Rent-A-Centre, West, Inc. v. Jackson

The question to be decided was whether under the Federal Arbitration Act (FAA), 9 U. S. C. §§1–16, a District Court could decide a claim that an arbitration agreement was unconscionable, where the agreement explicitly assigned that decision to the arbitrator.

 The  respondent, filed an employment-discrimination suit, against his former employer in the United States District Court for the District of Nevada. The defendant (petitioner before the Supreme Court), Rent-A-Center, West, Inc., filed a motion under the FAA to dismiss or stay the proceedings and to compel arbitration. Rent-A-Center argued that the Mutual Agreement to Arbitrate Claims (Agreement), which Jackson signed as a condition of his employment there, precluded Jackson from pursuing his claims in court. The Agreement provided for arbitration of all disputes arising out of Jackson’s employment with Rent-A-Center, including “claims for discrimination” which also provided that  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 was void or voidable.

The District Court granted Rent-A-Center’s motion to dismiss the proceedings and to compel arbitration. a divided panel of the Court ofAppeals for the Ninth Circuit reversed in part, affirmed inpart, and remanded (581 F. 3d 912). The court reversed on the question of who (the court or arbitrator)had the authority to decide whether the Agreement is enforceable. It noted that “Jackson does not dispute that the language of the Agreement clearly assigns the arbitrability determination to the arbitrator,” but held that where“a party challenges an arbitration agreement as unconscionable, and thus asserts that he could not meaningfully assent to the agreement, the threshold question of unconscionability is for the court.” The Ninth Circuit affirmed the District Court’s alternative conclusion that the fee-sharing provision was not substantively unconscionable and remanded for consideration of Jackson’s other unconscionability arguments.

Supreme Court held that the District Court correctly concluded that Jackson challenged only the validity of the contract as a whole. Jackson opposed the motion on the ground that the arbitration agreement in question was clearly unenforceable as it was unconscionable under Nevada law. Rent-A-Center responded that Jackson’s unconscionability claim was not properly before the court because Jackson had expressly agreed that the arbitrator would have exclusive authority to resolve any dispute about the enforceability of the Agreement. The Supreme Court finally  reversed the judgment of the Court of Appeals for the Ninth Circuit.