Arbitration. Enforceability of Agreement to Arbitrate. Ninth Circuit holds that under the Federal Arbitration Act, a challenge to the enforceability of an arbitration agreement as unconscionable must be determined by a court, and not an arbitrator

Arbitration. Enforceability of Agreement to Arbitrate. Ninth Circuit holds that under the Federal Arbitration Act, a challenge to the enforceability of an arbitration agreement as unconscionable must be determined by a court, and not an arbitrator

Jackson v. Rent-A-Center West, Inc., 581 F.3d 912 (9th Cir. 2009)

Plaintiff Antonio Jackson was an employee of Defendant Rent-A-Center West, Inc. ("Employer").  On February 1, 2007, Jackson filed a complaint in Nevada district court alleging race discrimination and retaliation on the part of his Employer under the Civil Rights Act of 1991, 42 U.S.C. § 1981.  The Employer moved to dismiss the action and compel arbitration, relying on a "Mutual Agreement to Arbitrate Claims" Jackson signed as a condition of his employment when he was initially hired.  The agreement specifically included claims for discrimination in the list of claims that must be resolved by arbitration.

Of particular relevance was a section of the agreement entitled "Arbitration Procedures," which includes the following provision:

The Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.

The Employer argued in the district court that, in light of this provision, the threshold question of whether the arbitration agreement was valid and enforceable was for an arbitrator, not the court.  Jackson argued in response that the agreement was unconscionable.  In particular, Jackson contended that the agreement was substantively unconscionable because it contained one-sided coverage and discovery provisions and a provision specifying that the arbitrator's fee was to be equally shared by the parties.  Jackson also argued that the agreement was procedurally unconscionable because the form contract was presented to him as a non-negotiable condition of his employment.

The district court granted the Employer's motion to dismiss the action and compel arbitration.  The court found that the agreement to arbitrate clearly and unmistakably provides the arbitrator with the exclusive authority to decide whether the agreement to arbitrate is enforceable and held that the question of arbitrability is for the arbitrator.

On appeal, the Ninth Circuit reversed, holding that where a party specifically challenges arbitration provisions as unconscionable and hence invalid, whether the arbitration provisions are unconscionable is an issue for the court to determine, applying relevant state contract law principles, even where the agreement's express terms delegate that determination to the arbitrator.  The Ninth Circuit held that where, as here, an arbitration agreement delegates the question of the arbitration agreement's validity to the arbitrator, a dispute as to whether the agreement to arbitrate arbitrability is itself enforceable is nonetheless for the court to decide as a threshold matter.