ARTICLE

1145

NOTES

TATE COURT RESISTANCE TO FEDERAL

ARBITRATION LAW

Salvatore U. Bonaccorso*

For the past three decades, the U.S. Supreme Court has misconstrued the

Federal Arbitration Act (FAA). In the process, the FAA has been transformed

from a statute intended to mitigate judicial hostility to arbitration into one that

expresses the Court’s unyielding preference for legal disputes to be resolved

through arbitration. The FAA has thus become a “super-statute” that preempts

any state contract law that may frustrate its purpose to promote arbitration na-

tionwide. But following the Court’s sweeping decision in AT&T Mobility LLC v.

Concepcion, state courts have started to push back—both expressly and covertly.

This Note explores the strategies that state courts have used to evade federal

arbitration jurisprudence and examines the normative value of state resistance to

federal common law in that context. Part I introduces the text, legislative history,

and intent of the FAA. Part II discusses how the Supreme Court has used the FAA

to displace state laws that it perceives as interfering with the efficiency of arbitra-

tion proceedings. Part III analyzes how state courts have responded to federal

arbitration decisions that are hostile to state contract law. And Part IV generates

a framework to evaluate the desirability of different kinds of state resistance to

federal law in a dual sovereignty system. Ultimately, the Note concludes that state

courts can optimally balance federal supremacy with state autonomy by narrowly

construing the preemptive effect of federal common law.

INTRODUCTION..................................................................................................... 1146

I. TEXT AND LEGISLATIVE HISTORY OF THE FAA.............................................. 1148

II. THE COURT’S ARBITRATION JURISPRUDENCE OVER THE LAST THIRTY

YEARS ............................................................................................................ 1152

III. THE RESPONSE FROM STATE COURTS ............................................................. 1156

A. State Court Hostility to Federal Interpretation of the FAA Pre-

Concepcion ............................................................................................... 1156

B. The Express Rejection of Concepcion by State Supreme Courts .............. 1157

* J.D. Candidate, Stanford Law School, 2015. I would like to thank Norman Spauld-

ing, Jane Schacter, Abraham Sofaer, and Janet Alexander for their substantive feedback on

this Note, Wesley Sze for his helpful comments and edits, and Jeffrey Ma for his endless

support. I would also like to thank the members of the Stanford Law Review for their careful

work.

1146 STANFORD LAW REVIEW [Vol. 67:1145

C. Veiled Efforts to Undermine Concepcion ................................................. 1159

1. “The FAA does not apply because the contract at issue does not

involve interstate commerce” ............................................................ 1159

2. “The contract at issue incorporates governing rules other than the

FAA, which do not require the claims to be arbitrated” ................... 1161

3. “This case is not between the employer and the employee, but

between the employer and state enforcement agencies not bound

by any contract” ................................................................................ 1163

IV. CREATING A FRAMEWORK TO DISCUSS STATE RESISTANCE TO FEDERAL

ARBITRATION LAW ......................................................................................... 1165

A. One End of the Spectrum: States Fully Comply with the Court’s

Interpretation of Federal Law .................................................................. 1168

B. The Other End: Outright Noncompliance with Federal Law ................... 1168

C. The Middle Ground: State Courts Narrow the Preemptive Effect of

Federal Law ............................................................................................. 1170

CONCLUSION ........................................................................................................ 1172

INTRODUCTION

Congress enacted the Federal Arbitration Act (FAA) in 1925 to end the

longstanding judicial hostility to arbitration.

Under English common law,

judges were unwilling to allow parties to contract out of public litigation and

enforce their legal rights without the assurances and protections of a jury sys-

tem.

American courts inherited this skepticism and were wary of upholding

any agreement that attempted to remove their jurisdiction over a legal dispute.

In response, the FAA created new procedures in federal court that required

judges to recognize arbitration agreements and to compel arbitration if the

agreement was valid.

In short, Congress wished to put arbitration clauses “on

the same footing” as any other contract provision instead of being construed as

per se void.

The Act intended to provide businesses with a quick and cost-

effective means of settling their contract disputes outside of court.

But it also

provided that state contract law would continue to govern the substance and in-

terpretation of the agreements.

1. Pub. L. No. 68-401, 43 Stat. 883 (1925) (codified as amended at 9 U.S.C. §§ 1-16

(2013)); see Hiro N. Aragaki, Equal Opportunity for Arbitration, 58 UCLA L. REV. 1189,

1197 (2011); Rhonda Wasserman, Legal Process in a Box, or What Class Action Waivers

Teach Us About Law-Making, 44 L

OY. U. CHI. L.J. 391, 394-97 (2012).

2. Margaret L. Moses, Statutory Misconstruction: How the Supreme Court Created a

Federal Arbitration Law Never Enacted by Congress, 34 F

LA. ST. U. L. REV. 99, 102 (2006);

see also S. REP. NO. 68-536, at 2 (1924).

3. Moses, supra note 2, at 102.

4. See §§ 2, 4, 43 Stat. at 883-84 (codified as amended at 9 U.S.C. §§ 2, 4).

5. H.R. REP. NO. 68-96, at 1 (1924).

6. Id. at 2.

7. See § 2, 43 Stat. at 883 (codified as amended at 9 U.S.C. § 2) (providing that writ-

ten arbitration agreements are enforceable “save upon such grounds as exist at law or in eq-

uity for the revocation of any contract”).

May 2015] STATE COURT RESISTANCE 1147

Today the statute has taken on an entirely different meaning. In its interpre-

tation of the FAA, the Supreme Court has “abandoned all pretense of ascertain-

ing congressional intent with respect to the Federal Arbitration Act, building

instead, case by case, an edifice of its own creation.”

The Act now governs ar-

bitration in nearly all circumstances—from consumer litigation

to statutory

civil rights claims.

Most recently, in AT&T Mobility LLC v. Concepcion, the Court stretched

the preemptive effect of the FAA to a new extreme.

California law banned

the use of class action waivers in certain consumer adhesion contracts.

With-

out such a rule, companies could systematically defraud consumers by small

amounts and effectively prevent any recovery by contractually banning the ag-

gregation of claims.

Although this ban on class action waivers said nothing

about arbitration, the Supreme Court held that the FAA preempted it.

Be-

cause class-wide arbitration is inherently less efficient than individual arbitra-

tion, the Court reasoned, a rule preventing businesses from waiving class-wide

arbitration would go against Congress’s intent “to facilitate streamlined pro-

ceedings.”

What ensued in the four years following Concepcion can best be described

as a power struggle of Shakespearean magnitude between the Supreme Court,

which attempted to enforce its own interpretation of the FAA, and state courts

that tried to preserve their own laws and public policy. The very next year fol-

lowing Concepcion, the Court summarily reversed two state arbitration cases

for failing to adhere to Concepcion.

The Supreme Court of Appeals of West

Virginia had struck down an arbitration clause that governed a wrongful death

suit.

In reaching that conclusion, the state court seemingly brushed aside the

U.S. Supreme Court’s “tendentious reasoning” in its FAA jurisprudence.

too had the Oklahoma Supreme Court, which attempted to treat state law and

8. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 283 (1995) (O’Connor, J.,

concurring).

9. See, e.g., AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).

10. See, e.g., 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009).

11. 131 S. Ct. 1740.

12. Discover Bank v. Superior Court, 113 P.3d 1100, 1110 (Cal. 2005).

13. Id.

14. Concepcion, 131 S. Ct. at 1748.

15. Id.

16. See Nitro-Lift Techs., L.L.C. v. Howard, 133 S. Ct. 500 (2012) (per curiam), rev’g

273 P.3d 20 (Okla. 2011); Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct. 1201 (2012)

(per curiam), rev’g Brown ex rel. Brown v. Genesis Healthcare Corp., 724 S.E.2d 250 (W.

Va. 2011).

17. See Genesis Healthcare, 724 S.E.2d at 292 (“We therefore hold that, as a matter of

public policy under West Virginia law, an arbitration clause in a nursing home admission

agreement adopted prior to an occurrence of negligence that results in a personal injury or

wrongful death, shall not be enforced to compel arbitration of a dispute concerning the neg-

ligence.”).

18. See id. at 278.

1148 STANFORD LAW REVIEW [Vol. 67:1145

the FAA as laws of equal force in its interpretation of an employment con-

tract.

After open rebellion failed, state courts across the country, especially in

California, developed novel strategies to limit the FAA’s preemptive effect. For

instance, some courts have found the FAA to be inapplicable because the con-

tract at issue did not implicate interstate commerce.

Others have developed

valid legal theories as work-arounds to Concepcion that could render the deci-

sion effectively meaningless in certain contexts.

Despite the resurgence of federalism, Concepcion and its predecessors

have only served to erode state sovereignty, and at levels far beyond what any

legislative body intended. As such, this Note argues that certain kinds of state

court resistance to federal common law are beneficial for the preservation of

state autonomy.

Part I introduces the text and legislative history of the FAA.

Part II discusses how the FAA has systematically displaced state laws that pur-

portedly interfere with the efficiency of arbitration proceedings. Part III ex-

plores the strategies that state courts have used to circumvent federal arbitration

law. Finally, Part IV situates these state court responses along a spectrum of

compliance and uses this framework to examine the normative value of state

resistance to federal law in a dual sovereignty system. Ultimately, the Note

concludes that state courts can optimally balance federal supremacy with state

autonomy by narrowly construing the preemptive effect of federal common

law.

I. T

EXT AND LEGISLATIVE HISTORY OF THE FAA

Arbitration is an alternative form of dispute resolution in which a neutral

third party (the arbitrator) decides the merits of a case. This informal process is

quicker and cheaper than litigation because the rules of procedure and evidence

are relaxed, and the decisions are final and often not appealable.

Arbitration

proceedings are also generally conducted in secret and not open to the public.

19. See Nitro-Lift Techs., 273 P.3d at 26 n.21 (applying precedent in which the court

“held that the specific statute in the Nursing Home Care Act addressing the right to com-

mence an action and to have a jury trial would govern over the more general statute favoring

arbitration,” even though “the Federal Arbitration Act preempted and displaced state anti-

arbitration statutes”).

20. See, e.g., Favara v. Regent Aerospace Corp., No. B246718, 2013 WL 5832391, at

*1 (Cal. Ct. App. Oct. 30, 2013).

