Pascal Hollander, IBA Sub-Committee on Recognition and Enforcement of Awards

Transcription

1 1717 K Street, NW Washington, DC main fax Memo Date: May 31, 2016 To: Pascal Hollander, IBA Sub-Committee on Recognition and Enforcement of Awards From: Regarding: Mélida Hodgson Anna Toubiana Study of under the New York in the United States Executive Summary In performing this study of the practice of courts in the United States in determining arbitrability, we reviewed many decisions, and the accompanying chart itself discusses 38 cases specific to the concept under the New York. From this review, a few general observations can be made. As a starting point, all must be viewed, first and foremost, within the context of the strong support for arbitration that exists in U.S. courts. This strong policy support has been clearly and repeatedly enunciated by the United States Supreme Court, beginning over 40 years ago in the seminal Scherk v. Alberto Culver case. This policy has accordingly extended to certain previously statutorily protected areas such as antitrust, securities, and the protection of seafaring workers. In all, the accompanying chart discusses approximately 12 Jones Act/maritime workers cases, in which the policy respecting arbitration provisions has been clearly enforced, almost always in the context of Article II(3) of the. One interesting observation is that most of the cases reviewed arose in the context of compelling arbitration rather than enforcement of an arbitral award. 1 Further, in that context, the only 1 From a procedural standpoint, cases generally arise with a defending party to a lawsuit seeking to remove a case to federal court jurisdiction from the state courts, and either immediately after or in contemporaneous motions, seeking to enforce an arbitration agreement. This is made possible in the vehicle of Section 205 of the Federal Arbitration Act, which grants a federal district court removal jurisdiction over cases it determines relate to an arbitration agreement governed by the New York.

2 defenses available at the arbitration agreement enforcement stage are those enumerated in Article II of the New York (including the null and void, inoperative or incapable of being performed defenses), whereas at the arbitral award enforcement stage, the exclusive defenses are those enumerated in Article V New York. U.S. courts have clearly affirmed that Article II, unlike Article V, does not contain an explicit or implicit public policy defense. Finally, in furthering the support of arbitration, U.S. courts will go so far as to enforce arbitration agreements against non-signatories, and order arbitration in the United States if there is a mistake or the forum cannot be determined. 1. How do courts in your jurisdiction define the notion of arbitrability when applying the New York? (a) Do they make a distinction in defining the notion for the purposes of Article II (1) of the New York ( a subject matter capable of settlement by arbitration ), of Article II (3) (... unless it finds that the said agreement is null and void, inoperative or incapable of being performed ) and of Article V (2) (a) ( The subject matter of the difference is not capable of settlement by arbitration under the law of that country )? By and large the notion of arbitrability is addressed by U.S. courts in the context of Article II(3) of the New York, but cases have also arisen in the context of Article II(1) and Article V(2). Courts in the United States use the term arbitrability to refer to (i) whether the dispute falls under the scope of the parties arbitration agreement; (ii) whether the dispute concerns a matter that is capable of being resolved by arbitration; and (iii) whether the arbitration agreement is valid and enforceable. The United States Supreme Court has recognized that the purpose of the is to encourage the enforcement of international arbitration agreements and over 40 years ago affirmed that there is a strong federal policy in the United States in favor of arbitral dispute resolution and enforcement of arbitral awards, especially in the field of international commerce. 2 Lower courts have uniformly followed this Supreme Court precedence without controversy. In accordance with that vision, and the focus on the interpretation of Article II(3), the interpretation of Article II(1) and Art. V(2)(a) is extremely narrow and limited to certain exceptions that have arisen in a few cases. Such exceptions concern substantive rights embodied in statutes that must be judicially decided and thus, are non-arbitrable (see question 4). 2 Scherk v. Alberto-Culver, 417 US 506 (1974); Moses H. Cone Mem l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, (1983); Mitsubishi v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985)

