The Enforcement of International Arbitration Agreements in U.S. Courts
- United States
- 09/09/2015
Parties contemplating the arbitration of international disputes in the U.S. need to be cognisant of the attitudinal differences between the state and federal courts toward the enforcement of pre-dispute arbitration agreements. In broad terms, the federal courts in the U.S. are more likely to enforce pre-dispute arbitration agreements, while the state courts, particularly in cases involving employment or consumer disputes, often tend to go the other way. This disparity is rooted in two parallel but overlapping sets of rules. In federal court the enforcement of private arbitration agreements is governed by a federal statute, the Federal Arbitration Act (“the FAA”), which is found at 9 U.S.C. §§ 1 et seq. The FAA embodies a “liberal federal policy favoring arbitration agreements notwithstanding any state substantive or procedural policies to the contrary”. Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 US 1, 24 (1983).
By contrast, state court judges – in determining whether to enforce an agreement to arbitrate a dispute – frequently apply doctrines such as unconscionability or public policy to invalidate pre-dispute arbitration agreements. See, e.g., Cohen v. DirecTV, Inc., 142 Cal. App.4th 1442, 1451-1453 (2006); Klussman v. Cross Country Bank, 134 Cal.App.4th 1283, 1297 (2005); Aral v. Earthlink, Inc., 134 Cal.App.4th 544, 556-557 (2005). In addition, many states have their own procedural rules governing the enforcement of pre-dispute arbitration agreements. As these rules are sometimes inconsistent with the FAA, their application in particular cases may yield fundamentally different outcomes than what might have resulted from application of the FAA.
Given this environment, parties contemplating the arbitration of international disputes in the U.S. should give consideration to including certain key provisions in their underlying agreement which can serve to mitigate the risk that a U.S. court will decline to enforce their agreement to arbitrate. In addition, parties seeking to enforce their agreement to arbitrate should also try to secure a federal court forum.
