New Experiences of International Arbitration in the United States Author(s): Christopher R.

Drahozal Source: The American Journal of Comparative Law, Vol. 54, American Law in the 21st Century: U.S. National Reports to the XVIIth International Congress of Comparative Law (Fall, 2006), pp. 233-255 Published by: American Society of Comparative Law Stable URL: http://www.jstor.org/stable/20454538 . Accessed: 05/01/2011 23:26
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CHRISTOPHER

R. DRAHOZAL*

New Experiences of InternationalArbitration in theUnited States

INTRODUCTION

The use of arbitration to resolve international commercial dis putes has grown substantially over the past decade.' Between 1993 and 2003, the number of international arbitration proceedings ad ministered by leading institutions almost doubled.2 During that same period, the international arbitration caseload of the American Arbi tration Association (AAA) more than tripled,3 prompting the AAA to announce in 2002 that it had "become the largest international com mercial arbitral institution in the world."4 The growth of the AAA caseload (in both absolute and relative terms) hints at an increasing that other American involvement in international arbitration-one information (both anecdotal and empirical) confirms. This increasing U.S. involvement is itself a new experience of international arbitra tion. Other new experiences with international arbitration in the U.S.-such as investor-state arbitration and arbitration of electronic commerce disputes-mirror similar experiences elsewhere in the with consumer and world. But some U.S. experiences-particularly employment arbitration-are unique, or at least highly unusual, compared to the rest of the world.
* Professor of Law, University of Kansas School of Law.

commercial in international arbitration clauses 1. Parties to include continue con are that 90% of international as a matter of course. Estimates contracts almost an arbitration Peter Eco Klaus International tracts include clause. Berger, E.g., van den et al., nomic Albert Jan Berg Arbitration 8 & n.62 (1993) (citing see Christopher R. Drahozal & Richard W. Naimark, Arbitragerecht 134 (1988)); a Science of Arbitration: Collected Re Towards International Empirical

search
contracts 2. clude

59 (2005) (finding that 88.2% of small sample of transnational

included Drahozal ad hoc arbitration clause). app. 1. The Richard note & Naimark, supra 1, at 341 is unavailable. for which data

joint venture

arbitrations,

in numbers do not W. Naimark, Build

ing a Fact-based Global Database: The Countdown, 20 J. Int'l Arb. 105, 106 (2003) (reporting that estimates of the number of ad hoc arbitrations range from "just a few"
to "far more 3. Drahozal . . . than all the arbitral supra institutions note 1, at 341 put app. & Naimark, together"). 1. The AAA now administers

its international arbitration Resolution (ICDR).

4. tional American Commercial Arbitration Arbitral

caseload
Association, Institution

through the International

ICDR (May 16, Becomes 2002), World's available

Centre

for Dispute

Interna Largest at www.adr.org.

233

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Part I of this report provides an overview of international arbi tration law in the United States, highlighting some currently unset tled issues. Part II describes the growing American involvement in international arbitration. Part III then examines "new experiences" with international arbitration in the U.S.: (1) investor-state arbitra tion, particularly under the North American Free Trade Agreement (NAFTA); (2) the interrelationship of new information technologies and international arbitration, focusing on the formation of arbitra tion agreements in electronic commerce transactions; and (3) the use of arbitration to resolve consumer and employment disputes in the United States, which to date has largely been a domestic undertaking but increasingly shows signs of becoming internationalized.
I. OVERVIEW OF AMERICAN INTERNATIONAL ARBITRATION LAW

The statutory framework governing arbitration in the United States has remained largely unchanged in recent years, although American arbitration law continues to evolve through court decisions. This part first describes the legal framework governing international arbitration in the United States, and then discusses some current is sues in American international arbitration law.5 A. Legal Framework

Treaties. The United States is a party to the New York Conven tion (which entered into force for the U.S. on December 29, 1970),6 and the Panama Convention (which entered into force for the U.S. on October 27, 1990).7 The United States also is a party to the ICSID Convention, which established the International Centre for Settle ment of Investment Disputes.8 In addition, Chapter 11 of the North American Free Trade Agreement (NAFTA) provides for arbitration to
see Howard 5. For a more detailed M. Holtzmann & Donald Francis overview, for in IV International United Council Commercial Arbitra Donovan, States, on Commercial International Handbook Arbitration ed. (Jan Paulsson tion, Jan. 1999). Supp.

6. Convention
June

on the Recognition

and Enforcement

of Foreign Arbitral Awards,

On reci Jan.

21 U.S.T. 10,1958, the Convention, ratifying reservation. Id. procity 1. Inter-American

3 [hereinafter 330 U.N.T.S. New York Convention]. 2517, the U.S. made the commercial both reservation and the Convention on International Commercial

Arbitration,

30, 1975, 14 I.L.M. 336 (1975). The U.S.

ratified the Convention

subject to the reci

Id. Unlike others. the New York among reservation, Convention, procity by its terms is limited to "commercial transaction the Panama Convention [s]," id. art. 1, so that no was reservation For a comparison commercial of the Panama Convention necessary. see John and to the New York P. Bowman, The Panama Its Convention Convention, the Federal Implementation Arbitration Act Under 23-62 (2002). 8. Nationals Convention of Other on the States, Settlement of Investment art. 1(1), Mar. 18, 1965, Disputes 17 U.S.T. 1270, Between States 575 U.N.T.S. and 159

[hereinafter ICSID Convention].

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resolve disputes between investors and state parties,9 as do several other Free Trade Agreements entered into by the U.S., such as the recent Dominican Republic-Central America Free Trade Agreement (CAFTA-DR).10 Finally, the United States is party to over 40 Bilat eral Investment Treaties (BITs), which likewise provide for arbitra tion to resolve investor-state disputes." National Legislation. In 1925, the United States adopted the Federal Arbitration Act, which remains the central statutory author ity governing arbitration in the United States. Chapter 1 of the FAA contains the basic provisions of the Act, which make arbitration agreements and awards enforceable.12 Chapter 2 of the FAA imple ments the New York Convention,13 while Chapter 3 implements the Panama Convention.14 Many commentators have called for reform of the FAA, particularly as it applies to international arbitration, view ing it as archaic and incomplete.15 But prospects for revision of the Act appear limited. The ongoing controversy in the United States over consumer and employment arbitration, discussed in more detail below,16 discourages efforts to amend the FAA as it applies to inter national arbitration.17 In addition to the FAA, several American State Legislation. states have adopted their own statutes applicable to international ar bitration, some of which are based on the UNCITRAL Model Law on
9. North American Free Trade Agreement, Dec. 17,1992, Can.-Mex.-U.S., ch. 11,

32 I.L.M. 605, 639-49 [hereinafter NAFTA]. 10. Dominican Republic-Central America-United

Aug. 11. Bilateral 5, 2004, For a art. 10.16, see available Bureau at of Econ. Fact

States Free Trade Agreement, [hereinafter CAFTA-DR].

U.S. 16, Dep't 2005), of State, available U.S. at

www.ustr.gov/Trade_Agreements/Bilateral/ & Bus. Affairs, Sheet (Mar.

CAFTA/CAFTA-DR_Final_Texts/Section_Index.html
listing, Investment Treaty Program

www.state.g0v/e/eb/rls/fs/22422.htm.

12. 9 U.S.C.

?? 1-16. The next section of this report describes

the FAA in more

Chap chap

text accompanying notes 21-76. detail. See infra 13. 9 U.S.C. To the extent 2 and 3 do not conflict with ?? 201-208. Chapters as well ter 1, the provisions of Chapter 1 apply to arbitrations to those subject

ters. Id. ?? 208 & 307. 14. Id. ?? 301-307.

