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The Federal Arbitration Act Cases
The three decisions construing the FAA illustrate most dramatically this tendency to squeeze out state law in commercial contexts by requiring state law to carve out special exemptions for federally protected subject matter. Section 2 of the FAA provides that 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 shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
Under the nondiscrimination theory of preemption, this statute would seem to preempt only those state laws that singled out the statutorily specified federal interest—that is, the “written provision ... to settle by arbitration a controversy thereafter arising out of such contract or transaction" So long as state law placed this interest on an equal footing with other contractual provisions, the nondiscrimination theory would leave such state laws intact, regardless of whether they incidentally led to the nonenforcement of the arbitration clause. The Roberts Court, however, rejected this nondiscrimination reading of the preemption clause on three occasions, instead carving out special exemptions from state laws that were neutral on the topic of arbitration. In Buckeye Check Cashing v. Cardegna, the Court held that the FAA required the arbitrator selected by an allegedly usurious contract’s arbitration clause to adjudicate the defense of usury. Rejecting the argument that a contract alleged to be void on its face could not determine the process by which a contractual defense could be adjudicated, Justice Scalia’s majority opinion held that the arbitration cause was severable from the rest of the allegedly void contract and, therefore, must be enforced. The state’s severability doctrine could be set aside because it did not give sufficient weight to the federal interest in arbitration even though that doctrine treated arbitration clauses on the same footing as any other clause in a void contract.
Preston v. Ferrer, followed naturally, if not inevitably, from Buckeye. The Court rejected the demand of Alex Ferrer, a TV judge-entertainer working for Fox News, that his contractual dispute with Preston, his lawyer-manager, be initially heard by the California Labor Commissioner pursuant to the California Talent Agency Act. Noting that the FAA “ ‘declare[s] a national policy favoring arbitration’ of claims that parties contract to settle in that manner,” Preston held that an initial hearing before the commissioner would delay arbitration, and thus frustrate the purpose of the FAA in “streamlined proceedings and expeditious results.” Because such an administrative exhaustion requirement “would, at the least, hinder speedy resolution of the controversy,” the Court held that it was implicitly preempted, even though such a requirement did not single out arbitration clauses for unfavorable treatment.
One might attribute both of these holdings to stare decisis. The Court had already held in Prima Paint v. Flood & Conklin Manufacturing Co.26 that a federal court could not adjudicate a fraud-in-the-inducement defense to a contract containing an arbitration clause unless the fraud in question pertained specifically to the arbitration clause. But why should Justice Scalia, who wrote Buckeye, feel obliged to follow every jot and tittle of FAA precedents when he had earlier declared them to be “an unauthorized eviction of state-court power”?27 It was certainly possible to distinguish Prima Paint on the ground that it involved Section 4 of the FAA, a clause governing federal courts, and, therefore, did not implicate concerns of federalism raised by Section 2, a clause governing all courts, state and federal. One might think, therefore, that Justice Scalia, at least, would give precedents expanding Section 2 a niggling construction, an approach he has taken with the related area of dormant commerce clause precedents.28 But Justice Scalia declined all invitations to draw subtle distinctions cabining Prima Paint and thereby ousted state courts from the power to construe their state laws’ limits on contractual freedom in the name of protecting federally sanctioned contractual freedom to choose arbitration over adjudication.
In AT&T v. Concepcion,29 the Court held that Section 2 of the FAA required the enforcement of an arbitration clause’s waiver of classwide procedures, thereby preempting California’s unconscionability doctrine set forth in Discover Bank v. Superior Court, which required classwide procedures when bilateral process would not provide an adequate remedy.30 Discover Bank, like the state laws at issue in Buckeye and Preston, did not single out arbitration clauses for unfavorable treatment: the doctrine, indeed, allowed enforcement of arbitration clauses, barring only the contractual waiver of classwide arbitration procedures. Nevertheless, the Court held that the Discover Bank rule stood as an implicit obstacle to the FAAs “overarching purpose” of “ensur[ing] the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.” Classwide arbitration frustrated this streamlining purpose, because it sacrificed confidentiality and “informality” and it threatened potentially high-stakes losses that could “pressure [defendants] into settling questionable claims.” The Court’s heavy reliance on its attribution of a judicially constructed purpose to justify preemption of California’s law led Justice Thomas to concur     
Unlike Preston and Buckeye, Concepcion split the Court 5-4, with Justice Breyer writing a dissent arguing that the FAA’s broad purpose was simply to put arbitration agreements “on the same footing as other contracts.” By imposing a broader purpose of streamlining on the FAA, the majority had departed from the presumption “that Congress does not cavalierly pre-empt state-law causes of action,” a “federalist ideal, embodied in specific language” of the FAA’s saving clause. Justice Breyer’s championing the “federalist ideal,” however, would be more persuasive if the Roberts Court had not already adopted the sweeping “special exemption” view of preemption in Buckeye and Preston, rejecting Breyer’s “nondiscrimination” thesis in opinions that Justice Breyer joined. As we shall see from the Roberts Court’s other “commercial” preemption decisions, this willingness to preempt a broad swathe of state laws using the “special exemption” theory, even when statutory text would seem to permit a “nondiscrimination” theory, is not confined to the FAA.
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