3 However, several regulatory and statutory subject-matters which in the United States were historically exclusively reserved for judicial determination are now considered arbitrable. For example, claims related to antitrust laws, 3 securities issues, 4 intellectual property disputes, 5 the Racketeer Influenced and Corrupt Organizations Act (RICO), 6 personal status and employment issues 7 can be resolved by arbitration. Some of these issues are discussed in the cases in the accompanying chart. In addition, U.S. federal courts have consistently found that the null and void language of Art. II(3) is to be narrowly interpreted. 8 These courts have interpreted the null and void language to apply only when (i) the arbitration agreement is subject to an internationally recognized defense such as duress, mistake, fraud or waiver, 9 or (ii) when it contravenes fundamental policies of the forum state (United States public policies related to criminal and civil justice, health, social welfare, foreign affairs and national security, economic affairs, education etc.) 10 It must be noted that arbitrability in the United States also refers to, in contrast with numerous jurisdictions, the threshold question of whether an arbitral tribunal has the authority to decide, as an preliminary matter, whether the dispute at issue should be referred to arbitration to determine if the arbitral tribunal has jurisdiction over the dispute. The Supreme Court has held that unless parties to an arbitration agreement have clearly and unmistakably agreed to submit the merits of their dispute to arbitration, courts should have the primary power to decide arbitrability. Otherwise, courts should defer to the arbitrator s arbitrability decision Mitsubishi v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985). 4 Scherk v. Alberto-Culver, 417 US 506 (1974). 5 Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191, 1199 (7th Cir. 1987); Beckman Instruments, Inc. v. Technical Develop. Corp., 433 F.2d 55, 63 (7th Cir. 1970). 6 Shearson/American Express, Inc. v. Eugene McMahon, 482 U.S. 220 (1987). 7 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 27 (1991). 8 See Rhone Mediterranee Compagnia Francese v. Lauro, 712 F.2d 50 (3d Cir. 1983); Meadows Indem. Co. v. Baccala & Shoop Ins., 760 F. Supp (E.D.N.Y. 1991); Ledee (Puerto Rico) v. Ceramiche Ragno (Italy), 684 F.2d 184 (1st Cir. 1982). 9 Rhone Mediterranee Compagnia Francese v. Lauro, 712 F.2d 50 (3d Cir. 1983); Ledee (Puerto Rico) v. Ceramiche Ragno (Italy), 684 F.2d 184 (1st Cir. 1982). 10 Rhone Mediterranee Compagnia Francese v. Lauro, 712 F.2d 50 (3d Cir. 1983). 11 AT&T Technologies, Inc. v. CWA, 475 U.S. 643 (1986); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995)

4 (b) Do they make a distinction between subjective arbitrability (capacity of a person to be party to an arbitration) and objective arbitrability (capacity of a subject matter to be resolved by arbitration)? Yes, United States courts make a distinction between subjective and objective arbitrability. When addressing the issue of subjective arbitrability, courts in the United States refer broadly to Article II(3) of the New York, and more specifically to the null and void language. The subjective arbitrability defenses include issues of non-signatories to the arbitration agreement, unconscionability, 12 and waiver of arbitration. U.S. courts, however, have also referred to Art. II(3) with regard to objective arbitrability discussions, particularly in relation to claims arising out of the Merchant Marine Act of 1920 (the Jones Act ) 13 and the Seamen s Wage Act. 14 Objective arbitrability as applied by United States courts concerns more specifically Articles II(1) ( a subject matter capable of settlement by arbitration ), and V(2)(a) ( The subject matter of the difference is not capable of settlement by arbitration under the law of that country ) of the New York, referring to the very limited instances in which those defenses are applicable. However, given the strong public policy in favor of arbitration and enforcement of arbitral awards, courts apply a narrow construction of both objective and subjective arbitrability. 2. Do the courts in your jurisdiction consider that arbitrability is a condition of validity of the arbitration agreement, or rather a requirement for the jurisdiction of the arbitral tribunal? 12 Unconscionability has not been a successful defense, particularly in the cruise line cases U.S. courts have determined that this is not a valid defense under Article II(3) of the to enforcing an arbitral agreement, rather it is a public policy defense to be raised at the stage of enforcement of an arbitral award. 13 The Merchant Marine Act of 1920, also known as the Jones Act is a United States federal statute that provides for the promotion and maintenance of the U.S. merchant marine. Among other purposes, the law regulates maritime commerce in U.S. waters and between U.S. ports. Section 27 of the Jones Act, deals with cabotage and requires that all goods transported by water between U.S. ports be carried on U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. The Jones Act provides seamen with a special statutory framework for bringing negligence and related claims against their employers. This has been the subject of many suits with employees of cruise lines seeking to avoid arbitration of their employment, unsuccessfully. 14 The Seaman's Wage Act, inter alia, focuses on ensuring prompt wage payment to seaman via a treble-damages wage-penalty provision assessed on employers for late wages. 46 U.S.C

5 As noted under Question 1 (a), courts in the United States have a broad vision of arbitrability. The courts view arbitrability as both a condition of the validity of the arbitration agreement itself and as requirement for the arbitral tribunal s jurisdiction. When presented with a request of whether to refer an international dispute to arbitration, courts conduct a very limited inquiry. 15 Specifically, U.S. courts follow a two-step analysis to determine whether the dispute should be referred to arbitration. The first step consists of identifying the answers to the four following questions: (1) Is there an agreement in writing to arbitrate the subject of the dispute? (2) Does the agreement provide for arbitration in the territory of the signatory of the? (3) Does the agreement arise out of a legal relationship whether contractual or not, which is considered as commercial? (4) Is a party to the agreement not an American citizen, or does the commercial relationship have some reasonable relation with one or more foreign states? If the answers to the above four questions are affirmative, courts must refer the dispute to arbitration unless and this is the second step the courts find that the agreement is null and void, inoperative or incapable of being performed, in accordance with Art. II(3) of the New York. Only then may the courts refuse to allow arbitration. 16 Moreover, the concept of what is null and void, inoperative or incapable of being performed has to be determined in a manner that is internationally neutral (such as mistake or waiver), not specific to U.S. public policy notions. As previously indicated, in accordance with U.S. Supreme Court precedent, arbitrability also concerns the arbitral tribunal s jurisdiction. Unless the parties have clearly and unmistakably agreed to arbitrate the merits of their dispute, courts will decide on the tribunal s jurisdiction as a matter of arbitrability. 3. Applicable law (a) Which law do the courts in your jurisdiction apply to assess the arbitrability or non-arbitrability of a dispute at the stage of recognizing and enforcing the arbitration agreement and referring (or not) the dispute to arbitration (Article II )? The lex fori (law of the deciding court)? The law of the place of arbitration? The lex contractus? Another law? 15 Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 959 (10th Cir. 1992). 16 Id

