V&E's Arbitration Update E-communication, December 10, 2012
In Nitro Lift-Technologies, L.L.C. v. Howard, 568 U.S. ____, 2012 WL 5895686 (Nov. 26, 2012), the Supreme Court recently took the unusual step of summarily vacating a state court decision that did not enforce an arbitration clause. In doing so, it confirmed in strong language its recent decisions favoring the enforcement of agreements to resolve disputes through arbitration. The Court’s decision can be seen as an instruction to lower courts that arbitration agreements and awards should be enforced expeditiously according to their terms, without exceptions based on state law.
A company called Nitro-Lift Technologies employed Eddie Lee Howard to work on oil and gas wells in the Southwest. His employment agreement included confidentiality and non-competition provisions, as well as an arbitration clause. Howard quit and began working for a competitor. Nitro-Lift claimed that Howard had breached the non-competition provision and demanded an arbitration. Howard filed suit in Oklahoma state court for declaratory and injunctive relief, arguing that the non-competition provision was unenforceable under Oklahoma statutes.
The Oklahoma state trial court dismissed the lawsuit, holding that the dispute must be resolved by arbitration under the arbitration clause. Howard appealed, and the Oklahoma Supreme Court reversed. It held that the non-competition clause was void and unenforceable under Oklahoma law. It further held that the arbitration clause did not prevent courts from reviewing the enforceability of the employment contract under state law. Although the Oklahoma Supreme Court discussed cases under the Federal Arbitration Act (the “FAA”), it also declared that its decision rested on independent Oklahoma state law, thus trying to avoid review by the Supreme Court of the United States. Nevertheless, Nitro-Lift petitioned for certiorari.
The Supreme Court’s Decision
On November 26, 2012, in a unanimous per curiam decision, the Supreme Court took the unusual step of simultaneously granting certiorari and vacating the Oklahoma decision without further briefing or oral argument. It held that the Oklahoma Supreme Court had disregarded binding decisions of the Supreme Court of the United States under the FAA favoring arbitration. The Court said “it is a mainstay of the [Federal Arbitration] Act’s substantive law that attacks on the validity of the contract, as distinct from attacks on the validity of the arbitration clause itself, are to be resolved ‘by the arbitrator in the first instance, not by a federal or state court.’” (Slip op. at 4, quoting Preston v. Ferrer, 552 U.S. 346, 349 (2008).) The Court went on to say that the FAA forecloses “judicial hostility towards arbitration” as reflected in the Oklahoma Supreme Court’s decision. (Slip op. at 5, quoting AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011).)
The Supreme Court gave little weight to the Oklahoma Supreme Court’s effort to insulate its decision by referring to independent state grounds. The Supreme Court said that Nitro-Lift had adequately asserted the FAA as grounds for enforcing the arbitration agreement by citing to federal court decisions applying the FAA. The Supreme Court implicitly held that the FAA applied to this employment agreement, and it said any Oklahoma state policy and law disfavoring arbitration must give way to the FAA under the Supremacy Clause of the United States Constitution. Emphasizing the strong national policy favoring arbitration, the Supreme Court said that the Oklahoma Supreme Court’s hostility to arbitration “is all the more reason for this Court to assert jurisdiction.” (Slip op. at 3)
The Supreme Court’s summary decision shows just how strongly the Court views the policies favoring arbitration. In a line of recent decisions, the Court has firmly rejected efforts to avoid arbitration, including last year in AT&T Mobility LLC v. Concepcion when it reversed a decision that refused to enforce a class action arbitration waiver as unconscionable. The Nitro-Lift decision, like the Concepcion decision, rejected efforts to use state law to avoid arbitration of disputes. This term, the Supreme Court also granted certiorari in two other cases considering whether arbitrations can be conducted as class actions. See American Express Co. v. Italian Colors Restaurant, No. 12-133, 2012 WL 3096737 (U.S. Nov. 9, 2012) (considering whether a waiver of class arbitration is enforceable); Oxford Health Plans LLC v. Sutter, No. 12-135 (U.S. Dec. 7, 2012) (considering whether standard arbitration clause authorizes class arbitration). Clearly, the Supreme Court is actively engaged in instructing lower courts to apply the strong national policies favoring arbitration agreements and awards according to their terms.
The speed with which the Supreme Court acted is also illuminating. We have seen a trend in some lower federal courts to act expeditiously in cases challenging arbitration awards. Those courts are showing less patience for litigants who agree to arbitration and then challenge an unfavorable decision. The fact that the Supreme Court vacated the lower court's decision without briefing or oral argument suggests that its patience with such challenges may also be growing thin.
For more information, please contact Vinson & Elkins lawyers Alden Atkins, John Elwood, James Loftis, or Tim Tyler. Visit our website to learn more about V&E's International Dispute Resolution practice, or e-mail one of the practice contacts.