Federal arbitration law: A study of federal-state relations in the enforcement of arbitration agreements.

Abstract

While almost seventy years have passed since Congress adopted the federal Arbitration Act (FAA), many difficult issues continue to hang over the enforcement of arbitration agreements under federal law. First, what role may state law play in a federal enforcement proceeding? A federal court, when dealing with an arbitration agreement covered by section 2 of the FAA, should apply federal law. Where statutory gaps exist, state law may be borrowed as federal rules of decision; but the adoption of state law must be scrutinized under the objectives of the federal statute. The main objective of the FAA is to honor the parties' agreement to arbitrate. Another issue concerns the application of federal arbitration law in state courts. Since the FAA was based on Congress' commerce power, it is applicable in federal as well as state court proceedings. Doubts arise as to the application of federal enforcement regulations to procedural matters in state courts. Federal enforcement regulations should control state court proceedings if the applicable state rule or procedure is inconsistent with the objectives of the federal statute. Finally, a recent Supreme Court decision concluded that federal arbitration law may be displaced by a contract clause selecting a state's law. The book raises serious questions about the validity of the Court's holding and rationale. With respect to section 2 issues, the nondiscriminating test is the sole standard for incorporating state law to fill statutory gaps. Sections 3 and 4 of the FAA do not enforce contract provisions that are not part of the arbitration agreement covered by section 2. Whether contractual choice of law is enforceable must be decided in light of the statutory language and purposes. Often choice-of-law clauses are not intended to determine judicial enforcement matters. Nor do they purport to invoke state rules unfavorable to arbitration. Where the parties agree that a state's law applies in the enforcement proceeding, the agreement cannot displace applicable federal rules, unless the parties have expressly made the application of state law a condition for the effectiveness of their consent to arbitration.