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As arbitration continues to grow in popularity as a means of resolving disputes, U.S. courts increasingly are being called upon to address issues relating to arbitration, such as when ruling on motions to compel arbitration, requests for injunctive relief in aid of arbitration, or applications to confirm or vacate arbitral awards. When faced with such requests, courts must decide which law to apply, and that requires them to choose from among a patchwork of state, federal and international arbitration law. That courts are having difficulty ascertaining where one layer of law starts and another ends is evident from a series of conflicting decisions that have issued around the country during the past year. Although U.S. courts generally are quite supportive of arbitration, this growing inconsistency in their approaches complicates the legal framework for arbitration in this country, and may reflect unfavorably on the United States as an arbitration venue. Under the circumstances, it would seem fitting for the U.S. Supreme Court to grant petitions for writ of certiorari in cases that present opportunities to resolve the issues dividing these courts. Yet there is only so much the court could do to improve the present state of arbitration law, in light of limitations inherent in the Federal Arbitration Act (FAA), a statute first enacted more than 80 years ago. Accordingly, the time may be right for Congress to modernize the FAA and bring greater clarity and consistency to arbitration law in the United States. The legal framework for arbitration was relatively straightforward in the early decades after the FAA’s enactment. State courts generally applied state law in arbitration-related proceedings without concerning themselves with the FAA. Moreover, at that time the United States was not a party to any international agreements on commercial arbitration, so there was no third layer of arbitration law in effect. Subsequently, the Supreme Court grew concerned that some states had enacted laws disfavoring arbitration, and gradually extended the FAA’s sphere of application to pre-empt such legislation. Ultimately, the court ruled that 2 of the FAA, which requires arbitration agreements to be treated as enforceable save upon such grounds as exist for the revocation of any contract, applies in state courts as well as federal courts. See 9 U.S.C. 2; Moses H. Cone Mem’l. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983); Southland Corp. v. Keating, 465 U.S. 1, 24 (1984). The court asserted that 2 “is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary,” the effect of which “is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.” Moses H. Cone, 460 U.S. at 25 n.32. However, the court failed to explain which provisions of the FAA beyond 2, if any, apply in state court. Adding to the potential for confusion, in the decades since the FAA was enacted the United States has acceded to the New York Convention and other international conventions governing the enforcement of arbitration agreements and awards. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 21 U.S.T. 2517; Inter-American Convention on International Commercial Arbitration, opened for signature Jan. 30, 1975, O.A.S.T.S. No. 42, 1438 U.N.T.S. 245; Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, opened for signature Aug. 27, 1965, 17 U.S.T. 1270, 575 U.N.T.S. 159. In addition, many individual U.S. states have enacted their own “international arbitration” statutes, which purport to govern some of the same matters covered by these conventions. Under the circumstances, it is understandable that courts have had difficulty finding the limits of these respective layers of law. Recent conflicting decisions In fact, as time goes on, the boundaries between these layers seem blurrier, as competing lines of authority arise and develop independently. The past year in particular has witnessed a profusion of such conflicting decisions. One issue that has been the subject of numerous recent conflicting decisions is the standard for judicial review of arbitral awards, particularly the extent to which federal or international standards pre-empt state standards. Recent decisions in South Carolina, Texas and New York have applied the FAA’s vacatur standard to applications to vacate domestic arbitral awards in state court. Gissel v. Hart, 373 S.C. 281, 285 n.2, 287 (S.C. Ct. App. 2007); Banc of Am. Inv. Serv. Inc. v. Lancaster, No. 2-06-314-CV, 2007 Texas App. Lexis 7100, at *13-*14 (Texas App. � Fort Worth Aug. 31, 2007); MBNA Am. Bank N.A. v. Straub, 815 N.Y.S.2d 450, 455 (New York Co., N.Y., Civ. Ct. 2006). Each of these courts appears to have based its decision to apply federal standards on its understanding that if the FAA governs the parties’ arbitration (by agreement of the parties or because the underlying transaction involves interstate commerce), then federal law necessarily governs the review of the resulting award. In contrast, in recent decisions in California, Virginia and Pennsylvania, courts have held that federal vacatur standards do not pre-empt state standards in proceedings on domestic arbitral awards, even if the underlying transaction involved interstate commerce. Swab Fin. LLC v. E*Trade Securities LLC, 150 Cal. App. 4th 1181, 1195 (Calif. 2d Ct. App. 2007); Penn Virginia Oil & Gas Corp. v. CNX Gas Co. LLC, No. 1:06cv00090, 2007 U.S. Dist. Lexis 12206 (W.D. Va. Feb. 22, 2007); Trombetta v. Raymond James Fin. Servs., Inc., 907 A.2d 550, 568 (Pa. Super. Ct. 2006). Other decisions reflect similar confusion over the standard to be applied by courts when reviewing awards arising from international arbitrations in the United States. Most courts have concluded either that they are obliged to apply exclusively the standard of the New York Convention in their review of such awards, or that they may set aside such an award under the grounds of 10 of the FAA. Compare Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1441-42 (11th Cir. 1998), cert. denied, 525 U.S. 1068 (1999), with Yusuf Ahmed Alghanim & Sons v. Toys “R” Us Inc., 126 F.3d 15, 21 (2d Cir. 1997), cert. denied, 522 U.S. 1111 (1998). Some courts, though, have opted to apply state statutory provisions to their review of such awards, often without even discussing the relevance of 10 of the FAA or the New York Convention. This approach is most often followed in state court (see, e.g., Peace River Seed Co-Op Ltd. v. Proseeds Mktg. Inc., 204 Ore. App. 523, 528 (Ore. Ct. App. 2006)), but occasionally is taken in federal court as well (see, e.g., Rintin Corp. S.A. v. Domar Ltd., 476 F.3d 1254, 1257-58 (11th Cir. 2007)). In Rintin, the 11th U.S. Circuit Court of Appeals elected to apply the vacatur standard of the Florida International Arbitration Act to its review of an arbitral award rendered in the United States in an international arbitration between two foreign parties. It did so based on language in the parties’ arbitration agreement providing that “[a]ny dispute . . . shall be submitted to arbitration . . . according to the provisions of the Florida International Arbitration Act.” Rintin, 476 F.3d at 1256. While it appears that neither party objected to the court’s application of the Florida vacatur standard, it is questionable whether the parties’ agreement to apply Florida law to their arbitration equaled an agreement to apply Florida law to court review of any resulting arbitral award. Another issue that has been the subject of recent conflicting decisions is the extent to which the FAA’s procedural rules apply in state court. By way of example, the North Carolina Court of Appeals held earlier this year that the FAA’s rule prohibiting interlocutory appeals from orders compelling arbitration does not pre-empt a contrary rule under a state arbitration statute. Scottish Re Life Corp. v. Transamerica Occidental Life Ins. Co., 647 S.E.2d 102, 107 (N.C. Ct. App. 2007). This decision conflicted with an earlier ruling by the North Dakota Supreme Court. Superpumper Inc. v. Nerland Oil Inc., 582 N.W.2d 647, 651-52 (N.D. 1998). It was in line, though, with prior opinions in certain other states. See Toler’s Cove Homeowners Ass’n. v. Trident Constr. Co., 355 S.C. 605, 611 (S.C. 2003); Wells v. Chevy Chase Bank F.S.B., 363 Md. 232, 247-49 (Md. 2001). Other court decisions reflect similar uncertainty over the extent of federal pre-emption of state rules governing court-ordered injunctive relief in aid of arbitration. See, e.g., Davenport v. Blue Cross of California, 52 Cal. App. 4th 435, 450-52 (Calif. 3d Ct. App. 1997). The U.S. Supreme Court could alleviate much of this confusion by granting petitions for writ of certiorari in appropriate cases. The court could, for example, clarify whether the vacatur grounds of 10 of the FAA and/or state arbitration statutes may be applied by courts when reviewing awards rendered in the United States that are subject to the New York Convention, and whether state vacatur standards are pre-empted in proceedings on domestic awards that are subject to the FAA. The court also could clarify whether the FAA’s procedural rules apply in state court. One case that is currently before the court, Hall Street Assocs. LLC v. Mattel Inc., 127 S. Ct. 2875 (No. 06-989 2007), concerns the enforceability of provisions in arbitration agreements that expand the grounds for judicial review of an arbitral award beyond those in the FAA. [See "Court will resolve a clash of fundamental values," Page S2.] Yet the court could only do so much to improve the present state of arbitration law in the United States in light of limitations inherent in the FAA. Even if the court were inclined to interpret the FAA as broadly as possible, and even if it believed that it would be optimal to have an overarching federal arbitration law applicable in full in both state and federal court so as to provide a uniform and consistent set of principles to be applied by courts when ruling on arbitration-related issues in this country, the FAA in its present form would not fit the bill. To begin with, several of the provisions of the FAA make reference to their application by “courts of the United States” (i.e., federal courts) or by a “United States district court” (i.e., a federal court of first instance). See 9 U.S.C. 3, 4 and 7. It would seem a stretch to interpret that language as extending to state courts as well. In addition, the FAA is a decidedly skeletal arbitration law, having been enacted at a time when commercial arbitration was relatively undeveloped. The law does not address several important issues relating to arbitration, including court removal of arbitrators, interlocutory review of arbitrator jurisdictional rulings, court-ordered injunctive relief in aid of arbitration, consolidation and stays of arbitrations and enforcement of arbitrator subpoenas for prehearing discovery. More recent state arbitration laws often deal with all or most of these issues. Accordingly, for the court to impose the FAA in its current form on state courts, to the exclusion of state law, would open a number of gaps now being filled by state law. What Congress could do Another solution would be a congressional overhaul of the FAA. To begin with, the FAA could be amended to address the above-mentioned issues on which it is presently silent, so that there at last would be a modern, comprehensive federal arbitration law in the United States. The amended statute could be drafted to specify which of its provisions would apply in state court. If Congress decided not to have the FAA apply in its entirety to all cases arising from transactions involving interstate or international commerce, it might nevertheless opt to identify certain minimum substantive protections that state courts must accord to any arbitration agreement arising from such a transaction. It also might outline certain basic functions that must be exercised by courts, upon request, to facilitate arbitrations and protect the integrity of their ultimate outcomes. The revised FAA also could establish a uniform standard to be applied by courts when reviewing requests to confirm or vacate awards that are subject to the FAA, except in cases in which the parties have agreed to a different standard of review, or where the award falls within the scope of one of the relevant international conventions. Amendment of the FAA in this manner could resolve many of the controversies over the interplay of state, federal and international arbitration law. It could also bring the arbitration law of the United States into the 21st century, and enhance the attractiveness of this country as a venue for international arbitration. George K. Foster is a senior associate in the New York office of Dechert. He practices civil litigation in New York, California and Washington, and arbitration internationally. He can be reached at [email protected]. First-year associate Kathleen Kao assisted with the research for this article.

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