Is a State Statute Governing Arbitration Clauses Preempted If It Conflicts With the FAA ?
In Cusamano v. Norrell Health Care, Inc., 239 Ill. App. 3d 648, 607 N.E.2d 246, 180 Ill. Dec. 352 (1992), the Supreme Court held that a Montana statute governing arbitration clauses, but not contracts in general, conflicted with the FAA and was, therefore, preempted. Casarotto, 517 U.S. at 683, 134 L. Ed. 2d at 906, 116 S. Ct. at 1654.
The state statute provided that an arbitration clause was unenforceable unless it was in underlined capital letters printed on the first page of the contract.
After summarizing its previous decisions in Perry, Southland, and other cases, the Court restated what its prior decisions had established:
" 'States may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause "upon such grounds as exist at law or in equity for the revocation of any contract."
What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause.
The FAA makes any such state policy unlawful, for that kind of policy would place arbitration clauses on an unequal "footing," directly contrary to the FAA's language and Congress's intent.' " Casarotto, 517 U.S. at 686, 134 L. Ed. 2d at 908, 116 S. Ct. at 1655, quoting Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 130 L. Ed. 2d 753, 769, 115 S. Ct. 834, 843 (1995).
The Casarotto Court held that Montana's statute "directly conflicts with 2 of the FAA because the State's law conditions the enforceability of arbitration agreements on compliance with a special notice requirement not applicable to contracts generally.
The FAA thus displaces the Montana statute with respect to arbitration agreements covered by the FAA." Casarotto, 517 U.S. at 687, 134 L. Ed. 2d at 909, 116 S. Ct. at 1656.
The Court broadly stated, " 'state legislation requiring greater information or choice in the making of agreements to arbitrate than in other contracts is preempted' " by the FAA. Casarotto, 517 U.S. at 687, 134 L. Ed. 2d at 909, 116 S. Ct. at 1656, quoting 2 I. Macneil, R. Speidel, T. Stipanowich, & G. Shell, Federal Arbitration Law 19.1.1, at 19:4-19:5 (1995).