Arbitration agreements often delegate to the arbitrator threshold questions of arbitrability, including whether the agreement itself is valid and enforceable. The Second, Third, and Fourth Circuits have invalidated entire arbitration agreements as prospective waivers—unenforceable waivers of a party’s right to pursue federal statutory remedies—without separately analyzing or enforcing the delegation clauses in those agreements.
The Ninth Circuit took a different approach in Brice v. Plain Green, LLC, 2021 WL 4203337 (9th Cir. 2021), a putative class action challenging the legality of certain payday loans. The contracts at issue included an arbitration agreement that delegated to the arbitrator “any issue concerning the validity, enforceability, or scope” of the loan contract or arbitration agreement. The loan contracts also contained choice-of-law provisions selecting tribal law and required arbitrators to apply tribal law. The borrowers argued that the arbitration agreements were unenforceable because they prevented an arbitrator from considering federal-law arguments, including a prospective-waiver challenge to the arbitration agreements as a whole.
The Ninth Circuit disagreed, holding that a court should focus on the narrower question of whether a delegation clause is enforceable; if it is, the court should not consider whether the arbitration agreement as a whole is enforceable. Since the delegation clauses at issue did not limit the unenforceability arguments that could be presented to the arbitrator, the court concluded, the case should have been sent to arbitration.
Brice illustrates the importance of carefully drafting an arbitration agreement, including the choice-of-law provisions. Even under the Ninth Circuit’s approach, the delegation clauses in Brice might have been deemed unenforceable if they had precluded the borrowers from pursuing enforceability challenges in arbitration under federal law.