SCOTUS Smackdown of Supreme Court of Oklahoma
On November 26, 2012, in Nitro-Lift Technologies, L.L.C. v. Howard, 568 U.S. _______ (2012) (per curiam), the Supreme Court of the United States found it necessary to remind the Supreme Court of Oklahoma that “[i]t is a matter of great importance . . . that state supreme courts adhere to a correct interpretation” of the Federal Arbitration Act (FAA). “Here, the Oklahoma Supreme Court failed to do so. By declaring the noncompetition agreements in two employment contracts null and void, rather than leaving that determination to the arbitrator in the first instance, the state court ignored a basic tenet of the Act’s substantive arbitration law.” The Oklahoma decision was therefore vacated.
Consider for a moment how this would play out in California, a state with a strong public policy that protects employees from unlawful restraints of trade and promotes competition. Cal. Bus. & Prof. Code section 16600. As in Nitro-Lift Technologies, the issue would have to be decided by the arbitrator, assuming the arbitration provision is enforceable. If the arbitrator incorrectly applied the law, that would ordinarily be no ground for judicially reversing the arbitrator’s award, notwithstanding the failure to carry out California’s strong public policy that protects employees and promotes competition.
On March 27, 2012, we posted about Marmet Health Care Center, Inc. v. Brown, 565 U.S. ___ (2012) (per curiam). The Supreme Court of West Virginia had refused enforcement of an arbitration clause because it violated the state's public policy against arbitrating personal injury or wrongful death claims against nursing homes. The per curiam Nitro-Lift Technologies opinion quotes the per curiam Marmet opinion: “[W]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” Hence, state law cannot prohibit outright the arbitration of a noncompete claim – the arbitrator decides the issue “in the first instance.”
We would simply add that in the case of binding arbitration, “in the first instance” usually means “in the last instance” too!
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