Insights & Events

Hollingsworth LLP attorneys Grant Hollingsworth and Brett Covington have published a Law360 expert analysis that discusses the important role that venue plays in whether state laws are found preempted by the Federal Arbitration Act (FAA). Preemption under the FAA is an important and often overlooked rebuttal argument for any party moving to compel arbitration and facing objections by their opponent. When a party files such a motion, it should expect the opposing party to argue that the arbitration agreement is void or unenforceable under applicable state law. But under Section 2 of the FAA, state law will be preempted if it violates the FAA’s textual mandate prohibiting judicial hostility to arbitration agreements. This includes both statutory and administrative law as well as judge-made rules.

Despite the FAA’s clear mandate that arbitration agreements should be placed on equal footing with all other types of contracts, courts continue to reach wildly different conclusions about whether state laws that impose procedural requirements on arbitration agreements are preempted. As discussed in this article, the courts in Hohenshelt v. Los Angeles Superior Court and Stone v. Exos Human Capital, LLC, reached diverging opinions as to whether similar procedural state laws (in the consumer and employment contexts) were preempted by the FAA. The key takeaway from these cases is that the venue where FAA preemption is litigated can be determinative. Some other key points discussed in the article include:

• Companies should analyze potential FAA preemption arguments before filing a motion to compel arbitration. To do so, they need to fully understand the applicable law on FAA preemption, which may vary by jurisdiction, while also anticipating the arguments that the party opposing arbitration may raise based upon state law;
• Determining whether federal jurisdiction is available, and in what venue, should be an initial consideration in every matter as federal courts are generally more receptive to FAA preemption arguments than state courts; and
• Most challenges in court about FAA preemption concern state laws that impose procedural requirements on arbitration that arguably create “uncommon barriers” to enforcing those agreements. The battle over whether the procedural requirements violate the FAA can become more complicated when the state legislature that enacts a law, or the state court that establishes a judicial rule, expressly recognizes that the state procedural requirements do not discriminate against arbitration agreements. Fortunately, that is still not the end of the road for arguing FAA preemption, particularly if you are litigating that issue in federal court as in Exos.

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