21. See, e.g., Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129, 152 (Cal. 2014), cert.

denied, 135 S. Ct. 1155 (2015).

22. Certainly, there is no consensus as to what the optimal level of state autonomy is.

While the federal government has grown substantially since the Founding, the Court has

sought to constrain federal powers in recent years.

23. Cf. BLACK’S LAW DICTIONARY 125 (10th ed. 2014) (defining “arbitration”).

24. See STEPHEN K. HUBER & MAUREEN A. WESTON, ARBITRATION: CASES AND

MATERIALS 4 (3d ed. 2011) (describing arbitration as a “private alternative to the judicial

system”).

May 2015] STATE COURT RESISTANCE 1149

To understand how state courts have broken away from the Supreme

Court’s interpretation of the FAA requires some background on the statute.

Congress enacted the FAA in 1925 in response to growing judicial hostility to-

ward arbitration agreements.

The core provision of the Act is section 2,

which today reads:

A written provision in any maritime transaction or a contract evidencing a

transaction involving commerce to settle by arbitration a controversy thereaf-

ter arising out of such contract or transaction . . . shall be valid, irrevocable,

and enforceable, save upon such grounds as exist at law or in equity for the

revocation of any contract.

Simply put, this statute makes “valid, irrevocable, and enforceable” any agree-

ment to arbitrate that “involv[es] commerce.” However, the agreement may be

invalidated for any reason that exists “for the revocation of any contract.” For

instance, under the FAA, a judge couldn’t refuse to enforce a contract with an

arbitration provision solely because it called for the arbitration of disputes. But

that judge could throw out the contract if it was entered into under duress, or on

unconscionability grounds if the agreement called for the arbitration to take

place in an inaccessible forum, like Antarctica. The clause of the FAA that al-

lows general contract laws to apply to arbitration agreements (“save upon such

grounds as exist at law or in equity for the revocation of any contract”) is ap-

propriately known as the savings clause.

Before the FAA, courts were reluctant to enforce arbitration agreements

based on English common law rules.

They perceived such agreements as a

way to force potential litigants to surrender their rights to a jury and to a public

forum for the resolution of their legal disputes.

Congress sought to eliminate

this hostility through the FAA and make courts neutral to arbitration provi-

sions; they were to be placed “upon the same footing as all other contracts”

and not singled out simply because they were agreements to arbitrate.

The FAA was modeled after a New York statute that required courts to

recognize arbitration clauses.

The principal drafter of the FAA, Julius Cohen,

25. See sources cited supra note 1.

26. 9 U.S.C. § 2 (2013).

27. Moses, supra note 2, at 102; see also S. REP. NO. 68-536, at 2 (1924).

28. Commentators have also argued that English judges, somewhat less altruistically,

adopted anti-arbitration rules for fear of being ousted from their own jurisdiction. See

Aragaki, supra note 1, at 1197; see also Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198,

210, 211 & n.5 (1956) (Frankfurter, J., concurring); Arbitration of Interstate Commercial

Disputes: Joint Hearings on S. 1005 and H.R. 646 Before the Subcomms. of the Comms. on

the Judiciary, 68th Cong. 39 (1924) [hereinafter 1924 Joint Hearings] (brief of Julius Henry

Cohen) (describing the rules as “rooted originally in the jealousy of courts for their jurisdic-

tion”).

29. H.R. REP. NO. 68-96, at 1 (1924).

30. See Moses, supra note 2, at 102.

31. See Act of Apr. 19, 1920, ch. 275, 1920 N.Y. Laws 803 (codified as amended at

N.Y. C.P.L.R. 7501-7514 (McKinney 2014)); 1924 Joint Hearings, supra note 28, at 16

(statement of Julius Henry Cohen). That statute read similarly to the FAA: “A provision in a

written contract to settle by arbitration a controversy thereafter arising between the par-

1150 STANFORD LAW REVIEW [Vol. 67:1145

had also written the New York statute.

In a pre-Erie legal universe, Cohen

saw a uniform federal standard as necessary for the recognition of arbitration

agreements in federal diversity cases.

According to Justice O’Connor, “[o]ne rarely finds a legislative history as

unambiguous as the FAA’s.”

Indeed, there is an unusual consensus in legal

scholarship with regard to the congressional intent behind the statute. And

while the legislative history of the FAA is vast, this Part briefly highlights two

key takeaways that commentators generally agree on.

First, Congress intended the FAA to apply to agreements to arbitrate be-

tween merchants—and not extend to employment contracts, adhesive consumer

contracts, or statutory civil rights.

W.H.H. Piatt, the chairman of the Ameri-

can Bar Association committee that drafted the bill, testified:

It is not intended that this shall be an act referring to labor disputes, at all. It is

purely an act to give the merchants the right or the privilege of sitting down

and agreeing with each other as to what their damages are, if they want to do

it.

Section 1 of the FAA explicitly excludes “contracts of employment of seamen,

railroad employees, or any other class of workers engaged in interstate or for-

eign commerce.”

As Margaret Moses explains, even though “the bill did not

specifically exclude all employment contracts, the constitutional jurisprudence

[of the Commerce Clause] at the time viewed most employment contracts as

involving intrastate and not interstate commerce.”

Therefore, the language of

excluding “workers engaged in interstate or foreign commerce” was intended to

cover all workers that Congress had the authority to regulate.

The bill’s authors were equally clear that the law did not cover contracts

involving parties of unequal bargaining power. In response to a senator’s con-

cern that arbitration provisions would be used in involuntary adhesion con-

tracts, Piatt stated that he “would not favor any kind of legislation that would

ties . . . shall be valid, enforcible [sic] and irrevocable, save upon such grounds as exist at

law or in equity for the revocation of any contract.” Art. 2, § 2, 1920 N.Y. Laws at 804.

32. See Wasserman, supra note 1, at 396.

33. See Moses, supra note 2, at 101-02.

34. Southland Corp. v. Keating, 465 U.S. 1, 25 (1984) (O’Connor, J., dissenting).

35. See Janet Cooper Alexander, To Skin a Cat: Qui Tam Actions as a State Legisla-

tive Response to Concepcion, 46 U.

MICH. J.L. REFORM 1203, 1205 (2013) (“The statute was

passed to address the problem of discrimination against bargained-for arbitration agreements

between merchants having roughly equal bargaining power.”); Moses, supra note 2, at 105-

06; Wasserman, supra note 1, at 396.

36. Sales and Contracts to Sell in Interstate and Foreign Commerce, and Federal

Commercial Arbitration: Hearing on S. 4213 and S. 4214 Before a Subcomm. of the S.

Comm. on the Judiciary, 67th Cong. 10 (1923) [hereinafter 1923 Senate Hearing] (statement

of W.H.H. Piatt) (“[I]t is the primary end of this contract that it is a contract between mer-

chants one with another, buying and selling goods.”).

37. 9 U.S.C. § 1 (2013).

38. Moses, supra note 2, at 105.

May 2015] STATE COURT RESISTANCE 1151

permit the forcing [of] a man to sign that kind of contract.”

In 1925, courts

scrutinized the fairness of contracts of adhesion and boilerplate terms more

carefully than they do today.

The possibility that a judge would bind parties

by involuntary terms was far slimmer than it is under our modern understand-

ing of contract principles.

Second, the FAA was seen as a purely procedural statute intended to make

specific performance of arbitration agreements available as a remedy in federal

court.

In his brief submitted in the Joint Hearings on the FAA, Cohen ex-

plained that the statute, as he drafted it, “establishes a procedure in the Federal

courts for the enforcement of arbitration agreements. . . . It is no infringement

upon the right of each State to decide for itself what contracts shall or shall not

exist under its laws.”

The savings clause, which sought to preserve general

state contract law principles, further reflects this intention.

None of this is to suggest that Congress was blind to the benefits of arbitra-

tion—it wasn’t. Much of the debate centered on why businessmen needed a

simpler solution to resolve disputes between one another. The House Report

discussed how “the costliness and delays of litigation” could “be largely elimi-

nated by agreements for arbitration.”

Representing the New York Chamber of

Commerce, Charles Bernheimer explained that “arbitration saves time, saves

trouble, saves money. . . . [It] prevents unnecessary litigation, and eliminates

the law’s delay by relieving our courts.”

39. 1923 Senate Hearing, supra note 36, at 10 (statement of W.H.H. Piatt); see also

1924 Joint Hearings, supra note 28, at 40 (brief of Julius Henry Cohen) (explaining that the

FAA could not be used to “force an individual state into an unwilling submission to arbitra-

tion enforcement”); Julius Henry Cohen & Kenneth Dayton, The New Federal Arbitration

Law, 12 V

A. L. REV. 265, 279 (1926) (“No one is required to make an agreement to arbitrate.

Such action by a party is entirely voluntary.”).

40. See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1750 (2011) (acknowl-

edging that “the times in which consumer contracts were anything other than adhesive are

long past”).

41. See 1924 Joint Hearings, supra note 28, at 37; H.R. REP. NO. 68-96, at 1 (1924);

Cohen & Dayton, supra note 39, at 279 (“Arbitration under the Federal and similar statutes

is simply a new procedural remedy . . . .”). To this day, Justice Thomas maintains that the

FAA should not apply in state courts. See, e.g., Preston v. Ferrer, 552 U.S. 346, 363 (2008)

(Thomas, J., dissenting) (“As I have stated on many previous occasions, I believe that the

Federal Arbitration Act (FAA) does not apply to proceedings in state courts.” (citation omit-

ted)); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 285 (1995) (Thomas, J., dissent-

ing) (“I disagree with the majority at the threshold of this case, and so I do not reach the

question that it decides. In my view, the Federal Arbitration Act (FAA) does not apply in

state courts.”).

42. 1924 Joint Hearings, supra note 28, at 37 (brief of Julius Henry Cohen).

43. H.R. REP. NO. 68-96, at 2. The Supreme Court would later rely on this Report to

justify the conclusion that Congress sought to promote the use of arbitration nationally. See

Concepcion, 131 S. Ct. at 1749.

44. 1924 Joint Hearings, supra note 28, at 7 (statement of Charles Bernheimer, Chair-

man, Committee on Arbitration, Chamber of Commerce of the State of New York).

1152 STANFORD LAW REVIEW [Vol. 67:1145

The FAA ultimately passed without a single vote against it in Congress and

went into effect on January 1, 1926.

