Thursday, January 24, 2013

Split Widened: Is the Definition of Arbitration a Matter of State or Federal Common Law?

Per Bakoss v. Certain Underwriters at Lloyds of London (2d Cir. Jan 23, 2012)

The Federal Arbitration Act announced a national policy in favor of arbitration, and the Supreme Court--through cases like Concepcion and CompuCredit--has been active in ensuring that policy is fulfilled.

Nonetheless, several circuit splits persist.  This split concerns the very foundation of the FAA, the meaning of "arbitration" in section 2:
A written provision in a . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . .  shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
Is arbitration to be defined as a matter of federal common law, or a matter of state law?

The CA2 joins the CAs 1, 6, and 10 in applying federal common law.  (p.5.)  In contrast, the CAs 5 and 9 define arbitration with respect to state law.

The majority is clearly right.  The FAA was intended to announce a national policy.  Having that national policy limited by the vagaries of state definitions of arbitration makes no sense.

Despite a clear split, I am not sure this is a candidate for review.  Not only is the CA2 on the right side of the split (or, at the very least, the side of the split clearly favored by recent Supreme Court FAA jurisprudence), but the opposing decisions are also quite old and might be revisited by their respective circuits in light of the last 20 years of that Supreme Court jurisprudence.

On the note of federal common law, the "Erieblogging" series on Prawfsblog is quite informative for those who do not have Civ Pro nightmares.

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