2006/Vol. 5 No.1 - Hamline Law - Hamline University

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8 THE JOURNAL OF AMERICAN ARBITRATION [Vol. 5:1 of any contract. 19 The United States Supreme Court extended the application of the FAA, making the provisions applicable to arbitration agreements executed pursuant to state law. 20 The Court asserted that any state that attempts to invalidate arbitration agreements under state laws applicable only to arbitration provisions will be met with opposition by the FAA. 21 In Allied-Bruce Terminix Companies v. Dobson, the Court recognized that, “States may regulate contracts, including arbitration clauses, under general contract law principles.” 22 But “[w]hat States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause.” 23 Despite the enactment of the FAA with its strong policy favoring arbitration, some federal and state courts still refused to enforce arbitration agreements. 24 But, in 1974, the judicial hostility toward 19. 9 U.S.C. § 2 (1994) (emphasis added); see Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-74 (1994). The Court adopted a broad interpretation of the phrase “involving commerce.” Id. The Court noted that “a broad interpretation of this language is consistent with the Act’s basic purpose, to put arbitration provisions on ‘the same footing’ as a contract’s other terms.” Id. at 275 (quoting Scherk, 417 U.S. at 511). 20. Southland Corp. v. Keating, 465 U.S. 1, 16 (1984) (“In creating a substantive rule applicable in state as well as federal courts, Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements.”). 21. Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). 22. Allied-Bruce, 513 U.S. at 281; see also Casarotto, 517 U.S. at 686-87 (holding that “the text of § 2 declares that state law may be applied ‘if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally.’ . . . Thus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2.”). 23. Allied-Bruce, 513 U.S. at 281; Casarotto, 517 U.S. at 688 (quoting Scherk, 417 U.S. at 511 (1974) (stating that “[b]y enacting § 2, . . . Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed ‘upon the same footing as other contracts.’”)). 24. Stephen J. Ware, Basic Principles of Arbitration Law: Successful Challenges to Arbitration Agreements, in ARBITRATION OF CONSUMER FINANCIAL SERVICES DISPUTES 1999, at 797, 802 (PLI Corporate Law Practice, Course Handbook Series No. B0-00C2, 1999); see, e.g., Wilko v. Swan, 346 U.S. 427, 438 (1953) (“[T]he intention of Congress concerning the sale of securities is better carried out by holding invalid such an agreement for arbitration.”); Rueda v. Union Pac. RR. Co., 175 P.2d 778, 782 (Or. 1946) (stating that, with respect to agreements to arbitrate future disputes, “the ancient common-law hostility to agreements ‘ousting the courts of jurisdiction’ becomes manifest, and it is often held that one
2006] ARBITRATION: THE BASICS 9 arbitration turned to support when the Supreme Court held that an arbitral forum would be just as fair as a courtroom for parties to an international agreement who had agreed to arbitrate a securities fraud claim pursuant to U.S. law. 25 Since the decision in Scherk v. Alberto- Culver Co., the Supreme Court has “taken an active interest in promoting party recourse to arbitration and in protecting the autonomy and operation of the arbitral process,” 26 relying on the “liberal federal policy favoring arbitration agreements.” 27 Today, public policy in the United States favors arbitration as a valid and legal means of resolving disputes. 28 And, because of the judiciary’s stringent support of arbitration as a means to resolve all types of disputes, “[t]here is virtually no subject-matter inarbitrability defense to the enforcement of arbitral agreements and awards under U.S. law.” 29 The use of arbitration to settle disputes is now widespread and is a standard feature in business, consumer, and employment contracts. International and national businesses view it as an essential tool to control the costs of resolving a dispute and preserve current and future business relationships. 30 Between 1998 and 1999, the American Arbitration Association (AAA) saw a fifty percent increase in arbitration filings, bringing the number of mediations and arbitrations conducted by the AAA in that year to 140,188. 31 By September 2005, the total number may bring an action in court without complying with the agreed arbitral procedure”); Vitaphone Corp. v. Elec. Research Prod., Inc., 166 A. 255, 261 (Del. Ch. 1933) (“Courts here and elsewhere are opposed to being ousted of jurisdiction by the agreement of parties to an arbitration.”). 25. Scherk, 417 U.S. at 519-20 (holding that “any dispute arising out of their international commercial transaction is to be respected and enforced by the federal courts”). 26. CARBONNEAU, supra note 14, at 243. 27. Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). 28. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (quoting Moses H. Cone, 460 U.S. at 24) (“[T]he Court has also long recognized and enforced a ‘liberal federal policy favoring arbitration agreements.’”); JLM Indus., Inc. v. Stolt-Nielsen, 387 F.3d 163, 171 (2d Cir. 2004) (quoting Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir. 2001)) (“The FAA expresses ‘a strong federal policy favoring arbitration.’”); Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir. 2004); Register v. White, 599 S.E.2d 549, 556 (N.C. 2004); IMPACT Constr. Group, L.L.C. v. Superior Concrete Constructors, Inc., 802 N.E.2d 901, 906-07 (Ind. 2004). 29. CARBONNEAU, supra note 14, at 245. 30. Korland, supra note 7, at 818. 31. AMERICAN ARBITRATION ASSOCIATION, 1999 AMERICAN ARBITRATION
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