Source: https://www.legalcrystal.com/case/105759/southland-corp-vs-keating
Timestamp: 2018-05-24 02:41:43
Document Index: 457766228

Matched Legal Cases: ['§ 1257', '§ 31512', '§ 1257', '§ 2', '§ 2', '§ 2', '§ 2', '§ 1257', '§ 2', '§ 2072', '§ 2', '§ 31512', '§ 1331', '§ 3', '§ 4', '§ 2', '§ 3', '§ 3', '§ 2', '§ 2', '§ 14', '§ 7', '§ 2', '§ 2', '§ 1331', '§ 2', '§ 2', '§ 3', '§ 2', '§ 3', '§ 4', '§ 4', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 3', '§ 2201', '§ 104', '§ 306', '§ 2370', '§ 1738', '§ 480', '§ 1331', '§ 3', '§ 3', '§ 2', '§ 3', '§ 2', '§ 3', '§ 9']

Southland Corp Vs Keating - Citation 105759 - Court Judgment | LegalCrystal
Southland Corp. Vs. Keating - Court Judgment
LegalCrystal Citation legalcrystal.com/105759
Case Number 465 U.S. 1
Appellant Southland Corp.
southland corp. v. keating - 465 u.s. 1 (1984) u.s. supreme court southland corp. v. keating, 465 u.s. 1 (1984) southland corp. v. keating no. 82-500 argued october 4, 1984 decided january 23, 1984 465 u.s. 1 appeal from the supreme court of california syllabus appellant southland corp. (hereafter appellant) is the owner and franchisor of 7-eleven convenience stores. appellees are 7-eleven franchisees. each franchise agreement between appellant and appellees contains a clause requiring arbitration of any controversy or claim arising out of or relating to the agreement or breach thereof. several of the appellees filed individual actions against appellant in california superior court, alleging fraud, misrepresentation,.....
Southland Corp. v. Keating - 465 U.S. 1 (1984)
U.S. Supreme Court Southland Corp. v. Keating, 465 U.S. 1 (1984)
1. This Court has jurisdiction under 28 U.S.C. § 1257(2) to decide whether the United States Arbitration Act preempts § 31512 of the California statute. Cox Broadcasting Corp. v. Cohn, 420 U. S. 469 . To delay review of a state judicial decision denying enforcement of an arbitration contract until the state litigation has run its course would defeat the core purpose of the contract. On the other hand, since it does not affirmatively appear that the request for class certification was "drawn in question" on federal grounds, this Court is without jurisdiction to resolve this question as a matter of federal law under § 1257(2). Pp. 465 U. S. 6 -9.
2. Section 31512 of the California statute directly conflicts with § 2 of the United States Arbitration Act, and hence violates the Supremacy Clause. Pp. 465 U. S. 10 -16.
(a) In enacting § 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims that the contracting parties agreed to resolve by arbitration. That Act, resting on Congress' authority under the Commerce Clause, creates a body of federal substantive law that is applicable in both state and federal courts. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U. S. 1 . To confine the Act's scope to arbitrations sought to be enforced in federal courts would frustrate what Congress intended to be a broad enactment. Pp. 465 U. S. 10 -14.
(b) If Congress, in enacting the Arbitration Act, had intended to create a procedural rule applicable only in federal courts it would not have limited the Act to contracts "involving commerce." Section 2's "involving commerce" requirement is not to be viewed as an inexplicable limitation on the power of the federal courts, but as a necessary qualification on a statute intended to apply in state as well as federal courts. Pp. 465 U. S. 14 -15.
Congress the intent to create a right to enforce an arbitration contract and yet make that right dependent on the particular forum in which it is asserted. Since the overwhelming proportion of civil litigation in this country is in the state courts, Congress could not have intended to limit the Arbitration Act to disputes subject only to federal court jurisdiction. In creating a substantive rule applicable in state as well as federal courts, Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements. Pp. 465 U. S. 15 -16.
