Enforceability of Arbitration Clauses After Southland v. Keating

In Erie v. Tompkins, 304 U.S. 65 (1938), the judgeship had command that in diversity of citizenship faux pass lodged in federal rule courts, the court had to decide claims arising under area righteousness on the basis of the applicable substantive state law. Despite the Erie doctrine, the move in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), ruled that a claim brought in federal district court for joint law fraud under state law had to be referred by the court to arbitration under a PDAA. In a nonher case in federal court, Bernhardt v. Polygraphic Co. of America, Inc., 350 U.S. 198 (1956), also a diversity case which involved a contract which did not involve interstate or foreign commerce, the Court ruled that "state law on arbitration [which in that case was Vermont law which made pre-award arbitration agreements revocable] was to be applied in federal court in diversity cases. Arbitration was therefrom 'substantive' for Erie purposes. This left open before the S tabuhland decision the question as to what law would apply in determining the arbitrability of interstate moneymaking(prenominal) disputes in state court proceedings.

A dispute unquestionable between Southland Corp, a franchisor of 7-Eleven stores in California and a play of its franchisees under a franchise agreement which contained a blanket PDAA. A number of actions based on California law (fraud, etc.) were filed by franchisees in the California courts, all of which were consolidated.

(2) The concept of involving interstate commerce was expanded to regard as 'affecting' it, even if the parties never contemplated any connection to interstate commerce. Allied-Bruce Terminix Cos., Inc. v. Dobson, cxv S.Ct. 834 (1995).

The Southland holding has been expanded by the Supreme Court and other federal courts in a number of areas:

(1) In Perry v. Thomas, 482 U.S. 483 (1973), a case decided before Southland, a California aim Code provision ousting arbitrators from having the power to decide cases involving the stipulation of employers to pay terminated employees back wages within 24 hours was struck down as in conflict with FAA. A Virginia law requiring a provision allowing auto dealers to opt out from binding PDAAs in auto franchise agreements was invalidated on similar grounds in Saturn Distribution Corp. v. Williams, 905 F.2d 719 (4th Cir. 1992).

Southland petitioned in state court for an order compelling them to be arbitrated in accord with the PDAA. The trial court refused to compel arbitration because the California immunity Investment Law ("FIL") contained a provision preventing waiver of submission with its provisions. The Court of Appeal reverse and in turn was reversed by the California Supreme Court.

Allied-Bruce Terminix Cos., Inc. v. Dobson, 115 S.Ct. 834 (1995).

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