U.S. Supreme Court Contract Cases

Yesterday the U.S. Supreme Court vacated a decision by the Oklahoma Supreme Court, which held that the “existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement.” The Supreme Court disagreed and held that a dispute as to a contract’s enforceability was a question for the arbitrator, not a court.

The case, Nitro-Lift Technologies, L.L.C. (2012), involved two employment contracts that contained binding arbitration provisions. Alleging that two of its former employees had breached the confidentiality and noncompetition agreements they had signed, Nitro-Lift Technologies served a demand for arbitration on them. The employees filed suit in Oklahoma, asking the court to declare the restrictive covenants null and void. On review of the trial court’s dismissal of the case, the Oklahoma Supreme Court held that enforceability of the contracts was an issue for a court to decide, and it further held that the restrictive covenants violated Oklahoma’s public policy.

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I noticed via a post yesterday on the ADR Prof Blog that the Supreme Court has granted certiorari in an arbitration case that I characterized in a post earlier this year as probably the case most affected by the Supreme Court’s recent arbitration decisions (i.e., Stolt-Nielsen v. Animal Feeds and AT&T Mobility v. Concepcion). This will be the third time for the case to make its way to the Supreme Court.

My initial reaction to Concepcion was that it’s not a bad deal for consumers because the tradeoff AT&T had to make to ensure that it wouldn’t be subject to a class action was to provide consumers with better relief than they would likely receive in court. As a (rather cynical) consumer who would expect to receive very little in a class action suit, that seems like a fair tradeoff, as I noted in AT&T Mobility v. Concepcion: Is Class Arbitration Dead?.

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The Supreme Court once again affirmed federal policy favoring arbitration this week as it reversed the Supreme Court of Appeals of West Virginia in Marmet Health Care Center, Inc. v. Brown.

The state high court had held unenforceable all predispute arbitration agreements that apply to claims alleging personal injury or wrongful death against nursing homes, based on West Virginia’s public policy. But the Supreme Court held that the public policy of a state is not a sufficient basis for refusing to enforce an arbitration agreement. The Supreme Court wasn’t subtle in disagreeing with the lower court’s decision:

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The United States Supreme Court reaffirmed its favor of arbitration yesterday in one of its first decisions of the year. InCompuCredit v. Greenwood, the high court once again reversed the Ninth Circuit in an arbitration case.

You might recall that the Supreme Court reversed the Ninth Circuit last April in its much discussed AT&T Mobility v. Concepcion decision. In that case the Supreme Court overturned California’s Discover Bank rule, which had rendered class arbitration waivers in consumer adhesion contracts all but unenforceable in California. AT&T Mobility effectively gives companies a way to opt out of class arbitrations altogether, albeit — unless the ruling is broadened in future cases — at the cost of providing individual consumers a more effective remedy in arbitration than they would likely have via class action. See my discussion of the opinion in AT&T Mobility v. Concepcion: Is Class Arbitration Dead?

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The U.S. Supreme court issued its opinion in AT&T Mobility v. Concepcion yesterday. The Court held that California’s Discover Bank rule is preempted by the Federal Arbitration Act. The Discover Bank rule states that a class action waiver in an arbitration agreement is unconscionable and should not be enforced

  • when it is found in a consumer contract of adhesion
  • in a setting in which disputes between the contracting parties predictably involve small amounts of damages, [click to continue…]
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