15. E.g., Edward

Brunet

et

al.,

Arbitration

Law

in America:

A Critical

Reas

sessment

? 6.1(1) (forthcoming 2006) (chapter by Richard E. Speidel)

(describing cur

as "sadly rent U.S. law on international W. Hulbert, arbitration Richard deficient"); on a Proposed Comment New Int'l Statute 13 Am. Rev. Arbitration, for International Arb. 153 (2002) arisen and persist. There is ample have ("unresolved 153, problems room for improvement."); W. Park, William The Specificity Arbitra of International

tion: The Case for FAA Reform, 36 Vand. J. Transnat'l L. 1241, 1248 (2003) ("The United States remains a victim of a self-inflicted competitive disadvantage imposed by its single legal framework for arbitration").
16. 17. and that See text accompanying notes 157-158. infra note is a boiling supra Hulbert, 15, at 153 ("there controversy character of American arbitration law today, and proposals for over statutory the sweep amend

ment will have to fight their way

through it"). For example, Professor Park reports

arbi important of by mention

in New York, of an the General Counsel "[a]t a recent colloquium service to the 'shivers trator referred down the spine' produced provider FAA note amendment." supra Park, 15, at 1245 n.13.

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(UNCITRAL Model Law).'8 International Commercial Arbitration But because the FAA preempts inconsistent states laws,'9 so far the laws have had "only marginal state international arbitration impact."20 B. Current Issues in International Arbitration States Law in the United

By modern standards, the Federal Arbitration Act is a "bare bones statute directed primarily at insuring that courts give effect to arbitration clauses and awards, and prescribes no significant proce dural standards."'2' The FAA makes arbitration agreements enforcea ble, and sets out only limited grounds for vacating arbitration awards. This section describes some current issues arising under the FAA as it applies to international arbitration. 1. Enforcing Arbitration Agreements Section 2 of the FAA makes both pre-dispute and post-dispute arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."22 Under the savings clause to section 2, parties can challenge the enforceability of arbitration agreements under "ordi nary state-law principles that govern the formation of contracts" such as lack of assent, lack of consideration, duress, and the like.23 For arbitration agreements subject to the New York Convention, Chapter 2 of the FAA establishes a number of additional procedural options: it creates subject matter jurisdiction in federal court,24 grants a defendant in state court the right to remove the case to fed eral court,25 and expands the power of federal courts to order parties to arbitrate.26 Chapter 3 of the FAA contains similar provisions for agreements subject to the Panama Convention.27
18. utes and See Holtzmann the Absence & Donovan, of Significant supra note 5, at U.S.A.-3.

19. See Daniel A. Zeft, The Applicability

Preemption

of State International
Concerns, 22 N.C

Arbitration
J. Int'l

Stat

L. & Com.

Reg. 705 (1997); Student Comment, State International Arbitration Statutes: Why They Matter, 32 Tex. Int'l L.J. 525 (1997). See generally Christopher R. Drahozal, Federal Arbitration Act Preemption, 79 Ind. L.J. 393 (2004) (describing general ap proach for addressing FAA preemption issues).
note supra 15, at 1245 n.16. in Interna F. Sherman, Tradition and Innovation Scott Rau & Edward L.J. 30 Tex. Int'l tional Arbitration (1995). Procedure, 89, 90 n.3 are for transportation workers and motor 22. 9 U.S.C. vehicle ? 2. Exceptions are discussed in more both of which detail franchise infra text accompa agreements, notes 151-156. nying 20. 21. Park, Alan

23. First Options

24. 9 U.S.C. ? 203.

of Chicago,

Inc. v. Kaplan,

514 U.S. 938, 944 (1995).

25. Id. ? 205. 26. Id. ? 206. 27. Id. ?? 302 & 303.

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INTERNATIONAL ARBITRATION

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Agreement in Writing. The courts of appeals are split on the proper interpretation of the "agreement in writing" requirement of Article II(1) of the New York Convention.28 The Fifth Circuit has held that tacit assent to a written arbitration agreement is sufficient to satisfy Article II(1)'s writing requirement.29 Other courts of appeals reject that interpretation, holding instead that the arbitration agree ment must be signed by both parties to fall under the Convention.30 Claims Capable of Settlement byArbitration. Since Scherk v. Al berto-Culver Co.,31 the U.S. Supreme Court has consistently held securities fraud,33 and age that federal statutory claims-antitrust,32 be arbitrated. For a time, the courts of discrimination claims34-can appeals were split on whether Title VII employment discrimination claims could be arbitrated, but the Ninth Circuit now has reversed its prior position and agrees with the other circuits that employment dis crimination claims are arbitrable.35 Separability and Kompetenz-Kompetenz. In Prima Paint Corp. v. Flood & Conklin Mfg. Co.,36 the Supreme Court recognized the doc trine of separability under the FAA, holding that the defense of fraudulent inducement of the underlying contract (the contract con taining the arbitration clause) was for the arbitrator, and not the the Court held in First Options of court, to decide.37 Subsequently, Chicago, Inc. v. Kaplan38 that a court could review de novo the arbi trators' ruling that a non-signatory was bound to arbitrate.39 There after, in a trio of cases decided in its 2002-2003 term, the Court identified an array of issues to be decided by the arbitrator rather than the court: (1) application of a time limit for submitting claims to
28. New York Convention,
that "[t]he term 'agreement an arbitration agreement, or telegrams"). signed

supra note 6, art. 11(1); see also id. art. 11(2) (providing
shall the by parties an arbitral or in a contract include clause or contained in an exchange of letters 669-70 Lucas (5th Lan

in writing*

caster, Inc. v. Lark Int'l, Inc., 186 F.3d 210, 215 (2nd Cir. 1999); Standard Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 449 (3d Cir. 2003). 31. 417 U.S. 506 (1974). 32. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (in international setting). 33. Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987) (1934 Se curities Exchange Act and racketeering claims); Rodriguez de Quijas v. Shearson/ American Express, Inc., 490 U.S. 477 (1989) (1933 Securities Act claim), overruling Wilko v. Swan, 346 U.S. 427 (1953). 34. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). 35. EEOC v. Luce, Forward, Hamilton & Scripps, 345 F.3d 742, 744 (9th Cir. 2003) (en banc), overruling Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998). 36. 388 U.S. 395 (1967).
37. Id. Id. at 404. at 943-44.

29. See Sphere Drake Ins. PLC v. Marine 16 F.3d 666, Inc., Towing, cert, denied, 513 U.S. 871 (1994). Cir.), or telegrams." in an exchange of letters 30. Or be "contained See Kahn

38.
39.

514 U.S. 938 (1995).

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arbitration;40 (2) interpretation of a limitation on the award of puni tive damages;41 and (3) determination whether an arbitration agree ment permits classwide arbitration.42 Confusion remains in the lower courts over the application of Prima Paint to other issues, in particu lar a claim that the underlying contract is illegal and therefore unen forceable. The Supreme Court has granted review in Buckeye Check Cashing, Inc. v. Cardegna, which will be argued on November 29, 2005, to resolve that issue.43 A substantial amount of litigation in recent Non-Signatories. years has involved two related issues: whether a non-signatory is bound by an arbitration agreement; and whether a non-signatory can enforce an arbitration agreement against a signatory. American courts have recognized five theories on which non-signatories can be held bound to an arbitration agreement: (1) incorporation by refer ence; (2) assumption (i.e., the non-signatory by its conduct has as sumed the obligation to arbitrate); (3) agency; (4) alter ego (i.e., the court pierces the corporate veil); and (5) estoppel.44 In determining to compel arbitration, courts like whether to permit non-signatories wise look to equitable estoppel principles, based on the degree to which the claim is "intertwined" with a contract that includes an ar bitration clause.45 2. Rules Governing Arbitral Proceedings Because itwas enacted in 1925, the FAA lacks many of the rules governing the conduct of arbitration proceedings found in more mod ern arbitration statutes. Instead, filling the gaps in arbitration agree ments largely is left to private contract and court decisions. In the American federal system of government, Representation. the states set the rules governing the practice of law and attorney admission to practice in the state. In Birbrower, Montalbano, Condon
40. 41. 42. 43. Howsam PacifiCare Green Cardegna Tree v. Dean Health Witter Sys., 79 (2002). Inc., 537 U.S. Reynolds, Inc. v. Book, 538 U.S. 401 (2003). v. Bazzle, 539 U.S. 444 (2003). Cashing, Inc., 894 So. 2d 860 (Fla.), cert, granted,