6 At the stage of recognizing and enforcing the arbitration agreement and referring or not the dispute to arbitration, once an arbitration is deemed to fall under the Federal Arbitration Act of 1925 ( FAA ), which involves interstate or foreign commerce and maritime transactions and which also implements the New York, U.S. courts assess the arbitrability of the dispute applying the jurisprudence of the FAA, generally pursuant to Article II(3) of the New York. If the dispute is covered by both instruments the FAA and the New York federal jurisprudence applies to all questions of interpretation, construction, revocability and enforceability. 17 It has also been recognized that a general clause of law within an arbitration provision does not trump the presumption that the FAA supplies the rules for arbitration. 18 For example, in a case in which the parties had chosen London as their forum and English law as the applicable law to govern their disputes, a federal court in California held that despite the English choice of law and forum, where the New York and the FAA were applicable to the arbitration clause at issue, such instruments provide an overriding basis for why such sources of law must apply to the question of whether [the] parties agreed to arbitrate their disputes. 19 (b) Is there a difference of approach when assessing subjective and objective arbitrability? No. Whether the dispute at hand concerns matters of subjective or objective arbitrability, when an arbitration is subject to the FAA and the New York, courts apply federal law and its standards to determine arbitrability. 4. Substantive content of arbitrability/non-arbitrability (a) In your jurisdiction, does statutory or case law set a general standard for assessing whether a dispute is arbitrable or not? In the United States, case law based on the FAA has set a general standard for assessing whether a dispute is arbitrable or not. As previously mentioned, the U.S. Supreme Court has repeatedly reaffirmed the strong federal policy in favor of arbitration. Thus, following that healthy regard for the federal policy favoring arbitration 20 various matters that were historically considered 17 Chloe Z Fishing Co. Inc. v. Odyssey Re, 109 F Supp 2d 1236 (SD Cal 2000). 18 Milos Sovak and Biophysica Inc. v. Chungai Pharmaceutical Co., 29 F 3d 615 (9 th Cir 2002). 19 Chloe Z Fishing Co. Inc. v. Odyssey Re, 109 F Supp 2d 1236 (SD Cal 2000). 20 Moses H. Cone Mem l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, (1983)

7 solely within a regulatory scope and thus non-arbitrable have been redefined as being capable of being resolved by arbitration. (b) If there is a statutory source for arbitrability in your jurisdiction, please indicate it below (if not, indicate non-applicable ): The FAA, which implements the New York, is the principal body of federal substantive law of arbitrability and pre-empts any contrary state law policy. (c) Which disputes are held to be non-arbitrable under the statutory or case law of your jurisdiction? In general, all disputes that are not considered commercial disputes cannot be subject to arbitration. And, as indicated, substantive rights embodied in statutes are held to be nonarbitrable. For example, non-arbitrable disputes include criminal issues and those for which a civil penalty is provided. Non-arbitrable issues also involve matters that belong strictly to judicial proceedings (such as state court proceedings to disqualify counsel from an arbitration proceeding) Table of cases Article II(1): Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. Article II(3): The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. Article V(2)(a): 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or [ ] 21 R3 Aerospace v. Marshall of Cambridge Aerospace Ltd., 927 F. Supp. 121 (S.D.N.Y. 1996)

8 Scherk v. Alberto- Culver, 417 US 506 (1974) Art. II(1) (Motion to stay litigation pending arbitration) Scherk, a German citizen, and Alberto-Culver, a US company, entered into a contract for the transfer of the ownership of Scherk s enterprises to Alberto-Culver, along with all rights held by these enterprises to trademarks in cosmetic goods. The contract contained an arbitration agreement which provided for International Chamber of Commerce ( ICC ) arbitration in Paris. Subsequently, Alberto-Culver commenced an action for damages and other relief in the District Court for the Northern District of Illinois. In response, Scherk, filed a motion inter alia to stay the action pending arbitration in Paris pursuant to the agreement of the parties. The Northern District of Illinois granted a preliminary order enjoining Scherk from proceeding with arbitration. The United States Court of Appeals for the Seventh Circuit affirmed. Scherk filed a petition for a writ of certiorari before the United States Supreme Court. The Supreme Court reversed the decision of the Seventh Circuit, finding that the arbitration agreement was enforceable and remanded the case back to the lower courts. In so holding, the Court found that the United States adoption and ratification of the New York and its Article II(1) provide strong evidence of congressional policy to enforce international arbitration agreements. It further held that the agreement of the parties to arbitrate any dispute arising out of their international commercial transaction was to be respected and enforced by the federal - 8 -

