ALF Urges Supreme Court To Decide Key Arbitration Issue
The Supreme Court repeatedly has explained that the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., was enacted to quell judicial hostility to arbitration. FAA § 2 “is the primary substantive provision of the Act, declaring that a written agreement to arbitrate . . . ‘shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983) (quoting 9 U.S.C. § 2). The Court often has reiterated that § 2 “is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” Id.
Surprisingly, the FAA does not define “arbitration” or what constitutes an agreement to arbitrate. Even more surprising, there is a well-defined and mature inter-circuit split of authority over whether federal law or state law governs the meaning of arbitration under the FAA.
The certiorari petition in Great American Insurance Company v. Crystal Shores Owners Association, Inc., No. 23-1051, requests the Court to decide this fundamental question. ALF, which has a longstanding interest in judicial enforcement of agreements to resolve commercial, consumer, employment, and other types of individual private-party disputes through binding arbitration, has filed an amicus brief urging the Court to grant review and hold that federal law governs the meaning of arbitration under the FAA.
Whether federal law or state law governs the meaning of an agreement to arbitrate under the Federal Arbitration Act.
Additional Background:
The Crystal Shores case arises from an Alabama Supreme Court ruling holding that a property loss appraisal procedure in a commercial property insurance policy is not an arbitration agreement subject to FAA enforcement under either federal law or state law. The insurance contract’s appraisal provision applies to disputes about the amount of loss, in this case due to storm-related water damage to a residential building. In the event of a dispute, either party “may make written demand for appraisal of the loss.” Each party then “select[s] a competent and impartial appraiser,” and those two appraisers then “select an umpire.” If the two appraisers “fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding.”
ALF’s Amicus Brief:
ALF long has been an advocate for the FAA’s primacy over state law and the enforceability of arbitration agreements by federal and state courts.
The amicus brief explains that although Congress enacted the FAA to supplant judicial hostility to enforcement of arbitration agreements, resistance persists in some States, for example, California and Alabama. The brief discusses a long line of Supreme Court precedents that highlight, and quash, the many ways that some state courts and legislatures have attempted to restrict application of the FAA and enforcement of arbitration agreements.
ALF’s amicus brief emphasizes that nothing is more fundamental to the purpose and operation of the FAA than the meaning of arbitration. “Affording a State free rein to define what constitutes an FAA-enforceable arbitration agreement as sparingly as it chooses undermines the purposes and obstructs the operation of the Act, engenders uncertainty among contracting parties (especially if they are located in different States), and impedes the conduct of interstate commerce.”
For this reason, it is imperative that the Supreme Court resolve the split of authority over what law governs. “Without an unequivocal holding from [the] Court that federal law governs the meaning of arbitration under the FAA, individual States that are still hostile to arbitration will be able to obstruct the statute’s goals by defining arbitration as narrowly as possible under state statutory and/or common law.” The Court needs to grant review and hold that federal law governs the meaning of arbitration under the FAA.
Status:
The certiorari petition was denied on May 20, 2024.
Contact:
Email ALF Executive Vice President & General Counsel Lawrence Ebner.
