Resolving intrastate conflicts of laws: the example of the federal Arbitration Act.

Author:Bradt, Andrew D.
 
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ABSTRACT

Choice-of-law analysis is typically thought of as confined to the multistate setting. This is a mistake. To the contrary, conflicts often appear between statutes of a single state. Unfortunately, courts do not see these cases as "choice-of-law" cases. They see them only as problems of statutory interpretation and ignore conflicts of laws instead of resolving them, either by construing the conflicting statutes independently or applying a canon of construction. Here, I examine the benefits of importing choice-of-law tools--particularly the tools of governmental-interest analysis--into the resolution of intrastate conflicts of laws. When two laws promulgated by the same sovereign clash, governmental-interest analysis is a promising approach to resolve the conflict. It is promising not only because it offers a path toward more rational results, but also because it highlights conflicts, requires courts to make explicit their policy preferences, and potentially prompts legislative dialogue. After suggesting how interest analysis might work to resolve intrastate conflicts of laws, I turn to a specific example of such a conflict: the Supreme Court's decision last term in American Express Co. v. Italian Colors Restaurant, in which the Court held, 5-4, that the Federal Arbitration Act commanded enforcement of an arbitration clause that rendered the defendant's alleged antitrust violations practically unenforceable. Although the Court did not say so, Italian Colors was a choice-of-law case. Use of choice-of-law methodology would have laid bare the conflict and provided a more direct path to its resolution. Italian Colors, therefore, provides an example of the opportunities available in using choice-of-law analysis to resolve intrastate conflicts.

INTRODUCTION

"Choice is inescapable and must be explicit."

--Paul Freund (1)

Even before the Supreme Court handed down its strikingly pro-arbitration ruling in 2013's American Express Co. v. Italian Colors Restaurant, (2) many commentators saw the Supreme Court's 2011 decision in AT&T Mobility v. Concepcion (3) as another nail, if not the last nail, in the consumer-class-action coffin. (4) Concepcion, which held that the Federal Arbitration Act (FAA) preempted California's rule invalidating most class-arbitration waivers in contracts of adhesion as unconscionable, seemed to be yet another roadblock to maintaining a class action--particularly the paradigmatic "small claims" class action brought on behalf of a class of consumers who individually suffered minimal damages. (5) Despite the generally gloomy response to Concepcion, some courts and commentators have suggested that the decision does not invalidate all state-law rejections of class-arbitration waivers. (6) But the Supreme Court may have dashed any such hopes in its decision in Italian Colors, (7)

One reason Italian Colors broke new ground in the class-action-and-arbitration saga is that it does not rest on preemption grounds. Concepcion rested on the holding that the federal statute preempts state laws that appear to frustrate the policy, enshrined in the FAA, in favor of enforcing arbitration clauses. (8) As a result of that strong federal policy, the FAA is impervious to attempts by states to frustrate its aims by protecting consumers from harsh arbitration clauses. Italian Colors is different. Unlike Concepcion, in Italian Colors the plaintiffs did not rest their attempt to avoid arbitration on a state-law ground. In pressing their federal antitrust class action, these plaintiffs argued that the FAA should not apply to their case because a waiver of class-wide arbitration would prevent the vindication of their rights under federal law. (9) Under the circumstances, because the individual damages claims were so small, enforcing an arbitration clause requiring individual arbitration (and prohibiting class-wide arbitration) would effectively prevent the plaintiffs from pursuing their claims because no lawyer would be adequately incentivized to take cases on an individual basis. (10) The plaintiffs here were appealing to the standard "private attorney general" rationale for any small-claims class action--a rationale that would be stymied if the right to arbitrate as a class could be waived. (11) Indeed, this is also the best argument against the holding in Concepcion itself, articulated straightforwardly by Justice Breyer in his opinion for the four dissenting justices in that case. (12)

Italian Colors, therefore, presented a new question--is a class-arbitration waiver enforceable even if enforcing it will frustrate vindication of another federal statute, when the question of federal preemption of state law is not in play? Put another way, will the FAA trump a federal statute without the added ammunition of the vindication of the federal policy favoring arbitration against a state's attempt to avoid it? In a 5-3 decision, the Court in Italian Colors answered "yes." (13)

