Third Circuit Severs Invalid Forum Clause For Arbitration, Permits Arbitration To Proceed Only In District of Challenge

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Control Screening LLC v. Technology Application and Production Company, No. 11-2896 (3d Cir. 2012), involved a review of the District Court’s direction that arbitration occur in the District of New Jersey.  The parties to the contract were U.S. and Vietnamese citizens. 

The international practice aspects of the decision include:

First, on the strict matter of appellate jurisdiction, the Court of Appeals said yes, it had such jurisdiction and in terms of the standard of review, “A district court decides a motion to compel arbitration under the same standard it applies to a motion for summary judgment” and that “the party opposing arbitration is given the benefit of all reasonable doubts and inferences that may arise.”

Second, this blog is always on the lookout for differences in interpretation or application that the courts find between the Federal Arbitration Act and the New York Convention, especially that part that is codified as U.S. law in 9 U.S.C.  Here, the Court of Appeals states that:  A “district court's primary authority to compel arbitration in the international context comes from 9 U.S.C. § 206, rather than from 9 U.S.C. § 4″.  As a result, the Court of Appeals did not apply to this international arbitration Section 4′s requirement that an action to compel arbitration “accrues only when the respondent unequivocally refuses to arbitrate”.  

Third, the venue provision of the arbitration agreement provided that “disputes shall be settled at International Arbitration Center for European countries for claim in the suing party’s country under the rule of the Center”.  As the Court of Appeals found, there technically is no International Arbitration Center of European countries”.  The Circuit therefore went on the rule that, “since the parties mistakenly designated an arbitration forum that does not exist, the forum selection provision of the arbitration agreement is “null and void” under Article II(3)” of the New York Convention, which regulates the area.  Also, the Court found that, “Even though the forum selection portion of the arbitration clause is ‘null and void’, there is sufficient indication elsewhere in the contract of the parties intent to arbitrate, meaning that the parties “agreement to arbitrate remains in force”.

But where?  As to this the Circuit held that “when an arbitration agreement lacks a term specifying location, a district court may compel arbitration only within its district”.  The Circuit reached this conclusion even though the extrinsic evidence in the case pointed to the parties’ understanding that they would be arbitrating, not in the U.S.

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