NNOORRTTHH CCAARROOLLIINNAA JJOOUURRNNAALL OOFF IINNTTEERRNNAATTIIOONNAALL LLAAWW Volume 22 Number 3 Article 1 Summer 1997 TThhee AApppplliiccaabbiilliittyy ooff SSttaattee IInntteerrnnaattiioonnaall AArrbbiittrraattiioonn SSttaattuutteess aanndd tthhee AAbbsseennccee ooff SSiiggnniifificcaanntt PPrreeeemmppttiioonn CCoonncceerrnnss Daniel A. Zeft Follow this and additional works at: https://scholarship.law.unc.edu/ncilj RReeccoommmmeennddeedd CCiittaattiioonn Daniel A. Zeft, The Applicability of State International Arbitration Statutes and the Absence of Significant Preemption Concerns, 22 N.C. J. INT'L L. 705 (1996). Available at: https://scholarship.law.unc.edu/ncilj/vol22/iss3/1 This Article is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina Journal of International Law by an authorized editor of Carolina Law Scholarship Repository. For more information, please contact [email protected]. TThhee AApppplliiccaabbiilliittyy ooff SSttaattee IInntteerrnnaattiioonnaall AArrbbiittrraattiioonn SSttaattuutteess aanndd tthhee AAbbsseennccee ooff SSiiggnniifificcaanntt PPrreeeemmppttiioonn CCoonncceerrnnss CCoovveerr PPaaggee FFoooottnnoottee International Law; Commercial Law; Law This article is available in North Carolina Journal of International Law: https://scholarship.law.unc.edu/ncilj/vol22/ iss3/1 The Applicability of State International Arbitration Statutes and the Absence of Significant Preemption Concerns Daniel A. Zeft' Table of Contents I. Introduction ........................................................................... 706 II. The Applicability of State International Arbitration Statutes .................................................................................. 720 III. Analysis of Preemption of Provisions in State International Arbitration Statutes .......................................... 734 A. Enforcement of Arbitration Agreements by Court Order to Stay Litigation or to Compel Arbitration ......... 738 B. Vacation of International Arbitral Awards Rendered Inside the Particular State .............................................. 745 C. Recognition and Enforcement of Foreign Arbitral Aw ards ............................................................................ 752 D. Discovery Orders in Aid of Arbitration .......................... 755 E. Court-Ordered Provisional Measures .............................. 763 F. Authority of Arbitral Tribunal to Decide Questions of Scope and Validity of Arbitration Agreement ................ 773 G . C onclusions ..................................................................... 780 IV. Impact of Volt and Mastrobuono Decisions on FAA Preemption of Provisions in State International Arbitration Statutes ............................................................... 783 V . C onclusion ............................................................................ 793 Admitted to bar, Illinois and District of Columbia; LL.M. 1996, George Washington University Law School; J.D. 1993, Indiana University School of Law (Bloomington); A.B. 1990, Princeton University. This article wis written in partial fulfillment of the requirements for the degree of Master of Laws at the George Washington University Law School. The author wishes to express his appreciation to Professor John A. Spanogle, Jr. for his advice and encouragement throughout the preparation of this article. N.C. J. INT'L L. & COM. REG. [Vol. 22 I. Introduction Both the United States and its constituent states have enacted arbitration statutes.' Under the Supremacy Clause, provisions in state arbitration laws may apply to the extent such provisions do not conflict with the Federal Arbitration Act.2 The Supreme Court has recognized that state arbitration law may govern matters not addressed by the FAA except that the FAA will preempt state statutory provisions in conflict with the FAA.' The Federal Arbitration Act contains provisions that apply to international commercial arbitrations conducted in the United States and that incorporate standards under which courts in the United States may recognize and enforce international arbitral awards pursuant to the treaty obligations of the United States. Chapter 1 of the Federal Arbitration Act applies to written See Federal Arbitration Act, 9 U.S.C. §§ 1-307 [hereinafter FAA]. In 1925, Congress enacted the Federal Arbitration Act primarily to overcome judicial reluctance to enforce agreements to arbitrate. "[T]he legislative history reveals that the drafters viewed the primary authority for the [Federal Arbitration] Act to be congressional power to regulate federal court procedure" and did not intend for the FAA to "nullify substantive rights governed by state law." Barbara Ann Atwood, Issues in Federal-State Relations under the FederalA rbitrationA ct, 37 U. FLA. L. REv. 61, 76-77 (1985). For a detailed study of the legislative history of the FAA, see generally IAN MACNEIL, AMERICAN ARBITRATION LAW: REFORMATION, NATIONALIZATION, INTERNATIONALIZATION (1992). Every state has enacted some form of commercial arbitration legislation. Twenty-four states and the District of Columbia have patterned their domestic arbitration statutes after the Uniform Arbitration Act. See 7 U.L.A. 199- 201 (1997); UNIF. ARBITRATION ACT, 7 U.L.A. 1 (1997). 