NOTES. Cooperative Federalism: A Viable Option for Implementing the Hague Convention on Choice of Court Agreements

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1 NOTES Cooperative Federalism: A Viable Option for Implementing the Hague Convention on Choice of Court Agreements ALEXANDER KAMEL* TABLE OF CONTENTS INTRODUCTION I. THE CONVENTION A. SCOPE OF THE CONVENTION B. FORUM SELECTION CLAUSES AND THE CONVENTION S EFFECT ON CURRENT U.S. LAW Current U.S. Law on the Enforcement of Forum Selection Clauses The Convention s Proposed Changes and the General Effect on State Court Jurisdiction The Interplay of Forum Selection Clauses and the Doctrine of Forum Non Conveniens II. ISSUES IN STATE COURT:CAN THE FEDERAL GOVERNMENT DICTATE STATE COURT JURISDICTION? A. THE FEDERAL GOVERNMENT CANNOT DICTATE THROUGH STATUTE THE JURISDICTION OF STATE COURTS B. THE FEDERAL GOVERNMENT CAN DICTATE THE JURISDICTION OF STATE COURTS THROUGH THE TREATY POWER AND MISSOURI V. HOLLAND III. ISSUES IN FEDERAL COURT:WHAT LAW APPLIES? A. THE JURISDICTION OF FEDERAL COURTS * Georgetown University Law Center, J.D. 2014; University of Texas-Pan American, B.A , Alexander Kamel. I would like to thank my fellow editors and the staff of The Georgetown Law Journal, especially the Notes Committee for Volume 102. It has been a pleasure working with you. 1821

2 1822 THE GEORGETOWN LAW JOURNAL [Vol. 102:1821 B. DOES THE CONVENTION GRANT TOO MUCH DIVERSITY JURISDICTION? C. ERIE RAILROAD CO. V. TOMPKINS: PROCEDURE VS. SUBSTANCE IN DIVERSITY JURISDICTION IV. HOW TO BEST IMPLEMENT THE CONVENTION? A. THE CONVENTION IS NOT SELF-EXECUTING AND, IF RATIFIED, MUST BE IMPLEMENTED INTO DOMESTIC LAW THROUGH LEGISLATION B. IMPLEMENTATION THROUGH FEDERAL LEGISLATION ONLY: THE NEW YORK CONVENTION APPROACH C. IMPLEMENTATION THROUGH STATE LAW D. COOPERATIVE FEDERALISM: THE POLITICALLY VIABLE APPROACH CONCLUSION INTRODUCTION It has been said that arguing against globalization is like arguing against the law of gravity. 1 The effects of globalization are indisputable. 2 With the growth of international commerce, private business relationships cross borders now more than ever. Along with the expansion of the global economy, however, disputes arising from private international business transactions have also increased significantly in the last twenty years. 3 Acknowledging the need for an international legal regime that provides certainty to private parties in international transactions, the international community came together in 2005 to complete negotiations on the Hague Convention on Choice of Court Agreements (the Convention). 4 The Convention is a treaty that sets rules for the enforcement of private-party agreements on forum selection clauses, as well as the enforcement and recognition of foreign judgments in domestic courts. 5 In 2009, the United States became a signatory to the Convention, but the United States will not become a party to the Convention until the U.S. Senate gives its advice and consent and the Convention is ratified. Supporters of the Convention have focused on the need for increased certainty and uniformity in 1. Kofi Annan, Secretary-Gen., United Nations, Opening Address to the Fifty-Third Annual DPI/ NGO Conference (Aug. 28, 2000), available at 2. See, e.g., id.; see also Juan M. Alcalá, Transnational Disputes in a Global Economy, 75 TEX. B.J. 512, 512 (2012) ( Globalization is no longer a thing of the future; it is here now. ). 3. See Alcalá, supra note 2, at Hague Convention on Choice of Court Agreements pmbl., June 30, 2005, 44 I.L.M [hereinafter Hague Convention]. 5. See id.

3 2014] COOPERATIVE FEDERALISM 1823 an international business environment. Much has been written on the benefits of uniformity and the arguments for ratification of the Convention. 6 This Note, however, focuses on the effects ratification of the Convention would have on both state and federal court jurisdiction and addresses different approaches of implementation. This Note will argue that, because the Convention deals with issues traditionally left to the states, the Convention should not be implemented through federal legislation only. This Note concludes that cooperative federalism is the most viable approach to implement the Convention. Cooperative federalism is a balanced form of government in which both the states and the federal government share regulatory authority. 7 The states can implement regulations through state law but within a framework set out by the federal government. 8 To illustrate the issues that will be addressed in this Note, I present the following factual hypothetical. Two parties ( A, a citizen of the United States and resident of the State of New York, and B, a citizen of Brazil) include in an international business contract a provision that states, Any dispute arising under this contract shall be resolved exclusively in the courts of Massachusetts. Massachusetts state courts would not otherwise have personal jurisdiction over these parties, 9 but the Convention, if ratified, would require Massachusetts state courts to exercise jurisdiction over these parties. Can the federal government require Massachusetts state courts to exercise jurisdiction because the parties contractually designated the courts of Massachusetts as their forum? Does the language the courts of Massachusetts include federal courts in Massachusetts? What if both parties are foreign not from the United States? Should any court in the United States be required to exercise jurisdiction? This Note will provide a detailed explanation of the issues that would arise under the Convention and will analyze the proposed methods for implementing the Convention. Part I will provide an overview of the Convention and will address the effects ratification could have on U.S. law as it affects the enforcement of forum selection clauses. Part II will discuss the sources of state court jurisdiction and will address whether the federal government can, through ratification of the Convention, dictate state court jurisdiction. Part III will then address the effects the Convention would have on federal court jurisdiction and the applicable laws. Part IV will explain that, even if ratified, the Convention must be implemented into domestic law through legislation. Part IV will also 6. See, e.g., Louise Ellen Teitz, The Hague Choice of Court Convention: Validating Party Autonomy and Providing an Alternative to Arbitration, 53 AM. J. COMP. L. 543, 556 (2006) (explaining the Convention helps facilitate global transactions ). 7. See, e.g., Philip J. Weiser, Towards a Constitutional Architecture for Cooperative Federalism, 79 N.C. L. REV. 663, 665 (2001). 8. See id. 9. See MASS. GEN. LAWS ch. 223A, 3 (2013) (stating that a state court of Massachusetts may only exercise personal jurisdiction as to a cause of action in which a party satisfies one of the connections listed in this section).

