Arbitration: Interface of Thefederal Arbitration Act Andnebraska State Law

• Publication year: 2022

43 Creighton L. Rev. 97. ARBITRATION: INTERFACE OF THEFEDERAL ARBITRATION ACT ANDNEBRASKA STATE LAW

ARBITRATION: INTERFACE OF THEFEDERAL ARBITRATION ACT ANDNEBRASKA STATE LAW

JOHN M. GRADWOHL (fn*)

TABLE OF CONTENTS

I. INTRODUCTION ................................... 98

II. FAA SECTION 2, SUBSTANTIVE ARBITRATION

LAW, AND PREEMPTION .......................... 100

A. In General ...................................... 100

B. Transaction Involving Commerce ................ 102

C. Arbitration Rules ................................ 107

D. Special Provisions on Arbitration Venue, Qualifications of Neutral Arbitrator, and Small

Claims .......................................... 108

E. Notice in Standardized Agreements .............. 110

F. Punitive Damages ............................... 111

G. "Written Provision" or "Written Contract" ........ 112

H. Personal Injury Based On Tort .................. 113

I. Nebraska Fair Employment Practice Act ......... 114

J. Voluntarily and Willingly ........................ 114

III. FAA AND NEBRASKA UAA IN TANDEM .......... 115

A. In General ...................................... 115

B. Motions to Compel Arbitration and Stay

Litigation ....................................... 116

C. Subpoenas and Discovery ........................ 118

D. Labor and Employment .......................... 121

E. Vacating and Confirming Awards ................ 123

F. Appealable Orders .............................. 132

IV. LIMITATIONS ON ARBITRABLE SUBJECTS ...... 134

A. Insurance (McCarran-Ferguson Act and

ERISA)......................................... 134

B. Workers' Compensation ......................... 137

C. Motor Vehicle Franchise Contracts .............. 139

D. Other Limitations ............................... 139

V. CHOICE OF LAW ISSUES .......................... 140

A. Separability ..................................... 140

B. Arbitration Agreement Formation ............... 140

C. Modification of Arbitration Provisions ............ 141

D. Choice of State Law and Choice of Arbitration

Rules ........................................... 142

E. Review of Arbitration Awards ................... 144

VI. ROLES OF NEBRASKA GENERAL CONTRACT

LAW UNDER THE FAA ............................ 146

VII. A FINAL NOTE .................................... 148

I. INTRODUCTION

Arbitration law in the United States is often a confusing and uncertain mixture of federal and state law and policies. The simplest generalization is that it is a contractual arrangement with the Federal Arbitration Act(fn1) ("FAA") controlling enforcement of dispute resolution by arbitration and state law providing the basic contract law, supplementing the FAA procedurally, and regulating the underlying transaction between the parties.

This Article examines the relationships of the FAA, Nebraska Uniform Arbitration Act(fn2) ("Nebraska UAA"), and other Nebraska state law. These issues are similarly relevant in other states.

The analysis pertains almost exclusively to agreements to arbitrate future disputes, that is "to settle by arbitration a controversy thereafter arising out of such contract or transaction."(fn3) Agreements to arbitrate an existing controversy are also authorized by the arbitration statutes,(fn4) are ordinarily carried out voluntarily by the parties as specified in the agreement, and relatively infrequently present critical issues of arbitration law or policy. Agreements to arbitrate an existing controversy are the product of negotiation or an opportunity for negotiation. Many agreements to arbitrate future disputes are formed in standardized provisions designed and mandated by one of the parties, a topic of major controversy in basic state contract law and policy far beyond its application to arbitration agreements.

Agreements to arbitrate "future disputes" bring into play a body of federal substantive law which "represents a liberal federal policy favoring arbitration agreements notwithstanding any state substantive or procedural policies to the contrary."(fn5) Prior to amendment of the Nebraska Constitution in 1996,(fn6) there was a substantial conflict between the federal and state law and policies for agreements to arbitrate "future disputes."(fn7) Agreements to arbitrate an existing controversy were enforceable under both the FAA and Nebraska law. Agreements to arbitrate future disputes were enforceable under the FAA but not under Nebraska law. With the Nebraska constitutional amendment, legislative repair of the Nebraska UAA in 1997,(fn8) and numerous recent decisions of the Supreme Court of the United States and Nebraska Supreme Court, there will be a much more viable and effective combination of federal and state arbitration law.

