Court Says Arbitrators Can Decide If Arbitration Is Fair

Think the arbitration clause in a contract is unfair? Go ahead and contest it! Of course, you shouldn’t expect to win, since the Supreme Court has just ruled that it’s just fine for the arbitrator to decide whether the clause is fair.

In a 5-4 ruling, the Court found that a lower court erred in granting the courts the right to determine the fairness of an arbitration clause which included a statement that enforceability could only be determined by an arbitrator. As adjudicated by Consumer Reports:

The decision involved an employment discrimination case brought by a Nevada worker against his former employer, Rent-a-Center. The employee challenged the arbitration clause as being unconscionable under Nevada law. Because the clause had a provision empowering the arbitrator to settle questions about the enforceability of the clause itself, the decision belonged to the arbitrator and not to the courts, said the majority opinion, written by Justice Antonin Scalia.

The dissent, written by Justice John Stevens, questioned the court’s logic of enforcing a provision of an agreement whose very enforceability is being questioned.

The ruling may eventually be overturned by Congress, which may pass legislation that would give courts the power to determine whether an arbitration clause is valid or enforceable.

Is that arbitration clause unfair? Ask the arbitrator. [Consumer Reports]

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  1. Fallom says:

    “In a 5-4 decision…” is the death knell of America

    • dragonfire81 says:

      Agreed. They should require a stronger majority than that. Heck juries have to be 12-0 most of the time!

      • DanRydell says:

        Jurors are morons, these are supreme court justices.

        • Ben says:

          Plus what would you do if it was a hung Supreme Court?

          • BigBoat2 says:

            Once in a great while it happens, when a justice recuses themselves because they have an interest. The rule says if its a tie, the lower ruling is upheld.

        • YouDidWhatNow? says:

          …I don’t see what distinction you think you’re making…

        • Beeker26 says:

          And they should start acting like them. I swear some of their recent rulings are mind boggling.

        • VeganPixels says:

          They’re just as smart as they were in the corporate money=speech decision.

        • thisistobehelpful says:

          Doesn’t mean we couldn’t ask for two thirds.

        • knoxblox says:

          I may be flogging a dead horse here, but in 1857, the Dred Scott v. Sandford proved that Chief Justice Roger Taney was in effect, a moron when he read the ruling of the Missouri Compromise to be unconstitutional.

        • SarasiPolyxena says:

          Apparently something like 56% of Supreme Court justices are morons too…..

        • DanRydell says:

          lulz at all the people commenting without understanding what happened here.

          Arbitrators aren’t going to be able to eat your babies, this just forces the congress to do their jobs.

          • magus_melchior says:

            No, but they will tell a rape victim to go f*ck herself because she wasn’t attacked in the US.

    • JonStewartMill says:

      Since 12/12/2000.

  2. smo0 says:

    Someone ougghta take #5 and beat the crap out of him with a garden hose.

  3. Tightlines says:

    They’re only activist judges if they’re liberal.

    • partofme says:

      This is less “activist”, and more “stupid”. If anything, it’s the opposite of activist. It’s letting the problem be a problem until the lawmakers get around to making the law, rather than making a de-facto law to fix a problem before lawmakers get around to making the law. Again, the ruling is stupid, but it’s not activist.

      • DanRydell says:

        In other words you’re saying that it’s consistent with the current law? Which is the way the Supreme Court is supposed to rule? Which is the opposite of being activist judges?

        • partofme says:

          I just finished reading both opinions. It’s like Compypaq says below: kinda weird. Basically, the courts can hear challenges regarding arbitrability, but very very very narrowly. In the dissent, Stevens says you can have the entire arbitration agreement in a separate agreement. Under the ruling, if you challenge the entire arbitration agreement, it cannot be heard by the court. But if you challenge only the specific piece of the arbitration agreement that delegates the matter to an arbitrator, a court can rule. This particular situation has not been encountered before, and it’s a merging of a couple different precedents. But the court has said, “This is something that we’re not going to get involved in. We’re not going to extend our power beyond the smallest amount allowed by previous decisions: deciding whether or not the specific delegation clause of the arbitration agreement is valid.” So yea, definitely not activist.

        • kmw2 says:

          Actually, the Supreme Court is not bound to rulings that are consistent with current law if they determine that the constitutionality of current law is suspect. The Supreme Court are responsible for upholding the Constitution, not lesser laws currently on the books.

          • DanRydell says:

            You are correct that they can invalidate a law based on the constitution, but their rulings are supposed to be based on the law and the constitution – they are not supposed to create new law. That is the role of the congress.

            • kujospam says:

              Sigh you are in fact wrong. it has always been the job of Justices to enforce law thereby making law. Congress is like a general plot of a story, where the judges are the details throughout. Besides, Jury’s hold more power then just about any government position. Jury’s can make just about anything happen, and make laws meaningless if they so choose to.

