November 28, 2012
Supreme Court Action: The Federal Arbitration Act Applies To The States
The Supreme Court issued one per curiam opinion on Monday. The case is Nitro-Lift Technologies, L.L.C. v. Howard (11-1377). The opinion reinforces the application of the Federal Arbitration Act (FAA) in state courts as controlling over state statutes and court decisions to the contrary. The dispute arose over the interpretation of a contract containing both a non-compete clause and an arbitration clause. Two former employees of Nitro-Lift left the company to work for a competitor. Nitro-Lift served them with a demand to arbitrate. They filed suit in Oklahoma state court asking that the noncompetition agreements to be held null and void. The district court found the arbitration clause to be valid and said the dispute over the non-compete clauses should be settled by the arbitrator.
The Oklahoma Supreme Court issued a contrary decision. It held that a state statute limits the enforcement of non-compete clauses. That court analyzed U.S. Supreme Court decisions and declared that it could review the underlying contract despite the arbitration clause. The Oklahoma Supreme Court further indicated that its decision was made under adequate and independent state grounds which would deprive the U.S. Supreme Court of jurisdiction.
The Court cited earlier opinions holding that the FAA applied to the states and that there were no exceptions under the Supremacy Clause when state and federal law conflict. Neither the trial court nor the Oklahoma Supreme Court found the arbitration clause invalid. The arbitrator under these circumstances is the one to determine whether the clause survives Oklahoma statutory law.
The opinion is notable in its language criticizing the Oklahoma Supreme Court for ignoring U.S. Supreme Court precedent and writing its opinion in a way to evade review. I guess this is an example of what they call judicial tough love. [MG]