U.S. Supreme Court subordinates enforcement of regulatory statutes to enforcement of arbitration agreements: from the Bremen's License to the Sky Reefer's Edict.

AuthorDavitz, Christine L.

TABLE OF CONTENTS

  1. INTRODUCTION II. ALTERNATIVE DISPUTE RESOLUTION. III. HISTORY OF ARBITRATION

    1. Common Law

    2. Federal Arbitration Act

    3. New York Convention

    4. Conclusion IV. U.S. SUPREME COURT INTERPRETATION OF THE FAA

      AND THE NEW YORK CONVENTION

    5. Wilko v. Swan

    6. The Bremen v. Zapata Off-Shore Co

    7. Scherk v. Alberto-Culver Co.

    8. Mitsubishi Motors Corp. v. Soler

      Chrysler-Plymouth, Inc.

    9. Vimar Seguros; Y Reaseguros v. MI V Sky Reefer

    10. Conclusion V. DANGERS TO U.S. REGULATORY SCHEMES POSED

      BY THE SUPREME COURT'S PRO-ARBITRATION

      STANCE

    11. The Current Structure of Arbitration

      Prevents Courts from Reviewing

      Arbitral Awards

    12. Arbitral Awards are Rarely Vacated

      1. FAA Section 10(a)(4): Arbitrators

        Exceeded Their Powers; Manifest

        Disregard

      2. Article V(2)(a): Subject Matter

        Inarbitrable

      3. Article V(2)(b): Public Policy of the

        Forum

    13. Parties May Opt Out of Regulatory Statutes

      1. Congress Did not Intend the Goal

        of International Business Harmony

        to Override All Other U.S. Policies

      2. Comity is not Applied by Other Nations

    14. Arbitral Tribunals are Not Appropriate

      Fora for Interpretation of U.S. Public Policy 92 VI. CONCLUSION

  2. INTRODUCTION

    Through a series of cases,(1) the U.S. Supreme Court has developed a preference for arbitration of disputes arising out of international commercial contracts containing an arbitration clause. The Court's preference began with the assumption that the United States cannot presume to tell the world that all disputes arising between a U.S. citizen or corporation and another country's citizen or corporation must be decided by U.S. courts.(2) The Court recognized the special role forum selection and choice of law clauses have in obtaining certainty and stability in international commercial transactions.(3) The Court's focus on international commercial parties' freedom of contract, however, has hidden, or at least minimized, the danger that pre-dispute resolution agreements pose to U.S. public policies as expressed in U.S. statutory regulations.

    The Court articulated reasons for its preference, such as comity between nations, certainty and stability in the choice of law between parties to international commercial contracts, quickness in dispute resolution, and freedom of contract. It emphasized the passage of the Federal Arbitration Act (FAA)(4) and the U.S. ratification of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter "New York Convention")(5) when it allowed parties to avoid U.S. regulatory statutes by arbitrating securities.(6) antitrust,(7) and COGSA(8) disputes. Indeed, the reasons given by the Court in this line of cases ignore both the history of arbitration and its real consequences to U.S. regulatory schemes. It is important, therefore, to review the reasoning behind the FAA, as well as the New York Convention, to reveal whether the U.S. Congress intended to alter the status quo and allow arbitration of regulatory statutes in addition to contractual and common law disputes.

    This Note analyzes the Court's reasoning behind its pro-arbitration stance and compares it with the history and purposes of the FAA and the New York Convention. The Note points out the false security of recognizing public policy defenses to enforcement of arbitral awards since the defense, though available, is virtually never successful. The Note then articulates the dangers posed to U.S. public policies that arbitration of statutory claims would create. This Note argues that the Court has expanded the scope of arbitrable issues beyond that which was intended by the FAA and the New York Convention and to a point dangerously close to unraveling U.S. regulatory schemes. Finally, this Note suggests adopting an amendment to the FAA which declares claims arising under regulatory statutes inarbitrable and awards rendered on such claims unenforceable.

