When Does Federal Arbitration Law Preempt California Law?

Both California and the federal government have enacted statutes that regulate arbitration agreements and awards. The Federal Arbitration Act (FAA) and California Arbitration Act (CAA) are similar in many aspects but they have differences that can sometimes lead to conflict. Other state and federal statutes can also conflict with the FAA. Under the Federal Preemption Doctrine, provisions of state law that directly conflict with a federal statute are invalid or unenforceable. The U.S. Supreme Court has issued several rulings in recent years about preemption of state laws, and even other federal laws, by the FAA. The Supreme Court has also identified situations in which the CAA can apply instead of the FAA.

Federal Preemption Doctrine

The Supremacy Clause, found in Article VI, clause 2 of the U.S. Constitution, states that federal law is “the supreme Law of the Land.” The preemption doctrine is intended to guide courts in determining when federal law supersedes state law. In a 2009 decision, Wyeth v. Levine, the Supreme Court expressed its “assumption” that preemption would not occur “unless that was the clear and manifest purpose of Congress.” Whether the court has always strictly held to this principle is a matter of some disagreement.

The U.S. Supreme Court Finds Preemption by the FAA

In 2017, the Supreme Court decided Kindred Nursing Centers Ltd. v. Clark, which involved a challenge to mandatory arbitration clauses signed by individuals with powers of attorney on behalf of elderly nursing home residents in Kentucky. Under Kentucky law, according to the Supreme Court, “the rights of access to the courts and trial by jury [is considered] to be ‘sacred’ and ‘inviolate.’” State courts ruled the arbitration agreements to be invalid. The Supreme Court found the state court rulings to be invalid under § 2 of the FAA, which states that arbitration agreements are only subject to challenge under “such grounds as exist at law or in equity for the revocation of any contract.”

A 2018 decision, Epic Systems Corp. v. Lewis, found that the FAA preempted another federal statute, the National Labor Relations Act (NLRA). The NLRA protects workers’ rights to organize for collective bargaining purposes and includes provisions allowing for collective arbitration of disputes. The Supreme Court found that this violates the FAA’s protection of arbitration agreements between employers and individual employees.

Courts Find the California Arbitration Law Is Not Preempted

Preemption generally occurs when a state law conflicts with a clearly-stated intention of federal law although much disagreement can exist over any of those points. Several cases from California show that state law can still control.

In 1989’s Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Jr. U., the court addressed a CAA provision allowing courts to stay arbitration while litigation is ongoing. This provision directly conflicted with the FAA. The Supreme Court allowed the CAA provision to apply, however, based on its finding that all of the parties had specifically agreed that the CAA would govern all arbitration proceedings. A 2012 decision by a California appellate court affirmed the applicability of the CAA despite an even more glaring conflict with the FAA because all of the parties agreed to the CAA in a choice-of-law clause.

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