Another Touch of Class

Here in the USA (New York remaining therein until November 2016 and possibly beyond), judicial control over the use of arbitration for class actions is still a hot topic. One aspect of such control, or lack of it, is the question of who (finally) decides — court or arbitrator — whether a particular arbitration clause does indeed permit arbitration to be pursued on behalf of a class of persons alleged by the named Claimant to be in the same circumstances vis-à-vis the Respondent. Not every US corporation has managed to include an enforceable class action waiver in its arbitration clauses with consumers and workers. So somebody, court or arbitrator, must (finally) decide whether an arbitration clause that says more or less nothing about class arbitration should be construed to permit it.

Quickly to set the stage, recall that the US Supreme Court (i) objects to arbitrators finding clauses that are silent about class arbitration to permit it, if the sole basis is the arbitrator thinks class arbitration is a good thing (Stolt-Nielsen), (ii) doesn’t object to arbitrators construing a clause to allow class arbitration so long as it’s a genuine (even if debatable) clause construction (Oxford), (iii) holds that questions of “arbitrability” (sometimes called “Gateway” questions) are presumptively for courts not arbitrators to (finally) decide (First Options, Howsam, BG Group), (iv) says that overcoming that presumption, i.e. giving the “arbitrability” question to the arbitrator, requires “clear and unmistakable evidence” of the parties’ intention to delegate (First Options etc.), (v) has sent mixed signals on whether the question of class arbitrability is a “Gateway”  issue (hinting, in Oxford and Stolt-Nielsen, that it is) or instead is merely an issue of arbitral procedure squarely in the arbitrator’s lap (the plurality’s statement but not a majority’s holding in Bazzle, roughly a decade before Oxford and Stolt-Nielsen); and (vi) has never blessed the view, held by a majority of the federal Circuit Courts of Appeals, that an intention to delegate a “Gateway” issue to the arbitrators is clearly and unmistakably shown by the declaration in the arbitration agreement that arbitration will be conducted under arbitration rules that happen to include a “compétence-compétence,” rule (that says arbitrators have power to rule on objections to their “jurisdiction”) which rule is not specifically referenced.

Plunging into this abyss in January 2016, the US Third Circuit Court of Appeals (usually but not always found in Philadelphia, near the Liberty Bell), held, addressing a question of first impression in the US federal appellate courts, that no such delegation of the class arbitration question to the arbitrator results, clearly and unmistakably, from an agreement to arbitrate under the AAA Commercial Rules (which include in AAA Commercial Rule 7 a “compétence-compétence,” rule ). Thus in the view of the Third Circuit the presumption that class arbitrability is for the court finally to decide is not overcome by agreeing to arbitrate under such rules without specifically making reference to the compétence-compétence rule. Chesapeake Appalachia LLC v. Scout Petroleum, LLC, 809 F.3d 746 (3d Cir. Jan. 5, 2016).

Before we get to the legal analysis, let’s digress for a moment to the realpolitik of this “who decides class arbitrability” question.

There is a problem out there, and judges are too discreet to write about it directly in their opinions. Class arbitration hugely escalates the arbitrator’s earning potential. Lodging the class arbitrability question with an arbitrator who will profit exponentially from deciding that issue in favor of class arbitration results in a decision process in regard to that issue that may be seen as distinctly biased in favor of class arbitration. The AAA and other institutions could improve matters by assigning the “Clause Construction” phase of a putative class arbitration to an arbitrator who will decide only that issue. But this has not been done, so the courts are forced into an uneasy dilemma. Self-interested pro- class arbitration rulings by arbitrators enlarge access to justice for aggrieved consumers and workers, but may cast arbitration into even greater public disrepute. Judicial decisions against class arbitration, on the other hand, may be viewed by the public as disproportionately solicitous of the rights of corporations to abuse consumers and workers, by making effective redress for and deterrence of such abuse uneconomical for victims to pursue.

The Third Circuit’s analysis on the delegation issue devolves ultimately to the view that the AAA Commercial Rules read as a whole, reflect a paradigm, a norm, of “bilateral arbitration,” that the compétence-compétence rule should be understood in this bilateral context, and that the compétence-compétence rule, at least when reference to it is indirect,  cannot stand as clear and unmistakable evidence of a delegation of the non-bilateral class arbitrability issue to the arbitrator. You, dear arbitrators, have read these Rules, and applied them. You may ask, from what textual clues does this aura of bilateralism emanate? From anything other than the (evidently convenient and parsimonious) use of “Claimant” and “Respondent” in the singular rather than the plural? What about item (a) (ii) in the AAA’s Checklist of Preliminary Hearing Procedures, calling upon the arbitrator to address “whether all necessary or appropriate parties are included in the arbitration“? What about item (vi)(c) in the same checklist, calling for discussion in the preliminary hearing about the “threshold issue…” of “consolidation of the claims or counterclaims with another arbitration” ? Hmmm…. sounds potentially multilateral.  And of course many of you have handled AAA arbitrations, under the Commercial and ICDR Rules, involving numerous claimants and/or numerous respondents.

