David Horton Paper on the Federal Arbitration Act Preemption

David Horton of UC Davis has written Federal Arbitration Act Preemption, Purposivism, and State Public Policy, 101 Georgetown law Journal (2013).  Here's the abstract:

The relationship between the Federal Arbitration Act (“FAA”) and state public policy has long been unsettled. According to some judges, scholars, and litigants, the FAA precludes courts from invalidating arbitration clauses under the contract defense of violation of public policy. However, in a practice that is impossible to square with that understanding of FAA preemption, courts have traditionally nullified arbitration clauses when necessary to preserve substantive rights or remedies under state law. Nevertheless, in its recent decision in AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court held that the FAA eclipses a rule that deemed class arbitration waivers to be unconscionable when they prevented plaintiffs from pursuing numerous, low-value state law claims. Both Justice Scalia’s majority opinion and Justice Thomas’s decisive concurrence strongly implied that state public policy is not a permissible basis for striking down an arbitration clause. As a result, lower courts are now compelling arbitration — often through gritted teeth — of lawsuits that are destined to fail.

Counter-intuitively, I argue that Concepcion holds the seeds of an approach to FAA preemption that gives judges greater freedom to strike down arbitration provisions to further state interests. FAA preemption stems from its centerpiece, section 2, which makes agreements to arbitrate specifically enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” Under the leading account of FAA preemption, the plain language of this “savings clause” immunizes arbitration clauses from state public policy: few state regulations apply across-the-board to “any contract.” Yet the courts and commentators who embrace this view have not explained why its rigid textualism is appropriate in the context of the FAA, which displaces state law through the purposivist mechanism of obstacle preemption. And indeed, Concepcion relied not on section 2’s text, but on Congress’ “purposes and objectives” when it enacted the FAA. I show that the purposivism that animates Concepcion is superior to the textualism that dominates FAA preemption cases. The incoherence of the literalistic “any contract” test and the centrality of context and legislative history to “purposes and objectives” preemption suggest that purposivism should be the primary technique for mapping the FAA’s dominion over state law. However, this path leads to a starkly different end-point than the one Concepcion reached. A faithful, full-bore examination of Congress’ intent reveals that section 2 allows courts to strike down arbitration clauses under any traditional contract doctrine, including some strands of the venerable defense of violation of public policy. I conclude by proposing a test for when the FAA preempts state public policy and applying it to controversial issues now pending in courts, including class arbitration, the unconscionability doctrine, and judicial or legislative rules that prohibit that arbitration of particular claims.

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