While the Federal Arbitration Act’s (FAA) substantive standards govern the confirmation or vacatur of almost every arbitration award issued in the United States, the FAA is the rare federal statute that does not give the parties entry to federal court. If you wish to litigate confirmation in federal court, it is important to be aware of the category of “nondomestic” arbitrations—which may offer an underutilized path to federal jurisdiction.

What Is a ‘Nondomestic’ Arbitration?

While the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly referred to as the New York Convention) is typically understood to focus on foreign arbitrations—i.e., arbitration awards issued abroad—it also encompasses awards issued in the United States that involve foreign parties or issues—often called “nondomestic” arbitrations. Thanks to this fact, you can have an international arbitration on your hands without realizing it—an arbitration can be held in the United States, litigated by U.S. lawyers, and involve primarily U.S. witnesses, but still be sufficiently “foreign” to be subject to the New York Convention.

This is because the federal statute adopting the New York Convention (paralleling Article 1 of the Convention itself) defines its scope in the negative. It states that “[a]n agreement or award arising out of [a commercial legal relationship] which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.” 9 U.S.C. §202 (emphasis added). In other words, arbitral awards from signatory countries are subject to the Convention unless the award is solely domestic.

Does It Matter If My Arbitration Is Nondomestic?

The fact that nondomestic arbitrations are subject to the New York Convention does not mean that they are reviewed under the same standards as foreign-seated arbitrations, however. In fact, Chapter 1 of the FAA has been held to apply in certain key aspects only to arbitration awards issued within the United States—i.e., to both domestic and nondomestic arbitrations, but not to foreign-seated ones. See Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, 126 F.3d 15, 23 (2d Cir. 1997). This is because the New York Convention creates different regimes for review of arbitral awards depending on whether that review is taking place in the country that issued the award (or under whose law it was decided) or in another signatory state where recognition and enforcement is sought. Id. (citing Article V(1)(e) of the Convention). And while 9 U.S.C. §208 provides that Chapter 1 of the FAA applies to actions under Chapter 2 as well (i.e., the chapter implementing the New York Convention), it limits this application “to the extent that chapter is not in conflict with this chapter or the Convention as ratified by the United States.”

The practical significance of determining if your U.S.-seated arbitration is rightfully characterized as domestic or nondomestic, then, lies at the door of federal court. Arbitrations falling under the Convention—whether foreign or nondomestic—have federal subject matter jurisdiction. See 9 U.S.C. §203. By contrast, while the FAA applies to all arbitrations “involving commerce” to a degree coterminous with Congress’s Commerce Clause power, see 9 U.S.C. §2; Citizens Bank v. Alafabco, 539 U.S. 52, 56 (2003), application of the FAA alone does not confer a basis for federal subject matter jurisdiction, see Moses H. Cone Mem’l Hosp. v. Mercury Constr., 460 U.S. 1, 25 n.32 (1983). It remains unsettled to what degree even an underlying federal question within the substantive claims of an arbitration confers subject matter jurisdiction on the federal courts. See, e.g., Janus Distributors v. Roberts, No. 16-CV-2130-WJM-MJW, 2017 WL 1788374, at *3 n. 7 (D. Colo. May 5, 2017) (acknowledging split of authorities on this issue). While diversity jurisdiction is available, where the parties are not diverse (including where there are aliens on both sides) nondomestic status may offer the only—and an often overlooked—path to federal court.

The below chart summarizes the standards for federal jurisdiction and for substantive review of the three types of arbitrations:

Is My Arbitration Nondomestic?

Having established that nondomestic status may be the key to entering federal court, the next question is of course how to determine if an arbitration seated in the United States qualifies as nondomestic. Stated positively, a nondomestic arbitration is one seated in the United States that includes one or more foreign citizens as a party, “involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.” 9 U.S.C. §202.

Even the most straightforward of these factors—including one or more foreign citizens as a party—has not been well established in caselaw. As the text of 9 U.S.C. 202 bears a close relationship to the diversity rules (“a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States”), it is logical to conclude that diversity precedent does apply, as some district courts have done. See, e.g., Astra Oil Trading NV v. Petrobras Am., No. CIV.A. H-09-1274, 2010 WL 3069793, at *2 (S.D. Tex. Aug. 4, 2010); Outokumpu Stainless v. Siemens Indus., No. CV 15-00243-KD-N, 2015 WL 6966150, at *5 (S.D. Ala. Oct. 20, 2015). However, without Supreme Court or consistent Circuit Court guidance on the matter, the issue is far from conclusively settled.

Under the case law interpreting the diversity statute, most types of unincorporated U.S. entities do not have their own citizenship status, but instead take on the citizenship of their owners. See Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). Determining citizenship in the context of a nondomestic arbitration raises the question of whether foreign-based entities should be characterized as “citizens” or mere pass-throughs like LLPs and LLCs. For foreign entities, the operative question is whether or not the country from which the entity hails treats it as a “juridical person.” See Cohn v. Rosenfeld, 733 F.2d 625, 629 (9th Cir. 1984). Questions a court may ask in making this assessment include whether the company has limited liability, whether it can sue and be sued in its own name, and whether it has the capacity to retain any recovery form the lawsuit as an asset of the entity. See id. If so, then the court may deem it to have its own citizenship, even if it is not technically incorporated, and it will qualify as a foreign entity.

Because unincorporated entities generally take on the citizenship of their owners, in assessing diversity jurisdiction, it is necessary not only to know the citizenship of each party, but the citizenship of each individual partner in a limited partnership and each member of a limited liability company. With multi-party disputes and complex corporate trees, this inquiry can be quite involved. Because nondomestic status does not require complete diversity, it can offer a simplified analysis where at least one party is foreign.

While the case law on how to define a nondomestic arbitration is still developing, exploring whether an arbitration qualifies as “nondomestic” may be worthwhile for a party that wishes to litigate the confirmation of an arbitration in federal court. In particular, it is important to bear in mind that the New York Convention’s subject matter jurisdiction grant even in the case of non-diverse aliens may provide a path to federal court where other jurisdictional statutes do not.

Elizabeth Edmondson is a partner and Gretchen Stertz is an associate at Jenner & Block.