Promotion Of Arbitration In The 21st Century

While pundits complain about the United States Supreme Court's diminishing docket, one area of law seems to have increased in popularity with the justices: arbitration law, and in particular the Federal Arbitration Act (FAA). By the end of the current term, the Supreme Court will have issued 50 opinions related to the act since its passage in 1925. The Court handed down 28 of those decisions before 2000 and 22 after 2000, issuing 15 of those 22 decisions since 2008, including the two currently pending before the Court, Am. Express Co. v. Italian Colors Rest., No. 12-133, and Oxford Health Plans LLC v. Sutter, No. 12-135. That means that the Court will have gone from issuing an average of less than one Federal Arbitration Act-related ruling every other year in the 20th century to approximately two each year in the 21st century, averaging three each year since 2008. The Court has a particularly arbitration-heavy 2012-2013 term with three arbitration-related cases on the docket.

The Supreme Court has unmistakably increased enforcement of the "liberal federal policy favoring arbitration" underlying the Federal Arbitration Act. The Court has overruled state courts that have continued to exhibit what the Court has called "judicial hostility" toward arbitration, it has ruled that other federal statutes do not limit the Federal Arbitration Act's reach, and it has permitted nonparties to an arbitration agreement to seek relief under the Federal Arbitration Act, to name a few examples of the rulings. Often the Court majority has justified a decision with the simple proposition that it merely has enforced an agreement between the parties as it would any other contract. In addition, decisions have concluded that arbitration promotes efficient and streamlined resolution of these disputes. Yet, when either the contract language or the efficiencies at stake require increased judicial involvement, the Court majority appears willing to abandon these basic arbitration tenets in favor of a ruling that leads to decreased judicial involvement in arbitration matters. The decisions additionally have identified grounds to support a particular kind of arbitration—bilateral arbitration—while finding grounds to disfavor class arbitration. In a recently growing line of cases, the Court has reversed arbitrators who interpreted an arbitration agreement as making class arbitration available while also invalidating state law that prohibited class action waivers in consumer contracts. The Court opinions have justified these decisions in part on the basis that to hold otherwise would discourage rather than promote arbitration agreements.

These decisions consistently and increasingly promoting federal arbitration policy have caused some Court members to accuse the Court majority of ignoring precedent while fashioning "fantastic" holdings. Nevertheless, clearly the Court majority has distinctly supported the "liberal federal policy favoring arbitration" with growing frequency in recent years. The Court will also have ample opportunity to continue this trend in three cases this term as well as in the future because splits continue to brew among the circuit courts of appeal related to arbitration law.

A Trend Toward Vigilant Federal Arbitration Policy Support

In response to "widespread judicial hostility" to arbitration agreements prevalent at the time, Congress passed the Federal Arbitration Act in 1925. Under the Federal Arbitration Act an arbitration agreement is "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." See 9 U.S.C. §2. The Federal Arbitration Act reflects a "liberal federal policy favoring arbitration." AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011). It also codifies the "fundamental principle that arbitration is a matter of contract," which means "courts must place arbitration agreements on an equal footing with other contracts." See id.

The Federal Arbitration Act establishes the following relationship between the state and the federal courts and arbitration. First, Section 2 imposes a duty on courts to enforce arbitration agreements according to their terms. See, e.g., Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct. 2772, 2776 (2010). Because the Federal Arbitration Act does not establish federal jurisdiction but instead requires an independent jurisdictional basis, it often falls on the state courts to enforce the substantive federal law embodied in Section 2. See Vaden v. Discover Bank, 129 S. Ct. 1262, 1272 (2009) ("Given the substantive supremacy of the FAA, but the Act's nonjurisdictional case, state courts have a prominent role to play as enforcers of agreements to arbitrate."). For those cases that a litigant can pursue in a federal court, under Section 3, a litigant can apply for a stay of an action "upon any issue referable to arbitration under an agreement in writing for such arbitration." See 9 U.S.C. §3. It is typically in ruling on this stay that a court has an opportunity to carry out its duty to enforce arbitration agreements according to their terms. A litigant can appeal a decision denying a stay immediately. 9 U.S.C. §16.

Second, once a case is sent to arbitration, generally the parties cannot seek a court's assistance until an arbitrator issues his or her final ruling or until a panel issues a final ruling. Then, to enforce an award, a party must obtain a judicial order. See 9 U.S.C. §9. Importantly, an arbitration award is not enforceable until a court orders its enforcement. The Federal Arbitration Act allows the enforcement procedure to involve a "streamlined treatment" as a motion instead of as a separate contract action. See Hall Street Associates v. Mattel, Inc., 552 U.S. 576, 583 (2008). Further, the Federal Arbitration Act acutely limits judicial review of arbitration awards. An award is presumed valid unless it can be vacated, modified, or corrected for the precise reasons prescribed in Sections 10 and 11 of the Federal Arbitration Act. While Sections 10 and 11 list a variety of specific bases to vacate, modify, or correct an award, the provisions do not include legal error as a basis.

The Federal Arbitration Act regime promotes arbitration, and without question some justices on the Supreme Court have vigilantly protected this fundamental principle recently. Indeed, since 2008, in all but one case in which the Court had the choice between sending a dispute to arbitration on the one hand or to the lower courts or to an administrative agency or was otherwise asked to invalidate an arbitration clause on the other hand, it chose arbitration or to uphold the clause. See CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012); Nitro-Lift Techs. v. Howard, 133 S. Ct. 500 (2012); Marmet Health Care Center, Inc. v. Brown, 132 S. Ct. 1201 (2012); KPMG LLP v. Cocchi, 132 S. Ct. 23 (2011); AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011); Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct. 2772 (2010); 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009); Preston v. Ferrer, 552 U.S. 346 (2008). But see Granite Rock Co. v. Int'l. Brotherhood of Teamsters, 130 S. Ct. 2847 (2010) (ruling that an issue regarding when an agreement was ratified was for a court and not an arbitrator to decide).

The support for federal public policy promoting arbitration has manifested in a myriad of ways. Some cases took aim at precisely the kind of state law hostility to arbitration that Congress enacted the FAA to avoid. For instance, in the 2011-2012 term, in a per curiam decision the Court reversed the Supreme Court of Appeals of West Virginia, which had held unenforceable all predispute arbitration agreements that applied to claims alleging personal injury or wrongful death against nursing homes. See Marmet Health Care Center, Inc., 132 S. Ct. 1201 (2012). The state court had referred to the Supreme Court's previous reading of the Federal Arbitration Act as "tendentious" and "created from whole cloth." Id. at 1203. Not surprisingly, the Court found that the state court ruling was "inconsistent...

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