Rent-A-Center, West v. Jackson

The Supreme Court’s decision regarding whether a district court must decide any unconscionability challenge to an arbitration agreement before sending the parties to arbitration is centered upon analysis of §2 of the Federal Arbitration Act (“FAA”). See 9 U.S.C. §2. FAA §2 states that an arbitration agreement shall be “valid, irrevocable, and enforceable save upon grounds as exist at law or equity for the revocation of any contract.” See Brief for Respondent, Antonio Jackson at 11 (quoting 9 U.S.C. §2). In this case, Respondent Antonio Jackson argues that FAA §2 prevents parties from agreeing to arbitrate unconscionability challenges to the arbitration agreement. See Id. at 10. Instead, Jackson claims that district courts must resolve any unconscionability challenge to an arbitration agreement before enforcing the agreement because an unconscionability claim constitutes “grounds as exist at law” under FAA §2. See Id.However, Petitioner Rent-A-Center, West Inc. (“RAC”) claims that, where the parties to an arbitration agreement have expressly agreed to arbitrate enforceability of the contract, that agreement should be honored. See Brief for Petitioner, Rent-A-Center, West Inc. at 12.

Should courts allow parties to agree to arbitrate unconscionability challenges to an arbitration agreement?

According to Jackson, a district court must determine whether an arbitration agreement satisfies §2 of the FAA before the agreement to arbitrate can be enforced. See Brief for Respondent at 11. Jackson claims that one of the basic requirements that §2 sets out is that an arbitration agreement must not be void based upon state contract law claims. See Id. Because a claim of unconscionability implicates this requirement, Jackson argues that a district court must therefore decide upon an unconscionability claim before sending the parties to arbitration. See Id.

Furthermore, Jackson finds support for his argument in §4 of the FAA, which states: that, “if the making of the arbitration agreement or the failure, neglect or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.” See Brief for Respondent at 16 (citing 9 U.S.C. §4). As Jackson explains, the Court has held that a contract defense, such as fraud, which is brought against an arbitration agreement constitutes a challenge to “the making of the arbitration agreement” under §4 of the FAA. See Id. at 19 (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967)). Jackson reasons that, because unconscionability is also a contract defense, an unconscionability claim would also implicate §4 of the FAA and necessarily require district court review before enforcement of the arbitration agreement. See Id. at 20.

Finally, Jackson analogizes the treatment of arbitration agreements with the treatment of forum-selection clauses (a type of contract provision in which parties agree to litigate in a specified forum). See Brief for Respondent at 31. According to Jackson, the Court has held that, when a forum-selection clause is challenged, a non-forum court must first determine the validity of the clause before allowing the parties to proceed to the specified forum. See Id. at 31–32. Jackson argues that district courts should similarly decide challenges to the validity of an arbitration agreement before enforcing such an agreement. See Id. at 34. Otherwise, Jackson maintains that the Court would render arbitration agreements more easily enforceable than other types of contract provisions. See Id.

RAC concedes that generally, a district court would determine a claim of unconscionability before enforcing an arbitration agreement if the agreement did not include any provisions on the issue. See Brief for Petitioner at 22. However, RAC argues that district courts are not required to determine the “gateway” question of whether an arbitration agreement is valid where the parties have clearly given arbitrators the power to resolve this question. See Id. at 21. As RAC explains, the Court held in AT&T that, “[u]nless the parties clearly and unmistakably provided otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.” See Id. at 23 (citing AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643 (1986)). RAC argues that AT&T thus establishes that parties have the power to give arbitrators the authority to determine the validity of arbitration agreements so long as the parties clearly and unmistakably agree to do so. See Id.

Moreover, RAC explains that the Court held in First Options that district courts should apply state contract law principles to determine whether parties have clearly and unmistakably agreed to give an arbitrator authority to determine enforceability issues. See Brief for Petitioner at 23 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995)). In this case, applicable state contract law requires courts to consider whether parties have objectively assented to form a contract when determining whether a contract has indeed been formed. See Id. at 31. For example, the parties’ signatures on a written agreement would be considered objective assent, but the parties’ intentions when signing the agreement would be considered subjective, not objective assent. See Id.Applying this standard, RAC asserts that the lower courts in this case have already determined that the language of the arbitration agreement would give the arbitrator authority to decide unconscionability challenges. See Id. at 24. Thus, because Jackson has signed the arbitration agreement and does not dispute the agreement’s language, RAC maintains that Jackson has clearly and unmistakably agreed to give arbitrators the authority to determine any unconscionability challenges, regardless of whether Jackson “meaningfully assented” when he signed the agreement. See Id. at 24, 32.

Finally, RAC points out that several circuits have enforced agreements granting arbitrators power to determine the validity of the arbitration agreement, even where a party has challenged the agreement with an unconscionability claim. See Brief for Petitioner at 27. According to RAC, the First, Eighth, and Eleventh Circuit Courts of Appeals have all decided contrary to the Ninth Circuit’s decision in this case. See Id. at 27–28.

Are arbitrators capable of deciding unconscionability claims?

Jackson argues that giving arbitrators the authority to decide unconscionability challenges to arbitration agreements will “endanger the legitimacy of arbitration.” See Brief for Respondent at 35. However, RAC argues that arbitrators are fully capable of deciding unconscionability challenges to an arbitration agreement. See Brief for Petitioner at 34. First, RAC points out that the Court has repeatedly ruled against a presumption that “parties . . . will be unable or unwilling to retain competent, conscientious, and impartial arbitrators.” Id. at 37. Moreover, RAC maintains that, if one were to accept Jackson’s argument, then arbitrators could not be trusted to make any definitive determination because arbitrators would have a financial interest in prolonging arbitration. See Id. at 35. Similarly, RAC reasons that arbitrators could not be trusted to make rulings during the arbitration process on the scope of discovery and admissibility of witnesses, because arbitrators would always rule in favor of making the process more complex and thus, more time-consuming. See Id. at 36. RAC further argues that if one were to accept this characterization of arbitrators, then courts would be forced to frequently intervene upon the arbitration process, thus destroying the purpose of arbitration, which is to provide a speedier and less costly alternative to litigation. See Id. at 36.