Wednesday, April 28, 2010
What is particularly striking to me about the Rent-A-Center oral argument is the Court’s preoccupation with drawing a line between the types of relatively extreme situations that would show the complete absence of a valid agreement to arbitrate (such as a forged agreement, or one that was obviously coerced) versus other situations, where the Justices appear to be less troubled with enforcing delegation language in the arbitration clause. It seems to me that many of the Justices share the view of the case that Mark has, as described in his previous post – that is, that at least some of the Justices may not be troubled with sending the issue of unconscionability to the arbitrator in this particular case, but there may be other cases where it would be troubling – such as the type of one-sided arbitration clause that was struck down by the Fourth Circuit in the notorious Hooters case.
Similarly, a number of the Justices seem to suggest that in a case like this one, where Jackson is challenging specific aspects of the arbitration clause, any allegedly unconscionable provision could be effectively “severed” from the basic agreement to arbitrate, leaving the basic obligation to arbitrate intact, allowing a court to leave to the arbitrator the question of whether the specific provisions are unconscionable. This rationale has been employed in numerous circuit court decisions, and I think also underlies the Court’s decision in PacifiCare.
As for the exchange between Justice Scalia and Justice Ginsburg regarding Hall Street (which Jeremy described in his post): the contract between Jackson and Rent-A-Center contains a provision allowing for expanded judicial review of the arbitration award (that is, it purports to allow a court to set aside an award not only on FAA grounds, but for errors of fact or law). Justice Ginsburg commented that this post-review provision made the arbitration agreement more “employee-friendly” than most. But as she also noted, in Hall Street, the Court held that parties cannot contract for judicial review beyond the statutory grounds provided for in the FAA. Justice Ginsburg expressed concern that since the post-review provision of the clause is now invalid, the arbitration agreement is less balanced. Justice Scalia responded that this issue was not previously raised by the parties and therefore the Court cannot consider it.
Finally, as Jeremy noted in his post, Justice Scalia made evident his views on the issues in the case, once commenting in response to Jackson’s counsel that if all allegations of unconscionability were for the court to decide, then, “[w]ell, kiss goodbye to arbitration.” As Dahlia Lithwick commented yesterday on Slate.com, “more likely, kiss it hello.” The grounds for challenging an arbitration agreement already are quite circumscribed, due to the Court’s previous arbitration decisions. If the Court rules in favor of Rent-A-Center in this case and enforces the delegation language in the arbitration clause, such a ruling will dramatically affect the ability of consumers and employees to challenge the enforceability of arbitration agreements, as most challenges will be found to be for the arbitrator to decide (see Chris’s and my previous posts on this issue).
Perhaps in the aftermath of Rent A Center, the future avenue for challenging mandatory arbitration will become post-award review. As I commented in a previous post, although the First Options dictum suggests that parties could contract in certain circumstances for an arbitrator to make a final (i.e., practically unreviewable) determination of arbitrability, the scope of review issue was not briefed by Rent-A-Center (except for a mention in the reply brief) or by Jackson, nor was it discussed at all at oral argument.
In fact, the oral argument seems to suggest that the decision of the Court will be premised on the assumption that any arbitrator’s ruling on unconscionability would be subject to post-award review under FAA §10. Justice Scalia was insistent that an arbitrator would not be able to disregard the law when determining whether an arbitration agreement is unconscionable, even commenting “I think there is no doubt” the award would be set aside if the arbitrator did totally disregard the law. (Although FAA §10 does not allow a court to set aside an award for an error of law per se, an argument might be made in such as case that the arbitrator exceeded his or her powers under FAA §10(a)(4)). It is also interesting that a footnote in the court’s Stolt-Nielsen decision seems to breathe new life into the “manifest disregard” ground for vacating an arbitral award, a doctrine that many commentators assumed was dead after the Court’s decision in Hall Street.
Historically, however, courts have interpreted the grounds for setting aside an award under FAA §10 extremely narrowly; it will be interesting to see if courts are any more likely to scrutinize an arbitrator’s findings when an allegedly unconscionable contract is at issue.
[Posted, on Karen Halverson Cross's behalf, by Jeremy Telman]