Federal Arbitration Act

Introduction

The Federal Arbitration Act (FAA) , codified at 9 USC §§ 1-16, establishes the federal policy favoring enforcement of arbitration agreements. Enacted in 1925, the FAA was intended to place arbitration agreements on the same footing as other contracts and to overcome judicial hostility to arbitration. The FAA has become the foundation of modern arbitration practice in the United States, governing the enforceability of arbitration agreements in transactions involving interstate commerce.

Scope and Coverage

The FAA applies to any written arbitration agreement in a contract evidencing a transaction involving interstate commerce. The Supreme Court has interpreted “interstate commerce” broadly, holding in Citizens Bank v. Alafabco, Inc. (2003) that the FAA reaches the full extent of Congress’s Commerce Clause authority. Section 1 exempts contracts of employment of seamen, railroad employees, and workers engaged in foreign or interstate commerce, though this exemption has been narrowly construed.

Section 2 provides the substantive rule of enforceability: a written arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” This provision preempts state laws that single out arbitration agreements for disfavored treatment while preserving generally applicable contract defenses such as fraud, duress, or unconscionability.

Sections 3 and 4: Stay and Compel

Section 3 requires federal courts to stay proceedings when an issue before the court is referable to arbitration under a written arbitration agreement. Upon application by a party, the court must stay the action until arbitration has been completed. The stay is mandatory provided the issue is referable to arbitration and the party requesting the stay is not in default.

Section 4 provides the mechanism for compelling arbitration. A party aggrieved by another’s refusal to arbitrate may petition a federal district court for an order compelling arbitration. If the court is satisfied that an arbitration agreement exists and that the parties have failed to arbitrate, it must direct the parties to proceed to arbitration. The court’s role is limited to determining whether a valid arbitration agreement exists and whether the dispute falls within its scope.

Sections 9-11: Arbitration Awards

Section 9 provides for confirmation of arbitration awards. Any party to an arbitration may apply to a federal court for an order confirming the award, and the court must grant the order unless the award is vacated, modified, or corrected. The confirmation process is summary in nature, with the award confirmed as a judgment of the court.

Section 10 lists the grounds for vacating an arbitration award: the award was procured by corruption, fraud, or undue means; there was evident partiality or corruption in the arbitrators; the arbitrators engaged in misconduct or exceeded their powers; or the arbitrators failed to make a final and definite award. Judicial review of arbitration awards is extremely limited, reflecting the FAA’s policy favoring finality.

The Arbitration Act’s Evolution

The Supreme Court has expanded the FAA’s reach significantly since the 1980s. In Moses H. Cone Memorial Hospital v. Mercury Construction Corp. (1983), the Court established a “liberal federal policy favoring arbitration agreements.” In Southland Corp. v. Keating (1984), the Court held that the FAA preempts state laws that disfavor arbitration, applying the FAA in state court proceedings.

The Court has also held that arbitrability questions—whether a dispute is subject to arbitration—are presumptively for the arbitrator to decide when the parties have agreed to delegation clauses. In Rent-A-Center, West v. Jackson (2010), the Court held that delegation clauses are enforceable under the FAA, requiring challenges to the validity of the arbitration agreement as a whole to be decided by the arbitrator.

Conclusion

The FAA provides a comprehensive framework for enforcing arbitration agreements and awards. The statute’s broad preemptive effect, its liberal policy favoring arbitration, and its limited grounds for judicial review have made arbitration a dominant method of dispute resolution in commercial and consumer contexts. The ongoing debate over the FAA’s scope and the appropriate balance between arbitration and access to courts continues to shape arbitration law.