Adopted by Congress in 1925, the Federal Arbitration Act (“FAA”) established a federal “pro-arbitration policy.” That much is beyond debate. It would be difficult indeed to find a judicial decision applying the FAA that did not begin its analysis by reciting the policy’s existence. But courts and scholars have been wrestling for decades over what this federal “proarbitration policy” actually means. Eliminating traditional judicial hostility toward enforcing arbitration agreements? Ensuring specific enforcement of arbitration agreements in federal court? Establishing substantive federal law for interpreting arbitration agreements? Preventing states from treating arbitration agreements as a disfavored type of contract? Or is it something more?

The United States Supreme Court in recent years has embraced an increasingly robust view of the FAA’s preemptive power in a series of often controversial arbitration law decisions reflecting the Court’s evolving view about the meaning of the federal “pro-arbitration policy.” In 2011, the Court unleashed a furor about the federalism and access to justice implications of its decision in AT&T Mobility LLC v. Concepcion, when it held that the FAA preempted the application of California’s Discover Bank v. Superior Court unconscionability rule to the arbitration clause in a consumer cell-phone contract. The Discover Bank rule had barred as an unconscionable exculpatory clause under California contract law a consumer adhesion contract arbitration provision that had the effect of prohibiting class arbitration of small dollar amount claims affecting large numbers of disputants. The Concepcion decision came on the heels of the Court’s 2010 decision in Stolt-Nielsen S. A. v. AnimalFeeds International Corp. barring arbitrators from interpreting arbitration agreements to permit class arbitration if the agreement was “silent” on the issue. Concepcion drew criticism because of its perceived enabling of corporations to chill the vindication of statutory rights in small dollar amount disputes by including class arbitration waivers in adhesion contract pre-dispute arbitration agreements.

One component of the Court’s reasoning in Concepcion has received considerably less attention. To support its conclusion that the FAA preempted the Discover Bank rule, the Court found a new purpose behind the FAA:

The overarching purpose of the FAA, evident in the text of §§ 2, 3 and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Regulating the availability of class wide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.

With this observation, the Court expanded the preemptive suite of objectives that Congress supposedly had in mind in 1925 when it adopted the FAA. According to Concepcion, Congress not only intended to promote private arbitration, but “to facilitate streamlined [arbitration] proceedings” as well. Put another way, the Court in Concepcion concluded that when Congress endorsed a “pro-arbitration” policy by adopting the FAA in 1925, it intended to promote a streamlined, commercially attractive type of arbitration and to preempt state law that interfered with this arbitration paradigm.

The federalism implications of such a paradigm could be enormous. If Congress intended to bar state law from interfering with streamlined arbitration proceedings, state efforts to regulate arbitration procedure could be imperiled. For example, a state could require minimum discovery rights in consumer or employment adhesion contract arbitrations, or require judicial review for errors of law in adhesion arbitration awards on statutory rights claims. These statutes would promote procedural fairness; they also would make arbitration less efficient. Now, the FAA could be viewed as preempting state statutes such as these under Concepcion’s view that the FAA “pro-arbitration policy” bars state law that would interfere with streamlined arbitration proceedings.

This is a problem. The Court has embraced a preemptive federal arbitration procedural paradigm that expands arbitrator jurisdictional power, minimizes judicial arbitration oversight and marginalizes the role of state contract law and arbitration procedure rules. Repeat arbitration players, crafters of adhesion arbitration agreements, and courts with overcrowded dockets might find something welcoming in this trend. On the other hand, such a paradigm further imperils arbitration as a truly voluntary dispute resolution process, undermines arbitration as a reasonable substitute for a judicial forum to vindicate statutory rights in small dollar amount claims, and threatens the role of state contract law and arbitration procedure regulation.

Scant evidence exists that Congress intended to promote any particular type of arbitration process when it enacted the FAA in 1925. Yet in Concepcion the Court concluded that Congress sought to preempt state law that would interfere with a streamlined arbitration process. The Court came to this conclusion in the latest of a series of decisions in which the Court, having needlessly embraced a view of the FAA as creating substantive (and preemptive) federal law pursuant to Congress’s plenary power to regulate interstate commerce,15 continues to interpret the FAA by “building an edifice of its own creation” rather than on the basis of the FAA’s sparse language or its legislative history.

This Article explores how the Supreme Court’s expansive interpretation of the FAA’s “pro-arbitration policy” may be leading toward a preemptive federal arbitration procedural paradigm and what can be done in response. After this Introduction, Part Two describes the evolution of the Supreme Court’s FAA jurisprudence. Part Three discusses the federalism and access to justice implications of the Court’s recent decisions. Finally, Part IV proposes a legislative response to this disturbing trend in the Court’s arbitration case law. Specifically, Congress should amend the FAA to exclude from its scope pre-dispute arbitration clauses in consumer and employment adhesion contracts. Rather than making these arbitration agreements unenforceable as a matter of federal law, this proposal would leave pre-dispute arbitration agreements between parties with unequal bargaining power to more accountable state regulation untethered to the Court’s interpretation of a federal “pro-arbitration policy.” The FAA would continue to govern ad hoc arbitration agreements and pre-dispute agreements between contracting parties capable of protecting their procedural interests at the bargaining table.

Related Posts