Published in Law 360 (July 30, 2018)
Who may determine whether “class arbitration” has been authorized by the parties to an arbitration agreement — a court, an arbitrator, either? Considering the nature of “class arbitration,” is this a special case of the arbitrability delegation issue, or is this issue sui generis? And what does exploring the issue reveal about the larger question of whether “class arbitration” is an oxymoron?
The starting point for any analysis concerning arbitration is that it is a creature of contract. It is what the parties to an arbitration agreement have agreed it shall be.
It appears that SCOTUS will get to opine during its next term on whether an arbitration agreement that says nothing about class arbitration can be interpreted to constitute consent by the parties to permit class arbitration. See Lamps Plus, Inc. v. Varela, No. 17-988, 2018 WL 398496 (U.S. Apr. 30, 2018). But when will SCOTUS specify who may decide that question?
May the class arbitrability issue be delegated to an arbitrator by the parties to an arbitration agreement, or must it always be decided by a court? In that regard, what is the significance of the distinguishing factor that, unlike a determination concerning delegation of an arbitrability issue with respect to a bilateral arbitration, a determination concerning delegation of the class arbitrability issue would purport to bind non-parties to (or at least non-signatories of) the controlling arbitration agreement. Could it? And if it could not, what are the implications concerning “class arbitration” generally?
In general, a court presumptively is to decide gateway arbitrability issues unless the parties to an arbitration agreement have clearly and unmistakably manifested their intention to delegate those issues to an arbitrator. E.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). And since First Options, many courts have held that incorporation by reference of institutional arbitration rules, such as those of the American Arbitration Association (“AAA”), that provide for the arbitral panel’s authority to decide issues concerning its jurisdiction, see, e.g., AAA Commercial Arbitration Rule 7, sufficiently manifests the parties’ intention to delegate arbitrability issues. See, e.g., Belnap v. Iasis Healthcare, 844 F.3d 1272, 1283-84 (10th Cir. 2017); T.Co Metals v. Dempsey Rpe & Supply, 592 F.3d 329 (2d Cir. 2010); Qualcomm, inc. v. Nokia Corp., 466 F.3d 1366 (Fed. Cir. 2006); Contec Corp. v. Remote Solution Co., Ltd., 398 F.3d 205 (2d Cir. 2005).
The AAA rules in particular also potentially give rise to a unique situation with respect to the delegation issue as it concerns class arbitrability. The AAA Supplementary Rules for Class Arbitrations (eff. 10/8/03) (“SRCA”) apply to “any dispute arising out of [a] an agreement that provides for arbitration pursuant to any of the rules of the [AAA] where [b] a party submits a dispute to arbitration on behalf of or against a class or purported class….” SRCA 1(a). And, when applicable, the SRCA authorizes the arbitrator to interpret the operative arbitration clause for these purposes:
“Upon appointment, the arbitrator shall determine as a threshold matter, in a reasoned, partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class (the ‘Clause Construction Award’).” SRCA 3.
If incorporation by reference of AAA arbitration rules is sufficient to manifest clearly and unmistakably the parties’ intention to delegate arbitrability issues to an arbitrator in the first instance, then that conclusion arguably should obtain as well regarding the class arbitrability issue if (i) any AAA rules are adopted in an arbitration agreement, and (ii) one party to that agreement purports to commence a class arbitration.
Yet, one wonders about the significance of any bilateral agreement concerning delegation of the class arbitrability issue. First, the non-signatory non-appearing putative class members arguably would not be bound by such a delegation, to which they did not and arguably could not agree. (Indeed, such putative class members arguably are not bound by the relevant bilateral arbitration agreement at all. Nor would a signatory of that agreement be involuntarily contractually bound vis-à-vis such putative class members.) Moreover, a court adjudicating the delegation issue arguably would not have personal jurisdiction over such putative class members.
Generally speaking, the main concern of a court considering an arbitration agreement “is to faithfully reflect the reasonable expectations of those who commit themselves to be bound.” Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 28 (2d Cir. 1995). A non-signatory has not apparently committed him or herself to be bound by any aspect of the arbitration agreement in question, nor has a signatory apparently made any agreement vis-a-vis a non-signatory. (Nevertheless, an arbitration agreement may be deemed to bind a party who did not sign it...