9 courts in accordance with the explicit provisions of the Federal Arbitration Act. Parsons & Whittemore Overseas Co. Inc. v. Société Générale de l Industrie du papier (RAKTA), 508 F.2d 969 (2d Cir. 1974) Art. V(2)(a) Source: 1958 New York Guide, d=654. (Enforcement of an award) Parsons & Whittemore Overseas ( Parsons ), an American corporation, and Société Générale de L Industrie du Papier ( RAKTA ), an Egyptian corporation, entered in a contract for the construction and operation of a paper mill in Egypt. The contract provided for arbitration under the Rules of the ICC. RAKTA initiated arbitration proceedings claiming damages for breach of contract, and a final award was rendered in its favor. The award was confirmed by the District Court for the Southern District of New York (SD). Parsons appealed this decision and argued that: (i) the enforcement of the award would violate US public policy because of the United States foreign policy towards Egypt; (ii) the award represents a decision on matters not appropriate for arbitration; (iii) the Arbitral Tribunal denied Parsons an adequate opportunity to present its case; (iv) the award is predicated upon the resolution of issues outside the scope of the contractual agreement for arbitration, and (v) the award is in manifest disregard of the law. The SD ruled that the arbitrability of the claim, pursuant to Article V(2)(a) of the New York - 9 -

10 , was not affected by the fact that US foreign policy was somehow implicated in the dispute. The Court found that the national interest must be more than incidentally involved in the dispute for a court to find that the dispute is not arbitrable. The Court stated that to take advantage of this defense, a party must prove that the enforcing nation attaches a special national interest to the dispute that makes settling it by arbitration impossible. The United States Court of Appeals for the Second Circuit confirmed the SD s decision and confirmed the award. Source: 1958 New York Guide, d=714. Becker Autoradio U.S.A., Inc. v. Becker Autoradiower k GmbH, 585 F.2d 39 (3d Cir. 1978) Art. II(3) (Motion to compel arbitration) A dispute arose between the defendant, Becker Autoradiowerk GmbH ( BAW ), a West German manufacturer of automobile radios and accessories, and the plaintiff, Becker Autoradio U.S.A., Inc. ( Becker U.S.A. ), a Pennsylvania corporation and BAW s exclusive American distributor. The parties concluded both an oral agreement and a written distribution agreement, which contained an arbitration clause providing for arbitration in Germany in accordance with the ICC Rules of Arbitration. Becker USA brought an action in United States federal district court suing for breach of the oral agreement, arguing that it was a separate issue from the terms of the written contract and therefore not covered by the arbitration clause

11 BAW moved to stay the judicial proceedings in the District Court and to compel arbitration. The District Court denied BAW s motion to remove and the defendant appealed. The Court of Appeals for the Third Circuit reversed the District Court s decision and ordered that the dispute be submitted to arbitration in accordance with the parties agreement. In so holding, the Third Circuit held that according to Article II(3) of the New York, (Section 3 of the Federal Arbitration Act), the question of whether, in contracts involving commerce, there is an agreement to arbitrate an issue or dispute upon which suit has been brought is governed by federal law. The Court concluded that the dispute was arbitrable under the terms of the written agreement and referred the parties to arbitration in accordance with their agreement. Libyan American Oil Co. v. Socialist People s Libyan Arab Jamahirya, 482 F. Supp (D.D.C. 1980), vacated without op., 684 F. 2d 1032 (D.C. Art. V(2)(a). Source: 1958 New York Guide, d=672. (Enforcement of an award) In , Libya nationalized the Libyan American Oil Co. (LIAMCO) s rights under petroleum concessions Libya had granted nearly 20 years prior. Dissatisfied with the compensation it received, LIAMCO commenced arbitration as provided for in the relevant agreements. An award was rendered in Geneva awarding damages to LIAMCO. When LIAMCO tried to enforce the award in the United States, Libya claimed sovereign immunity as a

12 Cir. 1981) defense and, alternatively, argued that nationalization was not subject to arbitration. The United States District Court for the District of Columbia (DDC) denied Libya s sovereign immunity claim and found that by agreeing to arbitration governed by foreign law, Libya had waived its sovereign immunity. The DDC, however, Libya s argument that the subject matter of the dispute was the oil concession nationalization, which constitutes an act of state and thus is not arbitrable, and that the nationalization laws revoked all terms of the concessions. The Court observed that since it could not have compelled arbitration in this case, because the arbitration would necessarily examine the validity of the nationalization and thus violate the act of state doctrine, it could not enforce the award. LIAMCO appealed the DDC s decision, but the parties settled before the appeal was decided. Ledee (Puerto Rico) Note: While the appeal was pending, the parties settled. The Court of Appeals for the District of Columbia, following amici curiae briefs filed by the U.S. Government, the American Bar Association and other groups, vacated the lower court s decision without an opinion. Art. II(3) (Enforcement of arbitration agreement)

