ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Monday, April 19, 2010

Guest Post by Karen Halverson Cross on the Rent-A-Center Reply Brief

Karen Halverson Cross

Comments to RAC reply brief

I write to raise a few brief points with respect to Rent-A-Center’s reply brief, which Jeremy described in today’s post:

  1. The reply brief (more so than RAC’s first brief) does an impressive job of framing the argument for claimant in a manner that is consistent with the reasoning of the Court’s prior arbitration decisions.  In particular, the brief effectively responds to Jackson’s FAA arguments by drawing a distinction between issues surrounding the “making” of an arbitration agreement and issues surrounding the validity or enforceability of such agreement.  In other words, RAC seems to argue that all that the FAA requires is that the court establish the “making” (i.e., the prima facie existence) of an agreement to arbitrate, and if such evidence can be shown, the court should enforce contractual language in the clause delegating any other arbitrability determinations to the arbitrator.  So, for example, if Jackson had demonstrated that his signature on the contract was forged (as opposed to arguing that the agreement is unconscionable), then according to RAC’s reasoning, in such a case the outcome of the case would be different.
  1. The reply brief also invokes prior decisions of the Court (Vimar Seguros, PacifiCare and Mitsubishi) to suggest that the arbitrator should be allowed to determine arbitrability as an initial matter, subject to judicial review at the award enforcement stage (see reply brief at 18-20).  As I suggested in my previous post, taking this position would allow the Court to sidestep the implications of the First Options dictum with respect to judicial review.  The First Options dictum suggests not only that parties may contract to let the arbitrator decide arbitrability, but that the arbitrator’s determination of arbitrability in such a case should be accorded substantial deference. 
  1. The reply brief does also briefly refer to the dictum in First Options for the idea that an arbitrator’s findings of arbitrability should be subject to deference (see reply brief at 21), but it does not discuss the implications of such a result under the FAA.  FAA Section 10(a)(4) provides that one of the grounds on which an arbitral award may be vacated is where the arbitrator exceeds his or her powers – in other words, if the award is not based upon an enforceable agreement to arbitrate.  The statutory language would suggest, therefore, that at the award enforcement stage, a court should be able to make a de novo finding with respect to the enforceability of the agreement to arbitrate.  But the First Options dictum cited in RAC’s brief suggests otherwise – i.e., that any arbitral findings with respect to unconscionability should be accorded deference.  Thus there is tension between the FAA’s provisions on judicial review and RAC’s position.
  1. Finally, the reply brief refers to “countless” private parties that have contracted in reliance on “the First Options/AT&T rule,” citing the institutional rules of the AAA and JAMS, which like most arbitration rules, provide that the arbitrator has the power to rule on his or her jurisdiction, including challenges to the existence of the agreement to arbitrate (see reply brief at 7, 17).  However, there is an important difference between authorizing the arbitrator to decide jurisdictional challenges as a matter of arbitration procedure (this is referred to in international practice as competence-competence and is widely, if not universally, recognized), versus suggesting that contractually agreed-upon provisions can displace the court’s power under local law to make initial determinations as to the existence, validity or scope of the arbitration agreement.   This latter proposition is more controversial; indeed, under the law of jurisdictions such as Germany, rules on the allocation of authority between courts and arbitrators to make jurisdictional findings appear to be mandatory.

[Posted, on Karen Halverson Cross's behalf, by Jeremy Telman]

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