4 1824 THE GEORGETOWN LAW JOURNAL [Vol. 102:1821 address multiple methods of implementation and will argue that cooperative federalism is the best approach to implement the Convention. I. THE CONVENTION A. SCOPE OF THE CONVENTION The Convention sets international rules and standards for (1) the enforcement of exclusive choice of court agreements also referred to as forum selection clauses and (2) the recognition and enforcement of resulting foreign judgments in U.S. courts. 10 The second of these matters is important because there is currently no other treaty or federal law providing for the mandatory enforcement of foreign judgments. The first topic, however, presents much more complicated issues because it represents an unprecedented attempt to change state court jurisdiction through federal law. This Note will address issues arising under the Convention s provisions dealing with the enforcement of forum selection clauses. The Convention seeks to promote international trade and investment through enhanced judicial co-operation. 11 With that purpose in mind, the Convention s applicability is limited in scope. The Convention applies only to international cases among parties of different Contracting States and to exclusive choice of court agreements. 12 Furthermore, the Convention applies only to agreements concluded in civil or commercial matters. 13 The Convention expressly excludes from its scope many substantive matters such as consumer and employment contracts, family law matters, and antitrust claims. 14 The issues addressed in this Note should always be considered with the limited applicability of the Convention to civil and commercial matters in mind. B. FORUM SELECTION CLAUSES AND THE CONVENTION S EFFECT ON CURRENT U.S. LAW 1. Current U.S. Law on the Enforcement of Forum Selection Clauses Most state courts in the United States will enforce forum selection clauses, and enforcement will only be denied if the complaining party shows enforcement would be unfair or unjust. 15 Most courts will only deny enforcement of a forum selection clause for reasons such as fraud, duress, unequal bargaining 10. See Hague Convention, supra note Id. pmbl. 12. See id. arts. 1(1) (2). 13. Id. art. 1(1). 14. See id. art E.g., M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972) (holding that a forum selection clause in an international commercial is prima facie valid and should be enforced unless... unreasonable under the circumstances ); see also Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991) (upholding the validity of a forum selection clause).

5 2014] COOPERATIVE FEDERALISM 1825 power, or if the agreement is against the public policy of the forum. 16 Parties may designate their choice of forum as exclusive, meaning that disputes can only be commenced in the contractually designated forum. 17 A determination of whether a choice of forum is exclusive hinges on the intent of the parties. 18 In interpreting the intent of the parties in forum selection clauses, courts vary in their application of principles of contract interpretation, which has led to varied results and uncertainty The Convention s Proposed Changes and the General Effect on State Court Jurisdiction The Convention presents an unprecedented attempt of the federal government to dictate that states must enforce an agreement by private parties to litigate issues in the state s courts, removing the flexibility that state courts currently have. Articles 5 and 6 set forth the basic rules and structure for the enforcement of choice of court agreements. Article 5(1) states that courts of a Contracting State designated in an exclusive choice of court agreement shall have jurisdiction to decide a dispute to which the agreement applies, unless the agreement is null and void under the law of that State. 20 Null and void is not defined in the Convention, but this term has been understood to refer to general grounds for invalidating an agreement such as fraud, mistake, misrepresentation, or duress. 21 Article 6 states the general rule that, under the Convention, [a] court of a Contracting State other than that of the chosen court shall suspend or dismiss proceedings to which an exclusive choice of court agreement applies. 22 In general, unless the agreement is null and void, a court designated by parties under the Convention must exercise jurisdiction even if the court would otherwise be allowed to refuse jurisdiction. As stated above, courts in the United States will usually enforce choice of court agreements, and enforcement will only be denied if it is shown that the agreement is unfair or unjust. 23 This standard is similar to the one set in Article 6(c) of the Convention, which allows a court to refuse enforcement of the choice of court agreement if it would lead to a manifest injustice. 24 Although many states in the United States have similar standards of enforce- 16. E.g., Walter W. Heiser, The Hague Convention on Choice of Court Agreements: The Impact on Forum Non Conveniens, Transfer of Venue, Removal, and Recognition of Judgments in United States Courts,31U.PA.J.INT L L. 1013, 1014 (2010). 17. See id. at See id. 19. See id. at 1016 & n.7 (illustrating that enforcement of forum selection clauses varies among courts depending on methods of interpretation of contracts). 20. Hague Convention, supra note 4, art. 5(1). 21. Heiser, supra note 16, at Hague Convention, supra note 4, art. 6. Article 6 provides some exceptions to this general rule. See id. 23. See supra notes and accompanying text. 24. Hague Convention, supra note 4, art. 6(c).

