Last month, in Rent-A-Center, West Inc. v. Jackson (No. 09-497), the Supreme Court, in a 5-4 decision written by Justice Antonin Scalia, ruled against an employee who sought to have an arbitrability issue in his case decided by a court, and not by an arbitrator. The obstacle facing the employee, Antonio Jackson, was a clearly drafted “delegation clause” — a clause directing that any challenges to the enforceability of the arbitration agreement must be decided by an arbitrator, not a court. Jackson’s case had this unusual weakness: he had no challenge whatsoever to the validity or enforceability of the delegation clause itself. For this reason, in briefs and oral argument to the Supreme Court, he urged the Court to rule that one can escape an otherwise enforceable delegation clause of an arbitration agreement based solely on objections (in his case unconscionability objections) directed to parts of the agreement other than the delegation clause itself.
Last month, in Rent-A-Center, West Inc. v. Jackson (No. 09-497), the Supreme Court, in a 5-4 decision written by Justice Antonin Scalia, ruled against an employee who sought to have an arbitrability issue in his case decided by a court, and not by an arbitrator. The obstacle facing the employee, Antonio Jackson, was a clearly drafted “delegation clause” — a clause directing that any challenges to the enforceability of the arbitration agreement must be decided by an arbitrator, not a court. Jackson’s case had this unusual weakness: he had no challenge whatsoever to the validity or enforceability of the delegation clause itself. For this reason, in briefs and oral argument to the Supreme Court, he urged the Court to rule that one can escape an otherwise enforceable delegation clause of an arbitration agreement based solely on objections (in his case unconscionability objections) directed to parts of the agreement other than the delegation clause itself.
None of Jackson’s challenges bore on the legitimacy of the arbitrator, the integrity of her selection, or the ease of access to her decision-making. There was no gun to the head, no fraudulent inducement, no biased arbitrator selection process, and nothing to make illusory the means of making the arbitrator in fact decide the issue (such as prohibitively expensive up front fees, or a debilitating requirement that all hearings be held in person at a remote location). In short, the delegation clause Rent-a-Center sought to enforce was not vulnerable to any ordinary defense to its enforcement.
That lacking in Jackson’s case made his loss predictable. In an earlier article published by the Daily Journal while the decision was pending, I wrote that however egregious or unfair the complained of features of the arbitration agreement may be in other ways, “those features do not happen to be the kind that, by their nature, would impair or even implicate the ability of the arbitrator to rule on their unconscionability, or to do so fairly.” See “Determining Arbitrability When Parties Allege Unconscionability,” May 14, 2010.
As it turned out, that lacking was in fact precisely what the Court looked to in rejecting Jackson’s claim. The Court described its ruling as an application of the severability doctrine to the delegation clause — treating that clause as a stand-alone agreement for purposes of determining its enforceability and fi nding that that agreement was unchallenged.
This severability approach is easily justified as a product of the parties’ manifested contractual intent. Delegation clauses, by design, are called into action precisely when the enforceability of some provision of the arbitration agreement is challenged. Moreover, not all such challenges are to the delegation clause. Some are directed exclusively to other provisions of the arbitration agreement. When only those challenges are raised, there is no reason to disable the delegation clause. Nor can it have been the parties’ rational intent to do so. The very circumstance that triggers the use of the delegation clause (a challenge to arbitrability) cannot be a circumstance that always prevents its use. Considering the simple issue of what delegation clauses do, they must be viewed as insulated from attacks affecting only other provisions of the agreement.
Importantly, severing the delegation clause from the rest of the arbitration agreement does not have the feared effect of insulating that clause from being attacked in court. It just properly focuses attention on the kinds of attacks that matter. What are those? Absolutely any attack known to the common law of contracts, as long as it applies in some way to the delegation clause. Does that include an unconscionability attack? Of course. Did the Supreme Court expressly say so? Yes:
“But that agreements to arbitrate are severable does not mean that they are unassailable.... Like other contracts...they may be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability.’”
