New York Law Review

Tag: UN Convention

  • Corcoran v. Ardra Ins. Co., 77 N.Y.2d 225 (1990): Enforceability of Arbitration Clauses Against Insurance Liquidators Under the UN Convention

    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.

  • Cooper v. Ateliers de la Motobecane, S.A., 57 N.Y.2d 408 (1982): Enforcing International Arbitration Agreements

    Cooper v. Ateliers de la Motobecane, S.A., 57 N.Y.2d 408 (1982)

    The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (UN Convention) prohibits pre-arbitration attachment as it undermines the purpose of minimizing uncertainty and avoiding foreign law in international trade disputes resolved through arbitration.

    Summary

    Cooper sued Ateliers de la Motobecane (a French corporation) in New York, seeking an attachment of the defendant’s assets before arbitration, pursuant to a contract with an arbitration clause. The New York Court of Appeals reversed the Appellate Division’s order, holding that pre-arbitration attachment is inconsistent with the UN Convention’s goal of streamlining international dispute resolution through arbitration. Allowing such attachments would reintroduce the uncertainties and complexities the Convention aimed to eliminate, hindering international trade.

    Facts

    Cooper and others contracted with Motobecane to form a New York corporation for product distribution. The agreement included a clause requiring arbitration in Switzerland for valuation disputes regarding share repurchase. Cooper tendered shares for repurchase, leading to stalled negotiations and Motobecane’s demand for arbitration. Cooper then filed suit in New York and obtained an ex parte attachment of Motobecane’s assets. The underlying dispute concerned the valuation of shares tendered for repurchase. The agreement explicitly stated that disputes over valuation would be resolved through arbitration in Switzerland.

    Procedural History

    Cooper initially sought to stay arbitration (Action I), but the Court of Appeals reversed the Appellate Division and denied the stay. While Action I was pending, Cooper commenced a separate action (Action II) seeking a money judgment and obtained an attachment of Motobecane’s assets. The Supreme Court initially confirmed the attachment, but after the Court of Appeals’ ruling in Action I, the Supreme Court vacated the attachment. The Appellate Division reversed, but the Court of Appeals then reversed the Appellate Division’s decision, effectively reinstating the vacating of the attachment.

    Issue(s)

    Whether, under the UN Convention, a party can obtain a pre-arbitration attachment of assets in a contract dispute subject to mandatory arbitration in a foreign country.

    Holding

    No, because allowing pre-arbitration attachments undermines the purpose of the UN Convention, which is to minimize uncertainty and avoid the complexities of foreign law in international trade disputes subject to arbitration.

    Court’s Reasoning

    The court emphasized the strong public policy favoring arbitration, especially in international trade, where litigation can be complex and unfamiliar. The UN Convention aims to ease enforcement of international arbitration agreements by minimizing uncertainties and shifting the burden of proof to the party opposing enforcement. The court reasoned that allowing pre-arbitration attachments would inject uncertainty into the process, subjecting foreign entities to unfamiliar laws, thus defeating the UN Convention’s purpose. The court distinguished cases allowing attachment in admiralty cases under 9 U.S.C. § 8, noting the present case did not involve a maritime contract. The court stated, “The essence of arbitration is resolving disputes without the interference of the judicial process and its strictures. When international trade is involved, this essence is enhanced by the desire to avoid unfamiliar foreign law. The UN Convention has considered the problems and created a solution, one that does not contemplate significant judicial intervention until after an arbitral award is made.” Furthermore, the court noted that the UN Convention allows for security after an award is made. The court explicitly rejected the argument that attachment was necessary to secure the potential award. The court stated, “Permitting this type of attachment to stand would expose American business to that risk in other countries.”