The Supreme Court’s view of which law applies when parties select the law of a particular state in their arbitration agreement seems to be evolving. This article discusses the High Court’s thinking in the Volt, Mastrobuono and Preston decisions and provides practical guidance for parties who wish to have the Federal Arbitration Act apply to the arbitration and state law apply to the merits of the dispute.
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.