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State Acts on International Arbitration – How Much Do They Matter?

In 2013, the Chief Administrative Judge of the Courts of New York State designated the Hon. Charles E. Ramos, Justice of the Supreme Court, New York County, to handle all international arbitration cases before the Commercial Division, New York County–a good reminder that, in the U.S.A., states courts and laws have a say in international arbitration matters.

To name a few, there is a California Arbitration and Conciliation of International Commercial Disputes Act, a Florida International Commercial Arbitration Act, a Texas Act on Arbitration and Conciliation of International Commercial Disputes, and an Illinois International Commercial Arbitration Act. Even New York state law has International Arbitration Part Rules supplementing the "state law" on arbitration, namely Part 53 of the Practice Rules.

Most of those statutes are less than 20 years old, draw somewhat from the UNCITRAL Arbitration Model Law, and have significant differences with the 1925 Federal Arbitration Act (or FAA).

California and Texas laws, for instance, explicitly recognize the tribunal's "discretion" to calculate and allocate the costs of an international arbitration. Cal. Code of Civ. P. § 1297.318; Tex. Civ. Prac. & Rem. Code § 172.145. Similarly, Florida law codifies the grounds for challenge of an arbitrator in international cases. Fla. Stat. § 684.0013. The FAA contains no comparable provisions.

Court-assisted discovery, interim relief, and consolidation are other areas that state acts on international arbitration typically cover and where the FAA is silent.

When, then, do state international arbitration acts apply, and when does the FAA apply?

Different and not always consistent answers have been advanced.

According to one of them, state international arbitration acts apply when the case does not affect inter-state or foreign commerce, "which is by definition virtually impossible in international commercial matters." Gary B. Born, INTERNATIONAL ARBITRATION: CASES AND MATERIALS 56-59 (Kluwer Law International 2015).

According to another theory, even if the case concerns inter-state or foreign commerce, state laws have a gap-filling function and can be applied to ancillary issues bearing on international arbitration that federal statutory and common law do not directly or indirectly address. Sébastien Besson, The Utility of State Laws Regulating International Commercial Arbitration and Their Compatibility with the FAA, 11 Am. Rev. Int'l Arb. 211, 222 (2000).

Proponents of a third theory assert that, even if the case concerns inter-state or foreign commerce, state acts on international commercial arbitration apply unless they directly conflict with the FAA or undermine the federal policy aims behind it. Heather A. Purcell, State International Arbitration Statutes: Why They Matter, 32 Tex. Int'l L.J. 525, 531-32 (1997).

Courts appear to have espoused this type of approach in U.S. domestic cases involving inter-state commerce.

Thus, Texas state courts have held that the FAA does not preempt enforcement of an agreement for judicial review of a domestic award if that agreement expands on the FAA legal grounds and is valid under Texas law. Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 97-101 (Tex. 2011). California state courts have also reached a similarly conclusion. Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334, 1353-54 (Cal. 2008).

And the well regarded second federal circuit of appeals has held that: "When, as here, a retainer contract specifies that any appeal from an arbitration award is to be governed exclusively by New York state law, the designation must be honored by the courts unless the state law conflicts with federal law. […]. This is true even when the contract involves interstate commerce and would otherwise fall within the coverage of the Federal Arbitration Act ("FAA"). […] "The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable." Hall Street Assocs., LLC. v. Mattel, Inc., 552 U.S. 576, 590, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). Because New York law accords with the policies of the FAA (in favor of binding arbitration), federal law does not preempt New York state law here. New York state law therefore governs our review of this arbitration award. Accordingly, while we agree with the District Court that the arbitral award must be confirmed, we do so pursuant to N.Y. C.P.L.R. § 7510, and not the Federal Arbitration Act, 9 U.S.C. § 9, as the District Court did." Cnty. of Nassau v. Chase, 402 F. App'x 540, 541-42 (2d Cir. 2010).

Relying on a similar reasoning, state acts that do not contradict the FAA and its goals may well apply to international arbitration cases. Christopher R. Drahozal, The New York Convention and the American Federal System, 2012 J. Disp. Resol. 101, 116-17 (2012).

In light of this (still developing) legal framework, participants in a U.S.-seated international case are well advised to carefully consider not only the FAA, but also the state laws from the place of arbitration. Those laws may govern aspects of the case and offer unexpected tools and remedies.