Karen Halverson Cross: Guest Post on Rent-A-Center v Jackson
The question presented in Rent-A-Center is whether standard form language in an arbitrationclause is effective to empower an arbitrator to determine whether that clauseis valid and enforceable. As JeanSternlight observed at the recent Contracts Conference held at UNLV, this somewhat arcane issue ofarbitral jurisdiction is of great practical significance to the arbitration ofconsumer, franchise and employment disputes. Most arbitration clauses already contain language empoweringan arbitrator to determine his or her jurisdiction (typically by incorporatinginstitutional arbitration rules to that effect), and those that do not caneasily be re-drafted. Therefore,if the Court ultimately accepts Rent-A-Center’s argument, the vast majority of unconscionability challenges to arbitrationclauses may simply disappear, as courts interpret the operative language in thearbitration clause (or in institutional arbitration rules) as vesting authorityover the unconscionability determination in the arbitrator.
The conceptual problem with Rent-A-Center’sposition is that an arbitrator’s authority depends on the existence of a validand enforceable contract; Jackson’s unconscionability challenge, in effect, isdirected to the very source of the arbitrator’s authority to resolve thedispute. To provide a more extremeexample, suppose that Jackson had challenged his arbitration agreement withRent-A-Center on grounds that his signature on the agreement was forged? Can delegation language in a forgedarbitration agreement empower an arbitrator to determine whether the agreementis valid?
As Jeremy’s post observes, Rent-A-Center’s briefcites decisions from the First, Eighth and Eleventh Circuits in support of itsposition. These decisions, andRent-A-Center’s brief, rely heavily on the Court’s earlier decision in First Options of Chicago v. Kaplan,which, in dictum, suggested that parties may contract to vest in the arbitratorthe power to decide arbitrability, so long as the evidence of such agreement is“clear and unmistakable.” As Iargue in my paper, this dictum should be very narrowly construed – for example,to apply in situations where the scope, and not the very existence orenforceability, of the arbitration clause is at issue.
As Respondent Jackson’s brief observes,Rent-A-Center’s brief seems to suggest that the issue before the Court ismerely one of timing – i.e., Rent-A-Centerappears to concede that a court would have the power at the award-enforcementstage to determine whether the arbitrator’s decision was based on a valid andenforceable arbitration agreement (seePetitioner’s Brief at p. 12, where it refers to the arbitration agreementdelegating the unconscionability issue to the arbitrator “in the firstinstance”). If the Court treatsthe issue in the case as one of timing, then it may sidestep the conceptualproblem referred to above by reasoning that a court can always verify thevalidity and enforceability of the arbitration agreement at theaward-enforcement stage. The Courthas employed similar reasoning in many of its prior arbitration decisions, includingPrima Paint Corp. v. Flood & ConklinMfg., Mitsubishi Motors Corp. v.Soler Chrysler-Plymouth, VimarSeguros y Reaseguros, S.A. v. M/V Sky Reefer, and PacifiCare Health Systems v. Book.
However, the dictum in First Options did not address merely deferring judicial review of an arbitrator’s jurisdictionalfindings, but rather addressed whether parties may contract for an arbitratorto make a final determination ofarbitrability. (The questionpresented in First Options was whetherthe Court at the post-award reviewstage should give deference to the arbitrator’s jurisdictional findings; theCourt found that no such deference was warranted, given the lack of “clear andunmistakable” evidence of an agreement to let the arbitrator decidearbitrability.) It is interestingto note that neither of the merits briefs in Rent-A-Center directly addresses this issue.
Finally, if the Court does treat the issue in Rent-A-Center as merely one of timing, thenas Respondent’s brief argues (and as argued in the amicus brief filed by professional arbitrators and arbitrationscholars, which I signed), as a practicalmatter, post-award judicial review may be inadequate to protect the interestsof consumers, franchisees and employees against unfair arbitration clauses. A decision in favor of Rent-A-Center,therefore, just might galvanize Congress to amend the Federal Arbitration Actto exempt the mandatory arbitration of consumer, franchise and employmentdisputes.
[Posted on behalf of Karen Halverson Cross by Jeremy Telman]