If this language means anything, the scope of a litigant’s power to attack an objectionable delegation clause is as broad as his or her power to attack any other contractual provision of any sort he or she will ever face.
The fact that Jackson could not meet this easy standard says something about the weakness of his case. Because of this weakness, his loss should carry little implication for other cases. Nonetheless the holding is already being widely pilloried as if it were a universal barrier to courts, fi rmly closing the doors of justice even to those with the worthiest
of challenges to the delegation clause itself.
Listen to Public Citizen, a public interest law firm that acted as co-counsel for Jackson on the case: “Nothing will stop companies from inserting clauses like the kind approved by today’s decision into standard-form arbitration agreements. Companies would then be free to ...select clearly biased arbitrators with close ties to the company, secure in the knowledge that any challenge to the fairness of arbitration will be decided by the arbitrator whose very authority comes from the challenged arbitration agreement.”
Or the American Association for Justice: “If an individual wants to challenge the fairness of having to fly across the country for the arbitration, this Rent-a-Center ruling could dictate that he fly across the country to challenge whether it’s unfair to have to fly across the country.”
Most dramatically, respected arbitrator and pundit, Marc Goldstein, presents the Rent-a-Center case as such a “reinvention” of arbitration law that now, when the Godfather Don Corleone decides his favorite singer, Johnny Fontane, could use an arbitration agreement, and procures one though the usual means — a gun firmly pressed to the bandleader’s ear — he can enforce that agreement without ever worrying about the nuisance of court review, by just remembering to include the handy delegation clause.
Corleone would fail of course. Here is what Justice Scalia would say about his gambit: Inserting a gun to the bandleader’s ear to induce a signature is not the same as inserting a clause into Jackson’s agreement to limit discovery. A tainted (gun induced) signature destroys the rightful power of the arbitrator to rule at all; an ungenerous discovery clause (Jackson’s main unconscionability issue), manifestly, does not. Jackson goes to the arbitrator. But just as easily, Corleone — whose victim has a classic duress challenge to the delegation clause — goes to court.
That should cleanly end the matter. But it turns out that an ill-conceived portion of Justice Scalia’s own decision provides Corleone a remote but arguable comeback. The Court needlessly marred the clarity of its opinion by finding support in a troublesome doctrine not even suggested (for good reason) by the prevailing party — the “separability doctrine” set forth in its Prima Paint and Buckeye cases. In so doing, the Court potentially subjected delegation cases to that doctrine’s most glaring fl aw: the enforceability of a delegation clause should be subject to any challenge pertaining in any way to that clause; but the Prima Paint/Buckeye doctrine, at least by its terms, irrationally restricts available challenges to those that pertain exclusively to that clause.
The rule that a challenge to a delegation clause must pertain exclusively to that clause certainly was not intended to deprive pistol-whipped bandleaders of their day in court. It nonetheless plausibly provides Corleone with the following absurd technical talking point: The Bandleader’s duress challenge to the delegation clause doesn’t work, because it does not happen to pertain exclusively to that clause. Instead, it indiscriminately implicates both the delegation clause and the rest of the arbitration agreement as well.
In the end, by including the separability doctrine in its holding, the Court inadvertently inserted at least an argument with which to override perfectly proper defenses to improperly created delegation agreements, leaving earnest victims of workplace wrongs bereft of rightful access to courts to determine even whether it is a court which should hear their case. By leaving this important issue even slightly ajar, the Court regrettably turned an ordinary case into a needlessly signifi cant source of further commentary and litigation, and possible remedial legislation.
John “Jay” McCauley is an elected Fellow of the College of Commercial Arbitrators, a Distinguished Fellow of the International Academy of Mediators, an arbitrator on the commercial large complex case panel and the employment panel of the American Arbitration Association, and a mediator with PMA, a California Mediation Provider. www.jaymccauley.com.”