February 23, 2015 Practice Points

District Court Holds that Arbitrator May Decide Class Arbitration

By Matthew J. Singer

Disagreeing with the Third and Sixth Circuits, the district court in Harrison v. Legal Helpers Debt Resolution, LLC, No. 12-2145 ADM/TNL, 2014 WL 4185814 (D. Minn. Aug. 22, 2014), concluded that the arbitrator, rather than the court, was empowered to decide whether arbitration may proceed on a classwide basis. The court also ruled that the defendants had waived any objection to the arbitrator’s power to decide the question of class arbitrability by unreservedly submitting the question to the arbitrator.

The plaintiff contracted with the defendants to provide debt settlement and credit repair services. The parties’ contract contained an arbitration clause. Id. at *1. The plaintiff filed a putative class-action lawsuit, alleging that the defendants misrepresented themselves as a law firm to circumvent consumer protection laws, charge higher fees, and omit necessary disclosures. Id. The defendants moved to stay the suit pending arbitration, and the plaintiff consented to submit the case to arbitration. Id. The parties then asked the arbitrator “to decide whether the arbitration clause encompassed class claims.” Id. at *2. After the parties briefed the issue, the arbitrator concluded that the plaintiff could pursue arbitration on a classwide basis. Id. The defendants moved to vacate this decision, on the ground that the arbitrator exceeded his authority by allowing class arbitration to proceed. Id.

The court first determined that, by agreeing to submit the question to the arbitrator, the defendants had waived any argument that the court (rather than the arbitrator) should determine class arbitrability. Id. at *3. The court relied on Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 n.2, in which the Supreme Court declined to address whether class arbitration is a “gateway matter” for the court to decide, because the parties had agreed to submit the question of class arbitrability to the arbitrator. In Harrison, similarly, the court concluded that the defendants, who voluntarily submitted the issue to the arbitrator, had to “live with that choice.” Harrison, 2014 WL 4185814, at *3. They could not, after losing before the arbitrator, obtain a “rerun” in court on the same issue. Id.

The court went further, concluding that even if the defendants had properly preserved the issue, class arbitration would presumptively be a matter for the arbitrator to decide, rather than a “gateway” matter reserved for the court. Id. The court acknowledged recent contrary authority from the Third and Sixth Circuits, see Opalinski v. Robert Half Int’l, 761 F.3d 326, 331–335 (3d Cir. 2014); Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013), but wrongly stated that there was a circuit split on the issue. Harrison, 2014 WL 4185814, at *4. The court wrote that Quilloin v. Tenet HealthSystem, Phila., 673 F.3d 221 (3d Cir. 2012) was a Tenth Circuit case standing for the proposition that class arbitration is a matter for the arbitrator, but Quilloin is actually a Third Circuit case whose reasoning on this issue was rejected in Opalinski. See Opalinski, 761 F.3d at 331–32.

The court decided to follow the plurality decision in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003), in which four justices agreed that class arbitration was for the arbitrator to decide. Harrison, 2014 WL 4185814, at *3–5. The court reasoned that, in light of Congress’s strong preference for arbitration, courts should hesitate to expand the categories of “gateway” issues reserved for decision by the court. Harrison, 2014 WL 4185814, at *4. The court acknowledged that the Supreme Court’s decision in Stolt-Nielsen v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684–87 (2010), emphasized “the practical differences between bilateral and class arbitration,” but this language did not convince the court that class arbitration should be a gateway matter reserved for a court’s decision. Harrison, 2014 WL 4185814, at *5. In the end, the court relied on Bazzle to determine that the arbitrator was allowed to decide class arbitrability, because “although Bazzle lacked a controlling majority, the plurality opinion dealt with precisely the same issue pending in the present motion, and no Supreme Court decision has subsequently offered clearer guidance.” Id.

Harrison teaches two important lessons: (1) a party that voluntarily submits the question of class arbitrability to an arbitrator may be precluded from later arguing that a court should have decided the question; and (2) even after the Third and Sixth Circuit’s recent decisions in Opalinski and Reed Elsevier, it remains an open question in other jurisdictions whether class arbitration is for the court or an arbitrator to decide.

Key Words: litigation, ADR,alternative dispute resolution, class arbitration, classwide arbitration, gateway issue, waiver

Matthew J. Singer is with Novack and Macey LLP in Chicago, Illinois.

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