Proskauer Rose International Practice Guide Proskauer Rose LLP |
      Proskauer on International Litigation and Arbitration:
       Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes
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  1. With a well-drafted agreement, parties engaged in international commerce are able themselves to choose whether to arbitrate their disputes, whom the decision-makers will be, where the arbitration will take place, and what procedures will be applied. See, e.g., the rules of arbitration institutions including Chamber of Commerce (ICC) Rules, Art. 7(1), London Court of International Arbitration (LCIA) Rules, Articles 5.2 and 6, American Arbitration Association (AAA) Rules, Art. 7 and UNCITRAL Model Law Article 12.
  2. In the international sphere, the interests of promoting international trade and international comity have proved important factors in persuading the courts to treat certain types of dispute as arbitrable.
  3. Motion to Compel Arbitration/Stay Litigation
    1. The most common procedural posture for a party fighting to get into arbitration is where a party to an arbitration agreement has filed a lawsuit and the defendant files an arbitral proceeding and, at the same time, seeks to compel arbitration and stay the litigation.
    2. Under the FAA, “a party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4.
      1. When a party agrees to arbitrate in a particular state via explicit or implicit consent, the district courts of the agreed upon state may exercise personal jurisdiction over the parties for the limited purpose of compelling arbitration. PaineWebber, Inc. v. The Chase Manhattan Private Bank (Switzerland), 260 F.3d 453, 461 (5th Cir. 2001).
      2. Moreover, if the party seeking to compel arbitration files its motion in the court where the existing litigation is pending, there is no question of personal jurisdiction, as the plaintiff has already availed itself of the court’s jurisdiction.
      3. If the plaintiff files the lawsuit in state court, the defendant may at any time before trial remove the action or proceeding to the district court for the district and division where the action or proceeding is pending. 9 U.S.C. § 205.
    3. Courts have authority to direct that arbitration be held in accordance with the arbitration agreement at the place provided for therein, see FAA Section 206 (9 U.S.C § 206), and if the agreement makes no provision for place of arbitration or appointment of arbitrators, the court will direct that arbitration be held and arbitrators be appointed in accordance with Article 3 of the New York Convention, see 9 U.S.C. § 303. The court may compel arbitration in the jurisdiction in which it sits, provided it has an independent jurisdictional basis.
    4. The standards for a motion to compel arbitration are the same standards courts look to when seeking to enjoin or stay an arbitration. Courts will compel arbitration under Section 206 of the FAA if
      1. the parties agreed to arbitrate, and
      2. the scope of the arbitration encompasses the asserted claims. See ACE Capital Re Overseas Ltd. v. Cent. United Life Ins. Co., 307 F.3d 24, 28 (2d Cir. 2002).
  4. As with a motion to stay an arbitration, courts will determine whether the parties have agreed to submit the question of arbitrability itself, either by inclusion of a broad arbitration clause or agreement to be bound by the rules of a particular arbitral institution that incorporates the concept of Kompetenz-Kompetenz into its rules, to the arbitral tribunal. See, e.g., Louis Dreyfus Negoce S.A., 252 F.3d at 225 (construing an arbitration clause broadly where the provision encompasses “any dispute” and contains no language limiting its applicability to specific disputes); First Options, 514 U.S. at 944 (compelling arbitration based on “clear and unmistakable evidence” included in the arbitration agreement of the parties intent to arbitrate).
    1. “Federal policy strongly favors the enforcement of arbitration agreements,” Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 653 (2d Cir. 2004) (affirming district court’s grant of motion to compel), and where the dispute is international in scope, that policy applies with “special force,” Mitsubishi Motors Corp., 473 U.S. at 631.
    2. U.S. courts do not have the power to compel arbitration in a state that is not a signatory of the New York Convention. See National Iranian Oil Co. v. Ashland Oil, Inc., 817 F.2d 326, 331 (5th Cir. 1987). However, as long as the situs of the arbitration is in a signatory state, U.S. courts may compel arbitration. See E.A.S.T., Inc. of Stamford, Conn. v. M/V Alaia, 876 F.2d 1168, 1172 (5th Cir. 1989).
    3. Non-signatories.
      1. A party that did not sign the arbitration agreement may compel arbitration when (1) the signatory to a written agreement containing an arbitration clause must rely on the terms of that written agreement in asserting its claims against the non-signatory; or (2) the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the non-signatory and one or more of the signatories to the contract.
      2. A number of circuits have also allowed a non-signatory to compel arbitration under a limited equitable estoppel theory. See Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524 (5th Cir. 2000); Sunkist Soft Drinks v. Sunkist Growers, 10 F.3d 753 (11th Cir. 1993); Hughes Masonry Co. v. Greater Clark County School Bldg. Corp., 659 F.2d 836 (7th Cir. 1981).
      3. Courts have also allowed a non-signatory to employ theories of alter ego or veil piercing to compel arbitration where its parent or subsidiary company was a signatory.
  5. Enjoining litigation in the U.S.
    1. Under the New York Convention, at the request of a party to an action, a court in a signatory state must stay or dismiss an action pending arbitration.