6 1826 THE GEORGETOWN LAW JOURNAL [Vol. 102:1821 ment to those of the Convention, other states are not as willing to enforce choice of court agreements. 25 The Convention, if ratified, would standardize the methods used in determining enforcement of these agreements. Furthermore, there is a lack of uniformity in methods of determining whether choice of court agreements are mandatory or exclusive. 26 The Convention would provide a presumption that choice of court agreements provide exclusive jurisdiction unless otherwise specified by the parties. 27 Although this might be beneficial for purposes of uniformity in international business, it is an unprecedented intrusion on states rights in the United States. The Convention would remove the flexibility state courts currently have to deny jurisdiction in situations where, without the Convention, jurisdiction would not be exercised by the state court. The Convention s enforcement of choice of court agreements, for example, directly takes away the flexibility of state courts to deny jurisdiction based on lack of connection to the state, improper venue, and forum non conveniens, where applicable. Revisiting the hypothetical presented in the Introduction to this Note, a Massachusetts state court currently has the ability to not exercise personal jurisdiction over a dispute arising between parties with no connection to the Commonwealth of Massachusetts. 28 Articles 5 and 6 of the Convention would preclude the Massachusetts state court from denying jurisdiction over a dispute arising between a party from New York and a party from Brazil. 3. The Interplay of Forum Selection Clauses and the Doctrine of Forum Non Conveniens The doctrine of forum non conveniens 29 helps illustrate the restrictive effect the Convention would have on courts both state and federal flexibility to refuse to exercise jurisdiction. The doctrine of forum non conveniens allows a court to dismiss an action when another forum is available (even if in another country) that is substantially more convenient for the parties, the witnesses, or the court. 30 In Gulf Oil Corp. v. Gilbert, the Supreme Court stated that federal courts will usually grant motions of dismissal under this doctrine after determin- 25. See Heiser, supra note 16, at 1015 n Id. at See Hague Convention, supra note 4, art. 3(b) ( [A] choice of court agreement which designates the courts of one Contracting State...shall be deemed to be exclusive unless the parties have expressly provided otherwise. ). 28. See MASS. GEN. LAWS ch. 223A (2013) (explaining the personal jurisdiction of state courts in Massachusetts). 29. Forum non conveniens is only one of several common law doctrines and jurisdictional concerns affected by the Convention. Although this doctrine is more commonly applied in federal courts, it is still a good example of the effect the Convention can have on any court s jurisdiction. Other scholarship has addressed concerns of transfer of venue and removal jurisdiction. For a detailed discussion on these topics, see, for example, Heiser, supra note 16, at In regards to removal jurisdiction, Heiser finds that, under Article 5, the Convention does not preclude removal of a case to federal court even in cases with exclusive choice of court agreements. See id. at Id. at 1016.

7 2014] COOPERATIVE FEDERALISM 1827 ing an adequate alternative forum is available and after balancing the varied private and public interests associated with the dispute. 31 Most states have incorporated through state statute or common law the Gilbert factors into their forum non conveniens doctrines; however, there remains a lack of uniformity in the applicability of the Gilbert standards in state courts. 32 The doctrine of forum non conveniens is relevant to the analysis in both state and federal courts. When a contractually designated court is faced with a motion to dismiss under this doctrine, the court must determine whether to enforce a forum selection clause or to apply its own doctrine of forum non conveniens. Many, but not all, state courts assume the defendant agreed to waive the right to assert forum non conveniens through the contractual agreement in an exclusive forum selection clause. 33 The general rule in the Convention is that a chosen court cannot dismiss a case based on forum non conveniens, which, if ratified, would preclude a court from granting a motion to dismiss under this doctrine. 34 Under Article 5(2), a chosen court shall not decline to exercise jurisdiction on the ground that the dispute should be decided in a court of another State. 35 The purpose of Article 5(2) is to remove discretion from chosen courts to dismiss cases under the common law doctrine of forum non conveniens. 36 Article 5(2) sets out a policy that respects party autonomy and might provide more certainty to parties in an international business transaction. This may be a good policy, but this section does not argue that. Rather, the purpose of this section is simply to illustrate one of the many restrictions the Convention, if ratified, would have on the flexibility of state courts. The hypothetical presented above helps illustrate the effect the Convention, if ratified, could have. If the Convention is ratified, two things would occur in regards to a forum non conveniens motion: (1) the state court in Massachusetts would not have the flexibility to grant a motion to dismiss under forum non conveniens under Article 5(2) of the Convention, and (2) the Brazilian party, as a defendant, would not be able to obtain dismissal under this doctrine because the Convention follows the presumption that the parties to a contract waived 31. See 330 U.S. 501, (1947). Gilbert was later codified and replaced by 28 U.S.C. 1404(a) (1988). See Walter W. Heiser, Forum Selection Clauses in State Courts: Limitations on Enforcement After Stewart and Carnival Cruise, 45 FLA.L.REV. 361, 394 n.194 (1993). 32. See, e.g., Heiser, supra note 31, at 395 n.198 (citing ALA. CODE (1993); N.Y. CIV. PRAC. L. & R. 327 (McKinney 1990); 42 PA. CONS. STAT. 5322(e) (1981); Stangvik v. Shiley, Inc., 819 P.2d 14 (Cal. 1991); Goodwine v. Superior Court, 407 P.2d 1 (Cal. 1965); Union Carbide Corp. v. Aetna Cas. & Sur., Co., 562 A.2d 15 (Conn. 1989); Parvin v. Kaufmann, 236 A.2d 425 (Del. 1967); Bland v. Norfolk & W. Ry., 506 N.E.2d 1291 (Ill. 1987); MacLeod v. MacLeod, 383 A.2d 39 (Me. 1978); Varkonyi v. S.A. Empresa de Viacao A.R.G., 239 N.E.2d 542 (N.Y. 1968); Chambers v. Merrell-Dow Pharm., 519 N.E.2d 370 (Ohio 1988); Zurick v. Inman, 426 S.W.2d 767 (Tenn. 1968)). 33. See id. at See Hague Convention, supra note 4, art. 5(2). 35. Id. 36. See TREVOR HARTLEY &MASATO DOGAUCHI, EXPLANATORY REPORT: CONVENTION OF 30 JUNE 2005 ON CHOICE OF COURT AGREEMENTS , at 44 (2007).

