Court Says Foreign Arbitration Clause Barred by Carmack Amendment - U.S. Ninth Circuit
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Court Says Foreign Arbitration Clause Barred by Carmack Amendment

Did Southern California movers attempt to privatize Operation Fast and Furious by shipping a client’s guns, which were supposed to be in storage, to his new home in the Middle East?

Gary Smallwood contracted with Allied Van Lines, Inc. and SIRVA, Inc. (collectively, AVL) to move some of his household goods from southern California to the United Arab Emirates (UAE) and to move the remainder of the goods — including a box full of firearms and ammunition — to storage.

Instead, AVL shipped his weapons to the UAE. When UAE officials discovered Smallwood’s weapons, they arrested him, imprisoned him for 11 days and tricked him into pleading guilty to smuggling firearms.

Smallwood sued AVL on tort and contract theories, alleging that he was facing deportation from the UAE due to AVL's mistake; he is currently in deportation proceedings.

AVL responded that Smallwood's state law claims were preempted under the Carmack Amendment, and his remaining claims were subject to the contract's foreign arbitration clause.

This week, the Ninth Circuit Court of Appeals found that the Carmack Amendment applied to Smallwood's state law claims, but found that the foreign arbitration clause was unenforceable.

The court noted that it is well-settled that the Carmack Amendment is the exclusive cause of action for interstate-shipping contract claims alleging loss or damage to property. Though Smallwood's breach of contract claim alleges that "Allied International breached the contract by failing to detect that shipment of the weapons ... was in violation of U.S., international and UAE law," the court reasoned that such a breach plainly arises from an interstate shipping contract, making Carmack the exclusive cause of action.

Since Smallwood was given leave to amend his petition, the Carmack Amendment, works to his advantage because Carmack permits a shipper to sue a carrier in a convenient forum of the shipper's choice.

The Ninth Circuit Court of Appeals determined that AVL's foreign arbitration clause would allow AVL to compel Smallwood to arbitrate, (probably in the UAE) and ruled that the foreign arbitration clause plainly contravenes Carmack's directive that Smallwood have recourse to choose his venue.

Now that the courts have resolved the venue issue, do you think a jury will hold AVL accountable for running its own version of Operation Fast and Furious with Smallwood's guns?

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