    2. Other grounds on which a U.S. Court may defer to a foreign proceeding:
      1. Comity concerns. If the foreign interest in the action is strong and the U.S. interest is relatively weak. Turner Entm’t. v. Degeto Film GmbH, 25 F.3d 1512, 1521 (11th Cir. 1994) If laws of the foreign jurisdiction are substantially different from the relevant U.S. law, however, and the difference impacts an important U.S. interest (such as the ability to collect taxes), then deference is less likely. See Overseas Inns v. U.S., 911 F.2d 1146, 1149 (5th Cir. 1990); Banque de Financement v. First Nat. Bank, 568 F.2d 911, 921 (2d Cir. 1977).
      2. Forum non conveniens. The Court will consider the convenience to the parties of litigating in the foreign location. Convenience factors of the common law doctrine of forum non conveniens include the availability of witnesses, the location of evidence, the ability to enforce the judgment, among others. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 723 (1996); Piper Aircraft v. Reyno, 454 US 235, 241 n6 (1981); Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947).
      3. Forum selection clause. Courts will usually defer to a forum selection clause. It is presumed valid unless it can be shown that it is unreasonable. M/S Bremen v. Zapata Off Shore, 407 U.S. 1, 10 (1972).
      4. In rem proceedings. If the dispute involves a determination affecting the ownership of physical property, courts will usually defer to the jurisdiction in which the property is located. See Finova Capital Corp v. Ryan Helicopters, 180 F.3d 896, 899 (7th Cir. 1999)
      5. Bankruptcy. U.S. Bankruptcy Code allows a foreign entity to enjoin U.S. proceedings involving a foreign insolvency action. 11 U.S.C.A. §304. United Feature Syndicate, Inc. v. Miller Features, 216 F. Supp. 2d 198, 211 (S.D.N.Y. 2002). Policy favoring arbitration does not outweigh the broader policy favoring efficient internal adjudication of insolvency. Cunard S.S. Co. v. Salen Reefer Servs., 773 F.2d 452, 459 (2d Cir. 1985).
      6. Intangible property. U.S. courts will often defer to the jurisdiction where the intangible rights at issue arose. See Turner Entm’t, 25 F.3d at 1521. Intellectual Property laws are generally considered unique to the forum” in which the rights arise under. Tendency is to allow litigation to proceed in both countries. See Euromarket Designs, Inc. v. Crate & Barrel Ltd., 96 F. Supp. 2d 824, 843-844 (N.D. Ill. 2000); Linear products v. Marotech, 189 F. Supp. 2d 461, 466-467 (W.D. Va. 2002).
  6. Deference to foreign proceeding can be overcome.
    1. A U.S. Court need not abstain if the U.S. action is not in conflict with the foreign proceeding. United Feature Syndicate, Inc. v. Miller Features, 216 F. Supp. 2d 198, 212 (S.D.N.Y. 2002)
    2. Anti-suit injunctions: Enjoining foreign litigation. Generally, U.S. Courts will allow an international dispute to be litigated in parallel proceedings until either the foreign or domestic court reaches a judgment. Laker Airways v. Sabena, 731 F.2d 909, 928 (D.C. Cir. 1984).
    3. Enjoining foreign litigation is considered intrusive to the sovereignty of foreign nations and their courts. Out of respect for international comity, injunctions are issued sparingly and are narrowly tailored. Threshold requirements: (1) the parties must be the same in both matters; and (2) the issues must be the same in both matters (i.e. resolution of the foreign litigation would effectively dispose of the domestic action, and vice versa).
      1. If threshold requirements are met, courts will consider whether:
        1. the foreign litigation would frustrate a policy of the enjoining jurisdiction;
        2. the foreign suit is vexatious;
        3. the suit threatens the jurisdiction of the court issuing the injunction;
        4. the foreign suit will cause prejudice to other equitable considerations; and
        5. allowing the foreign suit to proceed will cause substantial delay, inconvenience, or expense, or cause inconsistency or a race to judgment between the two jurisdictions. See Garpeg, Ltd. v. United States, 583 F. Supp. 789, 798 (S.D.N.Y. 1984).
      2. Three Approaches:
        1. The restrictive approach, adopted by the District of Columbia, Second, Third and Sixth Circuits, requires a “compelling reason” to issue anti-suit injunction. This approach primarily relies on two factors: “threat to policy” and “threat to jurisdiction.”
        2. Under the liberal approached adopted by the Fifth, Seventh and Ninth Circuits, a court’s decision may be based on any one or more of the factors. This approach focuses on the duplicative and vexatious nature of litigation.
        3. The First Circuit employs the “totality of the circumstances” test, which creates a rebuttable presumption against the injunction. After ensuring that the threshold requirements have been met, the Court considers whether the facts particular to the case (such as, among other things, the stage of the parallel actions, the good faith conduct of the parties, etc.) warrant the requested relief. Quaak v. Klynveld Peat Marwick Goerdeler, 361 F.3d 11, 19 (1st Cir. 2004).
      3. Note that the general requirements for injunctive relief must also be satisfied. Western Electric Co. v. Milgo Electronic Corp., 450 F. Supp. 835, 840 (S.D. Fla. 1978) (articulating the four factors: that there is a substantial likelihood on the merits; a substantial threat of irreparable harm; the injury to plaintiff if the injunction is denied outweighs the harm to the defendant; and the injunction would serve the public interest).
    4. For another discussion of the law governing anti-suit injunctions in the U.S., please refer to Chapter 10 of this Guide.

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