Last week the United States Supreme Court decided a case originating out of Nevada,
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. ___ (2010). An employee of Rent-A-
Center filed an employment discrimination suit in federal court, and the employer filed a
motion to compel arbitration. On Certiorari from the Ninth Circuit, the Supreme Court ruled
that under the Federal Arbitration Act, codified in Title 9 of the United States Code (FAA),
the courts could decide the enforceability of an arbitration clause in an employment agreement
that stated the arbitrator must decide the enforceability of the agreement as a whole,
whereas only the arbitrator could decide whether the employment agreement as a whole
In opposing the motion to compel arbitration, Jackson argued the arbitration clause was unconscionable under Nevada law. The federal trial court dismissed, stating the arbtration clause prevented it from deciding Jackson's unconscionable argument. Jackson appealed to the Ninth Circuit, which reversed, stating the courts decide the threshold question of whether the agreement was enforceable, affirmed the trial court's finding against Jackson on part of his unconscionable argument, and remanding for the trail court to decide the remainder of Jackson's unconscionable argument.
Justice Scalia delivered the opinion, and pointed out that Jackson's challenge was not to the validity of the agreement but to his manifestation of intent to the arbitration clause based on his unconscionability agrument. Additionally, Jackson's briefs argued the entire agreement was invalid. Based on those observations, Scalia concluded that Jackson's challenge was to the validity of the agreement as a whole versus the validity of the arbitration clause, and reversed the Ninth Circuit's decision.
Relying on First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), Justice Stevens dissented, reasoning that the arbitration clause at issue did not "clearly and unmistakeably" evince Jackson's assent to arbitration because of his unconscionability argument. Stevens characterized Scalia's opinion as a "'fantastic' and likely erroneous decision" because it went beyond what the parties asked the Court to decide. Stevens also asserted that the majority opinion expanded the holding in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), where the challenge was to the validity of the agreement due to fraud in the inducement, and not to the embedded arbitration clause. Thus, Stevens would have affirmed the Ninth Circuit's decision.