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Has The Parade of Predicted Horribles From Rent-A-Center Come To Pass?

By Liz Kramer | September 1, 2011 in Validity of Arbitration Agreement

Just over a year has passed since the U.S. Supreme Court applied the severability doctrine in Rent-A-Center, West Inc.  v. Jackson, 130 S. Ct. 2772 (2010), in such a way that Justice Stevens and three others dissented, raising the specter of “infinite layers of severability” and a parade of arbitrability horribles.  A review of the case law applying Rent-A-Center in the past year suggests that the parade of horribles has not fully come to pass.  Courts have limited their application of Rent-A-Center to cases where the parties’ arbitration agreement authorized the arbitrator to decide claims that the arbitration agreement was invalid.

Rent-A-Center Refresher

First, a refresher on the Rent-A-Center case.  In it, a litigant argued that his stand-alone arbitration agreement was unconscionable and therefore invalid.  However, the agreement  contained a provision authorizing the arbitrator to decide questions of validity (the “delegation provision”).  The Supreme Court enforced the delegation provision and sent the decision regarding validity to the arbitrator.  The Court ruled that for the employee to have his unconscionability claims heard in court, he needed to allege that the delegation provision itself was invalid, citing the Prima Paint doctrine.

The dissent balked, claiming that the majority was taking the severability doctrine from Prima Paint too far.  It worried that courts would interpret the Rent-A-Center decision to make it virtually impossible for a litigant to have a court review the enforceability of an arbitration agreement:   

Before today, however, if respondent instead raised a challenge specific to “the validity of the agreement to arbitrate”— for example, that the agreement to arbitrate was void under state law—the challenge would have gone to the court. That is what Buckeye says. But the Court now declares that Prima Paint’s pleading rule requires more: A party must lodge a challenge with even greater specificity than what would have satisfied the Prima Paint Court. A claim that an entire arbitration agreement is invalid will not go to the court unless the party challenges the particular sentences that delegate such claims to the arbitrator, on some contract ground that is particular and unique to those sentences.
It would seem the Court reads Prima Paint to require, as a matter of course, infinite layers of severability: We must always pluck from an arbitration agreement the specific delegation mechanism that would—but for present judicial review—commend the matter to arbitration, even if this delegation clause is but one sentence within one paragraph within a standalone agreement. And, most importantly, the party must identify this one sentence and lodge a specific challenge to its validity. Otherwise, he will be bound to pursue his validity claim in arbitration.
Id. at 2787 (internal citations omitted).

The dissent raises at least two concerns.  First, whether litigants whose arbitration agreement(s) contain a similar delegation provision will ever be able to obtain a court hearing on issues of the validity of the arbitration agreement.  And second, whether courts will apply the same level of severability outside the delegation context.  For example, whether a litigant arguing that her arbitration agreement is unconscionable must argue that the particular sentence saying “any and all disputes arising out of this agreement shall be heard in arbitration” is unconscionable, instead of arguing that the other sentences describing the arbitral processes are unconscionable.

One Year of Application

In reviewing a full year of state and federal case law applying the Rent-A-Center decision (thank goodness for excellent summer associates!), we found no case applying its hard-line approach to an arbitration agreement without a delegation provision.  At least to date, then, courts applying Rent-A-Center have generally heeded that particular concern from the dissenting Justices.  Litigants without a delegation provision are unlikely to have to parse their arguments relating to the enforceability of the arbitration agreement as finely as they would have to if their arbitration agreement contained a delegation provision.

However, it is certainly true that Rent-A-Center has made it nearly impossible for litigants with a delegation provision in their arbitration clause to have a court hear their allegations that the arbitration agreement as a whole is invalid.  Numerous federal and state courts have sent those types of claims to arbitration in the past year, relying on the Rent-A-Center decision.  The only litigant who avoided that fate was one who wisely alleged that the delegation provision itself was invalid.  Howard v. Rent-A-Center, Inc., No. 1:10-CV-103, 2010 WL 3009515, at *1 (E.D. Tenn. July 28, 2010).  The victory was short-lived, however—while the Court agreed it was authorized to decide the gateway issue of the validity of the delegation clause, it quickly concluded the delegation clause was valid and “allowing arbitrators [t]o] determine their own jurisdiction is neither contrary to the public policy nor unconscionable.”  Id. at *5.

 

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