home
about the group
appellate attorneys
briefs
docket reports
oral arguments
news on
 mayerbrown.com
contact
 
SUPREME COURT DOCKET REPORT
OCTOBER TERM 2012
DECISION ALERT


October Term, 2012

November 26, 2012

DECISION ALERT
Today the Supreme Court issued one decision, described below, of interest to the business community.


Federal Arbitration Act—Preemption of State Law

Nitro-Lift Technologies, L.L.C. v. Howard – No. 11-1377

For the third time in two Terms, the U.S. Supreme Court has summarily reversed a state-court decision that disregarded its precedents construing the Federal Arbitration Act (“FAA”). It is settled law that the FAA is applicable in both state and federal courts, and that under the FAA, an arbitration provision is “severable” from the remainder of the contract containing it. Thus, the U.S. Supreme Court has repeatedly held that “unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.” E.g., Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-446 (2006).

Despite the U.S. Supreme Court’s clear instruction, the Oklahoma Supreme Court held that the “existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement.” The court therefore deemed itself free to apply an Oklahoma statute limiting the enforceability of noncompetition agreements and, on that basis, invalidated the entire employment contract—including its arbitration provision—as void under Oklahoma public policy.

Today, in Nitro-Lift Technologies, L.L.C. v. Howard, No. 11-1377, the U.S. Supreme Court reversed the Oklahoma court in a unanimous per curiam opinion. The Court held that the decision below “ignored a basic tenet of the [FAA’s] substantive arbitration law”—namely, 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. 1, 4.

The per curiam opinion pointedly observed that the state court had “acknowledged” the Supreme Court’s prior cases setting forth the FAA’s severability principle, “but nonetheless chose to discount these controlling decisions.” Slip op. 3. The Court held that this disregard of its precedents was forbidden by the Supremacy Clause. As the Court reaffirmed, “state courts must abide by the FAA,” as well as “the opinions of this Court interpreting that law.” Id. at 5. It is especially important in the arbitration context that state courts faithfully implement the controlling, “correct interpretation” of federal law because, the Court explained, “State courts rather than federal courts are most frequently called upon to apply the FAA,” including its “national policy favoring arbitration.” Id. at 1.

Because there was no dispute that the employment contract at issue here contained a valid arbitration provision, the U.S. Supreme Court’s FAA jurisprudence required the arbitrator, not the Oklahoma court, to determine the validity of the rest of the contract. Slip op. 4. To the extent that the Oklahoma court interpreted the state statute specifically limiting the enforceability of noncompetition agreements to invalidate the arbitration agreement contained in the employment contract, that holding conflicted with, and therefore was preempted by, the FAA. Id. at 5.

Today’s summary reversal—which follows on the heels of summary reversals in Marmet Health Care Center, Inc. v. Brown, 132 S. Ct. 1201 (2012) (in which Mayer Brown represented one of the petitioners), and KPMG LLP v. Cocchi, 132 S. Ct. 23 (2011)—signals that the Court will not tolerate defiance of its FAA precedents by state courts. The Court’s decision is a powerful reminder that federal law favors arbitration; that under federal law, the validity of the remainder of a contract containing a valid arbitration provision is for the arbitrator to decide; and that this rule applies in both state and federal courts.

For more information about the issues described in this Decision Alert, please contact Andrew Pincus at +1 202 263 3220, Evan Tager at +1 202 263 3240,  or Archis Parasharami at +1 202 263 3328.


Mayer Brown's Supreme Court & Appellate practice ordinarily distributes a Docket Report when the Supreme Court grants certiorari in a case of interest to the business community and a Docket Report-Decision Alert when the Court decides such a case. We hope that you find the Docket Reports and Decision Alerts useful, and welcome feedback on them (which should be addressed to Richard B. Katskee, their general editor, at rkatskee@mayerbrown.com or +1 202 263 3222).

Feel free to forward this message to anyone who you believe might be interested in the Decision Alert.

Please visit us at appellate.net

Mayer Brown Supreme Court Docket Reports provide information and comments on legal issues and developments of interest to our clients and friends. They are not a comprehensive treatment of the subject matter covered and are not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed.

 
 
© 2014. The Mayer Brown Practices. All rights reserved. --  Legal Notices | Attorney Advertising

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.