8 1828 THE GEORGETOWN LAW JOURNAL [Vol. 102:1821 their rights under the doctrine through an exclusive forum selection clause. II. ISSUES IN STATE COURT:CAN THE FEDERAL GOVERNMENT DICTATE STATE COURT JURISDICTION? This Part addresses whether the federal government has the power to dictate, or remove flexibility from, the jurisdiction of state courts. Section II.A introduces the sources of jurisdiction of state courts and explains that Congress cannot act through federal statute to dictate the jurisdiction of state courts. Section II.B argues that, even though Congress cannot act through federal statute, the Treaty Power allows the federal government to affect and dictate the jurisdiction of state courts. A. THE FEDERAL GOVERNMENT CANNOT DICTATE THROUGH STATUTE THE JURISDICTION OF STATE COURTS Congress, acting within the confines of the Constitution, determines the jurisdiction of federal courts, 37 but Congress cannot, through federal statute, determine the jurisdiction of state courts. The jurisdiction of state courts specifically the exercise of personal jurisdiction 38 is limited by (1) the Due Process Clause of the U.S. Constitution and (2) state long-arm statutes. 39 As explained in section III.A, the Constitution allows Congress to determine the jurisdiction of federal courts; however, Congress is not granted the power to determine the personal jurisdiction of state courts. 40 In International Shoe Co. v. Washington, the Supreme Court held that a state court can exercise personal jurisdiction over a party that has certain minimum contacts with the state, and conversely could refuse jurisdiction over parties not meeting this standard. 41 State courts seeking to exercise personal jurisdiction over a nonresident defendant must also comply with the state s long-arm statute, which usually provides additional limits on the exercise of personal jurisdiction over nonresidents. 42 Returning to our hypothetical, a Massachusetts state court, absent the Convention, could only exercise personal jurisdiction over a nonresident defendant (either the Brazilian or the New York party) if the defendant had minimum contacts with the state, meeting the constitutional and state-statute requirements. State court jurisdiction remains a matter of state statute, not federal 37. See infra section III.A. 38. Personal jurisdiction is one of three requirements along with subject-matter jurisdiction and proper notice for a court to be able to enter a valid judgment against a defendant. See Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, (1982). 39. See, e.g., Heiser, supra note 31, at See infra section III.A U.S. 310 (1945). International Shoe s minimum contacts requirement remains the standard for evaluating due process claims of personal jurisdiction in state courts. See Shaffer v. Heitner, 433 U.S.186, (1977); Heiser, supra note 31, at 379 n.112, 381 n See Heiser, supra note 31, at 379.

9 2014] COOPERATIVE FEDERALISM 1829 statute, as long as the state statute meets the due process requirements set out in International Shoe. 43 For the foregoing reasons, Congress cannot dictate state court jurisdiction through federal statute. B. THE FEDERAL GOVERNMENT CAN DICTATE THE JURISDICTION OF STATE COURTS THROUGH THE TREATY POWER AND MISSOURI V. HOLLAND Even if Congress cannot determine the jurisdiction of state courts, the Treaty Power provides a legal justification. This section will explain that, under Article VI of the U.S. Constitution 44 and after the Supreme Court s decision in Missouri v. Holland, 45 the federal government has the power to enact treaties that preempt state law, even if Congress cannot otherwise act. The Convention represents a valid exercise of the Treaty Power. 46 Under Article VI of the U.S. Constitution, treaties are the supreme [l]aw of the [l]and. 47 The power of Congress to enact federal statutes is generally limited by the powers enumerated in Article I, Section 8 of the U.S. Constitution. 48 These limits, however, do not apply to the scope of the Treaty Power. In Holland, Congress enacted a statute implementing a treaty entered into by the United States and Great Britain to protect migratory birds. 49 The Court upheld the statute and stated, [T]here may be matters of the sharpest exigency for the national well being that an act of Congress could not deal with but that a treaty followed by such an act could Holland held that the Treaty Power is not subject to the same subject-matter limitations of Article I, Section Furthermore, [v]alid treaties... are as binding within the territorial limits of the [s]tates as they are elsewhere throughout the dominion of the United States. 52 In Bond v. United States, the Supreme Court had the opportunity to revisit whether the Article I, Section 8 limits apply to the Treaty Power. 53 That case involved the conviction of a woman under the federal act implementing the 1993 Chemical Weapons Convention for her attempts to poison her husband s mistress. 54 The Supreme Court, however, avoided answering the difficult consti- 43. See sources cited supra note U.S. CONST. art. VI, cl U.S. 416 (1920). 46. See U.S. CONST. art. II, 2, cl U.S. CONST. art. VI, cl U.S. CONST. art. I, 8, cl Holland, 252 U.S. at Id. at Michael D. Ramsey, Missouri v. Holland and Historical Textualism, 73 MO. L. REV. 969, 978 (2008). 52. Holland, 252 U.S. at 434 (quoting Baldwin v. Franks, 120 U.S. 678, 683 (1887)) S. Ct (2014) (Bond III). 54. Id. at The Supreme Court first held in Bond v. United States that a criminal defendant had standing to challenge her conviction under the Chemical Weapons Convention Implementation Act of 1998, 18 U.S.C. 229 (the Act), which implements the 1993 Chemical Weapons Convention (the Chemical Convention), 32 I.L.M. 800 (1993), on the grounds that the Act exceeded the federal government s enumerated powers. 131 S. Ct. 2355, 2366 (2011) (Bond I). The case was remanded to

