Tuesday, October 07, 2008

Straubel on Arbitration

In a comment to our discussion of Landis v USADA, Larry points us again to a Straubel review article.

As to whether this case can be decided under the FAA, I think it’s a close question. The discussion here between M and DR is a good one. You can also look at the Straubel article, in particular at footnote 113 (page 1221), and pages 1224-25 and 1250-53. I think that a good argument can be made either way, but for practical reasons I think that the courts will opt against FAA application. If the U.S. courts can vacate a CAS decision using the reach of the FAA, then this opens the door for every CAS decision to be litigated on a country-by-country basis, ultimately leaving the parties subject to a patchwork of different rulings. Once upon a time, we were concerned that the French authorities would ignore a CAS ruling in Landis’ favor – this same kind of concern argues against a U.S. court ignoring a CAS ruling against Landis.

Regarding the substance of the Landis case: I think the heart of the Landis case is the potential for bias inherent in a system that allows arbitrators to also represent parties before the CAS. Prof. Straubel made the same point in his article (see pp. 1235-36).

What do these sections say?

footnote 113 (page 1221),

113. Many questions remain about CAS-administered arbitrations held in the U.S. as is permitted by Rule 49A. The first question is whether the arbitration would be considered an initial arbitration and governed by the rules of the Ordinary Arbitration Division, or whether it would be considered an appeal and governed by the rules of the Appeals Division. The second question is—since the hearing must be held in the United States—whether Swiss or United States public law and choice of law rules would apply. For example, while Rule 57 states that the CAS decision “shall be final and binding and shall not be subject to further review or appeal except as permitted by the Swiss Federal Judicial Organization Act or the Swiss Statute on Private International Law,” because the hearing is being held in the United States, it might also be governed by the Federal Arbitration Act (“FAA”). CAS CODE, supra note 8, at R57. Application of the FAA would occur under the following reasoning. First, the Act applies to “a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising.” 9 U.S.C. § 2 (2000). Second, the term “involving commerce” has been equated to Congress’s power to regulate under the commerce clause. See Snyder v. Smith, 736 F. 2d 409, 418 (7th Cir. 1984) (interpreting the “involving commerce” requirement not as a limitation but a qualification suggesting that Congress intended the FAA to apply to all contracts that it constitutionally could regulate), overruled on other grounds by Felen v. Andreas, 134 F.3d 873 (7th Cir.1998). Finally, the Supreme Court found, in Flood v. Kuhn, that professional baseball is a business which engages in interstate commerce. Therefore, if Olympic Movement sports are considered now similar to professional baseball, the arbitration of disputes arising out of Olympic movement sports involves interstate commerce and is therefore “commercial.” Flood v. Kuhn, 407 U.S. 258, 282-83 (1972).

pages 1224-25:

Because the AAA-CAS proceedings are initial hearings, decisions can be appealed to the European CAS.138 However, that appellate hearing must be held in the United States,139 which raises interesting questions of the law that might govern the hearing. 140 Finally,according to Rule 49(a) of the Supplementary Procedures, the decision of the European CAS is final and may only be challenged as is permitted by the Swiss Federal Judicial Organization Act or the Swiss Statute on Private International Law.141 However, the Federal Arbitration Act may be applicable despite the limitations contained in Rule 49(A).142


2. The Application of the Swiss Statute on Private International Law to AAA-CAS Proceedings

The Code designates Lausanne, Switzerland as CAS’s seat.278 The purpose and result of selecting a “seat” for all CAS arbitrations is to pick a municipal law to test and ultimately validate the legitimacy of the CAS arbitration process. Selecting the law to govern the arbitration (les arbitri),279 as opposed to the law governing the merits of the dispute, confers nationality upon CAS awards for purposes of enforcement under the New York Convention280 and creates confidence in the system and ensures basic fairness within Swiss law. All international arbitrations, defined as an arbitration involving at least one non-Swiss citizen, must satisfy the requirements of the Swiss Statue on Private International Law.281

CAS and its arbitration process have been tested in admittedly limited circumstances, under the Statute on Private International Law. In all challenges to CAS, the Swiss Federal Tribunal has found CAS and its process impartial and fair.282 However, because these challenges came from arbitrations physically held within Switzerland, there is some question of whether the concept of a “seat” designation will have extraterritorial application to arbitrations physically held outside of Switzerland. While the Swiss Federal Tribunal has accepted the concept of a split between the physical location of an arbitration hearing and the legal location or “seat” of the arbitration hearing, the important question of whether foreign courts (such as the courts of the United States) will accept the “seat” doctrine remains.283

This question of extraterritoriality has gained increasing import with the advent of “ad hoc,” on-location CAS tribunals. Starting with the 1996 Atlanta Olympic Games, special CAS ad hoc tribunals have been established at the Olympic Games to hear disputes arising during the Olympic Games. All of those ad hoc tribunals have designated their “seat” as Lausanne, Switzerland. It can be argued that the ad hoc tribunals are legally different, for purposes of analyzing the “seat” question, from the permanent tribunals in Switzerland and the decentralized CAS tribunals such as AAA-CAS. In fact, a challenge of the Sydney Olympics ad hoc tribunal framed an analysis that could apply to determining whether AAA-CAS’s “seat” is Lausanne, Switzerland. 284 In Raguz v. Sullivan, the Supreme Court of New South Wales Court of Appeal found that the selection of a “seat” was at its essence a contractual choice of law that would be upheld as long as it did not violate Australian public law and policy. 285 Since it did not violate Australian law and the parties had contractually agreed to Lausanne as the seat of the arbitration, the Court found that it did not have the jurisdiction to interfere with the enforcement of the contract choice of Lausanne as the seat of the arbitration. 286

