Arbitration|Courts

Insights on the Implications of Rent-a-Center

Thanks to Paul Lurie’s remarkable list-serve, we have a draft of Tom Stipanowich’s paper from the 2010 Fordham Conference, titled “Revelation and Reaction: The Struggle to Shape American Arbitration.”  Concentrating on two of what Stipanowich predicts with be a new “trilogy” of formative Supreme Court arbitration decisions, Stipanowich places both Stolt-Neilsen v. Animalfeeds International and Jackson v. Rent-a-Center in the context of prior judicial analysis of FAA Sections 2 and 4, and offers a clarity and sophistication that few could match.

Rather than attempt to summarize the draft, I thought it would whet all our appetites (it will appear in final form in the annual volume of proceedings of the Fordham Conference) to share just one part of this wonderful paper — a summary of the practical implications of the Rent-a-Center majority’s analysis.

Stipanowich cites the testimony of Julius Henry Cohen that the purpose of FAA Section 4 was to provide judicial oversight over the chance of abusive behavior by dominant parties to arbitration agreements, to prevent unfair advantage and to ensure that private arbitration does not immunize parties from adherence to public standards.  The party asserting in good faith that an agreement does not bind him to arbitrate “is protected by the provision of [the FAA] which requires the court to examine into the merits of such a claim.” 

Yet, according to Rent-a-Center, where an otherwise abusive arbitration agreement purports to waive judicial examination in favor of an arbitrator’s determining challenges to enforceability, the court will not “examine into the merits of such a claim” unless the claim is made with respect to the provision of the agreement that delegates that authority.  Instead, a court will hear only claims based on the enforceability of the delegation clause itself. 

I have previously expressed concern over the wreckage this makes of the teachings of Prima Paint and the doctrine of severability.  However, notes Stipanowich, you ain’t heard nothin’ yet:

A party seeking to avoid arbitration will not be able to raise a litany of concerns about other elements of the arbitration agreement — those relating to costs, discovery, nature and location of hearings, form of award, kinds of remedies, etc. — unless they can be shown to have an impact on the validity of the delegation provision. 

While this arrangement will be acceptable — even highly desirable — in most forms of business-to-business arbitration, it is likely to underline the fears of consumer and employee advocates who see Rent-a-Center as a dramatic narrowing of the potential range of protection against the threat of procedural abuse under arbitration agreements.

The heart of the paper is a call for a more “nuanced,” more targeted set of reforms to address the perceived unfairness of unilaterally-promulgated arbitration “agreements” and class action waivers in the employment and consumer areas.  Here, Stipanowich offers blessed relief from the passionate, fraught and accusative discourse that pervades the field. 

Whether anyone is there to listen is another question.  But once again, in Stipanowich we have an academic expert who takes on the mantle of intellectual leader — as he did in his 1994 treatise, as he did in assisting to form the Due Process Protocols and the AAA/ABA Ethics code, and as he does now.

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