State Supreme Courts Continue to Try to Chip Away at FAA Preemption; SCOTUS Is Not Amused
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The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq., does not contain an express preemption provision, nor was it intended to be the exclusive codified arbitration law in all circumstances. However, the United States Supreme Court has repeatedly taught that where the FAA applies, it is deemed to supersede state laws that are inconsistent with its provisions and purposes. Yet recent decisions by the highest courts of North Carolina and New Hampshire provide examples of continued efforts by state courts to chip away at the preemptive effect of the FAA concerning the interpretation and enforcement of arbitration agreements and the confirmation or vacatur of arbitral awards.
The United States Supreme Court is not amused. Only last week, it in effect took the Kentucky Supreme Court to task for failing to give an arbitration agreement the same legal respect that would be given to other contracts, and indeed for doing so based on the essential nature of an arbitration agreement. See Kindred Nursing Centers L.P. v. Clark, 2017 U.S. LEXIS 2948 (May 15, 2017). In Kindred, the U.S. Supreme Court condemned a Kentucky Supreme Court decision that disfavored an arbitration agreement because of its defining feature – i.e., in choosing arbitration, the parties exclude a jury trial as a means of dispute resolution. The state court had held that an arbitration agreement was invalid because a power of attorney that authorized one of the parties to sign did not specifically grant the signatory the “right” to enter into an arbitration agreement, and that that was critical because such an agreement would in effect waive the “sacred” state constitutional right to a jury trial. The United State Supreme Court, in a 7-1 decision, had little difficulty in disposing of that reasoning. Justice Kagan, writing for the majority, reiterated that the FAA preempts any state law that discriminates against arbitration on its face, and also held that the FAA preempts “any [state] rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.”
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