Rent-A-Center v. Jackson

From ScotusWiki

Argued April 26, 2010. Decided June 21, 2010.

Docket: 09-497

Issue: Whether the district court is in all cases required to determine claims that an arbitration agreement subject to the Federal Arbitration Act (“FAA”) is unconscionable, even when the parties to the contract have clearly and unmistakably assigned this “gateway” issue to the arbitrator for decision.

1 Briefs and Documents
2 Opinion Recap
3 Oral Argument Recap
4 Pre-Argument Articles
- 4.1 Argument Preview
5 Briefs and Further Resources
- 5.1 Media Links
- 5.2 From the Blogosphere

[edit] Briefs and Documents

[edit] Decision

REVERSED in a 5-4 decision with an opinion written by Justice Scalia. Justice Stevens dissented, joined by Justices Ginsburg, Breyer, and Sotomayor.

[edit] Oral Argument

Transcript (April 26, 2010)

[edit] Merits Briefs

[edit] Amicus Briefs

[edit] Certiorari-Stage Briefs

Opinion below (9^th Circuit)
Petition for certiorari
Brief in opposition
Amicus brief of the Pacific Legal Foundation

[edit] Opinion Recap

Kevin Russell originally wrote the following for SCOTUSblog:

In Rent-A-Center, West, Inc. v. Jackson (No. 09-497), the Court established a new rule for determining who decides challenges to the validity of an agreement to arbitrate the validity of an arbitration agreement. The answer, the Court held, depends on what kind of challenge to the arbitration agreement is made. If the party resisting arbitration does so on grounds that go to the validity of the entire agreement, then the validity question goes to the arbitrator. But if the challenge is specific to the arbitration provision at issue in the case, then a court must decide that challenge.

The question arose in this case because Rent-A-Center requires its employees to sign an arbitration agreement as a condition of their employment. The agreement has two parts. The first requires that all disputes arising out of the employment relationship be settled by arbitration. The second part requires that any challenge to the validity of the arbitration agreement also be settled by an arbitrator. In this case, the employee brought an employment discrimination claim against his employer, who insisted that the claim be resolved through arbitration, pointing to the first part. The employee then challenged the validity of the arbitration agreement, asserting it was unconscionable. Pointing to the second part of the arbitration agreement, the employer argued that the validity question also had to be submitted to arbitration. The employee countered that because his unconscionability challenge went to both parts of the arbitration agreement, a court had to decide whether the agreement to arbitrate validity was, itself, valid before enforcing it.

By a vote of five to four, in a decision by Justice Scalia that relied principally on a 1967 decision called Prima Paint Corp. v. Flood & Concklin Mfg., Co., the Court held that if the employee had raised a challenge that was specific to the second part alone – that is, to the agreement to arbitrate validity – then a court would have had to decide the challenge. But because the employee’s grounds for unconscionability applied equally to the initial agreement to arbitrate all employment disputes, the general unconscionability question should be decided by an arbitrator.

The dissent, written by Justice Stevens, characterized today’s decision as an unwarranted extension of Prima Paint, which was, in his view, likely wrong to begin with.

[edit] Oral Argument Recap

Caroline Jackson originally wrote the following for SCOTUSblog:

On April 26, the Court heard argument in Rent-A-Center v. Jackson. Arguing for petitioner Rent-A-Center, Robert Friedman contended that the Ninth Circuit contradicted both Supreme Court precedent and the plain language of the arbitration agreement when it determined – notwithstanding “clear and unmistakable language” to the contrary – that the courts, rather than the arbitrator, must determine the enforceability of an arbitration agreement.

Justice Ginsburg began by asking Friedman how he would distinguish between fraud and duress (which may not be delegated to the arbitrator) and unconscionability (which, according to Rent-A-Center, may be). Friedman described the former grounds as going to the “making of the agreement,” while he characterized the latter ground as a “post-formation attack.” However, Justice Kennedy seemed unpersuaded by the idea that procedural unconscionability could be considered after the formation of a contract, while Justice Sotomayor emphasized the difficulties that would ensue from such a rule. Justice Scalia, however, noted that respondent Antonio Jackson had challenged the terms of the arbitration, rather than the original agreement to arbitrate.

The argument then turned to aspects of unconscionability that a court may decide, such as provisions that effectively block access to arbitration. Friedman contended that the Court’s decision in First Options of Chicago, Inc. v. Kaplan (1995) allowed a “clear and unmistakable” delegation of matters to an arbitrator, provided that the parties had mutually agreed to arbitration. And when Justice Breyer questioned the idea that a challenge to an arbitration clause as a whole does not implicate the formation of an agreement to arbitrate in the same way that fraud and duress do, Friedman reiterated that there is “a very bright line” separating issues of access or mutual assent from issues of fairness in the agreement itself.

