Monday, April 26, 2010

Arbitration Agreement Unconscionability Determination Hits SCOTUS

Today, the Supreme Court heard oral arguments in Rent-A-Center v. Jackson (transcript .pdf). I previewed this case when the Supreme Court granted cert. In short, the case revolves around whether the District Court must, in the words of the Ninth Circuit's opinion, "decide the threshold question of arbitrability when a plaintiff challenges an arbitration agreement as unconscionable."

Counsel for the Petitioner, the employer, opened with a concise statement of his argument:
The agreement between Antonio Jackson and Rent-A-Center should be enforced as written. There is no statutory impediment to the enforcement of the clear and unmistakable agreement that gives the arbitrator exclusive authority to decide Jackson's challenge to enforceability, nor is there any language in the Federal Arbitration Act that would prohibit the court from making the determination -- prohibit the arbitrator from making the determination of Jackson's challenge to unconscionability.
He then spent most of his remaining argument differentiating unconscionability as a post-formation complaint from actual formation complaints such as fraud in the inducement:
In contrast, unconscionability, and certainly the allegations we've seen here against the agreement, go to post-formation complaints, complaints about the fairness of the agreement. They do not go to the actual very limited making of the agreement.
He then restated his position that the express terms of the agreement should control:
[T]he primary purpose of the Federal Arbitration Act is to enforce arbitration agreements pursuant to their terms. Here there's no real dispute about what the terms are.
He ended early and reserved his time for rebuttal.

Counsel for the respondent opened with:
The Petitioner would have the Court adopt a rule whereby agreements to arbitrate are presumed enforceable before their validity has been determined by a court under section 2 of the Federal Arbitration Act. They would have people like Mr. Jackson waive their right to go to court through the use of a clause delegating this judicial function to the arbitrator.
His argument lacked focus and a central theme in the early-going, but his primary rationale became clear with a setup from Justice Breyer:
JUSTICE BREYER: But suppose . . . your client and the other side have absolutely agreed, clear as could be, under the arbitration agreement: We want arbitrated too whether the provision that these words are contained in is unconscionable. Can't they agree to that?

MR. SILVERBERG: Your Honor, the parties are -- don't necessarily have to take every issue to court, but should a party challenge that issue as unconscionable, that door should remain open.
His argument didn't really go beyond this policy concern, restating near the end:
[A]s long as that door is open under Section 2, then we don't have a concern about parties making the terms of arbitration so onerous or burdensome that they would not be able to access the arbitral forum.
The primary theme of access to the courthouse became clear by the Respondent's conclusion.

Justice Scalia
Justices Scalia offered a pretty pointed policy response to Respondent's argument:
JUSTICE SCALIA: Not much use signing an arbitration agreement then, not much for the employer, he is going to end up in court anyway, every one of them will be thought of as unconscionable . . . . Kiss good-bye to arbitration.

In his rebuttal, counsel for Petitioner cast Respondent's argument as "merely distrust of arbitrators."

Joe Bananas?
Justice Breyer brought up "Joe Bananas" multiple times today. For example, "Look, that is not my signature; that is the signature of Joe Bananas. We agree that's for the Court." The National Law Journal has more on Justice Breyer and Joe Bananas here.

Lawffice Space will keep you posted on this case, most likely providing analysis of the actual decision.

Posted by Philip Miles, an employment lawyer with McQuaide Blasko in State College, Pennsylvania.