Arbitration and Governing Law Clauses

By George H. Schadler, Esq.

Arbitration can provide many benefits in business disputes, including faster resolution times and lower costs as compared to traditional litigation. However, arbitration provisions must be very clear as to the law that governs and to the scope of the arbitrator’s authority. Where the parties are not clear in the text of their contracts, courts may interpret agreements to include authority that was never intended by either party.

Recent court decisions, both in Massachusetts and in the United States Supreme Court, emphasize the importance of closely reviewing the arbitration and governing law clauses in your contracts, lest they lead to unintended consequences. A Massachusetts court recently found that an arbitrator was allowed to award triple damages under Pennsylvania law, even where the Agreement stated that it was to be governed by the law of Massachusetts, because the arbitration clause did not limit the jurisdiction of the arbitrator. Likewise, the United States Supreme Court recently decided that where a class-action statement in an arbitration provision stated it was dependent on whether class-actions were permissible in the “law of your state”, and Federal law preempted the state’s laws regarding class-actions, the arbitrator must look to Federal law, as opposed to the invalid state law.

Contact us today if you would like for us to review your agreements to ensure they clearly reflect your choice of applicable law and best protect your interests.

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