II. T

HE COURT’S ARBITRATION JURISPRUDENCE OVER THE

AST THIRTY YEARS

Over the past three decades, the U.S. Supreme Court has reshaped the pur-

pose of the FAA.

The beginnings of this shift can be traced back to Southland

Corp. v. Keating.

There, the Court first held that section 2 of the FAA applied

to state courts and preempted conflicting state substantive law.

To buttress its

holding, the Court announced, without citation, that in enacting the FAA,

“Congress declared a national policy favoring arbitration and withdrew the

power of the states to require a judicial forum.”

The majority reasoned that if

the FAA only reached federal courts and could be encumbered by hostile state

law provisions, that would “encourage and reward forum shopping”—a result

the Court was unwilling to attribute to Congress.

Many subsequent arbitra-

tion decisions have cited to Southland for the proposition that Congress prefers

private disputes to be arbitrated rather than litigated.

In her dissent in Southland, Justice O’Connor rebuffed the majority, high-

lighting that the FAA’s repeated direct references to federal courts belied the

45. Comm. on Commerce, Trade & Commercial Law, The United States Arbitration

Law and Its Application, 11 A.B.A. J. 153, 153 (1925).

46. Moses argues that the Court has created a statute that the 1925 Congress would not

recognize and that would not command a single vote. See Moses, supra note 2, at 100. In

short, “the Court has essentially legislated in favor of its own policy preferences without the

benefit of any input from Congress.” Id. at 154.

47. 465 U.S. 1 (1984). The Court planted the seeds for a sweeping ruling on arbitration

in the previous Term when it mentioned in dicta that the FAA represented a “congressional

declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any

state substantive or procedural policies to the contrary. The effect of the section is to create a

body of federal substantive law of arbitrability . . . .” Moses H. Cone Mem’l Hosp. v. Mercu-

ry Constr. Corp., 460 U.S. 1, 24 (1983). But that case ultimately resolved the distinct ques-

tion of whether a district court had abused its discretion in staying a federal proceeding

pending the resolution of an identical state court suit. Id. at 19.

48. Southland, 465 U.S. at 14-16.

49. Id. at 10.

50. Id. at 15-16. But Congress often passes procedural laws that only apply in federal

court. For example, the Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4

(codified as amended in scattered sections of 28 U.S.C.), compels heightened judicial scruti-

ny for certain types of settlements. See 28 U.S.C. § 1712(e) (2013). This requirement only

applies to class actions filed in federal court. Id. § 1711(2) (“The term ‘class action’ means

any civil action filed in a district court of the United States . . . or any civil action that is re-

moved to a district court of the United States . . . .”). Congress is therefore willing to pass

statutes that would result in forum shopping by embedding differences in the opportunities

available to litigants in federal and state courts.

51. See, e.g., Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 684-85 (1996); Volt

Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989);

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985).

May 2015] STATE COURT RESISTANCE 1153

Court’s legal conclusions.

While conceding that arbitration is a worthy alter-

native to litigation, she disparaged the Court’s failure to faithfully apply the

congressional intent behind the FAA as an “exercise in judicial revisionism”

that stemmed from a desire to encourage the use of arbitration.

Since Southland, the Court has continued to fashion a scheme of arbitration

policies that bears little resemblance to any policy developed by a legislative

body.

Concepcion is the most recent culmination of this shift.

In Concepcion, Vincent and Liza Concepcion had entered into a contract

with AT&T to purchase cell phone services.

That sales contract provided for

the arbitration of all disputes between the parties and required that claims be

brought in an individual capacity; in other words, class actions were barred.

When the Concepcions were charged roughly thirty dollars in sales tax on their

“free phone,” they sued for false advertising and fraud.

Their action was later

consolidated into a putative class action.

Although AT&T moved to compel

individual arbitration under the terms of the sales contracts, the California court

held that the class action waiver was unconscionable.

Under California’s Dis-

cover Bank rule, waivers of class-wide procedures in adhesion contracts were

per se unconscionable whenever a court suspected that the party with superior

bargaining power was engaging in a plot to “deliberately cheat large numbers

of consumers out of individually small sums of money.”

On appeal, the Supreme Court held that the FAA preempted California’s

Discover Bank rule.

Writing for the majority, Justice Scalia acknowledged

that on its face California’s common law rule banning class action waivers may

be an arbitration-blind, generally applicable contract rule that would fall under

the FAA’s savings clause.

But because the rule was applied in a fashion that

disfavored arbitration, and therefore “st[ood] as an obstacle to the accomplish-

ment and execution of the full purposes and objectives of Congress,” it must be

52. Southland, 465 U.S. at 22, 29-30 (O’Connor, J., dissenting); see also 9 U.S.C. § 3

(2013) (mandating the stay of proceedings if “any suit or proceeding be brought in any of the

courts of the United States” involving an arbitration agreement until the arbitration has been

resolved (emphasis added)); id. § 4 (allowing an aggrieved party to “petition any United

States district court” to compel arbitration (emphasis added)).

53. Southland, 465 U.S. at 22-23, 36 (O’Connor, J., dissenting).

54. See Moses, supra note 2, at 113 (“The Court has, step by step, built a house of

cards that has almost no resemblance to the structure envisioned by the original statute.”).

55. See Alexander, supra note 35, at 1206 (“The Court’s recent cases have ignored the

FAA’s history and structure and have used the statute as a tool to advance an agenda that is

hostile to consumer litigation and classwide procedures.”).

56. AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1744 (2011).

57. Id.

58. Id.

59. Id.

60. Id. at 1744-45.

61. Discover Bank v. Superior Court, 113 P.3d 1100, 1110 (Cal. 2005).

62. Concepcion, 131 S. Ct. at 1753.

63. See id. at 1747.

1154 STANFORD LAW REVIEW [Vol. 67:1145

preempted.

According to the majority, Congress’s purpose in enacting the

FAA in 1925 was to facilitate informal, streamlined proceedings for dispute

resolution.

Since a rule that required class-wide arbitration would interfere

with arbitration’s efficiency (what the Court described as a “fundamental at-

tribute[] of arbitration”), such a rule would be inconsistent with the FAA.

The

dissent, written by Justice Breyer, raised the familiar retort that the FAA was

simply about judicial recognition of arbitration agreements and was designed to

abrogate the common law rule that they were not to be enforced—not to pro-

mote the expeditious resolution of claims through arbitration.

Responding to

this criticism, the majority fell back on legislative history: the Court cited the

House Report that described the benefits of arbitration, drawing from that the

conclusion that Congress must have found those benefits to be fundamental to

arbitration and to the statute as a whole.

The Concepcion decision has been met with across-the-board criticism by

scholars, state attorneys general, and judges.

Lest there be any doubt that the

64. Id. at 1753 (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).

65. Id. at 1748.

66. Id.

67. Id. at 1757 (Breyer, J., dissenting) (“As is well known, prior to the federal Act,

many courts expressed hostility to arbitration, for example by refusing to order specific per-

formance of agreements to arbitrate. The Act sought to eliminate that hostility by placing

agreements to arbitrate ‘“upon the same footing as other contracts.”’” (citation omitted)

(quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 511 (1974))).

68. Id. at 1749 (majority opinion) (“[T]he costliness and delays of litigation . . . can be

largely eliminated by agreements for arbitration.” (second alteration in original) (quoting

Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 220 (1985) (quoting H.R.

REP. NO. 68-96,

at 2 (1924))) (internal quotation marks omitted)).

69. To list all of the sources disapproving of Concepcion would be an impossible task.

But here is a smattering of them: Alexander, supra note 35; Aragaki, supra note 1, at 1254-

55 (criticizing the Court’s FAA preemption jurisprudence, including Concepcion, as an ex-

ercise of overpreemption that shifts the balance of power “away from local needs and inter-

ests toward a centralized government whose legislative expertise has traditionally laid else-

where”); Lawrence A. Cunningham, Rhetoric Versus Reality in Arbitration Jurisprudence:

How the Supreme Court Flaunts and Flunks Contracts, 75 L

AW & CONTEMP. PROBS. 129,

144 (2012) (“The opinion fights tirelessly but unsuccessfully to prove that it has not made up

this new version of the national policy. It struggles strenuously but unsuccessfully to per-

suade that there is no conflict between its devotion to arbitration and basic principles of An-

glo-American contract law.”); Myriam Giles & Gary Friedman, After Class: Aggregate Liti-

gation in the Wake of AT&T Mobility v. Concepcion, 79 U.

CHI. L. REV. 623, 658-62 (2012)

(detailing solutions to the enforcement gap that Concepcion will inevitably create); Daniel J.

Meltzer, Preemption and Textualism, 112 M

ICH. L. REV. 1, 10-14 (2013) (examining the

court’s inconsistent approach to statutory interpretation in the area of preemption and noting

that “even though many of the justices are generally attracted to textualist premises, the

Court has tended to rest its preemption decisions on a much more open-ended, purposive ap-

proach to interpretation”); Suzanna Sherry, Hogs Get Slaughtered at the Supreme Court,

2011 S

UP. CT. REV. 1, 5-6 (analyzing the Court’s decision as “turn[ing] preemption doctrine

on its head” and being inconsistent with the statute’s text); Lisa Tripp & Evan R. Hanson,

AT&T v. Concepcion: The Problem of a False Majority, 23 K

AN. J.L. & PUB. POL’Y 1 (2013)

(arguing that the rationale of Justice Thomas’s concurrence diverges so far from the majori-

ty’s reasoning that Concepcion may truly be a plurality opinion); Michael A. Wolff, Is There

May 2015] STATE COURT RESISTANCE 1155

Court transformed the FAA into a super-statute,

it later held in American Ex-

press Co. v. Italian Colors Restaurant

that the congressional preference for

arbitration could frustrate the vindication of a competing federal right. In that

case, the Court upheld a class action waiver that effectively barred plaintiffs

from bringing claims under the Sherman Act because the cost of individually

arbitrating each claim would exceed the potential recovery.

Concepcion’s scope is potentially vast. The Ninth Circuit recently issued

one of the most pro-arbitration readings of Concepcion in Mortensen v. Bres-

nan Communications, LLC.

The case involved a Montana rule that prohibited

the enforcement of arbitration agreements in adhesion contracts where the arbi-

tration agreements run contrary to the reasonable expectations of the parties.

In particular, the rule protected against the unknowing waiver of a fundamental

constitutional right, including the rights to trial by jury and access to the

courts.

In denying a motion to compel arbitration, the district court for the

District of Montana attempted to cabin Concepcion’s holding by characterizing

the case as only a limitation on the FAA’s savings clause with respect to

unconscionability and class action waivers.

Not so, according to the Ninth

Circuit. It held that Montana’s public policy was preempted by the FAA be-

cause the policy “disproportionately applies to arbitration agreements, invali-

dating them at a higher rate than other contract provisions.”

Under this ra-

tionale, a significant body of state contract law could be displaced simply

because those laws are applied more often than not to arbitration provisions.

This is especially disconcerting given the prevalence of arbitration provi-

sions.

Moreover, “[g]iven the broad interpretation of interstate commerce

Life After Concepcion?: State Courts, State Law, and the Mandate of Arbitration, 56 ST.

LOUIS U. L.J. 1269 (2012); and Michelle L. Caton, Comment, Form over Fairness: How the

Supreme Court’s Misreading of the Federal Arbitration Act Has Left Consumers in a Lurch,

21 G

EO. MASON L. REV. 497, 498 (2014) (arguing that the judicial expansion of the FAA

will undermine consumer arbitration as an institution).

70. See William N. Eskridge, Jr. & John Ferejohn, Super-Statutes, 50 DUKE L.J. 1215,

1216, 1260-63 (2001) (defining the term “super-statute” as, in part, a statute whose “institu-

tional or normative principles have a broad effect on the law—including an effect beyond the

four corners of the statute”—and explaining how the FAA is one such statute).

71. 133 S. Ct. 2304 (2013).

72. Id. at 2308.

73. 722 F.3d 1151 (9th Cir. 2013).

74. Id. at 1156.

75. Id.

76. Id.

77. Id. at 1161 (“The Montana reasonable expectations/fundamental rights rule arose

from state court consideration of adhesive arbitration agreements, and most of the rule’s ap-

plications have been to those provisions.” (citations omitted)).

78. Other circuits have interpreted Concepcion more conservatively than the Ninth

Circuit’s treatment of the case in Mortensen. For instance, in Noohi v. Toll Bros., 708 F.3d

599 (4th Cir. 2013), the court held that the FAA did not preempt Maryland’s rule of Cheek v.

United Healthcare of the Mid-Atlantic, Inc., 835 A.2d 656 (Md. 2003), which requires that

an arbitration provision be supported by mutual, adequate consideration in order to be valid.

Noohi, 708 F.3d at 603, 611-13 (“In a basic sense, the Cheek rule does single out an arbitra-

1156 STANFORD LAW REVIEW [Vol. 67:1145

adopted by the Supreme Court, the FAA will [now] apply to most every con-

tract.”

III. T

HE RESPONSE FROM STATE COURTS

Concepcion involved a state law rule that prevented parties with uneven

bargaining power from contracting around class actions. And yet, because that

general state law rule “frustrated” the efficiency of arbitrations, the FAA

preempted it. The writing on the wall was clear: the FAA could potentially dis-

place the entirety of state contract law.

In essence, Concepcion opened the

possibility that the FAA could serve as a means for federal judges to reach into

states and tinker with any contract rules that could be said to interfere with arbi-

tration. In a world in which the Court’s FAA jurisprudence was more closely

aligned with Congress’s intent, this would simply be an unfortunate conse-

quence of federal supremacy. States would, however, still have the option of

mobilizing the political process to exert pressure on their representatives to nar-

row the scope of the FAA’s preemption. But when the U.S. Supreme Court has

premised its decisions on such a broad interpretation of the FAA, the upshot is

that states are unable to assert their legal sovereignty in their own courts.

This Part examines how state courts reacted to this perceived threat to their

autonomy. Subpart A briefly touches on what state courts thought of the Su-

preme Court’s arbitration jurisprudence even before Concepcion. Subpart B

looks at state cases that openly defied Concepcion’s holding. Subpart C de-

scribes the strategies state courts have used to more subtly circumvent Concep-

cion.

A. State Court Hostility to Federal Interpretation of the FAA Pre-

Concepcion

Even before Concepcion, states heavily resisted the Supreme Court’s arbi-

tration decisions. Most memorably, Justice Triewieler of the Montana Supreme

tion provision in a larger contract, and assess whether that provision binds both parties to

arbitrate at least some claims. But on closer inspection, we are persuaded that all Cheek does

is treat an arbitration provision like any stand-alone contract.”). But Mortensen represents

the more accurate reading of Concepcion.

79. Stephen Smerek & Daniel Whang, Preemption and the Federal Arbitration Act:

What Law Will Govern Your Agreement to Arbitrate?, A.B.A. BUS. L. SEC. (Mar. 2006),

http://apps.americanbar.org/buslaw/newsletter/0051/materials/pp7.pdf.

80. See Arpan A. Sura & Robert A. DeRise, Conceptualizing Concepcion: The Con-

tinuing Viability of Arbitration Regulations, 62 U. KAN. L. REV. 403, 404 (2013) (arguing

that Concepcion “threatens to jeopardize a bevy of facially neutral contract laws as they are

applied to arbitration agreements”).

81. See Alexander, supra note 35, at 1208 (“[I]n the current political climate it appears

increasingly unlikely that Congress will pass legislation to limit or reverse Concepcion.”).

May 2015] STATE COURT RESISTANCE 1157

Court spoke openly about his disagreement.

The Montana Supreme Court had

just held that the FAA did not preempt a state law requiring notice on the first

page of a contract that the agreement was subject to arbitration.

Specially

concurring in the judgment, Justice Triewieler wrote separately to express his

“personal observation regarding many of the federal decisions which have been

cited to us as authority”:

What I would like the people in the federal judiciary, especially at the ap-

pellate level, to understand is that due to their misinterpretation of congres-

sional intent when it enacted the Federal Arbitration Act, and due to their na-

ive assumption that arbitration provisions and choice of law provisions are

knowingly bargained for, all of [the State of Montana’s] procedural safeguards

and substantive laws are easily avoided by any party with enough leverage to

stick a choice of law and an arbitration provision in its pre-printed contract

and require the party with inferior bargaining power to sign it.

. . . .

Nothing in our jurisprudence appears more intellectually detached from re-

ality and arrogant than the lament of federal judges who see this system of im-

posed arbitration as “therapy for their crowded dockets.” These decisions have

perverted the purpose of the FAA from one to accomplish judicial neutrality,

to one of open hostility to any legislative effort to assure that unsophisticated

parties to contracts of adhesion at least understand the rights they are giving

up.

It seems to me that judges who have let their concern for their own crowd-

ed docket overcome their concern for the rights they are entrusted with should

step aside and let someone else assume their burdens. The last I checked, there

were plenty of capable people willing to do so.

The U.S. Supreme Court subsequently reversed the judgment.

B. The Express Rejection of Concepcion by State Supreme Courts

Post-Concepcion, some state courts openly defied the Court’s latest arbitra-

tion installment as they struggled to protect the autonomy of their own laws

from federal usurpation. The year following Concepcion, the Court summarily

reversed two state supreme court decisions.

82. See Casarotto v. Lombardi, 886 P.2d 931, 940-41 (Mont. 1994) (Trieweiler, J.,

specially concurring), rev’d sub nom. Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681

(1995).

83. Id. at 938 (majority opinion).

84. Id. at 939-41 (Trieweiler, J., specially concurring).

85. Doctor’s Assocs., 517 U.S. at 681, 688-89 (holding that special notice require-

ments that apply solely and specifically to arbitration agreements are antithetical to the goals

and policies of the FAA).

86. See Nitro-Lift Techs., L.L.C. v. Howard, 133 S. Ct. 500 (2012) (per curiam), rev’g

273 P.3d 20 (Okla. 2011); Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct. 1201 (2012)

(per curiam), rev’g Brown ex rel. Brown v. Genesis Healthcare Corp., 724 S.E.2d 250 (W.

Va. 2011).

1158 STANFORD LAW REVIEW [Vol. 67:1145

In a case out of West Virginia, three wrongful death suits were brought on

behalf of nursing home residents, alleging that various acts and omissions of

the nursing home negligently caused the fatal injuries.

The admission agree-

ment for the nursing home contained an arbitration clause that covered all fu-

ture disputes.

The state supreme court ruled that, as a matter of public policy,

an arbitration clause in a nursing home admission agreement could not be en-

forced to compel arbitration in a wrongful death matter.

The opinion accused

the U.S. Supreme Court of manufacturing its FAA jurisprudence out of whole

cloth, explaining that “[w]ith tendentious reasoning, the United States Supreme

Court has stretched the application of the FAA from being a procedural statuto-

ry scheme effective only in federal courts, to being a substantive law that

preempts state law in both federal and state courts.”

In its per curiam rever-

sal, the U.S. Supreme Court chastised the state court for deliberately disregard-

ing Concepcion.

So too did the Oklahoma Supreme Court reject Concepcion. In Howard v.

Nitro-Lift Technologies, L.L.C., the state court voided a noncompete covenant

in an employment contract even though the contract required an arbitrator to

resolve all disputes.

The court relied on the ancient interpretive principle of

generalia specialibus non derogant (the specific governs over the general) to

explain why it would not compel arbitration.

An Oklahoma statute denying

the validity of noncompete agreements,

the court reasoned, was more specific

than a general federal statute favoring arbitration; therefore, the narrower Okla-

homa law applied without needing to compel arbitration.

The state court fur-

ther insisted that its determination rested on “bona fide, separate, adequate, and

independent” state grounds.

The U.S. Supreme Court disagreed. After reminding Oklahoma that it

could not treat federal and state law as conflicting laws of equal dignity, the

Court vacated the decision.

It again cited to Concepcion’s rule that any state

law that prohibits the arbitration of an otherwise arbitrable claim is preempt-

ed.

Having now summarily reversed two state supreme courts on the same

87. Genesis Healthcare, 724 S.E.2d at 263.

88. Id.

89. Id. at 292 (“Congress did not intend for arbitration agreements, adopted prior to an

occurrence of negligence that results in a personal injury or wrongful death, . . . to be gov-

erned by the Federal Arbitration Act.”).

90. Id. at 278.

91. Marmet, 132 S. Ct. at 1202 (“Here, the Supreme Court of Appeals of West Virgin-

ia, by misreading and disregarding the precedents of this Court interpreting the FAA, did not

follow controlling federal law . . . .”).