13 v. Ceramiche Ragno (Italy), 684 F.2d 184 (1st Cir. 1982) The defendants, Italian corporations, (Ragno) and the plaintiffs, Puerto Rican corporations (Ledee), entered into a distributorship agreement. The distributorship agreement contained an arbitration clause providing for arbitration before an arbitrator selected by a court in Modena, Italy. In March 1981, Ledee brought suit in the Superior Court of Puerto Rico, a local court. The defendants sought to enforce the arbitration provision and removed the case to the United States District Court for the District of Puerto Rico, which ordered arbitration in accordance with the arbitration agreement. Ledee appealed. The United States Court of Appeals for the First Circuit affirmed the District Court of Puerto Rico s judgment and ordered arbitration. In so holding, the First Circuit found that there was an arbitration agreement in writing as required by Article II(2) of the New York ; that the agreement provided for arbitration in the territory of a signatory of the New York in accordance with the terms of Article I(1) of the New York ; and that the agreement arose out of a legal relationship, which was considered commercial in accordance with Article I(3). It further held that nothing in the facts of the case suggested that the arbitration agreement was null and void, inoperative or incapable of being performed within the terms of Article II(3) of the New York, and referred the parties to arbitration

14 Rhone Mediterranee Compagnia Francese v. Lauro, 712 F.2d 50 (3d Cir. 1983) Art. II(3) 1958 New York Guide, d=687. (Motion to stay litigation pending arbitration) The plaintiff Rhone Mediterranee Compagnia Francese brought suit in tort against the defendant owner of a vessel, arising out of a fire loss, in the United States District Court of Virgin Islands. The defendant moved to stay the litigation pending resolution of the arbitration in London, relying on an arbitral clause in a time charter contract entered into by the parties. The District Court granted the motion, and the plaintiff appealed. The Third Circuit affirmed the stay pending arbitration. The Court dismissed the plaintiff s argument that the arbitral clause was impermissible under Italian law. It held, based on Article V(1)(a), V(1)(e), and V(1)(d) of the New York, that the law applicable to the substantive validity of the arbitration agreement is the law chosen by the parties, or the law of the place of the award. The Court also held that an agreement would only be found to be null or void within the terms of Article II(3) of the New York if it was subject to internationally recognized defenses such as fraud, duress, mistake or waiver, or if enforcement would contravene the fundamental public policy of the forum New York Guide,

15 Oriental Commercial and Shipping (UK) v. Rosseel, N.V. (Belgium), 84 Civ (PKL), 609 F.Supp. 75 (1985) Art. II(3) d=512. (Motion to stay arbitration) Rosseel, the defendant, entered into a contract to purchase specified oil from Oriental Commercial and Shipping Co. (U.K.) Ltd. ( Oriental U.K. ). Oriental Commercial and Shipping Co., Ltd. ( Oriental S.A. ) was not a signatory to the contract of sale between Oriental U.K. and Rosseel. A dispute arose regarding the delivery of the oil and Rosseel demanded arbitration against Oriental U.K. and Oriental S.A. pursuant to an arbitration clause conveyed in a telex which included the terms of the contract. Oriental S.A. responded with a petition to stay arbitration in New York state court. Rosseel removed the proceeding to the SD. The District Court held that the arbitration agreement was valid within the terms of Article II(3) of the New York and ordered the parties to complete discovery on the issue of whether Oriental S.A. was a party to the arbitration agreement with regard to the transaction. In so ruling, the Court found that Oriental U.K. s telex contained the terms of the contract, including a provision for arbitration. It further held that Oriental U.K. evinced its intention to arbitrate disputes arising under that contract. As to the scope of the arbitration agreement, it held that there were not enough facts for the Court to decide whether Oriental S.A. and Oriental U.K were alter egos of each other. The Court held that, subject to the parties agreement, Oriental S.A. must participate in the arbitration

16 proceedings. Nonetheless, in the event that Rosseel should prevail, and Oriental U.K. alone were unable to satisfy the award, an evidentiary hearing would be held to determine whether Oriental S.A was a party to the arbitration agreement, and thus bound by the arbitration award. Mitsubishi Motors Corp v. Soler Chrysler Plymouth Inc., 473 US 614, 105 S Ct 3346 (1985) Art. V(2)(a) 1958 New York Guide, d=601. (Motion to compel arbitration) Mitsubishi Motors Corp ( Mitsubishi ), a Japanese corporation that manufactures automobiles, and is the product of a joint venture between Chrysler International, S.A. (CISA), a Swiss corporation, and another Japanese corporation, that distributed automobiles manufactured by Mitsubishi through Chrysler dealers outside the continental United States. Soler Chrysler Plymouth Inc. a Puerto Rico corporation, entered into distribution and sales agreements with CISA. The sales agreement (to which Mitsubishi was also a party) contained a clause providing for arbitration by the Japan Commercial Arbitration Association of all disputes arising out of certain articles of the agreement or for the breach thereof. Thereafter, when attempts to work out disputes arising out of slow sales of new automobiles failed, Mitsubishi withheld shipment of automobiles to Soler, which disclaimed responsibility for them. Mitsubishi then brought an action in the District Court for Puerto Rico under the FAA and the New York, seeking an order to

