How the Supreme Court\u27s Misconstruction of the FAA Has Affected Consumers

Neither the drafters of the Federal Arbitration Act nor the Congress that adopted it intended for it to cover consumers or workers or displace state jurisdiction or state substantive law. The FAA was simply intended to provide a means for resolving disputes among commercial entities that might voluntarily choose to forego their rights to have their disputes settled in court, in favor of what they deemed to be a simpler and more efficient means of dispute resolution. That point, which is entirely beyond dispute, has been lost on the Supreme Court. In a series of cases over the past fifty years, the Court, seemingly more concerned with diminishing the size of judicial caseloads or with ensuring certain substantive policy outcomes than with satisfying its obligation to give effect to congressional intent, has made the FAA a cornerstone of its efforts to circumscribe the rights of workers and consumers and nullify the policy choices of state legislators acting within the legitimate sphere of state policy-making. This article explains how this result came about, and how it has trampled consumer rights

Statutory Misconstruction: How the Supreme Court Has Created a Federal Arbitration Law Never Enacted by Congress

The Supreme Court has so significantly rewritten the Federal Arbitration Act (FAA) over the last twenty-five years that today it bears little resemblance to the statute enacted by Congress in 1925. Adopted as a simple procedural Act to enforce arbitration agreements, the FAA was intended to be applicable only in federal court. Today, the statute is a substantive statute applicable in both state and federal courts, which broadly pre-empts state law. The statute’s pre-emption of state law has recently been confirmed and expanded in the Court’s decision in Buckeye Check Cashing v. Cardegna (Feb. 2006). Although the thrust of the original legislation was to enforce arbitration agreements between merchants regarding fact-heavy commercial disputes, the Court has held that the FAA applies to statutory rights under antitrust, securities and employment laws. Moreover, although all workers’ contracts were excluded from the Act in 1925, the Court has held that only transportation workers are excluded. Finally, despite concerns of Members of Congress that this legislation should not apply in “take-it-or-leave-it” situations, the increasing use of mandatory arbitration clauses in adhesion situations has closed access to the courts for a substantial segment of consumers, insureds, small businesses, and investors. How does a statute acquire a totally different scope and application without any legislative intervention? This article begins with the story of the Federal Arbitration Act’s origins, and then discusses the interpretive methods used by the Supreme Court in the major cases that have defined the FAA. It concludes that none of the different interpretive methods used by the Court has served to cabin judicial discretion to legislate, resulting in a complete rewriting of the statute. The article also considers the impact of the Court’s policy choices on our legal system. The FAA is a statute that reduces protections legislated in the fields of federal antitrust, securities and employment law, and intrudes upon state police powers to control core state functions involving contract law and legal process. The new architecture of the FAA appears to reflect judicial policy preferences for the economically powerful, favoring corporations over consumers, and employers over employees. Table of Contents Statutory Misconstruction: How The Supreme Court Created a Federal Arbitration Law Never Enacted by Congress I. Intended Scope of the FAA II. Prima Paint and the Post-Erie Dilemma A. The Impact of Erie v. Tomkins B. Prima Paint III. Prima Paint’s Expansive Progeny: Moses H. Cone and Southland IV. The Supreme Court’s New Architecture for the FAA A. Pre-emption of State Law B. Arbitrability of Stautory Claims C. Arbitrability of Employment Agreements D. Further Pre-emption of State Contract Law V. Conclusio