Federal Arbitration Act
Encyclopedia
In United States
law
, the Federal Arbitration Act is a statute
that provides for judicial facilitation of private dispute resolution through arbitration
. It applies in both state courts and federal courts, as was held in Southland Corp. v. Keating
. It applies where the transaction contemplated by the parties "involves" interstate commerce and is predicated on an exercise of the Commerce Clause
powers granted to Congress in the U.S. Constitution.
The Federal Arbitration Act (found at 9 U.S.C. Section 1 et seq.), enacted in 1925, provides for contractually-based compulsory and binding arbitration, resulting in an arbitration award entered by an arbitrator or arbitration panel as opposed to a judgment entered by a court of law. In an arbitration the parties give up the right to an appeal on substantive grounds to a court.
The Federal Arbitration Act requires that where the parties have agreed to arbitrate, they must do so in lieu of going to court, provided that the proceeding is fundamentally fair—that is, equivalent in fairness to the public courts.
Once an award is entered by an arbitrator or arbitration panel, it must be "confirmed" in a court of law. Once confirmed, the award is then reduced to an enforceable judgment, which may be enforced by the winning party in court, like any other judgment. Under the Federal Arbitration Act awards must be confirmed within one year; while any objection to an award must be challenged by the losing party within three months. An arbitration agreement may be entered "prospectively"—that is, in advance of any actual dispute; or may be entered into by disputing parties once a dispute has arisen.
The Supreme Court, in Hall Street Associates, L. L. C. v. Mattel, Inc.
, has ruled that, even if the parties agree in the arbitration agreement to allow expanded judicial review of the decision, the grounds for review specified in the FAA may not be expanded.
by the FAA. State laws that govern the procedures of arbitration, but do not affect its enforcement, are outside the Act's preemptive scope.
Not all state laws regarding arbitration are preempted. Examples:
A case-by-case analysis is required to determine whether a specific California law is preempted. In general where FAA has no procedural provisions applicable in state court, there is no preemption.
A number of Supreme Court
cases have dealt with the preemption of state laws by the Federal Arbitration Act:
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
, the Federal Arbitration Act is a statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
that provides for judicial facilitation of private dispute resolution through arbitration
Arbitration
Arbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...
. It applies in both state courts and federal courts, as was held in Southland Corp. v. Keating
Southland Corp. v. Keating
Southland Corp. v. Keating, 465 U.S. 1 , is a United States Supreme Court decision concerning arbitration. It was originally brought by 7-Eleven franchisees in California state courts, alleging breach of contract by the chain's then parent corporation...
. It applies where the transaction contemplated by the parties "involves" interstate commerce and is predicated on an exercise of the Commerce Clause
Commerce Clause
The Commerce Clause is an enumerated power listed in the United States Constitution . The clause states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Courts and commentators have tended to...
powers granted to Congress in the U.S. Constitution.
The Federal Arbitration Act (found at 9 U.S.C. Section 1 et seq.), enacted in 1925, provides for contractually-based compulsory and binding arbitration, resulting in an arbitration award entered by an arbitrator or arbitration panel as opposed to a judgment entered by a court of law. In an arbitration the parties give up the right to an appeal on substantive grounds to a court.
The Federal Arbitration Act requires that where the parties have agreed to arbitrate, they must do so in lieu of going to court, provided that the proceeding is fundamentally fair—that is, equivalent in fairness to the public courts.
Once an award is entered by an arbitrator or arbitration panel, it must be "confirmed" in a court of law. Once confirmed, the award is then reduced to an enforceable judgment, which may be enforced by the winning party in court, like any other judgment. Under the Federal Arbitration Act awards must be confirmed within one year; while any objection to an award must be challenged by the losing party within three months. An arbitration agreement may be entered "prospectively"—that is, in advance of any actual dispute; or may be entered into by disputing parties once a dispute has arisen.
The Supreme Court, in Hall Street Associates, L. L. C. v. Mattel, Inc.
Hall Street Associates, L. L. C. v. Mattel, Inc.
Hall Street Associates, L. L. C. v. Mattel, Inc., 552 U.S. 576 was a United States Supreme Court case which held that state and federal courts cannot, on a motion to vacate or modify an arbitration award, expand the limited scope of judicial review specified in 9 U.S.C...
, has ruled that, even if the parties agree in the arbitration agreement to allow expanded judicial review of the decision, the grounds for review specified in the FAA may not be expanded.
Partial preemption of state law
Section 2 of the Federal Arbitration Act declares that arbitration provisions will be subject to invalidation only for the same grounds applicable to contractual provisions generally, such as unconscionability or duress. Consequently, most state law that disfavors the enforcement of arbitration agreements will be preemptedFederal preemption
Federal preemption refers to the invalidation of US state law when it conflicts with Federal law.-Constitutional basis:According to the Supremacy Clause of the United States Constitution,...
by the FAA. State laws that govern the procedures of arbitration, but do not affect its enforcement, are outside the Act's preemptive scope.
Not all state laws regarding arbitration are preempted. Examples:
- NASD rule 12204 of 1992, which allows investor class actions to proceed in federal court nullifies arbitration agreements when class certification is sought, is not preempted.
- California H&SC 1363.1 is partially preempted.
A case-by-case analysis is required to determine whether a specific California law is preempted. In general where FAA has no procedural provisions applicable in state court, there is no preemption.
A number of Supreme Court
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
cases have dealt with the preemption of state laws by the Federal Arbitration Act:
- Southland Corp. v. KeatingSouthland Corp. v. KeatingSouthland Corp. v. Keating, 465 U.S. 1 , is a United States Supreme Court decision concerning arbitration. It was originally brought by 7-Eleven franchisees in California state courts, alleging breach of contract by the chain's then parent corporation...
, 465 U.S. 1 (1984) - Established the applicability of the FAA to contracts under state law of California) - Perry v. Thomas, 482 U.S. 483 (1987)
- Volt Info. Sciences, Inc.. v. Stanford Univ., 489 U.S. 468 (1989)
- Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995)
- Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995)
- Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996)
- Buckeye Check Cashing Inc. v. Cardegna, 546 U.S. 440 (2006) - Arbitrators must first hear challenge to legality of contract.
- Preston v. FerrerPreston v. FerrerPreston v. Ferrer, 552 U.S. 346 , was a decision by the Supreme Court of the United States holding that the Federal Arbitration Act overrules state laws declaring that certain disputes must be resolved by a state administrative agency....
, 128 S.Ct. 978 (2008) - Act requires arbitration first even when state law provides for administrative dispute resolution - AT&T Mobility v. ConcepcionAT&T Mobility v. ConcepcionAT&T Mobility v. Concepcion is a legal dispute that was decided by the U.S. Supreme Court. On April 27, 2011, the Court ruled, by a 5–4 margin, that the Federal Arbitration Act of 1925 preempts state laws that prohibit contracts from disallowing class action lawsuits, such as the law previously...
(2011) - Despite California state law and lower court rulings that contracts barring class actions are unconscionable, the Court ruled 5-4 that consumers are bound by that aspect of arbitration clauseArbitration clauseAn arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process...
s.