Opinion ID: 1058557
Heading Depth: 3
Heading Rank: 1

Heading: Who Determines Whether the Arbitration Clause Is Unconscionable?

Text: In Prima Paint , the United States Supreme Court held that while claims of fraud are to be submitted to an arbitrator, claims that specifically attack the formation of the arbitration provision of a contract are to be judicially determined. Under [section] 4 [of the FAA], with respect to a matter within the jurisdiction of the federal courts save for the existence of an arbitration clause, the federal court is instructed to order arbitration to proceed once it is satisfied that `the making of the agreement for arbitration or the failure to comply (with the arbitration agreement) is not in issue.' Accordingly, if the claim is fraud in the inducement of the arbitration clause itself  an issue which goes to the `making' of the agreement to arbitration  the federal court may proceed to adjudicate it. Prima Paint, 388 U.S. at 403-04, 87 S.Ct. 1801 (internal footnote omitted). Generally, whether a valid agreement to arbitrate exists between the parties is to be determined by the courts, and if a complaint specifically challenges the arbitration clause on grounds such as fraud or unconscionability, the court is permitted to determine it validity before submitting the remainder of the dispute to arbitration. 4 Am.Jur.2d Alternative Dispute Resolution § 74 (2002 Supp.); see also Burden v. Check into Cash of Kentucky, LLC, 267 F.3d 483 (6th Cir.2001); N & D Fashions, Inc. v. DHJ Indus., Inc., 548 F.2d 722 (8th Cir.1977); Am. Safety Equip. Corp. v. JP Maguire & Co., 391 F.2d 821 (2nd Cir.1968); Hart v. McChristian, 344 Ark. 656, 42 S.W.3d 552 (2001); Simpson v. Cohen, 812 So.2d 588 (Fla.App. 2002). [3] In determining whether there is a valid agreement to arbitrate, courts generally ... should apply ordinary state-law principles that govern formation of contracts, First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). As the United State Supreme Court noted in Allied-Bruce Terminix Cos. v. Dobson : Section 2 [of the FAA] gives States a method for protecting consumers against unfair pressure to agree to a contract with an unwanted arbitration provision. States may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2. 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). [G]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening the enforcement provisions of the FAA. Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). As discussed above, Taylor's claim of fraud in the inducement is subject to arbitration under the FAA because that claim attacks the validity of the contract as a whole. However, her claim that the arbitration provision is unconscionable is a matter to be decided by the courts and not the arbitrator, because it specifically challenges the validity of the agreement to arbitrate irrespective of the validity of the whole contract.