Originally from Dispute Resolution Journal

COMMERCIAL-PREEMPTION-FEDERAL ARBITRATION ACT-VIRGINIA MOTOR VEHICLE DEALER LICENSING ACT-SUPREMACY CLAUSE

A Virginia law provision prohibiting non-negotiable arbitration provisions in automobile franchise agreements was held preempted by the Federal Arbitration Act (FAA).

Saturn Distribution Corp. is a wholly-owned subsidiary of Saturn Corp., which itself is a wholly-owned subsidiary of General Motors Corp. Saturn was created in 1985 to design, manufacture and market motor vehicles under the "Saturn" nameplate . It included in its dealer agreement an alternative dispute resolution (ADR) system that required binding arbitration, which is mandatory under the agreement. Under Virginia law, automobile manufacturers and dealers are prohibited from entering into agreements that contain mandatory ADR provisions. In addition, the manufacturer is required to submit its agreement to the Commissioner of the Department of Motor Vehicles for approval prior to offering it to the dealer. When Saturn submitted its agreement to Commissioner Donald E. Williams, he refused to approve it. Williams stated that he would not approve the agreement "unless it contained an opt out provision to the binding arbitration provisions." Saturn filed an action against Williams on the ground that the statutes, as applied by Williams to Saturn's agreement, are preempted by the FAA.