10 1830 THE GEORGETOWN LAW JOURNAL [Vol. 102:1821 tutional question involving the scope and the continuing validity of Holland. 55 The Court instead determined that the treaty involved in Bond did not intend to reach the conduct in question. 56 The Supreme Court did not impose additional constraints on the authority of Congress to enact legislation to implement a valid treaty, and it is unlikely that Bond will have any direct effect on the Convention s validity and ratification. III. ISSUES IN FEDERAL COURT:WHAT LAW APPLIES? This Part will summarize the jurisdiction of federal courts and the applicability of state law in federal courts. This information is important to understand the proposals discussed in Part IV of this note. Section III.A will address the power and limits of Congress to define the jurisdiction of federal courts and will summarize the two general ways a federal court can exercise jurisdiction: federal question and diversity jurisdictions. Section III.B will address whether the Convention allows a federal court to exercise jurisdiction over two parties that are not from the United States. Section III.C will summarize Erie Railroad Co. v. Tompkins 57 and will argue that the provisions in the Convention dealing with forum selection clauses should be treated as both substantive and procedural. Section III.C will also explain the implications this distinction has on federal courts acting under diversity jurisdiction. A. THE JURISDICTION OF FEDERAL COURTS The Constitution of the United States provides that the power of the federal courts extends to all [c]ases... arising under [the] Constitution, the [l]aws of the United States, and [t]reaties made, or which shall be made, under their [a]uthority and to controversies between [c]itizens of different [s]tates. 58 These principles provide the federal question and diversity jurisdictions of federal courts. The Constitution also allows Congress to create federal courts and determine their jurisdiction except for that of the Supreme Court. 59 Congress implemented through statute the principles of federal question jurisdiction in 28 U.S.C by granting district courts original jurisdiction over all civil actions arising under the Constitution, laws, or treaties of the United States. 60 Congress implemented diversity jurisdiction through 28 U.S.C. the Third Circuit to determine whether the law can be deemed necessary and proper for carrying into Execution the President s Article II, 2 Treaty Power. Id. at The Third Circuit held on remand that the Chemical Convention falls within the Treaty Power s core....[and] the Act [does not] disrupt[] the balance of power between the federal government and the states. United States v. Bond, 681 F.3d 149, 166 (3d Cir. 2012) (Bond II), cert. granted, 133 S. Ct. 978 (2013) and rev d, 134 S. Ct (2014). 55. See Bond III, 134 S. Ct. at Id. at U.S. 64 (1938). 58. U.S. CONST. art. III, 2, cl Id. at cl U.S.C (2012).

11 2014] COOPERATIVE FEDERALISM by granting district courts original jurisdiction over all civil actions where the matter in controversy exceeds the sum or value of $75,000...andis between... citizens of different States. 61 B. DOES THE CONVENTION GRANT TOO MUCH DIVERSITY JURISDICTION? The Convention provides courts of a Contracting State the jurisdiction to decide a dispute to which an exclusive choice of court agreement applies. 62 The Convention seems to include situations in which two parties from Contracting States, but not from the United States, designate a U.S. federal court in their choice of court agreement. This presents a potential conflict that the parties are too diverse or have no connection to the United States for purposes of Article III of the Constitution, and that granting jurisdiction over two foreign parties exceeds the scope of the judicial powers granted under Article III of the Constitution. This question was addressed by the Supreme Court in Verlinden B.V. v. Central Bank of Nigeria. 63 In that case, a Dutch corporation brought suit against an instrumentality of the Federal Republic of Nigeria under the Foreign Sovereign Immunities Act. 64 The Court held that Congress could not expand the jurisdiction of the federal courts beyond the boundaries set out in the Constitution. 65 The Court stated that the diversity clause in Article III of the Constitution did not provide jurisdiction to the federal courts in cases brought by foreign plaintiffs against foreign sovereigns. 66 However, federal courts can exercise jurisdiction over foreign plaintiffs if their claim is based on federal question jurisdiction. This case came to the Court arising under the Foreign Sovereign Immunities Act; therefore, jurisdiction was justified under federal question jurisdiction. 67 The Convention allows foreign parties to select U.S. federal courts as their forum; however, under Verlinden, the applicability of the Convention in federal courts would be limited to cases arising under federal question jurisdiction, and not cases based on diversity jurisdiction alone. The Convention s requirement that Contracting States ensure their courts enforce forum selection clauses will not be a problem in federal courts when federal courts exercise federal question jurisdiction, even if there would otherwise be no diversity or too much diversity. That said, and applying Verlinden, it is unlikely that a federal court will exercise jurisdiction over two foreign parties unless jurisdiction can be justified through federal question jurisdiction U.S.C. 1332(a)(1) (2012). 62. See Hague Convention, supra note 4, art. 5(1) U.S. 480 (1983). 64. See id. at See id. at See id. 67. Id. at

