Opinion ID: 2065664
Heading Depth: 1
Heading Rank: 4

Heading: Evolution of The Federal Arbitration Act

Text: The issues now before us involve the interplay between two Federal statutes, the FAA and the MMWA. We must therefore examine the FAA, to determine whether, and to what extent, that statute affects our analysis of the MMWA. The FAA provides: A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2. Congress enacted the FAA in 1925 [t]o make valid and enforceable written provisions or agreements for arbitration of disputes arising out of contracts, maritime transactions, or commerce among the States or Territories or with foreign nations. United States Arbitration Act, ch. 213, 68 P.L. 401, 43 Stat. 883 (1925). Prior to the 1980s, the FAA was widely inapplicable to claims that were based upon the assertion of statutory, rather than contractual, claims. For example, in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), the Supreme Court analyzed whether a conflict existed between the FAA and the Securities Act of 1933 to determine whether an agreement to arbitrate issues arising under the Securities Act was valid. The Supreme Court evaluated both statutes and stated: Recognizing the advantages that prior agreements for arbitration may provide for the solution of commercial controversies, we decide that the intention of Congress concerning the sale of securities is better carried out by holding invalid such an agreement for arbitration of issues arising under the [Securities] Act. Wilko, 346 U.S. at 438, 74 S.Ct. at 188-89, 98 L.Ed. at 177. The Court held that the arbitration provision in the parties' agreements was void under the Securities Act because the arbitration provision deprived Petitioner of his rights and forced him to surrender the advantages that the Securities Act gave him as the buyer in the transaction. See also NLRB v. Radio & Television Broad. Eng'rs Union, 364 U.S. 573, 581-82, 81 S.Ct. 330, 336, 5 L.Ed.2d 302, 309 (1961) (concluding that Congress expressed a clear preference for a Board to resolve NLRB claims, as opposed to resolution by compelled arbitration, and that, therefore, the Court must respect this policy preference). In the 1980s, the Supreme Court began to take a different approach, giving more weight to the FAA and looking more favorably upon compelled arbitration. In 1983, in Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765, 785 (1983), the Court stated that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration. . . . The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. In 1985, in Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 1242-43, 84 L.Ed.2d 158, 165, the Court echoed its prior position, concluding that [t]he preeminent concern of Congress in passing the [FAA] was to enforce private agreements into which parties had entered, and that concern requires that we rigorously enforce agreements to arbitrate, even if the result is `piecemeal' litigation, at least absent a countervailing policy manifested in another federal statute. Also in 1985, in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), the Supreme Court made clear that the FAA's mandate of arbitration also applied to causes of action created by statute. The Supreme Court has since been reluctant to find that a statute's purpose conflicts with arbitration because it has determined that Congress enacted the FAA to establish[] a `federal policy favoring arbitration' and further that [t]he Act was intended to `revers[e] centuries of judicial hostility to arbitration agreements,' by `plac[ing] arbitration agreements' upon the same footing as other contracts. McMahon, 482 U.S. at 225-26, 107 S.Ct. at 2337, 96 L.Ed.2d. at 193 (citations omitted). In McMahon, the Supreme Court held that to defeat application of the FAA, the moving party must demonstrate that Congress intended to make an exception to the [FAA] for claims arising under [a competing statute] . . . an intention discernible from the text, history, or purposes of the statute. McMahon, 482 U.S. at 227, 107 S.Ct. at 2338, 96 L.Ed.2d. at 194. This test has become commonly known as the McMahon test. The Supreme Court has utilized this test to determine whether other statutes preclude binding arbitration and supersede the FAA; the Court has strongly favored arbitration. The Supreme Court recently stated that even claims arising under a statute designed to further important social policies may be arbitrated because `so long as the prospective litigant effectively may vindicate his statutory cause of action in the arbitral forum, the statute serves its function.' Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 521, 148 L.Ed.2d 373, 383 (2000) (citations omitted). The Supreme Court has not yet specifically applied this line of reasoning to the MMWA. In addition, prior to 1984, when the Supreme Court decided Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), the FAA was considered by many courts and commentators to be only procedural in nature and applicable only in federal courts. It allowed a party to a written arbitration agreement involving either interstate commerce or a maritime transaction to enforce that agreement in federal court, so long as that court had jurisdiction. In Southland, the Supreme Court determined that the FAA rests on the authority of Congress to enact substantive rules under the Commerce Clause, and that, as a result, it was enforceable in state courts, as well as federal courts, under the Supremacy Clause. Southland, 465 U.S. at 11, 104 S.Ct. at 858, 79 L.Ed.2d at 12. Justice O'Connor dissented, arguing that Congress enacted the FAA pursuant to its power over the federal courts, and not the Commerce power, and that the legislative history of the FAA makes clear that Congress intended the FAA to be procedural in nature, and applicable only in federal courts. Southland, 465 U.S. at 11, 104 S.Ct. at 858, 79 L.Ed.2d at 12 (O'Connor, J., dissenting). The House report upon which she relied states, in pertinent part: The matter is properly the subject of [f]ederal 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. Before such contracts could be enforced in the [f]ederal courts, therefore, this law is essential. H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924) (emphasis added).