17 compel arbitration of the disputes in accordance with the arbitration clause. Soler filed an answer and counterclaims, asserting, inter alia, causes of action under the United States Sherman Antitrust Act 22 and other statutes. The District Court ordered arbitration of most of the issues raised in the complaint as well as the counterclaims, including the federal antitrust issues. Despite the doctrine uniformly followed by the U.S. Courts of Appeals, that rights conferred by the antitrust laws are inappropriate for enforcement by arbitration, the District Court, relying on Scherk v. Alberto-Culver, held that the international character of the undertaking in question required enforcement of the arbitration clause even as to the antitrust claims. The First Circuit reversed on grounds that antitrust matters were not arbitrable. But the U.S. Supreme Court reversed and upheld the District Court s decision insofar as it ordered submission of the antitrust claims to arbitration and held that Soler s antitrust claims were arbitrable pursuant to the FAA. It added that the potential complexity of antitrust matters does not suffice to ward off arbitration. The Supreme Court held that there was no merit to Soler s contention 22 The Sherman Antitrust Act (Sherman Act, 26 Stat. 209, 15 U.S.C. 1 7) is a federal antitrust statute passed by the U.S. Congress in The Act prohibits certain business activities that federal government regulators deem to be anti-competitive, and requires the federal government to investigate and pursue trusts

18 that since the arbitration clause at issue does not mention these statutes or statutes in general, the clause cannot be properly read to contemplate arbitration of these statutory claims. There is nothing in the FAA implying a presumption against arbitration of statutory claims. Nor is there any reason to depart from the federal policy favoring arbitration just because a party bound by an arbitration agreement raises claims founded on statutory rights. The Supreme Court further held that Soler s antitrust claims were arbitrable pursuant to the FAA. The Court noted that concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes, all require enforcement of the arbitration clause in question even assuming that a contrary result would be forthcoming in a domestic context. The strong presumption in favor of freely negotiated contractual choice-of-forum provisions is reinforced here by the federal policy in favor of arbitral dispute resolution, a policy that applies with special force in the field of international commerce. The mere appearance of an antitrust dispute does not alone warrant invalidation of the selected forum on the undemonstrated assumption that the arbitration clause is tainted. So too, the potential complexity of antitrust matters does not suffice to ward off arbitration; nor does an arbitration panel pose too great a danger of

19 E.A.S.T., Inc. of Stamford, Connecticut v. M/V Alaia, 876 F.2d 1168, 1989 AMC 2024 (5th Cir.1989) innate hostility to the constraints on business conduct that antitrust law imposes. Moreover, the importance of the private damages remedy in enforcing the regime of antitrust laws does not compel the conclusion that such remedy may not be sought outside a U.S. court. Art. II(3) (Motion to compel arbitration ) E.A.S.T ( EAST ) agreed to charter the M/V ALAIA ( ALAIA ), owned by Advance, Co. ( Advance ), a Liberian corporation. The charter party, which was governed by English law, contained an arbitration clause providing for arbitration in London. A dispute arose and EAST moved in the United States District Court for the Eastern District of Louisiana to compel arbitration under the FAA. The District Court compelled arbitration and ordered each of the parties to post security for arbitration. Advance appealed, arguing, inter alia, that the court erred in holding that in rem jurisdiction was a sufficient basis on which to refer the parties to arbitration and furthermore, that prearbitration attachment of the ALAIA would be inconsistent with the New York. EAST argued that the New York was not applicable as Advance was a corporation of a non-signatory state to the New York. The United States Court of Appeals for the Fifth Circuit affirmed the decisions of the District Court and dismissed the appeal. The Fifth Circuit first found that when the United States adopted the New York, it chose the option available under Article I(3) of the

20 New York to apply the New York on the basis of reciprocity, i.e. to apply it only to those awards made in the territory of another contracting state. The Fifth Circuit determined, however, that since arbitration was to be conducted in a contracting state to the New York (Great Britain) thus the New York would be applicable irrespective of Advance s Liberian nationality. The Fifth Circuit Advance s argument that the District Court did not have jurisdiction to refer the parties to arbitration. It held that under Article II(3) of the New York and Section 206 of the FAA (which gives effect to Article II(3) of the New York ), the District Court had the authority and duty to refer the parties to arbitration. It further decided that it need not decide the question of whether the District Court could refer the parties to arbitration on the basis of in rem jurisdiction since Advance had submitted to the court s in personam jurisdiction. The Fifth Circuit also found that prearbitration attachment of the vessel was not inconsistent with the New York. Meadows Indemnity v. Baccala & Shoop Insurance Services, 760 F. Supp Art. II (1); Art. II(3) 1958 New York Guide, d=1154. (Motion to compel arbitration) This dispute arises out of the participation of Meadows Indemnity, an insurance company, in a reinsurance pool from 1979 to Meadows alleged that when the defendants Baccala & Shoop Insurance Services became primary

