Fully Federalizing the Federal Arbitration Act

Abstract

There is a widely-shared belief that the Supreme Court’s interpretation of the Federal Arbitration Act has resulted in a doctrine that is far too solicitous of arbitration and not sufficiently solicitous of state lawmaking power. That may be so, but there is one provision of the FAA, the savings clause, that the Court has interpreted to permit the application of state law to invalidate agreements that would otherwise be enforceable under the FAA. This Article examines the savings clause.

The Court’s interpretation of the savings clause is dicta, and a better reading is that the savings clause authorizes federal courts to create federal common law to govern the enforcement of covered arbitration agreements. That alternative interpretation is consistent with the Court’s treatment of the rest of the statute, it is consistent with an analogous regulatory scheme, – federal common law regulation of the enforcement of collective bargaining agreements – and it reflects a division of lawmaking authority that would have been familiar to the Congress that passed the FAA in 1925. Moreover, while there are no doubt legitimate state interests in regulating arbitration agreements and guaranteeing parties a judicial forum for the assertion of certain rights, that alone is not a sufficient justification for requiring the application of state law to FAA-covered arbitration agreements. Like it or not, Congress has the authority to regulate the enforcement of arbitration agreements in interstate commerce, and a necessary consequence is the displacement of some overlapping state law.

A federalized savings clause would result in the creation of a uniform body of arbitration law, and that body of law could prove to be at least as effective, and perhaps even more effective, in addressing the major arbitration issue of our time – the imposition on relatively weak parties, like consumers and employees, of agreements that effectively deprive those parties of the right to assert their federal or state law rights. This existing but undeveloped body of federal law helps shed light on the Supreme Court’s recent decision in AT& T v. Concepcion and helps chart a post-Concepcion approach to the issue of “lopsided” arbitration agreements.