Karen Halverson Cross: Impressions/comments on Rent-A-Center v Jackson Oral Argument

What is particularly striking tome about the Rent-A-Center oralargument is the Court’s preoccupation with drawing a line between the types of relativelyextreme situations that would show the complete absence of a valid agreement toarbitrate (such as a forged agreement, or one that was obviously coerced)versus other situations, where the Justices appear to be less troubled withenforcing delegation language in the arbitration clause.  It seems to me that many of the Justicesshare the view of the case that Mark has, as described in his previous post –that is, that at least some of the Justices may not be troubled with sendingthe issue of unconscionability to the arbitrator in this particular case, butthere may be other cases where it would be troubling – such as the type ofone-sided arbitration clause that was struck down by the Fourth Circuit in thenotorious Hooters case.

Similarly, a number of the Justicesseem to suggest that in a case like this one, where Jackson is challengingspecific aspects of the arbitration clause, any allegedly unconscionableprovision could be effectively “severed” from the basic agreement to arbitrate,leaving the basic obligation to arbitrate intact, allowing a court to leave tothe arbitrator the question of whether the specific provisions areunconscionable.  This rationale has beenemployed in numerous circuit court decisions, and I think also underlies theCourt’s decision in PacifiCare.

As for the exchange betweenJustice Scalia and Justice Ginsburg regarding Hall Street (which Jeremy described in his post):  the contract between Jackson and Rent-A-Centercontains a provision allowing for expanded judicial review of the arbitrationaward (that is, it purports to allow a court to set aside an award not only onFAA grounds, but for errors of fact or law). Justice Ginsburg commented that this post-review provision made thearbitration agreement more “employee-friendly” than most.  But as she also noted, in Hall Street, the Court held that partiescannot contract for judicial review beyond the statutory grounds provided forin the FAA.  Justice Ginsburg expressedconcern that since the post-review provision of the clause is now invalid, thearbitration agreement is less balanced. Justice Scalia responded that this issue was not previously raised bythe parties and therefore the Court cannot consider it.

Finally, as Jeremy noted in hispost, Justice Scalia made evident his views on the issues in the case, oncecommenting in response to Jackson’s counsel that if all allegations ofunconscionability were for the court to decide, then, “[w]ell, kiss goodbye toarbitration.”  As Dahlia Lithwickcommented yesterday on Slate.com, “more likely, kiss it hello.”  The grounds for challenging an arbitrationagreement already are quite circumscribed, due to the Court’s previous arbitrationdecisions.  If the Court rules in favorof Rent-A-Center in this case and enforces the delegation language in thearbitration clause, such a ruling will dramatically affect the ability ofconsumers and employees to challenge the enforceability of arbitrationagreements, as most challenges will be found to be for the arbitrator to decide(see Chris’s and my previous posts on this issue).

Perhaps in the aftermath of Rent A Center, the future avenue forchallenging mandatory arbitration will become post-award review.  As I commented in a previous post, althoughthe First Options dictum suggeststhat parties could contract in certain circumstances for an arbitrator to makea final (i.e., practically unreviewable) determination of arbitrability, thescope of review issue was not briefed by Rent-A-Center (except for a mention inthe reply brief) or by Jackson, nor was it discussed at all at oralargument. 

In fact, the oral argument seemsto suggest that the decision of the Court will be premised on the assumptionthat any arbitrator’s ruling on unconscionability would be subject topost-award review under FAA §10.  JusticeScalia was insistent that an arbitrator would not be able to disregard the lawwhen determining whether an arbitration agreement is unconscionable, evencommenting “I think there is no doubt” the award would be set aside if the arbitratordid totally disregard the law.  (AlthoughFAA §10 does not allow a court to set aside an award for an error of law per se, an argument might be made insuch as case that the arbitrator exceeded his or her powers under FAA§10(a)(4)).  It is also interesting thata footnote in the court’s Stolt-Nielsendecision seems to breathe new life into the “manifest disregard” ground forvacating an arbitral award, a doctrine that many commentators assumed was deadafter the Court’s decision in HallStreet.

Historically, however,courts have interpreted the grounds for setting aside an award under FAA §10extremely narrowly; it will be interesting to see if courts are any more likelyto scrutinize an arbitrator’s findings when an allegedly unconscionable contractis at issue.

[Posted, on Karen Halverson Cross‘s behalf, by Jeremy Telman]