BURGER, C.J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, BLACKMUN, and POWELL, JJ., joined. STEVENS, J., filed an opinion concurring in part and dissenting in part, post, p. 465 U. S. 17 . O'CONNOR, J., filed a dissenting opinion, in which REHNQUIST, J., joined, post, p. 465 U. S. 21 .
The California Court of Appeal reversed the trial court's refusal to compel arbitration of appellees' claims under the Franchise Investment Law. Keating v. Superior Court, Alameda County, 167 Cal.Rptr. 481 (1980). That court interpreted the arbitration clause to require arbitration of all claims asserted under the Franchise Investment Law, and construed the Franchise Investment Law not to invalidate such agreements to arbitrate. [ Footnote 1 ] Alternatively, the court concluded that, if the Franchise Investment Law rendered arbitration agreements involving commerce unenforceable, it would conflict with § 2 of the Federal Arbitration Act, 9 U.S.C. § 2, and therefore be invalid under the Supremacy Clause. 167 Cal.Rptr. at 493-494. The Court of Appeal also determined that there was no "insurmountable obstacle" to conducting an arbitration on a classwide basis, and issued a writ of mandate directing the trial court to conduct class certification proceedings. Id. at 492.
Under Cox Broadcasting Corp. v. Cohn, 420 U. S. 469 , 420 U. S. 482 -483 (1975), judgments of state courts that finally decide a federal issue are immediately appealable when
In these circumstances, we have resolved the federal issue "if a refusal immediately to review the state court decision might seriously erode federal policy." Id. at 420 U. S. 483 .
The judgment of the California Supreme Court with respect to this claim is reviewable under Cox Broadcasting, supra. Without immediate review of the California holding by this Court, there may be no opportunity to pass on the federal issue, and as a result "there would remain in effect the unreviewed decision of the State Supreme Court" holding that the California statute does not conflict with the Federal Arbitration Act. Id. at 420 U. S. 485 . On the other hand, reversal
Finally, the failure to accord immediate review of the decision of the California Supreme Court might "seriously erode federal policy." Plainly, the effect of the judgment of the California court is to nullify a valid contract made by private parties under which they agreed to submit all contract disputes to final, binding arbitration. The federal Act permits "parties to an arbitrable dispute [to move] out of court and into arbitration as quickly and easily as possible." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U. S. 1 , 460 U. S. 22 (1983).
Contracts to arbitrate are not to be avoided by allowing one party to ignore the contract and resort to the courts. Such a course could lead to prolonged litigation, one of the very risks the parties, by contracting for arbitration, sought to eliminate. In The Bremen v. Zapata Off-Shore Co., 407 U. S. 1 , 407 U. S. 12 (1972), we noted that the contract fixing a particular forum for resolution of all disputes
That part of the appeal relating to the propriety of superimposing class action procedures on a contract arbitration raises other questions. Southland did not contend in the California courts that, and the state courts did not decide whether, state law imposing class action procedures was preempted by federal law. When the California Court of Appeal directed Southland to address the question whether state or federal law controlled the class action issue, Southland responded that state law did not permit arbitrations to proceed as class actions, that the Federal Rules of Civil Procedure were inapplicable, and that requiring arbitrations to proceed as class actions "could well violate the [federal] constitutional guaranty of procedural due process." [ Footnote 2 ] Southland did not claim in the Court of Appeal that, if state law required class action procedures, it would conflict with the federal Act, and thus violate the Supremacy Clause.
California Supreme Court. [ Footnote 3 ] Nor does the record show that the California Supreme Court passed upon the question whether superimposing class action procedures on a contract arbitration was contrary to the federal Act. [ Footnote 4 ]
Since it does not affirmatively appear that the validity of the state statute was "drawn in question" on federal grounds by Southland, this Court is without jurisdiction to resolve this question as a matter of federal law under 28 U.S.C. § 1257(2). See Bailey v. Anderson, 326 U. S. 203 , 326 U. S. 207 (1945)
Act: they must be part of a written maritime contract or a contract "evidencing a transaction involving commerce," [ Footnote 5 ] and such clauses may be revoked upon "grounds as exist at law or in equity for the revocation of any contract." We see nothing in the Act indicating that the broad principle of enforceability is subject to any additional limitations under state law.
