November 24, 2014 Top Story

Arbiter Does Not Decide Class Arbitration Status

Third Circuit is latest to rule class arbitration is for the court to decide

Catherine R. McLeod

The U.S. Court of Appeals for the Third Circuit has joined the Sixth Circuit in concluding that  classwide arbitration should be determined by the court rather than by an arbitrator. In Opalinski v. Robert Half International, Inc., the Third Circuit held that the determination of whether arbitration should proceed on a  classwide basis is a gateway issue to be decided by the court—not the arbitrator—absent clear contractual language to the contrary. The United States Supreme Court has not yet definitively ruled on the issue, and the Third Circuit decision adds to a potential emerging trend of federal appellate courts to rule that an arbiter should not decide class arbitration status.

In Opalinski, former employees of Robert Half International, Inc. filed a class action lawsuit in federal court, alleging that the defendant had not paid them for working overtime. The defendant moved to compel arbitration on an individual basis. The U.S. District Court for the District of New Jersey compelled arbitration, but ruled that the question of whether the case should proceed on a  classwide basis was for the arbitrator.

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.

Keywords: arbitration, classwide arbitration, arbitrability, class action, gateway issue

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