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Arbitrating arbitration: who reviews the enforceability of an agreement to arbitrate?

Below, Stanford Law School’s Caroline Jackson (no relation to the respondent) recaps Monday’s oral argument in Rent-A-Center v. Jackson.  (Aaron Tang previewed the argument on Sunday for SCOTUSblog.) Check the Rent-A-Center v. Jackson (09-497) SCOTUSwiki page for additional updates.

On Monday, the Court heard argument in Rent-A-Center v. Jackson. Arguing for petitioner Rent-A-Center, Robert Friedman contended that the Ninth Circuit contradicted both Supreme Court precedent and the plain language of the arbitration agreement when it determined – notwithstanding “clear and unmistakable language” to the contrary – that the courts, rather than the arbitrator, must determine the enforceability of an arbitration agreement.

Justice Ginsburg began by asking Friedman how he would distinguish between fraud and duress (which may not be delegated to the arbitrator) and unconscionability (which, according to Rent-A-Center, may be). Friedman described the former grounds as going to the “making of the agreement,” while he characterized the latter ground as a “post-formation attack.” However, Justice Kennedy seemed unpersuaded by the idea that procedural unconscionability could be considered after the formation of a contract, while Justice Sotomayor emphasized the difficulties that would ensue from such a rule. Justice Scalia, however, noted that respondent Antonio Jackson had challenged the terms of the arbitration, rather than the original agreement to arbitrate.

The argument then turned to aspects of unconscionability that a court may decide, such as provisions that effectively block access to arbitration. Friedman contended that the Court’s decision in First Options of Chicago, Inc. v. Kaplan (1995) allowed a “clear and unmistakable” delegation of matters to an arbitrator, provided that the parties had mutually agreed to arbitration. And when Justice Breyer questioned the idea that a challenge to an arbitration clause as a whole does not implicate the formation of an agreement to arbitrate in the same way that fraud and duress do, Friedman reiterated that there is “a very bright line” separating issues of access or mutual assent from issues of fairness in the agreement itself.

Justice Ginsburg then explored the impact of the Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc. (2007), which necessarily narrowed the scope of district court review despite what the contract may have initially provided. Although the Court did not decide Hall Street until after the trial in this case, both Justice Scalia and Friedman emphasized that Jackson had never raised the issue of whether as a result of Hall Street, the more exacting judicial review contemplated by the parties was no longer available and thus the court should provide pre-arbitration safeguards. Friedman concluded by emphasizing that arbitrators may decide the scope and validity of an agreement to arbitrate, while courts are limited to issues of access and assent. Because – as both the district court and Ninth Circuit held – the contract contained a “clear and unmistakable” delegation to an arbitrator of the authority to review unconscionability, Friedman urged the Court to “give effect to that language.”

Arguing for respondent Antonio Jackson, Ian Silverberg immediately faced questions regarding the precise nature of his client’s unconscionability claim. Chief Justice Roberts appeared unreceptive to Silverberg’s argument that all claims regarding the unconscionability of an arbitration agreement must go to the courts; in his view, courts should review challenges to the agreement as a whole, but challenges to specific provisions of the agreement should be reviewed by an arbitrator. Silverberg then attempted to direct the Court’s attention to what he characterized as Rent-A-Center’s “big concession” – that courts must review allegations that arbitration is an “illusory remedy” but not other challenges. Justice Ginsburg, however, quickly dismissed the argument. Justice Scalia next turned to the arbitrator’s obligation to be faithful to state law, thereby rejecting Silverberg’s arguments that an arbitrator may flout state and evade judicial review.

Justice Breyer appeared to take issue with the idea that courts could be required to review specific provisions in an arbitration agreement even when there is no challenge to the bare agreement to arbitrate. Attempting to push back on the issue, Silverberg countered that any unconscionable provision would render the entire agreement invalid, necessitating judicial review of both partial and holistic challenges. In response to a hypothetical from Justice Kennedy in which both lawyers agree to arbitrate questions of unconscionability, Silverberg conceded that arbitration would be acceptable in such a case, but he stressed that “the doors to the court must always remain open” when the employee raises grounds for revocation of a contract: fraud, duress, and unconscionability. Justice Ginsburg pointed out, however, that Section 2 of the Federal Arbitration Act (FAA) does not indicate who should decide questions of revocation.

Justice Kennedy then expressed concern regarding Silverberg’s contention that challenges to the contract as a whole should go to the arbitrator, whereas attacks to the arbitration clause should go only to the court. Silverberg responded by emphasizing that Jackson’s challenges to specific provisions of the arbitration agreement sufficed to render the entire agreement unconscionable under Nevada law.

The Chief Justice promptly resisted Silverberg’s attempt to further extend the argument to claim that even if the provisions of the arbitration contract were severable, the employee would reserve the right to have a court rule on each provision. And Justice Scalia rejected the argument that unconscionability belonged in the same category as fraud and duress, dismissing the Court’s holding in Doctor’s Associates, Inc. v. Casarotto (1996) that each of these three issues can be raised in Section 2 review as dictum.

Silverberg next clarified that the option of securing judicial review should remain open for all unconscionability challenges, regardless of whether the parties expressly agreed to arbitrate such disputes. In response to questioning from Justice Stevens, Silverberg conceded that, in cases in which a single provision of the contract could be stricken for unconscionability while preserving the rest of the contract, an arbitrator could decide this question. When Justice Ginsburg asked if his rule applied only to contracts of adhesion, he countered that it would apply to all arbitration agreements.

The argument then turned to the “bigger picture”:  how to balance the unequal bargaining power of weaker parties against the consequences of allowing courts to review all allegations of unconscionability. Justice Scalia warned that this rule would render arbitration agreements irrelevant:  “Kiss good-bye to arbitration.” Silverberg parried this warning by noting that Mr. Jackson had the support of “some of the most prestigious arbitrators in this country,” who had called on the courts to protect parties lacking bargaining power from arbitration agreements that – in this case – would “send[] Mr. Jackson, who lives in Reno, to Minnesota to arbitrate his claim.” Justice Ginsburg gently reminded him, however, that the grounds of unconscionability did not address access to arbitration, but only the process itself.

In rebuttal, Mr. Friedman characterized the other side’s argument as “distrust of arbitrators.” He reminded the Court that, under Section 10 of the FAA, district court review of the arbitrator’s decisions would remain available, but all questions regarding the unconscionability of various provisions would remain squarely with the arbitrator. Justices Breyer and Sotomayor sought to clarify the line between issues that “go to the making” and unconscionability issues that can be delegated to the arbitrator. Friedman outlined “two areas that we agree are for the court”: issues regarding the making of an agreement, and challenges of access to arbitration. For all other questions, when parties expressly delegate them to the arbitrator, “the arbitrator can absolutely decide these issues of unconscionability as well as a judge can.”