Should A Company's Hand-Picked Arbitrator Get to Decide Whether It's Fair for the Company to Hand Pick the Arbitrator?

by Deepak Gupta

Even prominent arbitrators agree: Decisions about whether arbitration clauses in the consumer and employment context are unconscionable shouldn't be left entirely in the hands of arbitrators themselves. Instead, courts must be able to step in and prevent abuses.

That’s the upshot of an amicus brief filed yesterday by 23 nationally prominent professional arbitrators and arbitration scholars in Rent-A-Center v. Jackson, a case that will be argued before the U.S. Supreme Court on April 26.

It was one of seven friend-of-the-court briefs filed Wednesday by a broad coalition of civil rights organizations, labor unions, and consumer groups. Although the Rent-A-Center case has so far received little media attention, the case could radically alter the landscape of access to the civil justice system for consumers, employees, and franchisees.

As many readers of this blog are probably aware, Section 2 of the Federal Arbitration Act makes arbitration agreements "enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The Supreme Court has made clear that one of the grounds encompassed in that savings clause is unconscionability under state law. So one would think that courts would lack power to enforce, i.e. compel arbitration under, an unconscionable arbitration agreement.  But, as I'll explain below, Rent-a-Center's legal theory challenges that very proposition.

The Rent-a-Center case stems from am employment discrimination suit brought by Antonio Jackson, a resident of Sparks, Nev., who was hired in 2003 as an account manager for Rent-A-Center, a rent-to-own company, and fired several years later. Rent-A-Center asked the court to dismiss the claim because Jackson had signed an arbitration agreement, saying that any dispute would be resolved by an arbitrator, not a court. Jackson argued that the arbitration agreement was unconscionable and should not be enforced. 

Rent-A-Center responded by citing a provision in its arbitration agreement purporting to delegate the question of unconscionability, and hence enforceability, to the arbitrator.  The company argues that such delegation clauses must be enforced, relying on dicta in First Options v. of Chicago v. Kaplan, 514 U.S. 938 (1995), which says that arbitrability (i.e. the scope of the arbitration agreement) is presumptively for the court but may be delegated to the arbitrator if that delegation is "clear and unmistakeable."  Rent-a-Center wants to the Court to extend that dicta not just to arbitrability, but to enforceability--to the validity of the arbitration agreement itself.

If Rent-a-Center prevails, nothing would stop companies from inserting similar delegation clauses into their standard-form arbitration agreements. Armed with such clauses, companies would then be free to impose one-sided terms or select clearly biased arbitrators with close ties to the company. In effect, the Supreme Court is being asked to decide whether a company's hand-picked arbitrator may decide whether it's fair for the company to hand pick the arbitrator.  (For an insightful scholarly treatment of the issue, see Karen Halverson Cross's draft article, Letting the Arbitrator Decide: Unconscionability and the Allocation of Authority between Courts and Arbitrators.)

The arbitrators’ brief filed yesterday was signed by several past presidents of the National Academy of Arbitrators and arbitrators for Major League Baseball, the National Football League and the National Basketball Association, as well as arbitrators who have handled some of the largest labor disputes in U.S. history.  The brief points out that some court review of the worst abuses is essential to public confidence in, and the integrity of, the arbitration process.

Also filing a brief were six leading civil rights groups including the Lawyers Committee for Civil Rights, which pointed out that an individual’s ability to seek redress in court for unlawful discrimination is critical to the eradication of discrimination in the workplace. 

The National Consumer Law Center's brief detailed the pro-business bias shown by the National Arbitration Forum, formerly the nation’s largest provider of consumer arbitrations, illustrating the dangers of handing over the unconscionability issue to the arbitral forum. Other briefs were filed by the National Association of Consumer Advocates; SEIU, and several other workers’ rights groups; the AFL-CIO; and the American Association for Justice and AARP. You can find background about the case here, and read all of the briefs in the case here.

Disclosure: Public Citizen Litigation Group is co-counsel for the respondent, along with Public Justice (formerly known as Trial Lawyers for Public Justice) and the Hardy Law Firm of Reno, Nevada. The case will be argued on April 26 by Ian Silverberg of the Hardy firm.

Comments

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