth of jurisdiction granted by § 203 of the FAA. The Third Circuit’s view, as followed by Landbridge, is that the section only provides limited jurisdiction in cases with actions to compel arbitration or enforce awards,[16] whereas the Second Circuit has found that § 203 confers jurisdiction more broadly, including over actions to stay or enjoin international arbitration.[17]
The Third Circuit, in Century Indem. Co. v. Certain Underwriters at Lloyd’s, London, indirectly addressed the issue, noting that “[a]ctions under the New York Convention are deemed to arise under the laws and treaties of the United States. 9 U.S.C. § 203. The FAA empowers district courts to compel arbitration in accordance with agreements, 9 U.S.C. § 206, and to enforce awards, 9 U.S.C. § 207, falling within the New York Convention.”[18] District courts in the Third Circuit have interpreted this to mean that § 203 confers only narrow subject matter jurisdiction, because the plain language of the FAA and New York Convention only grant jurisdiction to compel arbitration or enforce awards.[19]
In URS v. Lebanese Co., the U.S. District Court for the District of Delaware found that this is consistent with the purposes of the FAA and New York Convention, because a judicial determination on arbitrability prior to an action seeking recognition or enforcement of an award would be inconsistent with the “primary purpose” of efficiently encouraging the recognition and enforcement of arbitration agreements and the unification of standards by which arbitration agreements and awards are enforced in signatory countries.[20]
Conversely, the Second Circuit construes § 203 more broadly to provide jurisdiction in cases to enjoin or stay arbitrations falling under the New York Convention. In Republic of Ecuador v. Chevron Corp., the Second Circuit briefly addressed the issue in a footnote, reasoning that “[i]n light of the principle that the [New York] Convention should be interpreted broadly to effectuate its recognition and enforcement purposes, we conclude that the case law applying the New York Convention and the federal policy favoring arbitration apply where a court acts to protect its prior judgments by staying incompatible arbitral proceedings otherwise governed by that Convention.”[21] Following Republic of Ecuador v. Chevron Corp., courts in the Second Circuit have found they have jurisdiction over actions to enjoin arbitrations falling under the New York Convention.[22]
Impact on Actions to Stay or Enjoin International Arbitrations in U.S. Courts
To maintain an action in U.S. federal court, the court must have subject matter jurisdiction over the case. The FAA provides that such jurisdiction exists under 9 U.S.C. § 203 for individuals or entities with an “action or proceeding falling under the [New York] Convention.”[23] Actions to compel arbitration or enforce arbitration awards under the New York Convention clearly fall within this provision. Courts disagree, however, on whether § 203 also provides jurisdiction over cases to stay or enjoin arbitrations falling under the New York Convention.
In light of the circuit split on this issue, parties looking to stay or enjoin international arbitrations should ensure that they either are filing in a jurisdiction that construes § 203 broadly, such as the Second Circuit, or have an independent source of subject matter jurisdiction over the action.
Some courts, such as those in the Fifth Circuit, also interpret the removal section of the FAA (i.e. 9 U.S.C. § 205) to provide jurisdiction over actions to enjoin or stay arbitrations falling under the New York Convention. Section 205 provides that defendants who find themselves in state court in the United States “where the subject matter of an action or proceeding . . . relates to an arbitration agreement or award falling under the [New York] Convention . . . may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States” where the state action or proceeding is pending.[24] Those courts hold that this language should be interpreted expansively to implicitly permit subject matter jurisdiction over cases that can be removed to federal court.[25] However, the view of the Second Circuit and courts within the Third Circuit is that § 205 does not confer subject matter jurisdiction and a defendant removing a case to federal court must have an independent source for jurisdiction.[26] Ultimately, before filing for removal, defendants in this situation should confirm the status of the law in the federal jurisdiction in which they will be filing to determine whether they need an independent basis for subject matter jurisdiction.
Due to the U.S. federal courts’ differing treatments of jurisdiction of actions to stay or enjoin international arbitrations and the absence of case law on the issue in some circuits, navigating the law can be confusing and frustrating to parties looking to file actions in the United States. Until resolved, the issue will likely continue to lead to costly and time-consuming jurisdictional battles and frustrating remands and re-remands between federal and state courts. Emblematic of this issue is the Landbridge court’s rejection of plaintiff’s request for attorney’s fees, finding that defendants had an objectively reasonable basis for seeking removal as the Third Circuit had not yet answered the legal questions at issue. The court also commented that after remand to the Delaware Court of Chancery, defendants could attempt to re-remove the case to federal court, which implies that the parties could face a second fight over jurisdiction.
