Opinion ID: 3053947
Heading Depth: 3
Heading Rank: 1

Heading: The Exemption Clause of the FAA

Text: We must decide whether the exemption clause in Section 1 of the FAA applies to arbitration agreements that would, in the absence of the exemption clause, be covered by the Convention Act. We hold that it does not. As noted above, the Convention Act applies to arbitration agreements arising out of legal relationships that are “considered as commercial.” 9 U.S.C. § 202. The Convention Act states that such agreements include, but are not limited to, agreements described in Section 2 of the FAA. Section 2 15240 ROGERS v. ROYAL CARIBBEAN CRUISE LINE describes provisions in contracts “evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract.” 9 U.S.C. § 2. The Supreme Court has concluded that contracts “evidencing a transaction involving . . . commerce” include employment contracts. Circuit City Stores, 532 U.S. at 113. [8] The Supreme Court considered the scope of Section 2 in Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995). The Court had previously concluded that the FAA preempts state law, and in Allied-Bruce it considered the breadth of the FAA’s reach, as set forth in Section 2. Id. at 272-73. The Court examined the phrase “a contract evidencing a transaction involving commerce” in two steps. First, the Court noted that the words “ ‘involving commerce’ . . . are broader than the often-found words of art ‘in commerce.’ ” Id. at 273. The Court held that the phrase “involving commerce” is “the functional equivalent of” the phrase “affecting commerce,” which “normally signals Congress’ intent to exercise its Commerce Clause powers to the full.” Id. at 273-74. Second, the Court considered the language “evidencing a transaction” involving commerce. Id. at 277. The Court read this phrase broadly, holding that the transaction must involve interstate commerce, but that the parties to the transaction need not have contemplated that the transaction had an interstate commerce connection. Id. at 281. The Court noted in passing in Allied-Bruce that Section 1 of the FAA “defin[ed] the word ‘commerce’ in the language of the Commerce Clause itself.” 513 U.S. at 274; see 9 U.S.C. § 1 (“ ‘[C]ommerce’, as herein defined, means commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation[.]”). The Court made no reference to the exemption clause when it noted the definition of commerce in Section 1. ROGERS v. ROYAL CARIBBEAN CRUISE LINE 15241 [9] The exemption clause in Section 1 is neither part of the definition of commerce in Section 1, nor a limitation on which relationships are “considered as commercial” pursuant to Section 2. Rather, it operates as an exemption. In other words, the exemption clause does not state that transportation workers are not engaged in commerce or that their employment contracts are not “considered as commercial.” Instead, it states that even though such workers are engaged in commerce and even though their employment contracts are considered as commercial, the FAA does not apply to them. [10] Because the exemption clause does not affect the definition of “commerce” or the statutory description of which relationships are “considered as commercial,” the exemption is not incorporated into the Convention Act by virtue of Section 202. The only limitation placed on the scope of the Convention Act, other than the language of the Convention itself, is the limitation in Section 202 that “[a]n arbitration agreement . . . arising out of a legal relationship . . . which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the convention.” 9 U.S.C. § 202. The employment contracts of seafarers “aris[e] out of legal relationship[s] . . . which [are] considered as commercial,” and therefore those contracts “fall[ ] under the [C]onvention.” [11] The exemption clause is also not incorporated into the Convention Act by Section 208. That section incorporates the provisions of the FAA unless they are “in conflict with” either the Convention Act or the Convention. See 9 U.S.C. § 208 (“Chapter 1 [i.e., the FAA] applies to actions and proceedings brought under this chapter to the extent that chapter is not in conflict with this chapter or the Convention as ratified by the United States.”). The only mechanism the Convention provides for limiting applicability of the Convention is the opportunity for Contracting States to declare that the Convention applies “only to differences arising out of legal relationships . . . which are considered as commercial under the national 15242 ROGERS v. ROYAL CARIBBEAN CRUISE LINE law of the State making such declaration.” New York Convention art. I(3). Congress’ declaration to that effect, as codified in Section 202 of the Convention Act, did not include the exemption clause. The Convention Act does not allow the exemption clause to operate as an additional limitation, over and above Section 202, on the applicability of the Convention. Nor, indeed, does the exemption clause purport to be such an additional limitation, for it does not narrow the definition of “commercial.” Rather, as emphasized above, the exemption clause specifies that the FAA does not apply to contracts within the scope of the clause even though such contracts are commercial.