581 F.3d 912 (9th Cir. 2009), 07-16164, Jackson v. Rent-A-Center West, Inc.

Docket Nº:07-16164.
Citation:581 F.3d 912
Opinion Judge:THOMAS, Circuit Judge.
Party Name:Antonio JACKSON, Plaintiff-Appellant, v. RENT-A-CENTER WEST, INC., Defendant-Appellee.
Attorney:Ian E. Silverberg, Hardy Law Group, Reno, NV, for the appellant. Robert F. Friedman, Littler Mendelson, P.C., Dallas, TX, Michael T. Garone, Schwabe, Williamson & Wyatt, Portland, OR, for the appellee.
Judge Panel:Before: CYNTHIA HOLCOMB HALL, THOMAS G. NELSON and SIDNEY R. THOMAS, Circuit Judges. Opinion by Judge THOMAS; Dissent by Judge HALL. HALL, Circuit Judge, dissenting:
Case Date:September 09, 2009
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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581 F.3d 912 (9th Cir. 2009)

Antonio JACKSON, Plaintiff-Appellant,

v.

RENT-A-CENTER WEST, INC., Defendant-Appellee.

No. 07-16164.

United States Court of Appeals, Ninth Circuit.

September 9, 2009

Submitted Nov. 21, 2008.[*]

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[Copyrighted Material Omitted]

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Ian E. Silverberg, Hardy Law Group, Reno, NV, for the appellant.

Robert F. Friedman, Littler Mendelson, P.C., Dallas, TX, Michael T. Garone, Schwabe, Williamson & Wyatt, Portland, OR, for the appellee.

Appeal from the United States District Court for the District of Nevada, Larry R. Hicks, District Judge. Presiding. D.C. No. CV-07-00050-LRH/ RAM.

Before: CYNTHIA HOLCOMB HALL, THOMAS G. NELSON and SIDNEY R. THOMAS, Circuit Judges.

Opinion by Judge THOMAS; Dissent by Judge HALL.

THOMAS, Circuit Judge.

Antonio Jackson appeals from a district court order dismissing his statutory race discrimination claim and compelling arbitration. Under the circumstances presented here, we conclude that the district court was required to determine whether the arbitration agreement was unconscionable, and we remand for further proceedings.

I

Jackson was an employee of Rent-A-Center West, Inc. (" Employer" ). On February 1, 2007, Jackson filed a complaint in the United States District Court for the District of Nevada alleging race discrimination and retaliation on the part of the Employer under 42 U.S.C. § 1981. The Employer moved to dismiss proceedings and compel arbitration, relying on a Mutual Agreement to Arbitrate Claims (" Agreement to Arbitrate," " Agreement" ) Jackson signed as a condition of his employment with the Employer when he was initially hired.1 The Agreement specifically includes claims for discrimination in the list of claims that must be resolved by arbitration.

Of particular relevance to this appeal is a section of the Agreement entitled " Arbitration Procedures," which includes the following provision:

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, but not limited to any claim that all or any part of this Agreement is void or voidable.

The Employer argued in the district court that, in light of this provision, the threshold question of whether the arbitration agreement was valid and enforceable was for an arbitrator, not the court. Jackson argued in response that the Agreement was unconscionable. In particular, he contended that the Agreement was substantively unconscionable because it contained one-sided coverage and discovery provisions and a provision specifying that the arbitrator's fee was to be equally shared by the parties. Jackson also argued that the Agreement was procedurally unconscionable because the form contract was presented to him as a non-negotiable condition of his employment.

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The district court granted the Employer's motion to dismiss proceedings and compel arbitration. The court found that the Agreement to Arbitrate " clearly and unmistakenly provides the arbitrator with the exclusive authority to decide whether the Agreement to Arbitrate is enforceable" and held that " the question of arbitrability is for the arbitrator." The district court also held that, even if it were to reach the merits of Jackson's assertion that the Agreement was unconscionable, Jackson had not demonstrated that the Agreement was substantively unconscionable.

On appeal, Jackson challenges the district court's determination that enforceability of the Agreement to Arbitrate was a question for the arbitrator. He further argues that the district court erred in holding Jackson had not demonstrated the Agreement was substantively unconscionable. We review de novo a district court's decision to compel arbitration. Bushley v. Credit Suisse First Boston, 360 F.3d 1149, 1152 (9th Cir.2004).

II

The Federal Arbitration Act (" FAA" ) provides that agreements to arbitrate disputes " shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (2000). While the FAA expresses a " liberal federal policy favoring arbitration agreements," Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) (internal quotation marks omitted), federal law " directs courts to place arbitration agreements on equal footing with other contracts," EEOC v. Waffle House, Inc., 534 U.S. 279, 293, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002). Accordingly, under 9 U.S.C. § 2, " [a]rbitration agreements ... are subject to all defenses to enforcement that apply to contracts generally." Ingle v. Circuit City Stores, Inc. 328 F.3d 1165, 1170 (9th Cir.2003). The threshold question before us is whether a court or an arbitrator is to decide whether an arbitration agreement was unconscionable and hence unenforceable.

A

The Supreme Court has held that, as a matter of federal substantive arbitration law, when a party challenges the validity of a contract between the parties, but " not specifically its arbitration provisions," the challenge to the contract's validity should be considered by an arbitrator, not a court. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). The flip side of this rule, however, is that when a party specifically challenges the validity of arbitration provisions within a larger contract, apart from the validity of the contract as a whole, a court decides the threshold question of the enforceability of the arbitration provisions. We applied this rule in Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1264 (9th Cir.2006) (en banc), stating that " [w]hen the crux of the complaint is not the invalidity of the contract as a whole, but rather the arbitration provision itself, then the federal courts must decide whether the arbitration provision is invalid and unenforceable under 9 U.S.C. § 2." See also Ingle, 328 F.3d at 1170; Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 941 (9th Cir.2001).

The rationale behind a rule requiring courts to make the threshold determination when the challenge specifically targets the validity of arbitration provisions is that arbitration is itself a matter of contract. " The duty to arbitrate being of contractual origin, a compulsory submission to arbitration cannot precede judicial determination that the ... agreement does in fact create such a duty."

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John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964). Indeed, as a matter of federal arbitration law, a court may not compel arbitration until it is " satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue." 9 U.S.C. § 4 (2000). The FAA precludes state laws that single out arbitration provisions for special treatment, but does not allow federal courts to " shirk" their duty to consider, by applying the relevant state contract law principles, whether an " arbitration provision is invalid and unenforceable under 9 U.S.C. § 2 of the FAA." Nagrampa, 469 F.3d at 1264.

Whether court or arbitrator is to determine arbitrability is more straightforward in this case than it was in Nagrampa, a case involving a challenge to arbitration provisions located within a larger " container contract." Jackson's merits dispute with the Employer does not arise out of a contract between them, but is rather based in federal statutory discrimination law. Jackson challenges the free-standing Agreement to Arbitrate he signed, contending that the Agreement is unconscionable and that he cannot be compelled to arbitrate his statutory discrimination claims.2

We confronted a similar situation in Davis v. O'Melveny & Myers, 485 F.3d 1066 (9th Cir.2007). There, we held that where the plaintiff brought claims for violation of overtime laws against her employer, whether the employer's arbitration agreement was unconscionable " is for a court to decide." Id. at 1072. Pursuant to Buckeye , Nagrampa , Ticknor , and Davis, we conclude that the question whether the Agreement was unconscionable was for the court to decide. The district court erred in concluding that unconscionability was an...

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