Farrell v. Subway Int’l, 11 Civ. 08 (S.D.N.Y. Mar. 2011), is a decision on a motion to stay arbitration and simultaneous invalidation of a negotiated forum selection clause. Farrell is a citizen of Ireland and operates three Subway franchises in Dublin. Subway filed a demand for arbitration with the American Dispute Resolution Center and requested arbitration in New York City, which is the forum chosen in the parties’ agreement. The authority to implement the arbitration, according to the Agreement, is UNCITRAL Rules, not the ADRC. Because of that irregularity in the initiation of the arbitration, the Court stayed the arbitration but clearly contemplates that the matter will proceed to arbitration using the procedure called for in the parties’ agreement. The Court also upholds the New York City forum clause.

The decision addresses several issues of current interest in international practice:

First, the Court finds that   it had subject matter jurisdiction over the dispute by reason of the New York Convention, which “enforces arbitration agreements involving at least one foreign party” (among other things).

Second, although that “there is some disagreement within this District as to whether the Court has the power to stay arbitration under the FAA”, the Court finds no certainty as to its power to stay under the New York Convention, as implemented by the FAA.

Third, the Court finds that, despite the Agreement’s designation of Liechtenstein law, for purposes of determining the validity of the forum clause the Court will apply federal common law.  The Court follows the fairly settled authority finding “compelling reasons to apply federal law, which is already well-developed to the question of whether an agreement to arbitrate is enforceable”, although the Court also observed, as have other District Courts, that “Second Circuit precedent has been less than crystal clear”. (Citing Singapore Pte. Ltd. v. Albacore Maritime, 10 Civ. 1862 (S.D.N.Y. Dec. 2010), discussed in our post here.)

Fourth, as noted, the Court finds that the arbitration provisions of the Agreement were to be strictly and specifically enforced and that therefore UNCITRAL’s Rules governed the dispute.

Finally, the Court upholds the forum clause for the arbitration despite the claim that Lichtenstein law would prohibit its application. The Court applies M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972) (forum clauses upheld unless the party seeking to avoid the arbitration can “clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching”).