Arbitration in the United States is governed by the
Federal Arbitration Act of 1925 (FAA, codified at 9
U.S.C. 1 et seq.), which requires courts to compel parties who agree to arbitration to participate in binding arbitration, the decision from which is binding upon the parties. Since the passage of the FAA, both state and federal courts have examined
arbitration clauses, as well as other statutes involving arbitration clauses, for validity and enforceability.
Prima Paint Corp. v. Flood & Conklin Manufacturing Co.,
388U.S.395 (1967): An arbitrator must decide the validity of a contract containing an arbitration provision unless the arbitration clause itself is being challenged, even in cases such as when the contract was allegedly fraudulently induced.
Dean Witter Reynolds Inc. v. Byrd,
470U.S.213 (1985). FAA requires that parallel state and federal claims be bifurcated when federal claims are non-arbitrable but state claims are.
Graham Oil v. ARCO Products Co., 43 F. 3d 1244 (9th Cir. 1994): Agreement to arbitrate statutory claims is not valid when clause prohibits awards of exemplary damages and attorney's fees provided for by statute.
First Options of Chicago, Inc. v. Kaplan,
514U.S.938 (1995): Judicial review of arbitrability of contract is properly permitted when parties have not clearly agreed that arbitrator will decide question.
Doctor's Associates, Inc. v. Casarotto,
517U.S.681 (1996): Montana law requiring disclosure of arbitration clauses to be "typed in underlined capital letters on the first page of the contract" preempted by FAA;[1] however, upheld authority of courts to refuse to enforce arbitration clauses on grounds of "generally applicable contract defenses, such as fraud, duress, or unconscionability"[2]
Cole v. Burns International Security Services, 105 F. 3d 1465 (D.C. Cir. 1997): Employees forced to sign arbitration clause as condition of employment cannot be forced to pay any type of fees that a court does not require, such as arbitrator's fees.
Green Tree Financial Corp.-Ala. v. Randolph,
531U.S.79 (2000): Mere speculation that the party resisting arbitration "will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement."[3]
Buckeye Check Cashing, Inc. v. Cardegna,
546U.S.440 (2006): Refines Prima Paint by holding that an arbitrator must decide if a contractual provision other than the arbitration clause renders the entire contract invalid.
Preston v. Ferrer,
552U.S.346 (2008): The FAA preempts state laws declaring that certain disputes must be resolved by a state administrative agency.
Rent-A-Center, West, Inc. v. Jackson,
561U.S.63 (2010): A court must decide whether or not an arbitration clause is unconscionable, even if the contract unequivocally states that the arbitrator must make that decision.
AT&T Mobility LLC v. Concepcion,
563U.S.333 (2011): Arbitration agreements that forbid class action arbitration are enforceable, notwithstanding California's "Discover Bank Rule."
Discover Bank v. Superior Court (113 P. 3d 1100 (Cal. 2005)): Held a
class action waiver in an arbitration clause
unconscionable when disputes will involve small amounts of damages and are part of a scheme by a company with superior bargaining power to deliberately cheat many consumers (the "Discover Bank test").[4]
References
^Mont. Code Ann. §27-5—114(4), qtd. in 517 U.S. at 684