Supreme Court to consider California rule used to strike down arbitration contracts
The U.S. Supreme Court has agreed to decide whether the Federal Arbitration Act pre-empts a California rule said to invalidate arbitration agreements more often than other types of contracts.
The court granted cert on Thursday, report SCOTUSblog and the Pacific Legal Foundation’s Liberty Blog.
The rule generally authorizes courts to sever invalid provisions from contracts as long as they don’t change the fundamental nature of the agreement, according to the Liberty Blog and the cert petition (PDF). But in the case of agreements to arbitrate, California courts hold that the existence of more than one invalid provision indicates that the stronger party sought to use arbitration as a cudgel, allowing invalidation of the entire arbitration agreement, the cert petition says.
The San Francisco-based 9th U.S. Circuit Court of Appeals applied the California rule to invalidate an arbitration contract. The cert petition maintains the ruling “ignored binding precedent” holding that federal arbitration law pre-empts state law contract defenses that have a disproportionate impact on arbitration agreements.
The case is MHN Government Services Inc. v. Managed Health Network Inc.
