Court Opinion

ID: 9429476
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:26:50.551295+00
Date Added: 2024-06-11T17:23:19.320096
License: Public Domain

Justice Stevens,
concurring in part and dissenting in part.
The Court holds that an arbitration clause that is enforceable in an action in a federal court is equally enforceable if the action is brought in a state court. I agree with that conclusion. Although Justice O’Connor’s review of the legislative history of the Federal Arbitration Act demonstrates that the 1925 Congress that enacted the statute viewed the statute as essentially procedural in nature, I am persuaded that the intervening developments in the law compel the conclusion that the Court has reached. I am nevertheless troubled by one aspect of the case that seems to trouble none of my colleagues.
For me it is not “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.” Ante, at 15. The general rule prescribed by §2 of the Federal *18Arbitration Act is that arbitration clauses in contracts involving interstate transactions are enforceable as a matter of federal law. That general rule, however, is subject to an exception based on “such grounds as exist at law or in equity for the revocation of any contract.” I believe that exception leaves room for the implementation of certain substantive state policies that would be undermined by enforcing certain categories of arbitration clauses.
The exercise of state authority in a field traditionally occupied by state law will not be deemed pre-empted by a federal statute unless that was the clear and manifest purpose of Congress. Ray v. Atlantic Richfield Co., 435 U. S. 151, 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 “rarely occupies a legal field completely, totally excluding all participation by the legal systems of the states. . . . Federal legislation, on the whole, has been conceived and drafted on an ad hoc basis to accomplish limited objectives. It builds upon legal relationships established by the states, altering or supplanting them only so far as necessary for the special purpose.” P. Bator, P. Mishkin, D. Shapiro, & H. Wechsler, Hart and Wechsler’s The Federal Courts and the Federal System 470-471 (2d ed. 1973).
The limited objective of the Federal Arbitration Act was to abrogate the general common-law rule against specific enforcement of arbitration agreements, S. Rep. No. 536, 68th Cong., 1st Sess., 2-3 (1924), and a state statute which merely codified the general common-law rule — either directly by employing the prior doctrine of revocability or indirectly by declaring all such agreements void — would be pre-empted by the Act. However, beyond this conclusion, which seems compelled by the language of § 2 and case law concerning the Act, it is by no means clear that Congress intended entirely to displace state authority in this field. Indeed, while it is an understatement to say that “the legislative history of the . . . Act. . . reveals little awareness on the part of Congress that *19state law might be affected,” it must surely be true that given the lack of a “clear mandate from Congress as to the extent to which state statutes and decisions are to be superseded, we must be cautious in construing the act lest we excessively encroach on the powers which Congressional policy, if not the Constitution, would reserve to the states.” Metro Industrial Painting Corp. v. Terminal Construction Co., 287 F. 2d 382, 386 (CA2 1961) (Lumbard, C. J., concurring).
The textual basis in the Act for avoiding such encroachment is the clause of §2 which provides that arbitration agreements are subject to revocation on such grounds as exist at law or in equity for the revocation of any contract. The Act, however, does not define what grounds for revocation may be permissible, and hence it would appear that the judiciary must fashion the limitations as a matter of federal common law. Cf. Textile Workers v. Lincoln Mills, 353 U. S. 448 (1957). In doing so, we must first recognize that as the “‘saving clause’ in §2 indicates, the purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so.” Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 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, 69 (1966); see generally Wilson v. Omaha Indian Tribe, 442 U. S. 653, 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, *20Inc. v. Madison Sales Corp., 521 F. 2d 1210 (CA7 1975), which is entirely appropriate so long as the state rule does not conflict with the policy of § 2.
A contract which is deemed void is surely revocable at law or in equity, and the California Legislature has declared all conditions purporting to waive compliance with the protections of the Franchise Investment Law, including but not limited to arbitration provisions, void as a matter of public policy. Given the importance to the State of franchise relationships, the relative disparity in the bargaining positions between the franchisor and the franchisee, and the remedial purposes of the California Act, I believe this declaration of state policy is entitled to respect.
Congress itself struck a similar balance in §14 of the Securities Act of 1933, 15 U. S. C. § 77n, 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 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 *21irrespective of their purpose or effect. See generally Paramount Famous Lasky Corp. v. United States, 282 U. S. 30 (1930) (holding arbitration agreement void as a restraint of trade).
We should not refuse to exercise independent judgment concerning the conditions under which an arbitration agreement, generally enforceable under the Act, can be held invalid as contrary to public policy simply because the source of the substantive law to which the arbitration agreement attaches is a State rather than the Federal Government. I find no evidence that Congress intended such a double standard to apply, and I would not lightly impute such an intent to the 1925 Congress which enacted the Arbitration Act.
A state policy excluding wage claims from arbitration, cf. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U. S. 117 (1973), or a state policy of providing special protection for franchisees, such as that expressed in California’s Franchise Investment Law, can be recognized without impairing the basic purposes of the federal statute. Like the majority of the California Supreme Court, I am not persuaded that Congress intended the pre-emptive effect of this statute to be “so unyielding as to require enforcement of an agreement to arbitrate a dispute over the application of a regulatory statute which a state legislature, in conformity with analogous federal policy, has decided should be left to judicial enforcement.” App. to Juris. Statement 18a.
Thus, although I agree with most of the Court’s reasoning and specifically with its jurisdictional holdings, I respectfully dissent from its conclusion concerning the enforceability of the arbitration agreement. On that issue, I would affirm the judgment of the California Supreme Court.