State court resistance to federal arbitration law.

Author:Bonaccorso, Salvatore U.

INTRODUCTION I. TEXT AND LEGISLATIVE HISTORY OF THE FAA II. THE COURT'S ARBITRATION JURISPRUDENCE OVER THE LAST THIRTY YEARS III. THE RESPONSE FROM STATE COURTS A. State Court Hostility to Federal Interpretation of the FAA Pre-Concepcion B. The Express Rejection of Concepcion by State Supreme Courts C. Veiled Efforts to Undermine Concepcion 1. "The FAA does not apply because the contract at issue does not involve interstate commerce" 2. "The contract at issue incorporates governing rules other than the FAA, which do not require the claims to be arbitrated" 3. "This case is not between the employer and the employee, but between the employer and state enforcement agencies not bound by any contract" IV. CREATING A FRAMEWORK TO DISCUSS STATE RESISTANCE TO FEDERAL ARBITRATION LAW A. One End of the Spectrum: States Fully Comply with the Court's Interpretation of Federal Law B. The Other End: Outright Noncompliance with Federal Law C. The Middle Ground: State Courts Narrow the Preemptive Effect of Federal Law CONCLUSION INTRODUCTION

Congress enacted the Federal Arbitration Act (FAA) in 1925 to end the longstanding judicial hostility to arbitration. (1) Under English common law, judges were unwilling to allow parties to contract out of public litigation and enforce their legal rights without the assurances and protections of a jury system." American courts inherited this skepticism and were wary of upholding any agreement that attempted to remove their jurisdiction over a legal dispute. (3)

In response, the FAA created new procedures in federal court that required judges to recognize arbitration agreements and to compel arbitration if the agreement was valid. (4) In short, Congress wished to put arbitration clauses "on the same footing" as any other contract provision instead of being construed as per se void. (5) The Act intended to provide businesses with a quick and cost-effective means of settling their contract disputes outside of court. (6) But it also provided that state contract law would continue to govern the substance and interpretation of the agreements. (7)

Today the statute has taken on an entirely different meaning. In its interpretation of the FAA, the Supreme Court has "abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act, building instead, case by case, an edifice of its own creation." (8) The Act now governs arbitration in nearly all circumstances--from consumer litigation (9) to statutory civil rights claims. (10)

Most recently, in AT&T Mobility LLC v. Concepcion, the Court stretched the preemptive effect of the FAA to a new extreme. (11) California law banned the use of class action waivers in certain consumer adhesion contracts. (12) Without such a rule, companies could systematically defraud consumers by small amounts and effectively prevent any recovery by contractually banning the aggregation of claims. (13) Although this ban on class action waivers said nothing about arbitration, the Supreme Court held that the FAA preempted it. (14) Because class-wide arbitration is inherently less efficient than individual arbitration, the Court reasoned, a rule preventing businesses from waiving class-wide arbitration would go against Congress's intent "to facilitate streamlined proceedings." (15)

What ensued in the four years following Concepcion can best be described as a power struggle of Shakespearean magnitude between the Supreme Court, which attempted to enforce its own interpretation of the FAA, and state courts that tried to preserve their own laws and public policy. The very next year following Concepcion, the Court summarily reversed two state arbitration cases for failing to adhere to Concepcion. (16) The Supreme Court of Appeals of West Virginia had struck down an arbitration clause that governed a wrongful death suit. (17) In reaching that conclusion, the state court seemingly brushed aside the U.S. Supreme Court's "tendentious reasoning" in its FAA jurisprudence. (18) So too had the Oklahoma Supreme Court, which attempted to treat state law and the FAA as laws of equal force in its interpretation of an employment contract. (19)

After open rebellion failed, state courts across the country, especially in California, developed novel strategies to limit the FAA's preemptive effect. For instance, some courts have found the FAA to be inapplicable because the contract at issue did not implicate interstate commerce. (20) Others have developed valid legal theories as work-arounds to Concepcion that could render the decision effectively meaningless in certain contexts. (21)

