Tag Archives: Arbitration

Oral Argument in Class Action Waiver Cases Postponed to October

View David Wright's Complete Bio at robinsonbradshaw.comLast week, we observed that the Supreme Court appeared to be waiting for a ninth justice to decide in an important case involving appealability of class action certification decisions. A news report today* indicates that the Supreme Court has also pushed out arguments concerning the enforceability of class action waivers. As we recently reported in this space, the Court had agreed in three cases to decide whether the NLRA prohibits employers from requiring non-management employees covered by the NLRA to arbitrate their work-related claims individually. For employers, particularly those with a nationwide workforce, this remains one of the few tools available to stave off expensive and risky class litigation from employees. The Court apparently will not hear argument in these cases until the 2017 term, which begins in October. We will be watching the Supreme Court for further developments.

*You may have to register to access the linked article at Law360.

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U.S. Supreme Court to Decide Circuit Split: Are Class Action Waivers in Employment Arbitration Agreements Enforceable?

View Amanda Pickens’ Complete Bio at robinsonbradshaw.com

On Friday, the United States Supreme Court granted three petitions for certiorari to determine a quickly developing circuit split. The question before the Court is whether the National Labor Relations Board is correct in its interpretation that class action waiver provisions in certain employment arbitration agreements are illegal under federal labor law. Since 2011, when the U.S. Supreme Court permitted such waivers in AT&T Mobility LLC v. Concepcion, employers have relied upon them to require that disputes be resolved through individual arbitration. The NLRB over the past few years has issued numerous decisions invalidating arbitration agreements because they contained class and collection action waivers. The NLRB has stood its ground and routinely stated that such waivers violate employees’ rights under the National Labor Relations Act and are unenforceable.

The U.S. Supreme Court has agreed to hear three cases. Each involves the question whether the NLRA prohibits employers from requiring the non-management employees covered by the NLRA (employees not defined as “supervisors”) to arbitrate their work-related claims individually rather than as a class. The three cases come from the Fifth, Seventh, and Ninth Circuits.

The Fifth Circuit, in Murphy Oil USA, Inc.v. NLRB, overturned the NLRB’s decision that Murphy Oil had unlawfully required employees at its Alabama facility to sign an arbitration agreement waiving their right to pursue class and collective actions. The Fifth Circuit held that the pro-arbitration policy of the Federal Arbitration Act overrides federal labor law interests and requires enforcement of the class waivers. On the other side of the circuit split, the Seventh and Ninth Circuits have held that corporations cannot require employees to give up their rights to pursue work-related claims on a class-wide basis. The U.S. Supreme Court will review Lewis v. Epic Systems Corp., a case in which the Seventh Circuit held that an arbitration agreement precluding collective arbitration or collective actions violates federal labor law and is unenforceable under the Federal Arbitration Act. The Court will also hear Morris v. Ernst & Young, a decision from the Ninth Circuit invalidating Ernst & Young’s mandatory arbitration agreement because it required employees to bring all claims in arbitration and limited such claims to those brought on an individual basis. These decisions put the Seventh and Ninth Circuit squarely at odds with the Second, Fifth, Eighth, and Eleventh Circuit, with more yet to weigh in.

The Fourth Circuit has not addressed this issue yet, although it has held that the availability of class arbitration under the terms of the arbitration agreement is a question for the Court, not the arbitrator, to decide, as we discussed last March. North Carolina courts have not addressed the NLRA waiver issue, nor are they likely to have the opportunity, although the Court of Appeals did follow the U.S. Supreme Court in holding that contractual waivers of class proceedings in arbitration agreements are permitted in North Carolina.

Stay tuned for further developments from the U.S. Supreme Court.

