Supreme Court Watch

Tuesday, December 11, 2012

Nitro-Lift Technologies, LLC v. Howard, No. 11-1377 (Nov. 26, 2012).
By Nina Kimball

Invoking the Supremacy Clause of the Constitution, the U.S. Supreme Court reiterated its long-standing position that the Federal Arbitration Act (FAA) trumps contrary state law.  This principle is so well established that the Court did not need to hear oral argument to decide it.  The only thing unusual about this case is the fact that the case concerned a non-compete agreement – a dispute that rarely reaches the high court. 

The case arose after two Nitro-Lift employees went to work for a competitor. Nitro-Lift served them with a demand for arbitration under the arbitration provision of their employment agreements requiring all disputes to be settled by arbitration.  The employees filed suit in state court seeking a declaratory judgment declaring the non-compete agreements void under Oklahoma law.  The court dismissed the lawsuit, requiring the dispute be submitted to arbitration.  On appeal, the Oklahoma Supreme Court first found that the dispute of the underlying employment agreement was subject to judicial review as purely a matter of state law for state-court determination.  It reversed, holding the non-compete agreements void under Oklahoma law.   

The Court granted certiorari and vacated the Oklahoma Supreme Court’s decision in a per curiam decision.  The Court reiterated the rule under the Supremacy Clause that the federal statute (the FAA) trumps the state statute disfavoring non-competition agreements.  Applying the FAA, the Court held that because the dispute concerned the validity the contract itself, not the arbitration provision, it was for the arbitrator to decide, not a court:  “when parties commit to arbitrate contractual disputes, it is a mainstay of the [FAA’s] substantive law that attacks on the validity of the contract, as distinct from attacks on the validity of the arbitration clause itself, are to be resolved by the arbitrator in the first instance, not by a federal or state court."