  4. oldwiz65 says:

    So company A hires arbitration agency B to arbitrate whatever claims. Now is there any reason whatsoever for agency B to every rule against company A? Arbitration companies almost never every rule in favor of anyone but the company that employs them; why should they? If they want to stay in business they have to favor the companies that hire them.

  5. CompyPaq says:

    I read both the majority and the dissent. It seems that if the employee challenged the right of the Arbitrator to decide whether the agreement was fair he would have had a case, but since he only challenged the arbitration agreement itself, the court decided that it had no right to decide whether or not the arbitration agreement as a whole was fair.

    Its a kind of weird distinction but the court basically decided that it can’t declare a part of a contract that wasn’t actually challenged void.

    • seishino says:

      So… the court ruled that it can’t rule whether or not an arbitration contract is enforceable. But it could rule whether or not it could rule whether or not an arbitration contract is enforceable? Even though if it did rule in favor of that, it would rule that it would be wrong to rule, which is what was ruled here. Correct?

      Contracts usurping law is just confusing.

      • DanRydell says:

        “Even though if it did rule in favor of that, it would rule that it would be wrong to rule, which is what was ruled here.” No, because once it had ruled that the clause was invalid, they would have been able to rule on the rest of the agreement.

    • ihatephonecompanies says:

      So… does this mean that if the arbitrator rules that the arbitration was fair, the consumer can then go to a court and claim that the arbitrators ruling that the arbitration was fair is unfair?

    • lawdawg says:

      I understand what the majority said, but that was not the law. The unfairness of the terms of a contract is one consideration in determining whether a contract is unconscionable under state law. After this decision, the plaintiff will have to challenge not only the arbitration clauses itself, but also every provision of the contract that arguably delegates some authority to the arbitrator. States have laws that protect it’s citizens from enforcement of unconscionable cases. It is ironic that conservative Scalia wrote this opinion because it actually usurps state rights to protect citizens.

  6. JonP says:

    There is little doubt that the record of the AAA in general, and the arbitrator, that was assigned in particular to my case with a record of 40-0 against consumers, would cause any reasonable person to entertain serious doubt that this arbitrator and the AAA are or possibly could be impartial.

    See the video:
    http://www.youtube.com/watch?v=9sCUmXfy03c

    Arbitration clause unfair? Ask the arbitrator? I think not!

  7. coren says:

    I…wait, what?

  8. Eat The Rich -They are fat and succulent says:

    Yet another great ruling by this particular iteration of the court. This is the most corporate friendly, average American *unfriendly* court in many a decade. Do I dare say how this court was shaped?

    Nah…it will just start off a Libs vs. Repubs. argument that will have no lasting value or impact.

    • MauriceCallidice says:

      So get Congress to change the situation. It’s not like the Supreme Court struck down a federal law here. They just said we don’t have the legal authority to do what’s being asked.

      Lawmaking is supposed to be Congress’s job, not the courts.

  9. seanhcalgary says:

    From an outsider’s perspective, watching the decline of such a powerful country is interesting to watch.

    • partofme says:

      This is what you think the downfall of America is? This is only a very small hiccup. True signs of our downfall are all over the place, and much more obvious. This is literally the very least of our problems.

      • seanhcalgary says:

        You misunderstand me. This ruling isn’t the biggest part of the decline, it’s just part of it.

        From what I can see, all three branches of government (executive, legislative and judicial) now exist to protect and benefit corporations, not the people. Foreign wars are entered/started so government weapons contractors can stay in business, human costs be damned.

        This court ruling makes absolutely no sense, other than to make life easier for business, and harder for the people.

        So, no, this ruling won’t be the downfall of the US. But if you don’t see it as a symptom of the downfall, you’re kidding yourself.

        • partofme says:

          I’m kidding myself when I read this decision and see “oh, so if you object to ONLY the specific clause delegating authority to an arbitrator, then a court can hear it… they just have to avoid ruling on anything other than JUST the delegation clause” I’m kidding myself? This is really just a small technicality in a system of laws full of technicalities. It’s really no more of an injustice than hundreds of other tiny injustices that go both ways. This is very far from the major problem it’s being represented as…. and really not that big of a win for businesses. And regardless, arbitration clauses in general are more and more in the scope of Congresscritters because of overblown interpretations of these rulings, so it’s not going to last long.

    • Beeker26 says:

      It’s pretty damned interesting to watch from the inside too. But not in a good way.

    • humphrmi says:

      I read last week that a fairly well-respected Russian political analyst is predicting that Obama will declare national martial law by the end of 2011, and within a few years after that, the U.S. will break up into five different countries. I thought he was a nutjob.

      Shit like this makes you start to believe it.

