In an unprecedented ruling, a federal district court in Arkansas has found that the Federal Arbitration Act (FAA) preempts an Arkansas common law rule requiring arbitration agreements to evince a mutual obligation to arbitrate. The Court reasoned that the FAA preempts the mutuality requirement because it applies only to arbitration agreements and not to other contractual obligations.

In Enderlin v. XM Satellite Radio Holdings, Inc., No. 4:06-CV-0032-GTE, 2008 WL 830262 (E.D. Ark. Mar. 25, 2008), Enderlin periodically subscribed to XM Satellite Radio (XM Radio). He later filed a class action lawsuit against XM Radio for alleged violations of the Arkansas Deceptive Trade Practices Act. In response to the lawsuit, XM Radio filed a motion to compel arbitration in accordance with the customer service agreement.

In ruling on the motion to compel, the Court first examined whether the parties ever agreed to arbitrate. The Court found that Enderlin agreed to arbitrate during the online registration process when he checked a box indicating his assent to the terms and conditions of service, which included the agreement to arbitrate.

In opposing the motion, Enderlin argued that the arbitration agreement was unenforceable because it lacked mutuality insofar as the agreement expressly allowed XM Radio to sue for any unpaid balance in small claims courts. Arkansas law requires a mutual obligation to arbitrate, but the Court found that the FAA preempts this mutuality requirement because it places arbitration agreements "on unequal footing with other contract terms that do not . . . have to be mutual."

Enderlin also argued that the arbitration agreement was unconscionable and therefore unenforceable. The Court rejected Enderlin's unconscionability challenge largely because the arbitration agreement pertained to "a non-essential luxury entertainment item, rather than a person's employment or a necessity."

Despite the Court's holding in this case, parties seeking the efficiency of arbitration should use the arbitral forum for the resolution of all disputes because a lack of mutuality will raise enforceability concerns in most jurisdictions.

Moreover, even if a hard-and-fast mutuality requirement is subject to FAA preemption, a lack of mutuality is still problematic because it paves the way for an unconscionability challenge. More specifically, where the drafting party reserves the right to sue but requires the non-drafting party to arbitrate, a court is likely to conclude that the arbitration agreement is unfairly one-sided. See, e.g., Wisconsin Auto Title Loans, Inc. v. Jones, 714 N.W.2d 155, 173 (Wis. 2006) ("The doctrine of substantive unconscionability limits the extent to which a stronger party to a contract may impose arbitration on the weaker party without accepting the arbitration forum for itself.").