12 1832 THE GEORGETOWN LAW JOURNAL [Vol. 102:1821 C. ERIE RAILROAD CO. V. TOMPKINS: PROCEDURE VS. SUBSTANCE IN DIVERSITY JURISDICTION When a federal court is acting under diversity jurisdiction, an additional point of contention must be addressed. Erie Railroad Co. v. Tompkins established that federal courts acting under diversity jurisdiction must apply federal procedural law; however, federal courts must apply state substantive law in determining the merits of a case. 68 The issue presented under the Convention is whether a federal court in diversity jurisdiction must apply a federal statute, purportedly implementing the Convention, or the applicable substantive state law when determining the enforceability of a forum selection clause. If the provisions in the Convention dealing with the enforcement of forum selection clauses were purely procedural, then federal courts would not look to state law, and the applicable federal law would apply in determining the enforceability of a forum selection clause. If the enforcement of forum selection clauses were a purely substantive matter, then a federal court would have to apply state common law in determining the enforceability of a forum selection clause. When dealing with forum selection clauses, the distinction between procedural and substantive law is not always clear. Forum selection clauses affect procedural concerns of jurisdiction, but they also address substantive contract law. 69 Koji Takahashi, for example, argues that the enforcement of a forum selection clause should be characterized as procedural because it impinges directly on the judicial resources. 70 Takahashi, however, acknowledges that questions of the validity of a choice of court agreement for example the effect of fraud and duress can be characterized as substantive. 71 The enforcement of a forum selection clause could present a federal court with a conflict: Should the court apply state or federal law in determining the enforceability of a forum selection clause? Or both? If a court were to consider a choice of court agreement to be purely procedural, then the court would be ignoring the contractual nature of such an agreement. Applying both state law for questions of validity of a forum selection clause and federal law for questions of jurisdiction and enforcement is the best approach for federal courts exercising diversity jurisdiction. Article 5(1) of the Convention states that courts of a contracting state designated in an exclusive choice of court agreement shall have jurisdiction to decide a dispute to which the agreement applies, unless the agreement is null and void under the law of that State. 72 The Convention already contemplates this substantive and 68. See 304 U.S. 64, (1938). 69. See Peter M. Haver, Forum Selection Clauses: What Law Applies, 2010 ABA SEC. BUS. L. 8, Koji Takahashi, Damages for Breach of a Choice-of-Court Agreement, 10 YEARBOOK OF PRIVATE INT L L. 57, 67 (2008). 71. See id. 72. Hague Convention, supra note 4, art. 5(1).

13 2014] COOPERATIVE FEDERALISM 1833 procedural split approach by differentiating between jurisdiction and the validity of the agreement. In summary, the Erie doctrine will require a federal court sitting in diversity jurisdiction to apply state common law in determining the validity of a forum selection clause; however, if the Convention is ratified, a federal court in diversity jurisdiction will be able to apply the Convention or any implementing federal legislation in determining whether a valid forum selection clause will be enforced. This relates directly to the determination of how to implement the Convention and to the overall goal of establishing a uniform standard throughout courts in the United States. IV. HOW TO BEST IMPLEMENT THE CONVENTION? Assuming the Convention is ratified, there is a general consensus that the Convention is not self-executing. This means that some form of legislation must implement the Convention into domestic law. This Part will first address the issue of self-execution. After determining that the Convention is not selfexecuting, this Part will then address different methods of implementation: federal statute, state uniform law, and cooperative federalism. Finally, this Part will argue that the best and only viable method to obtain the advice and consent of the Senate for ratification is through a proposal to implement the Convention through cooperative federalism. A. THE CONVENTION IS NOT SELF-EXECUTING AND, IF RATIFIED, MUST BE IMPLEMENTED INTO DOMESTIC LAW THROUGH LEGISLATION Under the assumption that the Convention is ratified, the next step is to determine whether the Convention is a self-executing treaty or if it requires implementing legislation. A self-executing treaty is given effect by U.S. courts without the need of additional legislation implementing the treaty into domestic law. 73 The general understanding that not all treaties are self-executing comes from Foster v. Neilson. 74 The Supreme Court stated in Foster that when a treaty is self-executing and operates of itself without the aid of any legislative provision, it is to be regarded as equivalent to an act of the legislature. 75 Foster states, however, that when a treaty is not self-executing, the legislature must implement the treaty before it becomes binding on the courts. 76 The determination of whether a treaty is self-executing turns on the intention of the United States. 77 Intention can be found in the agreement itself, in a 73. See RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS LAW OF THE UNITED STATES 111(3) (1987) [hereinafter RESTATEMENT (THIRD)] U.S. 253 (1829). 75. Id. at See id. 77. RESTATEMENT (THIRD), 111 cmt. h.

