Originally from:

AAA Handbook on Arbitration Practice - Second Edition

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CHAPTER 44

SUPREME COURT ADDRESSES VOLT’S CHOICEOF-
LAW TRAP: IS THE END OF THE
PROBLEM IN SIGHT?

Archis A. Parasharami and Kevin Ranlett

I. Introduction

Many contracts with arbitration provisions contain choice-of-law
clauses specifying which state’s law governs the contract. Attorneys
drafting these clauses typically consider the chosen state’s substantive
law, not its arbitration procedures – which often differ from those of the
Federal Arbitration Act (FAA), a statute enacted in 1925 to enforce
arbitration agreements and preempt state laws that are hostile to
arbitration. For example, state laws that single out arbitration agreements
for special treatment or make certain disputes inarbitrable would
ordinarily be preempted by the FAA. But during the last 25 years, some
drafters of arbitration agreements have fallen into a trap for the unwary,
as courts have interpreted choice-of-law clauses to choose state
arbitration procedures as well as substantive law. More recently, in a
largely overlooked portion of the decision in Preston v. Ferrer,1 the U.S.
Supreme Court took a welcome step toward eliminating this trap.

Moreover, as this article was going to press, the Supreme Court
heard oral arguments in DirecTV, Inc. v. Imburgia, No. 14-462 (argued
Oct. 6, 2015). At issue in Imburgia is whether an arbitration provision
that specifies that it is inapplicable if its ban on class-wide procedures is
unenforceable under “the law of [the customer’s] state” is (a) governed
by state law without reference to FAA preemption, or (b) by state law