August 19, 2015 Articles

Ninth Circuit: Under AAA Rules, Arbitrator Decides Unconscionability

By Mark Kantor

In Brennan v. Opus Bank (Nos. 13-35580 and 13-35598, August 11, 2015), the Ninth Circuit unanimously held that the arbitrator, not the court, is to determine the challenge to an arbitration clause when the clause incorporates the American Arbitration Association (AAA) Arbitration Rules that authorize the arbitrator to decide his or her own jurisdiction ("the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the . . . validity of the arbitration agreement") and the challenge is directed to the unconscionability of the arbitration agreement in its entirety. The Ninth Circuit held that, to succeed in moving the arbitrability question from the arbitrator to the courts, the petitioner would have had to challenge as unconscionable the specific provision in the AAA Rules that delegated arbitrability questions to arbitrators.

Why Brennan v. Opus Bank Is Significant
The Brennan case is interesting because it allocates such unconscionability decisions to the arbitrator, holds that an executive-level employee can be a "sophisticated" party for purposes of an unconscionability analysis, and suggests that even unsophisticated parties may be required to bring unconscionability arguments in arbitration and not in court. Particularly since the Ninth Circuit is known to be especially protective of persons facing an opponent with much stronger bargaining power, this opinion is significant in the continuing jurisdictional battle between arbitrators and the courts.

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