The Federal Arbitration Act rests on the authority of Congress to enact substantive rules under the Commerce Clause. In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395 (1967), the Court examined the legislative history of the Act and concluded that the statute "is based upon . . . the incontestable federal foundations of control over interstate commerce and over admiralty.'" Id. at 388 U. S. 405 (quoting H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924)). The contract in Prima Paint, as here, contained an arbitration clause. One party in that case alleged that the other had committed fraud in the inducement of the contract, although not of the arbitration clause in particular, and sought to have the claim of fraud adjudicated in federal court. The Court held that, notwithstanding a contrary state rule, consideration of a claim of fraud in the inducement of a contract "is for the arbitrators, and not for the courts," 388 U.S. at 388 U. S. 400 . The Court relied for this holding on Congress' broad power to fashion substantive rules under the Commerce Clause. [ Footnote 6 ]
the authority of Congress is "the power to regulate; that is, to prescribe the rule by which commerce is to be governed." Ibid. The statements of the Court in Prima Paint that the Arbitration Act was an exercise of the Commerce Clause power clearly implied that the substantive rules of the Act were to apply in state as well as federal courts. As Justice Black observed in his dissent, when Congress exercises its authority to enact substantive federal law under the Commerce Clause, it normally creates rules that are enforceable in state as well as federal courts. Prima Paint, supra, at 388 U. S. 420 .
In Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. at 460 U. S. 1 , 460 U. S. 25 , and n. 32, we reaffirmed our view that the Arbitration Act "creates a body of federal substantive law," and expressly stated what was implicit in Prima Paint, i.e., the substantive law the Act created was applicable in state and federal courts. Moses H. Cone began with a petition for an order to compel arbitration. The District Court stayed the action pending resolution of a concurrent state court suit. In holding that the District Court had abused its discretion, we found no showing of exceptional circumstances justifying the stay, and recognized "the presence of federal law issues" under the federal Act as "a major consideration weighing against surrender [of federal jurisdiction]." 460 U.S. at 460 U. S. 26 . We thus read the underlying issue of arbitrability to be a question of substantive federal law: "Federal law in the terms of the Arbitration Act governs that issue in either state or federal court." Id. at 460 U. S. 24 .
"The purpose of this bill is to make valid and enforcible [ sic ] agreements for arbitration contained in contracts involving
interstate commerce or within the jurisdiction or [ sic ] admiralty, or which may be the subject of litigation in the Federal courts."
JUSTICE O'CONNOR argues that Congress viewed the Arbitration Act "as a procedural statute, applicable only in federal courts." Post at 465 U. S. 25 . If it is correct that Congress sought only to create a procedural remedy in the federal courts, there can be no explanation for the express limitation in the Arbitration Act to contracts "involving commerce." 9 U.S.C. § 2. For example, when Congress has authorized this Court to prescribe the rules of procedure in the federal courts of appeals, district courts, and bankruptcy courts, it has not limited the power of the Court to prescribe rules applicable only to causes of action involving commerce. See, e.g., 28 U.S.C. §§ 2072, 2075, 2076 (1976 ed. and Supp. V). We would expect that, if Congress, in enacting the Arbitration Act, was creating what it thought to be a procedural rule applicable only in federal courts, it would not so limit the Act to transactions involving commerce. On the other hand, Congress would need to call on the Commerce Clause if it intended the Act to apply in state courts. Yet at the same time, its reach would be limited to transactions involving interstate commerce. We therefore view the "involving commerce" requirement in § 2, not as an inexplicable limitation on the power of the federal courts, but as a necessary
Under the interpretation of the Arbitration Act urged by JUSTICE O'CONNOR, claims brought under the California Franchise Investment Law are not arbitrable when they are raised in state court. Yet it is clear beyond question that, if this suit had been brought as a diversity action in a federal district court, the arbitration clause would have been enforceable. [ Footnote 7 ] Prima Paint, supra. The interpretation given to the Arbitration Act by the California Supreme Court would therefore encourage and reward forum shopping. We are unwilling to attribute to Congress the intent, in drawing on the comprehensive powers of the Commerce Clause, to create a right to enforce an arbitration contract and yet make the right dependent for its enforcement on the particular forum in which it is asserted. And since the overwhelming proportion of all civil litigation in this country is in the state courts, [ Footnote 8 ] we cannot believe Congress intended to limit the Arbitration Act to disputes subject only to federal court jurisdiction. [ Footnote 9 ] Such an interpretation would frustrate congressional
In creating a substantive rule applicable in state as well as federal courts, [ Footnote 10 ] Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements. [ Footnote 11 ] We hold that § 31512 of the California Franchise Investment Law violates the Supremacy Clause.
