11/26/2012 03:26:51 PM EST
U.S. Supreme Court: Arbitrator Must Decide on Validity of Noncompete Agreement
WASHINGTON, D.C. - (Mealey's) The Oklahoma Supreme Court
failed to properly apply a basic tenet of the Federal Arbitration Act (FAA)
when it declared the noncompete agreement in two employment contracts null and
void rather than leaving the determination up to an arbitrator, the U.S.
Supreme Court ruled Nov. 26 in a per curiam opinion (Nitro-Lift
Technologies, L.L.C. v. Eddie Lee Howard, et al., No. 11-1377, U.S. Sup.).
"The trial court found that the contract contained a
valid arbitration clause, and the Oklahoma Supreme Court did not hold
otherwise. It nonetheless assumed the arbitrator's role by declaring the
noncompetition agreements null and void. The state court insisted that
its '[own] jurisprudence controls this issue' and permits review of a 'contract
submitted to arbitration where one party assert[s] that the underlying
agreement [is] void and unenforceable.' . . . But the Oklahoma
Supreme Court must abide by the FAA, which is 'the supreme Law of the Land,'
U.S. Const. Art. VI, cl. 2, and by the opinions of this Court interpreting that
law. . . . The state court reasoned that Oklahoma's statute 'addressing the validity
of covenants not to compete, must govern over the more general statute favoring
arbitration.' . . . But the ancient interpretive principle that the
specific governs the general (generalia specialibus non derogant)
applies only to conflict between laws of equivalent dignity. Where a
specific statute, for example, conflicts with a general constitutional
provision, the latter governs. And the same is true where a specific
state statute conflicts with a general federal statute. There is no
general-specific exception to the Supremacy Clause, U.S. Const. Art. VI, cl.
2. . . . Hence, it is for the arbitrator to decide in the first
instance whether the covenants not to compete are valid as a matter of
applicable state law," the high court wrote.
Working For A Competitor
The case arose from a dispute between Nitro-Lift
Technologies LLC and two of its former employees. Nitro-Lift contracts
with operators of oil and gas wells to provide services that enhance
production. Two of Nitro-Lift's employees who had signed a confidentiality
and noncompetition agreement with Nitro-Lift, Eddie Howard and Shane Schneider,
quit and began working for one of Nitro-Lift's competitors.
Nitro-Lift served Howard and Schneider with a demand for
arbitration, claiming that they had breached their noncompetition
agreements. Howard and Schneider then filed suit in the Johnston,
District Court asking the court to declare the noncompetition agreements null
and void and to enjoin their enforcement. The District Court dismissed
the complaint after determining that the contracts contained valid arbitration
clauses under which an arbitrator, and not the court, must settle the parties'
Howard and Schneider appealed. The Oklahoma Supreme
Court ruled in favor of the employees, and Nitro-Lift petitioned the U.S.
Jay P. Walters of Fellers, Snider, Blankenship, Bailey
& Tippens in Oklahoma City
represents Nitro-Lift. Micah D. Knight of Durant, Okla., represents Howard and Schneider.
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