Application of the Federal Arbitration Act in State Court Proceedings
| Publication year | 2014 |
| Pages | 33 |
| Citation | Vol. 43 No. 12 Pg. 33 |
Articles Alternative Dispute Resolution
Application of the Federal Arbitration Act in State Court Proceedings
By Robert E. Benson
Alternative Dispute Resolution articles are sponsored by the CBA Alternative Dispute Resolution Section. They describe recent developments in the evolving field of ADR, with a particular focus on issues affecting Colorado attorneys and ADR providers.
Coordinating Editor
Marshall A. Snider, Denver—(303) 885-6659, msniclerarb@comcast.net
About the Auttior
Robert E. Benson is of counsel with Holland & Hart LLP in Denver— RBenson@hollandhart.com. This article is based on Chapter 4 of Benson, Colorado Arbitration Law and Practice (3d ed., CBA-CLE, 2013).
When federal and state law both apply and are in conflict, federal law often preempts the state law under the Supremacy Clause of the U.S. Constitution. This article examines when and to what extent the Federal Arbitration Act preempts the Colorado Revised Uniform Arbitration Act in state court proceedings.
The U.S. Congress passed the Federal Arbitration Act (FAA) in 1925. In 1975, the Colorado Legislature adopted the Colorado Uniform Arbitration Act; in 2004, it adopted the Colorado Revised Uniform Arbitration Act (CRUAA). This article addresses the issue of when and to what extent the FAA applies to arbitration issues in state court proceedings, superseding provisions of the CRUAA. It discusses, for example, the situation where the FAA is applicable to the arbitration and a civil action is commenced in Colorado state court (there being no jurisdiction in the federal court) to enforce an agreement to arbitrate. In this situation, is the state or federal statute applicable, or do parts of each apply? In addition, the article provides a brief overview of the application of Colorado arbitration law in federal court proceedings when the CRUAA is applicable and the FAA is not.
Arbitration Issues Brought to Courts
To understand whether the FAA or the CRUAA is applicable to an arbitration issue in a state court proceeding, one first must recognize the types of arbitration issues that parties may bring to the state and federal courts. These issues include:
1) whether the parties are obligated to arbitrate (arbitrability) (Is there an agreement between the parties to arbitrate and, if so, is the dispute within its scope?);
2) appointment of an arbitrator;
3) determination of the locale for the arbitration;
4) determination of the validity of defenses to arbitration;
5) enforcement of subpoenas;
6) whether a class arbitration may be maintained;
7) disqualification of the arbitrator;
8) vacation of an arbitration award;
9) modification or correction of an award;
10) confirmation of an award; and
11) appeals of district (trial) court orders.
Jurisdiction of State and Federal Courts to Determine Arbitration Issues
To bring an arbitration issue before a court, the court must have subject matter jurisdiction over the issue. Normally, when considering in what court to bring the case, the choice is between the federal district court and the Colorado district court. However, subject to its jurisdictional limits, the issue could be brought before a county court.
Colorado District Court Subject Matter Jurisdiction
The CRUAA, CRS § 13-22-201 (2), defines "court" as used in the statute as "a court of competent jurisdiction in this state." Colorado district courts are courts of general jurisdiction, having subject matter jurisdiction over all cases and controversies brought before them,[1] at least if the court has personal jurisdiction over the parties by virtue of the parties or dispute having some connection to the State of Colorado.[2] References in the CRUAA to "court" refer to "a court of competent jurisdiction in Colorado."[3] Colorado state district courts have subject matter jurisdiction over all arbitration issues, even if governed by the FAA.
Federal District Court Subject Matter Jurisdiction
The FAA does not confer jurisdiction on any court—state or federal—over arbitration issues governed by the FAA; the applicability of the FAA to the arbitration issues does not create federal court jurisdiction.[4] For arbitration issues, even where governed by the FAA, to be heard by a federal court, the federal court must have independent subject matter jurisdiction to hear the controversy, other than the FAA’s applicability to the arbitration.[5] Otherwise, the issue must be presented to a state court, even where the FAA is applicable.
