Supreme Court Update: Nitro-Life Technologies v. Howard (11-1377) and Order List

December 3, 2012 Supreme Court Update

Greetings, Court fans!

The spirit of agreement marches on: the Court is now three unanimous decisions for three. The most recent, a per curiam decision in Nitro-Lift Technologies v. Howard (11-1377), addressed an ever-popular topic among the Justices – the Federal Arbitration Act ("FAA").

Nitro-Lift and two of its employees entered into confidentiality and noncompetition agreements that contained an arbitration clause. After leaving Nitro-Lift, both employees went to work for one of the company's competitors, prompting Nitro-Lift to serve each with a demand for arbitration pursuant to the agreements. The former employees responded by suing in Oklahoma state court for a declaration that the noncompetition agreements were null and void. After the trial court dismissed the complaint in light of the valid arbitration clauses, the Oklahoma Supreme Court reversed, looking to an Oklahoma statute limiting the enforceability of noncompetition agreements. Rejecting Nitro-Lift's argument that an arbitrator must determine the enforceability of the noncompete agreements, the Oklahoma justices held that an arbitration agreement does not prohibit judicial review of the underlying agreement, and that the noncompetition agreements before it were void as against Oklahoma public policy.

The Oklahoma Supreme Court decision disregarded U.S. Supreme Court precedent addressing the FAA. The latter Court was not impressed. Citing Preston v. Ferrer (2008) and Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967), the Court explained that "when parties commit to arbitrate contractual disputes, it is a mainstay of the Act'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.'" The Oklahoma Supreme Court thus usurped the arbitrator's role by declaring the noncompetition agreements null and void – something it couldn't do under the FAA and controlling U.S. Supreme Court precedent. While putting the state court in its place, the Supreme Court also took the opportunity to renew a caution it issued earlier this year in Marmet Health Care Center, Inc. v. Brown (2012): "[W]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA."

The Court also added two more cases to its docket:

Sebelius v. Cloer (12-236), which asks: "Whether a person whose petition under the National Vaccine Injury Compensation Program is dismissed as untimely may recover from the United States an award of attorneys' fees and costs."

And, for the raisin handlers out there, Horne v. Department of Agriculture (12-123), which presents two questions for review: (1) "Whether the Ninth Circuit erred in holding . . . that a party may not raise the Takings Clause as a defense to a ‘direct transfer of funds mandated by the Government,' . . . , but instead must pay the money and then bring a separate, later claim requesting reimbursement of the money under the Tucker Act in the Court of Federal Claims;" and (2) "Whether the Ninth Circuit erred in holding . . . that it lacked jurisdiction over petitioners' takings defense, even though petitioners, as ‘handlers' of raisins under the Raisin Marketing Order, are statutorily required under 7 U.S.C. § 608c(15) to exhaust all claims and defenses in administrative proceedings before the United States Department of Agriculture, with exclusive jurisdiction for review in federal district court."

Three Justices dissented from the denial of cert in Delling v. Idaho (11-1515), a case that asked the Court to consider the constitutionality of an Idaho law eliminating the insanity defense. While Idaho law still requires the State to prove the requisite mental intent to establish a crime, it passed a law indicating that: "[m]ental condition shall not be a defense to any charge of criminal conduct." Accordingly, an insane person who commits murder because he believes the person he kills is an invading alien would not be guilty because he would not possess the requisite intent to kill a human being. By contrast, a person who kills another because he believes an alien is forcing him to do so (i.e., acting under a paranoid delusion), would be found guilty because he knows that he was killing a person. At least three Justices believe this dichotomy may be a violation of the Fourteenth Amendment's Due Process Clause. But that will have to wait for another day…

Thanks, as always, for reading!

Kim, Jenny & Julie

From the Appellate and Complex Legal Issues Practice Group at Wiggin and Dana. For more information, contact Kim Rinehart or any other member of the Practice Group at 203-498-4400