As I mentioned in an earlier post, the Arbitration Fairness Act of 2013 (AFA) was introduced in the House and Senate on May 7, 2013. I want to address a potential ambiguity or problem with the bill that should be clarified. I have concerns that if the AFA is enacted in its current form, it could lead to unnecessary, wasteful litigation.
I view the Federal Arbitration Act (FAA) as a unitary, comprehensive statute designed for, and only applicable in, federal court. I believe that the Supreme Court’s Southland decision – holding that section 2 of the FAA applies in state courts – is flawed. The drafters never intended for some sections of the FAA to apply only in federal court (like section 4 which refers to a United States district court) while other sections would be applicable in both federal and state court. Instead, there is a good argument that the FAA was intended to apply SOLELY in federal courts. I like to think of the FAA as a type of special federal rule of civil procedure; you can only invoke the rule when you are before a federal court. At least I believe that was the original intent behind the FAA. (I know that some people disagree with this view of Southland. See an excellent article by Chris Drahozal called “In Defense of Southland.”)
What is the legislative intent behind the Arbitration Fairness Act of 2013 (AFA of 2013)? Clearly, there is an intent to prohibit consumer and employment arbitration, among other types of disputes, and this amendment would correct flawed Supreme Court decisions and definitely help bring the FAA closer back to its original meaning. However, how does the AFA of 2013 interact with Southland?
Consider the following 2 scenarios:
Scenario #1: Is Congress enacting the AFA of 2013 against the backdrop of the original view of the FAA, the pre-Southland view, where the FAA is only applicable in federal court? If so, it seems that states would be free to have their own arbitration laws, under which consumer and employment arbitration agreements could be valid and enforceable in state courts.
Scenario #2: Is Congress ratifying the flawed Southland decision through the adoption of the AFA of 2013? In other words, is Congress enacting the AFA of 2013 with the intent that no court, state or federal, will be able to enforce consumer and employment pre-dispute arbitration agreements.
I could be wrong, but I believe the main sponsors, Senator Franken and Representative Johnson, intend scenario #2. They wish to ban all pre-dispute arbitration agreements in the employment and consumer contexts so that neither state nor federal courts will enforce such agreements. However, if the AFA of 2013 is adopted, wouldn’t scenario #1 be at least arguable and defensible, especially taking a literal, textual reading of the FAA and viewing the FAA as a unified whole? After all, the AFA is being billed as “restoring” the original view of the FAA, which arguably means that the FAA is being restored back to its pre-Southland incarnation as an exclusively federal statute applicable only in federal court. Also, the AFA of 2013 is not touching section 4’s language, which clearly refers solely to federal district courts, and considering the statute as a comprehensive, unitary whole, one may argue that the AFA is only banning the enforceability of certain arbitration agreements in federal courts, not state courts.
If the AFA is passed, I predict corporate interests will try to argue that by restoring the original view of the FAA, state courts are free to enforce arbitration agreements in the employment and consumer context. To prevent future, unnecessary litigation over this issue, the sponsors should clarify whether the AFA is ratifying the Supreme Court’s flawed Southland decision or not. If scenario #2 is intended, then ideally the AFA of 2013 should explicitly address and clean up the other provisions of the FAA, like section 4 (maybe even delete these sections), to clarify that the FAA applies in both state and federal courts.