Foreign businesses coming to the United States, and especially New York State, need to decide where they want to litigate any disputes arising from the parties’ agreement(s). They need to weigh the benefits of litigating in the state or federal court system or arbitrate before a single arbitrator or a panel of private arbitrator(s). There are positives and negatives for using either forum. But once a business has made that decision, it needs to be certain the agreement accurately includes that information. The business should be particularly careful if the parties enter into a separate, subsequent agreement, that the later agreement does not change the client’s wishes as to dispute resolution.
We are commercial litigators. And, as advocates around the world know, we are the ones who see the handiwork of our corporate colleagues when disputes arise. We can provide useful instruction when drafting agreements to include proper dispute resolution provisions.
The question of whether a dispute is arbitrable should be easily answered. What does the agreement say about jurisdiction and venue? Is there a reference to state or federal courts or is there an arbitration provision? Confusion can arise when the same parties enter a second agreement. It is possible that the second agreement will result in the parties entering into arbitration despite the first agreement providing that the parties should litigate in, for instance, the New York State courts.
The first issue will be whether the matter is arbitrable, and which forum should make that decision in the first instance. Even though the two documents may differ, the breadth of the arbitration clause and the degree of interrelatedness between the agreements may result in both being subject to arbitration.i
Under the Federal Arbitration Act (FAA) and Article 75 of New York’s Civil Practice Law and Rules (CPLR), both federal and New York State courts consistently hold that whether the parties agreed to arbitrate is generally a question for the court—unless the parties have “clearly and unmistakably” agreed otherwise.ii
The court is authorized to make the initial gateway determination of whether a dispute is arbitrable. However, the parties may override that default rule by agreeing in their contract that the arbitrator will decide that issue instead. In these cases, courts will apply the “clear and unmistakable” standard to determine whether the agreement reflects that intent.iii
As a drafting matter, courts have found that incorporating the rules of an arbitration association—such as those of the American Arbitration Association (AAA) or Judicial Arbitration and Mediation Services (JAMS)—into an agreement may satisfy the “clear and unmistakable” standard.iv Both the AAA’s commercial rules and JAMS’s rules explicitly provide that arbitrators will decide arbitrability.v
In sum, when negotiating any document, businesses assess the risks associated with including or omitting certain language. A business’s agreements should be clear, concise, and reflective of the client’s intent. That clarity is particularly important when deciding what forum should be used for dispute resolution. Every agreement should have a dispute resolution provision (and, of course, a choice of law provision). Conflicting provisions in an agreement often lead to litigation and unnecessary costs.
Contributions to this article were made by Abena Aidoo, summer associate.
iSee e.g., Matter of Long Is. Power Auth. Hurricane Sandy Litig., 165 A.D.3d 1138, 1142 (2d Dep’t 2018); Rinaolo v. Berke, 188 A.D.2d 297, 297 (1st Dep’t 1992).
iiSee e.g., Skillern v. Peloton Interactive, Inc., No. 21 Civ. 6808 (ER), 2022 U.S. Dist. LEXIS 155210, at *8 (S.D.N.Y. Aug. 29, 2022) (quoting AT&T Techs., Inc. v. Commc’ns Workers of Am. 475 U.S. 643, 649 (1986)); Pharmacia & Upjohn Co. v. Elan Pharms., Inc., 10 A.D.3d 331, 333-34 (1st Dep’t 2004).
iiiSkillern v. Peloton Interactive, Inc., No. 21 Civ. 6808 (ER), 2022 U.S. Dist. LEXIS 155210, at *8 (S.D.N.Y. Aug. 29, 2022) (quoting Shaw Grp. v. Triplefine Int’l Corp., 322 F.3d 115, 121 (2d Cir. 2003). (“Determinations of arbitrability may be delegated to an arbitrator ‘if there is clear and unmistakable evidence from the arbitration agreement, as construed by the relevant state law, that the parties intended that the question of arbitrability shall be decided by the arbitrator.’”)
ivSee e.g., Revis v. Schwartz, 192 A.D.3d 127, 135-130 (2d Dep’t 2020) (concluding that the agreement evinced a “clear and unmistakable agreement to arbitrate arbitrability” where it made a “clear reference” to NFLPA regulations, which contained a broadly worded arbitration clause that made a “clear reference” to the AAA’s rules); Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, 66 A.D.3d 495. 496 (1st Dep’t 2009) (“Although the question of arbitrability is generally an issue for judicial determination, when the parties' agreement specifically incorporates by reference the AAA rules, which provide that the tribunal shall have the power to rule on its own jurisdiction, including objections with respect to the existence, scope or validity of the arbitration agreement, and employs language referring all disputes to arbitration, courts will leave the question of arbitrability to the arbitrators.”).
vId.; see also AAA Commercial Rules, R-7 and JAMS Comprehensive Arbitration Rules & Procedures, Rule 11.