Introduction
Despite its size and complex dual federal and state legal system, the United States is a favourable forum for international arbitration. Federal and state arbitration statutes and case law reflect a strong public policy in favour of international and domestic arbitration. Nowhere is this pro-arbitration policy more clearly expressed than in the Federal Arbitration Act ("FAA") and the cases decided thereunder, which together govern international commercial arbitration in the United States.[i]
The FAA has three chapters. The first governs cases involving interstate or foreign commerce. The second implements the New York Convention, which the United States signed in 1958.[ii] The third implements the Panama Convention, which the United States signed in 1978.[iii]
The FAA governs the scope of arbitration agreements and requires courts to enforce arbitration agreements according to their terms.[iv] Taking into account the dual nature of the U.S. legal system, the FAA overrides or "pre-empts" state laws that conflict with federal arbitration law or undermine its policies.[v] However, state common law generally governs substantive issues, such as the interpretation of arbitration agreements and their terms. In this regard, U.S. courts will ordinarily honour the parties' contractual choice of law.
New York, Florida and Texas are popular venues for international arbitration. The American Arbitration Association ("AAA") has an international division called the International Centre for Dispute Resolution ("ICDR"). The ICDR operates nationally and internationally and administers international commercial disputes. The International Chamber of Commerce ("ICC") has a New York office with counsel and staff that administer North America-based arbitrations. A number of other organisations, including JAMS (Judicial Arbitration and Mediation Services, Inc.) and the International Institute for Conflict Prevention & Resolution, also administer international arbitrations in the United States. Other organisations facilitate the administration of arbitration proceedings. For example, the New York International Arbitration Center provides access to information on arbitrating in New York and coordinates access to hearing locations. In Manhattan, the New York state court system has assigned a senior judge in its Commercial Division to hear court cases concerning international arbitration to ensure efficient and consistent adjudication.[vi] The judges in this role have stated their intent to apply the pro-arbitration policy set out in the FAA and federal case law.
Arbitration agreements
The FAA's primary focus is to regulate how U.S. courts interact with arbitration proceedings.[vii] Unlike arbitration laws in some countries, the FAA does not lay out the necessary components and formalities of arbitration agreements. Instead, the courts look to generally applicable principles of contract law to interpret and give effect to arbitration agreements.[viii] The federal and state courts have developed jurisprudence regarding the scope of arbitration agreements and the division of authority between arbitrators and courts.
Arbitrability
To determine whether a dispute is arbitrable, U.S. courts analyse the language of the arbitration provision. When arbitration clauses provide for arbitration of all disputes "aris[ing] out of" or "relat[ing] to" the contract,[ix] U.S. courts will construe the arbitration provision "as broadly as possible" to allow for arbitration.[x]
Although U.S. courts favour arbitration and seek to read arbitration provisions broadly, parties can narrow the scope of arbitrable matters in their arbitration agreement. For instance, in World Rentals and Sales, LCC v. Volvo Construction Equipment Rents, Inc., the court held that disputes that involved a company's affiliates were not arbitrable because the arbitration agreement expressly excluded affiliates.[xi] Courts will also honour narrow arbitration agreements that provide for arbitration of only certain types of issues.[xii]
An area of debate is whether the courts or the arbitrators should decide if a case is arbitrable. The federal courts have held that arbitration agreements can grant arbitrators the power to decide arbitrability.[xiii] In this regard, the arbitration rules chosen in the arbitration agreement are considered part of the arbitration agreement. This is important because such rules often provide that the arbitrators decide arbitrability. For example, both the ICC and the ICDR Rules provide that the arbitrators decide arbitrability. The U.S. Supreme Court resolved a circuit court split by holding that when a contract delegates the question of arbitrability of a particular dispute to an arbitrator, a court cannot override that delegation even if it thinks the argument that the arbitration agreement applies to a dispute is "wholly groundless".[xiv] However, parties cannot be deprived of their right to an independent judicial determination of arbitral jurisdiction unless there is "clear[] and unmistakabl[e]" evidence that they relinquished that right.[xv] Courts take a different view of class action arbitrations and typically favour "judicial resolutions of class arbitrability".[xvi]
The courts must often distinguish between whether a party has agreed to arbitrate anything at all, which is typically a question for the courts, and whether a party has agreed to arbitrate the particular dispute involved, which can be a question for the courts or the arbitrators depending on the arbitration clause. This distinction can be blurred when a non-party to an arbitration agreement seeks to arbitrate with a party to an arbitration agreement.[xvii] The Second Circuit Federal Court of Appeals has held that the arbitrators can be granted jurisdiction to decide this question, because the question is whether the signatory has agreed to arbitrate with this particular non-party.[xviii] Although the Fifth Circuit has agreed with the Second Circuit on this issue,[xix] the Ninth Circuit has declined to compel arbitration where the non-party relied solely on conclusory allegations of an agency relationship.[xx]
Joinder
Arbitration with non-signatories is a complex subject. There are two basic scenarios: (i) a signatory seeks to compel a non-signatory to arbitrate; or (ii) a non-signatory seeks to compel a signatory to arbitrate. The Supreme Court has held that "traditional principles of state law allow a contract to be enforced by or against non-parties to the contract through assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel".[xxi] General principles of joinder and the consolidation of third parties also apply. The non-signatory can be compelled to arbitrate if its conduct demonstrates it is "assuming the obligation to arbitrate".[xxii] Additionally, the non-signatory can be estopped from avoiding arbitration if the non-signatory "knowingly seeks the benefits of the contract containing the arbitration clause".[xxiii] However, this rule only applies where the non-signatory has derived the benefit "from the agreement itself". It does not capture instances in which the non-signatory derived the benefit from the "exploitation of the contractual relationship of parties to an agreement".[xxiv]
These principles also apply when a non-signatory seeks to compel arbitration with a party to an arbitration agreement. For example, a signatory to an arbitration agreement was required to arbitrate with a non-signatory because of the "close relationship between the entities".[xxv] Courts also recognise principles of estoppel as a basis to arbitrate with non-signatories.[xxvi] This is usually in instances where a non-signatory defendant seeks to compel arbitration with a signatory after the signatory sues the non-signatory in court. Even in such circumstances, however, the courts in recent decisions have applied the estoppel doctrine narrowly, and have required that the signatory's claims rely or otherwise depend on the written agreement containing the arbitration clause.[xxvii] As noted above, the jurisdiction to decide whether a signatory must arbitrate with a non-signatory has been found to lie with the arbitrators rather than the court if the signatory agreed to arbitrate under arbitration rules that contain a broad grant of jurisdiction to the arbitrators. In other words, the signatory has consented to having the arbitrators decide this issue and the non-signatory who claims rights under the arbitration clause must accept the clause as written.
Joinder can also result where corporations have subsidiaries or affiliated entities. The courts have applied traditional concepts of corporate law and determined that where a company that has entered into an arbitration agreement exercises complete control over a subsidiary and uses that control to commit wrongdoing, the parent corporation may be compelled to arbitrate a dispute related to its subsidiary.[xxviii] Additionally, a corporation that is a non-signatory to an arbitration agreement may be able to compel arbitration where its subsidiary is a signatory to the agreement.[xxix] Similarly, a parent corporation may be required to arbitrate under an arbitration agreement its subsidiary signed.[xxx]
Separability
The U.S. courts have developed a body of law concerning the separability (or severability) of arbitration clauses in contracts. The courts will typically preserve the parties' agreement to arbitrate even where there is a challenge to the validity of the underlying contract. This can arise, for example, where a party claims to have been fraudulently induced to sign the contract or argues for other reasons that the contract is void,[xxxi] or where a clause or obligation in that contract is unenforceable or invalid by operation of law.[xxxii] Where, however, a second contract entirely invalidates an earlier contract that had an arbitration clause, a...
