Impact Preemption: A New Theory of Federal Arbitration Preemption

The United States Supreme Court has expanded its arbitration preemption jurisprudence to unprecedented and unexplained bounds, ultimately creating a new type of preemption, herein coined “impact preemption.” As applied by the Court, the scope of impact preemption is broader than even field preemption. The future policy implications of impact preemption are significant. Impact preemption shifts the balance of regulatory power in the dual federal–state arbitration system toward the federal courts and away from state regulatory authorities, contrary to the language and legislative history of the Federal Arbitration Act (FAA). In addition, impact preemption has the potential to undermine the stability of the national arbitration system for consumers and contracting parties who utilize arbitration agreements in commerce. This Article traces the history of three fundamental flaws in prior Supreme Court rulings that ultimately resulted in the creation of impact preemption. First, the Court failed to define arbitration for approximately ninety years, and when it finally did so, the Court defined arbitration with a pro-business bias. Second, the Court failed to conduct a preemption analysis or to specify the type and scope of preemption it applied to arbitration. Third, as a result of the first two failures, the Court allowed the preemptive effect of the FAA to expand dramatically over time, notwithstanding its statutory language and legislative history, a failure that culminated in the creation of impact preemption. Impact preemption raises serious federalism issues because it does not require a conflict between federal and state law. Taken to its logical conclusion, the Court’s impact preemption analysis may prohibit states from regulating any aspect of arbitration that potentially “impacts” the arbitration process. This Article urges the Supreme Court to return to the classic roots of conflict preemption analysis under the FAA. A return to these conflict preemption principles would restore the balance of regulatory power between the states and the federal government, and * Thanks to the many people who helped in this Article’s development. Thank you to Steve Wilborn, Richard Reuben, and Ron Aronovsky, who helped me in the early stages of concept development. Special thanks to those who read and commented on drafts of this Article, including Colleen Medill, Richard Moberly, Sandi Zellmer, Richard Reuben, and Stephen J. Ware. Their comments and insightful suggestions helped develop this Article. Thank you to Andrew Tuch for the opportunity to workshop this Article at the Washington University Junior Scholars Conference and to participants Emily Cauble, Kit Johnson, Tim Lynch, Patricia Judd, Bruce Huber, Ryan Holte, Monica Eppinger, and Ann Marie Marciarille for their comments and suggestions. Thank you to Justin Yates and Ciara Coleman for their invaluable help as research assistants. Thanks for the love and support of Michael Douglass. 712 FLORIDA LAW REVIEW [Vol. 67 would restore a measure of predictability for consumers and contracting parties who use the national arbitration system to conduct commerce. INTRODUCTION 713 I. FEDERAL PREEMPTION LAW AND THE FAA 715 A. Federal Preemption Doctrines 716 B. The FAA 719 1. The Statutory Text 719 i. “Front End” Provisions 720 ii. “Back End” Provisions 723 iii. Other Provisions 723 2. The Legislative History 725 3. State Authority in a Regulatory Vacuum 727 4. Conclusion: Conflict Preemption Should Apply 729 II. IMPACT PREEMPTION UNDER THE FAA 730 A. Fundamental Flaw I: Not Defining “Arbitration” 730 B. Fundamental Flaw II: Not Defining the Type or Scope of FAA Preemption 732 C. Fundamental Flaw II Expanded 736 D. Fundamental Flaw III: Impact Preemption 740 E. Fundamental Flaw III in Practice 746 III. A NEW THEORY OF FAA PREEMPTION: IMPACT PREEMPTION 747 A. Impact Preemption Is Not Supported by the Statutory Text 749 B. Impact Preemption Is Contrary to the Purposes and Objectives of the FAA 752 C. Impact Preemption Is a Results-Oriented Creation 753 D. Conclusion: Impact Preemption Is Broader than Field Preemption 757 IV. IMPACT PREEMPTION’S POLICY REPERCUSSIONS 759 A. Federalism Concerns 759 B. Freedom to Contract Concerns 763 C. Other Contractual Concerns 767 2015] IMPACT PREEMPTION 713 V. PROPOSAL: A RETURN TO CONFLICT PREEMPTION PRINCIPLES 767 A. The Supreme Court Must Engage in a Preemption Analysis 768 B. A Return to Conflict Preemption 769 C. The Supreme Court Must Be the Agent of Change 771 CONCLUSION 773