Arbitrators Can Decide Validity Of Arbitration Provision In Construction Contracts

Binding arbitration of construction disputes is frequently required by standard industry contracts. For example, the contract forms published by the American Institute of Architects either require or provide an option for arbitration under the Construction Industry Rules of the American Arbitration Association ("AAA"). The latter rules authorize the arbitrator to decide whether the contractual arbitration agreement is enforceable. (See, e.g. Rule 9 of AAA Construction Industry Rules). However some courts have decided this issue should be determined by the courts, rather than the arbitrator.

But a recent Supreme Court decision determined that an arbitrator can decide enforceability issues if the arbitration clause expressly provides such authority, similar to the AAA Rule 9. In Rent-A-Center West, Inc. v. Jackson, the United States Supreme Court held in a 5-4 decision that under the Federal Arbitration Act ("FAA"), a contractual arbitration clause which "clearly and unmistakably" delegates to the arbitrator the authority to determine the validity of the arbitration agreement is enforceable and binding on the parties, and that the issue is not to be decided by the court. In doing so, the Supreme Court reversed the prior ruling of the Ninth Circuit Court of Appeals, which had held that it is for the court and not the arbitrator to decide whether the arbitration agreement is valid and enforceable in the first instance. 130 S. Ct. 2772, 177 L. Ed. 2d 403 (2010)

Plaintiff Jackson was a former employee of Rent-A-Center who had sued for employment discrimination under state and federal law. In the course of his employment, Jackson and Rent-A-Center had signed a Mutual Agreement to Arbitrate Claims ("Agreement") which stated called for arbitration of all disputes arising out of Jackson's employment. The Agreement also provided that the "Arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including . . . any claim that all of part of this Agreement is void or voidable." The trial court ruled that based on the Agreement, it was for the arbitrator to decide whether the agreement was unconscionable and unenforceable, and therefore ordered that the case proceed in arbitration rather than court. On appeal the Ninth Circuit reversed and ruled that, as the plaintiff contended he did not consent to...