Arbitration is a common method of dispute resolution that is mandated in various types of contracts. In recent years, the enforceability of these provisions has been the subject of several appellate and U.S. Supreme Court cases. The legitimacy of mandatory arbitration provisions focuses on one central issue: whether the Federal Arbitration Act (FAA) preempts state doctrines invalidating mandatory arbitration agreements. The FAA promotes the use of arbitration where the parties have previously agreed to its application to resolve potential conflicts.

In a number of decisions, the U.S. Supreme Court has upheld federal arbitration clauses and overturned state court decisions refusing to enforce arbitration agreements. In the first significant case to address this issue, the Court in AT&T Mobility v. Concepcion (2011) ruled that the FAA supersedes state law doctrines disfavoring class arbitration. Many of the states that have ratified these laws, such as California, maintain that arbitration and waiver clauses present a disparity in negotiating power between the parties and are therefore unconscionable. The Court responded that while courts may still evaluate arbitration agreements for unconscionability, state rules that thwart the objectives of the FAA will not be upheld.

In a second pivotal case at the end of 2015, the Supreme Court reversed the decision of a state court to decline enforcement of an arbitration provision in a consumer contract. In DirecTV v. Imburgia, the contract had a provision that would preclude mandatory arbitration if the law of the state determined that arbitration waivers were unenforceable. As these type of waivers are not valid under California law, the lower court invalidated the entire arbitration agreement. The Supreme Court rejected the termination of these waivers and overturned the decision.

The prevailing law, as established by the Supreme Court, is that state doctrines cannot circumvent mandatory arbitration agreements and lower courts are required to abide by federal law. Opponents of this rule share the underlying sentiment long expressed by California courts; namely, that mandatory arbitration provisions and class action waivers effectively erode consumer’s and employees’ rights to remedy losses while shielding more powerful corporate interests from responsibility for legal violations.

Contact Shane Coons at 949-333-0900 or visit his website at www.ShaneCoonsLaw.com to find out more about his practice.