Appellees contend that the arbitration clause, which provides for the arbitration of "any controversy or claim arising out of or relating to this Agreement or the breach hereof," does not cover their claims under the California Franchise Investment Law. We find the language quoted above broad enough to cover such claims. Cf. Prima Paint, 388 U.S. at 388 U. S. 403 -404, 406 (finding nearly identical language to cover a claim that a contract was induced by fraud).
While the Federal Arbitration Act creates federal substantive law requiring the parties to honor arbitration agreements, it does not create any independent federal question jurisdiction under 28 U.S.C. § 1331 or otherwise. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U. S. 1 , 460 U. S. 25 , n. 32 (1983). This seems implicit in the provisions in § 3 for a stay by a "court in which such suit is pending" and in § 4 that enforcement may be ordered by
Ibid.; Prima Paint, supra, at 388 U. S. 420 , and n. 24 (Black, J., dissenting); Kruss Bros. Lumber Co. v. Louis Bossert & Sons, Inc., 62 F.2d 1004, 1006 (CA2 1933) (L. Hand, J.).
The contention is made that the Court's interpretation of § 2 of the Act renders §§ 3 and 4 "largely superfluous." Post at 465 U. S. 31 , n. 20. This misreads our holding and the Act. In holding that the Arbitration Act preempts a state law that withdraws the power to enforce arbitration agreements, we do not hold that §§ 3 and 4 of the Arbitration Act apply to proceedings in state courts. Section 4, for example, provides that the Federal Rules of Civil Procedure apply in proceedings to compel arbitration. The Federal Rules do not apply in such state court proceedings.
Post at 465 U. S. 21 . If we accepted this analysis, states could wholly eviscerate congressional intent to place arbitration agreements "upon the same footing as other contracts," H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924), simply by passing statutes such as the Franchise Investment Law. We have rejected this analysis because it is in conflict with the Arbitration Act, and would permit states to override the declared policy requiring enforcement of arbitration agreements.
Ante at 465 U. S. 15 . The general rule prescribed by § 2 of the Federal
The exercise of state authority in a field traditionally occupied by state law will not be deemed preempted by a federal statute unless that was the clear and manifest purpose of Congress. Ray v. Atlantic Richfield Co., 435 U. S. 151 , 435 U. S. 157 (1978); see generally The Federalist No. 32, p. 200 (Van Doren ed.1945) (A. Hamilton). Moreover, even where a federal statute does displace state authority, it
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395 , 388 U. S. 404 , n. 12 (1967); see also, H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924). The existence of a federal statute enunciating a substantive federal policy does not necessarily require the inexorable application of a uniform federal rule of decision notwithstanding the differing conditions which may exist in the several States and regardless of the decisions of the States to exert police powers as they deem best for the welfare of their citizens. Cf. Wallis v. Pan American Petroleum Corp., 384 U. S. 63 , 384 U. S. 69 (1966); see generally Wilson v. Omaha Indian Tribe, 442 U. S. 653 , 442 U. S. 671 -672 (1979); United States v. Kimbell Foods, Inc., 440 U. S. 715 (1979); Clearfield Trust Co. v. United States, 318 U. S. 363 (1943). Indeed, the lower courts generally look to state law regarding questions of formation of the arbitration agreement under § 2, see, e.g., Comprehensive Merchandising Catalogs,
