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Monday, June 21, 2010

Today's arbitration decision in Rent-A-Center v. Jackson

Hello, Prawfs readers. I guest-blogged here a couple months ago and wrote about Rent-a-Center v. Jackson. The case concerns who - court or arbitrator - decides an unconscionability challenge to certain aspects of an arbitration agreement, where the arbitration agreement itself purports to assign the decision to the arbitrator. Permablogger Matt Bodie has also been following the case, and he invited me to do a one-off return engagement now that the case has been decided. (For those who want to view the previous posts from a couple months back, my original post is here, and Matt's comments on the oral argument are here.)

Matt will be posting his own thoughts later today, either in comments here or in his own post. Check back for them, as I'm sure they'll be insightful.

Let me state at the outset that this is an early, tentative response rather than a polished, fully deliberated one. And I'm not trying to address every issue in the case. That being said, here are four thoughts in reaction to Rent-A-Center v. Jackson.

1. On the opinion’s logic. The opinion essentially takes the logic of the Prima Paint separability rule and pushes it one step further. In the usual separability scenario, we have an arbitration clause embedded in a container contract (which is a contract for consumer services, employment, whatever). In that kind of case, separability tells us that challenges that would invalidate the arbitration clause go to the court but that challenges to the contract as a whole go to the arbitrator. The two agreements are regarded as distinct, even though they are in the same document. In Rent-a-Center, the two agreements we are separating are 1) the agreement to arbitrate employment disputes, and 2) the agreement to arbitrate disputes over the enforceability of agreement #1. Again, they are on the same piece of paper, but that doesn’t really matter for Prima Paint. (The agreements logically could be separate documents, signed at different times.) The Court’s opinion tells us that challenges to agreement #2 would be for a court to decide. But the opinion reads Jackson’s complaints as not going to agreement #2. Because agreement #2 is valid, Jackson has agreed to let the arbitrator decide his complaints about agreement #1.

Whether or not one likes this result as a matter of policy (I’ve noted I would like to see major congressional action to take some categories of disputes out of the regime of binding pre-dispute arbitration), this result represents one logically reasonable interpretation of the precedents. Now, that probably sounds like damning by faint praise, and maybe it is, but many people have argued that it is somehow incoherent or illogical to permit the arbitrator to rule on any kind of unconscionability challenge to an arbitration agreement. It’s not, provided there is a valid agreement #2 in place. Again, whether this the all-things-considered best way to handle the important policy phenomenon of adhesive arbitration agreements is a different matter.

2. On the opinion’s breadth. As stated, the Court says that Jackson’s complaints went to the fairness of the arbitration clause in general, not to the agreement to delegate disputes over enforceability to the arbitrator (#2) in particular. The fact that Justice Scalia’s majority opinion lingers over what exactly Jackson was complaining about in his various filings might lead one to think that things could have come out the other way if only Jackson had phrased things a bit differently. That would reduce the case to a lesson in artful pleading. I don’t think such a reading of the case is correct. As Scalia notes at p. 10, it would be pretty hard to cast Jackson’s complaints as good complaints against agreement #2 in particular. Take discovery. If Jackson can’t get any discovery, that could make it very hard to win his employment discrimination claim, which might show there is a problem with agreement #1. But it is harder to say that lack of discovery makes agreement #2 unconscionable. All that being said, it seems there would be some arguments that would attack #2 in particular. As I’ve stated in previous posts and comments, this could include things like arbitrator bias, which can’t be separated out under Prima Paint.

3. The newly partisan nature of arbitration. It wasn’t always the case that these cases split 5-4 along the usual political lines. Indeed, people like Justice Brennan wrote some of the early pro-arbitration opinions. Stolt-Nielsen and this case show the breakdown of the old coalition. This seems important.

4. What does this mean for AT&T v. Concepcion? The Supreme Court recently granted cert. to decide whether a ruling invalidating an arbitration clause on unconscionability grounds is preempted by the FAA. (The preemption inquiry essentially turns on whether the lower court is discriminating against arbitration by applying a more searching unconscionability analysis than usual.) AT&T v. Concepcion is going to be a very hard case to decide in a responsible way. The Court is ill-equipped to resolve whether a lower court is discriminating against arbitration. First, unconscionability analysis often requires a fact-intensive inquiry. Second, and more important, determining whether a lower court is using unconscionability differently when it comes to arbitration requires an engagement with the details of state law and a comparison of lots of prior unconscionability cases. Third, and maybe most important of all, a holding that the lower court is applying unconscionability unfairly, especially when the lower court says it is applying the same analysis it applies elsewhere, is tantamount to accusing the lower court of dishonesty. Rent-a-Center assigns more of these unconscionability decisions to arbitrators. That makes cases like Concepcion much less important going forward: it doesn’t matter whether courts are getting unconscionability right or wrong, because the courts won’t be making the decisions. This is a good reason to DIG in Concepcion.

