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September 02, 2014

Back From The Beach: Did You Brush Up Your Bazzle?

Before the author of Arbitration Commentaries was deployed to the trenches and thus temporarily lost to his readers (some would say mercifully), it was written in this c-space that the “Next Cool Thing” in U.S. arbitration jurisprudence, after BG Group v. Argentina, would be the question of who decides — court or arbitrator — whether an arbitration clause permits class arbitration, when the parties have no agreement on the “who decides” question itself. See “Brush Up Your Bazzle,” Arbitration Commentaries, July 1, 2014.  A four-judge plurality of the Supreme Court in Bazzle was prepared to hold that the question of whether an arbitration clause permits class arbitration is ordinarily a procedural issue for the arbitrator to decide. But the Court in later class arbitration cases has taken pains to note that this was the position of four justices not five.

Behold. In the middle of my combat assignment — ended skillfully by a mediator just in time for Labor Day Weekend to assume its traditional Blog-N-BBQ format — a Third Circuit panel in Philadelphia, spurning the Jersey Shore, held that the “class arbitration” question involves “arbitrability” and thus must be decided by courts not arbitrators unless the parties clearly (and unmistakably) have otherwise agreed. Opalinski v. Robert Half Int’l, 2014 WL 3733685 (3d Cir. July 30, 2014).

The first premise of the Third Circuit panel’s decision is that “[t]he availability of class arbitration implicates whose claims the arbitrator may resolve.” And the decision cites the Supreme Court’s 1964 John Wiley decision in support of the assertion that “[t]he Supreme Court has long recognized that a district court must determine whose claims an arbitrator is authorized to decide.” The Court in John Wiley decided, precisely, that the court not the arbitrator should decide whether a successor by merger to a company that had a collective bargaining agreement with a union is bound by that agreement. For the Third Circuit panel to generalize that holding into one that “a district court must determine whose claims an arbitrator is authorized to decide” — and thus to suggest that it has bearing on who decides the class action question, amounts to putting apples and oranges together in a crate marked “fruit.”  The other cases cited by this Third Circuit panel involved whether non-signatories were bound by an agreement signed by someone connected to them. The obvious difference is that each class member in the proposed class arbitration has an identical agreement to arbitrate with the same Respondent. The “who decides class arbitration” question does not present an issue of “whose claims may be arbitrated (as opposed to litigated)” but only an issue of “whose claims may be arbitrated (in one arbitration rather than several).” The Third Circuit panel ignores rather than addresses this obvious distinction.

The other major premise of the Third Circuit panel decision is that the differences between class and individual arbitration are more “substantive” than procedural, so that the question deserves to be regarded as a “gateway” issue for judicial determination just as would an issue of whether the subject matter of the dispute was within the scope of the arbitration clause. Certainly there is merit to the notion that whether a clause permits class arbitration has great importance to the defendant, who may face huge potential damages if class arbitration is allowed, and negligible exposure if class arbitration is disallowed because individuals may find it un- economic to pursue only their own claims. But the Supreme Court’s jurisprudence has until now classified as “gateway” issues only issue that entail whether there was consent (1) to arbitrate at all, or (2) to arbitrate the subject matter of the proposed arbitration — and not whether an admitted consent to arbitrate embraced consent to arbitrate in a particular format. Class arbitration surely has larger economic implications than many other arbitration format issues ordinarily do, but it would seem to remain in the category of format questions, not consent questions, within existing Supreme Court jurisprudence, so long as the defendant has an agreement to arbitrate the subject matter with each member of the proposed class.

This critical view of the Third Circuit panel’s decision is surely not a prediction of what the Supreme Court might decide. The panel was clearly attuned to the discomfort expressed by several members of the Supreme Court, especially in Stolt-Nielsen and Concepcion, based evidently on the tendency of class proceedings to shift economic power away from corporations and toward individually powerless individuals joined together opportunistically to enlarge the litigation risks — and consequently the business behavioral risks — borne by corporations. There is an undercurrent in these cases that such power-shifting decisions are unsuitable for private-sector decision-makers appointed only by the parties or the arbitral institutions whose rules the parties have embraced. But if limits are to be imposed for such reasons on the availability of arbitration, perhaps it is a matter for Congress to decide, and not for the Supreme Court to resolve by stretching the notion of “gateway dispute” beyond its established borders.

One Response to “Back From The Beach: Did You Brush Up Your Bazzle?”

  1. Looked at from my layman’s point of view, the whole issue of class arbitration lies at the pivot point of the link between Public Law (Courts) and Private Law (Arbitrators). Who may take part and who will be bound by the result whether they take part or not are matters for the Court. The facts and the meaning of the agreement are typically for the arbitrator.

    There used to be a method for getting the best of both. A Court would open the matter and refer the main substantive issues to a chosen expert as a Referee for Enquiry and Report.

    Nowadays, persons who offer their services as arbitrators are likely to have ability to deal with the Law – particularly if lawyers argue well. A class arbitration could be conducted with a representative (or group) claimant or respondent. The Award would go to the Court and become binding on non-parties only if approved.

    Only agreements with a suitable arbitration clause would be validated for class arbitration.