The Availability of Class Arbitration is for a Court, Not an Arbitrator, to Decide

Opalinski v. Robert Half Int’l Inc., 761 F.3d 314 (3d Cir. 2014).  In this case under the Fair Labor Standards Act, 29 U.S.C. §201 et seq. (“FLSA”), plaintiffs signed employment agreements that contained an arbitration clause.  That clause stated that “[a]ny dispute or claim arising out of or relating to Employee’s employment, termination of employment or any provision of this Agreement” was to be submitted to arbitration.  The two named plaintiffs, asserting that defendants had violated the FLSA as regards overtime payments, filed a putative class action in federal court.  Defendants moved to compel arbitration, on an individual (a/k/a “bilateral”) basis, as to the named plaintiffs.  In an October 2011 decision, the district court compelled arbitration, but ruled that the arbitrator should decide whether the arbitration would relate only to the two named plaintiffs or to the entire class.  Defendants did not appeal that ruling.  Instead, they went through the arbitration process.  The arbitrator ultimately issued a partial award and ruled that the employment agreements allowed classwide arbitration.  Defendants asked the district court to vacate that ruling, but the court denied that relief in December 2012.  Defendants then appealed.  In an opinion by Judge Ambro, the Third Circuit held that whether classwide arbitration is permitted should have been decided by the district court, not the arbitrator.

The panel first faced the threshold issue of whether the appeal was timely.  Plaintiffs contended that the district court’s October 2011 ruling that the arbitrator was to decide whether classwide arbitration was permitted was a final decision that should have been appealed within 30 days.  But Judge Ambro ruled that the October 2011 ruling “was not a final decision because it effected only a non-final, administrative closure, and explicitly acknowledged the potential need for further litigation before the District Court.”  Since defendants had appealed the December 2012 district court order within 30 days of that ruling, the appeal was not untimely.

Plaintiffs also argued that defendants had waived the “who decides?” issue by failing to raise it in the district court.  Judge Ambro disagreed.  Waiver, which “is intended to protect litigants from unfair surprise and prevent district courts from being reversed on grounds that were never argued before them,” was not applicable here.  Plaintiffs were “well aware” that defendants were pressing this issue, since the district court’s October 2011 decision had addressed it, defendants had objected during the arbitration to the arbitrator’s deciding whether classwide arbitration was permitted, and defendants’ motion to vacate stated that they had maintained “from the outset … that the class action issue is for [the district court] to decide.”

The standard of review on a motion to confirm or vacate an arbitration award is de novo for legal conclusions and “clear error” for factual findings.  The core question was whether the availability of classwide arbitration was a “question of arbitrability.”  If so, under Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), the decision on that issue was presumptively for the court “unless the parties clearly and unmistakably provide otherwise.”  If not, the issue would presumptively be for the arbitrator. The panel ruled that although 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 a clause applies to a particular type of controversy, the issue here was a question of arbitrability.  A plurality of the Supreme Court had stated in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), that the availability of classwide arbitration was not a question of arbitrability.  But Judge Ambro found that subsequent decisions, including most recently Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064 (2013), had made clear that the Supreme Court “had not yet decided” that issue.

After stating that “[t]he crucial consideration is the expectation of the contracting parties,” Judge Ambro concluded that the availability of classwide arbitration was for the court, not the arbitrator.  Defendants had the right to specify “with whom they choose to arbitrate their disputes,” and the arbitration clause made “no mention of arbitration for a wider group.”  Thus, the panel believed that the parties would have expected a court, not an arbitrator, to decide the “who decides?” issue.  Nor could absent class members’ rights be determined in arbitration without the consent of those class members.  Classwide arbitration is so distinct from bilateral arbitration that “a choice between the two goes, we believe, to the very type of controversy to be resolved” and is therefore a question of arbitrability for the court.  The panel found “persuasive” the Sixth Circuit’s decision on this issue in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013).

Having decided that a question of arbitrability was involved here, the court turned to whether there was evidence to overcome the presumption that such an issue was for the court.  Plaintiffs had an “onerous” burden in this regard, since “express contractual language unambiguously delegating the question of arbitrability to the arbitrator” was required, and “[s]ilence or ambiguous contractual language is insufficient to rebut the presumption.”  There was no evidence sufficient to rebut the presumption here.

Judge Ambro noted that neither the Supreme Court (as discussed above) nor the Third Circuit had previously ruled on this issue.  Given that, and the importance of this issue, this decision is one that should be reviewed en banc.