Aug 13

Third Circuit Rules That Whether a Contract Permits Classwide Arbitration is for the District Court, not the Arbitrator, to Decide

In a case of first impression, the Third Circuit has ruled that the district court, not an arbitrator, should decide whether classwide arbitration is available under a contract with an arbitration clause.  Opalinski v. Robert Half International Inc., No. 12-4444, 2014 WL 3733685 (3d Cir. July 30, 2014).  The Court held that the “fundamental differences between classwide and individual arbitration, and the consequences of proceeding with one rather than the other,” mean that “the availability of classwide arbitration is a substantive ‘question of arbitrability’ to be decided by court absent clear agreement otherwise.”  Id. at *1. 

Opalinski involved claims by two former employees of defendant Robert Half International Inc. under the Fair Labor Standards Act.  Defendants moved to compel arbitration under the plaintiffs’ employment agreements, which the district court granted.  In addition, the district court ruled that whether the arbitration should proceed on a classwide basis, to cover similarly situated employees the two plaintiffs sought to represent, was for the arbitrator to decide.  The arbitrator ruled the agreements permitted classwide arbitration, and after an award in favor of plaintiffs, defendants moved to vacate the award in the district court.  The district court denied defendants’ motion.

Defendants then appealed to the Third Circuit, seeking reversal of the district court’s decision that the arbitrator decides if classwide arbitration is available.

Before the Third Circuit resolved this question, it considered whether the appeal was timely or, as plaintiffs contended, should have been brought on an interlocutory basis before the arbitration commenced, as an “immediate appeal of any ‘final decision with respect to an arbitration.’”  Id. at *2 (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 86 (2000) (quoting 9 U.S.C. § 16(a)(3))).  The Third Circuit disagreed with plaintiffs, explaining that the district court’s order regarding classwide arbitration was not a final decision “that ‘ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment.’”  Id. (quoting Randolph, 531 U.S. at 86).  Rather, the district court’s order “effected only a non-final, administrative closure, and explicitly acknowledged the potential need for further litigation before the District Court.”  Id. (citing Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 247 (3d Cir. 2013)).

Plaintiffs also contended that defendants had waived their right to appeal because they had not raised classwide arbitration in their motion to vacate.  The Third Circuit rejected this argument on grounds that plaintiffs were long aware of defendants’ position, which had also been mentioned if not formally challenged in the motion to vacate.  Proceeding to the merits, the Third Circuit reversed the district court, and ruled that the question whether a contract authorizes classwide operation is for the district court, not the arbitrator, to decide.

The Third Circuit based its ruling on two grounds.  First, whether classwide arbitration is available is a “question of arbitrability” presumptively for the district court.  Second, because there was no evidence that the parties had clearly delegated determination of this question to the arbitrator, the question remained with the district court.

Regarding the first ground, the Third Circuit noted that:

 “Questions of arbitrability” are limited to a narrow range of gateway issues.  They may include, for example, “whether the parties are bound by a given arbitration clause” or “whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.”  On the other hand, questions that the parties would likely expect the arbitrator to decide are not “questions of arbitrability.”  Those include “‘procedural’ questions that grow out of the dispute and bear on its final disposition[,]” as well as allegations of waiver, delay, or similar defenses to arbitrability.

Opalinski, 2014 WL 3733685, at *3 (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 82 (2002)).  The Third Circuit observed that neither it nor the Supreme Court had yet decided whether “the availability of class arbitration is a ‘question of arbitrability.’”  Id. (citing Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-53 (2003) (plurality concluded it was not a question of arbitrability); Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 680 (2010) (Bazzle non-binding plurality opinion); Quilloin v Tenet HealthSystem Philadelphia, Inc., 673 F.3d 221, 232 (3d Cir. 2012) (conclusion that issue was not a question of arbitrability was dictum)).

The Third Circuit concluded that the issue presented a question of arbitrability for two reasons.  First, whether classwide arbitration was available implicated “whose claims the arbitrator may resolve,” i.e., “not only [plaintiffs’] personal claims but the claims of additional individuals not currently parties to this action.”  Opalinski, 2014 WL 3733685, at *4 (citing Stolt-Nielsen, 559 U.S. at 683, 686).  The Third Circuit noted Justice Alito’s warning to the effect that “courts should be wary of concluding that the availability of classwide arbitration is for the arbitrator to decide, as that decision implicates the rights of absent class members without their consent.”  Id. (citing Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2071-72 (2013) (Alito, J., concurring)).

Second, the Third Circuit observed that classwide arbitration is fundamentally different from arbitration of individual claims, explaining that “[t]he availability of classwide arbitration is a ‘question of arbitrability’” because “it concerns ‘whether a concededly binding arbitration clause applies to a certain type of controversy.’”  Opalinski, 2014 WL 3733685, at *5 (quoting Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 178 (3d Cir. 2010).  The Third Circuit also noted that the only other Court of Appeals to consider the question, the Sixth Circuit, had also ruled that whether classwide arbitration is available is for the district court to decide.  Id. at *6.

Regarding the second ground – whether the parties had delegated the issue to the arbitrator – the Third Circuit found there was no evidence they had.

It is presumed that courts must decide questions of arbitrability ‘unless the parties clearly and unmistakably provide otherwise.’  Howsam, 537 U.S. at 83 (internal quotation marks and citation omitted). The burden of overcoming the presumption is onerous, as it requires express contractual language unambiguously delegating the question of arbitrability to the arbitrator.  See Major League Umpires Ass’n v. Am. League of Prof’l Baseball Clubs, 357 F.3d 272, 280-81 (3d Cir. 2004). Silence or ambiguous contractual language is insufficient to rebut the presumption. Gen. Elec. Co. v. Deutz AG, 270 F.3d 144, 154-55 (3d Cir. 2001).

Opalinski, 2014 WL 3733685, at *7.  The plaintiffs’ employment agreements, however, were “silent as to the availability of classwide arbitration or whether the question should be submitted to the arbitrator.”  Without express, unambiguous delegation to the arbitrator, the decision on this question of arbitrability remained for the district court.

Opalinski sounds a cautionary note to litigants in the Third Circuit who would want the arbitrator to decide if a contract permits classwide arbitration:  the delegation of that decision to the arbitrator must be clearly and unambiguously spelled out in the agreements of those persons whose claims would be decided in a classwide proceeding.  Otherwise the issue will be for the district court to decide.

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