2 See U.S. CONST. art. VI, ci. 2. 3 In Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, the Supreme Court declared that [t]he FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration. But even when Congress has not completely displaced state regulation in an area, state law may nonetheless be preempted to the extent that it actually conflicts with federal law--that is, to the extent that it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." 489 U.S. 468, 477 (1989) (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)) (citations omitted). 1997] STATE INTERNATIONAL ARBITRATION STATUTES arbitration agreements contained in contracts evidencing a transaction involving the foreign commerce of the United States.! Moreover, chapters 2 and 3 of the FAA implement the obligations of the United States to enforce arbitration agreements and arbitral awards that fall under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards5 and the Inter-American Convention on International Commercial Arbitration.' Chapter 1 of the FAA contains provisions that apply primarily to the enforcement of international agreements to arbitrate in the United States or the confirmation of international arbitral awards rendered in the United States! Few provisions in chapter 1 of the I See 9 U.S.C. §§ 1-2. Sections 1 and 2 of the FAA also apply to written arbitration agreements in maritime transactions within the admiralty jurisdiction of the United States or contained in contracts evidencing interstate commerce. See id. 5 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 [hereinafter New York Convention]. Chapter 2 of the FAA implements the United States' obligations under the New York Convention. See 9 U.S.C. §§ 201-208. For further discussion of the scope and application of chapter 2 of the FAA, see infra notes 62-65 and 69-72 and accompanying text. 6 Inter-American Convention on International Commercial Arbitration, Jan. 30, 1975, reprinted in 3 Y.B. COMM. ARB. 15 (1978) [hereinafter Inter-American Convention]. Chapter 3 of the FAA implements the United States' obligations under the Inter-American Convention. 9 U.S.C. §§ 301-307. While foreign arbitral awards rendered in nations that are contracting parties to the Inter-American Convention and agreements to arbitrate that could result in such awards are within the scope of chapter 3 of the FAA, neither the Convention, chapter 3, nor case law indicate the extent that international arbitral awards rendered in the United States or arbitration agreements that could result in such awards are subject to chapter 3 of the FAA. See 9 U.S.C. § 304; Inter-American Convention, supra, art. 4. Since this limits the number of preemption issues raised by the coexistence of the Inter-American Convention, chapter 3 of the FAA, and the state statutes analyzed in this study, the author chooses not to examine the scope and application of chapter 3 of the FAA in depth. In addition, except for Mexico, few important U.S. trading partners have become parties to the Inter-American Convention, which lessens the treaty's significance. See GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION IN THE UNITED STATES: COMMENTARY AND MATERIALS 319 (1994). As of January 1, 1996, the United States and eleven other member states of the Organization of American States were parties to the Inter-American Convention. See OFFICE OF THE LEGAL ADVISOR, U.S. DEPARTMENT OF STATE, PuB. No. 9433, TREATIES IN FORCE 317 (1996). El Salvador, Honduras, and Paraguay were the only parties to the Inter-American Convention that were not parties to the New York Convention. See id. at 316-17. 7 In order to enforce international arbitration agreements, chapter 1 contains N.C. J. INT'L L. & COM. REG. [Vol. 22 FAA authorize action by the arbitrators or intervention by the courts to further the conduct of an arbitration.8 Chapter 2 of the FAA contains provisions that enforce international arbitration agreements subject to the New York Convention and that confirm or enforce international arbitral awards subject to the Convention.9 The FAA's chapter 2 contains no additional provisions authorizing specific action by the arbitrators or intervention by the courts to further the conduct of an international arbitration.'0 provisions authorizing designated courts to stay judicial proceedings before them involving arbitrable issues or to compel arbitration. See 9 U.S.C. §§ 3-4. Section 3 of the FAA authorizes "courts of the United States" to stay proceedings before them involving "issue[s] referable to arbitration." 9 U.S.C. § 3. Section 4 of the FAA allows United States district courts to issue orders compelling arbitration "within the district in which the petition for an order directing such arbitration is filed." 9 U.S.C. § 4. Section 9 of the FAA's chapter 1 provides that the designated court must confirm an award rendered in the United States, unless the court vacates the award pursuant to section 10. See 9 U.S.C. § 9. Section 10 of the FAA specifies the grounds upon which "the United States court in and for the district wherein the award was made" may issue an order vacating such an award. 9 U.S.C. § 10. Section 9 provides that the appropriate court may also refuse to confirm an award if the court issues an order modifying or correcting the award pursuant to section 11!. See 9 U.S.C. §§ 9, 11. 8 An exception is section 7 which authorizes the arbitrators to summon witnesses to attend the arbitral proceedings or to order the production of "material" evidence at the arbitral proceedings. See 9 U.S.C. § 7. Pursuant to section 7, the United States district court in the district where the arbitrators are sitting may compel the attendance of such witnesses and may utilize its contempt powers to enforce the arbitrators' summons. See id. 9 Section 206 provides that a court with jurisdiction under chapter 2 may issue orders compelling the parties to arbitrate. See 9 U.S.C. § 206. Section 206 authorizes court orders compelling arbitration according to the parties' arbitration agreement whether the place of arbitration is within or without the United States. See id. Section 207 authorizes a court with jurisdiction under chapter 2 to confirm an international arbitral award rendered in the United States subject to the New York Convention or to enforce a foreign arbitral award subject to the Convention unless the court invokes one of the grounds specified in Article V of the New York Convention in order to vacate or deny enforcement to such an award. See 9 U.S.C. § 207; New York Convention, supra note 5, art. V. For further discussion concerning the application of section 207 to confirm an international arbitral award rendered in the United States, see infra notes 125-26 and accompanying text. For further discussion concerning the application of section 207 to enforce a foreign arbitral award subject to the New York Convention, see infra note 75. "Other provisions in chapter 2 of the FAA concern such matters as jurisdiction, venue, and removal of cases from state courts. See 9 U.S.C. §§ 203-205. Moreover, section 208 of chapter 2 of the FAA provides that chapter 1 provisions apply to "actions 1997] STATE INTERNATIONAL ARBITRATION STATUTES In an attempt to make their states attractive forums for conducting international commercial arbitrations, ten states have enacted state legislation applicable to international commercial arbitration." State international arbitration statutes contain provisions concerning matters addressed expressly by provisions in chapter 1 or 2 of the FAA. Such state legislation authorizes state court intervention to enforce international agreements to arbitrate within the respective state, by means of stay orders or orders compelling the parties to arbitrate. "2S tate statutes authorize their respective state courts to confirm or vacate international arbitral awards rendered within the particular state.3 In addition, and proceedings" brought under chapter 2 to the extent that the pertinent chapter 1 provisions do not conflict with chapter 2 or the New York Convention as ratified by the United States. See 9 U.S.C. § 208. "See CAL. CIV. PROC. CODE §§ 1297.11-1297.432 (West 1996); UNCITRAL Model Law on International Commercial Arbitration, CONN. GEN. STAT. ANN. §§ 50a- 100 - 50a-136 (West 1994); Florida International Arbitration Act, FLA. STAT. ANN. §§ 684.01-684.35 (West, WESTLAW through 1996 2nd Reg. Sess.); GA. CODE ANN. §§ 9- 9-30-9-9-43 (LEXIS through 1996 Supp.); Hawaii International Arbitration, Mediation, and Conciliation Act, HAW. REV. STAT. §§ 658D-1-658D-9 (Supp. 1992); Maryland International Commercial Arbitration Act, MD. CODE ANN., CTS. & JUD. PROC. §§ 3-2B- 01-3-2B-09 (1995); North Carolina International Commercial Arbitration Act, N.C. GEN. STAT. §§ 1-567.30-1-567.68 (1996); OHIo REV. CODE ANN. §§ 2712.01-2712.91 (Banks-Baldwin, WESTLAW through 1996 portion of 121st G.A.); Oregon International Commercial Arbitration and Conciliation Act, OR. REV. STAT. §§ 36.450- 36.558 (1995); TEX. CIV. PRAC. & REM. CODE ANN. §§ 172.001-172.310 (West Supp. 1996). Several state international arbitration statutes contain statements declaring that the legislation's purpose is to make the state an attractive place for conducting international commercial arbitration. For example, the North Carolina International Commercial Arbitration Act contains the following provision: It is the policy of the State of North Carolina to promote and facilitate international trade and commerce, and to provide a forum for the resolution of disputes that may arise from participation therein. Pursuant to this policy, the purpose of this Article is to encourage the use of arbitration as a means of resolving such disputes, to provide rules for the conduct of arbitration proceedings, and to assure access to the courts of this State for legal proceedings ancillary to such arbitration. N.C. GEN. STAT. § 1-567.30. For similar statements of purpose, see FLA. STAT. ANN. § 684.02(1); GA. CODE ANN. § 9-9-30; HAW. REv. STAT. § 658D-2; MD. CODE ANN., CTS. & JUD. PROC. § 3-2B-02; OR. REV. STAT. § 36.452(1). 