ADR Tip of the Month: May 2014
When you are supporting or opposing a motion to compel arbitration, here are three important tips to keep in mind:
1. The Federal Arbitration Act (FAA) almost always applies.
The FAA applies in both state and federal court if the contract at issue “in fact involve[s] interstate commerce.” Onvoy, Inc. v. SHAL, LLC, 669 N.W.2d 344, 351 (Minn. 2003). See also Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003).
2. Under the FAA, the arbitration agreement is severable from the rest of the contract.
In other words, any arguments about the enforceability of the arbitration agreement must be specific to the portion of the contract about arbitration, and not an argument that could be equally directed to the contract as a whole. Courts will enforce arbitration agreements in contracts that are alleged to be illegal, for example, if the illegality does not specifically affect the arbitration clause within that contract. Buckeye Check Cashing Inc. v. Cardegna, 546 U.S. 440 (2006); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402-03 (1967).
3. Generally applicable state law determines the validity of the arbitration agreement.
Section Two of the FAA (9 U.S.C. § 2) calls for arbitration agreements to be enforced unless generally-applicable state contract defenses make them invalid. So, while the FAA applies to most motions to compel arbitration, state law governs important questions like whether the parties formed an arbitration agreement, whether the parties had authority to form it, and whether the arbitration agreement is enforceable.
--Liz Kramer
Partner, Stinson Leonard Street
Blogger, www.arbitrationnation.com