92. 273 P.3d 20, 24-25 (Okla. 2011), rev’d per curiam, 133 S. Ct. 500 (2012).

93. Id. at 26 n.21.

94. OKLA. STAT. tit. 15, § 219A (2015).

95. Nitro-Lift Techs., 273 P.3d at 26 n.21.

96. Id. at 23 n.5.

97. Nitro-Lift Techs., 133 S. Ct. at 504.

98. Id.

May 2015] STATE COURT RESISTANCE 1159

issue, the Court impressed upon states the significance of compliance with fed-

eral precedent: “State courts rather than federal courts are most frequently

called upon to apply the Federal Arbitration Act (FAA), including the Act’s na-

tional policy favoring arbitration. It is a matter of great importance, therefore,

that state supreme courts adhere to a correct interpretation of the legislation.”

C. Veiled Efforts to Undermine Concepcion

After open rebellion against Concepcion failed and the Supreme Court ex-

pressed no qualms with summarily reversing decisions that ignored its FAA ju-

risprudence, state courts employed a number of covert methods to undermine

the decision. This Subpart, by providing a sampling of the rationales that state

courts have used to bypass Concepcion, is intended to be illustrative rather than

exhaustive. It could be argued that these decisions are genuine attempts to

faithfully apply the Court’s arbitration rulings rather than conscious attempts to

subvert them. And for some cases, particularly the California Supreme Court’s

decision in Iskanian v. CLS Transportation Los Angeles, LLC,

100

that is likely

true. But sometimes, the state court’s reasoning seems stretched to the point of

incredulity, suggesting that the courts are actually trying to circumvent Con-

cepcion.

1. “The FAA does not apply because the contract at issue does not

involve interstate commerce”

One line of cases argues that the FAA does not apply to contracts that do

not involve interstate commerce. This is true enough.

101

But in applying this

rule, courts are taking an inappropriately narrow approach to what constitutes

interstate commerce.

Favara v. Regent Aerospace Corp.

102

is a good example of this problem.

There, a state appellate court held that the FAA did not compel the arbitration

of an employee’s claims for wage violations because “the employer did not

prove that the employment involved interstate commerce.”

103

Because the rec-

ord did not show that the plaintiff’s employment involved interstate commerce,

the court reasoned that the FAA did not apply.

104

This conclusion is hard to

take seriously, for the “[p]laintiff’s job involved the responsibility to manage

the designing and maintaining of computer and telephone networks and sys-

99. Id. at 501 (citation omitted).

100. 327 P.3d 129, 152 (Cal. 2014), cert. denied, 135 S. Ct. 1155 (2015).

101. See Perry v. Thomas, 482 U.S. 483, 489 (1987) (explaining that the FAA applies

“unless the agreement to arbitrate is not part of a contract evidencing interstate commerce”).

102. No. B246718, 2013 WL 5832391 (Cal. Ct. App. Oct. 30, 2013).

103. Id. at *1.

104. Id. at *3.

1160 STANFORD LAW REVIEW [Vol. 67:1145

tems in California, other states, and other countries.”

105

While the court may

have been making a waiver argument,

106

it seems disingenuous to argue that

the FAA does not apply in a case that plainly implicates interstate commerce.

In a similar New York case involving a contract for a home security sys-

tem, plaintiffs sued their security and alarm system company under a contract

that contained an arbitration clause.

107

New York General Business Law sec-

tion 399-c prohibits the use of mandatory arbitration clauses in consumer con-

tracts.

108

The court never reached the question of preemption because it first

addressed the predicate question of whether the contract affected interstate

commerce.

109

While the court acknowledged that “the holdings in more recent

United States Supreme Court cases (AT&T Mobility, Marmet and Nitro-Lift)

are conceptually inconsistent” with New York arbitration law, the court stated

that it would continue to apply New York common law until the Supreme

Court “expressly overrule[d]” that law.

110

The court ultimately held that the

contract was not subject to the FAA because it did not affect interstate com-

merce (even though the alarm company operated in nine states).

111

These decisions are at odds with modern understandings of the Commerce

Clause. The Supreme Court has held that Congress intended the FAA’s reach to

extend to the limits of the Commerce Clause power.

112

And under the Court’s

broad interpretation of the Commerce Clause, it is difficult to imagine any

commercial contract that does not implicate interstate commerce so as to render

the FAA inapplicable.

113

Therefore, the argument that these contracts did not

implicate commerce is suspect.

105. Id. at *2 (quoting Appellant’s Opening Brief at 16, Favara, 2013 WL 5832391

(No. B246718), 2013 WL 6846473) (internal quotation marks omitted).

106. Id. (“Regent’s motion to compel arbitration did not advise the trial court that the

FAA governs; instead, Regent referenced only the California Arbitration Act.”).

107. Schiffer v. Slomin’s, Inc., 970 N.Y.S.2d 856, 857-58 (Dist. Ct. 2013).

108. N.Y. GEN. BUS. LAW § 399-c (McKinney 2014).

109.

Schiffer, 970 N.Y.S.2d at 864.

110. Id.

111. Id. at 859, 864.

112. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 268 (1995) (holding that

section 2’s interstate commerce language should be read “broadly, extending the Act’s reach

to the limits of Congress’ Commerce Clause power”).

113. While the Rehnquist and Roberts Courts have constricted the power of the Com-

merce Clause, the cases in which they have done so have been in the criminal context. See,

e.g., United States v. Morrison, 529 U.S. 598 (2000); United States v. Lopez, 514 U.S. 549

(1995). Moreover, the economic inactivity doctrine developed in National Federation of In-

dependent Business v. Sebelius, 132 S. Ct. 2566 (2012), does not readily apply to merchants

and employers. We are therefore left with a New Deal perspective on what constitutes inter-

state commerce for commercial enterprises. See Katzenbach v. McClung, 379 U.S. 294

(1964); Wickard v. Filburn, 317 U.S. 111 (1942).

May 2015] STATE COURT RESISTANCE 1161

2. “The contract at issue incorporates governing rules other than the

FAA, which do not require the claims to be arbitrated”

Some state courts have found that the FAA does not apply because the con-

tract at issue incorporates rules besides the FAA to govern the question of

arbitrability. In theory, there is nothing wrong with this argument; two parties

may contract to any set of rules to govern the arbitration of a personal dis-

pute.

114

The error lies in an overly broad application of this principle.

In Harris v. Bingham McCutcheon LLP, the plaintiff alleged that she was

fired from her law firm after she requested reasonable accommodations for a

sleep disorder.

115

Her employment contract contained both an arbitration

clause and a choice-of-law provision that incorporated Massachusetts law to

govern the contract.

116

This included the common law rule of Warfield v. Beth

Israel Deaconess Medical Center, Inc., which required agreements to arbitrate

statutory discrimination claims to be “stated in clear and unmistakable

terms.”

117

The court reasoned that, because the parties had agreed to incorpo-

rate Massachusetts law into the contract, the Warfield rule rendered the arbitra-

tion provision void because it did not unambiguously cover claims of discrimi-

nation.

118

Another case employing this line of reasoning, Imburgia v. DIRECTV, Inc.,

involved a class action against DIRECTV alleging, inter alia, unjust enrichment

for improperly charged early termination fees in violation of California’s Con-

sumers Legal Remedies Act (CLRA).

119

The customer agreement contained a

class action waiver similar to the one addressed in Concepcion.

120

It also con-

tained a provision voiding the class action waiver if it was “unenforceable” un-

der the law of the consumer’s state—in this case, California.

121

Though Con-

cepcion had held that the FAA preempted California’s Discover Bank rule, that

preemption would only apply if the FAA governed the terms of the contract.

114. See Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S.

468, 478 (1989) (holding that Congress’s principal purpose in passing the FAA was to en-

sure “that private arbitration agreements are enforced according to their terms”).

115. 154 Cal. Rptr. 3d 843, 844 (Ct. App. 2013).

116. Id. at 845-46.

117.

910 N.E.2d 317 (Mass. 2009), overruled in part by Joulé, Inc. v. Simmons, 944

N.E.2d 143 (Mass. 2011); see Harris, 154 Cal. Rptr. 3d at 846-47.

118. Harris, 154 Cal. Rptr. 3d at 848-49. The court also independently determined that

Warfield had not been abrogated by Concepcion. Id. at 849. This ruling is somewhat baffling

given the similarity between the facts of this case and those of Doctor’s Associates, Inc. v.

Casarotto, 517 U.S. 681 (1996), where the Court found Montana’s heightened notice re-

quirement for arbitration provisions to be preempted.

119. 170 Cal. Rptr. 3d 190, 192 (Ct. App.), review denied, No. S218686 (Cal. July 23,

2014), cert. granted, 135 S. Ct. 1547 (2015).

120. Id. at 193 (“Neither you nor we shall be entitled to join or consolidate claims in ar-

bitration by or against other individuals or entities . . . .” (internal quotation mark omitted)).

121. Id. (“If, however, the law of your state would find this agreement to dispense with

class arbitration procedures unenforceable, then this entire [section] is unenforceable.” (in-

ternal quotation mark omitted)).

1162 STANFORD LAW REVIEW [Vol. 67:1145

The court therefore examined whether the contract’s incorporation of Califor-

nia law intended to integrate California law “to the extent it is not preempted by

the FAA” or to integrate California law “without considering the preemptive

effect, if any, of the FAA.”

122

The court held that the latter interpretation made

the most sense and applied the CLRA’s antiwaiver provision to void the class

action waiver despite Concepcion.

123

The flaw in both Harris and Imburgia is that, presumptively, a contract that

incorporates a state’s law is meant to only incorporate the laws of that state that

are not unconstitutional by federal preemption. To hold that the parties meant

to incorporate unconstitutional state laws through a choice-of-law provision is

counterintuitive. When deciding a similar case against DIRECTV involving the

same customer agreement, the Ninth Circuit described this reasoning as “non-

sensical.”

124

But it is a convenient way for state courts to bypass FAA preemp-

tion by arguing that the parties did not intend for federal law to apply.

As this Note goes to print, the Supreme Court has granted certiorari in

Imburgia to resolve the question, as framed by petitioner DIRECTV, of wheth-

er “a reference to state law in an arbitration agreement governed by the Federal

Arbitration Act requires the application of state law preempted by the Federal

Arbitration Act.”

