New York Convention and the American Federal System, The Symposium

Journal of Dispute Resolution New York Convention and the American Federal System, The S ymposium Christopher R. Drahozal 0 0 Thi s Conference is brought to you for free and open access by the Law Journals at University of Missouri School of Law Scholarship Repository. It has been accepted for inclusion in Journal of Dispute Resolution by an authorized editor of University of Missouri School of Law Scholarship Repository , USA Follow this and additional works at: https://scholarship.law.missouri.edu/jdr Part of the Dispute Resolution and Arbitration Commons Recommended Citation - Article 7 The New York Convention and the American Federal System ChristopherR. Drahozal I. INTRODUCTION Virtually all American states have statutes that make arbitration agreements and awards enforceable and that set out procedures for their enforcement in state courts.' A number of states, including California, Texas, and Florida, have enacted international arbitration statutes to supplement their domestic arbitration laws.2 But this extensive body of state arbitration law has had only a "marginal impact" on American arbitration practice - particularly international arbitration practice3 because the Federal Arbitration Act (FAA) preempts conflicting state arbitration laws, even in state court.4 Although we know that the FAA preempts state law, the scope of that preemptive effect is not clear. Indeed, a pair of recent United States Supreme Court cases have suggested a possible broader role for state law in arbitration matters. In HallStreet Associates, LLC v. Mattel Inc., the Court indicated in dicta that parties might be able to contract for expanded review under state law although the FAA does not permit them to do so.s And in Stolt-Nielsen S.A. v. AnimalFeeds InternationalCorp., the Court suggested that the arbitrators might not have exceeded their powers in construing an arbitration clause to permit class arbitration if they had relied on a state default rule permitting class arbitration. 102 JOURNAL OF DISPUTERESOLUTION Whether state law can play a broader role in international arbitration matters in the United States depends on the extent to which the New York Convention7 and Chapter Two of the FAA (which implements the Convention) preempt state arbitration law. This article undertakes a preliminary analysis of that broad topic by examining several legal questions central to determining the preemptive effect of the New York Convention: ( 1 ) What effect, if any, does the federal-state clause (Article XI) have on U.S. obligations under the Convention? ( 2 ) To what extent does Chapter Two of the FAA apply in state court? and ( 3 ) Is the New York Coitvention self-executing? Part II briefly sets out background information on the New York Convention and its implementation in the U.S. Part III describes three models of how an arbitration convention might be implemented: the "exclusive spheres" model, the "federal preemption" model, and the "access" model. Part IV analyzes the legal questions identified above and considers their implications for the models. Part V discusses the extent to which parties can contract out of the FAA and into state arbitration law. Finally, Part VI identifies some possible implications of this analysis and concludes. II. BACKGROUND Although the U.S. participated in the United Nations conference that adopted the New York Convention in 1958,8 it did not itself ratify the Convention until 1970.9 The U.S. Delegation to the conference recommended "strongly" against ratification in 1958, in important part because of likely conflicts between the Convention and state law. The Official Report of the U.S. Delegation explained that if the Convention were "accepted on a basis that avoids conflict with State laws and Judicial procedures," it "will confer no meaningful advantages on the United States." But if it were "accepted on a basis that assures such advantages," it "will override the arbitration laws of a substantial number of States and entail changes in State and possibly Federal court procedure."" The Delegation concluded that before the U.S. should adhere to the Convention, Congress needed to expand the scope of the FAA, more states needed to adopt their own arbitration laws, and either courts or legislatures needed to enhance the enforceability of The New York Convention and the American FederalSystem foreign arbitral awards. Also, the Delegation found "no visible evidence of a strong movement in any of these directions."12 By the late 1960s, however, business interest in international arbitration had increased and American arbitration law had evolved. All three developments identified by the U.S. Delegation had in fact taken place: the Supreme Court had held that the FAA creates federal substantive law making pre-dispute arbitration agreements enforceable;' 3 a number of additional states had adopted new arbitration laws; and "significant additional legal precedent has been added (...truncated)