Today’s post concerns a perennially hot topic: class actions. In particular, do courts decide whether an arbitration agreement allows for class actions? Or do arbitrators? (Because, it turns out, there are actually some corporations who have not inserted class action waivers in their consumer contracts.) To date, four circuit courts have held that class arbitrability is an issue that is presumably for courts (not arbitrators) to decide, even if the parties incorporate rules that generally delegate issues of arbitrability to an arbitrator (3rd, 4th, 6th, 8th). In recent weeks, the Tenth Circuit and Eleventh Circuit disagreed. Because the Second Circuit had also previously disagreed, there is now a 4-3 split among the circuits over whether the incorporation of AAA (or similar) rules is sufficient to authorize an arbitrator to decide whether arbitration can proceed on a class-wide basis.
In Spirit Airlines v. Maizes, 2018 WL 3866335 (11th Cir. Aug. 15, 2018), members of Spirit Airlines’ “$9 Fare Club” started a class arbitration with the AAA. Spirit then brought an action to federal court, seeking a declaration that the arbitration clause did not authorize class arbitration. (You may recall that the outcome of the Stolt-Nielsen and Sutter cases is that there can be no class arbitration unless the parties agreed to that process in their arbitration clause, but the language does not have to be explicit.) The district court found that the arbitrator should determine the issue of whether a class action could proceed in arbitration.
On appeal, the Eleventh Circuit found that no special rules apply to class arbitration. It assumed that class arbitration is a gateway issue of arbitrability, such that the court has presumptive authority to decide it. Here, the Spirit agreement called for the AAA rules, which the court found included the Supplementary Rules for Class Arbitration, and those supplementary rules empower an arbitrator to decide whether claimants may proceed as a class action. The court found that incorporation of AAA rules was clear and unmistakable evidence that the parties intended the arbitrator to decide the availability of a class action in arbitration. It relied on earlier precedent finding that AAA rules are sufficient to delegate jurisdictional issues to arbitrators, and disagreed that SCOTUS rulings provide for any different outcome in the case of class arbitration.
In Dish Network v. Ray, 2018 WL 3978537 (10th Cir. Aug. 21, 2018), a former employee of Dish Network started a class and collective arbitration with the AAA. The appointed arbitrator issued a Clause Construction Award, finding that he had authority to decide the issue and that the arbitration agreement permitted a collective action. The arbitrator’s award included ten pages of analysis interpreting the text of the arbitration agreement to shed light on whether they agreed to allow class/collective actions in arbitration. The district court denied Dish’s motion to vacate the Clause Construction Award, and the Tenth Circuit affirmed that decision.
On appeal, the court assumed without deciding that the availability of class arbitration is a gateway dispute for court to decide. Even so, it found that the parties’ selection of AAA rules to govern the arbitration was sufficient to clearly and unmistakably delegate the issue of class arbitration to the arbitrator. It acknowledged that four circuits had “require[d] more specific language delegating the question of class wide arbitrability,” but noted that the Second Circuit had disagreed with that holding earlier this year. Following the lead of the Second Circuit, the court relied on precedent from Colorado and the Tenth Circuit finding that incorporation of AAA rules is sufficient to delegate arbitrability to the arbitrator. Having concluded that the arbitrator had authority to determine whether the parties’ arbitration agreement allowed for class/collective actions, the court had little trouble finding that the arbitrator’s Clause Construction Award could not be vacated. The court found that the arbitrator “interpreted the parties’ contract, which is all we are allowed to consider” and did not manifestly disregard the law.
The fact that this circuit split is heating up is interesting in light of one of the arbitration cases that SCOTUS will hear on October 29. That case, Lamps Plus, presents the question of how specific the language of an arbitration agreement must be in order to authorize class arbitration.
A class action postscript.
A putative class of plaintiffs sued Bluestem Brands in federal court in Minnesota for claims related to its credit programs. In response to a motion to compel arbitration, the district court compelled arbitration of some claims, but denied others, finding they fell outside the scope of the credit agreement’s arbitration clause. On appeal, the Eighth Circuit found all claims fell within the arbitration clause. Parm v. Bluestem Brands, 2018 WL 3733424 (8th Cir. Aug. 7, 2018). After finding the arbitration clause was “broad” (because it used the magic phrase “arise out of”), it found the factual allegations for all claims “touch[ed] matters covered by the arbitration agreement,” because all allegations related to the financing agreements.
And, in further fallout from Epic Systems, roughly 1600 employees of Kelly Services alleged violations of the Fair Labor Standards Act in federal court. Gaffers v. Kelly Services, 2018 WL 3863422 (6th Cir. Aug. 15, 2018). Kelly Services compelled individual arbitration with the employees who had arbitration agreements (about half). As those employees’ only defense was that the Federal Arbitration Act should take a backseat to the FLSA or NLRA, the employees lost on appeal and will have to arbitrate.