125 S. Ct. 2937 (2005). One complication is that Buckeye comes from the Florida Su preme Court, so that it raises not only the Prima Paint issue but also the question of
how in state court. See supra the FAA applies was with classwide case, dealing arbitration, one reason eventual the Supreme Court's why text accompanying note 19. The Bazzle in the same procedural which is posture, so splintered. was decision See Bazzle, theories to arbitrate. is Thomson-CSF, For a comparative S.A. v. Ameri of

Fin'l Corp. v. Buckeye Check

539 U.S. at 447 (nomajority

44. held A that

opinion).
describes not these bound

can Arbitration

leading

case

is that

Association,

64 F.3d 773 (2d Cir. 1995), in which

was

the Second Circuit

analysis

the different theories, see James M. Hosking, The Third Party Non-Signatory's Ability to Compel International Commercial Arbitration: Doing Justice Without Destroying
Consent, 45. 4 Pepp. E.g., Disp. Grigson L.J. 469 Resol. v. Creative Artists (2004). Agency, L.L.C, 210 F.3d 524 (5th Cir.), cert,

the non-signatory

denied,

531 U.S.

1013 (2000).

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& Frank, P.C. v. Superior Court,46 the California Supreme Court held that an out-of-state law firm's representation of a California party in an arbitration proceeding to be held in California constituted the un authorized practice of law and thus was unlawful.47 Although the California legislature responded to the decision by permitting repre sentation by an out-of-state attorney in arbitration if the attorney re tains local counsel (i.e., a California attorney to assist in the case) and the arbitrators approve, the statutory fix is only temporary.48 The issue remains an important one in California and in other juris dictions as well.49 Discovery. Under American arbitration law and practice, discov ery among parties to the arbitration proceeding is governed by their agreement and by the arbitrators' discretion.50 As for discovery from third parties (i.e., non-parties to the arbitration agreement), courts are split on whether section 7 of the FAA authorizes arbitrators to subpoena non-parties for purposes of pre-hearing discovery.51 Interim Measures. A long-standing controversy inAmerican arbi tration law involves the availability of court-ordered interim mea sures in support of arbitrations governed by the New York Convention. An early split in the cases persists,52 with at least some American courts refusing to order interim relief in cases governed by the Convention.53 Party-Appointed Arbitrators. A notable aspect of domestic Ameri can arbitration practice has been the presumption that party-ap pointed arbitrators act as advocates for the appointing party rather
46.
47.

949 P.2d 1 (Cal. 1998).

Id. at 7. One commentator criticized the Birbrower decision as

against

the trend of judicial precedents

and legislative

enactments

"run[ning]

that have been

to ironically, those in the to the rest of

the right of representation liberalizing The decision under American pressure. United States who have been preaching the world." A. Eastman, 94 Am. Richard

in a number of countries?often, an embarrassment is thus in such matters liberal policies L. 400, 403 J. Int'l (2000).

48. Cal. Civ. Proc. Code ? 1282.4(b),

49. See California Moves 30, to Protect ADRWorld.com, Aug. man et al., Developments arbitration 50. from Stephen

(c) (expiring Jan. 1, 2007).

in Arbitration, Out-of-State Lawyers 2005 www.adrworld.com/sp.asp?id=38832; Mark W. Fried in International Resolution in 2003, 38 Commercial Dispute unauthorized Alternative with practice Dispute rules). Resolution Inc. 79-80 v. E.B.S. (2001).

Int'l Law. 265, 274-75

proposed J. Ware,

(2004) (describing exemption by Florida Bar of international

51. Compare
(permitting

In re Security Life Ins. Co., 228 F.3d 865, 870-71

discovery) Hay Group,

(8th Cir. 2000)

Corp.,

pre-hearing

360 F.3d 404, 408-09 (3d Cir. 2004) (refusing to permit pre-hearing discovery). 52. Compare McCreary Tire & Rubber Co. v. CEAT SpA, 501 F.2d 1032, 1038 (3d Cir. 1974) (pre-award attachment not permitted) with Carolina Power & Light Co. v. 451 F. Supp. 1044, 1051-52 (N.D. Cal. 1977) (pre-award attachment Uranex, permitted). 53. See Student Note, What I Tell You Three Times Is True: U.S. Courts and Pre Award Interim Measures Under theNew York Convention, 35 Va. J. Int'l L. 971, 986 (1995); see also Hulbert, supra note 15, at 164 (citing "division in the U.S. cases").

Acquisition

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than as neutral adjudicators.54 Effective March 1, 2004, however, the AAA and the American Bar Association issued a revised Code of Eth ics forArbitrators in Commercial Disputes, which "establishes a pre sumption of neutrality for all arbitrators, including party-appointed arbitrators, which applies unless the parties' agreement, the arbitra tion rules agreed to by the parties or applicable laws provide other wise."55 While the Code of Ethics is not binding on parties and arbitrators (unless they so agree), the AAA subsequently amended its Commercial Arbitration Rules to reflect the same default rule.56 3. Enforcing and Vacating Arbitration Awards
award in the United States:

Section 10(a) of the FAA sets out the following grounds for vacat
ing an arbitration

(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; in (3) where the arbitrators were guilty of misconduct refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and mate rial to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.57 Section 9 of the Act makes clear that a court must confirm (i.e., enter judgment on) an award "unless the award is vacated" (ormodified or corrected by the court).58 Manifest Disregard. In addition to the statutory grounds, every United States Court of Appeals has recognized an additional, non statutory ground for vacating an arbitral award: awards may be va cated for "manifest disregard of the law."59 To establish manifest disregard of the law, a party typically must show that the arbitrators knew of the governing legal standard but intentionally disregarded
54. Alan Scott Rau, The Culture of American Arbitration and the Lessons ofADR, 40 Tex. Int'l L.J. 449, 458 (2005); Sphere Drake Ins. Ltd. v. All American Life Ins. Co., 307 F.3d 617, 620 (7th Cir. 2002), cert, denied, 538 U.S. 961 (2003). 55. See Code of Ethics for Arbitrators in Commercial Disputes, Note on Neutrality (effective Mar. 1, 2004). 56. See AAA, Commercial Arbitration Rules, Rule R-12(b) (effective July 1, 2003).
57. 58. 59. Id. 9 U.S.C. ? 10. ? 9. The grounds less often for modifying used, nonstatutory or correcting ground an award are set E.g., out in sec

tion 11 of the FAA. Id. ? 11. v. Blue Cross/Blue Shield, 988 F.2d 1020, 1023 (10th Cir. 1993); PaineWebber, Agron, 49 F.3d 347, 350 (8th Cir. 1995).
Another, is public policy. Seymour

Inc. v.

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it, and that the legal standard was well defined and plainly applica ble to the case.60 Although the courts of appeals repeatedly have rec ognized the manifest disregard ground,6' the United States Supreme Court has referred to the ground only in dicta,62 and the circuits have vacated only a handful of awards on the basis of manifest disregard.63 Expanded Review Provisions. The courts of appeals are split on whether parties can contract for expanded court review of arbitration awards under the FAA-in other words, whether the FAA sets out default or mandatory standards for vacating awards.64 Most courts agree, however, that parties cannot waive the FAA grounds, and thus contract for reduced court review of awards.65 New York Convention Grounds. For awards subject to the New York Convention, section 207 of the FAA provides that a court "shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention."66 Although the language of the ? 10 grounds differs from the grounds provided by the New York Convention,67 as con strued by the American courts both sets of grounds are "broadly simi lar (but not identical)" in content.68 One key difference is the "manifest disregard of the law" ground, which is not available under the New York Convention. The courts of appeals are divided on whether the ? 10 grounds or the New York Convention grounds apply

60. E.g., Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 389-90 (2d Cir. 2003); see also George Watts & Son, Inc. v. Tiffany & Co., 248 F.3d 577, 580 (7th Cir. 2001) (concluding that manifest disregard means that "an arbitra
tor may 61. not Michael direct A. the parties to violate and the law"). Limits on the Powers of Commer Scodro, Deterrence Implied

cial Arbitrators, 55 Duke L.J. (forthcoming 2005). 62. See Wilko v. Swan, 346 U.S. 427, 436-37 (1953); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995). 63. Duferco, 333 F.3d at 389 ("since 1960 we have vacated some part or all of an arbitral award for manifest disregard in the following four out of at least 48 cases where we applied the standard"); Dawahare v. Spencer, 210 F.3d 666, 670 (6th Cir.), cert, denied, 531 U.S. 878 (2000) (identifying only two U.S. court of appeals cases
vacating 64. Law award for manifest Christopher (with Comments of the law). disregard R. Drahozal, Rule and International Default Theory on Expanded Review and Ex Parte Interim Relief), Arbitration Int'l Arb.