Justice Ginsburg then explored the impact of the Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc. (2007), which necessarily narrowed the scope of district court review despite what the contract may have initially provided. Although the Court did not decide Hall Street until after the trial in this case, both Justice Scalia and Friedman emphasized that Jackson had never raised the issue of whether as a result of Hall Street, the more exacting judicial review contemplated by the parties was no longer available and thus the court should provide pre-arbitration safeguards. Friedman concluded by emphasizing that arbitrators may decide the scope and validity of an agreement to arbitrate, while courts are limited to issues of access and assent. Because – as both the district court and Ninth Circuit held – the contract contained a “clear and unmistakable” delegation to an arbitrator of the authority to review unconscionability, Friedman urged the Court to “give effect to that language.”

Arguing for respondent Antonio Jackson, Ian Silverberg immediately faced questions regarding the precise nature of his client’s unconscionability claim. Chief Justice Roberts appeared unreceptive to Silverberg’s argument that all claims regarding the unconscionability of an arbitration agreement must go to the courts; in his view, courts should review challenges to the agreement as a whole, but challenges to specific provisions of the agreement should be reviewed by an arbitrator. Silverberg then attempted to direct the Court’s attention to what he characterized as Rent-A-Center’s “big concession” – that courts must review allegations that arbitration is an “illusory remedy” but not other challenges. Justice Ginsburg, however, quickly dismissed the argument. Justice Scalia next turned to the arbitrator’s obligation to be faithful to state law, thereby rejecting Silverberg’s arguments that an arbitrator may flout state and evade judicial review.

Justice Breyer appeared to take issue with the idea that courts could be required to review specific provisions in an arbitration agreement even when there is no challenge to the bare agreement to arbitrate. Attempting to push back on the issue, Silverberg countered that any unconscionable provision would render the entire agreement invalid, necessitating judicial review of both partial and holistic challenges. In response to a hypothetical from Justice Kennedy in which both lawyers agree to arbitrate questions of unconscionability, Silverberg conceded that arbitration would be acceptable in such a case, but he stressed that “the doors to the court must always remain open” when the employee raises grounds for revocation of a contract: fraud, duress, and unconscionability. Justice Ginsburg pointed out, however, that Section 2 of the Federal Arbitration Act (FAA) does not indicate who should decide questions of revocation.

Justice Kennedy then expressed concern regarding Silverberg’s contention that challenges to the contract as a whole should go to the arbitrator, whereas attacks to the arbitration clause should go only to the court. Silverberg responded by emphasizing that Jackson’s challenges to specific provisions of the arbitration agreement sufficed to render the entire agreement unconscionable under Nevada law.

The Chief Justice promptly resisted Silverberg’s attempt to further extend the argument to claim that even if the provisions of the arbitration contract were severable, the employee would reserve the right to have a court rule on each provision. And Justice Scalia rejected the argument that unconscionability belonged in the same category as fraud and duress, dismissing the Court’s holding in Doctor’s Associates, Inc. v. Casarotto (1996) that each of these three issues can be raised in Section 2 review as dictum.

Silverberg next clarified that the option of securing judicial review should remain open for all unconscionability challenges, regardless of whether the parties expressly agreed to arbitrate such disputes. In response to questioning from Justice Stevens, Silverberg conceded that, in cases in which a single provision of the contract could be stricken for unconscionability while preserving the rest of the contract, an arbitrator could decide this question. When Justice Ginsburg asked if his rule applied only to contracts of adhesion, he countered that it would apply to all arbitration agreements.

The argument then turned to the “bigger picture”: how to balance the unequal bargaining power of weaker parties against the consequences of allowing courts to review all allegations of unconscionability. Justice Scalia warned that this rule would render arbitration agreements irrelevant: “Kiss good-bye to arbitration.” Silverberg parried this warning by noting that Mr. Jackson had the support of “some of the most prestigious arbitrators in this country,” who had called on the courts to protect parties lacking bargaining power from arbitration agreements that – in this case – would “send[] Mr. Jackson, who lives in Reno, to Minnesota to arbitrate his claim.” Justice Ginsburg gently reminded him, however, that the grounds of unconscionability did not address access to arbitration, but only the process itself.

In rebuttal, Mr. Friedman characterized the other side’s argument as “distrust of arbitrators.” He reminded the Court that, under Section 10 of the FAA, district court review of the arbitrator’s decisions would remain available, but all questions regarding the unconscionability of various provisions would remain squarely with the arbitrator. Justices Breyer and Sotomayor sought to clarify the line between issues that “go to the making” and unconscionability issues that can be delegated to the arbitrator. Friedman outlined “two areas that we agree are for the court”: issues regarding the making of an agreement, and challenges of access to arbitration. For all other questions, when parties expressly delegate them to the arbitrator, “the arbitrator can absolutely decide these issues of unconscionability as well as a judge can.”

[edit] Pre-Argument Articles

[edit] Argument Preview

Aaron Tang originally wrote the following for SCOTUSblog:

In recent years, arbitration clauses that require parties to submit disputes arising out of a contract to an arbitrator for resolution, rather than to a court of law, have become increasingly prevalent: a 2007 study found that more than three-quarters of contracts between corporations and consumers contained mandatory arbitration provisions, and employment contracts commonly contain agreements to arbitrate as well. In many scenarios, one party to a contract lacks substantial bargaining power to negotiate the arbitration provision. As a result, if disputes later arise, the parties often disagree about whether the arbitration clause should be enforceable or whether the disputes should instead be resolved in court.