21 (E.D.N.Y. 1991) insurers in the Pool, they manipulated the underwriting of the Pool for their own ends, without the knowledge and to the detriment of Meadows and its co-reinsurers. In addition, the defendants allegedly developed or became apprised of information material to Meadows decision to renew its participation in the Pool, which allegedly they failed to disclose to Meadows, thereby inducing Meadows yearly execution of Pool contracts. The defendants asserted that the District Court for the Eastern District of New York (ED) should stay the claims against them and order arbitration pursuant to the arbitration clauses in the contracts between them and Meadows. Meadows alleged that the defendants were liable, inter alia, for violation of and conspiracy to violate the RICO Act, civil conspiracy, and fraud. Meadows argued that the controversy centered around the fraud cause of action which it claimed was not an arbitrable subject matter, under the law of Guernsey, where Meadows is incorporated. Alternatively, Meadows asserted that its fraud, RICO and civil conspiracy claims were not within the scope of the arbitration clauses. Meadows also argued that if the court found the claims against the defendants to be arbitrable, the court in exercise of its discretion should not stay the pending civil action. The ED considered that the determination of whether a type of claim is not capable of settlement by arbitration under Art. II(1) must be made on an international scale,

22 with reference to the laws of the countries party to the. However, reliance on such common standards would become necessary only in the absence of subject matter exemptions to Art. II(1) specifically decreed by Congress, given that Congress may specify categories of claims it wishes to reserve for the decision by our own courts without contravening the Nation s obligations under the. Accordingly, with regard to Article II(3), the Court dismissed the claim, and ordered arbitration, holding that this is a narrow exception limited to cases in which the arbitration clause itself (1) is subject to an internationally recognized defense such as duress, mistake, fraud, or waiver or (2) contravenes fundamental policies of the forum state. Cargill Intern. S.A. v. M/T Pavel Dybenko, 991 F.2d 1012 (2d Cir. 1993) Art. II(3) Source: Justia, strict courts/fsupp/760/1036/ (Motion to compel arbitration) Cargill B.V. ( CBV ), a Dutch corporation, bought soybean oil from a company incorporated under the laws of the Netherlands Antilles, which, in turn, entered into a charter party with Novorossiysk, an entity wholly owned by the former Soviet Union, to transport oil aboard Novorossiysk s ship (M/T Pavel Dybenko). The charter party contained an arbitration clause. After the cargo arrived in Amsterdam, CBV found it to have been contaminated during the course of the voyage. CBV thus brought suit

23 before the SD, which denied CBV s request to compel arbitration in London. The District Court held that Novorossiysk was a foreign sovereign and that CBV had failed to establish jurisdiction under the Foreign Sovereign Immunities Act ( FSIA ). CBV appealed arguing, inter alia, that Section 1605(a)(6)(B) of the FSIA provides an exception to sovereign immunity in cases where a foreign state has agreed to arbitrate and the arbitration agreement is or may be governed [by the New York ]. The Second Circuit reversed the judgment of the District Court and remanded for further proceedings. In so ruling, the Second Circuit held that Section 1605(a)(6)(B) of the FSIA provided an exception to sovereign immunity. The Court found that in order for the New York to be applicable, the award must arise out of a commercial legal relationship and the award must not be entirely domestic. The Second Circuit then held that if those requirements were met, pursuant to Article II(3) of the New York, a court had to order arbitration unless it found the agreement null and void, inoperative or incapable of being performed. It thereby concluded that as long as the alleged arbitration agreement existed, the court could assume jurisdiction, as the other requirements for subject matter jurisdiction had been satisfied. Source: 1958 New York Guide,

24 Ishwar D. Jain v. Henri Courier de Mere, 51 F.3d 686 (7th Cir. 1995) Art. II(3) d=1146. (Motion to compel arbitration) Henri Courier de Mere, a citizen of France, and Ishwar D. Jain, a citizen of India, entered into a marketing contract containing an arbitration clause which was silent as to the seat of the arbitration and the method of appointment of the arbitrators. A dispute arose and Jain commenced arbitration before the American Arbitration Association. Subsequently, Jain brought a petition before the United States District Court for the Northern District of Illinois to compel arbitration in Illinois. The District Court found that although it had jurisdiction to compel arbitration pursuant to the FAA and the New York, the FAA did not permit it to do so in this case as a result of the contract s failure to specify either the seat of the arbitration or the method of appointing an arbitrator, which left it powerless to enforce the arbitration agreement between the parties. The Seventh Circuit reversed the decision of the District Court. The Court found that Section 4 of the FAA not only permitted, but required a court to compel arbitration in its own district when no other forum was specified. The Seventh Circuit reasoned that compelling arbitration was required under Article II(3) of the New York which directs courts to enforce arbitration awards unless the agreement is null and void, inoperative or incapable of being performed. The Court held that given that the court is properly seized of this action, it should not then be left helpless to enforce the arbitration

25 agreement. It further noted that a foreign party can compel another foreign party to arbitrate in the United States only where the second party had expressly consented to the United States as a forum or had sufficient contacts with that forum to meet the requirements of personal jurisdiction. Lastly, it held that the District Court had the power to appoint an arbitrator pursuant to Section 5 of the FAA. R3 Aerospace v. Marshall of Cambridge Aerospace Ltd., 927 F. Supp. 121 (S.D.N.Y. 1996) Art. II(1) Source: 1958 New York Guide, d=1142. (Motion to compel arbitration) R3 Aerospace, Inc. ( R3 ) and Marshall of Cambridge Aerospace Ltd. ( Marshall ) entered into a joint venture agreement. A dispute arose and arbitration was commenced pursuant to the Rules of the American Arbitration Association. R3 commenced a Special Proceeding in the Supreme Court of New York (state court of first instance) seeking to disqualify a law firm from representing Marshall in the arbitration proceedings, alleging violations of professional conduct. Marshall removed to the SD pursuant to Section 205 of FAA (removal jurisdiction). R3 filed a motion to remand back to state court, contending that the New York did not apply to disqualification proceedings, and therefore, the state court action did not relate to an arbitration agreement falling under the New York. The SD granted the motion to

