Plaintiff Kara Sandler, an employee, sued her employer, Modernizing Medicine, Inc., alleging age and disability discrimination. The employment contract required binding arbitration under the Federal Arbitration Act and incorporated the rules of JAMS, which state that an arbitrator must resolve disputes over the validity of the agreement. When Modernizing Medicine moved to compel arbitration, Sandler argued the agreement was unconscionable. The district court acknowledged that the contract delegated the question of validity to an arbitrator but ruled that a severability clause in the contract, which allowed a court to excise invalid provisions, meant the delegation was not clear and unmistakable. Consequently, the district court refused to compel arbitration and ruled on the unconscionability of the agreement itself.
The Ninth Circuit held that the district court misapplied federal law. Under the Federal Arbitration Act, the question of who decides the validity of an arbitration agreement—court or arbitrator—depends on whether there is clear and unmistakable evidence of the parties' intent to delegate that question. The court found that incorporating JAMS rules, which explicitly assign validity disputes to the arbitrator, satisfies this standard. The court rejected the argument that the severability clause negated this delegation. It reasoned that a severability clause and a delegation clause can coexist; the severability clause addresses what happens if a court improperly reaches the enforceability of provisions, while the delegation clause governs who decides that question in the first place. Furthermore, the court emphasized that the 'clear and unmistakable' standard is a federal rule. Allowing state law to dictate that a severability clause negates a delegation would violate the FAA's preemption of state rules that single out and disfavor arbitration.
The case is remanded to the district court with instructions to grant the motion to compel arbitration and stay the proceedings pending the completion of arbitration. The district court's ruling on unconscionability is vacated because the arbitrator, not the court, must resolve that issue. This decision reinforces that federal law controls the interpretation of delegation clauses in contracts subject to the FAA, preventing state severability rules from undermining arbitration mandates.