  3. ALTERNATIVE DISPUTE RESOLUTION

    Alternative dispute resolution (ADR) refers to a non-litigation process that attempts to resolve disagreements to the satisfaction of all parties in an expedient and economically feasible manner.(9) ADR has become a mainstay in the business community because "[a] swift resolution of the conflict is more likely to preserve the relationship among the parties to the dispute, and to reduce the enormous stress and resentment litigation creates."(10) There are many types of ADR, including negotiation, mediation, conciliation, mini-trials, and other variations. Arbitration,(11) however, is the most common method of ADR used to resolve business disputes.(12)

  4. HISTORY OF ARBITRATION

    1. Common Law

      In the Middle Ages, arbitration(13) was used more frequently than the courts to settle private commercial disputes.(14) The Kings courts in England were not as knowledgeable in mercantile matters as merchants themselves and thus were not a preferable forum to hear such matters.(15) The Kings courts eventually rejected this preference for arbitration, believing that public policy dictated judicial settlement of disputes and that courts could not be ousted of their jurisdiction.(16) This view prevailed in statutory form which "envisage[d] arbitration as a process conducted under the tutelage and with the support of the courts rather than as a largely autonomous alternative to formal judicial proceedings."(17) Executory agreements to arbitrate, therefore, were held revocable and non-enforceable, but agreements to arbitrate after the dispute arose were enforced.(18) Arbitration, therefore, developed in England largely as an alternative process for resolving disputes under private law and after the dispute arose.(19)

    2. Federal Arbitration Act(20)

      During the Nineteenth Century, the attitude among U.S. courts toward arbitration agreements resembled England's common law. U.S. courts also assumed that pre-dispute arbitration agreements were revocable and non-enforceable.(21) A party in breach of the arbitration agreement would be liable in damages but could not be forced to arbitrate the dispute.(22)

      Early reformers of arbitration law challenged this revocability rule as "an anachronism [to] be eliminated as soon as possible."(23) The reformers initially focused their crusade on the states. Their success began with the enactment of the modern New York Arbitration Statute, which allowed specific enforcement of pre-dispute arbitration agreements.(24) Soon after the passage of the New York Arbitration statute and other state statutes modeled thereon, the reformers turned their focus to the federal courts. A committee of the American Bar Association drafted the United States Arbitration Act (USAA or FAA),(25) modeled on the New York Arbitration Statute. As did the New York statute, the USAA provided that arbitration agreements "shall be valid, enforceable and irrevocable, save upon such grounds existing at law or in equity for the revocation of any contract."(26)

      In light of the conflicting federal and state rules on enforceability of pre-dispute arbitration agreements, the USAA was proposed to Congress in 1924.(27) Before its approval on the House floor on June 6, 1924, it stated that "[t]he bill provides that where there are commercial contracts and there is disagreement under the contract, the court can [en]force an arbitration agreement in the same way as other portions of the contract."(28) The House Report reiterated this understanding of arbitration agreements:

      Arbitration agreements are purely matters of contract, and the effect of the

      bill is simply to make the contracting party live up to his agreement. He

      can no longer refuse to perform his contract when it becomes

      disadvantageous to him. An arbitration agreement is placed upon the same

      footing as other contracts, where it belongs.(29)

      The Act passed without opposition in both houses of Congress.(30)

      It is clear that the congressional intent in passing the FAA was merely to reconcile the conflicting federal and state court policies regarding enforceability of pre-dispute arbitration agreements. Since arbitration arose as a method for resolving contract and common law disputes, strong evidence must be produced if one is to show that Congress intended to alter the status quo. However, there is no evidence that suggests Congress intended to transform arbitration into a mechanism for resolving statutory disputes.

    3. New York Convention

      The New York Convention(31) is the product of an international effort to unify the law regarding recognition and enforcement of foreign arbitral awards.(32) Although it was adopted in New York on June 10, 1958, many countries did not become signatories until years later.(33) This hesitancy has been attributed to the fear of many nations, including the United States, that many of the New York Convention's provisions conflicted with national law.(34) The U.S. State Department addressed this fear when it advised the U.S. Senate(35) of the availability of Article II(1) of the New York Convention which allows a court to refuse enforcement of an arbitration agreement if it calls for arbitration of a "subject matter [in]capable of settlement by arbitration."(36) The United States ratified the New York Convention in 1970.(37)

      Signatories to the New York Convention must enforce foreign arbitral awards(38) issued by other member nations unless a ground for vacatur applies. The grounds for vacating a foreign arbitral award are found in Article V of the New York Convention, and includes incapacity of the parties or lack of a valid arbitration agreement,(39) inadequate notice to or opportunity of a party to present a case(40) an award rendered on a subject beyond the scope of the arbitration agreement,(41) and a defect in the composition of the arbitral tribunal or the arbitral process.(42) In addition, Article V, Section 2, contains two other grounds for vacating an arbitral award that may also have reduced the hesitation many nations felt about ratifying the New York Convention:

      Recognition and enforcement of an...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT