Arbitration

Arbitration is a private dispute-resolution process in which the parties submit their dispute to one or more neutral arbitrators whose decision (the "arbitration award") is binding on the parties. Arbitration substitutes for traditional court litigation, generally producing a faster, more confidential, and more limited proceeding governed by rules selected in the arbitration agreement.

FAA preemption framework

The FAA applies to any arbitration agreement in a written contract evidencing a transaction involving interstate commerce. Allied-Bruce Terminix, 513 U.S. 265 (1995). FAA § 2 makes such agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The FAA broadly preempts state law that disfavors arbitration or interferes with its fundamental attributes. AT&T Mobility v. Concepcion, 563 U.S. 333 (2011).

FAA vs. TAA

Most Texas commercial arbitrations are governed by the FAA because they involve interstate commerce. The TAA applies as a default for purely-intrastate arbitrations and where parties expressly contract for TAA application. A general choice-of-Texas-law clause is not sufficient to invoke TAA over FAA, the agreement must specifically state that the TAA controls. The two statutes are largely parallel in operation.

Enforceability of arbitration agreements

Generally-applicable contract defenses (fraud, duress, unconscionability) may invalidate arbitration agreements without triggering FAA preemption. Doctor's Associates v. Casarotto, 517 U.S. 681 (1996). Mass-arbitration tactics, class-action waivers, and delegation clauses (which assign threshold enforceability questions to the arbitrator) are routinely upheld. Epic Systems v. Lewis, 138 S. Ct. 1612 (2018).

Court's role under the FAA

Stay or compel: under FAA §§ 3–4, a party seeking arbitration may move to stay the litigation and compel arbitration. Smith v. Spizzirri (2024) held that courts must stay rather than dismiss cases subject to arbitration when a party requests a stay.

Confirm or vacate: under FAA §§ 9–11, an arbitration award must be confirmed within one year, and any objection (motion to vacate) must be filed within three months. Grounds for vacatur are narrowly limited to corruption, fraud, partiality, misconduct, or arbitrators exceeding their powers. § 10.

EFAA carveout (eff. March 3, 2022)

Pre-dispute arbitration agreements and joint-action waivers are unenforceable as to claims of sexual harassment or sexual assault, at the election of the person alleging the conduct. The provision applies prospectively only, to disputes arising on or after the enactment date, regardless of when the arbitration agreement was signed.

Waiver

Morgan v. Sundance (2022) held that waiver of arbitration does not require a showing of prejudice, ordinary contract waiver principles apply. A defendant who litigates substantively for an extended period before invoking arbitration may be held to have waived the right.

Companion article: Contract Disputes in Texas