On April 26, in Rent-A-Center v. Jackson (No. 09-497), the Court will hear oral argument on the question whether judges retain discretion to invalidate an arbitration agreement because it is unconscionable, even when the parties to the contract have clearly delegated this gateway determination to the exclusive discretion of an arbitrator.

In 2004, petitioner Rent-A-Center and respondent Antonio Jackson entered into an employment contract. The contract included an arbitration provision which specifically delegated to an arbitrator, “and not any federal, state, or local court or agency,” the exclusive authority “to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement.” That authority, the clause continued, extended to “any claim that all or any part of this Agreement is void or voidable.”

In 2007, Jackson – who is African American – filed a lawsuit against Rent-A-Center in federal district court, alleging that he had been the victim of racial discrimination and retaliation. Rent-A-Center filed a motion to dismiss the proceedings and compel arbitration under Section 4 of the Federal Arbitration Act (“FAA”), arguing that the arbitration provision in Jackson’s contract clearly and unmistakably vested the arbitrator with the sole authority to decide the agreement’s enforceability, consistent with the Supreme Court’s holdings in AT&T Technologies v. Communications Workers of America (1986) and First Options of Chicago v. Kaplan (1995). The district court agreed and dismissed the case, rejecting Jackson’s argument that the arbitration agreement was procedurally and substantively unconscionable and that its enforceability should be a matter for the court – rather than the arbitrator – to decide in the first instance.

On appeal, a divided panel of the Ninth Circuit reversed. It reasoned that because “arbitration is itself a matter of contract,” “a compulsory submission to arbitration cannot precede judicial determination that the . . . agreement does in fact create such a duty.’”

Rent-A-Center filed a petition for certiorari in which it asserted – among other things – that the Ninth Circuit’s holding conflicted not only with decisions from three circuits (the First, Eighth, and Eleventh) that allow arbitration provisions to require the arbitration of arbitrability, but also with the Court’s decisions in AT&T and First Options. The Court granted certiorari on January 15, 2010.

In its opening brief on the merits, Rent-A-Center begins by emphasizing that, in enacting the FAA in 1925, Congress intended to establish what the Court has described as a “liberal federal policy favoring arbitration agreements.” Moreover, it continues, the central purpose of the FAA (as the Court has also recognized) is to enforce arbitration agreements in accordance with their terms.

Rent-A-Center then turns to the text of the FAA. Section 2 of the FAA provides that an agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,” while Section 4 requires federal courts to order arbitration “in the manner provided for in [the arbitration] agreement” as long as the court is “satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue.” Pursuant to these two sections, as interpreted by the Court in AT&T and First Options, an arbitration agreement must be honored when the parties “clearly and unmistakably” agree to delegate the issue of arbitrability to the arbitrator. Because there is no dispute that such clear and unmistakable delegation has occurred here, the arbitrator – not a court – should decide whether the agreement is enforceable.

Jackson responds with two principal arguments. First, he disputes Rent-A-Center’s analysis of the text of the FAA, arguing instead that the plain text of Section 2 demands the very judicial inquiry into enforceability that the delegation clause attempts to preclude. Noting that Section 2 only requires arbitration agreements to be enforced as written, “save upon such grounds as exist at law or in equity for the revocation of any contract,” Jackson points out that Rent-A-Center’s approach would require courts to enforce arbitration clauses even when the requirements created by Section 2 are not satisfied. For example, he posits, even if one party were forced to enter into the arbitration agreement at gunpoint, under Rent-A-Center’s construction the court would have to defer to the arbitrator to determine the contract’s enforceability so long as the language of the agreement is “clear and unmistakable.”

Second, Jackson counters Rent-A-Center’s interpretation of Supreme Court precedent by distinguishing between challenges to the scope of arbitration agreements and challenges to the enforceability and validity of arbitration agreements. AT&T and First Options, he contends, suggest only that challenges to the scope of arbitration agreements may, by clear and unmistakable language, be delegated to arbitrators. By contrast, Jackson points to other cases, most notably Buckeye Check Cashing v. Cardegna (2006) and Mitsubishi Motors v. Soler Chrysler Plymouth (1985), in which the Court has held that determinations regarding the validity and enforceability of arbitration agreements under Section 2 of the FAA are for the courts, rather than the arbitrator, to decide.

In its reply brief, Rent-A-Center clarifies that the question presented by this case is not whether unconscionable arbitration agreements are unenforceable (conceding that of course they should be), but rather who gets to make that determination. Nothing in the text of Section 2 suggests that courts (rather than arbitrators) should determine whether there are grounds “at law or in equity for the revocation of any contract,” and the Court’s prior holdings suggest that a clear and unmistakable delegation of that authority to arbitrators should settle the matter. Moreover, if Jackson’s position – that Section 2 of the FAA requires courts to always examine the validity of arbitration agreements – is to be taken seriously, then the Supreme Court’s holdings in AT&T and First Options “wither to nothing.”

[edit] Briefs and Further Resources

[edit] Media Links

[edit] From the Blogosphere

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