The Sixth Circuit’s split decision in In Re: StockX Customer Data Security Breach Litigation, Case No. 21-1089 (December 2, 2021) addressed the thorny issue of the respective roles of the court and the arbitrator in cases where the plaintiff challenges the validity of a contract with an arbitration clause. The arbitration agreement in question included a broad “delegation clause” that provided, in pertinent part, “[T]he arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute arising out of or relating to the interpretation, applicability, enforceability or formation of this Agreement to Arbitrate, or part of it, or of the Terms including, but not limited to, any claim that all or any part of this Agreement to Arbitrate or the Terms is void or voidable.” The precise question before the Court was whether the court or the arbitrator should rule on the whether the arbitration agreement and the contract of which it was part were unenforceable due to minority and unconscionability. The trial court held it was the arbitrator’s call and plaintiffs appealed.
The Court started its analysis by quoting the black letter rule that courts determine whether a valid arbitration agreement was formed or exists, even if the arbitration agreement includes a delegation clause. Assuming the court finds the arbitration agreement was duly formed and existed, it is for the arbitrator (assuming the existence of a delegation clause) to address any other defenses to the contract and the arbitration clause. But what about cases, where the defenses to entire contract (minority and unconscionability) are the same as the defenses to the arbitration agreement? Then, held the Court, the arbitrator should address those defenses. Why? The Court cited cases ostensibly supporting its conclusion, though it was difficult to tease out the ratio decidendi. The dissent apparently agreed and would have reversed the trial court.
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