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Recent decisions of the 5th and 9th U.S. Circuit Courts of Appeals have held that agreements to expand judicial review of the correctness of arbitration awards are enforceable under the Federal Arbitration Act (FAA). [FOOTNOTE 1]The enforceability of such agreements is less clear, however, and arguably less desirable, in the international arena than in domestic cases. For a variety of reasons, parties should think carefully before adding such expanded review language to international arbitration agreements. Arbitral awards are not self-enforcing. In domestic cases, FAA and companion state arbitration statutes provide for judicial enforcement of arbitral awards. In international cases, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 [FOOTNOTE 2](the New York Convention) provides for uniform and efficient enforcement of awards internationally. Both the FAA and the New York Convention provide for extremely limited judicial review of the substantive correctness of arbitral awards. In general, when parties choose arbitration, the courts will leave the decision on the merits to the arbitration tribunal and enforce the award absent evidence of conflict of interest, decision-making on issues not submitted to arbitration or similar arbitrator misconduct. The FAA and the New York Convention also authorize courts to refuse to enforce an award if doing so would “be contrary to the public policy” of the enforcing nation, and the United States recognizes a judicially created doctrine authorizing courts to refuse to enforce an award if the arbitrator has exhibited “manifest disregard for the law.” [FOOTNOTE 3]In practice, however, these grounds are rarely invoked to refuse enforcement of an award. Every time an arbitration is decided, someone, usually the losing party, thinks the tribunal has “gotten it wrong” — that is, the tribunal has misread the contract, applied the law improperly or misinterpreted the evidence. The next time parties with such experiences contract for arbitration of disputes, they may be tempted to redraft their customary arbitration clauses to provide for a judicial “appeal” of the arbitrator’s decision. ‘GATEWAY’ AND ‘KYOCERA’ The 5th and 9th Circuits have both held that such agreements to expand judicial review of arbitral awards are enforceable under the FAA in cases in which the reviewing court has an independent jurisdictional basis to hear the case. In Gateway Technologies Inc. v. MCI Telecommunications Corp., [FOOTNOTE 4]the 5th Circuit held enforceable an arbitration clause that made errors of law committed by the arbitrator subject to appeal in a reviewing court. In LaPine Technology Corp. v. Kyocera Corp., [FOOTNOTE 5]the 9th Circuit held enforceable an arbitration agreement that provided for judicial modification or correction of the award if it contained findings of fact not supported by substantial evidence or conclusions of law that were erroneous. Both of these decisions reasoned that the fundamental purpose of the FAA is to enforce parties’ agreements to arbitrate. If such an agreement includes judicial review of the correctness of the arbitral award, the courts reasoned, the FAA requires enforcement of such an agreement, just as it would of other arbitration agreements providing for more customary, restricted review. These decisions hold that parties drafting arbitration agreements now have the freedom to contract for clauses expanding judicial review of arbitral awards, and that the FAA will mandate enforcement of such agreements. There are good reasons why contracting parties should think carefully before availing themselves of this apparent newfound freedom to contract for expanded judicial review recognized in Kyoceraand Gateway. First, it is not yet clear that the result reached in Kyoceraand Gatewaywill emerge as the general rule in domestic cases. An earlier 7th Circuit decision, Chicago Typographical Union No. 16 v. Chicago Sun-Times, [FOOTNOTE 6]and the district court decisions in both Gatewayand Kyocera, all held such clauses unenforceable on the theory that parties cannot by agreement create jurisdiction in a reviewing court. A recent Washington state court decision reached the same conclusion. [FOOTNOTE 7]Judge Kozinski’s concurrence in Kyocera(a split decision) found the “question presented closer than most.” [FOOTNOTE 8] In addition, both the Gatewayand Kyoceradistrict courts advanced entirely reasonable concerns that allowing such agreements to be enforced could eventually undermine arbitration as an efficient dispute resolution process, and instead turn it into a lengthy, complex process akin to judicial litigation. [FOOTNOTE 9]Until these conflicting authorities are resolved, it is not yet settled that agreements to expand judicial review of awards will be held enforceable in domestic cases applying the FAA. The weight of authority seems to favor the Kyoceraview, [FOOTNOTE 10]but the issue is not yet resolved. Second, it is far from clear that courts applying the New York Convention, rather than the FAA, will reach the same conclusion as Gatewayand Kyocerain favor of enforcing agreements for expanded judicial review of awards. Both Gatewayand Kyoceraconsidered the enforceability of such agreements under the FAA, which governs the enforcement of arbitral awards domestically and relied heavily on the purpose and legislative history of that statute. INTERNATIONAL CONSIDERATIONS Different considerations come into play, however, in the international arena. Parties typically choose arbitration in international cases for different reasons than they do in domestic cases. Parties choose arbitration as a form of “alternative dispute resolution” in domestic disputes for reasons such as efficiency, cost control, confidentiality, less invasive discovery and ability to choose a tribunal with experience in the particular industry or area of the law at issue. In international commercial disputes, arbitration