125

It remains to be seen whether the Court’s decision will be

primarily based on FAA preemption or on basic principles of contract interpre-

tation. But regardless, it is unlikely that the same five-Justice majority from

Concepcion will decide this case. Justice Thomas, who provided the fifth vote

for the majority in Concepcion, has maintained a principled stance that the

FAA has no application in state courts.

126

122. Id. at 195 (internal quotation marks omitted).

123.

Id. at 195-98.

124. Murphy v. DirecTV, Inc., 724 F.3d 1218, 1226 (9th Cir. 2013). While the Ninth

Circuit is correct in its conclusion that a choice-of-law provision should not be interpreted as

excluding applicable federal law, some of the court’s own reasoning in arriving at that deci-

sion is questionable. Judge Wardlaw explained that “the Discover Bank rule is not, and in-

deed never was, California law” because it was automatically nullified by the FAA. Id. A

contract selecting California law as the governing law, she reasoned, could therefore never

incorporate the Discover Bank rule. Id. But this is not entirely accurate. The Discover Bank

rule still remains applicable to contracts that do not implicate interstate commerce, as the

FAA does not apply to those contracts. See supra note 101. While it is admittedly a small

pool of contracts that would fall into this category, the Discover Bank rule would still be val-

id California law as applied to those contracts.

125. Petition for Writ of Certiorari at i, DIRECTV, Inc. v. Imburgia, No. 14-462 (U.S.

Oct. 21, 2014), 2014 WL 5359805.

126. See supra note 41.

May 2015] STATE COURT RESISTANCE 1163

3. “This case is not between the employer and the employee, but

between the employer and state enforcement agencies not bound

by any contract”

Finally, some courts have developed legal theories that, though entirely

valid, effectively render the FAA moot in certain circumstances. The most

prominent example of this is the application of the Private Attorneys General

Act (PAGA) in California courts.

127

In California, a number of statutes provide

for significant civil penalties for violations of the Labor Code.

128

The Labor

Commissioner would normally collect these penalties.

129

But due to a shortage

of government resources, the state government had not been doing so.

130

The

state legislature resolved this problem by enacting PAGA in 2004.

131

The Act

allows aggrieved employees to sue on behalf of the state to enforce these civil

penalties.

132

A share of the recovery goes to the employees as an incentive for

private enforcement.

133

And a single aggrieved employee may bring a repre-

sentative action on behalf of other similarly situated employees.

134

Until recently, California courts were split on whether suits brought under

PAGA were subject to the FAA.

135

But in Iskanian v. CLS Transportation Los

127. See CAL. LAB. CODE §§ 2698-2699.5 (West 2014).

128. See, e.g., id. § 210 (imposing penalties for failure to pay wages in the proper time

and manner); id. § 222.5 (imposing penalties for the unlawful withholding of wages).

129. Id. § 210(b) (“The penalty shall be recovered by the Labor Commissioner as part

of a hearing held to recover unpaid wages and penalties pursuant to this chapter or in an in-

dependent civil action.”).

130. See ASSEMBLY COMM. ON LABOR & EMP’T, BILL ANALYSIS, SB 796, 2003-2004

Reg. Sess., at 3 (Cal. 2003), available at http://www.leginfo.ca.gov/pub/03-04/bill/sen/sb

_0751-0800/sb_796_cfa_20030708_130803_asm_comm.html (describing how some state

agencies were “failing to effectively enforce labor law violations”).

131. Arias v. Superior Court, 209 P.3d 923, 929-30 (Cal. 2009) (“The Legislature de-

clared that adequate financing of labor law enforcement was necessary to achieve maximum

compliance with state labor laws, that staffing levels for labor law enforcement agencies had

declined and were unlikely to keep pace with the future growth of the labor market, and that

it was therefore in the public interest to allow aggrieved employees, acting as private attor-

neys general, to recover civil penalties for Labor Code violations, with the understanding

that labor law enforcement agencies were to retain primacy over private enforcement ef-

forts.”).

132. LAB. § 2699(a) (“[A]ny provision of this code that provides for a civil penalty to

be assessed and collected by the Labor and Workforce Development Agency . . . may, as an

alternative, be recovered through a civil action brought by an aggrieved employee on behalf

of himself or herself and other current or former employees . . . .”).

133. Id. § 2699(i) (“[C]ivil penalties recovered by aggrieved employees shall be distrib-

uted as follows: 75 percent to the Labor and Workforce Development Agency . . . and 25

percent to the aggrieved employees.”).

134. See supra note 132 and accompanying text.

135. Compare Baker v. Tognazzini Family, Inc., No. B247137, 2013 WL 6159167, at

*3-4 (Cal. Ct. App. Nov. 25, 2013) (holding that an arbitration provision did not waive the

right to bring a PAGA claim), and Brown v. Ralphs Grocery Co., 128 Cal. Rptr. 3d 854, 863

(Ct. App. 2011) (“In short, representative actions under the PAGA do not conflict with the

purposes of the FAA. If the FAA preempted state law as to the unenforceability of the

PAGA representative action waivers, the benefits of private attorneys general actions to en-

1164 STANFORD LAW REVIEW [Vol. 67:1145

Angeles, LLC,

136

the California Supreme Court put the issue to rest. The case

involved a class action lawsuit on behalf of an employee and similarly situated

employees alleging failure to compensate for overtime work and meal and rest

periods.

137

The plaintiffs had signed an agreement to arbitrate “any and all

claims” arising out of their employment.

138

The central question was whether

an aggrieved employee could waive his right to bring a representative action

under PAGA in court and, if not, whether such a common law prohibition ran

afoul of the FAA.

139

After answering the first question in the negative, the court went on to ad-

dress the elephant in the room—whether making PAGA actions unwaivable

frustrated the FAA’s objectives of ensuring an efficient forum for the resolution

of private disputes.

140

It would not, the majority decided:

Simply put, a PAGA claim lies outside the FAA’s coverage because it is not a

dispute between an employer and an employee arising out of their contractual

relationship. It is a dispute between an employer and the state, which alleges

directly or through its agents . . . that the employer has violated the Labor

Code.

141

Because the FAA’s command to enforce arbitration only reaches private dis-

putes “arising out of such contract or transaction,”

142

and because the govern-

ment was not a party to the arbitration agreement, the court held that it was not

bound to arbitrate its public enforcement action.

143

This ruling will have significant implications in California. The civil penal-

ties imposed by PAGA are cumulative and hefty—$100 for each aggrieved

employee per pay period for the initial violation and $200 for each subsequent

violation per employee per pay period.

144

And a single employee can sue as a

proxy for all aggrieved employees,

145

functionally creating a public enforce-

ment action that bears many similarities to a class action without imposing the

requirements of class certification.

146

Most importantly, PAGA allows twenty-

force state labor laws would, in large part, be nullified.”), with Goss v. Ross Stores, Inc., No.

A133895, 2013 WL 5872277, at *5 (Cal. Ct. App. Oct. 31, 2013) (reversing a trial court’s

denial of a motion to compel individual arbitration under PAGA because the “FAA preempts

any attempt by a court or state legislature to insulate a particular type of claim from arbitra-

tion”), and Iskanian v. CLS Transp. L.A., LLC, 142 Cal. Rptr. 3d 372, 384 (Ct. App. 2012)

(“[A]ny state rule prohibiting the arbitration of a PAGA claim is displaced by the FAA.”),

rev’d, 327 P.3d 129 (Cal. 2014), cert. denied, 135 S. Ct. 1155 (2015).

136. 327 P.3d 129.

137. Id. at 133.

138. Id.

139. Id.

140. Id. at 149.

141. Id. at 151 (emphasis omitted).

142. 9 U.S.C. § 2 (2013).

143. Iskanian, 327 P.3d at 152-53.

144. CAL. LAB. CODE § 2699(f)(2) (West 2014).

145. See supra note 132 and accompanying text.

146. Arias v. Superior Court, 209 P.3d 923, 933-34 (Cal. 2009) (holding that PAGA ac-

tions do not violate due process just because they are not brought as class actions).

May 2015] STATE COURT RESISTANCE 1165

five percent of any recovery to go to aggrieved employees.

147

From the em-

ployees’ perspective, PAGA suits may substitute for regular lawsuits to the ex-

tent that their recovery approaches what they would receive in compensatory

damages.

Janet Alexander proposed this very solution as a means to fill the deter-

rence gap created by Concepcion.

148

State legislatures, she argued, could create

statutory qui tam regimes that would deputize citizens to enforce violations of

state consumer protection and employment laws.

149

For many of the same rea-

sons put forth by the California Supreme Court in Iskanian, Alexander believes

such an approach would survive federal preemption.

150

To conclude otherwise,

she argues, “would seriously impair the state’s ability to execute core govern-

mental functions” and would be an “intrusion into state sovereignty that should

give pause to neo-federalists such as the majority in Concepcion.”

151

While this approach represents a novel legal theory, there are several po-

tential issues with it. First, it is not entirely true that the representative action at

issue in Iskanian does not arise out of the contract. As the concurrence in

Iskanian pointed out,

152

a PAGA suit may only be brought by an “aggrieved

employee.”

153

An employee’s ability to act as a proxy for the government is

contingent on her existing employment status, which in turn is contingent on

the employment contract with an arbitration provision governing all claims

arising out of the employment. Second, the U.S. Supreme Court may still find

that the California Supreme Court’s approach runs afoul of the FAA. It could

view the recovery as serving the same function as compensatory damages be-

cause only injured parties can bring representative actions. As such, the Court

could characterize these technically public enforcement actions as private dis-

putes. A failure to compel arbitration would therefore undercut the spirit of

Concepcion and frustrate the FAA’s purpose of promoting efficiency in private

disputes. Alternatively, the Court may respond by developing its own theory

that limits the flexibility of state agencies to deputize private citizens in qui tam

actions.

IV. C

REATING A FRAMEWORK TO DISCUSS STATE RESISTANCE TO

FEDERAL ARBITRATION LAW

The arbitration cases reveal how federal preemption can broadly interfere

with state statutory and common law. Needless to say, this is not the first time

147. See supra note 133.

148. Alexander, supra note 35, at 1239.

149. Id. at 1203. Alexander even provided detailed advice on how to draft such statutes

so that they do not conflict with the FAA. See id. at 1234-39.

