In the case of Southland Corp. et al. v. Keating et al., 1983, the U.S Supreme Court ruled that federal law, specifically the Federal Arbitration Act (FAA), preempts state laws that limit or prohibit arbitration agreements in contracts involving interstate commerce. The dispute arose when franchisees of 7-Eleven stores in California sued Southland Corporation for fraudulent misrepresentation and violation of disclosure requirements under both state and federal franchise investment laws. Despite a clause in their contract requiring all disputes to be settled by arbitration, a California court allowed the lawsuit to proceed based on a state statute which exempted certain claims from mandatory arbitration clauses. The Supreme Court reversed this decision with a majority ruling stating that since Congress intended for FAA to foster uniform national policy favoring arbitration, it must supersede conflicting state regulations even if they aim at protecting consumers or investors against frauds.

In the dissenting opinion for Southland Corp. v. Keating, Justice O'Connor argued that the majority's decision to apply federal arbitration law in state courts was a misinterpretation of Congress' intent when it passed the Federal Arbitration Act (FAA). She contended that Congress intended for FAA to apply only in federal court and not override state laws governing arbitration agreements. The justice believed this interpretation would respect states' rights and their ability to regulate contracts within their jurisdiction as they see fit. Furthermore, she disagreed with the majority's view that applying FAA in state courts promotes uniformity since different interpretations between federal and state courts could still lead to inconsistent results. Lastly, Justice O'Connor expressed concern over potential negative impacts on consumers who might be forced into unfavorable arbitration agreements due to unequal bargaining power.