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A federal court in the District of Columbia held that a generic choice-of-law provision did not override default arbitration rules, such as are provided in the Federal Arbitration Act (FAA) or New York Convention (NYC) relating to international arbitration; and unconscionability is not a viable challenge to an agreement governed by the NYC.
In Khan v. Parsons Global Services, Ltd., No. CIVA 03-1574 RCL, 2007 WL 960115 (D. D.C. Mar. 30, 2007), Azhar Khan was employed with Parsons, an American company. Mr. Khan was kidnapped while working for Parsons in the Philippines. Both Khan and his wife brought suit against Parsons. When Parsons moved to compel arbitration, both Khans objected, arguing first that under California law, the agreement was unenforceable, and second that Mrs. Kahn was not bound to arbitrate because she was a nonsignatory to the agreement.
The Court first turned to the Khans' choice of law argument. The Court found that there was a "generic choice-of law provision" in the agreement, but that these provisions do not override federal default arbitration rules. Instead, the parties must clearly state their intent to opt out of federal law to evidence intent to do so. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995). In this case, there was no evidence other than the choice-of-law provision that the parties intended to apply California law. Further, the contract was clearly of an international nature. Therefore, the Court held that the FAA and NYC governed the enforceability of the arbitration agreement.
Applying the NYC, relating to international arbitration, the Court rejected Mrs. Khan's contention that the arbitration clause was unenforceable due to unconscionability. The Court explained that the "null and void" language within NYC Article II(3) should be construed narrowly to allow for certainty of enforcement in international arbitration. The Court continued, holding that, "by its very nature, the defense of unconscionability seeks to promote those very tenets that are contrary to a finding of certainty, namely: policy, fairness, and appeals to a court's discretion outside of the letter of the law. Therefore, in light of this foundation, this Court finds that unconscionability is not-and indeed cannot be-a recognized defense to the enforceability of arbitration agreements falling under the N.Y. Convention."
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