In Rent-A-Center, West v. Jackson, the justices divided, 5-4, in holding that an arbitrator, not a district court, will decide whether an arbitration agreement as a whole is unconscionable if the agreement explicitly delegates that issue to the arbitrator and the consumer or employee has failed to challenge the specific delegation clause.
“It greatly limits the ability of consumers and employees to challenge the fairness of arbitration agreements,” said Deepak Gupta of Public Citizen Litigation Group, co-counsel to Antonio Jackson, along with Public Justice and Ian Silverberg of Hardy & Associates in Reno, Nev., who argued the case.
“The kind of delegation clause at issue here is not a common clause, but we can expect those clauses to become much more common,” he said, adding, “The decision is very formalistic, imposing a kind of pleading requirement. If a consumer’s lawyer knows enough to challenge a specific part of the arbitration agreement, they can go to court.”
But Rent-A-Center’s counsel, Robert Friedman of the Dallas office of Littler Mendelson, countered, “It’s the right decision because the Court gave effect to the language of the agreement and to the Federal Arbitration Act. We’re very, very pleased for Rent-A-Center. The case will now go to arbitration.”
The high court case stemmed from Jackson’s race discrimination and retaliation lawsuit in 2007 after he was fired from his account manager job. As a condition of his employment, Jackson had signed an arbitration agreement in 2003 that covered claims of discrimination. The agreement also stated that the arbitrator would have exclusive authority to resolve any dispute relating to interpretation, applicability, enforceability or formation of the agreement.
The latter part of the agreement was the delegation clause, according to Justice Antonin Scalia, who wrote for the majority. He said it was an “additional, antecedent agreement” to arbitrate a “gateway,” or threshold issue—enforceability in Jackson’s challenge.
The Federal Arbitration Act (FAA), he said, “operates on this additional arbitration agreement just as it does on any other.” But Jackson’s arguments only challenged the validity of the agreement as a whole. “Nowhere in his opposition to Rent-A-Center’s motion to compel arbitration did he even mention the delegation provision,” wrote Scalia, adding that Jackson subsequently raised it for the first time in the Supreme Court where it was “too late, and we will not consider it.”
Justice John Paul Stevens dissented and was joined by justices Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayor.
“Certain issues—the kind that ‘contracting parties would likely have expected a court to have decided’—remain within the province of judicial review,” Stevens wrote. Those issues are “gateway” issues because “they raise questions the parties ‘are not likely to have thought that they had agreed that an arbitrator would’ decide.”
It would be “bizarre,” he added, to send these gateway matters to an arbitrator because they raise questions of arbitrability, such as whether there is a legally binding and valid agreement.
“In this case, we are concerned with the first of these categories: whether the parties have a valid arbitration agreement,” he said. “This is an issue the FAA assigns to the courts.”
The U.S. Chamber of Commerce and management lawyers supporting Rent-A-Center had argued that claims of “unconscionability” were being raised increasingly in courts to thwart arbitration agreements where those claims once were reserved for imposition of outrageous terms.
Public Citizen’s Gupta noted that the House Judiciary Committee has considered the proposed Arbitration Fairness Act. “The Court and Congress are moving in very different directions,” he said. “I think this decision will help provoke a legislative response. It really is an attempt by the Court to take away the last safety valve available to consumers and employees.”