Posted by Aaron Bruhl on June 21, 2010 at 04:52 PM in Civil Procedure, Judicial Process | Permalink


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Hello to all. My name is Tyrone Simpson and I have worked for Rent-A-Center for almost 7 years. I have recently filed a discrimination charge against the company with the EEOC and now I am being retaliated against. My store manager, district manager, and regional manager are all trying to pressure me into signing the Rent-A-Center arbitration agreement. I have not signed the agreement as of yet because after reading it I believe it infringes upon the rights of the employee and is intentionally designed to favor the employer. I also feel that my signing the arbitration agreement may interfere with the fair handling of my discrimination case. I have recently within the last 30 days received two write ups (poor performance evaluations) which is more than I have received within the last 4 years. What should I do?

Posted by: Tyrone Simpson | Nov 30, 2010 11:06:56 PM

Lots of good points and questions. One thought in response to the scenario presented at the end of David's comment: I'd say the argument you posit - that the delegation clause is invalid because the arbitrator wouldn't have to follow precedent in ruling on unconscionability - would be a matter for the court to decide. I think we all agree on that, and I think the Court's opinion is consistent with that too. How would a court come out? Hard to say. I think that just the mere fact that precedent might not be followed wouldn't be a winning argument; accepting that argument would call the whole enterprise into question. But I could imagine stronger arguments (e.g., the plaintiff shows that a particular arbitration outfit keeps disregarding state unconscionability law, and that's why the business inserted the delegation clause, etc.). More broadly, we might see more arguments that generally have a bias feel to them.

Posted by: Aaron | Jun 23, 2010 3:56:08 PM

Thanks Matt and Aaron—I’ve really enjoyed and learned a lot from your posts on this topic. Given the creativity of the plaintiffs’ bar and the strong anti-arbitration sentiment among some judges, I’m curious whether the question of the delegation clause’s unconscionability turns out to be as narrow and self-contained as Justice Scalia suggests. (Aaron, I take it from your previous posts that you do, in fact, feel this way). The issue is what makes a delegation clause “harsh” is conceptually difficult because courts have generally struck down arbitration clauses on the grounds that one-sided or remedy-stripping provisions dilute substantive rights. A delegation provision takes away a “procedural” right and thus doesn’t really fit within that paradigm.

But if the ultimate issue is whether the arbitration apparatus affects substantive rights, isn’t there a colorable argument that a court can’t assess the delegation clause’s “harshness” without gauging the “harshness” of the underlying arbitration clause? (I.e., suppose the underlying arbitration clause contains a class arbitration waiver that would clearly be unconscionable under state law. Without arguing something as draconian as arbitrator bias or excessive costs, couldn’t a plaintiff argue that the mere fact that an arbitrator need not follow precedent when assessing the underlying arbitration clause is enough to make the delegation clause unconscionable?)

Posted by: David Horton | Jun 22, 2010 10:36:08 AM

Thanks to Aaron for coming back to post on this fascinating case. I'm most interested in Aaron's point (1), since I think it strikes at the heart of the debate surrounding this case. In Aaron's first post in the subject, I said that a result comparable to the one by today's majority "would be almost as intellectually shoddy as Bush v. Gore." Aaron's insightful commentary has moved me off this position, but I'm still not sure how much.
The critical issue, for me, is whether the result in Rent-A-Center is merely a misguided application of Prima Paint, or whether it is fundamentally different than Prima Paint. And I think Justice Stevens' dissent doesn't help sort this out, because he tries to have it both ways. He attacks Rent-A-Center as a perversion of Prima Paint, but then he also attacks Prima Paint itself. That's a time-worn rhetorical device in judicial opinions, of course, but it makes one suspicious about his perversion argument.
My take is this: Rent-A-Center illustrates the reductio ad absurdum of the Prima Paint logic. Prima Paint was all about severing the arbitration agreement from the rest of the contract, so as to provide for arbitration even for claims of fraud, duress, unconscionability, etc. against the underlying "substantive" contract as a whole. Here, the arbitration agreement was separate from the underlying agreement. And yet somehow the court separates the "delegation" portion of that arbitration agreement from the rest of the agreement. What's next? What if an arbitration contract delegate challenges to the delgability "clause" to the arbitrator? Couldn't one use Justice Scalia's opinion to argue, with a straight face, that the parties had "clearly and unmistakably" agreed to delegate questions of delegability to the arbitrator? Sure, it might be absurd, but don't judges initially have to rule on recusal motions? It's not impossible for arbitrators to do it. I suppose that's when this particular example of Zeno's paradox might meet reality (and it's too far for Aaron), but perhaps not.
To me, Justice Scalia's opinion, especially footnote 4, demonstrates the majority's unwillingness to abide by the allocation of powers they established in Gilmer. The rules of the game were this: state courts could only use state common law to overturn arbitration agreements -- but traditional remedies and defenses were available. The court specifically mentioned "overwhelming economic power" as one of the defenses. Yet today, the court has changed the rules. I hope Congress finally decides it's their turn to change the rules, too.

Posted by: Matt Bodie | Jun 21, 2010 7:33:32 PM

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