Arbitration

Arbitration is a private dispute-resolution process in which the parties submit their dispute to one or more neutral arbitrators whose decision (the "arbitration award") is binding on the parties. Arbitration substitutes for traditional court litigation, generally producing a faster, more confidential, and more limited proceeding governed by rules selected in the arbitration agreement.

FAA preemption framework

The FAA applies to any arbitration agreement in a written contract evidencing a transaction involving interstate commerce. Allied-Bruce Terminix, 513 U.S. 265 (1995). FAA § 2 makes such agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract or as otherwise provided in chapter 4." The FAA broadly preempts state law that disfavors arbitration or interferes with its fundamental attributes. AT&T Mobility v. Concepcion, 563 U.S. 333 (2011).

FAA vs. TAA

Most Texas commercial arbitrations are governed by the FAA because they involve interstate commerce. The TAA applies as a default for purely-intrastate arbitrations and where parties expressly contract for TAA application. A general Texas choice-of-law clause does not displace the FAA unless it specifically excludes federal law. In re L & L Kempwood Assocs., 9 S.W.3d 125 (Tex. 1999). The two statutes are largely parallel in operation.

Enforceability of arbitration agreements

Generally-applicable contract defenses (fraud, duress, unconscionability) may invalidate arbitration agreements without triggering FAA preemption. Doctor's Associates v. Casarotto, 517 U.S. 681 (1996). Class-action waivers in arbitration agreements are enforceable under the FAA, including in employment agreements. Epic Systems v. Lewis, 138 S. Ct. 1612 (2018). Delegation clauses, which assign threshold enforceability questions to the arbitrator, are generally enforced, Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), but the EFAA reserves its own applicability to the court. 9 U.S.C. § 402(b).

Court's role under the FAA

Stay or compel: under FAA §§ 3–4, a party seeking arbitration may move to stay the litigation and compel arbitration. Smith v. Spizzirri (2024) held that courts must stay rather than dismiss cases subject to arbitration when a party requests a stay.

Confirm or vacate: under FAA § 9, a party may apply to confirm an award within one year after it is made, and under § 12 notice of a motion to vacate, modify, or correct an award must be served within three months after the award is filed or delivered. Grounds for vacatur are narrowly limited to corruption, fraud, partiality, misconduct, or arbitrators exceeding their powers. § 10.

EFAA carveout (eff. March 3, 2022)

Pre-dispute arbitration agreements and joint-action waivers are unenforceable as to claims of sexual harassment or sexual assault, at the election of the person alleging the conduct. The provision applies prospectively only, to disputes arising on or after the enactment date, regardless of when the arbitration agreement was signed.

Waiver

Morgan v. Sundance (2022) held that federal courts may not adopt an arbitration-specific rule conditioning waiver of the right to arbitrate on a showing of prejudice. A defendant who litigates substantively for an extended period before invoking arbitration may be held to have waived the right.

Companion article: Contract Disputes in Texas