The Third Circuit recently found that the Federal Arbitration Act preempts a Pennsylvania statute that restricts corporate plaintiffs in state and federal court in Pennsylvania to those companies that are registered to do business in Pennsylvania.  Generational Equity, LLC v. Schomaker, 2015 WL 708481 (3d Cir. Feb. 19, 2015).  In other words, a company that was not a Pennsylvania business could still confirm its arbitration award in a Pennsylvania court.

The Pennsylvania law at issue states that a “nonqualified foreign limited partnership doing business in this Commonwealth may not maintain any action or proceeding in any court of this Commonwealth until it has registered.”  After Generational Equity prevailed in its arbitration, it sought to confirm the arbitration award in the Western District of Pennsylvania.  The other side moved to dismiss on the basis of subject matter jurisdiction, citing the Pennsylvania statute.  The district court confirmed the award and refused to address the jurisdiction argument.

The Third Circuit, however, took up the question of jurisdiction.  It noted that the FAA allows a federal court in “the district within which” the award was made to confirm the award.  It also noted that the AAA rules, which the parties had incorporated, provided that judgment on the award could take place in any federal or state court with jurisdiction.  Therefore, the Court reasoned that both Congress and the parties had conferred jurisdiction on the Pennsylvania federal court (among others).  Therefore, the Pennsylvania statute at issue “stands as an obstacle” to the execution of the FAA and is preempted.

The Court noted that state laws are usually preempted when they stand in the way of enforcing an arbitration agreement, and here the state law was standing in the way of enforcing an arbitration award.  But, the Court found, “that is a distinction without a difference.

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By Liz Kramer

Liz Kramer is a shareholder at Leonard, Street and Deinard, one of the largest law firms in Minnesota, where she litigates complex business and construction disputes. Liz graduated from Yale Law School and is deeply knowledgeable on arbitration law. Website: www.arbitrationnation.com