Supreme Court Reaffirms Supremacy of Federal Arbitration Act U.S. Supreme Court Holds that Federal Arbitration Act Preempts Anti-Arbitration Interpretation of Arbitration Clause by California Court
Whether the California Court of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act requires the application of state law preempted by the Federal Arbitration Act.
In its coalition brief, the U.S. Chamber filed in a U.S. Supreme Court merits case involving the proper interpretation of a reference to state law in an arbitration agreement governed by the Federal Arbitration Act (FAA). At issue is a consumer arbitration agreement that precluded class arbitration, but provided: if “the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration agreement] is unenforceable.”
A 2005 California Supreme Court case found arbitration agreements not providing for class-wide arbitration to be unconscionable and unenforceable, but the U.S. Supreme Court held in 2011 that this state law rule is preempted by the FAA. In this case, the California Court of Appeal held that, because agreements to dispense with class arbitration are unenforceable under the preempted California rule, the entire agreement was unenforceable. Accordingly, the court refused to compel arbitration.
The U.S. Supreme Court overturned the California Court of Appeal decision and held by 6-3 vote that state courts may not refuse to enforce arbitration agreements based on principles of contract interpretation that do not apply outside the arbitration context.