CPLR Article 75 or the Federal Arbitration Act: Which One Applies to Arbitrations in New York and Why It Matters

• Author: Boaz S. Morag - Katie Gonzalez
• Position: The authors are a Counsel and an Associate, respectively, in the Litigation and Arbitration practice at Cleary Gottlieb Steen & Hamilton LLP. Mr. Morag is a Member of the New York City Bar Association's International Commercial Disputes Committee ('ICDC') and an Affiliate Member of its Arbitration Committee. The authors are indebted to Summer ...
• Pages: 265-197

CPLR Article 75 or the Federal Arbitration Act:

Which One Applies to Arbitrations in New

York and Why It Matters

B

OAZ

S. M

ORAG AND

K

ATIE

G

ONZALEZ

*

I. Introduction

For nearly a century, New York has been a center for arbitration, both

domestic and international, owing in large part to its long-standing history

of judicial support for arbitration through New York’s arbitration law,

Article 75 of New York’s Civil Practice Law and Rules (Article 75).

1

Indeed,

Article 75 predates the 1925 Federal Arbitration Act (FAA)

2

and was the

model for the FAA. Given this historical encouragement of arbitration, New

York remains a favored seat for international arbitrations. In a recent survey

of practitioners for the seat most often chosen for international arbitrations,

New York was the only United States forum that made the top seven fora

chosen as a seat for international arbitrations.

3

New York’s role in

commerce likewise makes it a natural situs for non-international

arbitrations.

4

As practitioners know, the situs of an arbitration is critical because it is the

arbitration law of the situs that, absent an explicit agreement to the contrary,

provides the lex arbitri—the law that determines among other issues under

what circumstances a court will compel arbitration, supervise the arbitration

proceedings, and vacate an award issued in that seat.

5

Where an arbitration

* The authors are a Counsel and an Associate, respectively, in the Litigation and Arbitration

practice at Cleary Gottlieb Steen & Hamilton LLP. Mr. Morag is a Member of the New York

City Bar Association’s International Commercial Disputes Committee (“ICDC”) and an

Affiliate Member of its Arbitration Committee. The authors are indebted to Summer Associate

Morgan Miller for her invaluable research and drafting assistance and to Richard L. Mattiaccio,

Chair of the ICDC, and to Steve Skulnik, Chair of the Arbitration Committee, for their

thoughtful comments. The views expressed in this article reflect those of the authors and not

necessarily those of Cleary Gottlieb Steen & Hamilton LLP or any of its clients.

1. N.Y. C.P.L.R. §§ 7501–7515 (McKinney 2018).

2. Federal Arbitration Act, 9 U.S.C. §§ 1–16, 201–208, 301–307 (1947).

3. 2018 International Arbitration Survey: The Evolution of International Arbitration, W

HITE

&

C

ASE

1, 9 (last visited Feb. 5, 2019), http://www.arbitration.qmul.ac.uk/media/arbitration/docs/

2018-International-Arbitration-Survey—-The-Evolution-of-International-Arbitration.pdf.

4. Press Release, Rekha Rangachari, N.Y. Int’l Arbitration Ctr., N.Y.C. Maintains Lead As

The Favored U.S. Arbitral Seat, (May 18, 2018), https://gallery.mailchimp.com/95f3ab83655de

165578b57965/files/d792ca4d-19c9-448c-b490-1076a246cb5f/2018.05.18_NYIAC_Press_Re

lease_New_York_City_Maintains_Lead_As_The_Favored_U.S._Arbitral_Seat.02.pdf.

5. Gonzalo Vial, Influence of the Arbitral Seat in the Outcome of an International

Commercial Arbitration, 50 I

NT

’

L

L

AW

. 329, 334 (2017).

THE INTERNATIONAL LAWYER

A TRIANNUAL PUBLICATION OF THE ABA/SECTION OF INTERNATIONAL LAW

PUBLISHED IN COOPERATION WITH

SMU DEDMAN SCHOOL OF LAW

266 THE INTERNATIONAL LAWYER [VOL. 52, NO. 2

is sited in the United States—more specifically in New York—the United

States’ federal system results in both federal and New York state law playing

a role in an arbitration conducted here.

6

Indeed, for an entirely local dispute

that does not involve interstate commerce, New York’s Article 75 is the sole

source of arbitration law to govern such a proceeding.

7

But New York arbitration law also can play a role—and its terms are,

therefore, relevant for practitioners and parties alike—when arbitration in

New York is agreed to in order to resolve disputes over transactions

involving interstate commerce between entirely domestic parties, and when

there is an international component to the transaction that subjects the

agreement to arbitrate and the resulting award to the terms of the New York

Convention or the Panama Convention.

8

In both domestic and

international circumstances, the United States Supreme Court has construed

the FAA and the architecture of the New York and Panama Conventions

potentially to make New York law applicable, rather than preempted.

9

For

one, New York arbitration law plays a “gap filler” role on procedural issues

not addressed by the FAA.

