77 N.Y.2d 225 (1990)
The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards preempts conflicting federal and state law, but exceptions within the Convention allow a state insurance superintendent, acting as a liquidator of an insolvent insurer, to avoid arbitration when state law does not authorize such arbitration.
Summary
The New York Superintendent of Insurance, as liquidator of Nassau Insurance Company, sought to recover reinsurance proceeds from Ardra Insurance Company. Ardra, relying on arbitration clauses in their reinsurance agreements and the UN Convention on Recognition and Enforcement of Foreign Arbitral Awards, moved to compel arbitration. The court held that while the Convention preempts conflicting state law, exceptions within the Convention, specifically the inability to perform arbitration under state law, allowed the Superintendent to litigate in state court, maintaining the Supreme Court’s exclusive jurisdiction over liquidation proceedings, since state law did not authorize the Superintendent to engage in arbitration proceedings.
Facts
Nassau Insurance Company, a New York insurer, entered into three international reinsurance agreements with Ardra Insurance Company, a Bermuda reinsurer owned by the same principals as Nassau. These agreements contained broad arbitration clauses. Nassau became insolvent, and the Superintendent of Insurance was appointed as liquidator. The Superintendent began settling claims but Ardra stopped paying reinsurance proceeds, repudiating the agreements, after the Superintendent refused to allow Ardra’s direct participation in court proceedings involving claims against Nassau’s insureds. The Superintendent then sued Ardra to recover owed reinsurance balances.
Procedural History
The Supreme Court denied Ardra’s motion to dismiss and compel arbitration. The Appellate Division affirmed, holding that exceptions in the UN Convention exempted the Superintendent from arbitration. The case reached the New York Court of Appeals.
Issue(s)
Whether the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards requires the New York Superintendent of Insurance, acting as a liquidator of an insolvent insurance company, to arbitrate claims against a foreign reinsurer, notwithstanding state law that does not authorize the Superintendent to engage in arbitration proceedings.
Holding
No, because while the Convention preempts conflicting federal and state law, the arbitration clause was “incapable of being performed” and the claims were not “capable of settlement by arbitration” under New York Insurance Law, thus falling under exceptions within the Convention.
Court’s Reasoning
The court reasoned that the UN Convention, as a treaty, preempts conflicting federal and state law under the Supremacy Clause. However, the Convention contains exceptions. Specifically, Article II allows a court to refuse arbitration if the agreement concerns a subject matter not capable of settlement by arbitration under domestic law or if the agreement is “null and void, inoperative or incapable of being performed.” The court emphasized that insurance regulation is primarily a state matter under the McCarran-Ferguson Act. New York Insurance Law Article 74 gives the Superintendent plenary powers to manage the affairs of an insolvent insurer, but it does not authorize the Superintendent to participate in arbitration. Citing *Matter of Knickerbocker Agency [Holz], 4 N.Y.2d 245*, the court noted that absent express statutory authority, the Superintendent cannot engage in arbitration as a liquidator. The court also noted that Article V of the Convention allows a court to deny recognition of an arbitral award if the subject matter is not capable of settlement by arbitration under the law of the country where recognition is sought. The court stated, “These exceptions are properly construed to effect New York’s strong public policy concerns by maintaining Supreme Court’s exclusive jurisdiction over liquidation proceedings.” It found that forcing arbitration would be futile because any resulting award would be unenforceable in New York due to the Supreme Court’s exclusive jurisdiction. The court also distinguished this case from typical international commerce disputes, as the principals of both Ardra and Nassau were New York residents and the contracts referred to New York law. Thus, they should have anticipated New York law applying in the event of insolvency. The court emphasized that arbitrators should not decide matters affecting insureds and third-party claimants; that responsibility lies solely with the Superintendent, subject to judicial oversight, acting in the public interest.