Over the past two years the Supreme Court has consistently held that the Federal Arbitration Act (FAA) will trump conflicting state law remedies or decisions, in the context of arbitration clauses subject to the FAA. That act, which applies to any arbitration agreement involving interstate commerce, has far-reaching impact in today’s national, if not global, business network. Massachusetts courts have demonstrated the scope of that impact in the past month, reversing Massachusetts precedent in situations where the FAA applies. Other states will be doing the same.
The string of Supreme Court decisions included AT&T Mobility v. Concepcion (state efforts to address contracts of adhesion cannot conflict with the FAA or frustrate its purpose); Nitro-Lift Techs. v. Howard (judge must consider validity only of arbitration clause in the first instance, and if valid must leave to the arbitrator the decision on validity of the underlying contract); Marmet Health Care Center, Inc. v. Brown (where a specific state statute conflicts with the FAA, the FAA preempts the state statute); and most recently American Express Co. v. Italian Colors Restaurant (class action waiver in arbitration agreement is enforceable under the FAA). These decisions are contrary to statutes and case law in many states having a stronger consumer protection bias.
The Massachusetts Supreme Judicial Court has recently reconsidered some of its decisions concerning the scope of arbitration clauses, and has reversed its earlier rulings based on the Supreme Court decision. Its disagreement with the Supreme Court is palpable. From Feeney v. Dell, Inc.: “Although we regard as untenable the Supreme Court’s view that ‘the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of law value claims,’ . . . we are bound to accept that view as a controlling statement of Federal law.” Likewise, the SJC was compelled to issue a decision contrary to its prior precedent, in Machado v. System4 LLC. In McInnes v. LPL Financial, LLC, the Massachusetts SJC held that a consumer could be required to arbitrate a consumer protection act claim, contrary to 30-year-old precedent. This is a significant departure from long-standing decisions.
It is unusual now to find a transaction that does not involve interstate commerce. With that premise, the U.S. Supreme Court decisions on the FAA will have far-reaching impact on state court precedent.