The analysis used by the Australian Court in Raguz could very conceivably be followed by a United States Court hearing a challenge to the selection of Lausanne as the seat of AAA-CAS arbitrations. In the court’s analysis, the first step would be to determine if an athlete in an AAA-CAS hearing had agreed to the selection of Lausanne. Such an agreement would have to rest on a series of interlocking contracts.287 The first contract would be the athlete’s membership in the governing NGB and IF. The second contract would be the agreement or statutorily required connection between the NGB and the USOC. The third contract would be the contract between the USOC (or possibly IF) and CAS to decide the disputes. The fourth contract, or connection, would be that the North American Decentralized Office of CAS is part of a larger CAS structure governed by the Code of Sport-relatedArbitration. 288 Assuming the court finds that there has been a contractual choice, the next question is whether it would honor this choice of law agreement.

In the United States, a contract choice of law clause is evaluated under the rubric initially established in Bremen v. Zapata Off-Shore.289 Under the Bremen test, a choice of law clause will be honored unless it is unreasonable. A clause can be unreasonable if it was the result of fraud, undue influence, overweening bargaining power, or will result in the breach of an important public policy found in mandatory public law.290 Using the Bremen test in the case of selecting Lausanne as the seat of arbitration, the strongest arguments for declaring the clause unreasonable would be that it was the result of overweening bargaining power291 and that it violates public policy found in the Federal Arbitration Act or Amateur Sports Act. Assuming for the sake of argument that the clause was not the result of overweening bargaining power, the effect of the Federal Arbitration Act and Amateur Sports Act should be briefly examined.

The Federal Arbitration Act, in section ten, lists a series of grounds upon which an arbitration award may be set aside.292 The intent of Congress, in drafting section ten, was to ensure an impartial arbitration process.293 Similarly, the Amateur Sports Act, in sections 220509 and 220529, attempts to ensure an impartial arbitration process to protect athletes’ rights.294 Considering the goal of both Acts to ensure an impartial arbitration process, it is fair to characterize these as laws expressing public policy concerns of Congress.295 As expressions of important public policy concerns, the question becomes whether Swiss law, particularly the Statute on Private International Law, provides the same protections as the Federal Arbitration Act and the Amateur Sports Act provide. A reading of the decision by the Swiss Federal Tribunal in A. & B. v. International Olympic Committee296 suggests that the Statute on Private International Law is generous in its protections and would likely satisfy the test employed in Bonny v. Society of Lloyd’s.297 Thus, the selection of Lausanne as the seat would likely be upheld.

On bias: pp. 1235-36.

Despite the attempt to create a diversified master list of arbitrators, as is described above, there are concerns that the list either contains too many—or is dominated by—potentially biased arbitrators. While the Swiss Federal Tribunal addressed this claim and dismissed it, the Tribunal focused on the influence of the IOC alone and not the collective influence of the governing bodies of the Olympic family. 214 The Olympic governing bodies together nominate three-fifths of the master list. Then, the remaining two-fifths of the arbitrators, though theoretically from the outside the Olympic Movement, are identified and approved by an ICAS dominated by members appointed by the Olympic family. It can be argued, therefore, that all of the arbitrators come from, have ties to, or owe their presence on the master list of arbitrators to the Olympic family. Further, the list can and does include arbitrators who have and continue to represent parties before the CAS, including governing bodies, an arrangement that can create a conflict of interest or the appearance of a lack of independence. Finally, as a closed list, even though the list consisted at one time of over 180 persons, the selection of experienced and well-qualified arbitrators is limited to a small group of frequently used arbitrators.

Do these concerns rise to the level of “circumstances [that would] produce the appearance of prejudice and cast doubt over [a] judge’s impartiality” and can the number of potentially biased arbitrators populating the master list be reduced? Yes, the inclusion of arbitrators that continue to represent parties before the CAS does create an appearance of doubt of impartiality, and there are steps that can be taken to reduce the number of potentially biased arbitrators. Further, the impact of the remaining potentially biased arbitrators can be reduced by expanding the source of arbitrator nominations.

Just as it may be a violation of the Code of Judicial Conduct for a judge to hear a case being argued by a government agency that formerly employed him,215 it creates the appearance of a conflict of interest when an attorney represents an athlete or a governing body and then serves as an arbitrator in a disciplinary case. This is particularly so when the collective interest of the Olympic Movement is then called into question by an athlete, such as in doping cases.216 The easiest way to prevent this appearance of impropriety is to not appoint arbitrators to the master list that represent parties, including athletes, before the CAS. This will, of course, reduce the number of available experienced arbitrators. This shortage will be temporary, however,217 and CAS arbitrators’ resultant improved legitimacy would be worth the temporary shortage of experienced arbitrators.