150. Id. at 1224-25.

151. Id. at 1203.

152. Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129, 157 (Cal. 2014) (Chin, J., con-

curring), cert. denied, 135 S. Ct. 1155 (2015).

153. CAL. LAB. CODE § 2699(c) (West 2014).

1166 STANFORD LAW REVIEW [Vol. 67:1145

preemption has had this effect. Throughout the twentieth century the Court took

up over one hundred cases solely to address the sufficiency of evidence in cases

brought under the Federal Employers’ Liability Act (FELA).

154

In the vast ma-

jority of these cases, the Court reversed jury decisions that were in favor of the

defendant.

155

This culminated in a dissent by Justice Frankfurter in which he

decried the Court for granting certiorari for reasons that were antithetical to the

purpose of the Supreme Court and the rules governing the certiorari process.

Justice Frankfurter criticized the Court’s reliance on ideology: “With a changed

membership, the Court might tomorrow readily affirm all four of these cases

that it decides today. There is nothing in the Federal Employers’ Liability Act

to say which view is correct.”

156

One could argue that this era of FELA juris-

prudence may have actually been, in part, about restructuring the tort and jury

systems in states that were not plaintiff friendly.

157

And as with FELA, the Court’s FAA jurisprudence may also have the ef-

fect of restructuring state common law. Even before Concepcion, states often

applied the doctrine of unconscionability to curtail the FAA’s preemptive ef-

fect.

158

The question now is whether such pushback is ever appropriate. The

state cases that have resisted a faithful and expansive application of Concep-

cion provide an excellent case study on the implications of state hostility to

federal law in a dual sovereignty system.

When the Supreme Court misinterprets a statute, it may disrupt both hori-

zontal and vertical separation of powers principles. Under horizontal separation

of powers, the legislative and executive federal branches may exert checks on

the Court to restore balance. For instance, via the amendment process, Con-

gress may start the process of rectifying a constitutional interpretation that car-

ries with it profound negative consequences—as has occurred on a number of

occasions

159

and has been attempted countless more times.

160

Congress may

154.

See Ferguson v. Moore-McCormack Lines, Inc., 352 U.S. 521 app. A at 548, app.

B at 549 (1957) (Frankfurter, J., dissenting) (listing all the FELA cases the Court had taken

up from the 1911 Term through the 1955 Term).

155. See id. app. B at 549.

156.

Id. at 545-46 (“[A]t one time the chief concern may be lively regard for what are

conceived to be unfair inroads upon the railroads’ exchequer while at another period the pre-

occupation may be with protection of employees and their families . . . .” (footnote omitted)).

157. Cf. F. Patrick Hubbard, The Nature and Impact of the “Tort Reform” Movement,

35 HOFSTRA L. REV. 437, 466 (2006).

158. Aaron-Andrew P. Bruhl, The Unconscionability Game: Strategic Judging and the

Evolution of Federal Arbitration Law, 83 N.Y.U. L. REV. 1420, 1420 (2008) (“As the Su-

preme Court has shut off most other means of resisting arbitration, the state law doctrine of

unconscionability has in the last several years become a surprisingly attractive and success-

ful tool for striking down arbitration agreements.” (italics omitted)). Ironically, such strate-

gies likely led to decisions like Concepcion.

159. See, e.g., U.S. CONST. amend. XI (abrogating Chisholm v. Georgia, 2 U.S. (2

Dall.) 419 (1793)); U.S. CONST. amends. XIII-XIV (abrogating Dred Scott v. Sandford, 60

U.S. (19 How.) 393 (1856)); U.S.

CONST. amend. XXVI (abrogating Oregon v. Mitchell, 400

U.S. 112 (1970)); see also William N. Eskridge, Jr., Overriding Supreme Court Statutory

May 2015] STATE COURT RESISTANCE 1167

also revise a statute that has been interpreted or applied in a way that is incon-

sistent with its intent.

161

This rebalancing has no adequate analogue in the context of vertical sepa-

ration of powers. If the Supreme Court (or any branch of the federal govern-

ment for that matter) chips away at state power, states have no means to affirm-

atively assert their own sovereignty. In part, this is the price of the Supremacy

Clause. But the upshot is a one-way ratchet that has allowed the federal gov-

ernment to grow and take over many of the powers that were traditionally re-

served for the states. Even with the current federalism resurgence, states’ rights

have eroded and the role of the federal government has vastly increased relative

to the role of the states. The Commerce Clause has expanded far beyond its

original meaning, allowing Congress to regulate almost any activity. Preemp-

tion doctrine has developed a purposivist angle that allows federal law to dis-

place state laws that create an obstacle to achieving congressional goals.

162

Both the FELA line of cases and the Court’s arbitration jurisprudence embody

the consequences of such a one-way ratchet.

Against this backdrop, state resistance may play an essential part in pre-

serving states’ legal autonomy. The state court responses to the Supreme

Court’s interpretation of the FAA can be placed along a spectrum according to

their level of divergence from federal law. At one end of this spectrum is out-

right noncompliance. The Supreme Court of Appeals of West Virginia’s deci-

sion in Brown ex rel. Brown v. Genesis Healthcare Corp., in which it disre-

garded what it considered to be the U.S. Supreme Court’s “tendentious reason-

ing,” epitomizes this category.

163

Cases in which judges fully comply with fed-

eral precedent despite disagreement with its application would fall on the

opposite end. In the middle of the spectrum lie court decisions that abide by

federal precedent but limit its potential preemptive scope. They do so by devel-

oping novel theories that function as valid work-arounds to preemption or by

Interpretation Decisions, 101 YALE L.J. 331 (1991) (conducting an empirical analysis of

congressional override of Supreme Court decisions).

160. See, e.g., S.J. Res. 19, 113th Cong. (2013) (attempting to overturn Citizens United

v. FEC, 558 U.S. 310 (2010), by constitutional amendment, but dying on the Senate floor);

H.R. 595, 98th Cong. (1983) (attempting to overrule Carlson v. Green, 446 U.S. 14 (1980),

but dying in committee); S.J. Res. 41, 97th Cong. (1981) (attempting to modify United

Steelworkers v. Weber, 443 U.S. 193 (1979), but dying in subcommittee); see also Eskridge,

supra note 159, at 442-49 (cataloging congressional attempts at overriding judicial interpre-

tations of federal statutes between 1977 and 1988).

161. See, e.g., Pregnancy Discrimination Act, Pub L. No. 95-555, 92 Stat. 2076 (1978)

(codified at 42 U.S.C. § 2000e(k) (2013)) (amending Title VII of the Civil Rights Act of

1964 to prohibit sex discrimination on the basis of pregnancy, abrogating Geduldig v. Aiello,

417 U.S. 484 (1974)); see also Eskridge, supra note 159, at 424-49.

162. See Note, Preemption as Purposivism’s Last Refuge, 126 HARV. L. REV. 1056

(2013) (arguing that the textualist revolution has taken over nearly all areas of legal interpre-

tation, except for the Supreme Court’s preemption doctrine, in which purposivist thinking

still thrives).

163. 724 S.E.2d 250 (W. Va. 2011), rev’d per curiam sub nom. Marmet Health Care

Ctr., Inc. v. Brown, 132 S. Ct. 1201 (2012).

1168 STANFORD LAW REVIEW [Vol. 67:1145

cabining the federal precedent to its facts. Iskanian is representative of this ap-

proach. This Part addresses the deficiencies of the strategies at either extreme

of this spectrum and the benefits of the middle-ground approach.

A. One End of the Spectrum: States Fully Comply with the Court’s

Interpretation of Federal Law

Under a perfect-compliance approach, state courts fully internalize federal

precedent in both letter and spirit no matter the impact on state law and policy.

This approach does not necessarily lead to negative outcomes. If state and fed-

eral interests are aligned, then there would be no need for anything but perfect

compliance.

The problem arises when national policy diverges from local policy, as is

often the case in the context of arbitration law. As discussed above, vertical

separation of powers leaves states with little ability to stop the encroachment of

federal law into areas of state concern. In theory this route leaves open the po-

litical process to allow citizens who are displeased with the federal govern-

ment’s encroachment on states’ rights to pressure lawmakers to show greater

respect for state sovereignty. But that presumes the availability of federal law-

makers who would be willing to shrink their own authority once elected.

If states acquiesced to Concepcion, the result could be a permanent dilution

of state contract law principles. In a world in which states are perfectly compli-

ant to federal preemption, the power of local communities to control the laws

they live under will be continually eroded. The severity of this approach may

ebb and flow with time, but it will ultimately result in the narrowing of the

roles of state governments in society.

But this approach is not without its benefits. Most significantly, with na-

tional uniformity on the meaning of federal law, there would be greater certain-

ty and predictability. All other approaches lack this feature.

B. The Other End: Outright Noncompliance with Federal Law

At the other end of the spectrum, state courts are encouraged to disregard

federal interpretations of the law that run contrary to state policy. They run the

risk of getting overturned on appeal or summarily reversed, but given the lim-

ited capacity of the U.S. Supreme Court, that risk could be acceptably negligi-

ble.

The question of whether state courts have independent authority to formal-

ly void federal law was originally open to debate. The doctrine of interposition

represented the idea that a state could interpose itself between the federal gov-

ernment and its citizens by voiding what it perceived to be unconstitutional

May 2015] STATE COURT RESISTANCE 1169

federal law.

164

A series of cases chipped away at this concept. First, Martin v.

Hunter’s Lessee established that federal courts have the authority to review

state court decisions on issues of federal law.

165

Later, Ableman v. Booth held

that state courts’ interpretation of federal law cannot contradict prior decisions

of federal courts.

166

Finally, if any doubt remained, the role of the federal

courts in post-Civil War reconstruction solidified the notion that states lack

equal authority to interpret federal law. Presently the doctrine of interposition

has been wholly repudiated by courts and is not recognized as a valid doctrine

of constitutional construction

167

—and with good reason. Interposition brings

with it a host of problems, many of which would be present if state courts were

informally allowed to defy federal supremacy.

First, state judicial noncompliance sanctions lawlessness. Defiance of this

breed undermines the rule of law and reduces faith in the legal order, which

could lead to more general kinds of illegality. It could also cause the perception

of unfairness. Defiance jeopardizes the protections that come with the legal sys-

tem.

168

As Justice Stewart once explained, respect for the judicial system and

its processes “is a small price to pay for the civilizing hand of law, which alone

can give abiding meaning to constitutional freedom.”

