Legal Memorandum: Enforceability of Arbitration Agreements

Issue: Under federal law in the Virgin Islands, may an agreement to arbitrate be unenforceable despite the Federal Arbitration Act’s favorability of arbitration as a means to resolve disputes?

Area of Law: Alternative Dispute Resolution, Business Organizations & Contracts
Keywords: Arbitration agreements; Federal Arbitration Act (FAA); Waiver
Jurisdiction: Federal, Virgin Islands
Cited Cases: 482 U.S. 483; 301 U.S. 389; 222 F. 1006; 301 U.S. 292; 13 N.Y. 378; 388 U.S. 395
Cited Statutes: 9 U.S.C. § 2; Cal. Lab. Code § 229; Section 815 of title 5, the Virgin Islands
Date: 09/01/2011

Section 2 of the Federal Arbitration Act, 9 U.S.C. § 2, provides that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  State law can preclude enforcement of arbitration clauses “if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally.”  Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987).  In Perry, the court found that the FAA pre-empted a California statute, Cal. Lab. Code § 229, that permitted court actions to collect wages “without regard to the existence of any private agreement to arbitrate.”  Id. at 491. 

Similarly, in Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996), the Court held that the FAA preempted a Montana statute that required conspicuous notice on the front page of any contract with an arbitration clause and that rendered any non-compliant contract unenforceable.  The Court concluded that the Montana statute “directly conflicts with § 2 of the FAA because the State’s law conditions the enforceability of arbitration agreements on compliance with a special notice requirement not applicable to contracts generally,” id. at 687, and noted, “Congress precluded States from singling out arbitration provisions for suspect status” id.

Section 815 of title 5, the Virgin Islands statute that requires knowing and voluntary waivers of constitutional rights, is unlike the provisions in Perry and Casarotto in that it is not specific to arbitration agreements.  Its plain language applies […]

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