March 27, 2013 Articles

Federal Arbitration Act Reigns Supreme

By Robert Knuts

In Nitro-Lift Technologies, L.L.C. v. Howard, 133 S. Ct. 500 (2012), the U.S. Supreme Court recently overturned a decision by the Oklahoma Supreme Court that enjoined an arbitration proceeding on the ground that the relevant provision of the underlying employment contract was flatly prohibited by Oklahoma law. According to the U.S. Supreme Court, the Oklahoma Supreme Court had no business interpreting the enforceability of the employment contract under Oklahoma law, at least not before the arbitrator was given the opportunity to rule on the same issue. In reversing the Oklahoma Supreme Court, via a stinging per curiam opinion issued after review of the defendant's certiorari petition, the U.S. Supreme Court sent a clear message to all state courts that the Federal Arbitration Act precludes any interference with arbitration proceedings based upon valid arbitration agreements, even if those proceedings seek to enforce a contract provision that violates state law. The U.S. Supreme Court did not comment on what would happen if the appointed arbitrator found that Oklahoma law applied to the dispute but then ignored the Oklahoma Supreme Court's substantive ruling and enforced the violative noncompete provision.

The Underlying Facts
Nitro-Lift Technologies, L.L.C., is a privately held company that provides onsite services to enhance oil and gas production, including injection of nitrogen into oil wells to stimulate production and otherwise assist in operating and maintaining oil and gas production facilities. When Eddie Lee Howard and Shane D. Schneider began working for Nitro-Lift as oilfield workers, they each signed a confidentiality and noncompete agreement (the Agreement) that included a mandatory arbitration clause for all disputes arising from the Agreement. The arbitration clause provided that such disputes would be resolved by a single arbitrator pursuant to American Arbitration Association rules and the arbitration would take place in Houston, Texas. The Agreement also stated that it was governed by the law of Louisiana without regard to Louisiana's choice of law principles. The noncompete provision of the Agreement stated that, for a period of two years following termination of their employment, the employees could not: (a) be employed by any business involved in nitrogen generation at oil and gas well sites in the United States; (b) solicit any past or present customer or supplier of Nitro-Lift; or (c) attempt to recruit any Nitro-Lift officer or employee.

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