10

But even more importantly, depending on how

the parties draft their contracts, courts have found parties to have agreed to

arbitrate under New York’s arbitration law (rather than under the FAA’s

provisions),

11

an option that the United States Supreme Court has held is

consistent with the FAA, not preempted by it.

12

As this article explains beginning with Part I, New York courts have found

an intention to arbitrate under New York State’s arbitration law based on the

language of the parties’ arbitration clause as well as the wording of the

choice-of-law clause that identifies the law that governs the interpretation of

6. Jeremy Wilson & William Lowery, Arbitration in New York, in 1 CMS G

UIDE TO

A

RBITRATION

519, 521 (2012), https://eguides.cmslegal.com/pdf/arbitration_volume_I/CMS%

20GtA_Vol%20I_NEW%20YORK.pdf.

7. Stephen L. Brodsky, Navigating Federal and State Law in a NY Arbitration, N.Y. L. J. (Aug.

2, 2018), https://www.law.com/newyorklawjournal/2018/08/02/navigating-federal-and-state-

law-in-a-ny-arbitration/?printer-friendly/.

8. The “New York Convention” refers to the Convention on the Recognition and

Enforcement of Foreign Arbitral Awards, opened for signature, June 10, 1958, 21 U.S.T. 2517,

reprinted in Federal Arbitration Act, 9 U.S.C. § 201 (1947) (historical and statutory notes) to

which the United States and over 145 countries are signatories. The “Panama Convention”

refers to the Inter-American Convention on International Commercial Arbitration of January

30, 1975, 101 Stat. 448, 1438 U.N.T.S. 245, to which the United States and 18 Latin American

countries are signatories. The New York Convention and Panama Convention apply to

international disputes including when the arbitration is held in the United States. Bergesen v.

Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983).

9. See Brodsky, supra note 7.

10. Id.

11. See Wilson & Lowery, supra note 6, at 527–28.

12. See Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479

(1989) (holding that the California Arbitration Act is not preempted by the FAA where parties

were found to have agreed that their arbitration agreement would be governed by California

arbitration law).

THE INTERNATIONAL LAWYER

A TRIANNUAL PUBLICATION OF THE ABA/SECTION OF INTERNATIONAL LAW

PUBLISHED IN COOPERATION WITH

SMU DEDMAN SCHOOL OF LAW

2019] CPLR ARTICLE 75 267

the contract, even where such clause makes no reference to arbitration.

13

Accordingly, it is important for anyone contemplating entering into an

agreement to arbitrate in New York to understand how Article 75 operates

and the ways in which a party may be found to have manifested the intention

to adopt New York arbitration law. Because parties can find themselves

bound by Article 75 without subjectively intending that result, this article

offers drafting tips to avoid the unintended consequence of adopting Article

75 to apply to an arbitration that the lawyers and parties might have believed

was, and intended to be, governed by the FAA alone in a domestic case, or

solely by the FAA and New York or Panama Conventions in an international

arbitration.

In Part II, we provide background on the historical similarities and

divergences between the FAA and Article 75, dating back to their enactment

nearly a century ago, as well as recent attempts to amend Article 75 with the

potential to create an even greater variance between New York state and

federal law. Part III, then, summarizes the current differences between the

FAA and the provisions of Article 75 as construed by the courts in New York.

Part IV identifies the rules that determine whether an agreement to arbitrate

in New York is subject to the FAA, Article 75, or both by first identifying the

conditions that trigger the applicability of the FAA, and second discussing

how the FAA authorizes parties to agree to arbitrate under state arbitration

laws.

Part V explains the two methods by which courts in New York have found

parties to have manifested the intention to have the standards of Article 75

(rather than those of the FAA) apply to their arbitration. Part V closes with

a discussion of the circumstances under which certain procedural provisions

of Article 75 apply to an arbitration, otherwise governed by the FAA, where

the FAA is silent, and Article 75 provides a procedural gap filler rule.

In Part VI, the article turns to the effect that the parties’ choice of a set of

institutional arbitration rules, such as those promulgated by the American

Arbitration Association (AAA), International Centre for Dispute Resolution

(ICDR), International Chamber of Commerce (ICC), JAMS, the

International Institute for Conflict Prevention and Resolution (CPR)

(collectively, Institutional Arbitration Rules), has on the foregoing analysis

and how this choice interacts with the separate choice to have New York

arbitration law play a role in the proceedings.

Finally, in Part VII, we offer some suggestions to practitioners and

parties—equally applicable to international and domestic arbitrations sited

in New York—regarding the drafting of the choice-of-law clause and, in

particular, the arbitration agreement, so as to avoid unanticipated

consequences that can result from inattention to the inter-relationship

between these provisions when parties elect New York law and decide to

arbitrate in New York.

13. See Wilson & Lowery, supra note 6, at 527–28.

THE INTERNATIONAL LAWYER

A TRIANNUAL PUBLICATION OF THE ABA/SECTION OF INTERNATIONAL LAW

PUBLISHED IN COOPERATION WITH

SMU DEDMAN SCHOOL OF LAW