Access to Justice

The Danger of Unanimity in the Supreme Court’s Recent FAA Decision

In a unanimous per curiam summary decision, the US Supreme Court’s November 26 reversal of a state supreme court’s ruling in Nitro-Lift Technologies, LLC v. Howard [PDF] might seem unworthy of attention. The Court concluded that the Federal Arbitration Act (FAA) preempted an Oklahoma state court from determining whether an employment contract violated an Oklahoma law that limited the enforceability of non-competition agreements. Holding that only an arbitrator could determine whether the contract violated state law, the Supreme Court simply cited its prior precedent, which purported to rely on congressional intent in passing the FAA in 1925. 

 

Yet, the routine appearance of the Nitro-Lift opinion is noteworthy, when contrasted with the heated dissents in the cases it relied upon. In prior decisions, the majority, which usually consisted of bare 5-4 majorities, construed the FAA to require consumers, workers, and other individuals to submit all legal claims arising out of contracts with large businesses and other organizations to arbitration — even in regard to contracts of adhesion that consumers had no leverage to reject — which was contrary to state common law and statutory protections, as well as applicable exemptions and exclusions in the FAA itself. As a direct result of the Court’s expansion of the FAA, mandatory arbitration provisions are now prevalent in contracts for accepting a job offer, obtaining telephone service, enrolling a parent in an assisted living facility, visiting a hospital emergency room, purchasing a product, opening a bank account and so on. The Court eviscerated the power of states to protect consumers from unconscionable contract clauses, sending claims to arbitrations from which there can be no appeal based on the failure of the arbitrator to apply state laws. These prior Supreme Court decisions have provoked blistering dissents that chastised the majority for butchering congressional intent. The lack of a dissent or concurrence in Nitro-Lift voicing continued objection to precedents that twisted the meaning of the FAA could signal that the liberal/moderate justices are losing the will to continue to protest.

 

The conservative majority’s forced arbitration jurisprudence — once called “an edifice of the Court’s own creation” by former Justice Sandra Day O’Connor — is encountering persistent resistance from state courts and from lower federal courts. However, that fight should be far from over, even if there are presently not five votes to reverse course. In the past few weeks, the Supreme Court has granted certiorari in two FAA cases involving the availability of class-wide relief in arbitration: American Express Co. v. Italian Colors Restaurant and Oxford Health Plans LLC v. Sutter. In American Express, the plaintiffs need an expert report the cost of which dwarfs the financial interest of any individual plaintiff. If the class action remedy is not available in the mandatory arbitration proceeding, then there will be no means for injured parties to band together to pay for the expenses of the expert. The arbitration remedy will, in fact, provide no remedy at all. In Oxford, after the district court held that a mandatory arbitration clause precluded a class action claim in court, the arbitrator concluded that the class claim could proceed in arbitration, based on the term “civil action” in the arbitration agreement. The company challenges the arbitrator’s interpretation of the contract, arguing that the mandatory arbitration provision completely eliminates any access to class-wide relief.

 

Both the American Express and Oxford petitions for certiorari began in the same fashion: their introductions open with a citation to Stolt-Nielsen v. Animal Feeds International Corp. and then proceed to cite AT&T Mobility v. Concepcion. Both Stolt-Neilsen and Concepcion were majority opinions joined by all the conservative justices, with all of the other justices dissenting. (Justice Sonia Sotomayor did not participate in Stolt-Nielsen, but she joined the Concepcion dissent). In those arbitration cases, the Court denied class-wide relief on the grounds that it would violate the “full purposes and objectives” of the FAA. The Court based its decision on the policy ground that “class arbitration greatly increases risks to defendants.” The Court dismissed the risks to consumers, proclaiming that “the times in which consumer contracts were anything other than adhesive are long past.” In contrast, the dissent stressed the text of the statute, which provides an exception to the enforcement of arbitration agreements when there is a basis “at law or in equity for the revocation” of the provision. Quite clearly, this exemption was aimed at equity-based state statutory and common law protections, as applied in decisions such as that of the Oklahoma Supreme Court’s ruling in Nitro-Lift that the non-compete clause imposed by Nitro-Lift on its employees violated the state’s public policy. Former Justice John Paul Stevens made the case most forcefully when he wrote in Circuit City Stores, Inc. v. Adams in dissent that the majority “skews its interpretation with its own policy preferences.”

 

The unanimous decision in Nitro-Lift relied upon Concepcion and other prior FAA cases including Southland Corp. v. Keating. In Southland, O’Connor had protested that the Court’s application of the FAA to state courts was “judicial revisionism … unfaithful to congressional intent, unnecessary, and … inexplicable.” But there was not a hint of disagreement as the Court held unanimously in Nitro-Lift that the FAA prevented the Oklahoma court from deciding whether an employment contract violated state law. Moreover, the FAA’s textual exclusion altogether of employment contracts from the reach of the FAA, which Stevens had emphasized in Circuit City, went without mention.

 

The Court’s conservative majority has turned the FAA into a tool to enable big businesses to avoid accountability to customers and workers under all laws — federal or state — enacted to protect them. Individual rights, such as the right to be free from discrimination under federal law and the protections against unconscionable contracts in state law, are swept into the arbitration forum, which explicitly precludes any appeal based on an error of law. The conservative justices have zealously empowered businesses and other large organizations to channel all possible types of disputes to arbitrators who are free to, and often do, ignore applicable laws passed for the benefit of consumers, employees, depositors, and the like.

 

The Court’s misinterpretation of the FAA should not be accepted regardless of how many times the Court holds that the FAA eliminates any right to judicial review. While there may not presently be sufficient votes to reverse the Court’s recent twisting of the FAA to gut state and federal consumer protection laws, continued fervent opposition is essential to keeping the issue in the public eye. Even if the majority continues to distort the meaning of the FAA, zealous disagreement by a passionate minority can stoke grassroots resistance that might lead to a better result in the future.

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