News, Winter 2004/2005, at 2, 3-5; Christopher R. Drahozal, Standards for Judicial Review of Arbitral Awards in the United States: Mandatory Rules or Default Rules?,
Meale^s Int'l Arb. Rep., Sept. 2001, at 27.

65. E.g., M&C Corp. v. Erwin Behr GmbH & Co., 87 F.3d 844, 847 (6th Cir. 1996). 66. 9 U.S.C. ? 207; see also id. ? 302 (incorporating ? 207 into Chapter 3 of the FAA).
67. 68. New Gary York B. Convention, Born, supra note 6, art V. Commercial Arbitration: Commentary & International

Materials

782 (2d ed. 2001).

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in an action to vacate a non-domestic award made in the United States.69 Proper Venue for Action to Vacate. American courts have recog nized that the place of arbitration is the proper forum in which to bring an action to vacate an award subject to the New York Conven tion. Thus, in Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara,70 an Indonesian party had obtained an order from an Indonesian court vacating an arbitration award made in Switzerland (after the Swiss courts had refused to vacate the award). The Fifth Circuit held that the Indonesian court's annulment of the award was not a defense to enforcement of the award in the United States.71 Enforcing Vacated Awards. Article V(1)(e) of the New York Con vention provides that a court "may" refuse to enforce an award that has been vacated in the country inwhich made.72 In In re Chromalloy Aeroservices,73 the United States District Court for the District of Columbia nonetheless enforced an award that had been vacated by a court in the arbitral situs (Egypt).74 Interpretations of Chromalloy differ,75 and subsequent American cases have limited its holding.76
II. UNITED STATES INVOLVEMENT IN INTERNATIONAL ARBITRATION

American involvement in international arbitration dates back to the Jay Treaty of 1794, which established arbitral commissions to re solve claims by British creditors against United States nationals.77 The Treaty was extremely unpopular at the time, but is enjoying a renaissance among modern arbitration scholars, who point to it as "the beginning of the modern era of international arbitration."78 With
69. See Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15,

23 (2d Cir. 1997), cert, denied, 522 U.S. 1111 (1998); Born, supra note 68, at 727-28 (citing circuit split). 70. 364 F.3d 274 (5th Cir.), cert, denied, 125 S. Ct. 59 (2004); see also Int'l Std.
Elec. 71. 72. Corp. 364 New Id. An v. Bridas F.3d York at at Sociedad 308-10. supra note 6, art. V(l)(e). An?nima Petrolera, 745 F. Supp. 172, 178 (S.D.N.Y.

1990).
Convention,

73.
74. Awards:

939 F. Supp. 907 (D.D.C 1996).

912-14.

75. See Christopher

Economic

R. Drahozal,

Enforcing
Rev. Int'l

Vacated
Arb.

International
451, 461-64

Arbitration

76. Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd., 191 F.3d 194,197 n.3 (2d Cir. 1999) (distinguishing Chromalloy); Spier v. Calzaturificio T?cnica, S.p.A., 71 F. Supp. 2d 279, 287, on reargument, 11 F. Supp. 2d 405 (S.D.N.Y. 1999) (same);
77. arts. St. Treaty V, VIII, Disp. of Amity, Commerce, 8 Stat. 116, 119-20, and 122. Navigation, Nov. 19, 1794, U.S.-Gr. Brit.,

Approach,

11 Am.

(2000).

78. Roger P. Alford, The American

J. on Settlement pute Barton Legum,

Influence on International Arbitration,

19 Ohio

see also Jonathan I. Charney, Resol. 69, 72 (2003); J. Transnat'l 36 Colum. and International Law, and NAFTA Investment Eleven, Chapter Disputes

Third Dis Party L. 65, 68 (1997); Int'l 95 Am. Soc'y

L. Proc.

196, 204 (2001).

2006]

INTERNATIONAL ARBITRATION

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some notable exceptions, however,79 U.S. involvement in interna tional arbitration then diminished.80 Indeed, the U.S. was "largely absent" at the drafting of the New York Convention, and did not ac cede to the convention until 1970, over a decade later.81 But the pendulum now is swinging back. According toMichael Goldhaber, "Americans have infiltrated the world of international ar bitration, and threaten to dominate the field."82While the threat of American domination of the field as a whole is no doubt an overstate ment, it certainly is true that American involvement in international arbitration has increased substantially over the last several decades. One indication can be seen in the caseload of the American Arbi tration Association and its International Centre for Dispute Resolu tion, which, as noted in the Introduction, more than tripled between 1993 and 2003.83 Of course, in 1999, the AAA established an office of the ICDR in Dublin, Ireland-in the words of one commentator, "closer towhere the action is and, perhaps, away from U.S. domestic law and practices."84 Other evidence of the growing American presence in interna tional commercial arbitration comes from data published by the In ternational Court of Arbitration of the International Chamber of Commerce ("ICC").85 Table 1 reports the number of American parties
79. the Alabama arbitration the U.S. between and See, for example, the American Civil War. See Alford, note supra following 78, at 74-75. 80. Id. at 70-71 the American when influence (discussing "periods tional has rather arbitration than flowed"). ebbed, Great on Britain interna

81. Id. at 71. The U.S Delegation

not sign laws or adhere to the convention," will

"recommend [ed] strongly that the United States

giving confer the following reasons:

1. The convention,
and 2. The override judicial

if accepted on a basis that avoids conflict with State

no meaningful advantages on the

procedures,

United
will tail

States.
on a basis if accepted that assures such convention, advantage, the arbitration laws of a substantial number of States and en in State and possibly court procedures. Federal a sufficient United States lacks domestic for accept legal basis on this subject advanced international convention matter. embodies the United of arbitration principles to endorse. States law which it would

changes 3. The ance of an

not

4. The convention be desirable for

Official Report of the United States Delegation to the United Nations Conference on International Commercial Arbitration 2, 22 (Aug. 15, 1958), quoted in Leonard V.
Quigley, Accession by the United States to the United Nations Convention on the Rec

ognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1074 n.108 (1961). 82. Michael Goldhaber, The Court that Came in from the Cold, Am. Lawyer, May 2001.
83. 84. See Elena text accompanying supra V. Helmer, International notes 3-4. Arbitration: Americanized, "Civi Commercial

19 Ohio St. J. on Disp. Resol. 35, 42 (2003). lized," or Harmonized?, 85. Dezalay & Garth describe the ICC as the "central institution" in international
commercial ternational arbitration. Commercial Yves Dezalay Arbitration & Bryant and the G. Garth, Construction in Virtue: Dealing of a Transnational In

Legal

Order

45 (1996). Of course, the interviews

on which

their book is based are

244

THE AMERICAN

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involved in ICC arbitrations from 1980-2004.86 While the number of American parties has increased substantially over the last 25 years, from an average of 70.4 per year from 1980-1988 to 189.0 per year from 2000-2004, so, too, has the number of ICC arbitrations. As a result, the relative share of American parties has remained largely flat, increasing only from 11.2 percent during 1980-1988 to 12.1 per cent during 2000-2004. That said, Americans have been the national ity most frequently involved in ICC arbitrations for every year since 1998.87
TABLE 1. NUMBER OF AMERICAN PARTIES TO ICC ARBITRATIONS,

