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January 05, 2022 Practice Points

Delegation Clause Impacts Class Action

The question of whether the plaintiffs were obliged to arbitrate their claims fell within the terms of the delegation clause and was left to the arbitrator to decide.

By Robert Arrington

In In re: StockX Customer Data Security Breach Litigation, No. 21-1089 (December 2, 2021), the Sixth Circuit decided an appeal from a putative class action which the district court had sent to arbitration.

In that case, eight named plaintiffs, among them two minors, brought a nationwide putative class action against e-commerce provider StockX for allegedly failing to protect millions of StockX user’s personal account information obtained through a cyber-attack in May 2019.

The district court granted StockX’s motion to dismiss the action and compel arbitration. Plaintiffs appealed, arguing that there is an issue of fact as to whether four of the plaintiffs agreed to the current terms of service and that the defenses of infancy and unconscionability render the terms of service and the arbitration agreement (including the delegation provision) invalid and unenforceable.

The Sixth Circuit concluded that a contract exists and that the delegation provision itself is valid. Accordingly, it held that the arbitrator must decide in the first instance whether the defenses of infancy and unconscionability allow plaintiffs to avoid arbitrating the merits of their claims. It therefore affirmed the district court ruling.

Practice Point

Note that the court held that the arbitration or delegation agreement must be attacked specifically, meaning the party resisting the motion to compel must do more than simply argue that the same defect that vitiates the whole agreement also renders the arbitration/delegation provision unenforceable. Here, the parties raising an infancy defense did not deny that an arbitration agreement was made. Thus, the question whether they were obliged to arbitrate their claims fell within the terms of the delegation clause and was left to the arbitrator to decide. 

Robert Arrington is of counsel at Wilson Worley in Kingsport, Tennessee.

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