In a non-precedential opinion, the Third Circuit recently found that the Federal Arbitration Act preempts a Pennsylvania statute that precludes parties who are not registered to do business in Pennsylvania from maintaining any action in any court of the Commonwealth. Generational Equity, LLC v. Schomaker et al, 2015, No. 14-1291 (3d Cir. Feb.23, 2015).
Generational Equity sought to confirm an arbitration award in U.S.D.C. for the Western District of Pennsylvania. The FAA provides that the parties may specify a court in which an arbitration award may be confirmed. Here, the parties agreed that the arbitration would be administered pursuant to the Commercial Arbitration Rules of the AAA; Rule 48(c) provides that “[p]arties to an arbitration…shall be deemed to have consented that judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof.”.
GE brought suit in District Court based on diversity jurisdiction, which was not disputed. The only issue was whether a Pennsylvania statute, which would preempt jurisdiction, was itself preempted by the FAA. Pennsylvania law provides, “[a] non qualified foreign limited partnership doing business in this Commonwealth may not maintain any action or proceeding in any court of this Commonwealth until it has registered…”. GE was not registered to do business in Pennsylvania within the meaning of the statute. The statute, moreover, has been construed to apply to federal district courts sitting in Pennsylvania.
The Third Circuit stated that, “[i]t is well established that the FAA ‘pre-empts application of state laws which render arbitration agreements unenforceable.’” While preemption has been consistently applied to motions to enforce or compel arbitration agreements, the current issue was the enforcement of an arbitration award. The Court found that to be “a distinction without a difference.”
The preemption inquiry essentially is “whether, under the circumstances of [the] particular case, [the] law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” So, while the Pennsylvania law did not implicate the enforceability of an arbitration agreement, it nonetheless stood as an obstacle to the objectives of the FAA.