Consumer Arbitration Agreements: 3.1 General
This chapter discusses the relationship between federal and state law in regulating matters of arbitration.
This chapter discusses the relationship between federal and state law in regulating matters of arbitration.
It is sometimes said that the Federal Arbitration Act (FAA) embodies a policy in favor of arbitration. This statement is not accurate. Rather, the FAA embodies a policy in favor of enforcing agreements to arbitrate, when such agreements exist.
The FAA explicitly saves from preemption state law “grounds as exist at law or in equity for the revocation of any contract.”20 In Perry v.
The FAA preempts state law rules that single out arbitration for disfavor relative to other contractual terms. Thus the FAA preempts state laws that impose special obstacles to the creation or enforcement of arbitration clauses in particular.
Relying on Supreme Court precedent,51 state courts and lower federal courts consistently find to be preempted state laws that—either expressly or by implication—place special burdens on the formation or enforcement of arbitration clauses in particular,52 or that require that certain types of claims or arguments be adjudicated by judicial or administrative bodies.53 The Ninth Circuit concluded tha
Preemption of state law is often not clear cut. Preemption should be found only when state law specifically targets arbitration for disfavor either expressly or by clear implication.
The FAA preempts a second category of state law: state laws that interfere with arbitration’s “fundamental attributes.” In AT&T Mobility, L.L.C. v. Concepcion,79 the Supreme Court broke new preemption ground in holding that the FAA preempts application of California’s law of unconscionability that finds arbitration clauses that ban class actions in arbitration to be unconscionable.
Concepcion’s rule that the FAA preempts state laws interfering with the fundamental attributes of arbitration is not limited to bans on class arbitration. In Sonic-Calabasas A, Inc. v.
While the Supreme Court has found that an unconscionability finding invalidating bans on class arbitration interferes with arbitration’s fundamental attributes, the same is not the case for most other unconscionability rulings, because the rulings do not interfere with arbitration’s fundamental attributes.98
A telling limit to the doctrine of interference with arbitration’s fundamental attributes involves litigation as to whether the FAA preempts unconscionability rulings as to arbitration clauses preventing arbitrators from awarding public injunctive relief. In California several statutes provide for such relief and the question is whether arbitration clauses preventing such relief should be treated the same as clauses preventing class arbitration.
State laws requiring, directly or indirectly, that arbitrations be conducted fairly are not preempted as long as they do not conflict with the “fundamental” attributes of arbitration.
The Federal Arbitration Act (FAA) sets out a number of procedural requirements relating to federal court decisions as to the enforceability of arbitration requirements. For example, sections 16(b)(1) and 16(b)(2) of the Act prohibit appeals of most interlocutory orders directing arbitration to proceed or staying litigation.118 FAA section 16(a)(1)(B) permits immediate appeals of orders denying motions to compel arbitration.
Courts should be reluctant to find that the FAA’s procedural provisions preempt state law, because the FAA’s central procedural provisions on their face apply exclusively in federal court. For example, FAA section 4 states:
A party aggrieved . . . may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, . . . for an order directing that such arbitration proceed in the manner provided for in such agreement.126
A Department of Education rule limiting arbitration in certain school contracts has a complex history.
Notwithstanding the Federal Arbitration Act (FAA), states may act pursuant to their “market participant” powers to require state contracting entities, as a condition of their state contracts, to agree not to enforce arbitration clauses, including in contracts of adhesion with consumers, employees, and investors.139 The FAA certainly does not prevent a state from restricting its own ability to enter into an arbitration agreement as a participant in a transaction with a private commercial actor.140
Even though victimized consumers or employees have signed arbitration agreements, the state is not bound by those agreements and can seek relief for those individuals in court.145 Similarly, an arbitration requirement does not apply when a private individual bound by an arbitration clause brings an action, pursuant to state law, on behalf of the state and not on their own behalf. Even when an individual has been injured, as long as the relief goes to the state, the arbitration clause does not apply.
The FAA does not preempt state statutes limiting the enforceability of arbitration agreements found in insurance contracts. The federal McCarran-Ferguson Act prohibits federal regulation of insurance practices to the extent that such regulations would invalidate, impair, or supersede state law enacted for the purpose of regulating the business of insurance, unless the federal law explicitly relates to the business of insurance.153
McCarran-Ferguson Act reverse preemption does not apply when a state statute does not apply to insurance.158 But a number of state statutes of general application limit the enforceability of arbitration agreements, and apply to insurance, but do not specifically mention insurance.159 Are such statutes enacted for the purpose of regulating insurance, thereby triggering application of the McCarran-Ferguson Act?160
FDCPA § 1692d provides a general prohibition on harassing, oppressive, or abusive conduct by debt collectors as well as enumerating six specific examples of prohibited conduct.
A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: [followed by six enumerated provisions]5
While most FDCPA provisions protect “consumers” (“any natural person obligated or allegedly obligated to pay any debt”),22 section 1692d protects “any person.”23 Regulation F (effective November 30, 2021) defines “person” to include “natural persons, corporations, companies, associations, firms, partnerships, societies, and joint stock companies.”24 Thus, FDCPA § 1692d has a broad application, including those not allegedly obligated for a debt, suc
FDCPA § 1692d prohibits “conduct the natural consequence of which is to harass, oppress, or abuse any person.”27 FDCPA § 1692d’s subsections (1) through (6) and Reg. F § 1006.14(h) provide a non-exclusive list examples of conduct that violates section 1692d,28 but neither the FDCPA nor Regulation F (effective November 30, 2021) define the terms “harass,” “oppress,” or “abuse.”
As explained in § 3.2.1.3, supra, courts generally use the “least sophisticated consumer” standard when evaluating FDCPA claims under section 1692e and some other sections of the FDCPA.34 The Eleventh Circuit and certain district courts in other circuits instead use an analogous “more susceptible” consumer stan
FDCPA § 1692d(2) and Reg. F § 1006.14(d) (effective November 30, 2021) prohibit the use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader.39 Language not meeting this standard can still violate FDCPA § 1692d and Reg. F § 1006.14(a)’s general prohibition of conduct the natural consequence of which is to harass, oppress, or abuse.
While other FDCPA provisions more specifically regulate a collector’s third-party communications,55 such communications also may implicate the general prohibition in section 1692d and Reg. F § 1006.14(a). The following conduct may violate FDCPA § 1692d: