Our loyal readers know that the decision whether a matter gets sent to arbitration, as opposed to being adjudicated through traditional litigation, can have profound impact, including on timing and costs to the litigants. Even more so, when the case is a proposed class action. A few weeks ago, the Third Circuit weighed in on the issue of the availability of class-wide arbitration, holding that it is generally a question for the court, not an arbitrator, to decide. See Opalinski v. Robert Half Int'l Inc., No. 12-4444 (3d Cir., July 30, 2014). This week, the petition for rehearing was denied by the panel and the en banc court. See Opalinski v. Robert Half Int'l Inc., No. 12-4444 (3d Cir.) (petition for rehearing denied, 8/27/14).
The plaintiffs brought claims under the Fair Labor Standards Act. The court noted that the issue was whether a district court, rather than an arbitrator, should decide if an agreement to arbitrate disputes
between the parties to that agreement also authorizes class-wide arbitration. Because of the fundamental differences between class-wide and individual arbitration, and the consequences of proceeding with one rather than the other, the court of appeals concluded that the availability of class-wide arbitration is a substantive “question of arbitrability” to be decided by a court, absent clear agreement otherwise. The only other Circuit Court of Appeals to have squarely resolved the “who decides” issue is the Sixth, which has also held that “whether an arbitration agreement permits
class-wide arbitration is a gateway matter” that is presumptively “for judicial determination.” Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013).
Plaintiffs had signed employment agreements that contained arbitration provisions. They provided that “[a]ny dispute or claim arising out of or relating to Employee’s employment, termination of employment or any provision of this Agreement” shall be submitted to arbitration. Neither agreement mentioned class-wide arbitration. Defendant moved to compel arbitration of plaintiffs' claims on an individual basis. The District Court granted the motion in part, thus compelling arbitration but holding that the propriety of individual (also known as bilateral) versus class-wide arbitration was for the arbitrator to decide.
The first part of the analysis was whether the availability of class-wide arbitration is a “question of arbitrability.” See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). If yes, it is presumed that the issue is “for judicial determination unless the parties clearly and unmistakably provide otherwise.” Id. If the availability of class-wide arbitration is not a “question of arbitrability,” it is presumptively for the arbitrator to resolve. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944-45 (1994). “Questions of arbitrability” are limited to a narrow range of gateway issues. They may include, for example, whether the parties are bound by a given arbitration clause or whether an arbitration clause in a concededly binding contract applies to a particular type of controversy. On the other hand, questions that the parties would likely expect the arbitrator to decide are not “questions of arbitrability.” The Third Circuit has explained that questions of arbitrability generally fall into two categories – (1) when the parties dispute whether they have a valid arbitration agreement at all (whose claims the arbitrator may adjudicate); and (2) when the parties are in dispute as to whether a concededly binding arbitration clause applies to a certain type of
controversy (what types of controversies the arbitrator may decide). Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 178 (3d Cir. 2010).
By seeking class-wide arbitration, plaintiffs contended that their arbitration agreements empower the arbitrator to resolve not only their personal claims but the claims of additional individuals not currently parties to this action. The determination whether defendant must include absent individuals in its arbitrations with named plaintiffs affects whose claims may be arbitrated and is thus a question of arbitrability to be decided by the court. Second, while plaintiffs argued that, because class actions in the context of traditional litigation are a procedural construct, the availability of class-wide arbitration is also a procedural question, the Supreme Court, in Stolt-Nielsen, SA v. Animal Feeds Int'l Corp., had expressly disclaimed class-wide arbitration as simply procedural. 559 U.S. at 687 (the differences between class and individual arbitration cannot be characterized as a question of “merely what ‘procedural mode’ [i]s available to present [a party’s] claims”). The Court stated that class action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.
Moreover, it is presumed that courts must decide questions of arbitrability unless the parties clearly and unmistakably provide otherwise, said the court. The burden of overcoming the presumption is onerous, as it requires express contractual language unambiguously delegating the question of arbitrability to the arbitrator. Here, the plaintiffs' employment agreements provided for arbitration of any dispute or claim arising out of or relating to their employment but are silent as to the availability of class-wide arbitration or whether the question should be submitted to the arbitrator. Nothing else in the agreements or record suggests that the parties agreed to submit questions of arbitrability to the arbitrator.
This case was remanded for the District Court to determine whether appellees’ employment agreements call for class-wide arbitration.