Saturday, February 4, 2012

Kentucky Bill Would Nuke Arbitration Separability

GunUnder the U.S. Supreme Court's separability doctrine, it's not enough to argue that a contract containing an arbitration clause is unconscionable or was procurred by fraud or duress.  To have the arbitration clause found unenforceable, the allegation of fraud or unconscionabilty must be directed specifically at the arbitration clause, not the "container agreement" as a whole.  This is misguided -- if someone gets me to sign a contract by putting a gun to my head, I shouldn't be bound by any part of the contract.

A bill introduced in the Kentucky Senate would legislatively overrule the separability doctrine.  In theory, this should overturn (in Kentucky) the Supreme Court's separability doctrine, because the Federal Arbitration Act incorporates-by-reference state contract law regarding contract revocation.  But the Supreme Court has, more than once, ignored the plain language of the FAA in favor of its policy of broadly enforcing arbitration agreements.

Unfortunately, the current version of the bill exempts employment agreements.

Hat tip: Carol Furnish.

rb

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