Nitro-Lift Technologies, L. L. C. v. Howard
184 L. Ed. 2d 328, 2012 U.S. LEXIS 8897, 133 S. Ct. 500 (2012)
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Rule of Law:
Under the Federal Arbitration Act (FAA), a challenge to the validity of a contract as a whole, as distinct from a challenge to the validity of the arbitration clause itself, must be resolved by an arbitrator, not a federal or state court.
Facts:
- Eddie Lee Howard and Shane D. Schneider were employees of Nitro-Lift Technologies, L.L.C., a company providing services to oil and gas wells.
- As a condition of employment, Howard and Schneider each signed a confidentiality and noncompetition agreement with Nitro-Lift.
- These agreements contained a clause stating that 'Any dispute, difference or unresolved question' between the parties would be settled through arbitration.
- After working for Nitro-Lift for a period of time, Howard and Schneider quit their jobs.
- Subsequently, Howard and Schneider began working for one of Nitro-Lift's competitors.
Procedural Posture:
- After Howard and Schneider began working for a competitor, Nitro-Lift served them with a demand for arbitration.
- Howard and Schneider (plaintiffs) filed a lawsuit in the District Court of Johnston County, Oklahoma (state trial court) against Nitro-Lift (defendant), asking the court to declare the noncompetition agreements void.
- The Oklahoma trial court dismissed the lawsuit, ruling that the contracts' arbitration clauses required an arbitrator to settle the dispute.
- Howard and Schneider (appellants) appealed to the Supreme Court of Oklahoma, the state's highest court.
- The Oklahoma Supreme Court reversed the trial court, holding that it could review the underlying contract and declared the noncompetition agreements void under state public policy.
- Nitro-Lift (petitioner) then petitioned the Supreme Court of the United States for a writ of certiorari.
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Issue:
Does the Federal Arbitration Act require that a challenge to the validity of a contract as a whole, which contains an arbitration clause, be decided by an arbitrator rather than a state court?
Opinions:
Majority - Per Curiam
Yes. The Federal Arbitration Act requires that attacks on the validity of an entire contract be resolved by the arbitrator in the first instance, not by a court. The FAA establishes a national policy favoring arbitration that is binding on state courts. Citing Prima Paint Corp. v. Flood & Conklin Mfg. Co. and Buckeye Check Cashing, Inc. v. Cardegna, the Court reiterated the principle that an arbitration provision is severable from the remainder of the contract. Therefore, while a court may decide a challenge to the validity of the arbitration clause itself, any challenge to the validity of the contract as a whole is for the arbitrator to decide. The Oklahoma Supreme Court disregarded this controlling federal precedent by assuming the arbitrator's role and ruling on the validity of the noncompetition agreements. The Supremacy Clause of the U.S. Constitution requires state courts to abide by the FAA and the Supreme Court's interpretation of it, which preempts any conflicting state law or jurisprudence.
Analysis:
This decision strongly reaffirms the preemptive power of the Federal Arbitration Act over state laws and court decisions that are hostile to arbitration. It clarifies that the severability doctrine—which treats the arbitration clause as a separate agreement from the larger contract—is not optional for state courts. The ruling limits the ability of parties to use state courts to invalidate contracts on public policy grounds when a valid arbitration agreement exists, thereby funneling more contract validity disputes into arbitration. This serves as a direct instruction to state supreme courts that they must adhere to the U.S. Supreme Court's FAA jurisprudence.