Congress itself struck a similar balance in § 14 of the Securities Act of 1933, 15 U.S.C. § 7m, and did not find it necessary to amend the Federal Arbitration Act. Rather, this Court held that the Securities Act provision invalidating arbitration agreements in certain contexts could be reconciled with the general policy favoring enforcement of arbitration agreements. Wilko v. Swan, 346 U. S. 427 (1953). Repeals by implication are, of course, not favored, and we did not suggest that Congress had intended to repeal or modify the substantive scope of the Arbitration Act in passing the Securities Act. Instead, we exercised judgment, scrutinizing the policies of the Arbitration Act and their applicability in the special context of the remedial legislation at issue, and found the Arbitration Act inapplicable. We have exercised such judgment in other cases concerning the scope of the Arbitration Act, and have focused not on sterile generalization, but rather on the substance of the transaction at issue, the nature of the relationship between the parties to the agreement, and the purpose of the regulatory scheme. See, e.g., Scherk v. Alberto-Culver Co., 417 U. S. 506 (1974), rev'g 484 F.2d 611 (CA7 1973); see also id. at 417 U. S. 615 -620 (Stevens, Circuit Judge, dissenting). Surely the general language of the Arbitration Act that arbitration agreements are valid does not mean that all such agreements are valid
and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. [ Footnote 2/1 ]"
"If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration . . . the court . . . shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement. [ Footnote 2/2 ] . . . "
"may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter . . . for an order directing that such arbitration proceed in the manner provided for in such agreement. [ Footnote 2/3 ] . . ."
The FAA was enacted in 1925. As demonstrated infra at 465 U. S. 24 -29, Congress thought it was exercising its power to dictate either procedure or "general federal law" in federal courts. The issue presented here is the result of three subsequent decisions of this Court.
In 1938, this Court decided Erie R. Co. v. Tompkins, 304 U. S. 64 . Erie denied the Federal Government the power to create substantive law solely by virtue of the Art. III power to control federal court jurisdiction. Eighteen years later, the Court decided Bernhardt v. Polygraphic Co., 350 U. S. 198 (1956). Bernhardt held that the duty to arbitrate a contract dispute is outcome-determinative -- i.e. "substantive" -- and therefore a matter normally governed by state law in federal diversity cases.
Bernhardt gave rise to concern that the FAA could thereafter constitutionally be applied only in federal court cases arising under federal law, not in diversity cases. [ Footnote 2/4 ] In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395 , 388 U. S. 404 -405 (1967), we addressed that concern, and held that the FAA may constitutionally be applied to proceedings in a federal diversity court. [ Footnote 2/5 ] The FAA covers only contracts involving interstate commerce or maritime affairs, and Congress "plainly has power to legislate" in that area. Id. at 388 U. S. 405 .
P. Bator, P. Mishkin, D. Shapiro, & H. Wechsler, Hart and Wechsler's The Federal Courts and the Federal System 731-732 (2d ed.1973). [ Footnote 2/6 ] Today's case is the first in which this Court has had occasion to determine whether the FAA applies to state court proceedings. One statement on the subject did appear in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U. S. 1 (1983), but that case involved a federal, not a state, court proceeding; its dictum concerning the law applicable in state courts was wholly unnecessary to its holding.
The majority opinion decides three issues. First, it holds that § 2 creates federal substantive rights that must be enforced by the state courts. Second, though the issue is not raised in this case, the Court states, ante at 465 U. S. 15 -16, n. 9, that § 2 substantive rights may not be the basis for invoking federal court jurisdiction under 28 U.S.C. § 1331. Third, the Court reads § 2 to require state courts to enforce § 2 rights using procedures that mimic those specified for federal courts by FAA §§ 3 and 4. The first of these conclusions is unquestionably wrong as a matter of statutory construction; the second appears to be an attempt to limit the damage done by the first; the third is unnecessary and unwise.