Per Justice Scalia, the majority accepted that the class-arbitration waiver in the case effectively prevented prosecution of antitrust claims against American Express, but held that the FAA mandated that conclusion. (14) In the Court's view, because nothing in the text of the FAA (or any other statute) required that the arbitration clause not be enforced, and because the "purpose" of the FAA is to enforce agreements to arbitrate, the FAA straightforwardly applied. (15) As Justice Scalia put it, "the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim." (16) In dissent, Justice Kagan saw the case differently. In her view, the FAA admits of an "effective vindication" exception when enforcement of an arbitration clause amounts to exculpation of the defendant. (17) In her view, reading such an exception into the FAA is necessary to "reconcile[] the [FAA] with all the rest of federal law." (18)

What's missing from both opinions, however, is the recognition that Italian Colors presented a choice-of-law problem. There is an apparent conflict between the Federal Arbitration Act and the Sherman Act under these circumstances because the policies underlying both statutes cannot be achieved at the same time. Applying the FAA in this case would effectively prevent enforcement of the Sherman Act, while privileging enforcement of the Sherman Act would necessitate invalidating the arbitration clause. Neither the majority nor the dissent approaches the case as a choice-of-law problem (although the dissent comes closer). Yet the pattern is familiar to choice-of-law scholars--the choice of law ultimately determines the outcome of the litigation.

This is unfortunate but unsurprising. Choice of law is typically considered an issue only in the multistate setting, when a court must decide whether to depart from local law and apply the law of another jurisdiction connected to the dispute. And even in the multistate setting, the Supreme Court has been out of the choice-of-law business for decades, (19) confining its involvement to instances in which a state egregiously violates the Constitution by applying its own law when it has no legitimate connection to the case. (20) This Article questions whether confining the tools of choice of law to the multistate setting makes sense or whether choice-of-law analysis has something to offer in the purely intrastate setting. As a way of starting to investigate that question, this Article suggests what the use of one mode of conflicts analysis--the governmental-interest approach--might look like when used in the intrastate conflict of laws, and considers Italian Colors as an example of how it might work.

One of the crucial steps forward made by modern choice-of-law theorists, especially Brainerd Currie, the father of interest analysis, was that choosing law must be dictated by the content and underlying purposes of the arguably conflicting laws. Only by figuring out whether the laws' purposes would be vindicated by their application in a particular case could a court determine whether there was really a conflict or just a false problem. (21) One of Currie's central insights was that choice of law was really, at its root, a process of statutory interpretation and construction, which would reveal whether a state had a legitimate interest in its law applying to a specific case. In many cases this analysis would reveal that only one of the allegedly conflicting jurisdictions had such an interest, and its law should apply. Currie's approach, called governmental-interest analysis, was revolutionary and offered the means of breaking free of the rigid and arbitrary choice-of-law rules then in force. (22) Defenders and friendly critics of Currie, such as Larry Kramer, have recognized that the steps of Currie's approach are not foreign to the domestic process of statutory interpretation. (23) Domestic, or intrastate, cases, however, are not typically viewed as "choice-of-law" cases, even though courts often must choose between clashing statutes promulgated by a forum sovereign. Rather, domestic cases are typically decided by interpreting the scope of a single statute or applying a single tiebreaking canon of statutory interpretation. (24)

This Article contends that employing interest analysis in the intrastate conflict would lead to more satisfying results because interest analysis provides a mechanism for exposing and rationally resolving conflicts of laws. At this point (particularly if you have studied choice of law), one might reasonably ask, why look to that notorious field for guidance? (25) And if you're going to look to choice-of-law approaches for guidance, why would you choose interest analysis, which has been the target of serious criticism (26) (and vigorous defense)? (27) To state my priors, I am mostly persuaded by interest analysis even in the multistate context, though that debate is (and continues to be) well ventilated. In the intrastate setting however, many of the...

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