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Tuesday, April 13, 2010

Introducing Karen Halverson Cross and the Arbitration Roundtable

Halverson The John Marshall Law School's Professor Karen Halverson Cross has been generous enough to volunteer to be a guest on our blog to help us and our readers understand the issues in Rent-A-Center West v. Jackson, which is to be argued before the U.S. Supreme Court at the end of the month. Professor Cross's introductory post will appear tomorrow.  Readers can find a summary of and a link to the Petitioner's brief in the case here.  They can find a summary of and a link to the Respondent's brief in the case here.  Links to the nine amicus briefs filed in the case can be found on the SCOTUSblog Wiki here.  

Professor Cross is especially well-qualified to guide the Blog's discussion of Rent-A-Center West because she is the author of a recent article about the case, Letting the Arbitrator Decide?  Unconscionability and the Allocation of Authority between Courts and Arbitrators, which was cited in the Respondent's brief in Rent-A-Center West, and because she is one of the signatories on an amicus brief submitted by professional arbitrators and arbitration scholars. 

Letting the Arbitrator Decide provides both a historical and comparative perspective on the question of how courts allocate jurisdictional questions relating to unconscionability in the context of arbitration agreements.  In order to address this issue, courts must balance competing policies: "freeing arbitration from litigation tactics designed to delay or evade the process while also allowing sufficient court intervention to ensure that the arbitration award is legitimate."  Professor Cross notes that U.S. courts seem to be evolving towards letting arbitrators decide the issue of arbitrability.  Professor Cross expresses concern that, in deciding Rent-A-Center West, the Court might adopt a broad interpretation of its dictum in the earlier First Options case and strip courts of the power to rule on the inconscionability issue, not only initially but also at the award-enforcement stage.  She argues for a narrower interpretation of the First Options dictum.

Part II of Letting the Arbitrator Decide provides a thorough historical introduction that underscores what is at stake in Rent-A-Center West. Unconscionability challenges to the enforcement of arbitration agreements have increased dramatically in the past two decades from nearly zero to between 60 and 100 a year.  In addition, while unconscionability arguments rarely succeed in other areas, in recent years around 40% of unconscionability challenges to the enforcement of arbitration agreements have been successful.  There are two types of issues involved in cases adjudicating the allocation of competence between courts and arbitrators.  First, there is the question of timing -- can courts review prior to an arbitral decision or only at the award-enforcement stage -- and second there is the question of scope of review.  Here, the question is the amount of deference due to an arbitral decision.  First Options is potentially relevant to both types of issue. 

The remainder of  Part II, continuing into Part III then leads the reader through the tangled path through which the Supreme Court has sought to clarify when the question of arbitrability is for the court and when for the arbitrator.  First Options is relied on for the proposition that the parties may choose to authorize an arbitrator to decide her own jurisdiction.  The question is whether that means that the parties may choose to let the arbitrator determine the scope of her jurisdiction or that the parties may empower an arbitrator to decide the validity and enforceability of an arbitration agreement.  Professor Cross concludes that "both common sense and fundamental principles of arbitration require a strict and narrow reading" of First Options.  According to Professor Cross, letting the arbitrator decide unconscionability challenges "significantly weakens the unconscionability safeguard in the mandatory arbitration context" and thus "eliminates an important protection for consumers, franchisees and employees against one-sided arbitration agreements." 

In Part IV, Professor Cross reviews the law of foreign jurisdictions and finds that judicial review of an arbitrator's jurisdictional findings is central to the arbitration regimes of all major legal systems.  This foreign law supports Professor Cross's argument that First Options should be more narrowly construed than it has been by lower courts in the U.S.  In Part V, Professor Cross reviews recent proposed legislation that suggests that Congress is beginning to take note of the inequality in bargaining power among the parties subject to mandatory arbitration.  If the Supreme Court overturns the Ninth Circuit's opinion in Rent-A-Center West, Professor Cross suggests, Congress might step in to restore parties' power to challenge arbitration agreements in court.

In her conclusion, Professor Cross suggests that there are two situations in which First Options may apply to permit arbitrators to decide whether or not an arbitration agreement is enforceable.  First, parties could be permitted to agree to have the arbitrator determine questions relating to the scope of the arbitration clause.  Second, First Options could be limited to the facts of that case, in which one party alleged that the parties to an existing arbitration agreement made a post-dispute submission to the arbitrator to make a final determination of arbitrability.  According to Professor Cross, Rent-A-Center West does not fall into either of these two categories, and the court should thus be permitted to address plaintiff's unconscionability challenge to the enforceability of the arbitration agreement.

[Jeremy Telman]

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