I’m not saying the Third Circuit necessarily reached the wrong outcome. I’m just saying….that the Third Circuit’s analysis of the delegation issue in Chesapeake is not fully satisfying because it fails to wrestle to the ground the question of whether the delegation of “jurisdiction” issues to the arbitrators in the compétence-compétence rule does or doesn’t “clearly and unmistakably” delegate the class arbitration issue. The Third Circuit’s “bilateral” analysis isn’t convincing, because the AAA Commercial Rules have long been applied to permit multiple claimants to bring arbitrations against multiple respondents. And the ordinary reasonable person or company entering into an arbitration agreement wouldn’t expect to have less ability in arbitration than in litigation to have multiple claimants and respondents, at least provided that all of them have signed the same agreement to arbitrate and that they participate on their own behalf.

What the Third Circuit is really saying is that there are no indications in the AAA Commercial Rules that a Claimant may bring an arbitration in a self-declared representative capacity, which is just another way of saying these Rules are silent about class arbitration. But this approach fails to come to grips with what the term “jurisdiction” in AAA Commercial Rule 7 is “clearly” (as opposed to reasonably) understood to cover. To make a persuasive case that there has been no delegation when the AAA Rules have been adopted, there has to be an arguable position that the class arbitrability issue isn’t a “jurisdiction” matter under the compétence- compétence rule, but something else entirely.

Here is a stab at the arguable position: One might produce a series of concentric circles, each progressively removed from a core concept of jurisdiction, and yet still at least arguably jurisdictional. Near the core would be issues relating to the existence or validity of the arbitration clause. Did it expire on a contract expiration date, superseded by a judicial forum selection clause? Is it void under the law to which it is properly subjected? Also near the core would be questions about amenability of the subject matter to arbitration, either because applicable law prohibits certain subject matter to be addressed by arbitrators, or a limitation is imposed by the arbitration clause itself. These matters are specifically mentioned in AAA Commercial Rule 7 (and in ICDR Rule 19(1)). If such limits are alleged to put the entire case beyond the reach of arbitrators, the matter involves the existence/absence of jurisdiction. If less than all claims or matters are alleged to be non-arbitrable, the question is whether the arbitrators’ jurisdiction is limited in scope. It is not seriously debatable that rules that allow arbitrators to handle objections to “jurisdiction” cover “scope” as well as “existence” objections.

Is class arbitrability simply another species of “scope” objection to arbitral jurisdiction? If it “clearly and unmistakably” is, then the rules-incorporation equates to effective delegation to the arbitrator.  One needs to consider the infrastructure of this “scope” issue. Assume that all putative class members have signed arbitration agreements with the Respondent. If all of them expressly joined as Claimants, making the case a “mass” rather than class arbitration, the existence of consensual arbitral power to act is certain.

The class action obviously differs from the mass action insofar as only putative class representatives have declared that they have a dispute with the Respondent. If the others elect to opt in after receiving notice, then they too have a dispute. But what is the source of arbitral power to authorize the solicitation of other Claimants to join in the arbitration as absentee Claimants represented by the class representative?

This question is arguably one of jurisdiction — but only if jurisdiction, as the term is used in arbitral rules empowering arbitrators to address objections to it, is clearly understood to embrace the question of the Claimant’s right to proceed as a representative of absentees who have not yet declared that they have a dispute with the Respondent. That matter might also be characterized as a question of what claims-prosecution rights the parties conferred on one another, as opposed to a question of what powers they mutually conferred on arbitrators. In that sense, it is more heavily weighted toward the express terms of the parties’ agreement to arbitrate and less weighted toward what is to be understood from the indirect incorporation of the compétence-compétence rule resulting from a reference to the AAA Commercial Rules. And if the class arbitrability issue is therefore arguably not about jurisdiction, but about the powers the parties conferred on one another to prosecute claims, then the existence of jurisdiction-deciding powers in the incorporated arbitration rules is at least arguably not a delegation of the class arbitration issue to the arbitrator.

This analysis at least demonstrates that the “who decides class arbitrability” question is not necessarily answered by case law treating other issues as clearly delegated to the arbitrator by virtue of the incorporation of institutional compétence-compétence rules. Courts addressing the issue will be invited to think carefully about whether class arbitrability is conceptually different from other jurisdiction issues deemed delegated to the arbitrator solely by virtue of the compétence-compétence rule, and whether the jurisdiction power mentioned in institutional rules must be understood to embrace the class arbitrability issue.

The answer to this conundrum probably is that while class arbitrability is a question we arbitration lawyers would think of as a matter of arbitral “jurisdiction”, it is not what an ordinary lay person would think of as a “jurisdiction” matter — lay persons having a more rudimentary concept of what “jurisdiction” entails. And therefore in most settings where class arbitration issues arise — consumers and employees, and others who make arbitration agreements without participation of counsel — the incorporation by reference of arbitration rules that include a compétence-compétence rule probably ought not to be regarded as an unmistakable and clear delegation of the class arbitrability issue to the arbitrator.


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