Federal district courts are courts of limited jurisdiction and may exercise subject matter jurisdiction only when specifically authorized by Congress.[6] The most common basis of federal court subject matter jurisdiction over arbitration issues is diversity of citizenship when the amount in controversy is $75,000 or more.[7] However, other statutes providing for federal court jurisdiction, such as federal question, may provide subject matter jurisdiction to federal courts to determine certain arbitration issues.[8]
When applicable, the FAA applies to proceedings in both state and federal courts.[9] Thus, arbitration issues governed by the FAA may be heard by either state or federal courts, and the fact that the FAA applies does not provide or otherwise affect the jurisdiction of the court over a case presenting arbitration issues.
Applicability of the CRUAA to Arbitration Issues
The CRUAA, CRS § 13-22-203 (applicability), provides:
(1) Except as otherwise provided in subsection (2) of this section, this part 2 shall govern an [arbitration] agreement made on or after August 4, 2004.
(2) This part 2 shall govern an agreement to arbitrate made before August 4, 2004, if all parties to the agreement or to the arbitration proceeding so agree in a record.
Thus, in the first instance, the CRUAA governs arbitration agreements when Colorado law is applicable under Colorado’s choice of law rules. Colorado has adopted the choice of law rule defined in §§ 145 and 171 of the Restatement (Second) of the Conflicts of Laws. Colorado law applies when Colorado is the state with the most significant relationship to the occurrence and the parties, absent the agreement of the parties as to the applicability of other law.[10] At least one state court has held that the FAA can govern if the parties so agree, even if the arbitration does not evidence a transaction in interstate commerce.[11]
When the transaction or event that gives rise to the arbitration occurs in Colorado, or if the parties a re citizens of Colorado, typically the starting point would be that the CRUAA governs. Thereafter, the question is whether the FAA also applies.
Applicability of the FAA to Arbitration Issues
The FAA, by its terms, applies to all arbitration agreements involving transactions in interstate commerce. Specifically, 9 USC § 2 provides:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
Section 1 of the FAA defines "maritime transactions" and "commerce." "Commerce," which defines the primary scope of the FAA, means commerce among the several states or within foreign nations." Section 1 excludes from the term "commerce" the contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. Generally, the clause has the same breadth as interstate commerce in the Constitution.
In simplified terms, the FAA applies to an arbitration if an arbitration agreement is in a contract evidencing a transaction in interstate commerce or a maritime transaction, and if the contract is not of the employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. The relationship to commerce need not be substantial, and, for example, may be simply purchasing materials from suppliers in other states or when the parties are citizens of different states.[12]
Common Law Exclusion to the Application of the FAA
The U.S. Supreme Court has interpreted the FAA to have an additional exclusion to its application. Even if the FAA by its terms is applicable to an arbitration, an agreement of the parties that states arbitration law will govern the arbitration will generally be honored.[13] Thus, although under 9 USC § 2 the FAA may govern the arbitration and preempt state law, the parties may agree that the CRUAA will govern instead. That agreement generally controls.
Conflict Between the Applicability of the FAA and the CRUAA
A conflict between the FAA and the CRUAA arises when both statutes are applicable to the arbitration issue and those statutes are in conflict. The CRUAA, by its terms and pursuant to the Colorado choice of law rule, generally applies when the contract containing the arbitration provision is made or performed in Colorado or one or both parties are citizens of the state of Colorado. However, if the agreement evidences a transaction in interstate commerce, the FAA is also applicable. What happens when the statutes are in conflict, and the parties have not agreed as to which applies?
The Preemption Doctrine
Even if the CRUAA applies, the FAA also applies to the arbitration contract if the contract evidences a transaction involving interstate commerce. If both apply and the applicable provisions of the CRUAA and the...
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