Despite the resurgence of federalism, Concepcion and its predecessors have only served to erode state sovereignty, and at levels far beyond what any legislative body intended. As such, this Note argues that certain kinds of state court resistance to federal common law are beneficial for the preservation of state autonomy. (22) Part I introduces the text and legislative history of the FAA. Part II discusses how the FAA has systematically displaced state laws that purportedly interfere with the efficiency of arbitration proceedings. Part III explores the strategies that state courts have used to circumvent federal arbitration law. Finally, Part IV situates these state court responses along a spectrum of compliance and uses this framework to examine the normative value of state resistance to federal law in a dual sovereignty system. Ultimately, the Note concludes that state courts can optimally balance federal supremacy with state autonomy by narrowly construing the preemptive effect of federal common law.


    Arbitration is an alternative form of dispute resolution in which a neutral third party (the arbitrator) decides the merits of a case. This informal process is quicker and cheaper than litigation because the rules of procedure and evidence are relaxed, and the decisions are final and often not appealable. (23) Arbitration proceedings are also generally conducted in secret and not open to the public. (24)

    To understand how state courts have broken away from the Supreme Court's interpretation of the FAA requires some background on the statute. Congress enacted the FAA in 1925 in response to growing judicial hostility toward arbitration agreements. (25) The core provision of the Act is section 2, which today reads:

    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 ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (26) Simply put, this statute makes "valid, irrevocable, and enforceable" any agreement to arbitrate that "involv[es] commerce." However, the agreement may be invalidated for any reason that exists "for the revocation of any contract." For instance, under the FAA, a judge couldn't refuse to enforce a contract with an arbitration provision solely because it called for the arbitration of disputes. But that judge could throw out the contract if it was entered into under duress, or on unconscionability grounds if the agreement called for the arbitration to take place in an inaccessible forum, like Antarctica. The clause of the FAA that allows general contract laws to apply to arbitration agreements ("save upon such grounds as exist at law or in equity for the revocation of any contract") is appropriately known as the savings clause.

    Before the FAA, courts were reluctant to enforce arbitration agreements based on English common law rules. (27) They perceived such agreements as a way to force potential litigants to surrender their rights to a jury and to a public forum for the resolution of their legal disputes. (28) Congress sought to eliminate this hostility through the FAA and make courts neutral to arbitration provisions; they were to be placed "upon the same footing as all other contracts" (29) and not singled out simply because they were agreements to arbitrate. (30)

    The FAA was modeled after a New York statute that required courts to recognize arbitration clauses. (31) The principal drafter of the FAA, Julius Cohen, had also written the New York statute. (32) In a pre-Erie legal universe, Cohen saw a uniform federal standard as necessary for the recognition of arbitration agreements in federal diversity cases. (33)

    According to Justice O'Connor, "[o]ne rarely finds a legislative history as unambiguous as the FAA's." (34) Indeed, there is an unusual consensus in legal scholarship with regard to the congressional intent behind the statute. And while the legislative history of the FAA is vast, this Part briefly highlights two key takeaways that commentators generally agree on.

    First, Congress intended the FAA to apply to agreements to arbitrate between merchants--and not extend to employment contracts, adhesive consumer contracts, or statutory civil rights. (35) W.H.H. Piatt, the chairman of the American Bar Association committee that drafted the bill, testified:

    It is not intended that this shall be an act referring to labor disputes, at all. It is purely an act to give the merchants the right or the privilege of sitting down and agreeing with each other as to what their damages are, if they want to do it. (36) Section 1 of the FAA explicitly excludes "contracts of employment of seamen, railroad employees, or any other class of workers engaged in interstate or foreign commerce." (37) As Margaret Moses explains, even though "the bill did not specifically exclude all employment contracts, the constitutional jurisprudence [of the Commerce Clause] at the time viewed most employment contracts as involving intrastate and not interstate commerce." (38) Therefore, the language of excluding "workers engaged in interstate or foreign commerce" was intended to cover all workers that Congress had the...

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