FAA Preemption
The doctrine that the Federal Arbitration Act (9 U.S.C. § 1 et seq.) preempts state laws that single out arbitration agreements for unfavorable treatment or burden their enforcement. The FAA applies to arbitration agreements involving interstate commerce; the Texas General Arbitration Act (TGAA) governs written arbitration agreements generally, subject to the exclusions in § 171.002 and to the FAA where the FAA applies. The Supreme Court reaffirmed the FAA's preemptive scope in AT&T Mobility v. Concepcion (2011). Smith v. Spizzirri (2024) is a procedural decision holding that, when a party requests it, a federal court must stay an arbitrable suit rather than dismiss it.
FAA preemption is the doctrine that the Federal Arbitration Act (9 U.S.C. § 1 et seq.) preempts state laws that single out arbitration agreements for unfavorable treatment or burden their enforcement. The FAA establishes a federal policy favoring arbitration, applies to all arbitration agreements involving interstate commerce, and preempts inconsistent state law. The U.S. Supreme Court has developed the doctrine in a line of cases. Smith v. Spizzirri, 601 U.S. 472 (2024), addressed procedure under § 3 and did not involve preemption. It held that when a party requests a stay of an arbitrable suit, § 3 requires the court to stay the case and not dismiss it.
Section 2, the validity rule
Section 2 of the FAA is the heart of the statute: it makes arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The "save upon such grounds" clause permits state-law contract defenses (fraud, duress, unconscionability) but only when applied generally, not specifically targeting arbitration. State laws that disfavor arbitration agreements are preempted; state laws applying generally to all contracts are preserved.
Section 3, mandatory stay (post-Spizzirri)
Smith v. Spizzirri, 601 U.S. 472 (2024), resolved a long-standing circuit split on the application of FAA § 3. The Supreme Court held that when a party requests a stay, § 3 mandates a stay of court proceedings pending arbitration, not dismissal, even when all claims are subject to arbitration. The decision rejects the "discretionary dismissal" view that some circuits had adopted (allowing courts to dismiss rather than stay). Practical impact: courts must retain jurisdiction over the underlying case during arbitration, providing a docket for post-arbitration confirmation, vacatur, or other relief. The decision construed § 3 in a federal case, and the Supreme Court has left open whether §§ 3 and 4 apply in state court. In a Texas court, Tex. Civ. Prac. & Rem. Code § 171.025 requires a stay of an issue subject to arbitration when arbitration is ordered or sought under the Texas act.
FAA vs. TGAA, interaction with Texas law
The Texas General Arbitration Act (Chapter 171 of the CPRC) provides a parallel state-law framework for written arbitration agreements, subject to the exclusions in § 171.002. Much commercial arbitration in Texas falls under the FAA because of the broad interpretation of "involving commerce", including local transactions with even modest interstate connections. Where both apply, the FAA preempts inconsistent TGAA provisions; where the FAA does not apply (purely intrastate, certain specific exclusions like seamen and railroad employees), the TGAA governs.
What FAA preemption forbids
The Supreme Court has invalidated several types of state laws as FAA-preempted: (1) Concepcion, state-law rules prohibiting class-action waivers in consumer contracts; (2) Kindred Nursing, state-law clear-statement rules requiring specific reference to arbitration in powers of attorney; (3) Doctor's Associates v. Casarotto, 517 U.S. 681 (1996), Montana statute requiring conspicuous notice of arbitration on contract face; (4) Marmet Health Care Center v. Brown, 565 U.S. 530 (2012), West Virginia's categorical prohibition of predispute arbitration of personal-injury and wrongful-death claims against nursing homes. The pattern: state laws that target arbitration specifically (rather than applying generally to all contracts) are preempted.
What FAA preemption permits
The FAA preserves general state-law contract defenses applied evenhandedly: (1) fraud in the inducement of the arbitration clause specifically (separate from fraud in the underlying contract, under Prima Paint v. Flood & Conklin, 388 U.S. 395 (1967), a court decides only fraud directed at the arbitration clause itself, and a claim that the contract as a whole was fraudulently induced goes to the arbitrator); (2) unconscionability applied generally, though unconscionability findings that systematically disadvantage arbitration may themselves be preempted; (3) duress, undue influence, lack of capacity; (4) statute of frauds applied generally; (5) illegality of the arbitration agreement itself (under Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), a claim that the contract as a whole is illegal goes to the arbitrator). Texas courts apply these defenses but must do so without arbitration-specific bias.
Federal court enforcement
The FAA does not itself confer federal jurisdiction. Section 4 allows a petition to compel arbitration in a federal district court only if, save for the agreement, that court would have jurisdiction under title 28 over the controversy. Section 9 governs confirmation of arbitration awards; § 10 governs vacatur on enumerated grounds (corruption, fraud, or undue means; evident partiality; specified arbitrator misconduct; and exceeding powers). Manifest disregard of the law is not among them, and Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), cast doubt on it as a separate ground. Texas state courts apply the FAA's substantive rules when the FAA governs.
FAA preemption questions arise when a party resists arbitration on state-law grounds. The recurring issues are whether the agreement evidences a transaction involving commerce, whether a defense applies to contracts generally or targets arbitration, whether a challenge is aimed at the arbitration clause or at the contract as a whole, and, in federal court after Spizzirri, whether a party has requested a stay.