Are the FAA and TAA mutually exclusive?

FAA and TAA are not necessarily incompatible and mutually exclusive, as stated by the Dallas Court of Appeals in a recent opinion (see excerpt below); even when the parties' contractual relationship involves interstate commerce. Nor does the FAA necessarily preempt the Texas Arbitration Act when both apply. Preemption only comes into play when there is a conflict between state and federal act:

The Consulting Agreement does not state whether the Federal Act or the Texas Act applies to this suit. The Federal Act generally governs arbitration provisions in contracts involving interstate commerce. See 9 U.S.C. § 2 (2009); see also In re Morgan Stanley & Co., Inc., No. 07-0665, 2009 WL 1901635, at *1 (Tex. Jul. 3, 2009). “Interstate commerce” includes all contracts “relating to” interstate commerce. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 754 (Tex. 2001) (orig. proceeding).

Appellees argue that the Consulting Agreement does not evidence a transaction involving interstate commerce. We disagree. The Consulting Agreement was executed by a Texas resident (Dr. Jain), a Delaware corporation (Medical Media Holdings), and a Delaware limited partnership (PER Group); notice under the contract was to be given to Dr. Jain in Texas and to PER Group and Medical Media Holdings in Rhode Island; and arbitration was required to take place in Chicago, Illinois. Additionally, the record establishes that PER Group and Dr. Jain provided services pursuant to the Consulting Agreement to “clients throughout the United States” and contemplated “holding meetings on both a nationwide and worldwide scope.” We conclude that the Consulting Agreement involves interstate commerce. See In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 (Tex. 1999) (orig. proceeding) (per curiam).

The Federal Act, however, does not preempt the Texas Act simply because the contract involves interstate commerce. In re D. Wilson Constr. Co., 196 S.W.3d 774, 778-79 (Tex. 2006) (orig. proceeding). The Consulting Agreement states that it “is governed by, and will be enforced under and construed in accordance with, the internal laws of the State of Texas . . . .” The Texas Supreme Court has interpreted similar language as invoking both federal and state law. Id. And when both acts apply, the Federal Act will preempt the Texas Act only if the Texas Act is inconsistent with the Federal Act or affects the enforceability of the contract. Id. Because the parties do not assert that the Texas Act or state law would subvert the enforcement of the Consulting Agreement, we conclude that we have jurisdiction under both laws. And, because the Federal Act does not preempt the Texas Act, we will apply the Texas Act to our analysis.

SOURCE: Opinion of the Dallas Court of Appeals in Case No. 05-08-01582-CV (8/19/09)