1980-2004

1980-1988
Claimants (Average per year) 301 (33.4)

1989-1999
574 (52.2)

2000-2004
481 (96.2)

Respondents
(Average per year) Total American Parties (Average per year) Total Parties % American

333
(37.0) 634 (70.4) 5676 11.2%

628
(57.1) 1202 (109.3) 11,143 10.8%

464
(92.8) 945 (189.0) 7778 12.1%

Data on the choice of the U.S. as place of arbitration and the se lection of Americans to serve as arbitrators in ICC arbitrations show more substantial increases, both in absolute and percentage terms. As shown in Table 2,88 the United States was selected as the place of arbitration an average of 45.4 times per year (10.0 percent of total choices) from 2000-2004, up from 10.9 times per year (4.9 percent of total choices) from 1980-1988. Similarly, as Table 3 shows,89 Ameri
more in the 86. than past The ten years decade. sources old for at the this data time, and so do not 1 are W. Craig reflect Laurence et al., any changes Craig International et that al., occurred Interna

in Table Laurence

tional
ter

Chamber of Commerce Arbitration

3d ed.]; W.

732, 734 table 5 (3d ed. 2000)

[hereinaf
of

ICC Arbitration,

Chamber

Commerce Arbitration app. 1-8,1-11 table 5 (2d ed. 1990) [hereinafter ICC Arbitra tion, 2d ed.]; and 2000-2004 Statistical Reports, 12(1)-16(1) ICC Int'l Ct. of Arb. Bull. (2001-2005). 87. See 1998-2004 Statistical Reports, 10(1)-16(1) ICC Int'l Ct. of Arb. Bull. (1999-2005).
88. The sources for the data in Table 2 are ICC Arbitration, 3d ed., supra note

2d ed., supra note 86, app. 1-13,1-15 table 7; 86, at 738, 739 table 7; ICC Arbitration, and 2000-2004 Statistical Reports, 12(1)-16(1) ICC Int'l Ct. of Arb. Bull. (2001 2005).
86, 89. at The 728, sources 729 table for 4; the data in Table ICC Arbitration, 3 are ICC Arbitration, note 2d ed., supra 86, 3d app. note ed., supra table 1-5,1-6 4;

and 2000-2004 2005).

Statistical

Reports,

12(1)-16(1)

ICC Int'l Ct. of Arb. Bull.

(2001

2006]

INTERNATIONAL ARBITRATION

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245

cans were selected to serve as ICC arbitrators an average of 107.4 times per year (11.5 percent of total selections) from 2000-2004, up from an average of 30.4 times per year (6.6 percent of total selections)

from 1980-1988.
TABLE 2. SELECTION OF UNITED STATES AS PLACE OF ARBITRATION IN

ICC ARBITRATIONS, 1980-2004

By Parties (Averageper year) By ICCCourt (Averageper year) Total American Sites (Averageper year) Total Choices
% American

1980-1988 76 (8.4) 22 (2.4) 98 (10.9) 1993

4.9%

1989-1999 213 (19.4) 34 (3.1) 247 (22.5) 3393

7.3%

2000-2004 192 (38.4) 35 (7.0) 227 (45.4) 2265

10.0%

TABLE 3. SELECTION OF AMERICAN

NATIONALS

AS ICC ARBITRATORS,

1980-2004 1980-1988 274 (30.4) 4160

6.6%

Total Americans (Averageper year) TotalArbitrators

% American

1989-1999 592 (53.8) 6853

8.6%

2000-2004 537 (107.4) 4664

11.5%

While the ICC data illustrate an increase in American involve ment in international arbitration, they do not reveal where, accord increase in American the greatest ing to many commentators, involvement has been: in the representation of parties by Anglo of law firms90 and arbi American law firms. Recent surveys-both tration proceedings91-show the quantitative significance of Anglo American law firms in international arbitration practice. Roger Al ford concludes: "Just as the United States has been and will be the dominant force in economic globalization, [American] law firms will be the dominant force in international arbitration."92 So perhaps at least in this respect Goldhaber's prediction may be borne out.
90. 91. 2005, 92. note supra 78, at 81-82. Alford, D. Goldhaber, See Michael Arbitration Scorecard, at www.americanlawyer.com/focuseurope/scorecard0605.html. available Alford, supra note 78, at 80.

Focus

Europe,

Summer

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The effect of this increasing American involvement in interna tional arbitration-particularly as party representatives-is unclear. Dezalay & Garth argue that American law firms have transformed international arbitration: they conclude that "[c]ompetition and ra tionalization, especially as promoted by U.S. litigators, leads to the judicialization of international commercial arbitration."93 But while some aspects of American procedure-such as discovery and cross become increasingly common in international ar examination-have bitration, most commentators see a "harmonization" rather than an "Americanization" of arbitration procedures.94 The centerpiece of in 'ternational arbitration remains party autonomy, and the parties who come from all legal cultures, not just one-retain their ultimate authority over the arbitration process. OF III. NEW EXPERIENCES INTERNATIONAL ARBITRATION This part describes the American experience with international arbitration in three areas, all of which may be considered "new" ex periences in at least some respect: (1) investor-state arbitration; (2) arbitration agreements in electronic commerce transactions; and (3) consumer and employment arbitration. A. Investor-State Arbitration

Although investor-state arbitration dates back at least to the Jay Treaty of 1794,95 in recent years the number of investment arbitra tion proceedings has increased dramatically.96 To illustrate: claim ants filed a total of three treaty-based cases with the World Bank's International Centre for Settlement of Investment Disputes (ICSID) from its inception through 1994. In the next ten years-through No vember 2004-claimants filed an additional 103 cases.97 Investment
Dezalay note 93. & Garth, supra 85, at 57. note 94. with e.g., Alford, supra See, 78, at 70 ("Anyone are many international arbitration knows that rivers there to exposure this delta,

significant that flow

into

not just the Hudson,

but also the Thames,

the Seine,

the Rhine,

the Amazon,

the

note and the Nile"); American supra Helmer, 84, at 66-67 Yangtze, ("Strong influence, as well as strong on arbitration If arbitration Continental will continue.... influence, turns into U.S.-style to arbitrate 'off-shore the incentive international dis litigation,' or even go away."); diminish will The & Jonathan "Ameri putes Sutcliffe, Lucy Reed Arb Rep., canization" Mealey's Int'l at 11 2001, Arbitration?, of International Apr. at the opening of the 21st to describe international ("it is more accurate, century, as increasingly arbitration rather than 'Americanized'"). 'homogenized' text accompanying notes 95. 77-78. See supra 96. Because investor-state arbitration of recent has been the topic of a number conferences, eral Reporter. the discussion in this report will be brief, per the instructions of the Gen

97. United Nations Conference on Trade and sional Note, International Investment Disputes on 2004/2, at 1 (Nov. 29, 2004). In addition, UNCTAD 54 [investment] cases (cumulative) outside ICSID,
1994." Id.

