The Court holds that when an arbitration provision contains a delegation clause a party specifically challenging forced arbitration on the grounds of unconscionability must also bring a separate specific challenge to the delegation provision in order to have their objections heard by a court, not an arbitrator.

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Rent-A-Center, West, Inc., v. Jackson, 561 U.S. 63 (2010)
 

Relevant Facts: After a retail salesman filed an employment discrimination claim against his former employer, the company moved to compel arbitration under a forced arbitration clause upon which the worker’s employment had been conditioned. The employee specifically challenged the forced arbitration clause on the grounds of unconscionability, but the forced arbitration clause contained a delegation provision which provided that questions of the clause’s enforceability would be decided by an arbitrator. The district court granted the motion to compel and, because of the delegation provision, ordered the unconscionability question into arbitration. The appeals court reversed in part, holding that when a challenger asserts that he cannot meaningfully assent to the agreement, the threshold question of unconscionability is for the court to decide.

 

Question Before The Court: Whether an arbitrator or a judge shall determine the enforceability of a forced arbitration clause when the agreement includes a delegation provision.

 

The Opinion: The Court acknowledged that there are two ways to challenge an arbitration clause under § 2 of the FAA; a party can either specifically challenge the validity of the agreement to arbitrate, or they can challenge the contract as a whole. The Court held that unless it is expressly and specifically challenged, a delegation provision must be enforced. “If a party challenges the validity under § 2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with the agreement under § 4. That is no less true when the precise agreement to arbitrate is itself part of a larger arbitration agreement.” In other words, challenging the contract as a whole will not suffice to get the issue of the enforceability of an arbitration agreement with a delegation provision before a judge.

 

The Court cited its severability rule from Prima Paint in holding that “the delegation provision is an agreement to arbitrate threshold issues concerning the arbitration agreement. We have recognized that parties can agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy. . .. [Delegation provisions are] simply an additional, antecedent arbitration agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does any other. . . Application of the severability rule does not depend on the substance of the remainder of the contract. Section 2 operates on the specific ‘written provision’ to ‘settle by arbitration a controversy’ that the party seeks to enforce. Accordingly, unless [a party] challenged the delegation provision specifically, we must treat it as valid . . . and must enforce it, . . . leaving any challenge to the validity of the Agreement as a whole to the Arbitrator.”

 

The primary effect of this case was summarized in Justice Stevens’ dissent: “A claim that an entire arbitration agreement is invalid will not go to the court unless a party challenges the particular sentences that delegate such claims to the arbitrator, on some contract ground that is unique and particular to the sentences.” In so deciding, the Court gave effect to contracts even when the validity of those very contracts is in question. Justice Stevens addressed this problem, saying, inter alia, “I do not think an agreement to arbitrate can ever manifest a clear and unmistakable intent to arbitrate its own validity.”

 

Arguably, one could go much further in questioning why the FAA is applied to the delegation provision at all. The FAA only applies to “written provision[s] . . . evidencing a transaction involving commerce.” While an arbitration clause may be a part of, but severed from, an underlying contract in interstate commerce—which is the means by which the FAA applies to them—the same cannot be said for a delegation provision. The contract that contains a delegation provision is the arbitration contract. In Mitsubishi Motors the Court went to great lengths to characterize arbitration contracts as “mere forum-selection clauses.” Even under the broadest interpretation of the Commerce Clause, forum-selection clauses have never been interpreted as contracts in interstate commerce. Because delegation provisions are severed from arbitration agreements which, again, are not contracts in interstate commerce in and of themselves, it’s questionable that the FAA should apply to matters of their enforceability.

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