Legal Memorandum: Invalidation of an Arbitration Agreement

Issue: Under U.S. Virgin Islands law, may an agreement to arbitrate be invalidated by the general law of the Territory?

Area of Law: Alternative Dispute Resolution, Business Organizations & Contracts
Keywords: Arbitration agreement; Invalidation
Jurisdiction: Federal, Virgin Islands
Cited Cases: 13 N.Y. 378; 304 U.S. 458; 482 U.S. 483; 500 U.S. 20; 517 U.S. 681; 301 U.S. 389
Cited Statutes: 9 U.S.C. § 2; Cal. Lab. Code § 229
Date: 09/01/2007

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.”  Although a court may not “rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable,” 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 held that the FAA preempted a California statute, Cal. Lab. Code § 229, that authorized 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 Montana statute “directly conflict[ed] 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 [and] Congress precluded States from singling out arbitration provisions for suspect status.”  Id. at 687

The Virgin Islands statute that requires knowing and voluntary waivers of constitutional rights, unlike the provisions at […]

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