Statutory Misconstruction: How the Supreme Court Created a Federal Arbitration Law Never Enacted By Congress

Abstract:     
The Supreme Court has so significantly rewritten the Federal Arbitration Act (FAA) over the last twenty-five years that today it bears little resemblance to the statute enacted by Congress in 1925. Adopted as a simple procedural Act to enforce arbitration agreements, the FAA was intended to be applicable only in federal court. Today, the statute is a substantive statute applicable in both state and federal courts, which broadly pre-empts state law. The statute's pre-emption of state law has recently been confirmed and expanded in the Court's decision in Buckeye Check Cashing v. Cardegna (Feb. 2006).

Although the thrust of the original legislation was to enforce arbitration agreements between merchants regarding fact-heavy commercial disputes, the Court has held that the FAA applies to statutory rights under antitrust, securities and employment laws. Moreover, although all workers' contracts were excluded from the Act in 1925, the Court has held that only transportation workers are excluded. Finally, despite concerns of Members of Congress that this legislation should not apply in "take-it-or-leave-it" situations, the increasing use of mandatory arbitration clauses in adhesion situations has closed access to the courts for a substantial segment of consumers, insureds, small businesses, and investors.

How does a statute acquire a totally different scope and application without any legislative intervention? This article begins with the story of the Federal Arbitration Act's origins, and then discusses the interpretive methods used by the Supreme Court in the major cases that have defined the FAA. It concludes that none of the different interpretive methods used by the Court has served to cabin judicial discretion to legislate, resulting in a complete rewriting of the statute.

The article also considers the impact of the Court's policy choices on our legal system. The FAA is a statute that reduces protections legislated in the fields of federal antitrust, securities and employment law, and intrudes upon state police powers to control core state functions involving contract law and legal process. The new architecture of the FAA appears to reflect judicial policy preferences for the economically powerful, favoring corporations over consumers, and employers over employees.

Keywords: FAA, arbitration, preemption, contract, statutory construction, textualism, consumer, employment

JEL Classifications: K10, K12, K31, K33, K40, J52

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