The Federal Arbitration Act (“FAA”), which has been the law in the United States since 1925, preempts any state law that disfavors the ability of two parties to contractually bind themselves to arbitrate a dispute. Since 2013, Nevada law has required that any contract containing an arbitration provision must include a “specific authorization for the provision which indicates that the person has affirmatively agreed to the provision”. Not surprisingly, the Nevada Supreme Court recently held that the Nevada law is preempted by the FAA. (For an overview of the FAA, see this post)
MMAWC (then doing business as the World Series of Fighting) and its affiliates (collectively “MMAWC”), together with the Zion Wood Obi Wan Trust and its affiliates (collectively “Zion Wood”), were involved in litigation that resolved by negotiated settlement agreement. That settlement agreement incorporated and restated portions of two other agreements, including a requirement that any dispute between the parties be resolved by litigation. Zion Wood alleged that MMAWC breached the settlement agreement and sued. MMAWC, LLC v. Zion Wood Obiu Wan Trust, 135 Nev. Adv. Op. 38, __ P.3d __ (Sep. 5, 2019).
MMAWC filed a motion to dismiss the suit and to compel arbitration pursuant to the incorporated arbitration clause. The Honorable Nancy L. Allf denied the motion on the basis that the arbitration clause failed to include the “specific authorization” required by NRS 597.995 and was therefore unenforceable. MMAWC appealed.
In coming to its decision, the Nevada Supreme Court relied heavily on Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 683, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996), which explained “that under the FAA. courts may not ‘invalidate arbitration agreements under state laws applicable only to arbitration provisions,’ as Congress has ‘precluded [s]tates from singling out arbitration provisions for suspect status’ and requires arbitration provisions to be placed on ‘the same footing as other contracts.’” The Court concluded that NRS 597.995 similarly imposes a special requirement on arbitration clauses that is not applicable to other contracts, “it singles out arbitration provisions as suspect and violates the FAA.” The Court therefore held the FAA preempts NRS 597.995.
For some history on this statute, see Is Your Arbitration Agreement Enforceable in Nevada? and Is Your Arbitration Agreement Void, or Enforceable in Nevada?
