June 21, 2010

Supreme Court Decides Rent-A-Center, West, Inc. v. Jackson

On June 21, 2010, the Supreme Court decided Rent-A-Center, West, Inc. v. Jackson, No. 09-497, holding that, when a contract governed by the Federal Arbitration Act (FAA) includes an agreement to arbitrate and provides that the arbitrator will determine the enforceability of the agreement, a court may decide the validity only of the specific provision of the agreement that is challenged. All other questions, including the enforceability of the contract as a whole, must be decided by the arbitrator.

Antonio Jackson sued his employer, Rent-A-Center, for employment discrimination. Rent-A-Center moved under the FAA to dismiss or stay the proceedings and compel arbitration, pursuant to a Mutual Agreement to Arbitrate Claims, which Jackson had signed as a condition of his employment and which required arbitration of all disputes arising out of the employment. The agreement specifically provided that the arbitrator, and not any state or federal court, would resolve any dispute relating to the interpretation, validity, or enforceability of the agreement to arbitrate. Jackson argued that the agreement was unconscionable under Nevada law and therefore was unenforceable. The district court rejected Jackson's argument and granted the motion compelling arbitration, but the Ninth Circuit reversed, holding that the threshold question of unconscionability was for the court to decide, despite the agreement's provision assigning that issue to the arbitrator.

The Supreme Court reversed. Section 2 of the FAA requires courts to enforce arbitration agreements according to their terms "save upon such grounds as exist under law or in equity for the revocation of any contract." The Court viewed the current "controversy" between the parties as involving only the validity of what it termed the "delegation provision"—the provision assigning to the arbitrator questions about the enforceability of the agreement, including whether it was unconscionable. Section 2 applies to this provision just as it does to any other provision of any agreement to arbitrate. Under prior Court precedents, section 2 permits a district court to resolve only challenges specifically contesting the validity of arbitration provisions themselves, with challenges to the validity of the entire contract being reserved to the arbitrator for decision. The fact that the agreement to arbitrate here was free-standing, rather than part of a broader contract, makes no difference, because section 2 applies to the specific "written provision" to "settle by arbitration a controversy" that the party seeks to enforce—here, the delegation provision. Section 2 required that the provision be treated as valid and enforceable unless Jackson specifically challenged it, rather than the entire agreement to arbitrate. The district court found that he was challenging the validity of the entire agreement, which was therefore a question for the arbitrator. The Court noted that Jackson did not argue that the delegation provision, as opposed to the entire agreement, was invalid until his brief to the Supreme Court, by which point it was too late to raise new arguments.

Justice Scalia delivered the opinion of the Court, in which Chief Justice Roberts and Justices Kennedy, Thomas, and Alito joined. Justice Stevens filed a dissenting opinion in which Justices Ginsburg, Breyer, and Sotomayor joined.

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