## Facts

- Southland Corporation franchised 7‑Eleven convenience stores to California franchisees under agreements requiring arbitration of any dispute arising out of or relating to the agreement.
- Franchisees sued Southland in California state court for fraud, misrepresentation, breach of contract, breach of fiduciary duty, and violations of the California Franchise Investment Law (CFIL).
- The CFIL contained an antiwaiver provision (CFIL § 31512) construed to invalidate contractual terms requiring waiver of CFIL compliance.
- Southland moved to compel arbitration under the franchise agreements.
- The trial court compelled arbitration of all claims except CFIL claims.
- The California Court of Appeal ordered arbitration of CFIL claims and directed class-certification proceedings.
- The California Supreme Court held CFIL claims were not arbitrable under CFIL § 31512 and remanded for consideration of class certification.

## Issues

1. Whether the Supreme Court had jurisdiction to review a state-court refusal to enforce an arbitration agreement before final judgment in the state proceedings.
2. Whether FAA § 2 preempts a state statute, as construed, that requires a judicial forum for CFIL claims notwithstanding an agreement to arbitrate.

## Decision

- The Court held it had jurisdiction because delaying review would defeat the parties’ contractual entitlement to arbitrate rather than litigate.
- The Court reversed on the merits, holding that the FAA applies in state as well as federal courts and creates substantive federal law governing arbitration clauses in contracts involving commerce.
- The Court held the FAA preempted CFIL § 31512 insofar as it was interpreted to bar arbitration of CFIL claims covered by the parties’ arbitration agreement.
- Justice Stevens concurred in part and dissented in part.
- Justice O’Connor, joined by Justice Rehnquist, dissented, arguing the FAA was intended as a procedural statute for federal courts and should not bind state courts.

## Legal Principles

- FAA § 2 makes arbitration agreements in contracts involving commerce “valid, irrevocable, and enforceable,” except on generally applicable contract defenses.
- The FAA creates substantive federal law that is enforceable in state courts, not merely a federal procedural rule.
- State law is preempted to the extent it singles out arbitration or requires a judicial forum for claims the parties agreed to arbitrate.
- States may regulate contracts, including arbitration clauses, only through generally applicable rules that apply equally to arbitration and nonarbitration agreements.

## Conclusion

The Court held that the FAA governs arbitration clauses in covered contracts in state courts and preempts state statutes, as applied, that invalidate or bar arbitration of particular state-law claims, requiring enforcement of the parties’ agreement to arbitrate CFIL disputes.


Southland Corp. v. Keating, 465 U.S. 1 (1984)