26 remand the case to state court. In so ruling, it noted that pursuant to Article II(1), the New York does not apply to nonarbitrable disputes such as state court proceedings to disqualify counsel from an arbitration proceeding. The Court noted that the governs only disputes that are commercial in nature. The SD noted that the dispute at issue could not be considered as commercial because the state court proceeding concerns the application and enforcement of the Code of Professional Responsibility and Disciplinary Rules. In addition, the governs differences which have arisen or which may arise between [the parties] in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. Given that the subject matter of the dispute in this case is the possible attorney disqualification, it cannot be capable of settlement by arbitration. The SD therefore concluded that the removal clause of the FAA could not serve as the basis of its jurisdiction. Aasma et al. v. American Steamship Owners Mutual Protection and Indemnity Association, Source: 1958 New York Guide, d=1141. (Motion to stay litigation pending arbitration) The plaintiffs, a group of merchant mariners, claimed injuries resulting from exposure to asbestos during their service aboard ships owned by States Steamship Co. ( States ). States had filed for bankruptcy in 1979 before the plaintiffs filed suit in

27 95 F.3d 400 (6th Cir. 1996) Ohio state court. States had been insured by the two defendants, West of England ( West ) and American Steamship ( American ). The plaintiffs thus filed a declaratory judgment action against the defendants for payment of their claims. West sought a stay of the action pending arbitration, citing the arbitration clause in its contract with States. The United States District Court for the Northern District of Ohio granted the plaintiffs the right of direct action against both defendants. West appealed. The Court of Appeals for the Sixth Circuit reversed and ordered a stay pending the outcome of arbitration in England. In so ruling, it held that under the terms of Article II(3) of the New York, enforcement of arbitration clauses in international contracts was required unless the clause was null and void. Ernesto Francisco v. Stolt Achievement, 293 F.3d 270 (5th Cir. 2002) Art. II(1) Source: 1958 New York Guide, d=711. (Motion to compel arbitration) Ernesto Francisco, a Philippine national, entered into a Philippines Overseas Employment Administration contract with Stolt- Nielsen Transportation Group, Inc. ( Stolt ), a Liberian corporation. The employment contract contained an arbitration agreement. Mr. Francisco was injured while working and sued Stolt in Louisiana state court, asserting claims under the Jones Act and general maritime law. Stolt removed the case to the United States District Court for the Eastern

28 District of Louisiana, arguing that Mr. Francisco was bound by the arbitration agreement in the employment contract and that the arbitration agreement was governed by the New York. Mr. Francisco filed a motion to remand the case to the state court and Stolt filed a motion to compel arbitration under Section 206 of the FAA. The District Court denied the motion to remand and granted the motion to compel arbitration. Mr. Francisco appealed, arguing that his case did not fall under the New York and Section 1 of the FAA. The United States Court of Appeals for the Fifth Circuit dismissed the appeal. The Court held that all of the jurisdictional prerequisites had been met for the arbitration agreement to be enforced: there was an agreement in writing; the agreement provided for arbitration in the territory of a signatory of the New York ; the agreement arose out of a legal relationship, whether contractual or not, which was considered commercial in nature; at least one of the parties to the agreement was not an American citizen; and the commercial relationship had a reasonable connection to one or more foreign states. The Court then noted that employment contracts for seamen fell under Article II(1) of the New York and Section 202 of the FAA. Source: 1958 New York Guide,

29 InterGen N.V. (Netherlands) v. Grina (Switzerland) 344 F.3d 134, 142 (1st Cir. 2003) Art. II (3) d=1118. (Motion to compel arbitration) InterGen N.V. ( Intergen ), a Dutch company, filed suit before the United States District Court for the District of Massachusetts against ALSTOM Power N.V. ( Alstom ) and Eric Grina, a Massachusetts resident who allegedly acted as Alstom s agent, alleging that Intergen relied on Alstom s misrepresentations when choosing turbines for its projects. Mr. Grina moved to compel arbitration on the basis of an arbitration clause in the purchase orders and service and support agreements. The Court denied the motion and Mr. Grina appealed. The First Circuit upheld the District Court s decision and denied the motion to compel arbitration. It held that the contracting states are obliged under II(3) of the New York to recognize and enforce arbitration agreements unless they are null and void, inoperative or incapable of being performed. It stated that given the facts of this case, the obvious bar to arbitrability is the abecedarian tenet that a party cannot be forced to arbitrate if it has not agreed to do so. The Court further held that, although the arbitration clauses at issue fell within the scope of the New York, neither Intergen nor Alstom were signatories to any of the agreements containing the arbitration clauses. Source: 1958 New York, d=605. Bautista v. Art. II(3) (Motion to compel arbitration)