Arbitration is one of the main forms of alternative dispute resolution. The Federal Arbitration Act (FAA) governs the domestic arbitration process, while the New York Convention shapes international arbitration. Courts have addressed issues such as conflicts between federal and state rules, the power of the arbitrator, and the scope of judicial review. Situations in which arbitration often occurs include disputes between an employer and an employee or union, as well as securities and consumer claims. Below is an outline of key cases in arbitration law with links to the full text of virtually every case, provided free by Justia.
Congress enacted the FAA to provide nationwide uniformity in the enforcement of arbitration agreements. The strong federal policy favoring arbitration reversed long-standing distrust of arbitration procedures by courts.
Citizens Bank v. Alafabco, Inc. 一 By applying to a contract “evidencing a transaction involving commerce,” the FAA provides for the enforcement of arbitration agreements within the full reach of the Commerce Clause. Thus, it encompasses a wider range of transactions than those actually “in commerce.”
Gilmer v. Interstate/Johnson Lane Corp. 一 Statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the FAA. Since the FAA manifests a liberal federal policy favoring arbitration, and since neither the text nor the legislative history of the statute at issue explicitly precluded arbitration, a party was bound by their agreement to arbitrate unless they could show an inherent conflict between arbitration and the purposes of the statute.
Thompson CSF, S.A. v. Evans & Sutherland Computer Corp. 一 While there is a strong and liberal federal policy favoring arbitration agreements, such agreements must not be so broadly construed as to encompass claims and parties that were not intended by the original contract. However, a nonsignatory party may be bound to an arbitration agreement if so dictated by the ordinary principles of contract and agency.
State Rules for Arbitration
States may impose their own rules governing arbitration. While the FAA preempts state laws that are inconsistent with the FAA or undermine its goals and policies, it does not occupy the field of arbitration and completely prevent states from regulating the process.
Southland Corp. v. Keating 一 In enacting Section 2 of the FAA, Congress withdrew the power of the states to require a judicial forum for the resolution of claims that the contracting parties agreed to resolve by arbitration.
Doctor’s Associates, Inc. v. Casarotto 一 By enacting Section 2 of the FAA, Congress precluded states from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed on the same footing as other contracts.
Volt Information Sciences, Inc. v. Board of Trustees of Stanford University 一 The FAA contains no express preemptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration. When the parties have agreed to abide by state arbitration rules, enforcing those rules according to the terms of the agreement is consistent with the FAA’s goals, even if the result is that arbitration is stayed when the FAA would otherwise permit it to go forward.
Mastrobuono v. Shearson Lehman Hutton, Inc. 一 If contracting parties agree to include punitive damages claims within the issues to be arbitrated, the FAA ensures that their agreement will be enforced according to its terms, even if a rule of state law would otherwise exclude such claims from arbitration.
Preston v. Ferrer 一 When parties agree to arbitrate all questions arising under a contract, the FAA supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative.
The Power of the Arbitrator
Since courts consider arbitration a matter of contract between the parties, arbitrators generally may decide any question that the parties have agreed to submit to arbitration. They have substantial authority in managing discovery and hearings, and their findings may have preclusive effect in subsequent litigation.
First Options of Chicago, Inc. v. Kaplan 一 The question of who has the primary power to decide arbitrability turns on whether the parties agreed to submit that question to arbitration. If so, the court should defer to the arbitrator’s arbitrability decision; if not, the court should decide the question independently.
Buckeye Check Cashing, Inc. v. Cardegna 一 Regardless of whether it is brought in federal or state court, a challenge to the validity of a contract as a whole, rather than specifically to the arbitration clause within it, must go to the arbitrator, rather than the court.
Green Tree Financial Corp. v. Bazzle 一 Arbitrators are well situated to answer a question that concerns contract interpretation and arbitration procedures, rather than state statutes or judicial procedures.
Witkowski v. Welch 一 Under Pennsylvania law, arbitration proceedings and their findings are considered final judgments for the purposes of collateral estoppel.
The Role of Courts
Among other things, a party may ask a court to stay an action pending arbitration, compel arbitration, or grant interim relief in an arbitrable dispute. Once an award is issued, a party may ask a court to confirm or enforce an award, or conversely to modify or vacate an award.
Prima Paint Corp. v. Flood & Conklin Mfg. Co. 一 In passing upon an application for a stay while the parties arbitrate, a federal court may consider only issues related to the making and performance of the agreement to arbitrate.
Moses H. Cone Memorial Hospital v. Mercury Construction Corp. 一 An important reason against allowing a stay of a federal action seeking an order compelling arbitration was the probable inadequacy of the concurrent state court suit to protect that party’s rights, since it was doubtful that the party could obtain from the state court an order compelling the other party to arbitrate.
Ortho Pharmaceutical Corp. v. Amgen, Inc. 一 The FAA does not deprive the district court of the authority to grant interim relief in an arbitrable dispute, provided that the court properly exercises its discretion in issuing the relief.
Cortez Byrd Chips, Inc. v. Bill Harbert Constr. Co. 一 The venue provisions of the FAA are permissive, allowing a motion to confirm, vacate, or modify to be brought either in the district where the award was made or in any district proper under the general venue statute.
