Originally from American Review of International Arbitration - ARIA

I.   INTRODUCTION

Parties resisting commercial arbitration commonly seek intervention from courts on the ground that the relevant arbitration agreement either suffers from a severe defect or is nonexistent. When examining an arbitration agreement at the outset of arbitration, U.S. courts do not have a consistent or well-explained choice-of-law approach, creating serious confusion and unpredictability for parties contemplating arbitration. To address this problem, this paper focuses on the various choice-of-law practices that U.S. courts employ in arbitration agreement enforcement proceedings and proposes a framework that coherently explains the diverging conflict-of-laws analyses adopted by the courts.  

The roadmap of the paper is as follows: Part II introduces the context of the inquiry and highlights that neither the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) nor the Federal Arbitration Act (“FAA”) provides meaningful guidance. Part III discusses the separability doctrine and its significance to the inquiry. The separability doctrine illustrates that there is a meaningful difference between only having a general choice-of-law clause in the main contract and having a specific choice-of-law clause in the arbitration agreement. It also helps explain why Section 187 of the Restatement (Second) of Conflict of Laws does not resolve the choice-of-law problem. Finally, separability as expanded by the U.S. Supreme Court’s Rent-A-Center case may suggest that, much like a delegation clause, a choice-of-law clause in the arbitration agreement may be separable from the rest of the agreement and provide the applicable law unless the party resisting arbitration specifically challenges the choice-of-law clause.

Part IV surveys the choice-of-law practices of U.S. courts in arbitration agreement enforcement proceedings, particularly when parties have indicated a chosen law. Depending on the basis of the challenge to an arbitration agreement, U.S. courts typically adopt one of the following three choice-of-law approaches: (1) they directly apply the forum’s substantive law despite the parties’ chosen law; (2) they directly apply the parties’ chosen law; and (3) they apply the forum’s choice-of-law rules to find the applicable law. 

Part V proposes a harmonizing framework that reconciles the different choice-of-law analyses discussed in Part IV, and argues that the different approaches can be coherently explained by the nature of the different challenges to arbitration agreements. Specifically, issues that raise a jurisdiction’s important public policy consequences are rightfully addressed by forum law, whereas issues that are garden variety private disputes should be addressed according to party intent.