Expectation of Contracting Parties Is Crucial in Determining Arbitrability
Reversing the district court, the Third Circuit held that whether an arbitration should proceed on a classwide basis should be determined by the court, given the substantive differences between individual and class arbitration and the significant consequences of that determination. The appellate court reasoned that classwide arbitration is a question of arbitrability, and historically arbitrability is a matter for the court—not the arbitrator—to determine.
The appellate court noted that questions of arbitrability are limited to a narrow range of gateway issues, such as whether the parties are bound by a given arbitration clause or whether the arbitration clause in a contract applies to a certain controversy. The court said questions of arbitrability generally fall into two categories: whose claims the arbitrator may adjudicate and what types of controversies the arbitrator may decide. The court noted , “the crucial consideration is the expectation of the contracting parties,” adding that the courts do not “force parties to arbitrate a matter that they may well have not agreed to arbitrate.”
A Question of Arbitrability
The Third Circuit provided two reasons why the availability of classwide arbitration is a question of arbitrability for the court to resolve. The first is that the availability of classwide arbitration implicates whose claims the arbitrator may resolve. Second, the availability of classwide arbitration concerns whether a binding arbitration clause applies to a certain type of controversy.
Finally, the Third Circuit noted that the Supreme Court has not yet decided whether the availability of classwide arbitration is a question of arbitrability, and the only other Circuit Court of Appeals to have resolved the “who decides” issue is the U.S. Court of Appeals for the Sixth Circuit, which also held that classwide arbitrability was a matter for the court to decide. The Third Circuit cited the Sixth Circuit’s reasoning that “the question whether the parties agreed to classwide arbitration is vastly more consequential” than whether two parties agreed to individual arbitration, as an incorrect answer in favor of classwide arbitration would force parties to arbitrate not merely a single dispute that they may not have agreed to arbitrate, but many disputes between hundreds or even thousands of parties.
The Third Circuit’s decision “attempts to reconcile conflicting prior decisions from the United States Supreme Court regarding who—an arbitrator or the courts—should decide whether a party who agreed to arbitrate disputes can, against his or her wishes, be forced to participate in a classwide arbitration,” says Neal M. Eiseman, New York, NY, chair of the ABA Section of Litigation’s Arbitration Subcommittee of the Alternative Dispute Resolution Committee. “It is important to recognize that the Third Circuit’s holding is in large part based on the fact that the employment agreement in question was silent as to the availability of classwide arbitration,” he says.
“I think the decision is correct,” says Mitchell L. Marinello, Chicago, IL, vice-chair of the Section of Litigation’s Alternative Dispute Resolution Committee. “The availability of classwide arbitration is an important question that the courts should normally decide. What I find interesting is the suggestion that there might be circumstances where classwide arbitration is a realistic option and where the arbitration agreement puts that decision in the arbitrator’s hands.”
Tips for Practitioners
“The practice tip for an employer desiring a single, unified proceeding to resolve claims is to include within its employment agreements language stating that the employee consents to classwide arbitration and making certain the language is not buried in fine print,” Eiseman says. “Counsel should not assume that under these circumstances, or when advising clients entering into a contract providing for arbitration, that arbitration should be avoided,” says David T. Lopez, Houston, TX, chair of the Section’s Employment Subcommittee of the Alternative Dispute Resolution Committee. “Depending on the nature of the claims and the potential scope of class claims, an arbitration proceeding might be more efficient and less expensive than litigation,” suggests Lopez.
Catherine R. McLeod is a contributing editor for Litigation News.