169

Some may argue that state noncompliance with federal arbitration law is

just like jury nullification, which many consider to be a legitimate aspect of the

legal system.

170

But key differences set apart jury nullification from state non-

compliance. Jury nullification is inherently a one-off phenomenon, whereas

court decisions have precedential value that impact future litigants. Also, unlike

164. BLACK’S LAW DICTIONARY, supra note 23, at 943 (defining “interposition” as

“[t]he action of a state, while exercising its sovereignty, in rejecting a federal mandate that it

believes is unconstitutional or overreaching”).

165.

14 U.S. (1 Wheat.) 304, 351 (1816).

166. 62 U.S. (21 How.) 506, 525 (1858) (“But the decisions in question were made by

the supreme judicial tribunal of the State; and when a court so elevated in its position has

pronounced a judgment which, if it could be maintained, would subvert the very foundations

of this Government, it seemed to be the duty of this court, when exercising its appellate

power, to show plainly the grave errors into which the State court has fallen, and the conse-

quences to which they would inevitably lead.”).

167.

See, e.g., Cooper v. Aaron, 358 U.S. 1 (1958); Bush v. Orleans Parish Sch. Bd.,

188 F. Supp. 916, 921, 922-27 (E.D. La. 1960) (invalidating an interposition statute “by

which Louisiana declare[d] that it w[ould] not recognize the Supreme Court’s decision in

Brown v. Board of Education”).

168. See Cooper, 358 U.S. at 18 (“No state legislator or executive or judicial officer can

war against the Constitution without violating his undertaking to support it.”); Orleans Par-

ish Sch. Bd., 188 F. Supp. at 924 (“Assuming always that the claim of interposition is an ap-

peal to legality, the inquiry is who, under the Constitution, has the final say on questions of

constitutionality, who delimits the Tenth Amendment. In theory, the issue might have been

resolved in several ways. But, as a practical matter, under our federal system the only solu-

tion short of anarchy was to assign the function to one supreme court.”).

169. Walker v. City of Birmingham, 388 U.S. 307, 321 (1967).

170. See, e.g., Darryl K. Brown, Jury Nullification Within the Rule of Law, 81 MINN. L.

REV. 1149, 1155 (1997) (arguing that “jury nullification can, and in many contexts does, oc-

cur within the rule of law rather than subvert it”).

1170 STANFORD LAW REVIEW [Vol. 67:1145

juries, who make binary decisions without needing to proffer a formal explana-

tion, judges often must explain their reasoning and thus make their break from

precedent unambiguous.

Second, noncompliance has historically led to disastrous results. When the

Supreme Court held racial segregation in schooling unconstitutional in Brown

v. Board of Education,

171

some state legislatures and governors defied the rul-

ing and refused to enforce integration.

172

President Eisenhower ultimately had

to send troops to Little Rock, Arkansas, to restore order.

173

A more recent ex-

ample of the detriments of state noncompliance is playing out regarding the

constitutionality of same-sex marriage. Bills are being introduced in a number

of states that would forbid government employees from issuing marriage li-

censes to same-sex couples, despite numerous holdings by federal courts that

such a practice is forbidden by the Fourteenth Amendment.

174

The chief justice

of the Alabama Supreme Court recently said he would continue to enforce the

state’s same-sex marriage ban despite a federal court ruling holding the ban un-

constitutional.

175

While much of this may be political posturing, it inevitably

undermines the integrity of the judicial enterprise.

Third, federal law would lack uniformity. If states freely dismissed inter-

pretations of federal law, national law could change drastically from one state

to the next. This patchwork system would lead to reduced predictability of ju-

dicial outcomes, which in turn would hamper one of the law’s main purposes—

to influence people’s future behavior. This is especially critical in an area of

law such as contracts, where parties are looking forward to predict how courts

will enforce the terms as they are written.

Finally, and perhaps most critically, if state courts freely disregarded Su-

preme Court decisions, the Supremacy Clause would be rendered meaningless.

C. The Middle Ground: State Courts Narrow the Preemptive Effect of

Federal Law

In the middle of the spectrum lie decisions like Iskanian. In cases like

these, state courts do not disregard authoritative interpretations of federal law.

Rather, they adopt their own interpretations of federal law that are limiting and

confine the federal precedent to its facts. This approach comes with a number

of benefits.

First, it is an effective means of preventing state law from being entirely

swept up by preemption. In California, the people and the legislature deter-

171. 347 U.S. 483 (1954).

172. See, e.g., Cooper, 358 U.S. at 8-12.

173. Anthony Lewis, President Sends Troops to Little Rock, Federalizes Arkansas Na-

tional Guard; Tells Nation He Acted to Avoid Anarchy, N.Y. TIMES, Sept. 25, 1957, at 1.

174. Richard Fausset & Alan Blinder, States Renew Fight to Stop Same-Sex Marriage,

N.Y. TIMES (Jan. 28, 2015), http://www.nytimes.com/2015/01/29/us/battles-over-same-sex

-marriage-roil-statehouses-ahead-of-supreme-courts-decision.html.

175. Id.

May 2015] STATE COURT RESISTANCE 1171

mined through the passage of PAGA that violations of the Labor Code were a

significant societal harm.

176

If the California Supreme Court adopted an expan-

sive reading of Concepcion, which perhaps would be more consistent with the

spirit of the decision, this policy choice would be lost. Instead, by arguing that

the employment contract at issue in Iskanian does not govern PAGA suits be-

cause such claims technically belong to the government, the California Su-

preme Court was effectively able to preserve this policy choice while still re-

specting the preemptive bounds of the FAA.

Second, state decisions on this end of the spectrum do not sanction law-

lessness; the rule of law is still respected and adhered to. As some evidence of

this, consider that the U.S. Supreme Court recently denied certiorari in

Iskanian.

177

While a denial of certiorari can arise for any number of reasons—

for example, the issue presented may be too muddled by other confounding,

dispositive issues—it can represent some indication that the Court does not dis-

agree with the application of federal law. At the very least, were Iskanian to be

as off base as the Supreme Court of Appeals of West Virginia’s decision in

Genesis Healthcare was, the Court could have just summarily reversed it.

Finally, it is well established that some common law is best created at the

trial court level.

178

Judges who have witnessed live testimony themselves have

the strongest sense of where the equities lie and are thus best situated to deter-

mine how the law should apply. When trial courts adopt alternative theories of

liability or craft exceptions, they are communicating to appellate courts and the

legislature that the law, as currently interpreted, does not align with the real-

world purposes for which it was created. This is especially important in the

context of arbitration because, as the Court has noted, state courts are often the

ones most relied on to apply the FAA.

179

Courts that narrowly confine Concep-

cion to its facts are thus signaling that the FAA’s broad preemptive effect may

not function properly on the ground level.

Of course, this is not a perfect solution. Complete uniformity of federal law

will not be achieved if states differ in their treatment of Supreme Court prece-

dent. But is such a result lamentable? If the Court theoretically had unlimited

judicial capacity and could hear and resolve every issue of federal law that re-

mained an open question, would that system be superior to the status quo? Or

should law exist in a state of dynamic equilibrium in which precedent is faith-

fully applied but still tailored to local concerns?

Moreover, while this middle-ground approach appears to balance federal

supremacy with a respect for state law, it remains unclear where the line sepa-

176. See ASSEMBLY COMM. ON JUDICIARY, BILL ANALYSIS, SB 796, 2003-2004 Reg.

Sess. (Cal. 2003), available at http://www.leginfo.ca.gov/pub/03-04/bill/sen/sb_0751-0800

/sb_796_cfa_20030626_110301_asm_comm.html.

177. CLS Transp. L.A., LLC v. Iskanian, 135 S. Ct. 1155 (2015).

178. See David P. Leonard, Appellate Review of Evidentiary Rulings, 70 N.C. L. REV.

1155, 1204 (1992) (discussing this theory as applied to evidence law).

179. Nitro-Lift Techs., L.L.C. v. Howard, 133 S. Ct. 500, 501 (2012) (per curiam).

1172 STANFORD LAW REVIEW [Vol. 67:1145

rating this kind of nuanced resistance from noncompliance should be drawn. As

previously discussed, Iskanian is convincing in its own right and merely has the

secondary effect of limiting Concepcion’s scope. But several of the other deci-

sions discussed, such as those finding the FAA inapplicable because interstate

commerce was not implicated, would purportedly fall into this category even

though their reasoning is unpersuasive. In reality, these state court opinions

may be just as noncompliant as those cases that the Supreme Court summarily

reversed—the only difference being that, rather than expressly rejecting Con-

cepcion, these decisions were veiled in nominal legal rhetoric. Therefore, and

unsurprisingly, the legitimacy of this middle-ground approach is highest when

a state court can convincingly distinguish federal precedent so that the decision

is not suspect.

ONCLUSION

Globalization has forced the United States to be a far less local society than

it was at the Founding. The country as a whole may gradually be acquiescing to

or even embracing a more centralized system of government. But as long as we

continue to value the concept of state sovereignty and the benefits that come

with it, local communities should maintain a role in designing the norms and

customs that govern them.

The Supreme Court has adopted an interpretation of the FAA that strays far

from the original congressional intent behind the law. In doing so, countless

state laws that “frustrate” the purposes of the FAA stand to be displaced. State

courts have ranged in their responses—from outright defiance to more veiled

efforts that purport to abide by federal law—as they struggle to preserve state

contract law. This Note concludes that this pushback from states is most func-

tional when state courts abide by federal precedent but limit its application to

narrow circumstances. This tug-of-war playing out between state and federal

courts is inherent in our system of government. Congress and the President may

try to expand the constitutional power of their respective branches while the

other branches resist such expansion. The case is no different for the allocation

of power between the states and the federal government. And when states resist

or hamper the expansion of preemptive federal law, they allow local needs to

continue to shape the rules that impact our daily lives.

None of this is to suggest that arbitration is inherently undesirable. When

businesses agree to arbitrate rather than litigate, it unburdens court dockets and

prevents taxpayers from footing the bill for their dispute. Nor is it to imply that

federal law has no part to play in establishing contract law. There are signifi-

cant benefits to having a default set of rules to apply to all transactions that oc-

cur within a national economy. But it is also true that the law needs to be flexi-

ble and that a one-size-fits-all approach is not always appropriate.