Virginia Arbitration Fairness Act: Part I of a Two-Part Post
Virginia has enacted a targeted arbitration statute that is likely to generate FAA preemption litigation. Chapter 490, Senate Bill 227 (“SB 227”), signed into law on April 8, 2026, amends Virginia’s arbitration statute and adds a new Article 3 to Chapter 21 of Title 8.01, titled the “Arbitration Fairness Act.” 2026 Va. Acts ch. 490; Va. Code §§ 8.01-581.017-.021 (effective July 1, 2026). The Act “shall apply to all arbitration agreements entered into on or after July 1, 2026.” 2026 Va. Acts ch. 490, § 2.
The Act does not purport to prohibit consumer or employment arbitration. Nor does it seek to invalidate categorically pre-dispute arbitration agreements. It instead regulates “high-volume arbitration service providers,” prescribes arbitrator-selection procedures, imposes detailed disclosure obligations, restricts certain provider relationships, regulates invoices and fee payment, creates tolling rules, and authorizes civil remedies and State Corporation Commission penalties. It also adds a new state-law vacatur ground for an award “rendered by an arbitrator selected in violation of” the Act. Va. Code §§ 8.01-581.010(6), 8.01-581.017-.021. That last provision, combined with the disclosure requirements, is a significant consideration in, among other things, evident partiality disputes, and exceeding-powers challenges based on violation of the Act’s provisions concerning arbitrator selection.
From a structural perspective, the Act is framed as a fairness measure directed principally at arbitration providers and arbitration procedure. But several provisions do more than regulate provider conduct. They alter the enforceability consequences of arbitration agreements; impose strict disclosure requirements on arbitrators, insert statutory terms into covered agreements, authorize withdrawal from arbitration in certain circumstances, mandate sanctions, and require vacatur of awards in cases where the Act has been violated. Those provisions will almost certainly invite arguments that the Act discriminates against arbitration or imposes arbitration-specific obstacles inconsistent with the purposes and objectives of the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16.
What the Virginia Arbitration Fairness Act Governs
The coverage scope of the Virginia Arbitration Fairness Act turns on several defined terms. An “arbitration service provider” is “any person or entity that administers, facilitates, or provides arbitration services in the Commonwealth.” Va. Code § 8.01-581.017. A “high-volume arbitration service provider” is “any arbitration service provider that conducts more than 100 arbitrations per calendar year” that “arise from a pre-dispute arbitration agreement involving a Virginia-connected transaction.” Id. The threshold is not 100 arbitrations of any kind. It is 100 covered arbitrations tied to Virginia-connected transactions.
The Act reaches pre-dispute arbitration agreements in two settings. A covered “pre-dispute arbitration agreement” is an agreement to arbitrate a dispute “between a consumer and a business” or “between an individual employed in the Commonwealth and that individual’s employer” if the dispute “had not yet arisen at the time of making such agreement.” Id. A “consumer” is an individual who “seeks, uses, or acquires, by purchase or lease,” goods or services “for personal, family, or household purposes.” Id. A “drafting party” is “the company or business that included a pre-dispute arbitration provision in a contract with a consumer or employee,” and the definition includes “any third party relying upon or otherwise subject to the arbitration provision other than the employee or consumer.” Id.
“Virginia-connected transaction” is broadly defined. It means “any transaction, agreement, or dispute” that “arises out of, relates to, or is otherwise connected with activities, relationships, or events occurring within the Commonwealth,” including “any arbitration ordered by a state or federal court located in the Commonwealth.” Id. As a threshold matter, a court deciding whether the Act applies will have to determine whether the relevant contract, employment relationship, consumer transaction, arbitral forum, or judicial order is sufficiently connected with Virginia. Given the breadth of the Act’s scope language, the answer will likely be yes in many cases arising in Virginia state or federal courts, or even in cases pending outside the state that have meaningful contacts with the Commonwealth. Conflict-of-law disputes may also arise where the facts and applicable choice-of-law rules suggest that another state’s law might govern issues addressed by the Act.
Arbitrator Selection and Disclosure
Section 8.01-581.018 contains the Virginia Arbitration Fairness Act’s core arbitrator-selection provisions. In a covered arbitration with a high-volume provider, the provider “shall not require any party to accept or use any particular arbitrator” in an arbitration involving a Virginia-connected transaction. Va. Code § 8.01-581.018(A). The provider must “establish and maintain procedures” that give the parties a “meaningful opportunity to agree upon an arbitrator.” Va. Code § 8.01-581.018(B). If the parties cannot agree, the provider must use an “impartial system for arbitrator selection” ensuring that “each party has an equal voice,” “neither party may unilaterally impose an arbitrator upon the other party,” and “the selection process is transparent and fair to all parties.” Id.
The Act identifies four acceptable selection systems. They include a “striking method” under which the parties “alternatively eliminate arbitrators from a list until one remains”; a “ranking method” under “which the parties rank arbitrators and the highest mutually ranked arbitrator is selected”; and a “random selection method” from a pool “previously approved by both parties.” Va. Code § 8.01-581.018(C)(1)-(3). The fourth category is “any other method” ensuring that “neither party can compel the other to accept an arbitrator without meaningful input.” Va. Code § 8.01-581.018(C)(4). That residual category appears to give arbitration providers some leeway to design compliant procedures. But “meaningful input” is an open-ended term that appears to be susceptible to differing, reasonable interpretations. It will thus likely become a litigation point when provider rules already contain appointment procedures, especially default appointment rules that apply when the parties cannot agree.
The Act also requires proposed neutral arbitrators to disclose “all matters” that may cause a person “aware of the facts” to have “reasonable uncertainty” about whether the proposed neutral “would be able to be impartial.” Va. Code § 8.01-581.018(D). Required disclosures include “any ground for disqualification of a judge for a violation of the Canons of Judicial Conduct”; whether the proposed neutral has, or recently discussed, a “current arrangement concerning prospective employment or other compensated service as a dispute resolution neutral” with a party; and the names of the parties to “all prior or pending arbitrations during the preceding five years” in which the proposed neutral served or is serving as a party arbitrator for a party or for a party’s lawyer. Va. Code § 8.01-581.018(D)(1)-(3).
While we’ll discuss in greater detail the potentially profound implications of the disclosure provisions, an initial observation is that they are unusually detailed. For covered prior or pending matters, the proposed neutral must disclose “the results of each case arbitrated to conclusion,” including “the date of the arbitration award,” “the identification of the prevailing party,” “the names of the parties’ attorneys,” “the text of any written award,” and “the amount of monetary damages awarded, if any.” Va. Code § 8.01-581.018(D)(3). For individual nonparties, confidentiality may be preserved by identifying the person as “claimant” or “respondent.” Id.
Section 8.01-581.018(E) adds a further restriction. A high-volume provider may not administer a covered arbitration if “any party or law firm representing a party has, or within the preceding five years has had, any type of financial interest in the private arbitration company,” including “ownership, employment, or appointment and payment as an arbitrator or other neutral.” Va. Code § 8.01-581.018(E). This is one of the Act’s most consequential provisions. It appears, for example, to disqualify a provider where members or employees of the party’s law firm have acted as paid neutrals for the provider within five years.
As we’ll discuss further in Part II, because violation of the Act’s provisions is a ground for vacating an award, the Act effectively may be construed to impose less demanding evident partiality standard on challenging parties than the FAA imposes. For example, failure to disclose circumstances that would indicate a violation of judicial impartiality standards would appear to authorize vacatur. That would effectively force neutral arbitrators to comply with impartiality standards that apply to Virginia’s judges, something that would contradict a large body of law construing the FAA. (See, e.g., here. here, and here.)
Fee Payment, Tolling, High-Volume-Arbitration-Provider Reporting, and Remedies
Section 8.01-581.020 addresses fee payment and delay. If a covered arbitration requires, “either expressly or through application of state or federal law or the rules of the arbitration provider, that the drafting party pay certain fees and costs before the arbitration can proceed,” then failure to pay “within 30 days after the due date” has three statutory consequences. Va. Code § 8.01-581.020(A): “The drafting party shall be in . . . material breach of the arbitration agreement, . . . in default of the arbitration,” and “deemed to have waived the right to compel such arbitration. . . . ” Id.
The Act also regulates provider invoicing. After a consumer meets the filing requirements necessary to initiate an arbitration with a high-volume provider, the provider must “immediately provide an invoice” to all parties for “any fees and costs required before the arbitration can proceed. . . .” Va. Code § 8.01-581.020(B). The invoice must “be provided in its entirety,” “state the full amount owed and the date that payment is due,” “include estimated future charges through the completion of the arbitration[,] and be sent to all parties by the same method of delivery on the same day.” Id. If the agreement does not expressly state the number of days for payment, the provider must “issue all invoices to the parties as due upon receipt.” Id.
The Act says that “[i]f the drafting party materially breaches and is in default under subsection A, the employee or consumer may. . . either[:]
1. Withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction; or
2. Compel arbitration in which the drafting party shall pay reasonable attorney fees and costs related to the arbitration.”
Va. Code § 8.01-581.020(C)(1)-(2).
The Court is instructed to “impose sanctions on the drafting party[]” if the consumer “proceeds in court.” Va. Code § 8.01-581.020(C). The sanctions provision refers to the “consumer,” rather than to the “employee or consumer,” thereby raising a potential interpretive question for a future employment action. See id.
The invoicing provisions appear designed to force the drafting party to proceed promptly to arbitration by paying required fees or face statutory waiver, court access, attorneys’ fees, and, at least in consumer actions, sanctions.
The Virginia Arbitration Fairness Act also imposes annual reporting requirements on “high-volume arbitration service providers. . . .” Required annual reports to the Virginia State Corporation Commission must include the “following information:”
- The total number of arbitrations involving Virginia-connected transactions conducted in the preceding calendar year;
- A description of the arbitrator selection procedures utilized; and
- If collected, statistical data regarding arbitrator selection outcomes and the satisfaction rates of the parties involved.
Va. Code § 8.01-581.019.
The Act’s tolling provisions are also significant. They provide that “[a]ny statute of limitations as to a claim regarding or relating to a Virginia-connected transaction” is tolled when a party sends an arbitration service provider a “written demand to arbitrate,” and remains tolled until “90 days after the termination or completion of the arbitration.” Va. Code § 8.01-581.020(D).
Additional tolling rules protect claims when the non-drafting party withdraws from arbitration after default and when a party first commences a civil action but is later required to arbitrate. Id. Those provisions appear designed to prevent limitations problems created by procedural detours between court and arbitration. See id.
Finally, Section 8.01-581.021 authorizes injunctive relief and civil remedies. A party subjected to a noncompliant arbitrator-selection procedure “may seek injunctive relief or other appropriate civil remedy in the circuit court of the city or county in which the arbitration shall be held or in the circuit court for the City of Richmond[, Virginia].” If, after a hearing an award is made, “a party alleging that such award was determined by an arbitrator selected in violation of the provisions of this article may make an application with the court to vacate the award, and the court shall proceed in accordance with § 8.01-581.010.” Va. Code § 8.01-581.021(A).
If the State Corporation Commission determines that “a high-volume arbitration service provider” has violated the Act, it may impose a civil penalty not exceeding $10,000 per violation. Va. Code § 8.01-581.021(B)
The Act provides in § 8.01-581.021(C) that its requirements “shall be incorporated as material terms of any pre-dispute arbitration agreement transacted pursuant to Virginia contract law.” Va. Code § 8.01-581.021(C).
A § 8.01-581.021(D) savings and severability clause provides that nothing in the Act “shall be construed to preempt federal law governing arbitration[;]” the Act “shall be construed to be consistent with such law to the maximum extent permitted[;]” and “[i]f any provision of this section is held invalid or unenforceable, the remaining provisions shall remain in full force and effect.” Va. Code § 8.01-581.021(D).
The Basic FAA Preemption Framework
The FAA’s central command is Section 2, which makes written arbitration agreements in contracts involving commerce “valid, irrevocable, and enforceable” except on grounds that exist “at law or in equity for the revocation of any contract. . . . ” 9 U.S.C. § 2. U.S. Supreme Court equal-treatment cases say that states may apply generally applicable contract defenses, but may not impose rules that apply only to arbitration or that derive their meaning from an arbitration agreement being in issue. See, e.g., AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339-44 (2011); Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996); Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 581 U.S. 246, 251-52 (2017); Viking River Cruises, Inc. v. Moriana, 596 U.S. 639, 650-51 (2022).
That does not mean every state arbitration procedure is preempted. The FAA does not federalize all aspects of arbitration law. State contract law, state procedural law, and provider rules may not be preempted, and parties may choose state arbitration procedures in appropriate circumstances. See Volt Info. Sciences, Inc. v. Board. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 476-79 (1989). But the label “procedure” is not dispositive. A state rule may be preempted if it conditions enforcement of an arbitration agreement on arbitration-specific requirements, interferes with the parties’ chosen arbitral forum or process, or makes arbitration slower, more costly, or less available in a way that conflicts with the FAA’s purposes and objectives. See Preston v. Ferrer, 552 U.S. 346, 356-59 (2008); AT&T Mobility, 563 U.S. at 343-44, 346-52; Kindred Nursing Ctrs., 581 U.S. at 251-52.
That is why the Virginia Act will likely be tested provision by provision and as applied. Certain provisions appear to resemble neutral regulation of providers, while others might directly alter contractual enforcement, waiver, forum availability, impartiality standards, arbitrator selection, or the rules and standards concerning award confirmation and vacatur. The Act’s savings clause may help courts avoid unnecessary conflict, but it cannot preserve a provision that conflicts with the text of the FAA or its purposes and objectives.
A future post will address in more detail the Act’s likely FAA preemption pressure points and other implications. The provisions that are most controversial, and thus most likely to generate litigation, include the disclosure provisions, the rule that violations of the Act may result in award vacatur, the mandatory fee-default waiver, the sanctions remedy, the incorporation of the Act as “material terms” of covered agreements, and any application of the arbitrator-selection rules that prevents use of the arbitral forum or procedures chosen by the parties. That is a substantial portion of the Act, which is why Part II will focus on whether those provisions can be applied consistently with the FAA.
Contacting the Author
If you have any questions about this article, arbitration, arbitration law, or arbitration-related litigation, then please contact Philip J. Loree Jr. at (516) 941-6094 or PJL1@LoreeLawFirm.com.
Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has more than 35 years of experience representing a wide variety of domestic and international corporate, other entity, and individual clients in trial-court and appellate matters arising under the Federal Arbitration Act—including matters arising under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. He also has significant experience arbitrating and litigating insurance- and reinsurance-related and other commercial disputes, and in advising clients and co-counsel involved in arbitration, trial court and appellate litigation concerning arbitration, and other dispute resolution matters.
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Tags: arbitration administrators, arbitration fees, Arbitration Service Providers, Arbitration-Providers, arbitrator disclosure, arbitrator selection, Chapter 490, Consumer Arbitration, Employment Arbitration, Evident Partiality, FAA preemption, high-volume arbitration, Mass Arbitration, SB 227, State Corporation Commission, Vacatur, Virginia, Virginia arbitration, Virginia Arbitration Fairness Act, Waiver of Arbitration
