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Ruling: Arbitration Act bars state court from ruling on contract’s validity

December 2, 2012

US Supreme Court: Federal Arbitration Act bars state court from ruling on contract’s validity
from Ater-Wynne: NW Business Litigation
by Lori Bauman

This week the U.S. Supreme Court again affirmed the broad scope of the Federal Arbitration Act, holding that when a contract includes a valid arbitration provision, an arbitrator, and not a court, should decide in the first instance whether the contract is valid under state law.

In Nitro-Lift Technologies, LLC v. Howard, an employer sought to enforce an employee non-competition agreement containing an arbitration clause. Two employees subject to the agreement asked the Oklahoma state court to hold that it was void under state law. While the employer argued that the contract’s enforceability should be decided by an arbitrator in the first instance, the Oklahoma Supreme Court refused to send the issue to an arbitrator and held that the noncompetition agreement was “void and unenforceable as contrary to Oklahoma’s public policy.”

On review, the U.S. Supreme Court rebuked the Oklahoma court for displaying the type of “judicial hostility toward arbitration” that is foreclosed by the FAA. The Oklahoma court ignored longstanding precedent establishing that attacks on the validity of the contract as a whole, as distinct from attacks directed to the validity of the arbitration clause, must be resolved by the arbitrator.


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