A&O Shearman has extensive experience representing foreign and domestic companies and states in litigation in the United States and other jurisdictions relating to international arbitration and remains at the disposal of those considering such actions.
Footnotes
[1] Landbridge Port Servs. (H.K.) Ltd. v. Notarc Port Inv. LLC, No. 1:24-CV-00254-GBW, 2024 WL 1299685, at *1 (D. Del. March 27, 2024).
[2] Id. at *2.
[3] Id. at *3.
[4] Id.
[5] Id.
[6] Id. at *4.
[7] Id.
[8] Id. at *4, n.2.
[9] Id. at *4.
[10] Scandinavian Reins. Co. Ltd. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60, 71 (2d Cir. 2012).
[11] Id.; see also Rep. of Kazakhstan v. Chapman, 585 F. Supp. 3d 597, 604 (S.D.N.Y. 2022) (collecting cases).
[12] Rep. of Kazakhstan, 585 F. Supp. 3d at 604.
[13] Id. (comparing e.g., 28 U.S.C. §§ 1331—1332 (creating jurisdiction) with 28 U.S.C. § 1441 (providing for removal); 12 U.S.C. § 1819(b)(2)(A) (creating jurisdiction for suits to which the Federal Deposit Insurance Corporation (“FDIC”) is a party) with 12 U.S.C. § 1819(b)(2)(B) (providing for removal by the FDIC)).
[14] Id.
[15] Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir. 2002); see Certain Underwriters at Lloyd's, London & Other Insurers Subscribing to Reins. Agreements F96/2922/00 & No. F97/2992/00 v. Warrantech Corp., 461 F.3d 568, 571 (5th Cir. 2006).
[16] See Century Indem. Co. v. Certain Underwriters at Lloyd's, London, 584 F.3d 513, 523 (3d Cir. 2009); URS Corp. v. Lebanese Co. for Dev. and Reconstruction of Beirut Cent. Dist. SAL, 512 F. Supp. 2d 199, 208 (D. Del. 2007) (FAA does not grant subject matter jurisdiction over actions to enjoin foreign arbitration).
[17] Rep. of Ecuador v. Chevron Corp., 638 F.3d 384, 391 (2d Cir. 2011); CRT Capital Corp. v. SLS Capital, S.A., 63 F. Supp. 3d 367, 372—375 (S.D.N.Y. 2014).
[18] Century Indem. Co. v. Certain Underwriters at Lloyd's, London, 584 F.3d 513, 523 (3d Cir. 2009)
[19] URS Corp., 512 F. Supp. 2d at 208 (citing New York Convention, art. 2(3), Sept. 1, 1970, 21 U.S.T. 2517 (stating that a court “shall, at the request of one of the parties, refer the parties to arbitration”); New York Convention, art. 3(1), Sept. 1, 1970, 21 U.S.T. 2517 (mandating that a court “shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon”); 9 U.S.C. §§ 206–207); see also Landbridge Port Servs., 2024 WL 1299685, at *3.
[20] URS Corp., 512 F. Supp. 2d at 208 (quoting China Minmetals Materials Import & Export Co., Ltd. v. Chi Mei Corp., 334 F.3d 274, 282—83 (2d Cir. 2003)).
[21] Rep. of Ecuador v. Chevron Corp., 638 F.3d 384, 391 (2d Cir. 2011) (internal citation and quotations omitted).
[22] CRT Capital Corp., 63 F. Supp. 3d at 372—375 (finding jurisdiction under § 203 over a proceeding to enjoin an arbitration); see Venconsul N.V. v. Tim Int’l N.V., No. 03CIV.5387(LTS)(MHD), 2003 WL 21804833, at *3 (S.D.N.Y. Aug. 6, 2003) (finding court has the power under § 203 “to entertain requests for provisional remedies in aid of arbitration even where the request for remedies does not accompany a motion to compel arbitration or to confirm an award.”).
[23] 9 U.S.C. § 203 (“An action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States (including the courts enumerated in section 460 of title 28) shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy.”).
[24] 9 U.S.C. § 205.
[25] Beiser, 284 F.3d at 669.
[26] Scandinavian Reinsurance Co. Ltd., 668 F.3d at 71; Landbridge Port Servs., 2024 WL 1299685, at *3; Rep. of Kazakhstan, 585 F. Supp. 3d at 604.
