|

The end is near for the Georgia Arbitration Act and other state laws that include limits on arbitration.

Last fall, in Waffle House v. Pavesi, the Georgia Court of Appeals issued a decision requiring the arbitration of certain personal injury claims. At first glance, the decision seems rather innocuous—a contract interpretation holding that the parties chose to be governed by the Federal Arbitration Act (FAA). Yet, in a concurrence, Judge Christopher McFadden argued that the parties' choice of law was irrelevant because, among other things, the U.S. Supreme Court's binding precedent holds that the FAA pre-empts any state law that might have otherwise applied. And with that, the Georgia Arbitration Act may find itself discarded to the scrap heap of history.

The Pavesi case is the direct result of the U.S. Supreme Court's very active presence in the field of arbitration. Since 2011, the nation's highest court has issued no less than four landmark decisions interpreting the FAA, with one more likely to follow this spring. In ATT Mobility, LLC v. Concepcion, American Express Co. v. Italian Colors Restaurant, and DirecTV, Inc. v. Imburgia, the court held the FAA permitted—and required the enforcement of—provisions that barred the use of class actions in arbitrations. Last fall, it heard arguments on whether bans of class actions are enforceable in labor-related arbitration agreements. Given the express comments of the court disapproving of arbitration as an appropriate forum for class actions, it is difficult to predict a different outcome in these most recent cases.

Additionally, there is Kindred Nursing Centers, Ltd. v. Clark, a 2017 case involving the interaction between the Kentucky state constitution and the FAA. It is in Kindred that the bells begin to toll for the Georgia Arbitration Act. For in Kindred, the Supreme Court expanded its rulings beyond the class action scope, holding that the FAA pre-empts a provision of the Kentucky constitution that made certain arbitration provisions unenforceable under state law. The U.S. Supreme Court overturned the Kentucky Supreme Court's prior ruling in this case, with Justice Elena Kagan writing for a 7-1 majority that the FAA “pre-empts any state rule discriminating on its face against arbitration.” Thus, in Kindred, the Supreme Court made clear that pre-emption applied not only to issues of class actions but to all aspects of agreements to arbitrate. While this holding is arguably not new, it is nonetheless notable given the intrusion by the federal court into matters decided under a state constitution.

In his concurrence in Pavesi, Judge McFadden noted the importance of pre-emption in the arbitration arena. Judge McFadden seemingly recognized that, under the Kindred decision, what law the parties wanted to apply to their agreement to arbitrate was mostly irrelevant. Instead, if they had an unenforceable arbitration provision under state law, federal law nonetheless required the enforcement of it. And therein lies the problem for the Georgia Arbitration Act.

The Georgia Arbitration Act has always been different from the FAA in a few important ways. The act explicitly excludes from its coverage agreements to arbitrate certain claims, including medical malpractice claims, small consumer loans and some contracts for the sale of residential real estate. Under state law, agreements to arbitrate those claims could not be enforced. And to be clear, while the death of the act may not be as sudden as the ruling in Pavesi, these exclusions were real hurdles to force claims into arbitration. I personally wrote many briefs arguing the presence of interstate commerce as a means to put my motion to compel arbitration under the purview of the more liberal FAA instead of the state act.

But Judge McFadden has foreseen the extinction of these exclusions. The U.S. Supreme Court has tilted the playing field so that any state law found to be contrary to the FAA is subject to complete pre-emption. The court's affection for the FAA means that any provision of Georgia law that makes any particular arbitration agreement unenforceable is likely no longer valid. Again, and as stated by the Supreme Court in Kindred, the FAA “pre-empts any state rule discriminating on its face against arbitration—for example, a law prohibiting outright the arbitration of a particular type of claim.”

A note of warning as this develops before Georgia courts: in June 2017, approximately five weeks after the decision in Kindred but before his concurrence in Pavesi, Judge McFadden authored the Court of Appeal's ruling in United Health Services of Georgia v. Alexander. Factually, Alexander is eerily similar to Kindred. Yet, while the U.S. Supreme Court held that federal pre-emption required arbitration under the FAA, Alexander held that under Georgia law the contract to arbitrate was not enforceable. The Alexander decision did not cite or discuss Kindred, and it is certainly possible that the overlap in briefing, arguing and deciding the two cases simply means that the Kindred decision was not brought before the Georgia Court of Appeals for consideration. Nonetheless, the stray decision is an outstanding question that remains to be answered.

It is interesting that questions regarding the enforceability of arbitration agreements are being eliminated at the same time that many (and not just consumers) are questioning the benefits of arbitration. Regardless, the U.S. Supreme Court has made clear that state laws discriminating against any form of arbitration are in fact pre-empted by—and unenforceable under—the FAA. Thus, bankers, builders and doctors (among others) may require arbitration, and they can waive to the Georgia Arbitration Act while it sinks past.

John C. Amabile is a commercial litigator in the Atlanta office of Parker Poe Adams & Bernstein. He has tried dozens of cases to judges, juries and arbitrators, representing clients in a range of industries that include real estate, logistics and technology.