It is important that the FAA and Nebraska UAA work well together to provide an effective system for arbitration.(fn9) The FAA does not "bestow" federal court jurisdiction, but requires an "independent jurisdictional basis."(fn10) As a consequence, there will continue to be significant litigation with respect to the FAA in state courts. The Supreme Court of the United States has noted: "Given the substantive supremacy of the FAA, but the Act's nonjurisdictional cast, state courts have a prominent role to play as enforcers of agreements to arbitrate."(fn11) Federal court litigation, on the other hand, must apply important basic state contract law to a portion of the dispute.(fn12)Nebraska contract law is relatively sparse when applied to current issues of contract formation, contract modification, and concepts of un-conscionability. A careful examination of how federal and state law now mesh illustrates that there can be a sound basis for parties to plan for and carry out future dispute resolution, if needed, by arbitration and for policy makers at both levels of government to oversee the legal structure of arbitration law.

II. FAA SECTION 2, SUBSTANTIVE ARBITRATION LAW, AND PREEMPTION

A. In General

The Federal Arbitration Act section 2 creates a body of substantive arbitration law, applicable in state courts, which the Nebraska Supreme Court has applied in a series of cases to:

* preempt the prior Nebraska constitutional bar to the enforcement of future dispute arbitration agreements;(fn13)

* hold that time-bar issues were for an arbitrator rather than a court to decide;(fn14)

* invalidate a Nebraska statutory limitation on arbitration of motor vehicle franchise disputes;(fn15)

* "note that the FAA requires that any doubts regarding the scope of an arbitration clause be resolved in favor of arbitration" in affirming an order compelling arbitration;(fn16)

* hold that a court rather than an arbitrator should rule on whether litigation related conduct amounted to a waiver of an opportunity to arbitrate the claim;(fn17) and

* preempt a Nebraska statutory contractual notice require-ment.(fn18)

The Supreme Court of the United States has declined to rule whether provisions other than FAA section 2 apply directly to state court proceedings.(fn19) The Nebraska Supreme Court has recognized that although other provisions of the FAA may not be binding in state courts, state arbitration decisions relating to agreements covered by the FAA cannot "undermine the goals and policies of the FAA."(fn20)

The Court held emphatically in Buckeye Check Cashing, Inc. v. Cardegna (fn21) "that, regardless of whether the challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator."(fn22) The Florida Supreme Court had refused to enforce arbitration provisions in deferred-payment transactions because it determined that the transactions contained usurious interest rates, violated Florida consumer protection statutes, and violated Florida criminal statutes.(fn23) The Court rejected the distinction between void and voidable contracts relied upon by the Florida Supreme Court to decide the matter judicially rather than by compelling arbitration. The Court expressed "three propositions" in the substantive law of FAA section 2(fn24) to reverse and remand the Florida decision:

First, as a matter of substantive federal arbitration law, an arbitration clause is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance. Third, this arbitration law applies in state as well as federal courts.(fn25)

FAA section 2 does not purport to change the general contract law of Nebraska. It makes arbitration "valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Supreme Court of the United States decisions have italicized the word "any" for emphasis.(fn26) This means that state contract law "concerning the validity, revocability and enforcement of contracts generally" applies to arbitration provisions, but state laws applicable only to arbitration are superseded by the FAA.(fn27)

B. Transaction Involving Commerce

The Federal Arbitration Act section 2 applies to "a contract evidencing a transaction involving commerce." In Allied-Bruce Terminix Cos. v. Dobson ,(fn28) the Supreme Court of the United States held in 1995 that the "transaction involving commerce" language in FAA...