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September 03, 2014 Practice Points

Classwide Arbitration Is Gateway Issue for the Courts

By Sheila J. Carpenter

On July 30, 2014, the United States Court of Appeals for the Third Circuit decided that whether an arbitration agreement authorizes arbitration of a class action is a “gateway” issue for the court to decide rather than a procedural question for the arbitrator. In Opalinski v. Robert Half International, Inc., No. 12-4444 (3d Cir. July 30, 2014), the court of appeals became the second federal appeals court to decide that the issue of bilateral vs. classwide arbitration is so important that it should be treated as a substantive issue of arbitrability, rather than a procedural matter: “Because of the fundamental differences between classwide and individual arbitration, and the consequences of proceeding with one rather than the other, we hold that the availability of classwide arbitration is a substantive ‘question of arbitrability’ to be decided by a court absent clear agreement otherwise.” The Sixth Circuit earlier reached the same conclusion in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), using similar reasoning.

Opalinski arose from a lawsuit filed by former employees of Robert Half International, Inc. (RHI) alleging that they had not been paid for overtime as required by the wage and hour laws. RHI moved to compel arbitration on an individual basis; in October 2011, the district court compelled arbitration but ruled that the question of whether the case should proceed on a classwide basis was for the arbitrator. RHI returned to the district court in December 2012, after the arbitrator issued a partial award ruling that the arbitration agreements permitted classwide arbitration, and moved to vacate that award.

In analyzing the issue, the Third Circuit noted that the Supreme Court has traditionally ruled that the question of whose claims an arbitrator has authority to decide is one for the courts. Proposed classwide arbitrations implicate the rights and privacy of absent class members. Whether their claims should be arbitrated is a question more suited to the courts than an arbitrator. The Third Circuit also ruled that a second independent reason supported treating the class question as a gateway issue: Whether the parties have agreed to submit a particular case to arbitration is treated as a gateway issue, and the differences between bilateral and classwide arbitration are so large that the court must consider whether the parties have agreed to arbitrate the class claims. The Third Circuit cited the following portion of the Sixth Circuit’s Reed Elsevier opinion, stating that the “analysis is persuasive and guides our own”:

Gateway questions are fundamental to the manner in which the parties will resolve their dispute—whereas subsidiary questions, by comparison, concern details. And whether the parties arbitrate one claim or 1,000 in a single proceeding is no mere detail. Unlike the question whether, say, one party to an arbitration agreement has waived his claim against the other—which of course is a subsidiary question—the question whether the parties agreed to classwide arbitration is vastly more consequential than even the gateway question whether they agreed to arbitrate bilaterally. An incorrect answer in favor of classwide arbitration would “forc[e] parties to arbitrate” not merely a single “matter that they may well not have agreed to arbitrate[,]” but thousands of them.

Opalinski, No. 12-4444 (first alteration in original) (quoting Reed Elsevier, 734 F.3d at 598–99). Both courts analyzed the debate engendered by the Supreme Court’s plurality opinion in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) (Breyer, J., joined by Scalia, Souter & Ginsberg, JJ.), which stated that whether an arbitration clause allows classwide arbitration is not a gateway issue. However, that view was not endorsed by five members of the Court, a fact stressed in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), which established the principle that parties may not be compelled to arbitrate classwide claims unless they have expressly agreed to do so. In Stolt-Nielsen, the Supreme Court stressed the large differences between bilateral and classwide arbitration, differences that cannot be described as purely procedural. Citing this discussion and a similar one in AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011), the Third Circuit concluded that the better view was to treat the bilateral vs. classwide arbitration issue as a fundamental arbitrability issue and thus a gateway issue reserved to the courts.

Keywords: litigation, ADR, collective bargaining, bilateral vs. classwide arbitration, gateway issue, class action, arbitrability, substantive vs. procedural

Sheila J. Carpenter is founder of Carpenter ADR LLC in Vienna, Virginia.

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