Brennan v. Opus Bank: Arbitration Agreement Incorporating AAA Rules Gives Arbitrator the Power to Determine Arbitrability of Employment Claims Between Sophisticated Parties

In Brennan v. Opus Bank, ___ F.3d ___ (9th Cir. 8/11/15), an executive-level employee, Brennan, sued his former employer, Opus, alleging that Opus violated his employment agreement. Brennan filed in district court, alleging that his employment agreement's arbitration clause was unconscionable and unenforceable. Opus moved to compel arbitration, arguing that the arbitration clause incorporated the rules of the American Arbitration Association (AAA), which require the arbitrator to determine the arbitrability of Brennan's claims. The district court granted the motion to compel, and the Ninth Circuit affirmed, holding as follows: 

Federal law applied to the arbitrability question because the agreement was a contract "evidencing a transaction involving [interstate] commerce" and thus fell under the Federal Arbitration Act (FAA). Further, the Employment Agreement did not "clearly and unmistakably" indicate that California’s law of arbitrability controlled, even though it provided that the parties would "retain the rights of all discovery provided pursuant to the California Code of Civil Procedure” and that “[a]ll rights, causes of action, remedies and defenses available under California law and equity . . . as though in a court of law.”

While the Employment Agreement is clear that California’s procedural rules, rights, and remedies apply during arbitration, it says nothing about whether California’s law governs the question whether certain disputes are to be submitted to arbitration in the first place.

Under federal arbitrability law, the agreement "clearly and unmistakably" delegated the arbitrability question to the arbitrator by incorporating the AAA rules. Nontheless, the Court limited its holding to situations involving "sophisticated parties" such as Brennan and Opus.

The case involved three separate agreements: (1) the Employment Agreement; (2) the arbitration agreement within the Employment Agreement; and (3) the delegation clause within the arbitration agreement.

[Because] Brennan failed to “make any arguments specific to the delegation provision,” [Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), 74], and instead argued “that the [Arbitration Clause] as a whole is unconscionable under state law,” id. at 75, “we need not consider that claim,” id. at 73, because it is for the arbitrator to decide in light of the parties’ “clear and unmistakable” delegation of that question, as we held above. Accordingly, the district court did not err in dismissing Brennan’s claims in favor of arbitration.

The opinion is available here.