(UNCTAD), Occa Development the Rise, UNCTAD/WEB/ITE/IIT/ reported that "there are at least as compared to two at the end of

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INTERNATIONAL ARBITRATION

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arbitrations also are notable for their high stakes: claimants regu larly seek to recover hundreds of millions or even billions of dollars, and the claims may involve sensitive issues of national policy.98 As noted above, the United States is a party to the ICSID Con vention,99 and American nationals have been claimants in ICSID ar bitrations.'00 Although arbitration under the ICSID Convention is listed as an option under Chapter 11 of NAFTA, neither Canada nor Mexico is a party to the ICSID Convention. Thus, NAFTA Chapter 11 arbitrations involving the U.S. or U.S. claimants must be brought ei ther under the ICSID additional facility rules or the UNCITRAL Ar bitration Rules.10' To date, the United States has prevailed on all the claims brought against it under NAFTA for which a final award has been issued, although a number of claims remain pending (and more presumably will be filed).102 The growth of investment arbitration activity has given rise to an array of criticisms. Although these criticisms are not unique to the United States, American critics have been among the most vocal. The following are samples, taken from articles in leading American

newspapers:
* "Their meetings are secret. Their members are generally unknown. The decisions they reach need not be fully dis closed. Yet the way a small group of international tribu nals handles disputes between investors and foreign governments has led to national laws being revoked, jus tice systems questioned and environmental regulations challenged."'03 * "IW]ith the proliferation of trade and investment agree ments that hand foreign investors surprisingly broad rights, local governments are losing the power to protect their people, environment and economy.'"104 * "Unlike trials, arbitrations take place in secret. There is no room in the process to hear people who might be hurt .... There is no appeal. And the rules of the game are
note 91. supra Goldhaber, text accompanying note 8. See supra World ICSID Cases: Decisions Online Bank, icsid/cases/awards.htm (last visited 8, 2005). Sept. 98. 99. 100. See

and Awards

www.worldbank.org/

101. NAFTA, supra note 9, art. 1120(1); see Jack J. Coe, Jr., Taking Stock of NAFTA Chapter 11 in Its Tenth Year: An Interim Sketch of Selected Themes, Issues, L. 1381, 1387 (2003). and Methods, 36 Vand. J. Transnat'l
filed note See Coe, For updated information supra 101, at 1438-39. under of many and awards, NAFTA, copies including pleadings NAFTA Arbitrations Investor-State State, www.state.gov/sZl/c3439.htm and NAFTAClaims.com 8, 2005); Sept. www.naftaclaims.com/disputes.htm 102. on arbitrations see U.S. of Dep't (last visited (last vis Times, 2005, Mar. 11,

ited Sept. 8, 2005).

103. 104. Anthony Daphne De Palma, A NAFTA's Toxic Powerful Wash. Little Post, Secret, Aug. N.Y. 14,

2001, at Cl.
Eviatar, Trade-off, at B01.

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such that when companies seek to recover damages, arbi tration panels ... need not consider whether the action in question was necessary to protect the environment or public health, or even to stop a corporation's harmful behavior."'05 These criticisms-that the process lacks transparency and that it been echoed in other fora usurps national regulatory authority-have as well.'06 In addition, investment arbitration has been criticized for a lack of consistency (both potential and actual) in outcome. Although the Lauder arbitrations (one of which involved an American claim ant) are perhaps the best-known examples, commentators have iden in NAFTA and other investment arbitration tified inconsistencies awards as well.'07 The responses to these criticisms have been multifaceted. The NAFTA Free Trade Commission has issued Notes of Interpretation that have sought to enhance the transparency of the process and to resolve some inconsistency in NAFTA awards,'08 although the effect of the Notes has been questioned.'09 Several NAFTA tribunals have permitted third parties to participate as amici curiae and held hear ings that were open to the public."10 The U.S. Model Bilateral Investment Treaty, updated in Novem ber 2004,1"' makes clear that (1) tribunals have the authority to con
105. The Secret Trade Courts, N.Y. Times, Sept. 27, 2004, at A26.

106. See Guillermo Aguilar Alvarez & William W. Park, The New Face of Invest ment Arbitration: NAFTA Chapter 11, 28 Yale J. Int'l L. 365, 383-86 (2003). 107. See Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration:
Privatizing Public International Law Through Inconsistent Decisions, 73 Fordham L.

Rev. 1521, 1558-82 (2005). 108. The first Interpretative Note concluded that "[n]othing in the NAFTA
a general duty of confidentiality on the

imposes
arbitra

tion, and, subject to the application

disputing

parties

to a Chapter

Eleven

of Article

1137(4), nothing

in the NAFTA

pre

access to documents cludes the Parties from providing submitted to, or issued public NAFTA Eleven tribunal." Free Trade Notes of Interpreta Commission, by, a Chapter at www.state.gov/ 11 Provisions tion of Certain available 31, 2001), Chapter (July an interpretation The Note of Article also offered documents/organization/38790.pdf.

1105 of NAFTA, which had been the subject of potentially

awards. Id. written A more recent Interpretive from a person Note or concluded that

inconsistent
that "[n]o

applications
provision of

in
the

North American
accept

Free Trade Agreement

submissions

('NAFTA') limits a Tribunal's on Non-Disputing

entity is not

discretion
party."

to

a disputing

Statement

of the Free Trade Commission

Party Participation

(Oct.

at www.state.gov/documents/organization/38791.pdf. available 7, 2003), See Coe, note 109. supra 101, at 1429-30. v. United on Petitions Decision of the Tribunal 110. States, Corp. E.g., Methanex as "Amici to Intervene Persons 53 (NAFTA Curiae" from Third Jan. para. Tribunal, at www.naftaclaims.com/Disputes/USA/Methanex/Methanex available 2001), 15,

DecisionReAuthorityAmicus.pdf;

see also Statement

by the OECD Investment

in Investor-State Dispute at www.oecd.org/dataoecd/25/3/ States and of America Reciprocal and

Com
Settle

and Third mittee, Party Participation Transparency ment 22-35 available Procedures (June paras. 2005),

34786913.pdf.
111. ernment Between Treaty of [Country] the Government Concerning the of the United Encouragement the Gov of Protection

2006]

INTERNATIONAL ARBITRATION

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249

sider amicus filings;12 most filings should be made available to the public;1"3 and hearings should be open to the public.14 The trans parency provisions of CAFTA-DR, for example, are essentially identi cal to those of the Model BIT.15 Although the 2004 Model BIT does not provide for an appellate body to promote the consistency of arbi tral awards, Annex D to the Model BIT requires the parties "[w]ithin three years after the date of entry into force of this Treaty, . . . [to] consider whether to establish a bilateral appellate body or similar mechanism to review awards rendered under Article 34 in arbitra tions commenced after they establish the appellate body or similar mechanism."1"6 CAFTA-DR goes further and requires a negotiating group to be established within three months of its entry into force "to ... designed to pro develop an appellate body or similar mechanism vide coherence to the interpretation of investment provisions in the Agreement."17 Finally, although the 2004 U.S. Model BIT includes provisions that provide some degree of protection for domestic labor and environmental laws,1"8 it does not go as far as some labor and environmental groups wanted in limiting the reach of investor-state arbitration over such issues."19 Interestingly, the U.S.-Australia Free Trade Agreement does not include dispute resolution provisions like those in the 2004 U.S. Model BIT and other recent U.S. Free Trade Agreements: it omits for investor-state arbitration.120 The altogether any provisions
Investment, available at <www.state.gov/documents/organization/38710.pdf> (last

visited Sept. 8, 2005) [hereinafter 2004 U.S. Model BIT]. The U.S. State Department has explained that the Model BIT was updated to reflect the negotiating objectives set out in the Trade Act of 2002, see 19 U.S.C. ? 3802(b)(3), and its practices in negotiat
ing post-NAFTA free trade agreements. Bureau of Econ. & Bus. Affairs, U.S. Dep't of

State, Updated US. Model Bilateral Investment Treaty ("BIT")www.state.gov/e/eb/ rls/othr/38602.htm (last visited Sept. 8, 2005). 112. 2004 U.S. Model BIT, supra note 111, art. 28(3).
113. 114. 115. 116. 117. ensure Id. Id. art. art. 29(1). 29(2). note supra 10, arts. note Model supra BIT, note supra 10, Annex & 10.20(3) 111, Annex 10-F. 10.21. D.

CAFTA-DR, 2004 U.S. CAFTA-DR,

118. 2004 U.S. Model BIT, supra note 111, art. 12(1) ("each Party shall strive to
or otherwise or offer it does not waive that from, derogate such laws in a manner [domestic environmental] from, derogate reduces the protections afforded in those laws as an encouragement or retention in its of an investment ment, expansion, acquisition, as to "domestic labor 13(1) (same laws"). wise to waive or other or that weakens for the establish territory");

id. art.