14 1834 THE GEORGETOWN LAW JOURNAL [Vol. 102:1821 statement by the President in submitting the treaty to the Senate for consent, or by any expression made by Congress in dealing with the treaty. 78 Although Congress has not taken action on the Convention, we can look at the intent expressed by the Executive Branch. After an agreement is concluded, the Executive Branch must decide in the first instance whether the agreement is self-executing, i.e., whether existing law is adequate to enable the United States to carry out its obligations, or whether further legislation is required. 79 All actions taken thus far by the executive branch indicate the Convention is not self-executing. For example, the State Department has held public meetings and has engaged in discussions to determine which method of domestic implementation is best suited for the Convention. 80 There also seems to be a general agreement in academia which is, of course, not legally binding that the Convention is not self-executing. 81 The provisions of the Convention are detailed enough to allow courts to enforce the treaty without the need for implementing legislation, but the lack of implementing legislation could lead to a lack of uniformity. 82 Going through the process of creating implementing legislation would provide courts with more structure and legislative history. Similarly, the New York Convention, 83 dealing with the recognition and enforcement of arbitral awards, was implemented through federal legislation, 84 providing courts with more guidance on how to implement the principles enshrined in the treaty. 85 The Convention is not a self-executing treaty, and it should be implemented into domestic law through some form of legislation. B. IMPLEMENTATION THROUGH FEDERAL LEGISLATION ONLY: THE NEW YORK CONVENTION APPROACH This section will first summarize arguments that the Convention should be implemented through federal legislation only. It will then contrast the Convention with the New York Convention, which deals in part with the enforcement of arbitration agreements. Finally, this section will address the political and legal 78. Id. 79. Id. 80. See Memorandum of the Legal Adviser Regarding United States Implementation of the Hague Convention on Choice of Court Agreements, U.S. Dep t of State (Jan. 19, 2013) [hereinafter Memorandum], available at (discussing approaches to implementation without considering that the Convention could be self-executing). 81. See, e.g., Stephen B. Burbank, Federalism and Private International Law: Implementing the Hague Choice of Court Convention in the United States, 2 J. PRIV. INT L L. 287, 290 (2006) (analyzing Articles 25 and 28 dealing with non-unified legal systems to conclude the Convention is not selfexecuting); Guy S. Lipe & Timothy J. Tyler, The Hague Convention on Choice of Court Agreements: Creating Room for Choice in International Cases, 33 HOUS. J. INT L L. 1, 11 (2010) ( The Choice of Court Convention is not viewed to be a self-executing treaty... ). 82. See Burbank, supra note 81, at Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S Federal Arbitration Act, 9 U.S.C. 201 (2012). 85. See infra section IV.B (discussing implementation of treaties through federal legislation).

15 2014] COOPERATIVE FEDERALISM 1835 issues that must be taken into account in determining the best method to implement the Convention. Implementation through federal legislation only might be, at least in theory, the easiest approach, but it is not necessarily attainable. If the goal is certainty and uniformity in international business transactions, the intuitive approach to ratification is through sweeping federal legislation. An absolute preemption of state law might take care of any Erie concerns described in Part III. 86 Furthermore, without one overarching federal law, foreign parties could, because of our federal system, be confused about the applicable standards to determine the validity of forum selection clauses in U.S. courts. 87 The Convention is in many ways similar to the New York Convention, which solidified a federal policy on the enforceability of arbitration agreements by U.S. courts. 88 Both conventions deal with dispute resolution mechanisms in international business-to-business contracts. 89 Compared to the New York Convention, the effects and matters dealt with in the Convention do not have the same history of federal involvement that arbitration had at the time the New York Convention was ratified. The United States became a party to the New York Convention, which was implemented through federal legislation, in the early 1970s; 90 however, the United States had a long history of federal precedent on the recognition of arbitration agreements and selection clauses. For example, in 1925, Congress enacted the Federal Arbitration Act, following the Supreme Court decision in Red Cross Line v. Atlantic Fruit Co. 91 In Red Cross Line, the Court held that a pre-dispute arbitration agreement should be enforced. 92 Such history of federal involvement does not exist for the enforcement of forum selection clauses. Congressional intrusion on the ability of state courts to determine their own personal jurisdiction is unprecedented, and it is likely to give rise to political gridlock in any congressional action taken on the Convention. The Convention meddles with issues traditionally left to the states, and politically, it would be very hard to garner sufficient support. The Senate would first need to provide its advice and consent for ratification, and obtaining the required two-thirds vote for advice and consent is no easy feat. Furthermore, any implementing legislation will require a majority vote in both chambers of Congress. Although this approach would be constitutional under Missouri v. Holland, 93 it would be hard 86. E.g., Carolyn Dubay, From Forum Non Conveniens to Open Forum: Implementing the Hague Convention on Choice of Court Agreements in the United States, 3 GEO. MASON J. INT L COM. L. 1, 36 (2011). 87. See id. at See id. 89. Id. 90. New York Convention Countries, N.Y. ARBITRATION CONVENTION, org/contracting-states/list-of-contracting-states (last visited Mar. 27, 2014) U.S. 109 (1924). 92. See id. at See supra section II.B.

16 1836 THE GEORGETOWN LAW JOURNAL [Vol. 102:1821 to obtain the political support needed in Congress to provide advice and consent and to pass federal implementing legislation. C. IMPLEMENTATION THROUGH STATE LAW This Note has addressed the issue of implementation under the assumption that, if the Convention requires implementing legislation, then at least some form of federal legislation must be a part of the equation. This is not a view shared by all. For example, Professor Curtis R. Reitz has written about the possibility of treaty implementation through state law only. 94 This approach is especially attractive in cases where international agreements deal with issues traditionally left to state law in the United States. A state law approach, however, is far from perfect, and implementation of the Convention through this method seems aspirational and unlikely to occur. Reitz is one of the leading voices in promoting the idea that a treaty that is not self-executing can be implemented through state legislation without the need of accompanying federal legislation. Reitz uses the Convention Providing a Uniform Law on the Form of an International Will (the Wills Convention) to illustrate this proposal. 95 The United States became a signatory to the Wills Convention in 1973, and in 1977 the Uniform International Wills Act (the Uniform Act) was promulgated. 96 Wills are traditionally a matter of state law, and the Uniform Act was developed for the purpose of implementing the Wills Convention through state law. 97 Three decades later, the Wills Convention has still not been ratified; however, multiple U.S. states have enacted the Uniform Act into state law. 98 Reitz argues that if the remaining states are persuaded to implement the Uniform Act, which is consistent with the Wills Convention, the State Department could then declare that the United States has met its obligations under the Wills Convention. 99 If the state-law-only method of implementation is feasible, it can be especially valuable in areas of the law in which the prevailing law is state law, such as commercial law, family law, and property law. 100 This approach could appease political concerns that the federal government is intruding into state matters through the Treaty Power. This approach, however, seems aspirational at best because it would be hard to coordinate all states and U.S. territories to implement a uniform act. Implementing the Convention through only state law would also be inefficient because many states might otherwise prefer implemen- 94. See infra notes and accompanying text. 95. See Curtis R. Reitz, Globalization, International Legal Developments, and Uniform State Laws, 51 LOY.L.REV. 301, (2005). 96. See id. at & n See id. 98. See id. at See id. at 323. Reitz acknowledges, however, that at least some federal action might be needed to ratify the Wills Convention. See id. at 323 n See id. at

