Fourth Circuit: Courts, Not Arbitrators, Decide If Arbitration Agreement Authorizes Class-Wide Arbitration

Archis A. Parasharami, Kevin S. Ranlett and Charles E. Harris, II | Mayer Brown | April 4, 2016

A unanimous panel of the U.S. Court of Appeals for the Fourth Circuit has held that the question whether an arbitration agreement authorizes class-wide arbitration is for the courts, not an arbitrator, to decide—unless the agreement clearly and unmistakably delegates that issue to the arbitrator. (Del Webb Communities, Inc. v. Carlson, No. 15-1385 [Mar. 28, 2016]). In so holding, the Fourth Circuit aligned itself with decisions of the Third and Sixth Circuits. As we discuss below, the decision benefits businesses that seek to enforce individual arbitration when the arbitration agreement does not expressly authorize class arbitration: If the important question of the availability of class-wide arbitration was assigned to an arbitrator, meaningful judicial review of that decision would not be available.

The U.S. Supreme Court has made clear that parties cannot be forced to arbitrate on a class-wide basis absent “a contractual basis for concluding that the party agreed to do so.” (Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684 [2010]). Parties frequently dispute, however, the threshold question of who decides—a court or an arbitrator—whether the agreement authorizes class arbitration. Del Webb is such a case; a home construction company filed a petition in federal district court to compel the homebuyers to arbitrate their underlying claims on an individual basis, and specifically sought a declaratory judgment that the parties did not agree to class arbitration.

The district court denied that request and dismissed the petition. Relying on the Supreme Court’s plurality decision in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), and an unpublished Fourth Circuit decision echoing Bazzle, the district court reasoned that whether the arbitration agreement authorized class-wide arbitration “concerns the procedural arbitration mechanisms available” to the homebuyers and was therefore a procedural question for the arbitrator to decide.

The Fourth Circuit reversed. In an opinion by Judge Diaz, the panel recognized that although the Supreme Court had not “conclusively” determined who gets to decide whether an arbitration agreement provides for class arbitration, the Court had “effectively disavowed” the rationale of the Bazzle plurality. The panel further recognized that the Supreme Court has emphasized in recent years, including in AT&T Mobility LLC v. Concepcion, that class-wide arbitration wreaks fundamental changes on the nature of arbitration—combining the enormous stakes and procedural complexity of class-action litigation with exceedingly limited judicial review. Because of “the fundamental differences between bilateral [one-on-one] and class arbitration,” the Fourth Circuit expressly joined the Third and Sixth Circuits in holding that the availability of class-wide arbitration is “a gateway question for the court” to decide, “unless the parties clearly and unmistakably provide otherwise.”

By allowing a court to decide…

To finish reading this article

Leave a Reply

%d bloggers like this: