I don’t mean to be imprecise, but I think that the Eleventh Circuit may have recently issued the most luddite opinion I’ve seen in a good long while.  See Managed Care Advisory Group, LLC v. CIGNA Healthcare, Inc., 2019 WL 4464301 (11th Cir. Sept. 18, 2019).  According to the court, Section 7 of the FAA, which allows arbitrators to subpoena non-parties and their documents, must be interpreted narrowly.  And when I say narrowly, the Eleventh Circuit isn’t joking around.

Arbitrators can only require summonsed non-parties to appear in the physical presence of the arbitrator.  This means literal physical presence; none of this video conference nonsense.  Additionally, Section 7 prohibits any pre-hearing discovery, which means that documents from non-parties can only be obtained when they physically show up to a hearing.

The underlying dispute isn’t particularly important, but briefly, just for context, it involved arbitration over a settlement agreement.  Essentially, a class of medical providers had sued managed care insurance companies, alleging that the insurers improperly processed and rejected certain physicians’ claims for payment.  A big kerfuffle ensued.  Ultimately, the case settled.  Sometime after the settlement, a group acting on behalf of the class members submitted to an arbitration agreement with one of the insurers.  They were trying to resolve a dispute over a portion of the settlement funds.  Eventually, during the course of an arbitration, the arbitrator summonsed several non-parties to appear for a live hearing and video conference and to bring certain documents along with them.  The non-parties objected to the summonses.

After dealing with some preliminaries – jurisdiction, the nationwide service of arbitral summonses, and the correct court to enforce arbitral summonses – the court gets to the big bang.  It starts by quoting Section 7, which allows an arbitrator to “summon in writing any person to attend before them . . . as a witness and in a proper case to bring with him . . . any book, record, document, or paper which may be deemed material as evidence in the case.”  The text laid out, the Eleventh Circuit turns to a plain-meaning and quaintly originalist reading.

The court observes that “Congress passed Section 7 in 1925, so we must ascertain the meaning of ‘attendance’ and ‘before’ in Section 7’s grant of authority . . . in the same manner provided by law for securing the attendance of witnesses . . . in the courts of the United States” as of 1925.  Since there was none of this new-fangled video conference rubbish in 1925, Section 7 of the FAA doesn’t include technological means of having witnesses “attend” the hearing.  In short, “Section 7 does not authorize district courts to compel witnesses to appear in locations outside the physical presence of the arbitrator. . . .”

Moreover, a simple reading of Section 7, according to the Eleventh Circuit, only allows arbitrators to compel non-parties to come to a hearing with documents.  It doesn’t allow arbitrators to compel non-parties to produce documents before such a hearing.  “Thus, the FAA implicitly withholds the power to compel documents from non-parties without summoning the non-party to testify.”  And, even if the non-party is summoned to testify, the FAA does not allow “pre-hearing” discovery.

It’s worth noting that the Eleventh Circuit aligns itself with the Second, Third, Fourth, and Ninth Circuits.  But the Eleventh Circuit is a bit cheeky.  It insinuates that these other circuits agree with both prongs of its holding: (1) arbitrators can only compel non-parties to attending in-person, physical hearings in the same room as the arbitrator; and (2) the FAA does not permit pre-hearing discovery from non-parties.  In fact, these other circuits seem to only endorse, at least expressly, the second point.  (Then-judge Alito writing for the Third Circuit did say that Section 7 “unambiguously restricts an arbitrator’s subpoena power to situations in which the non-party has been called to appear in the physical presence of the arbitrator and to hand over the documents at that time.”  But the Third Circuit was not faced with non-parties being summoned to a video conference.)

The Eighth Circuit appears to be the outlier with respect to this second point, reasoning that, well, times have changed and efficiency interests suggest that arbitrators should have the authority to require pre-hearing production of evidence from non-parties.

With respect to the Eleventh Circuit’s first holding, I’m not aware of any other decisions to say that arbitrators and non-parties have to be in the same physical space.  I confess, that feels unnecessarily technophobic to me.  The Eleventh Circuit says that the second holding – arbitrators cannot compel pre-hearing discovery from non-parties – compels the first – arbitrators and non-parties need to be in the same room.  Otherwise, how would the arbitrators get any documents that non-parties bring with them?  But Really?  I teach students regularly who are not in the same physical room as me.  And I can easily share, electronically, documents or other information with them in real time.

I don’t mean to be cheeky myself, but this all seems silly.  And radically inefficient.  And to miss the point of much modern discovery, in a world where “documents” are often anything but paper.  Taken to its extreme, the Eleventh Circuit’s decision could mean that arbitrators lack the power to compel non-parties to produce any form of ESI (“electronically stored information”), at least to the extent that the non-parties couldn’t “bring it with them” to the hearing.

This decision is radically anti-arbitration.  To be sure, the notion that non-parties cannot be compelled to produce pre-hearing discovery isn’t entirely new, though it too seems anti-arbitration.  But this appended requirement of physical presence at a hearing . . . I’m flummoxed.

Hat tip to Erika Birg, a partner at Nelson Mullins in Atlanta, for highlighting this important case for me.

For the next installment of the Bookworm, I’m recommending a very recent article by Professor Jean Sternlight: Mandatory Arbitration Stymies Progress Towards Justice in Employment Law: Where To, #MeToo?.

For anyone who isn’t already familiar with her work, Professor Sternlight has been at the forefront of thinking about adhesive arbitration for at least two decades.  Her  articles are at the bedrock of any critical appraisal of consumer, employee, and patient arbitration.  Her 1996 piece, Panacea or Corporate Tool – Debunking the Supreme Court’s Preference for Binding Arbitration, defined, in many ways, the terms of the debate that’s been raging ever since.  And her 2005 article, Creeping Mandatory Arbitration: Is it Just? constitutes, in my mind, one of the most cogent criticisms of so-called “mandatory arbitration” that has been written.

I don’t always agree with Professor Sternlight.  But it’s impossible not to respect the quality of her thinking and the passion of her arguments.

Mandaotry Arbitration Stymies Progress continues her important and thoughtful work.  In her own words, here’s a summary:

If companies can continue to use mandatory arbitration to eradicate access to court, where judges are potentially influenced by social movements, social movements will no longer be able to assist the overall progressive trend of our jurisprudence. . . . [T]he current and powerful #MeToo movement offers a perfect, albeit depressing, case study.  While the #MeToo movement has already exposed many sordid high-profile incidents of alleged harassment, sparked substantial outrage in traditional and social media, and become a talking point in public events and workplaces throughout the country, for the most part this outrage has not yet trickled down to protect ordinary women (and men) in ordinary workplaces. To the contrary, the law of sexual harassment still has a long way to go to catch up with the sentiments being expressed in the #MeToo movement. In the past, one might have expected that the new cultural attitudes surrounding sexual harassment might lead courts to rethink some of their prior restrictive decisions on sexual harassment. However, to the extent that employers are using mandatory arbitration to keep employment disputes out of court, even as powerful a social force as the #MeToo movement may not produce the progressive legal changes one might otherwise have expected. What is true of the #MeToo movement is true of other existing and potential forces for social change as well, such as social movements that might advocate for greater diversity, privacy, or income equality. To the extent companies are permitted to use arbitration to eliminate access to courts, they prevent our law from evolving to become more just.

Four weeks ago, the boundary between public enforcement and private dispute resolution became more blurred.  On September 4, the Justice Department announced that it had agreed to binding arbitration on the key issue in a current merger case—the market definition.

The enforcement action is garden variety.  It challenges Novelis Inc.’s proposed acquisition of Aleris Corporation.  According to the DOJ, the transaction would combine two of only four North American producers of aluminum auto body sheet, which automakers use to produce aluminum parts for automobiles.

But the use of arbitration by the DOJ constitutes a novel use of the Antitrust Division’s authority under the Administrative Dispute Resolution Act of 1996, 5 U.S.C. § 571 et seq.  Although the option has theoretically existed for 23 years, the DOJ has never used it before.

DOJ Antitrust Chief Makan Delrahim suggested, during a speech at George Washington University Law School’s annual Antitrust Salon, that this case “could prove to be a model for future enforcement actions, where appropriate, to bring greater certainty for merging parties and to preserve taxpayer resources while staying true to our enforcement mission.”

He went on to justify the experiment on both efficiency and accuracy grounds.  He noted that antitrust enforcers must be “more attuned to ensuring an efficient process for resolving merger and conduct investigations and, when necessary, litigations.”  He cautioned, however, that “efficiency should not come at the expense of achieving the right result.  Rather, we always should be open to process improvements that can result in economically sound outcomes that are achieved in a more efficient manner.”

If you’re a regular reader of the blog, you know of my abiding belief in the many virtues of arbitration.  Even in the tricky context of adhesive contracts with consumers, employees, and patients, I’m not persuaded that arbitration always poses the grave concerns that some suggest.  But this decision by the DOJ puts even me on high alert.

I’ll refrain from too much commentary, but suffice it to say that arbitration’s virtues extend to resolution of particular disputes.  Arbitration can get the job done at a low cost and in an effective way.  Arbitration, however, does little (and maybe nothing) to promote social policy objectives outside of dispute resolution.  Regulatory enforcement actions, while civil in nature, seem to me to be intended to serve additional public purposes beyond mere resolution of a particular dispute.

This isn’t a simple issue, and I appreciate the DOJ’s desire to streamline a part of antitrust enforcement actions that has proven daunting to generalist judges and lay juries.  Still, the idea that a critical component of enforcement actions could be shuffled off for resolution in private or, at least, outside of the standard public system, gives me pause.

The Third Circuit welcomed us to the fall arbitration season with an important decision for the gig economy, Singh v. Uber Techs. Inc., 2019 WL 4282185 (3d Cir. Sept. 11, 2019).  Relying on the key logic of SCOTUS’s January ruling in New Prime, Inc. v. Oliveira, the Third Circuit concluded that Uber drivers may qualify FAA § 1’s exemption for “any other class of workers engaged in foreign or interstate commerce.”  I say “may qualify” because the Third Circuit technically remanded the case.

This is an important one, so it’s worth thinking through it carefully.  There at least three key takeaways from the case: (1) workers may qualify for the § 1 exemption if they belong to a class of workers moving passengers or goods in interstate commerce; (2) the determination of whether workers fall within such a class hinges on consideration of a non-exclusive list of factors; and (3) lower courts can and should demand discovery necessary to make this factor-based determination.

Exciting stuff!  Let’s dive in!

The facts are simple: a New Jersey Uber driver brought a putative class action in state court.  He alleged that Uber misclassified drivers as independent contractors rather than employees.  That deprived the drivers of over overtime pay and it forced them to incur business expenses that Uber should have paid.  Uber removed the case.  Then it sought to compel arbitration on an individual basis.  The employee resisted on a number of grounds, including that the contract with Uber fell within the exemption of FAA § 1.  The district court, however, decided that the employee did not qualify for the exemption.  It reasoned that the exemption only applies to workers who transport goods, not passengers.  The district court then rejected the employee’s other objections and sent the case to arbitration.

That sets the stage for the first of the three big takeaways: according to the Third Circuit, the FAA § 1 exemption “may extend to a class of transportation workers who transport passengers, so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it.”  This is huge.  Uber argued vigorously that the exemption should be narrowly construed to apply only to transportation workers moving goods.  Some dicta would seem to have supported that proposition.  But the Third Circuit roundly rejected it.

That, in turn, raised the second big takeaway: the lower court needs to evaluate various factors to determine if particular employees belong to a class of employees engaged in interstate commerce.  Notice the phrasing here.  The question isn’t whether the particular workers were engaged in interstate commerce.  It’s whether the particular workers belong to a class of workers who are engaged in interstate commerce.

Both the employee and Uber argued that the question could be resolved based on the existing record.  The employee argued that the court should look at the contract between the parties.  That contract implicitly contemplated a relationship with drivers from all fifty states and thus encompassed interstate travel.  Uber countered that the court should look only to its lived experience – Uber drivers inherently serve a local market, even if they occasionally might cross a state line here or there.

The court rejected both arguments.  The contract between the parties is one source of evidence about whether the workers belong to a class of workers engaged in interstate commerce.  But it’s not dispositive.  Similarly, the local nature of much of the work might be a factor, but it’s hardly the only factor.  Instead, the court instructed the lower court, on remand, to consider “various factors” including but not limited to “the contents of the parties’ agreement(s), information regarding the industry in which the class of workers is engaged, information regarding the work performed by those workers, and various texts—i.e., other laws, dictionaries, and documents—that discuss the parties and the work.”

And that brings us to the third big takeaway, which, in some respects, seems perhaps the most general and significant: the court’s instruction about what procedural framework governs a motion to compel, Fed. R. Civ. P. 12(b)(6) (motion to dismiss) or 56 (summary judgment).  The Third Circuit doubled down on an approach that it laid out in Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013).  That approach uses a motion to dismiss standard for a motion to compel if the existence of a valid agreement to arbitrate between the parties is apparent from the face of the complaint or incorporated documents.  On the other hand, if the complaint and its supporting documents are unclear” as to whether the parties agreed to arbitrate, “or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement” in dispute, a “restricted inquiry into factual issues [is] necessary . . . .”

In this case, the court concluded that the complaint and supporting documents were unclear about whether the driver belonged to class of workers engaged in interstate commerce.  Accordingly, the court ordered the district court, on remand, to “permit discovery on the question before entertaining further briefing.”

On one hand, this third takeaway threatens, if read for all it’s worth, to authorize the same sort of “smell test” that SCOTUS unanimously rejected earlier this year in Henry Schein, Inc. v. Archer & White Sales, Inc.  Remember, there the Court put to rest the “wholly groundless” doctrine, which some circuits had used to do an end-run around a delegation clause.  Taken at face value, this Guidotti approach could do much the same thing by giving courts the opportunity to second guess the validity of an arbitration agreement.

On the other hand, in this particular case, the Third Circuit probably got things right.  Although the Uber agreement contains a delegation clause, as SCOTUS made clear in New Prime, such a delegation clause only kicks in once a court concludes that an arbitration agreement subject to the FAA exists.  In other words, a court must first determine if the contract falls within the  § 1 exemption.

All that said, the combination of the second and third takeaways from this case make things very messy, at least for a while, for the gig economy.  Until the dust settles, parties may wind up spending a lot of time litigating whether the FAA even applies.

On March 9 and 10, 2020, the ABA Section of Dispute Resolution is bringing 20 or more of the leading arbitrators and arbitration advocates in the country to Phoenix, AZ to teach at its 13th Annual Arbitration Institute.

There are at least five good reasons to think about attending, if you can:

(1) It’s being taught by some of the top arbitration practitioners in the country.

(2) It will teach new arbitrators the skills needed to become good arbitrators and experienced arbitrators will learn how to become great arbitrators.

(3) It will teach new arbitration advocates how to become good advocates and experienced advocates how to become great ones.

(4) It’s being held in Phoenix in March!! At least for those of us in the frigid midwest, that warm weather is a tremendous lure.  Plus, spring training!

(5) It includes small group sessions with successful arbitrators on how to market and increase your arbitration business.

If you’re interested, you can find details here: http://ambar.org/arb2020.

I’m adding something new to our Blog experience, the ArbitrationNation Bookworm.  Basically, once or twice a month, I’ll provide a brief overview of an article or book that readers of the Blog might find interesting.  I’m also going to add a sidebar that includes other stuff that we’re reading related to arbitration.

For the inaugural post, I’m recommending an article from early 2019, Arbitration Nation: Data from Four Providers, by Andrea Cann Chandrasekher and David Horton.  (Neither Liz nor I had any involvement in writing the article, despite its title, but the authors did secure permission from Liz to use the Arbitration Nation name.)

This article analyzes a huge data set on consumer, employee, and patient arbitration – 40,775 arbitrations filed between 2010 and 2016 and administered for four major institutions. I won’t spoil all the fun of reviewing the findings, but the authors conclude that three points emerge:

First, arbitration has the capacity to facilitate access to justice. Cases move quickly through the system, and corporations pick up most of the tab. Second, arbitration is not currently living up to this potential. Although businesses are correct that more individuals are arbitrating after Concepcion, this uptick has been modest. Moreover, companies are wrong about who is bringing those claims. Plaintiffs’ lawyers—not self- represented consumers, employees, or medical patients—have been taking advantage of arbitration’s speed and relative affordability. In fact, some attorneys have tried to create a simulacrum of the class action by initiating dozens or even hundreds of two-party arbitrations against the same defendant. Third, concern that arbitration favors repeat-playing corporations is well founded. Indeed, businesses that arbitrate often in an institution perform particularly well within that institution. Nevertheless, this is just one-half of the repeat-player story. Arbitration favors repeat players on both sides. In a variety of different settings, serially arbitrating plaintiffs’ law firms also fare particularly well.

For anyone thinking about the many sticky issues around consumer, employment, or patient arbitration clauses, this article warrants a close look.

Delegation provisions are a hot topic this year!  This week, we’re going to look at two more circuit court decisions centering on delegations and finding ways around them.

Just to set the stage, though, I’ve got to put a little egg on my own face.  To quote myself from back in June: “it’s almost impossible to imagine ‘an additional ground or basis’ for invalidating a delegation clause.  The target that a party wanting to avoid a delegation clause must hit is so small that it’s virtually invisible.”  Weeelllll . . . . Turns out that I might have been overstating things just a smidge.

Part of the reason that I said what I did was because of the unanimous decision by SCOTUS in Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019).  You’ll recall that Henry Schein sounded a death knell for the wholly groundless doctrine.  The wholly groundless doctrine was basically a smell test for arbitrability.  It gave courts the right to police at least the most questionable arbitration agreements despite the existence of a delegation provision.  A unanimous Supreme Court, however, reversed the Fifth Circuit and concluded that when the parties’ contract delegates arbitrability to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is wholly groundless.

Still, SCOTUS “express[ed] no view about whether the [particular] contract at issue in th[e] case in fact delegated the arbitrability question to an arbitrator.”  Accordingly, the Court remanded the case to the Fifth Circuit.

Last week, the Fifth Circuit doubled down on its original conclusion.  It held that the contract at issue did not assign arbitrability to the arbitrator.  See Archer and White Sales, Inc. v. Henry Schein, Inc., 2019 WL 3812352 (5th Cir. Aug. 14, 2019).  Everybody agreed that the arbitration agreement was valid.  Moreover, everybody agreed that there was a valid delegation clause (through the AAA rules – Rule 7(a)).  One might have reasonably thought that this should end the matter.  But the claimant sought, at least partially, injunctive relief, and the arbitration clause carved out “actions seeking injunctive relief.”  Given the syntax of the clause, the Fifth Circuit determined that the delegation provision did not “clearly and unmistakably” assign arbitrability to the arbitrator.

A few weeks earlier, the Eighth Circuit also wrestled with a delegation clause and found that it didn’t mandate that arbitrability go to an arbitrator.  In Shockley v. PrimeLending, 929 F.3d 1012, 1015 (8th Cir. 2019), the court addressed the enforceability of an arbitration agreement and delegation provision in an employee handbook.

The handbook was available to employees on a computer network.  The employee accessed the handbook a couple of times, and the system logged an acknowledgement of her review.  The employee, however, testified that she did not recall reviewing the handbook and there was no other evidence to suggest that she ever opened or examined the handbook’s full text.

When the employee filed a lawsuit in federal court for violations of the FSLA, the employer sought to compel arbitration.  The employee resisted on the ground that she had never assented to the arbitration agreement or the delegation provision.  The district court agreed, and the Eighth Circuit affirmed.

Essentially, the Eighth Circuit reasoned that, even if the employer had made an offer to the employee, the employee never accepted it.  Merely continuing to work does not manifest the necessary assent to the terms of arbitration.  At best, the employee “acknowledged the existence of the delegation clause. . . . [but the court said it] was aware of no legal authority holding that an employee’s general knowledge or awareness of the existence of a contract constitutes the positive and unambiguous unequivocal acceptance required” to form a contract.

I’m unpersuaded by either case. But both suggest that courts remain more willing to scrutinize delegation provisions than I’ve previously indicated on this Blog.

I can’t believe we’re more than a week into August!  I don’t know about you, but I feel like I’m going to have to say goodbye to summer too soon.   I love fall, so maybe that’s not so bad?

Anyway, speaking of farewells, this week we get a back-to-the-basics refresher from the Eleventh Circuit on waving bye-bye to the right to arbitrate.  Although the particulars involved a consumer arbitration agreement, the key reasoning applies more broadly to all arbitrations.

In Freeman v. SmartPay Leasing, LLC, 771 Fed.Appx. 926 (11th Cir. 2019), SmartPay and Freeman entered into an agreement providing that the party initiating arbitration could choose either the AAA or JAMS rules and administrative services.

Freeman had a beef with SmartPay.  So, she sued SmartPay in federal district court. Shortly thereafter, the parties filed a joint motion to stay and to refer the dispute to binding arbitration. Freeman selected JAMS as the arbitration forum, she filled out the required form, and she paid a $250 initial filing fee.

This is where things went off the rails. SmartPay alleged that there were important procedural differences between the parties’ arbitration agreement and the JAMS rules. The details aren’t overly important, but the gist is that SmartPay argued those differences meant that this wasn’t truly a “consumer arbitration” under JAMS rules. (Basically, SmartPay didn’t want to have to pay all of the costs of the arbitration, other than the initial $250 that Freeman paid.)

JAMS didn’t buy it. It said that it wouldn’t administer the “consumer arbitration” unless and until SmartPay finished paying $950 in filing fees and waived any provisions in the parties’ agreement contrary to JAMS’s Consumer Minimum Standards. SmartPay stood firm by its position that this wasn’t a “consumer arbitration.” So it refused to pay the balance of the filing fee. It ultimately took the position that if JAMS wouldn’t administer the arbitration the case would have to be dismissed and refiled with the AAA.

JAMS did dismiss, but Freeman opted not to refile with the AAA. Instead, she went back to the district court and asked that the stay be lifted. She argued that SmartPay had waived its right to demand arbitration by refusing to pay the remaining initial filing fee. The district court agreed.

On appeal, the Eleventh Circuit noted that under FAA § 3, a district court should stay the litigation “until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” Default includes waiver. Waiver, in turn, hinges on whether a party has acted inconsistently with the right to arbitrate and that inconsistent behavior has prejudiced the other party.

The Eleventh Circuit agreed that SmartPay had waived its rights by failing to pay the filing fee. In so doing, it said the issue of whether the alleged conflicts between the arbitration agreement and the JAMS rules could be reconciled was one for the arbitrator. By refusing to pay the balance of the initial filing fee, SmartPay acted inconsistently with its right to demand arbitration. In turn, that prejudiced Freeman because it precluded her from seeking relief through her chosen arbitral forum.

I’m sympathetic to SmartPay in one sense: JAMS seemingly required SmartPay to waive its procedural arguments before it even got into arbitration. That’s problematic. But the lesson of the case is that arbitral institutions aren’t arbitrators. SmartPay could have and should have made its procedural arguments to the arbitrator. It agreed to JAMS as a forum. Once it did, couldn’t escape that forum on the grounds that the forum was applying arguably the wrong rules. That should have been taken up with the arbitrator herself.

Happy August!  What’s a better way to start the month than thinking about class arbitrability!  Again.  Ugh.

Trust me, I would much rather consider so many other exciting arbitration issues, but this one seems to be occupying a lot of court attention, so I’d be remiss not to report on it.

Since my last update, I ran across a recent state court’s perspective on the question of who decides class arbitrability.  In Alabama Psychiatric Servs. P.C. v. Lazenby, 2019 WL 2560096 (Ala. June 21, 2019), the Alabama Supreme Court essentially sided with the SecondTenth, and Eleventh Circuits, concluding that a traditional delegation suffices to commit questions of class arbitrability to an arbitrator. That said, the court only generically references the circuit split.

The underlying facts of Lazenby are straight forward.  A group of employees filed a putative class action against their employer in state court.  The employer brought a motion to compel arbitration and, at the same time, asked the court to determine whether class arbitration was available.  The arbitration agreement was silent on the question. The state court compelled arbitration but declined to determine the class arbitrability issue, instead sending it to the arbitrator.

The arbitrator, in turn, decided that class arbitration was authorized.  He did so, though, on pretty sketchy legal bases.  Essentially, he says that the agreement was written by the employer, so ambiguities should be read against the drafter.  (Of course, you’ll remember that SCOTUS rejected a similar argument earlier this year in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 203 L.Ed.2d 636 (2019).)  He then adds that the arbitration agreement promised employees that it was not altering their substantive rights, but that doing away will class proceedings would alter their substantive rights.  (This, of course, runs afoul of just about everything SCOTUS has said about class waivers, including in American Express Co. v. Italian Colors, 570 U.S. 228 (2013).)

The employer sought to vacate the arbitration clause construction award.  The lower court upheld it.

On appeal, the Alabama Supreme Court assumed without deciding that the “availability of class arbitration is a question of arbitrability,” by which it meant a question that should be resolved by a court absent a delegation provision.  The court then found that the parties included such a delegation.   (Technically, this issue is a little procedurally wonky, as the original court compelling arbitration reached this conclusion on dubious grounds but the employer failed to properly appeal, so the Supreme Court punts.)

The interesting thing about this decision is that Alabama Supreme Court concluded that once the parties delegated the question of class arbitrability to the arbitrator, they were stuck with the arbitrator’s conclusions so long as he arguably applied the law, even if he got it wrong.  In other words, the court determined that there was nothing special about class arbitrability.

As the previous post on this blog indicates, that’s turning into a hotly debated conclusion.  In fact, this Alabama case comes very close to being diametrically opposed to what the Fifth Circuit concluded in 20/20 Communications, Incorporated v. Crawford2019 WL 3281412 (5th Cir. July 22, 2019).

It doesn’t take a crystal ball to guess that this “who decides class arbitrability” issue will be at the heart of the next chapter in SCOTUS’s ongoing fascination with class arbitration.  The trouble, though, is that there aren’t many great cases yet that tee the issue up cleanly.

The Fifth Circuit just deepened (and confused) a Circuit split over the question of who decides whether an arbitration agreement permits class proceedings.  See 20/20 Communications, Incorporated v. Crawford, 2019 WL 3281412 (5th Cir. July 22, 2019).

Liz has written about the split herehere, and here.  (You might also recall that SCOTUS flagged this issue, though it punted on it, in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1417 n.4, 203 L.Ed.2d 636 (2019) (“This Court has not decided whether the availability of class arbitration is a so-called ‘question of arbitrability,’ which includes these gateway matters.”)  Basically, the issue is whether courts or arbitrators should determine the availability of class arbitration.

All Circuits that have spoken about the matter (the 3d, 4th, now 5th, 6th, 7th, 8th, 9th, and 11th) agree that class arbitrability is a gateway question for courts, at least absent a delegation clause.  See Opalinksi v. Robert Half Int’l, Inc., 761 F.3d 326 (3d Cir. 2014); Del Webb Cmtys., Inc. v. Carlson, 817 F.3d 867 (4th Cir. 2016); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594 (6th Cir. 2013); Herrington v. Waterstone Mortg. Corp., 907 F.3d 502 (7th Cir. 2018); Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966 (8th Cir. 2017); Eshagh v. Terminix Int’l Co., L.P., 588 F. App’x 703 (9th Cir. 2014) (unpublished);JPay, Inc. v. Kobel, 904 F.3d 923 (11th Cir. 2018).  Moreover, the Second and Tenth Circuits have “assumed without deciding” that class arbitrability is a gateway question for courts.  Wells Fargo Advisors, LLC v. Sappington, 2018 WL 1177230 (2d Cir. March 7, 2018); Spirit Airlines v. Maizes, 2018 WL 3866335 (11th Cir. Aug. 15, 2018).  So, there’s substantial agreement about the notion that the availability of class proceedings constitutes a “foundational question of arbitrability.”  Herrington, 907 F.3d at 507.

The Circuit split focuses on delegations.

At least four Circuits (3rd, 4th, 6th, and 8th) have concluded that class arbitrability is a matter for courts even if the parties have included delegation provisions or incorporated institutional rules with a delegation provision, such as the AAA Rules. Similarly, the Seventh Circuit might fall in this camp.  In Herrington, the Seventh Circuit remanded the case for further proceedings at the district court level, without squarely determining whether incorporation of the AAA Rules delegated the question of class arbitrability to the arbitrator.

The Second, Tenth, Eleventh Circuits have openly disagreed.  In all of these Circuits, traditional delegations suffice to commit questions of class arbitrability to the arbitrator.

The Fifth Circuit has now joined the fray charting a confusing middle path.  See 20/20 Communications, Incorporated v. Crawford, 2019 WL 3281412 (5th Cir. July 22, 2019).  Ultimately, the court concluded that, notwithstanding delegation provisions, the question of class arbitrability was for the court.

The facts of the case are pretty simple, and I’ll simplify them even more.  An arbitration agreement between employees and their employer contained a provision permitting the arbitrator to “hear only individual claims,” and prohibiting arbitration “as a class or collective action . . . to the maximum extent permitted by law.”  Notwithstanding this provision, an arbitrator determined that the parties’ class arbitration bar was prohibited by federal law and consolidated the employees’ cases.

The arbitration agreement contained two typical delegation provisions: (1) “If Employer and Employee disagree over issues concerning the formation or meaning of this Agreement, the arbitrator will hear and resolve these arbitrability issues”; and (2) “The arbitrator selected by the parties will administer the arbitration according to the National Rules for the Resolution of Employment Disputes (or successor rules) of the American Arbitration Association (‘AAA’) except where such rules are inconsistent with this Agreement, in which case the terms of this Agreement will govern.” (The court talked about a third provision as well, but I’ll exclude it here because most Circuits would probably not find it sufficient to constitute a clear and unmistakable delegation anyway.)

The Fifth Circuit acknowledged that, “[d]ivorced from other provisions of the arbitration agreement (most notably, the class arbitration bar), these . . . provisions could arguably be construed to authorize arbitrators to decide gateway issues of arbitrability such as class arbitration.”  But the court went on to say that it didn’t need to decide if these provisions together or standing alone were sufficient to “clearly and unmistakably empower the arbitrator to decide questions of class arbitrability.” Instead, it concluded that these delegations could not be read harmoniously with the class action bar for two reasons.

First, the reference to the AAA is conditioned by the phrase “except where such rules are inconsistent with this Agreement.”  In the court’s view, the class action bar was inconsistent with a delegation of class arbitrability to the arbitrator.

Second, “even putting aside the exception clauses, none of these provisions speak with any specificity to the particular matter of class arbitrations. The class arbitration bar, by contrast, specifically prohibits arbitrators from arbitrating disputes as a class action, and permits the arbitration of individual claims only.”

I think both arguments essentially collapse to make the same point: there’s no decision about class arbitrability to delegate because the parties prohibited class proceedings. But the only way you get to the conclusion that the parties prohibited class proceedings is to read and interpret the contract.  The choice of arbitration paired with the delegation provision should send all contract interpretation issues to the arbitrator.

So, this case amounts to an elevation of the issue of class arbitrability.  Its doctrinal logic places the formation of a class action waiver on the same footing as the formation of an arbitration provision itself. If that’s right, then virtually no delegation provision, no matter how “clear and unmistakable” could ever empower an arbitrator to consider class arbitrability when the agreement also contains a class action waiver.