17 2014] COOPERATIVE FEDERALISM 1837 tation through federal statute, but instead would be required to pass state legislation to comply with the Convention. Furthermore, the Erie concerns are not fully addressed without some form of federal law providing uniformity on that front. The state-law-only approach would provide uniformity for state courts, but as discussed in section III.C, federal courts will apply federal procedural law, so the procedural aspects of the Convention would still be inapplicable in federal court without some form of federal implementation of the Convention. Although far from perfect, the principles enshrined in the state-law proposal are valuable in considering the third approach to implementation addressed in this Note cooperative federalism. D. COOPERATIVE FEDERALISM: THE POLITICALLY VIABLE APPROACH The federal-legislation-only approach seems to be a politically difficult means of implementing the Convention, and the state law approach seems aspirational. Perhaps the best method of implementation is a combined federal and state approach, or what is called cooperative federalism. Cooperative federalism avoids both extremes of this debate and proposes a joint federal and state approach to implementation. This section will address why despite the concerns of redundancies in the cooperative federalism approach cooperative federalism would be the best and most efficient approach to ratifying and implementing the Convention. Section IV.B addressed a federal-legislation-only approach to implementation and concluded that, although the most simple, this approach would be politically hard to implement because it is overly intrusive on states rights. That said, a federal legislation approach would indeed provide the desired uniformity in state and federal courts as to the enforcement of forum selection clauses. Section IV.C illustrated how a state-law-only approach might provide uniformity in state courts, but would not necessarily, without some form of federal action, provide uniformity in federal courts. It is first important to summarize what the cooperative federalism approach would entail. The Uniform Law Commission (ULC) 101 of the National Conference of Commissioners of Uniform State Laws has developed a method of implementation that involves both a model state law and federal legislation. The State Department has referred to this approach as a compromise with regard to a bundle of issues. 102 The cooperative federalism approach involves the existence of parallel federal and state legislation. 103 The states would have the ability to opt out of the federal statute and implement the Convention through 101. The ULC is a nonpartisan, nonprofit association whose purpose is to promote uniformity in state law where desired and appropriate. See, e.g., William H. Henning, The Uniform Law Commission and Cooperative Federalism: Implementing Private International Law Conventions Through Uniform State Laws,2ELON L. REV. 39, 39 (2011) Memorandum, supra note 80, at 1. The cooperative federalism proposal is referred to internally at the State Department as the White Paper proposal. Id See id. at 1 2.

18 1838 THE GEORGETOWN LAW JOURNAL [Vol. 102:1821 state law. 104 The state law would be based on the uniform act that has been created by the ULC. 105 The uniform act gives states the flexibility of selecting whether to accept cases that involve no contacts with the state and to set the applicable statute of limitations. 106 The ULC states that the uniform law does not change any existing rules relating to federal courts diversity jurisdiction or the rules relating to removal from state to federal court. 107 In 2012, the ULC approved the final text of the model act and recommended it for implementation. 108 Proponents of the cooperative federalism approach in the State Department acknowledge that support for this proposal is not unanimous and that care must be taken to ensure sufficient uniformity between the federal and state legislation. 109 And indeed, both the federal draft and the state model law created by the ULC are essentially identical. 110 Professor Stephen B. Burbank is very critical of the cooperative federalism approach, and he believes implementation through federal legislation is sufficient. 111 Burbank coins the term cooperative redundancy by stating that the process of drafting and implementing state legislation would overlap with the federal act and would simply lead to a regime that is far too complex. 112 Burbank goes as far as stating that [o]ne whose interests are more practical might wonder why any state would bother spending the time and money necessary to enact a uniform act that was materially identical to the federal statute that would otherwise govern. 113 Burbank further states that the ULC s approach is a retreat into idiosyncratic essentialism about the concept of cooperative federalism. 114 Professor Burbank is extremely skeptical of the ULC s work; however, his concerns do not acknowledge that at this time cooperative federalism is the most viable option, both politically and legally, for ratifying and implementing the Convention. Burbank is critical of the redundancy that would exist in implementing both state and federal laws. This approach, however, might appease some of the political concerns discussed in section IV.B that the Convention is an unprecedented intrusion on the ability of states to determine 104. See id. at See id See id See id UNIFORM CHOICE OF COURT AGREEMENTS CONVENTION IMPLEMENTATION ACT, NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS, available at choice_of_court/2012am_ccaia_approvedtext.pdf IMPLEMENTATION OF THE HAGUE CONVENTION ON CHOICE OF COURT AGREEMENTS IN THE UNITED STATES, U.S. DEP T OFSTATE III.A., available at asadip.files.wordpress.com/2012/05/coca-white-paperfinal.docx See id Burbank, supra note 81, at Stephen B. Burbank, Whose Regulatory Interests? Outsourcing the Treaty Function, 45 N.Y.U. J. INT L L.&POL. 1037, 1057 (2013) Id. at Id.