On November 26, 2012 in Nitro-Lift Technologies, L.L.C. v. Howard, the U.S. Supreme Court reversed a decision by the Oklahoma Supreme Court in a matter concerning a contractual dispute. In Nitro-Life, the Oklahoma Supreme Court, despite the existence of an arbitration provision within the contract, had gone ahead and itself conducted a judicial review of the underlying contract agreement. The Oklahoma Court concluded that the underlying employment agreement contract was unenforceable under an Oklahoma statute limiting the enforceability of non-competition agreements. The matter was appealed to the U.S. Supreme Court.
It is important to note there had never been a dispute as to the validity of the arbitration provision itself in the Nitro-Lift case. The U.S. Supreme Court in a strongly worded unanimous per curiam opinion noted that the Oklahoma Supreme Court had failed to follow precedent wherein it is settled law that the Federal Arbitration Act (FAA) is applicable in both state and federal courts and that an invalid arbitration provision is “severable” from the remainder of the contract containing it. Only when an arbitration provision is found to be invalid should a court, and not an arbitrator, be tasked with determining the validity of the other provisions of the contract under the FAA.
Indeed in several cases prior to Nitro-Life the High Court had already repeatedly held that “unless the challenge is to the arbitration clause, the issue of the contract’s enforceability is to be considered by the arbitrator.” See e.g Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-446 (2006). Because there had never been a dispute as to the validity of the arbitration provision in the Nitro-Lift employment contract, the Oklahoma Supreme Court had “no business” reviewing the underlying contract. Instead “it is for the arbitrator to decide in the first instance whether the convenants not to compete are valid as a matter of applicable state law.” Nitro-Lift (slip op., at 5 citing Buckeye at 445-446).
State courts as well as the parties to a contract with an arbitration provision should heed the fact that the U.S. Supreme Court has repeatedly held that the FAA is controlling for both state and federal courts. That is, the validity of the remainder of contract containing a valid arbitration provision is for the arbitrator to decide, not a state or federal court, and, absent an invalid arbitration provision, arbitration will be the dispute resolution proceeding for resolving contractual disputes. The U.S. Supreme Court drove home this point in the Nitro-Lift opinion by stating that, ” ‘[i]t is this Court’s responsibility to say what a [federal] statute means, and once the Court has spoken, it is the duty of other courts to respect the understanding the the governing rule of law.’ ” Nitro-Lift (slip op., at 5 quoting Rivers v. Roadway Express, Inc., 511 U.S. 298, 321 ( 1994)). The High Court went on to further chide the the Oklahoma Supreme Court by stating that “[o]ur cases hold that the FAA forecloses precisely this type of ” ‘judicial hostility towards arbitration.’ ” Nitro-Lift (slip op., at 5) citing AT&T Mobility LLC v. Concepcion (slip op., at 7) (a 2011 case).
The bottom line? If a contract involving commerce includes a valid arbitration provision, an arbitrator will be involved in resolving any contractual dispute under the FAA and U.S. Supreme Court “FAA” jurisprudence, including awarding damages. The parties to any such arbitration proceeding will be entitled to legal representation to present their side of the story.
THE FOREGOING IS NOT LEGAL ADVICE NOR SHOULD YOU CONSIDER IT AS SUCH. IT IS FOR INFORMATIONAL PURPOSES ONLY. YOU SHOULD CONSIDER CONSULTING WITH AN ATTORNEY OF YOUR CHOOSING IF YOU ARE CONTEMPLATING AN ACTION WHICH MAY HAVE LEGAL CONSEQUENCES.
