U.S. Supreme Court Orders State Court To Adhere To Federal Arbitration Act And Compel Arbitration

The United States Supreme Court recently entered the latest of a series of opinions that prevent state courts from interfering with arbitration on state policy grounds. On November 26, 2012, the Court issued its per curiam decision in Nitro-Lift Technologies L.L.C. v. Howard,1 reversing the Oklahoma Supreme Court's ruling that declared noncompetition agreements in two employment contracts null and void instead of leaving that determination to the arbitrator. This is one of 13 Supreme Court decisions related to arbitration in the last four years.2 The Court has also recently granted writ of certiorari for another arbitration-related case for the 2012-2013 term.3 The Court's decision in Nitro-Lift Technologies and its recent focus on arbitration law demonstrates the Supreme Court's continued vigilance over state law interference with federal arbitration policy.

The dispute arose from contracts between petitioner Nitro-Lift Technologies and two of its former employees. The former employees each entered into separate confidentiality and noncompetition agreements with Nitro-Lift, both of which contained the same arbitration clause. After the former employees quit, they began working for one of Nitro-Lift's competitors. Claiming that the former employees breached their noncompetition agreements, Nitro-Lift demanded arbitration. The former employees filed suit in Oklahoma state court, seeking a declaration that the noncompetition agreements were null and void under an Oklahoma state statute. The trial court dismissed the complaint, finding that the agreements each contained a valid arbitration clause, and thus the validity of the noncompetition was the issue for the arbitrator. The Oklahoma Supreme Court reversed, finding that an Oklahoma state court was entitled to review the validity of an employment agreement containing a non-compete clause based upon an Oklahoma state statute restricting covenants not to compete. The Oklahoma Supreme Court declared its decision rested on adequate and independent state grounds, which outweighed the force of the arbitration clause.

The United States Supreme Court vacated this decision. It began its opinion with a recognition of the federalism questions inherent in this area, commenting that "[s]tate courts rather than federal courts are more frequently called upon to apply the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., including the Act's national policy favoring arbitration." With this nod to the...