12See, e.g., CAL. CIV. PROC. CODE § 1297.81. 13Some state international arbitration statutes contain express provisions regarding the confirmation or vacation of arbitral awards. See, e.g., N.C. GEN. STAT. §§ 1-567.64-1-567.65. Other state international arbitration statutes rely on the state's N.C. J. INT'L L. & COM. REG. [Vol. 22 several state international arbitration statutes contain provisions that expressly address the recognition and enforcement of foreign arbitral awards.,4 Moreover, state international arbitration statutes contain provisions concerning matters not addressed expressly in chapter 1 or 2 of the FAA. State international arbitration act provisions authorize their respective state courts to render judicial assistance to further the conduct of an international arbitration." Furthermore, state international arbitration statutes contain provisions concerning matters of arbitral procedure often addressed in institutional or ad hoc arbitral rules.6 Most state international arbitration act provisions either (1) have been carefully drafted to avoid conflicting with provisions in chapter 1 or 2 of the FAA or (2) address matters not covered general arbitration code provisions concerning the confirmation or vacation of arbitral awards. See, e.g., GA. CODE ANN. §§ 9-9-13, 9-9-42. 4For further discussion concerning state international arbitration act provisions that expressly address the recognition and enforcement of foreign arbitral awards, see infra notes 73-74 and accompanying text. 15Examples of such judicial assistance authorized by state international arbitration statutes include the issuance of discovery orders or the granting of provisional measures by state courts in aid of an international arbitration. For discussion concerning state international arbitration act provisions authorizing their respective state courts to order discovery or provisional measures, see infra notes 181 and 189 and accompanying text. 16For example, sections 1297.131-1297.136 of the California international arbitration statute provide the procedures under which a party to an arbitration subject to the California statute may challenge the impartiality of an arbitrator. See CAL. Civ. PROC. CODE §§ 1297.131-1297.136. Institutional arbitration rules also provide procedures for challenging the impartiality of an arbitrator. See, e.g., American Arbitration Association International Arbitration Rules, arts. 7, 8, 9, reprinted in ANDREAS F. LOWENFELD, INTERNATIONAL LITIGATION AND ARBITRATION: SELECTED TREATIES, STATUTES, AND RULES 87 (1993); International Chamber of Commerce Rules of Arbitration, art. 2(8), (9), id. at 99. State international arbitration act provisions that concern matters of arbitral procedure often included in institutional or ad hoc arbitral rules would not appear to raise preemption concerns in most cases. However, the author contends that state international arbitration act provisions authorizing the arbitral tribunal to rule on questions of the scope or validity of an arbitration agreement may raise preemption concerns in particular factual circumstances in light of the Supreme Court's recent decision in First Options of Chicago, Inc. v. Kaplan, 115 S. Ct. 1920 (1995). For further discussion concerning whether the FAA may preempt state international arbitration act provisions authorizing the arbitral tribunal to decide questions of the scope or validity of an arbitration agreement, see infra notes 221-45 and accompanying text. 1997) STATE INTERNATIONAL ARBITRATION STATUTES expressly in chapter 1 or 2 of the FAA. However, commentators have concluded that state international arbitration statutes create significant uncertainty regarding whether federal or state law applies to international commercial arbitrations conducted in the United States.17 Supreme Court precedent establishes that the principal purpose of Congress in enacting the FAA was to ensure the enforcement of private arbitration agreements according to their terms. The Supreme Court has held consistently that the FAA preempts state legislation requiring a judicial forum for claims the parties agreed 17See Jack Garvey & Totton Heffelfinger, Towards Federalizing US. InternationalC ommercial Arbitration Law, 25 INT'L LAW. 209, 215 (1991) ("Whatever the scope of federal preemption in international arbitration, a shared purview of state and federal arbitration law generates such uncertainties, though the parties, in choosing arbitration, have sought predictability. To the extent state jurisdiction is sound and state law prevails, and to the extent there are ambiguities and inconsistencies from state to state and between federal and state laws concerning international arbitration, arbitration in the United States is rendered less viable as a dispute resolution mechanism for international parties."); J. Stewart McClendon, State International Arbitration Laws: Are They Needed or Desirable?, 1 AM. REV.I NT'L ARB. 245, 246 (1990) (declaring that state international arbitration statutes "introduce uncertainty and confusion into international commercial arbitration, and are a potential source of conflict and litigation."); Daniel M. Kolkey, Reflections on the US. Statutory Framework for International Commercial Arbitrations: Its Scope, Its Shortcomings, and the Advantages of US.A doption of the UNCITRAL Model Law, 1 AM. REV. INT'L ARB. 491, 492 (1990) (professing that the enactment of state international arbitration statutes has "further aggravated the uncertain relationship between federal and state arbitration laws."); Committee on Arbitration and Alternative Dispute Resolution of the Association of the Bar of the City of New York, Adoption of the UNCITRAL Model Law on InternationalC ommercial Arbitration as Federal or State Legislation, ARBITRATION AND THE LAW 1988-89 250, 260 (1989) [hereinafter New York City Bar Report] (declaring that adoption of UNCITRAL Model Law as state legislation would "create confusion abroad concerning the legal regimes governing arbitration in the United States."); James H. Carter, FederalA rbitration Act Seen As Out of Step With Modern Laws, 5 NEWS & NOTES FROM THE INSTIT. FOR TRANSNAT'L ARB. 1, 1 (Nov. 4, 1990) (stating that "questions concerning the relationship between the FAA and U.S. state international arbitration statutes now cause substantial confusion."). Commentators also profess that the Supreme Court decision in Volt has heightened the uncertainty whether federal law or state international arbitration statutes apply. See infra note 25 and accompanying text. 18"While Congress was no doubt aware that the Act would encourage the expeditious resolution of disputes, its passage 'was motivated, first and foremost, by a congressional desire to enforce agreements into which parties had entered."' Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478 (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 220 (1985)). N.C. J. INT'L L. & COM. REG. [Vol. 22 to arbitrate.9 In Moses H. Cone Memorial Hospital v. Mercury Construction Corp.2,0 the Court revealed its strong support for the FAA's purpose of enforcing arbitration agreements according to their terms. The Moses H. Cone Court affirmed the enforcement of an arbitration agreement even though this resulted in the resolution of certain issues by arbitration while other issues that the parties had not agreed to arbitrate would be subject to judicial proceedings.2' Citing the FAA's primary purpose of enforcing arbitration agreements according to their terms, the Supreme Court in Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University2 professed that parties may agree in their arbitration agreement to apply state arbitration law to an arbitration within the scope of the FAA even if the application of such state law provisions effectively frustrates an arbitration that the FAA would allow to proceed.23 In Volt, the Supreme Court declared that: [I]t does not follow that the FAA prevents the enforcement of agreements to arbitrate under different rules than those set forth in the Act itself. Indeed, such a result would be quite inimical to the FAA's primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms. Arbitration under the [Federal Arbitration] Act is a matter of 19See Southland Corp. v. Keating, 465 U.S. 1 (1984); Perry v. Thomas, 482 U.S. 483 (1987); Allied-Bruce Terminix Cos. v. Dobson, 115 S. Ct. 834 (1995). For discussion of the Supreme Court's holdings in Southland, Perry,a nd Terninix, see infra notes 87-97 and accompanying text. 20460 U.S. 1(1983). 21See id. at 19-20. In dicta, the Moses H. Cone Court declared that "federal law requires piecemeal resolution when necessary to give effect to an arbitration agreement. Under the [Federal] Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement." Id. at 20. 22489 U.S. 468 (1989). For further discussion of the Supreme Court's decision in Volt, see infra notes 251-62 and accompanying text. 231n Volt, the Supreme Court did not itself hold that the parties intended to incorporate state arbitration law rules into their arbitration agreement. Rather, the Supreme Court refused to disturb the California courts' conclusion on the subject. For further discussion of this aspect of the Supreme Court's decision in Volt, see infra note 260.