Chapter 25-1 Choice of Arbitration Law

• Jurisdiction: United States

25-1 Choice of Arbitration Law

As a threshold matter in any effort to compel arbitration, the parties must determine the law of arbitration that applies to the issue. Federal law as well as Texas statutory and common law might govern arbitration issues, depending on the circumstances of the case.

25-1:1 The Federal Arbitration Act

The Federal Arbitration Act FAA governs any written arbitration agreement that affects interstate commerce, and it preempts contrary state law.¹ The FAA extends to the maximum extent of congressional power under the Commerce Clause.² The Supreme Court of Texas has held that the FAA "applies to all suits in state and federal court when the dispute concerns a 'contract evidencing a transaction involving com-merce.'"³

Transporting goods across state lines pursuant to the contract, for example, is a transaction involving interstate commerce,⁴ as are loan agreements between Texas and non-Texas residents,⁵ construction contracts between residents of different states and/or where supplies were shipped across state lines,⁶ and contracts for the purchase and sale of goods across state lines.⁷ Moreover, the FAA applies where parties have agreed that the FAA will govern their arbitration agreement, regardless of the connection with interstate commerce.⁸

Even where the FAA applies in Texas state court, Texas contract law governs the issue of whether or not the arbitration provision is enforceable.⁹

25-1:2 The Texas Arbitration Act

If the transaction is wholly intrastate, the FAA does not apply. For example, the FAA did not apply to a service contract between Texas residents performed entirely within Texas.¹⁰

For wholly intrastate transactions, Texas arbitration law applies. Generally, the Texas Arbitration Act ("TAA") applies to written agreements to arbitrate disputes that either exist at the time of the agreement or arise thereafter.¹¹

The TAA does not apply to a collective bargaining agreement between an employer and a labor union.¹² The TAA does not apply to the purchase of relatively inexpensive property or services or the acquisition of relatively small amounts of credit¹³ or to claims for personal injuries unless (1) there is an agreement in writing to arbitrate and (2) each party and his attorney signs the agreement.¹⁴ Importantly, the FAA has no such signature requirement; and therefore, it would preempt this provision in cases involving interstate commerce.¹⁵

25-1:3 Texas Common Law of Arbitration

In cases where neither the FAA...