119. Report of theAdvisory Committee on International Economic Policy Regarding theDraft Model Bilateral Investment Treaty 17 (Feb. 11, 2004), available at www.fido.
gov/facadatabase/reports/2004-157-10001.pdf. claims Among other changes, environmental

and labor groups sought to have the governments

afforded "the opportunity

to block

as health vital such and the environment, interests, involving public safety, to investor-state in the same manner and workers' arbitration rights from proceeding as claims tax measures be blocked." Id. may involving allegedly expropriatory

120. Article
if changed arbitration may

11.16(1) provides only for consultation

should make See be appropriate. it appear U.S.-Australia

between
of Free Trade

the contracting
that Agreement, May

states
18,

circumstances

to one

them

investor-state

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United States explained the omission as based on "recognition of the for example, the unique circumstances of this Agreement-including, longstanding economic ties between the United States and Australia, their shared legal traditions, and the confidence of their investors in operating in each others' markets."'12' Some may see this as confir mation that the United States has a "double standard" when it comes to investment arbitration: it is all in favor of investor-state arbitra tion when American companies are the investors being protected, but far less interested when the U.S. faces potential liability to foreign companies.'22 B. E-Commerce and International Arbitration

estimates, electronic According to U.S. Commerce Department commerce transactions in 2003 in the United States totaled almost $1.7 trillion.123 Projections for future growth range from 17% to 19% (B2C) e-commerce to per year through 2008 for business-to-consumer (B2B) e-com 45% per year through 2006 for business-to-business within a single merce.124 Much electronic commerce is domestic-i.e., country. But increasingly Internet transactions cross national bound aries. For example, American consumers can purchase books not only on Amazon.com, but also on Amazon.co.uk, Amazon.de, Amazon.fr, Amazon.co.jp, Amazon.ca, and other transnational merchandisers, while Amazon.com will ship goods to customers worldwide.125 This growth of electronic commerce provides yet another new experience for international arbitration.126 Certainly the availability of electronic means of communication has impacted the arbitration process itself and will continue to do so.127Attorneys regularly use e-mail to communicate, hearings take place by videoconference, arbitration institutions have adopted rules
2004, art. 11.16(1), available at www.ustr.gov/assets/Trade_Agreements/Bilateral/ Sum

Australia_FTA/Final_Text/asset_upload_filel48_5168.pdf. Trade of the United States 121. Office mary of the

FTA U.S.-Australia Representative, at www.ustr.gov/Trade_Agree available 15, 2004), (July Agreement ments/Bilateral/Australia_FTA/US-Australia_FTA_Summary_of_the_Agreement. html. 122. 123. Alvarez U.S. & Park, supra of Commerce, note 106, at 368-69. 11, 2005, at 2, available

Dep't

E-Stats,

May

at www.cen

sus.gov/eos/www/papers/2003/2003finaltext.pdf. on the U.S. Econ Have Will E-Commerce L. Willis, What 124. See Jonathan Impact vast of Kans. The Rev. Bank City?Econ. Fed. Res. 2004). 53, 57 (2d Qtr. omy?, are B2B See U.S. e-commerce rather than B2C transactions of U.S. (93.7%) majority note of Commerce, supra 123, at 2. Dep't that "[w]e can ship to virtually any address (last visited 8, 2005). Sept. an arbitration on the Amazon.com web include of Use" 126. The "Conditions page clause. See Conditions (last visited 8, 2005). Sept. of Use www.amazon.com Nine Crucial Issues Arbitration: Online International 127. de Witt, Nicolas E.g., 441 Int'l Arb. 12 Am. Rev. Its Success, (2001). 125. The the world." web Amazon.com See www.amazon.com site touts in

to

2006]

INTERNATIONAL ARBITRATION

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251

governing online arbitration filings,'28 and so forth.'29 This section examines a somewhat different issue: the enforceability of arbitration agreements arising out of electronic commerce transactions. It ad dresses two sets of issues: first, the application of writing require ments to electronic documents, and, second, the formation of contracts in electronic commerce. By its terms, the New York Convention obliges contracting states to enforce an "agreement in writing" in which parties agree to arbi trate.'30 Likewise, section 2 of the FAA makes enforceable a "written provision" to settle future disputes by arbitration and an "agreement inwriting" to submit existing disputes to arbitration.'3' UNCITRAL currently is considering how to update the New York Convention (and the UNCITRAL Model Law) to deal with electronic docu ments.'32 The United States already has accomplished that result for the FAA by statute. Effective October 1, 2000, the Electronic Signatures in Global and National Commerce Act (also known as the "E-Sign Act") pro vides as follows: any statute, regulation, or other rule of law Notwithstanding ... with respect to any transaction in or affecting interstate or foreign commerce (1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or en forceability solely because it is in electronic form; and (2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.133 In Campbell v. General Dynamics Gov't Systems Corp.,'34 the First Circuit concluded that the E-Sign Act "definitively resolves" the ques tion whether an e-mail arbitration agreement is enforceable under section 2 of the FAA-i.e., whether an e-mail is a writing within the
128. July e.g., AAA, See, available 1, 2001), which New York the Supplementary at www.adr.org Procedures (last visited arbitration for Online Sept. Arbitration (effective

2, 2005). See www.odr.info/ Article notes

129. One example

(ICODR), 130.

is the International
an online

Competition

for Online Dispute Resolution

competition.

includes

icodr.php (last visited Sept. 8, 2005).

Convention, phrase ? 2. Settlement supra 11(2) defines 28-30. 131. 132. 9 U.S.C. See, e.g., "agreement note 11(1). As 6, art. in writing." See supra discussed above, text accompanying

of Commercial

tive Provision on Written Form for the Arbitration Agreement, Note by the Secreta paras. 1-2 (July 19, 2005). riat, U.N. Doc. A/CN.9/WG.II/WP.136, 133. 15 U.S.C. ? 7001(a). 134. 407 F.3d 546 (1st Cir. 2005).

Disputes:

Preparation

of a Model

Legisla

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meaning of section 2.135 According to the Court of Appeals, "[bly its plain terms, the E-Sign Act prohibits any interpretation of the FAA's 'written provision' requirement that would preclude giving legal ef fect to an agreement solely on the basis that it was in electronic form."'136In other words, under U.S. law, electronic documents now need to be treated the same as paper documents in determining whether arbitration agreements are enforceable. On the contract formation question, courts have distinguished between "clickwrap" contracts and "browsewrap" contracts.137 Click wrap contracts are contracts inwhich a buyer clicks "IAccept" to con tract terms presented by a seller on its web page.138 The buyer cannot complete the transaction without "accepting" the contract terms. Browsewrap contracts are contracts in which a user allegedly accepts the contract terms by viewing a web page, without ever spe cifically clicking "I Accept" to the contract terms.139 A link on the webpage permits the user to view the contract terms, but the user is never required to click on the link to indicate assent to the terms. American courts have consistently held clickwrap contracts to be enforceable.140 By contrast, courts are divided on the enforceability of browsewrap contracts. Key facts in reconciling the cases include (1) the visibility of the link to the web page containing the contract terms; (2) the frequency of use of the web page by the user; and (3) whether the user is a consumer or a business. Thus, in Specht v.Net scape Communications Corp.,'4' the Second Circuit held that a con sumer making a one-time download of software was not bound by an arbitration clause when the link to the clause was at the bottom of the web page well below the link for downloading the software.142 By comparison, when a commercial user has made repeated downloads (using automated computer search software referred to as "bots"), courts have enforced contract terms available only by link or after the
135. 136. 137. Id. Id. The names are variations on "shrinkwrap" because so-called licenses, a box containing was software around plastic terms in the box. See offer of license included the act at 556.

of opening the to be acceptance

shrink-wrapped of the seller's

alleged ProCD,

Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996). 138. Robert A. Hillman & Jeffrey J. Rachlinski, Standard-Form
Age, Id. 11 N.Y.U. L. Rev. 429, 431 (2002). 139.

