By John (Jay) McCauley
Despite all the alarmist reaction already showing up in the press, the holding in Rent-A-Center v. Jackson, ___ U.S. ___, slip op. (June 21, 2010) is both modest and predictable. Arbitration agreements always do one thing: take decisions from judges and give them to arbitrators. Ever since 1925, such agreements have always been enforced to exactly the same extent as any other agreement is enforced. Not less so, but also not more so. Are they enforced even when the decision in question is the “gateway” decision of whether the parties must arbitrate their dispute? Yes, as long as the agreement delegating even that decision to the arbitrator is explicit and unmistakeable. Is that news? No. See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (dictum).
Should it matter that this delegation language is physically located within the challenged arbitration agreement itself? No. (If the answer were “Yes,” any contract drafter could “solve” the problem by plucking out the delegation provision and pasting it onto another sheet of paper to be separately executed as the “delegation agreement.”) What does matter is whether the challenge brought against the arbitration agreement is the kind that goes to the enforceability of the delegation provision itself. Are there such challenges in theory? Sure, dozens of them. Does that fact put severe brakes on the implications of the Rent-a-Center holding for other cases? Yes, that’s the point. Were there any such challenges in the Rent-a-Center case? No. None whatsoever. As the Court noted, the party challenging arbitration in this particular case did not even attempt to raise one. Would the Court have been open to listening to such a challenge? Yes. Not just by implication. It expressly said it would.
Some of the alarmist commentary stands on the cynical premise that law is pure politics, such that the statement “the outcome of this case is pro-business” is thought to serve as a principled basis the court should have used to distinguish the precedent it is required to honor. Some of these commentaries, remarkably enough, even come from lawyers.
The more sophisticated of the alarmist commentaries made a more sophisticated mistake. They took the way Justice Scalia framed the issue in the first sentence of the decision, and leaped to the conclusion that that sentence could serve as the entire holding.
Justice Scalia said: “We consider whether. . . a district court may decide a claim that an arbitration agreement is unconscionable, where the agreement explicitly assigns that decision to the arbitrator.”
His answer (the holding) was not exactly “It may not.” His answer was really, “It may not, unless, of course, the provision assigning the decision to the arbitrator is itself subject to any challenge whatsoever (including unconscionability) recognizable to anyone familiar with the common law of contracts.
To which I would only add the not very dramatic commentary: “Nothing very remarkable about that.”
EDITOR’S NOTE: John (Jay) McCauley is an American-Arbitration-Association certified arbitrator and mediator, and serves on the AAA’s Large Complex Case Panel. He is a Fellow of the College of Commercial Arbitrators and a Distinguished Fellow of the International Academy of Mediators. He offers arbitrator and mediator services through Judicate West and Professional Mediation Associates.
Jay also serves as an adjunct professor of arbitration law at Pepperdine Law School, the University of Missouri-Kansas City Law School and the Werner Institute of Creighton Law School. An AV-rated attorney, he is a member of the California bar and is admitted to practice before the United States Supreme Court. He is listed in “Best Lawyers in America” for ADR, and in “Southern California Super Lawyers,” also for ADR. You can visit his website here.
Our post introducing Jay is here.