In 1925, Congress emphatically believed arbitration to be a matter of "procedure." At hearings on the Act, congressional Subcommittees were told: "The theory on which you do this is that you have the right to tell the Federal courts how to proceed." [ Footnote 2/7 ] The House Report on the FAA stated: "Whether an agreement for arbitration shall be enforced or not is a question of procedure. . . ." [ Footnote 2/8 ] On the floor of the House, Congressman Graham assured his fellow Members that the FAA
"does not involve any new principle of law except to provide a simple method . . . in order to give enforcement. . . . It creates no new legislation, grants no new rights, except a remedy to enforce an agreement in commercial contracts and in admiralty contracts. [ Footnote 2/9 ]
"The statute establishes a procedure in the Federal courts for the enforcement of arbitration agreements. . . . A Federal statute providing for the enforcement of arbitration agreements does relate solely to procedure of the Federal courts. . . . [W]hether or not an arbitration agreement is to be enforced is a question of the law of procedure, and is determined by the law of the jurisdiction wherein the remedy is sought. That the enforcement of arbitration contracts is within the law of procedure, as distinguished from substantive law, is well settled by the decisions of our courts. [ Footnote 2/10 ]"
Since Bernhardt, a right to arbitration has been characterized as "substantive," and that holding is not challenged here. But Congress in 1925 did not characterize the FAA as this Court did in 1956. Congress believed that the FAA established nothing more than a rule of procedure, a rule therefore applicable only in the federal courts. [ Footnote 2/11 ]
the provinces or prerogatives of the States. . . . [T]he question of the enforcement relates to the law of remedies, and not to substantive law. The rule must be changed for the jurisdiction in which the agreement is sought to be enforced. . . . There is no disposition therefore by means of the Federal bludgeon to force an individual State into an unwilling submission to arbitration enforcement. [ Footnote 2/12 ]"
"Before [arbitration] contracts could be enforced in the Federal courts, . . . this law is essential. The bill declares that such agreements shall be recognized and enforced by the courts of the United States. [ Footnote 2/13 ]"
Congress relied on in passing the Act. The FAA might have been grounded on Congress' powers to regulate interstate and maritime affairs, since the Act extends only to contracts in those areas. There are, indeed, references in the legislative history to the corresponding federal powers. More numerous, however, are the references to Congress' pre- Erie power to prescribe "general law" applicable in all federal courts. [ Footnote 2/14 ] At the congressional hearings, for example: "Congress rests solely upon its power to prescribe the jurisdiction and duties of the Federal courts." [ Footnote 2/15 ] And in the House Report:
"The matter is properly the subject of Federal action. Whether an agreement for arbitration shall be enforced or not is a question of procedure to be determined by the law court in which the proceeding is brought, and not one of substantive law to be determined by the law of the forum in which the contract is made. [ Footnote 2/16 ] . . ."
The foregoing cannot be dismissed as "ambiguities" in the legislative history. It is accurate to say that the entire history contains only one ambiguity, and that appears in the single sentence of the House Report cited by the Court ante at 465 U. S. 12 -13. That ambiguity, however, is definitively resolved elsewhere in the same House Report see supra at 465 U. S. 27 , and throughout the rest of the legislative history.