      • VeganPixels says:

        Sorry, can’t wait that long. Join us in West CoastLand. Dual citizenship with East CoastLanders. EU-type live/work/travel privileges with Canada COMING SOON.

      • Tightlines says:

        You forgot to add that he’ll institute Sharia law and place everyone in FEMA camps.

      • ARP says:

        He’ll do that right after he creates the death panels, takes away all the guns, allows UN troops to police the streets, imposes right wing Shira law, and takes over all the businesses.

        I think Beck is on.

      • El_Red says:

        You cannot take Russian analysts too seriously. They try to transpose their experience in Russia to USA. Plus analysts are constantly make mistakes…
        ( I don’t believe by 2011. By 2050, maybe…)

  10. sven.kirk says:

    http://theusconstitution.org/blog.history/?p=1785
    Read the 3rd paragraph…
    ‘Jackson’s lawyers brought the wrong claim.’

    • ShruggingGalt says:

      +1.

      This happens all the time at SCOTUS.

    • Coyote says:

      That’s not how I read it. It looked like his lawyers tried to go for the big win and get the whole contract (if not all arbitration contracts) voided on the clients claim. The court said no lets just look at what “this” case is about. Sounds more like a lazy court not wanting to step on any more toes than necessary.

  11. Tiandli says:

    True justice would be those five judges having to go to arbitration.

    • Inglix_the_Mad says:

      True justice would make most arbitration contracts, and EULAs, unenforceable.

    • Im Just Saying says:

      True justice would be a 5 on 4 handicap Texas Tornado Death Match in the squared circle for the World Title. LOSER LEAVES TOWN!!!

  12. thisistobehelpful says:

    Can we start the country from scratch now?

  13. Buckus says:

    Isn’t that like asking a car salesman if you got a good deal?

  14. StarVapor says:

    This ruling establishes protection for the obvious conflict of interest that it creates.

  15. El_Red says:

    Why not create a law stating : “Arbirtration clauses cannot override laws .”
    Simple. Will fix a lot of issues, too.
    (That what some Canadian provinces do).

  16. nbs2 says:

    Why all the anger? The courts exist to uphold law, not create it. Even in instances where they are “being activist” all they are doing is upholding a superior law – usually upholding the Constitution. In a case like this, where the matter is one of contract law, the Constitution isn’t really involved, but previous legislation is. If the law doesn’t prohibit arbitration clauses, then what justification does the court have to strike them down? Because they’re bad? That’s not good enough. They need to violate some governing law. If Congress wants to fix things, they can. But don’t cry because the SCOTUS isn’t doing the fixing for them.

    • Tightlines says:

      Judges historically have not simply upheld current law. They’ve interpreted, and in many cases, struck down the law. Citizens United was not upholding current law, it was a complete reversal of a hundred years of existing law. It just so happens that the make up of the current Supreme Court lends itself to siding with business and against average folks, just as the make up of the Court led to Brown v. Bd. of Education and Roe v. Wade.

      The “judges as umpires calling balls and strikes” meme is complete bullshit.

      • AnthonyC says:

        There aren’t precise enough words in the english language, nor enough lawmakers to write them into law, for the law to be complete and coherent enough to account for every case a court might ever hear.

        We always wrap our ideals and ideas in words like freedom, justice, duty, and right- so much so that we forget that, fundamentally, these are undefined terms with blurry and overlapping edges.

  17. Bob says:

    Headlines: Chicken in Coop Local #456 protest unfair treatment during arbitration proceeding. Court says Foxes can determine fairness of arbitration.

    What the Sam Hill were the Justices thinking? Telling the public “U has arbitration claws? Sorry u can’t has law.”

    It is as if you were buying a house and EVERY real estate company requires you to join a HOA even if you don’t want to be in one. I think we should be able to freely decide arbitration or not and still get services. The company can charge more for their product without the clause but freedom has never been free. For example, cars are expensive but, in most American cities, do you want to be in a position where you HAVE to take mass transit?

    The choice should be real and I have no idea why these Justices will not see that we are given no real choice in the matter. When about ALL companies you deal with have an Arbitration clause in their contracts what choice do you have? Homestead in Igloo, Alaska (that is 65 miles close to Big Bear, Alaska) and make everything yourself just to preserve your right to sue for legitimate grievances?

  18. Sys Admn says:

    If arbitration is so impartial, why not let the plaintiff choose the arbitrator? Why not publish the plaintiff:defendant win ratios, including the percentage of relief granted? In the stock brokers’ cases, there are plenty of times a plaintiff wins a small percentage of his actual loss.

  19. DragonThermo says:

    This is the same SCOTUS that said that it was fair for the government to take your private property and then give it to a private developer.

    I also heard that the SCOTUS decided that payday loan corporations can enforce whether usury laws are fair and and set fair interest rates.