is not so much “alternative dispute resolution” as the preferred method of dispute resolution. Among other reasons, parties choose arbitration as a perceived neutral alternative to the less attractive alternative of litigating their cases in the national courts of any one of the combatants. This is particularly true when one of the parties is a state-owned or affiliated entity. Moreover, the principal purposes of the New York Convention and the FAA are not the same. As Gatewayand Kyoceraboth discuss at length, [FOOTNOTE 11]Congress’ fundamental purpose in passing the FAA was to make arbitration agreements just as enforceable as all other agreements. The principal purpose of the New York Convention is to provide for efficient and reliable international enforcement of arbitral awards in signatory countries (most of the world). [FOOTNOTE 12]As an international treaty, the New York Convention, in the event of conflict, would take precedence over the FAA in assessing the enforceability of agreements to expand judicial review of arbitral awards in international disputes. [FOOTNOTE 13] If clauses providing for judicial review of the correctness of arbitral awards were to become commonplace, the ultimate decisions on the merits of the parties’ disputes would be made by reviewing courts, necessarily the courts of one country or another, rather than by neutral arbitration tribunals. Entrusting the decisions on the ultimate merits to one nation’s courts is just what the international arbitration of commercial disputes is supposed to avoid. The New York Convention provides for regularized and efficient enforcement of arbitral awards, not national court judgments. A DIFFERENT VIEW For these reasons, it is far from clear that courts, either in the United States or in other countries, presented with such agreements under the New York Convention would come to the conclusion that such agreements are a desirable innovation or that they should be held enforceable. Courts in such cases might view clauses that place the decision on the ultimate merits in the hands of one nation’s courts rather than in a neutrally composed arbitration tribunal as a threat to the current structure created by the New York Convention for international enforcement of arbitral awards. [FOOTNOTE 14] Courts might also question whether the New York Convention authorizes international enforcement of the court judgments (as opposed to arbitral awards) that would constitute the decision on the final merits in such cases, particularly in cases in which the reviewing court reached different conclusions or ordered different relief than the arbitration tribunal. Finally, courts might be even more troubled in the international arena than the district courts were in Gatewayand Kyoceraby the potential for clauses authorizing expanded judicial review of awards to convert arbitration into a more sclerotic process than the efficient dispute resolution process it should be. From a contract-drafting perspective, adding such a feature to an international arbitration agreement thus risks upsetting the parties’ intentions at the time of contracting if the decision on the ultimate merits is eventually made by one country’s courts and enforceability of the decision is later denied in other countries for lack of compliance with the New York Convention. If this were to happen, a provision that might have seemed an interesting procedural innovation at the time of contracting might end by partially or completely frustrating international enforcement of the fruits of the parties’ dispute resolution process altogether. For these reasons, parties to international agreements should think carefully before hurrying to take advantage of the freedom to contract for expanded judicial review of arbitral awards recognized in Kyoceraand Gateway. Courts addressing these issues in the future may well decide that safeguarding the functionality of the current system for accomplishing international enforcement of arbitration awards is more important than allowing parties to tinker with it. Thomas J. Brewer, based in Seattle, serves as an arbitrator, mediator and dispute resolution neutral in international and domestic disputes. He can be reached at [email protected]. ::::FOOTNOTES:::: FN19 U.S.C. 1 et seq. FN221 U.S.T 2517, T.I.A.S. No. 6697 (1970). See www.internationaladr.com, for the text of the New York Convention and a list of signatory countries. FN39 U.S.C. 10; New York Convention Art. V(2)(b); Montes v. Shearson Lehman Bros. Inc., 128 F.3d 1456 (11th Cir. 1997); Siegel v. Titan Industrial Corp., 779 F.2d 891 (2d Cir. 1985). FN464 F.3d 993 (5th Cir. 1995). FN5130 F.3d 884 (9th Cir. 1997). FN6935 F.2d 1501, 1505 (7th Cir. 1991). FN7 Godfrey v. Hartford Casualty Ins. Co., 16 P.3d 617 (Wash. 2001). FN8130 F.3d at 891. FN9The Gatewaydistrict court worried that enforcement of the clause would sacrifice “the simplicity, informality, and expedition of arbitration on the altar of appellate review.” Gateway, 64 F.3d 993 at 997. The Kyoceradistrict court expressed similar concerns. LaPine Technology Corp. v. Kyocera Corp., 909 F. Supp. 697, 705 (N.D. Calif. 1995). FN10In addition to Kyoceraand Gateway, see also Collins v. Blue Cross Blue Shield of Michigan, 638 F. Supp. 541 (E.D. Mich. 1995); Primerica Financial Services Inc. v. Wise, 456 S.E.2d 631 (Ct. App. Ga. 1995). FN11 See Kyocera, 130 F.3d at 888-890; Gateway, 64 F.3d at 997. FN12 See Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15 (1974). See generally www.internationaladr.com. FN13Indeed, it could be argued that Kyocera, an international sale of goods dispute, should have been analyzed by applying the New York Convention instead of the FAA — an issue that the 9th Circuit entirely failed to consider. FN14 See, e.g., Kenneth M. Curtin, “Contractual Expansion and Limitation of Judicial Review of Arbitral Awards,” 56 APR Disp. Resol. J. 74 (2001).

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