By Imre S. Szalai, Loyola University New Orleans College of Law
This comment on New Prime v. Oliveira, No. 17-340 (Jan. 15, 2019), examines the significance of the opinion, including some issues that are left open by the decision. As explained below, despite the careful, textual analysis in New Prime, one can still see deep fault lines beneath the surface of the opinion arising from the Supreme Court’s prior flawed decisions in this field.
Most directly, the decision is a victory for truck drivers. In this industry there are reports of truck drivers, in effect, being “modern-day indentured servants,” continuously suffering many abuses and indignities, including having to reimburse trucking companies so heavily that the truck drivers sometimes work long hours for free or with negative earnings. See Rigged, an investigative series from USA Today about abuses in the trucking industry (2017). After this decision and subject to a caveat below involving state law, truck drivers involved in interstate commerce will not be bound to arbitrate pursuant to the Federal Arbitration Act (FAA) and should be able to access broader procedural protections available in court.
This case is also significant because it represents the first time in several decades where the Supreme Court has cut back on its expansive views of arbitration. In this case, the Court rejected arbitration for a class of workers, and the Court also rejected application of the delegation doctrine, whereby arbitrators resolve threshold arbitrability disputes. Over the last several decades, the Court has aggressively expanded the FAA in multiple ways that are untethered to the text of the statute. In this New Prime case authored by Justice Gorsuch, I see a very literal, careful, textual, originalist analysis missing from the last several decades of Supreme Court decisions involving the FAA. (In the case of Henry Schein, Inc. v. Archer & White Sales, Inc., No. 17-1272 (Jan. 8, 2018), authored a few days earlier by Justice Kavanaugh in his first opinion, I also see the same type of textual analysis.) These New Prime and Henry Schein decisions with their careful focus on the text of the statute stand in stark contrast to other Supreme Court FAA decisions, like Justice Scalia’s majority opinion in AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), where he adopts an overly-broad and malleable purpose-and-effects preemption test. If the Court had used the same careful, textual, originalist analysis it employed in the New Prime case in its prior arbitration decisions going back to the 1980s, we would have a very different and more limited FAA today. For example, with a careful analysis true to the original intent of the FAA, the Court’s decision in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) (holding that the FAA generally covers employment disputes), would have probably reached the opposite result.
The Court in New Prime also treats sections 1, 2, 3, and 4 of the FAA as “integral parts of a whole” in order to reach its conclusions about the inapplicability of the delegation doctrine in this case. Conceptualizing the FAA as a unitary, integrated, comprehensive statute is a significant shift. One of the biggest mistakes of the Supreme Court (resulting in one of the greatest constitutional errors it ever made) is the 1984 opinion in Southland Corp. v. Keating, 465 U.S. 1 (1984). In Southland, the Court was able to reach its flawed and expansive holding that the FAA applies in both federal courts and state courts by baselessly examining section 2 in isolation, stripped away from sections 3 and 4. Sections 3 and 4 of the FAA contain textual references to the federal courts and make clear that the statute was never intended to apply in state courts. Had the Court back in 1984 appropriately treated the FAA as a unitary whole, perhaps the Court would have not reached its expansive result in Southland. As a result of Southland, we see a breath-taking, sweeping, unconstitutional displacement of state law in the case of Preston v. Ferrer, 552 U.S. 346 (2008), where the Court held that the FAA preempts a state law granting a state agency exclusive jurisdiction to resolve disputes arising under state law. In Preston, I see only strong, legitimate state interests, which should not have fallen victim to a purported federal policy in favor of arbitration manufactured by the Supreme Court over the years.
The New Prime opinion leaves open some significant issues. For example, who counts as a transportation worker falling under the section 1 exemption will likely be an issue of further litigation. Also, does the transportation worker exemption from section 1 apply in state court and preempt state arbitration law? One view, expressed by the Third Circuit in Palcko v. Airborne Express, Inc., 372 F.3d 588 (3d Cir. 2004), is that the transportation worker exemption does not preempt state arbitration laws. In other words, if the FAA’s transportation worker exemption is triggered, an arbitration agreement may still be fully enforceable under state arbitration laws or state contract laws. However, if we borrow a concept recognized in New Prime — namely, that sections 1 and 2 are integral parts of a whole (and if we conveniently ignore sections 3 and 4 for the time being), and if section 2 applies in state court (which it does under the flawed yet still controlling Southland holding, but not under a correct reading of the statute) — then section 1’s exemption should also apply in state courts along with section 2, preempting any state law that purports to validate a transportation worker’s arbitration agreement. Thus, under the surface of the New Prime decision one can still see the old fault lines arising from the deeply-flawed Southland decision. Ultimately, the New Prime decision may force the Court to directly confront the continued validity of Southland and the question of whether the FAA truly applies in state court.
Despite old fault lines appearing beneath the surface of the New Prime decision, I welcome the shift that appears to be occurring in the recent New Prime and Henry Schein decisions, and I hope we will continue to see more careful, thoughtful, textual opinions concerning the FAA.