The structure of the FAA itself runs directly contrary to the reading the Court today gives to § 2. Sections 3 and 4 are the implementing provisions of the Act, and they expressly apply only to federal courts. Section 4 refers to the "United States district court[s]," and provides that it can be invoked only in a court that has jurisdiction under Title 28 of the United States Code. As originally enacted, § 3 referred, in the same terms as § 4, to "courts [or court] of the United States." [ Footnote 2/17 ] There has since been a minor amendment in § 4's phrasing, but no substantive change in either section's limitation to federal courts. [ Footnote 2/18 ]
None of this Court's prior decisions has authoritatively construed the Act otherwise. It bears repeating that both Prima Paint and Moses H. Cone involved federal court litigation. The applicability of the FAA to state court proceedings was simply not before the Court in either case. Justice Black would surely be surprised to find either the majority opinion or his dissent in Prima Paint cited by the Court today, as both are, ante at 465 U. S. 11 , 465 U. S. 12 . His dissent took pains to point out:
The Prima Paint majority gave full but precise effect to the original congressional intent -- it recognized that, notwithstanding the intervention of Erie, the FAA's restrictive focus on maritime and interstate contracts permits its application in federal diversity courts. Today's decision, in contrast, glosses over both the careful crafting of Prima Paint and the historical reasons that made Prima Paint necessary, and gives the FAA a reach far broader than Congress intended. [ Footnote 2/19 ]
Section 2, like the rest of the FAA, should have no application whatsoever in state courts. Assuming, to the contrary, that § 2 does create a federal right that the state courts must enforce, state courts should nonetheless be allowed, at least in the first instance, to fashion their own procedures for enforcing the right. Unfortunately, the Court seems to direct that the arbitration clause at issue here must be specifically enforced; apparently no other means of enforcement is permissible. [ Footnote 2/20 ]
It is settled that a state court must honor federally created rights, and that it may not unreasonably undermine them by invoking contrary local procedure. " [T]he assertion of federal rights, when plainly and reasonably made, is not to be defeated under the name of local practice.'" Brown v. Western R. Co. of Alabama, 338 U. S. 294 , 338 U. S. 299 (1949). But absent specific direction from Congress, the state courts have always been permitted to apply their own reasonable procedures when enforcing federal rights. Before we undertake to read a set of complex and mandatory procedures into § 2's brief and general language, we should, at a minimum, allow state courts and legislatures a chance to develop their own methods for enforcing the new federal rights. Some might choose to award compensatory or punitive damages for the violation of an arbitration agreement; some might award litigation costs to the party who remained willing to arbitrate; some might affirm the "validity and enforceability"
of arbitration agreements in other ways. Any of these approaches could vindicate § 2 rights in a manner fully consonant with the language and background of that provision. [ Footnote 2/21 ]
The unelaborated terms of § 2 certainly invite flexible enforcement. At common law, many jurisdictions were hostile to arbitration agreements. Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F'.2d 978, 982-984 (CA2 1942). That hostility was reflected in two different doctrines: "revocability," which allowed parties to repudiate arbitration agreements at any time before the arbitrator's award was made, and "invalidity" or "unenforceability," equivalent rules [ Footnote 2/22 ] that flatly denied any remedy for the failure to honor an arbitration agreement. In contrast, common law jurisdictions that enforced arbitration agreements did so in at least three different ways -- through actions for damages, actions for specific enforcement, or by enforcing sanctions imposed by trade and commercial associations on members who violated arbitration agreements. [ Footnote 2/23 ] In 1925, a forum allowing any one of these remedies would have been thought to recognize the "validity" and "enforceability" of arbitration clauses.
This Court has previously rejected the view that state courts can adequately protect federal rights only if "such courts, in enforcing the Federal right, are to be treated as Federal courts and subjected pro hac vice to [federal] limitations. . . ." Minneapolis & St. Louis R. Co. v. Bombolis, 241 U. S. 211 , 241 U. S. 221 (1916). As explained by Professor Hart:
"The general rule, bottomed deeply in belief in the importance of state control of state judicial procedure, is that federal law takes the state courts as it finds them. . . . Some differences in remedy and procedure are inescapable if the different governments are to retain a measure of independence in deciding how justice should be administered. If the differences become so conspicuous as to affect advance calculations of outcome, and so to induce an undesirable shopping between forums, the remedy does not lie in the sacrifice of the independence of either government. It lies rather in provision by the federal government, confident of the justice of its own procedure, of a federal forum equally accessible to both litigants. [ Footnote 2/24 ]"
In summary, even were I to accept the majority's reading of § 2, I would disagree with the Court's disposition of this case. After articulating the nature and scope of the federal right it discerns in § 2, the Court should remand to the state court, which has acted, heretofore, under a misapprehension of federal law. The state court should determine, at least in the first instance, what procedures it will follow to vindicate the newly articulated federal rights. Cf. Missouri ex rel. Southern R. Co. v. Mayfield, 340 U. S. 1 , 340 U. S. 5 (1950).
