ENFORCEABILITY OF ARBITRATION CLAUSES AFTER SOUTHLAND V. KEATING
This research paper deals with the enforceability of clauses in private agreements providing for the binding arbitration of disputes or pre-dispute arbitration agreements ("PDAAs") as a result of the Supreme Court's holding in Southland Corporation v. Keating, 465 U.S. 1 (1984) and subsequently decided cases.
Pre-Southland v. Keating Uncertainties
At common law, state and federal courts generally refused to enforce PDAAs because they would "oust the jurisdiction of the courts." In order to relieve congestion in the federal courts, Congress enacted the Federal Arbitration Act ("FAA") in 1925 (9 U.S.C. secs. 1-14 (1982)), sec. 2 of which provides that PDAAs "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Sec. 2 limits the application of the Act to maritime transactions and "a contract evidencing a transaction involving commerce," which Sec. 1 defines "as among the several States or with foreign nations." Sec. 2 also excludes from the application of the statute most employment agreements.
In Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1963), the Court said at 24-25 that sec. 2 of the FAA created "a body of federal substantive law of arbitrability, applicable to any arbitration agreement" covered by that Act and ruled that doubts concerning arbitrability were to be resolved in favor of arbitration.
In Erie v. Tompkins, 304 U.S. 65 (1938), the Court had ruled that in diversity of citizenship cases lodged in federal district courts, the court had to decide claims arising under state law on the basis of the applicable substantive state law. Despite the Erie doctrine, the Court in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), ruled that a claim brought in federal district court for common law fraud under state law had...