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Supreme Court limits judicial authority over arbitration agreements

By Sarah Miley

[JURIST] The US Supreme Court [official website; JURIST news archive] on Monday ruled [opinion, PDF] 5-4 in Rent-A-Center v. Jackson [Cornell LII backgrounder; JURIST report] that, under the Federal Arbitration Act (FAA) [materials], the arbitrator has the authority to decide whether an arbitration agreement is valid, unless the plaintiff specifically challenges the agreement's delegation provision. Under the Restatement (Second) of Contracts [text], contractual clauses can be voided by the court if they are "unconscionable." The US Court of Appeals for the Ninth Circuit held [opinion, PDF] that that the district court was required to determine whether the arbitration agreement was unconscionable, even when the parties to the contract have clearly and unmistakably assigned this "gateway" issue to the arbitrator for decision. Justice Samuel Alito, writing the opinion for the court, reversed the circuit court decision and held that since the plaintiff, Antonio Jackson, challenged only the validity of the arbitration agreement as a whole and not the delegation provision specifically, the agreement is valid under FAA:

Jackson's appeal to the Ninth Circuit confirms that he did not contest the validity of the delegation provision in particular. His brief noted the existence of the delegation provision, but his unconscionability arguments made no mention of it. He also repeated the arguments he had made before the District Court that the "entire agreement" favors Rent-A-Center and that the limitations on discovery further his "contention that the arbitration agreement as a whole is substantively unconscionable." Finally, he repeated the argument made in his District Court filings, that under state law the unconscionable clauses could not be severed from the arbitration agreement. The point oft his argument, of course, is that the Agreement as a whole is unconscionable under state law.

Alito noted that Jackson contended in his brief to the Supreme Court that the delegation provision itself is substantively unconscionable, but he determined that the challenge was too late and would not be considered. Justice John Paul Stevens dissented, arguing that Jackson's claim that the arbitration agreement is unconscionable undermines any suggestion that he "clearly and unmistakably" assented to submit questions of "arbitrability" to the arbitrator, and the challenge should therefore not require specific reference to the delegation provision. Stevens was joined by Justices Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayor.

The case stems from a discrimination suit filed by Jackson, a former Rent-A-Center (RAC) [corporate website] employee. Jackson claims he was was repeatedly passed over for promotion until he complained to his store manager and human resources, and was subsequently promoted. Two months after obtaining the promotion, RAC fired Jackson. Jackson filed a complaint alleging racial discrimination and retaliation. His employment contract with RAC contained an arbitration clause requiring arbitration of all disputes and specifically providing that only an arbitrator had the authority to resolve questions concerning the validity of the arbitration agreement.

Full post as published by JURIST - The Paper Chase on June 21, 2010 (boomark / email).