Does trial court lack authority to rule on enforceability of arbitration agreement where delegation of this authority to arbitrator was clear and not revocable?

Posted in: Arbitration by Steven Vartabedian on

In Tiri v. Lucky Chances, Inc. (filed 5/15/14) A136675, Plaintiff Tiri had signed an arbitration agreement with defendant, her employer. Included in the agreement was a provision that the arbitrator, instead of the court, would determine all issues of enforceability of the agreement. Upon her termination, plaintiff sued for wrongful termination, and defendant filed a motion to compel arbitration. The trial court denied the petition on the ground the agreement was unenforceable as being unconscionable. On defendant’s appeal, the Court of Appeal, First Appellate District, Division Four, reversed, holding the trial court lacked the authority to rule on unenforceability of the agreement because the parties had made a clear, non-revocable delegation of this authority to the arbitrator.

Principle reliance was placed on the United States Supreme opinion in Rent-A-Center, Inc. v. Jackson (2010) 561 U.S.63, 71, which held a party’s challenge to the arbitration agreement does not invalidate the delegation clause; accordingly the arbitrator, and not the court, must consider any challenge to the arbitration agreement as a whole. If the enforceability challenge were specific to the delegation clause, the court may consider the challenge. (Id. at p. 73.)

It was not clear in the instant case whether there was a challenge specifically aimed at the delegation clause. In fact, the ruling of the trial court sounded as if the challenge was broader. The trial court found the agreement unconscionable, focusing on the fact that the agreement stated that the arbitration was governed by the AAA rules, but failed to attach those rules. Nonetheless, the appellate court set out to analyze the enforceability of the delegation clause itself. It concluded the delegation clause was procedurally unconscionable (it gave plaintiff no choice), but was not substantively unconscionable as the trial court impliedly found. (Some measure of each of procedural and substantive unconscionableness needed to be present.)

The Court of Appeal found the delegation clause enforceable because it was clear and not revocable. While the law presumes such delegation unenforceable, defendant here carried its burden to show clear and unmistakable evidence that the parties intended the delegation. The question of whether the clause was revocable turns on whether the agreement was unconscionable. Even though this was an adhesion agreement and thus procedurally unconscionable, there was nothing about the delegation clause that was substantively unconscionable: both parties were bound by it thus demonstrating mutuality, and there was nothing ambiguous or misleading about the clause. The court thus found the denial of the petition to compel was improper; it was the arbitrator’s call to determine whether the agreement as a whole was unconscionable.

The appellate court’s analysis here certainly is fundamentally sound. What I wonder about, though, is whether it even needed to undertake the analysis as to whether the delegation clause was enforceable. It does not appear that delegation clause was even challenge specifically; and under Rent-a-Center, it would seem that this broad challenge here would fail on its face. And by holding as it did, the appellate court seemed to say that a delegation clause is not as a matter of law reviewable in the first instance by the arbitrator; that, as was the case here, a court had to first determine the clause was clear and not revocable.

As a step to be taken in opposition to a motion to compel arbitration, I suspect a party might still successfully argue in future challenges to the enforceability of an arbitration agreement, especially if the argument is focused on the delegation clause itself, that the issue of enforceability of that clause first be determined by the trial court. So do not presume that the Tiri opinion has gone very far in simplifying enforceability disputes.

The information contained in this blog is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients, clients or otherwise, should act or refrain from acting on the basis of any content included in this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. The content of this blog contains general information and may not reflect current legal developments, verdicts or settlements. The Firm expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog.