Arbitration Federalism: A State Role in Commercial Arbitration

Abstract

Two decades ago the Supreme Court interpreted the Federal Arbitration Act of 1925 as proclaiming a "national policy favoring arbitration." Since then the Court has significantly federalized commercial arbitration. The essay outlines a blueprint of "arbitration federalism" - preemption principles under the judicially-revitalized FAA - that permits states a collaborative role in advancing the Supreme Court's national policy favoring commercial arbitration.

At the blueprint's center lies the strong preemptive core of the FAA, which the Supreme Court has used to strike down state laws that undermine the validity of commercial arbitration agreements; states can at most mimic the federal pro-arbitration standards. Beyond this core, however, lies a murky boundary where the FAA speaks, but without the same clarity and force as in the legislation's provisions on enforceability and arbitrability, implicating a state role to provide guidance consistent with the pro-arbitration rules of the FAA. Beyond this boundary, in a large penumbra mostly involving the arbitral process, the FAA is silent. State law has great promise to specify default procedural rules, limited only by the FAA's pro-arbitration imperative.

State arbitration rules, particularly when cast as default rules from which parties can opt out, offer wide hope: the efficient filling of gaps left in parties' agreements, economical specification of cumbersome terms, instructive experimentation among the states, and sensitivity to specific commercial practices. The January 2001 promulgation of the Revised Uniform Arbitration Act (RUAA) by the National Conference of Commissioners on Uniform State Laws (NCCUSL) portends a new era in state involvement in the arbitration process. The essay reviews and critiques RUAA's attempt to rationalize the arbitration process, measuring it against the Supreme Court's preemption blueprint. It lays out considerations for state legislative drafters and state judges who will be responsible for formulating a new state role in the revamped "arbitration federalism."

JEL Classification: K40, K41