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Thursday, April 15, 2010

Guest Post by Christopher Drahozal on Rent-A-Center

Drahozal Thanks to Jeremy for the invitation to join this discussion and to Karen for her very helpful post (and article).  A couple of thoughts:

            First, I agree with Karen that the issue in Rent-A-Center v. Jackson is not merely about the timing of court review.  Rather, if the Supreme Court accepts Rent-A-Center’s position, the arbitrator will have the final say on the unconscionability of the arbitration agreement – or at least provisions in the arbitration agreement.  The language of Rent-A-Center’s arbitration clause makes that clear:  “The Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.” (emphasis added).

            Second, even if the Supreme Court accepts Rent-A-Center’s position, it is not necessarily the case that current arbitration rules will lead to the same result as the Rent-A-Center arbitration clause (although I agree with Karen that to date courts generally have so held).  Unlike the Rent-A-Center clause, those rules give the arbitrator the authority to rule on jurisdictional issues, but not necessarily the exclusive authority to do so.  See, e.g., AAA Commercial Arbitration Rules, Rule R-7(a) (“The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections to the existence, scope or validity of the arbitration agreement.”); CPR Rules, Rule 8.1(“The Tribunal shall have the power to hear and determine challenges to its jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.”). 

            Thus, as CPR’s Commentary on its rule explains:  “This Rule expresses the generally accepted principle that arbitrator(s) have the competence initially to determine their own jurisdiction.  Accordingly, any objections to the existence, scope or validity of the arbitration agreement, or the arbitrability of the subject matter of the dispute, are decided, at least in the first instance, by the Tribunal consistent with the U.S. Supreme Court’s decision in First Options ….”  In other words, rules such as these make clear that the arbitration can proceed even if a party asserts that it never agreed to arbitrate (i.e., the arbitrators initially can determine their own jurisdiction), contrary to several recent (and strongly criticized) state court decisions.  See, e.g., MBNA Am. Bank, N.A. v. Christianson, 659 S.E.2d 209, 215 (S.C. Ct. App. 2008) (“[O]nce Christianson disputed the existence of an arbitration agreement, the Forum did not have jurisdiction to enter an arbitration award until MBNA petitioned the courts to compel arbitration.”), aff’d per curiam, 2010 S.C. Unpub. LEXIS 3 (S.C. 2010); MBNA Am. Bank, N.A. v. Kay, 888 N.E.2d 288, at *8 (Ind. Ct. App. 2008) (same).

[Posted on behalf of Christopher Drahozal by Jeremy Telman]

http://lawprofessors.typepad.com/contractsprof_blog/2010/04/guest-post-by-christopher-drohazal-on-rentacenter.html

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