Is Statutory Defense to Arbitration Provisions a Ground for Revocation of Any Contract and Is It Preempted by the FAA ?
In Southland Corp. v. Keating, 465 U.S. 1, 10-11, 79 L. Ed. 2d 1, 12, 104 S. Ct. 852, 858 (1984), the Supreme Court considered whether the FAA preempted the California Franchise Investment Law, which required judicial consideration of claims brought under that statute.
The Court stated, "a party may assert general contract defenses such as fraud to avoid enforcement of an arbitration agreement.
The Court conclude however, that the defense to arbitration found in the California Franchise Investment Law is not a ground that exists at law or in equity 'for the revocation of any contract' but merely a ground that exists for the revocation of arbitration provisions in contracts subject to the California Franchise Investment Law." Southland, 465 U.S. at 16 n.11, 79 L. Ed. 2d at 16 n.11, 104 S. Ct. at 861 n.11.
Southland holds that a statutory defense to arbitration provisions, like sections 3-606 and 3-607 of the Nursing Home Care Act, is not a ground that exists for the revocation of any contract and, therefore, is preempted by section 2 of the FAA.
However, Southland does not explain whether a statutory defense to arbitration provisions is preempted because:
(1) the statute applies to arbitration provisions rather than to all contractual terms;
(2) the statute applies to a specific type of contract, like nursing home admission agreements; or;