Rent-A-Center found that, under the FAA, a Court may only address challenges directed specifically against the arbitration provision, not against the contract as a whole. Generic challenges are to be resolved by the arbitrators.
Respondent Jackson filed an employment-discrimination suit against petitioner Rent-A-Center, his former employer, in a Nevada Federal District Court.
Rent-A-Center filed a motion, under the Federal Arbitration Act (FAA), to dismiss or stay the proceedings, and to compel arbitration, based on the arbitration agreement Jackson signed as a condition for his employment. The agreement contained two arbitration provisions, one to arbitrate employment disputes, and a second to give the arbitrator exclusive authority to resolve the question of whether the agreement is enforceable. The employer sought enforcement of the second provision, which was severable from the rest of the contract.
Jackson opposed the motion on the ground that the Agreement was unenforceable in that it was procedurally and substantially unconscionable under Nevada law, but did not challenge the second provision specifically, so the Court treated his challenge as a challenge to the whole contract.
The District Court granted Rent-A-Center’s motion to dismiss the proceedings and to compel arbitration. The Court found that the Agreement “clearly and unmistakably” gave the arbitrator exclusive authority to decide whether the Agreement was enforceable.
The Ninth Circuit Court of Appeals reversed the decision under the following basis: when 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 to decide.
Following this decision, the Supreme Court granted certiorari and held that a challenge to the whole contract was an issue to be resolved by the arbitrator rather than the court. Petitioner Jackson did not challenge the second provision specifically, and claimed the whole agreement was affected by the unconscionability. Therefore, the Court treated his challenge as a challenge to the whole contract.
In short, under the FAA, where an agreement to arbitrate includes an agreement that the arbitrator will determine the enforceability of the agreement, if a party challenges specifically the enforceability of that particular agreement, the district court considers the challenge, but if a party challenges the enforceability of the agreement as a whole, the challenge is for the arbitrator.