The Court, ante at 465 U. S. 15 -16, rejects the idea of requiring the FAA to be applied only in federal courts partly out of concern with the problem of forum shopping. The concern is unfounded. Because the FAA makes the federal courts equally accessible to both parties to a dispute, no forum shopping would be possible even if we gave the FAA a construction
Ironically, the FAA was passed specifically to rectify forum-shopping problems created by this Court's decision in Swift v. Tyson, 16 Pet. 1 (1842). [ Footnote 2/25 ] By 1925, several major commercial States had passed state arbitration laws, but the federal courts refused to enforce those laws in diversity cases. [ Footnote 2/26 ] The drafters of the FAA might have anticipated Bernhardt by legislation, and required federal diversity courts to adopt the arbitration law of the State in which they sat. But they deliberately chose a different approach. As was pointed out at congressional hearings, [ Footnote 2/27 ] an additional goal of the Act was to make arbitration agreements enforceable even in federal courts located in States that had no arbitration law. The drafters' plan for maintaining reasonable harmony between state and federal practices was not to bludgeon States into compliance, but rather to adopt a uniform federal law, patterned after New York's path-breaking state statute, [ Footnote 2/28 ] and simultaneously to press for passage of coordinated
state legislation. The key language of the Uniform Act for Commercial Arbitration was, accordingly, identical to that in § 2 of the FAA. [ Footnote 2/29 ]
"If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which sch award was made. . . . "
Joint Hearings 39-40 (emphasis added). "The primary purpose of the statute is to make enforcible [ sic ] in the Federal courts such agreements for arbitration. . . ." Id. at 38 (statement of Mr. Cohen). See also Senate Hearing 2 ("This bill follows the lines of the New York arbitration law, applying it to the fields wherein there is Federal jurisdiction").
For my present purpose, it is enough to recognize that Congress relied at least in part on its Art. III power over the jurisdiction of the federal courts. See Prima Paint, 388 U.S. at 388 U. S. 406 , and n. 13 (majority opinion); id. at 388 U. S. 416 -420 (Black, J., dissenting).
Even without this history, § 3's "courts of the United States" is a term of art whose meaning is unmistakable. State courts are "in," but not "of " the United States. Other designations of federal courts as the courts "of" the United States are found, for example, in 28 U.S.C. § 2201 (1976 ed., Supp. V) (declaratory judgments); Fed.Rule Evid. 601; and the Norris-La Guardia Act, 29 U.S.C. § 104, see Boys Markets, Inc. v. Retail Clerks, 398 U. S. 235 , 398 U. S. 247 (1970) (BRENNAN, J.). References to state and federal courts together as courts "in" or "within" the United States are found in the Supremacy Clause ("Judges in every state"); 11 U.S.C. § 306 (1982 ed.); 22 U.S.C. § 2370(e)(2); and 28 U.S.C. § 1738. See also W. Sturges, Commercial Arbitrations and Awards § 480, p. 937 (1930).
The Court suggests, ante at 465 U. S. 12 , that it is unlikely that Congress would have created a federal substantive right that the state courts were not required to enforce. But it is equally rare to find a federal substantive right that cannot be enforced in federal court under the jurisdictional grant of 28 U.S.C. § 1331. Yet the Court states, ante at 465 U. S. 15 -16, n. 9, that the FAA must be so construed. The simple answer to this puzzle is that, in 1925, Congress did not believe it was creating a substantive right at all.
If my understanding of the Court's opinion is correct, the Court has made § 3 of the FAA binding on the state courts. But as we have noted, supra, at 465 U. S. 29 , § 3, by its own terms, governs only federal court proceedings. Moreover, if § 2, standing alone, creates a federal right to specific enforcement of arbitration agreements, §§ 3 and 4 are, of course, largely superfluous. And if § 2 implicitly incorporates §§ 3 and 4 procedures for making arbitration agreements enforceable before arbitration begins, why not also § 9 procedures concerning venue, personal jurisdiction, and notice for enforcing an arbitrator's award after arbitration ends? One set of procedures is of little use without the other.