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.