Because of the fictional separability of a delegation clause in an arbitration agreement, issues regarding the enforceability of an arbitration agreement can be delegated to an arbitrator under the reasoning of the Supreme Court’s decision in Rent–A–Center, West, Inc. v. Jackson (2010).
A recent California appellate decision shows the impact of the Rent-A-Center case. See Tiri v. Lucky Chances, Inc., No. A1376675 (Cal. App. 1st Dist. May 15, 2014) (click here for a copy of the decision). The employee, who was suing for wrongful discharge, raised some arguments why the arbitration clause was unconscionable. However, instead of addressing these unconscionability arguments, the court held that such unconscionability arguments are for the arbitrator to resolve.
In reaching its decision to compel arbitration, the court analyzed whether the delegation clause was itself unconscionable. In other words, the court considered whether there were unconscionability arguments specifically directed towards the delegation clause and not directed at the arbitration agreement as a whole. The court concluded there was nothing shocking or one-sided about the delegation clause (the court suggested that perhaps if the delegation clause applied only to one party, there could be an unconscionability argument specifically targeting and invalidating the delegation clause. However, the delegation clause here did not suffer from a lack of mutuality.) With this type of analysis, it seems like delegation clauses will be virtually always valid as long as these clauses are drafted to apply to both parties.
This analysis renders the FAA’s language meaningless. Under the FAA, courts are supposed to ensure that parties actually made an agreement to arbitrate. However, with the separability of a delegation clause, the court is merely engaging in a superficial analysis of whether there is delegation language in the contract. There is no need for a judge to engage in this “analysis”; I can program my computer or develop a smartphone app to simply detect whether such language exists in a contract. This “analysis” is a mere charade, a judicial rubber-stamping of arbitration agreements.
I have to disagree with your classification of this as “Rubber Stamping.” The CA court conducted and explained its analysis in quite extensive detail. The U. S. Supreme Court jurisprudence compels the exact conclusion reached by this court.
I drafted the original version of the language considered and approved by the U.S. Supreme Court in Jackson v. Rent-a-Center. It was intended precisely to achieve the result of transferring the issue of arbitrability from any court to the arbitrator(s). The major difference between my original language and that construed was that I assigned the issue of arbitrability to a “special issues” arbitrator who was prohibited from hearing the merits of any dispute. I did that because I anticipated the probability of such an attack and intended to eliminate any temptation for a court to assert that an arbitrator may be improperly influenced by the prospect of future arbitrator fees.
The assignment of arbitrability to the arbitrator(s) is consistent with standard international practice and with the practices of almost all commercial arbitration operations. Whilst people may disagree politically and philosophically with arbitration of employment disputes, such arbitration remains legal and enforceable. Any “remedy” must remain with the U.S. Congress, which despite regular filings of “reform” legislation, never seems to have sufficient interest to move those bills even out of Committee in either the Democratic Senate or the Republican House. Notably, such legislation never progressed even when the Democrats controlled the Presidency, House and Senate.
Arbitration has multiple deficiencies, especially when administered by self serving organizations with an agenda, such as the AAA or the late, unlamented NAF. Those problems can be addressed and cured by greater attention to the ethics and neutrality of arbitrators AND the lack of real ethics of certain administering agencies. The assertion by the AAA that it could not subscribe to the proposed Code of Ethics for Arbitration Administering organizations it participated in drafting because it was so “special” could only be properly commented upon by a Saturday Night Live lampoon. A focus on the outrageous and unnecessary expenses of the administering agencies would also be worthwhile.
Thanks so much for sharing. I really like your idea of “special issues” arbitrators; that’s a great solution. Such “special issues” arbitrators could also help in the field of class arbitration for the clause construction award. I don’t believe an arbitrator at the clause construction stage who magically finds complex class procedures arising out of thin air should proceed to hear the class arbitration. (I am troubled by findings that a “silent” clause today, which is just as silent as arbitration clauses in the early 1900s when modern class action practice was not even known, provides full authority for class arbitration.)
I also agree with you that the judges did engage in some analysis in this Tiri case, particularly with respect to finding some evidence of procedural unconscionability. However, this analysis was in effect meaningless and mere fluff — because what carried the day is that the delegation clause was separable and unassailable under Rent-A-Center (unless the delegation clause perhaps was poorly drafted and applied only to one party, which was not the case here). Under Prima Paint and before Rent-A-Center, a party could at least have argued that there was a defect with the making of the arbitration agreement. But now under the Supreme Court’s Rent-A-Center decision, such arguments focusing on the defects of an arbitration agreement are no longer heard by a court faced with a delegation clause. Now, a party will have to make the much harder, narrower showing of a defect with respect to the delegation clause. If you imagine a spectrum of judicial review, from the most searching judicial scrutiny of the making of an agreement at one end to a passive rubberstamping at the other, I think this case brings our system closer to a model of judicial rubberstamping of arbitration agreements. Under broad applications of Rent-A-Center, some courts appear willing to compel arbitration as long as the piece of paper contains sufficient ink setting forth a delegation clause. In effect, such courts are ignoring the circumstances of the making of the arbitration agreement, which is contrary to the explicit directive from section 4 of the FAA (“[the court] upon being satisfied that the making of the agreement for arbitration . . . is not in issue….”).