Contracting

in the

Electronic

140. Caspi v. Microsoft Network,

(forum selection e-mail clause); Hotmail

LLC, 732 A.2d 528, 532-33 (N.J. Super. Ct. 1999)

Corp. v. Van$ Money Pie Inc., 1998 U.S. Dist.

LEXIS
against

* 17 (N.D. Cal. Apr. 10729, at

spam). Motise user

16, 1998) (granting preliminary

injunction

141.
142. (S.D.N.Y.

306 F.3d 17 (2d Cir. 2002).

Id. see also at 31-32; 2004) (nonmember v. America of AOL Online, services 2d 563, 565 Inc., 346 F. Supp. not to forum bound selection

clause)

(dicta).

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download occurred.143 The most difficult cases have involved consum ers purchasing Dell computers over the Internet. Although the Dell web site did not require consumers to click "IAgree" to the contract terms, the web site included a colored link to the terms on each of the web pages consumers had to fill out to purchase the computer (as well as others on the web site).144 Courts are split on whether the terms contained in the Dell browsewrap contract are enforceable.145 C. Consumer and Employment Arbitration

A third area of (relatively) new experience with arbitration in the in United States, which is likely to become more internationalized coming years, is consumer and employment arbitration. With the globalization of the world economy, disputes between businesses and consumers and between employers and employees increasingly have an international dimension. Consumer arbitration exists in other countries, but it differs in an important way from American con sumer (and employment) arbitration: in other countries, agreements to arbitrate consumer disputes typically are entered into after a dis pute arises, and, indeed, pre-dispute arbitration clauses often are un law makes enforceable.146 By contrast, American pre-dispute arbitration agreements enforceable in consumer and employment contracts, and, as a practical matter, most consumer and employment arbitrations arise out of pre-dispute agreements.147 As a general matter, the FAA on its face makes enforceable arbi tration agreements in "any maritime transaction or a contract evi those in dencing a transaction involving commerce"'148-including consumer and employment contracts.149 Moreover, as construed in the United States, the New York Convention applies to arbitration
143. See Register.com,
cense Servs., selection terms Inc., clause). the restricting 2005 U.S. Dist.

Inc. v. Verio,
use of downloaded LEXIS 8450,

Inc., 356 F.3d 393, 401-02

(2d Cir. 2004) (li

Inc. v. Crossmedia information); Cairo, at *13-14 (N.D. Cal. Apr. (forum 1, 2005)

144.
taining

In addition, Dell included the terms in a confirming email and in the box con
computer.

145. Compare Hubbert v. Dell Corp., 2005 111. App. LEXIS 808, at *14-*15 (111. App. Aug. 12, 2005) (enforcing arbitration clause) with DeFontes v. Dell Computers Corp., 2004 R.I. Super. LEXIS 32, at *20-*21 (R.I. Super. Ct. Jan. 29, 2004) (refusing to
enforce arbitration clause).

146. See Christopher R. Drahozal & Raymond J. Friel, A Comparative View of Con sumer Arbitration, 71 Arb. 131, 131 (2005). 147. See Lewis L. Maltby, Out of the Frying Pan, into the Fire: The Feasibility of
Post-Dispute

(2003) (based on "computerized analysis" of all AAA employment arbitrations, only 6.0% in 2001 and 2.6% in 2002 arose out of post-dispute arbitration agreements).
148. 9 U.S.C. ?2; see also id. ?1 (defining "maritime transactions" and "commerce").

Employment

Arbitration

Agreements,

30 Wm.

Mitchell

L. Rev.

313,

319

149. The Supreme Court has construed the FAA as extending

Congress' power to regulate interstate commerce, a very broad power

to the full reach of

(as construed by

the Court) indeed. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. Citizens Bank v. Alafabco, Inc., 539 U.S. 52 (2003) (summary reversal).

265 (1995);

254

THE AMERICAN

JOURNAL OF COMPARATIVE LAW

[Vol. 54

agreements in consumer and employment contracts. Although the United States has made the commercial reservation to the Conven tion, consumer and employment contracts are defined to be "commer cial" under the FAA. Section 202 of the FAA provides that "[a]n arbitration agreement or arbitral award arising out of a legal rela tionship . . . which is considered as commercial, including a transac tion, contract, or agreement described in section 2 of this title, falls under the Convention."'150 Thus, so long as the arbitration agreement is within the scope of section 2-which most consumer and employ ment arbitration agreements are-they are governed by the New York Convention. One exception to the FAA's coverage can be found in section 1 of the Act, which excludes "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or inter state commerce."'15' In Circuit City Stores, Inc. v. Adams,'52 the Su preme Court held that the exception did not apply to all employment contracts, but only those of transportation workers (seamen, railroad employees, and like workers).153 Arbitration agreements in employ ment contracts of transportation workers are not enforceable under the FAA. But to the extent the employment contract is in interna tional rather than interstate commerce, two U.S. Courts of Appeals have held that the exception does not apply and that the arbitration clause is enforceable.154 A second exception is 15 U.S.C. ? 1226, which permits arbitra tion to be used to resolve a dispute arising out of a "motor vehicle franchise contract"'155 only if all parties "consent inwriting to use ar bitration" after the dispute has arisen.156 To be clear, section 1226 and car dealers, not applies to contracts between car manufacturers to contracts between car dealers and the consumers who buy the car. The policy justification for the section is to protect the franchisees from abusive arbitration clauses "forced on them" by manufactur ers-an analogous policy justification to that cited by critics as the basis for regulating pre-dispute arbitration clauses in consumer and employment contracts.
150. 9 U.S.C. ? 202 (emphasis added). 151. Id. ? 1. 152. 532 U.S. 105 (2001).
153. Id. at 119.

293 F.3d 270, 274-75 (5th Cir.), cert, de 154. Francisco v. M/T Stolt Achievement, nied, 537 U.S 1030 (2002); Bautista v. Star Cruises, 396 F.3d 1289, 1300 (11th Cir.), cert, dismissed, 125 S. Ct. 2954 (2005). 155. See 15 U.S.C. ? 1226(a)(1)(B) (defining "motor vehicle franchise contract" as "a
a motor or distributor sells mo under vehicle which manufacturer, importer, to an ultimate tor vehicles to any other for resale and authorizes person purchaser motor the manufacturer's such other to repair and service vehicles"). person contract 156. Id. ? 1226(a)(2). a reasoned make award. The Id. statute also requires the arbitrator in such a case to ? 1226(a)(3).

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A number of bills have been introduced in Congress to restrict consumer and employment arbitration. The bills typically would make pre-dispute arbitration agreements unenforceable as to certain types of claims brought by consumers or employees or in certain con sumer or employment contracts.157 So far, with the exception of mo tor vehicle franchise contracts as noted above,158 the bills have not been enacted. As a practical matter, the enforceability of pre-dispute arbitra in consumer and employment contracts in the tion agreements United States likely ismost important not because it necessarily will result in non-American consumers or employees arbitrating their dis putes. In many if not most cases, the individual presumably will be able to sue in his or her home country. But the arbitration clause may well prevent the individual from suing the business or employer in the United States, and thus from taking advantage of procedural as pects of the American litigation system such as juries and class actions.'59 CONCLUSION As the globalization of national economies continues, more par ties will turn to private rather than public means of resolving trans national disputes. In this changing world, the varied experiences of different nations provide useful insights into the appropriate legal framework governing international arbitration. The new experiences of the United States, described in this report, provide one of many possible perspectives on these issues.

157. E.g., H.R. 969, 109th Cong., 1st Sess. ? 4(a) (2005) ("Any person that provides a loan to a taxpayer that is linked to or in anticipation of a Federal tax refund for the
taxpayer other may provision not of include law,

ing such a loan."); H.R. 2969,

any

mandatory clause

arbitration of any

of disputes

as a condition an

for provid

109th Cong.,

1st Sess.

? 3(a) ("Notwithstanding
between employer and

any
an

employee that requires arbitration of a claim arising under the Constitution the United States shall not be enforceable.").
158. 159. See supra Drahozal text accompanying note & Friel, supra notes 146, at 155-156. 137-38.

agreement

or laws of