Federal Arbitration Act Preemption

Abstract

Taking as given the existing Supreme Court case law, this Article seeks to develop an overall framework for analyzing when the Federal Arbitration Act preempts state law. The framework is not conclusive but instead highlights areas of uncertainty for future legal development. Some fundamental principles of FAA preemption are resolved: State laws that single out arbitration are preempted when they invalidate arbitration agreements; general contract law defenses, even when applied to invalidate arbitration agreements, ordinarily are not preempted; and parties can incorporate by reference state arbitration laws into their contracts and avoid FAA preemption. As the analytical framework developed here illustrates, however, a number of issues remain unsettled. The lower courts are divided on whether the FAA preempts state laws that apply to arbitration agreements and to some other contract clauses, but not to contracts generally. Questions remain to be answered as to when general contract law defenses, while ordinarily saved from preemption, may nonetheless single out arbitration agreements and be preempted after all. Finally, the Supreme Court still has to decide how to deal with “second generation” FAA preemption cases - cases involving state laws that regulate the arbitration process rather than invalidating the parties’ arbitration agreement. The Article identifies and categorizes five alternative theories of FAA preemption and examines how selected second generation preemption cases likely would be decided under each of those theories.