First Options of Chicago, Inc. v. Kaplan 一 Courts of appeals should apply ordinary standards when reviewing district court decisions upholding arbitration awards. They should not apply a special abuse of discretion standard.
Section 10 of the FAA provides limited grounds for judicial review of arbitration awards, which include arbitrator partiality or misconduct, as well as situations in which an arbitrator exceeds their powers. Some courts may vacate an award for manifest disregard of the law.
Halligan v. Piper Jaffray, Inc. 一 To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and that the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.
LaPine Technology Corp. v. Kyocera Corp. 一 A district court erred when it decided that it could not expand judicial review of an arbitration award beyond the grounds set forth in the FAA to the more generous review for substantial evidence and errors of law to which the parties agreed.
The FAA generally applies to individual employment contracts, which may be drafted in ways that favor an employer. Discrimination claims may be subject to arbitration, but federal anti-discrimination agencies may pursue related claims in court. The Taft-Hartley Act gives jurisdiction to federal courts over disputes involving collective bargaining agreement violations.
Alexander v. Gardner-Denver Co. 一 An employee’s statutory right to trial de novo under Title VII is not foreclosed by prior submission of their claim to final arbitration under the non-discrimination clause of a collective bargaining agreement.
EEOC v. Waffle House, Inc. 一 An agreement between an employer and an employee to arbitrate employment-related disputes does not bar the EEOC from pursuing victim-specific judicial relief, such as backpay, reinstatement, and damages, in an ADA enforcement action.
Circuit City Stores, Inc. v. Adams 一 The exemption in Section 1 of the FAA, which excludes contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce, is confined to transportation workers.
Major League Baseball Players’ Ass’n v. Garvey 一 Judicial review of a labor arbitration decision pursuant to a collective bargaining agreement is very limited. Courts are not authorized to review an arbitrator’s decision on the merits despite allegations that the decision rests on factual errors or misinterprets the parties’ agreement. Even when the arbitrator’s award may properly be vacated, the appropriate remedy is to remand the case for further arbitration proceedings.
14 Penn Plaza, LLC v. Pyett 一 A provision in a collective bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law.
Brotherhood of Maintenance of Way Employees v. Burlington Northern R.R. Co. 一 In the world of labor arbitration, the preclusive effect of the first arbitrator’s decision is an issue for a later arbitrator to consider, for the scope of the arbitrator’s authority to determine the preclusive effect of an earlier award is a question of contract interpretation that the parties have delegated to the arbitrator.
Toyota of Berkeley v. Automobile Salesmen’s Union 一 Under a collective bargaining agreement specifically providing for designation of an arbitrator without the participation of both parties, an arbitrator may issue an enforceable default award when one party fails to attend the hearing.
Securities and Consumer Arbitration
Corporations may require consumer claims to proceed through arbitration, and they may require consumers to waive their rights to pursue a class action. A consumer may try to defeat an arbitration provision by arguing that it imposes excessive fees or is otherwise unconscionable.
PacifiCare Health Systems, Inc. v. Book 一 Parties can be compelled to arbitrate claims arising under the Racketeer Influenced and Corrupt Organizations Act (RICO), notwithstanding the fact that their arbitration agreements may be construed to limit the arbitrator’s authority to award damages under that statute.
Brower v. Gateway 2000, Inc. 一 While unconscionability is generally predicated on the presence of both procedural and substantive elements, the substantive element alone may be sufficient to render the terms of the provision at issue unenforceable. Excessive fees may be grounds for finding an arbitration provision unenforceable or commercially unreasonable.
Green Tree Financial Corp.-Ala. v. Randolph 一 A consumer seeking to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive bears the burden of showing the likelihood of incurring such costs.
AT&T Mobility, LLC v. Concepcion 一 The FAA prohibits states from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures.
The New York Convention provides for the recognition and enforcement of an arbitral award made in another nation. However, a court may refuse to enforce a foreign award in certain situations, such as when the agreement was invalid or due process violations occurred.
Yusuf Ahmed Alghanim & Sons, W.I.I. V. Toys “R” Us, Inc. 一 In an action to confirm an award rendered in, or under the law of, a foreign jurisdiction, the grounds for relief enumerated in Article V of the New York Convention are the only grounds available for setting aside an arbitral award. Article V(1)(e) of the Convention allows a court in the country under whose law the arbitration was conducted to apply domestic arbitral law (such as the FAA) to a motion to set aside or vacate the arbitral award.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 一 Concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes all required enforcement of the arbitration clause in question, even assuming that a contrary result would be forthcoming in a domestic context.
Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer 一 If the U.S. is to be able to gain the benefits of international accords and have a role as a trusted partner in multilateral endeavors, its courts should be most cautious before interpreting its domestic legislation in such a manner as to violate international agreements.
This outline has been compiled by the Justia team for solely educational purposes and should not be treated as an independent source of legal authority or a summary of the current state of the law. Students should use this outline as a supplement rather than a substitute for course-specific outlines.