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Fourth Circuit Holds that Court, Not Arbitrators, Decides Whether Arbitration Agreement Provides for Class Arbitration

View David Wright's Complete Bio at robinsonbradshaw.comCharacterizing an unpublished 2007 decision to the contrary as a “thin reed” displaced by later Supreme Court guidance, the Fourth Circuit held that the question of whether an arbitration agreement permits class proceedings is a “gateway” issue for the court, and not a procedural question left to the arbitrator to decide. Del Webb Communities, Inc. v. Carlson, No. 15-1385 (4th Cir. March 28, 2016). The case was filed after a builder – facing numerous construction defect claims and an arbitrator’s decision whether to certify those claims as a class proceeding – filed a petition to compel “bilateral arbitration” under the Federal Arbitration Act. The district court found that the decision whether to conduct class arbitration was a threshold question for the arbitrator. A unanimous Fourth Circuit panel disagreed.

After dealing with some jurisdictional issues – including CAFA jurisdiction and the Rooker-Feldman doctrine – the Court found that, although the Supreme Court had not decided the question, the high court’s adumbrations provided strong guidance on the subject. Writing for the panel, Judge Diaz concluded that a decision concerning “class arbitration” was tantamount to a question concerning arbitrability, which placed the issue squarely within the province of the judiciary under prevailing authority. In Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), the Supreme Court had held that a party cannot be forced to arbitrate on a class-wide basis absent “a contractual basis for concluding that the party agreed to do so.” But the Court didn’t decide in that case who (the Court or the arbitrator) determined whether this “contractual basis” existed. The Fourth Circuit, agreeing with other Circuits on the question, observed that there was a world of difference between assuming the risk of an error in a bilateral arbitration agreement and accepting such a risk in a class arbitration proceeding. The Court viewed this question as tantamount to a decision on the scope of arbitration, which is a question reserved for the court unless the parties have clearly and unmistakably provided to the contrary.

Never mentioned by the Court in its decision is a line of cases holding that when the parties adopt the AAA rules in their contract, they have “clearly and unmistakably” committed the issue of arbitrability to the arbitrator. In Del Webb, the parties had selected the AAA Construction Arbitration Rules, and Rule R-9 of those rules expressly provides that “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” In a recent North Carolina Business Court decision, Judge Bledsoe – citing numerous federal district and circuit court opinions on the subject – held that the adoption of the AAA rules in the parties’ contract “clearly and unmistakably” committed the issue of the arbitrability of a claim to the arbitrator. But Judge Bledsoe’s case did not involve class arbitration, and it is clear that the Fourth Circuit was not about to give final say to an arbitrator concerning certification of a putative class unless every party to the contract had clearly signed off on that proposition.

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No Class Arbitration Where Arbitration Agreement is Silent on the Issue

View David Wright's Complete Bio at robinsonbradshaw.comIt is one thing for a federal trial court to decide, based on precedent and Rule 23, whether a class of individuals can be allowed – consistent with the principles of due process – to assert claims against a defendant.  But it is another – entirely – to contemplate an arbitrator making those decisions:  “class arbitration” can send chills down the spine of even the most seasoned defense lawyer. In NCR Corp. v. Jones, No. 3:15-cv-444 (Jan. 5, 2016), Judge Cogburn had to decide whether the parties’ arbitration agreement – which was silent on the subject – permitted class arbitration. (Unlike some cases, the parties in Jones agreed that the court – not the arbitrator – was empowered to make this decision).  Acknowledging that the “Fourth Circuit has not yet had an opportunity to address the precise issue of silence in an arbitration agreement as to class arbitration,” the Court noted that the circuits are “somewhat divided” on the subject. Analyzing the issue “under the principles of North Carolina contract law,” Judge Cogburn relied upon the “exclusive bilateral terms” of the arbitration agreement (i.e., the absence of a reference to arbitration with anyone other than the contracting parties) and the agreement’s reference to a single venue location. The court also weighed practical issues with class arbitration, including the fact that arbitrators may not be as knowledgeable as courts about key procedural issues like certification and the protection of absent parties. The court held that it “will not read the absence of a term regarding class arbitration to mean that the parties agreed to class arbitration.” It remains to be seen whether the employee – a declaratory defendant in the case – will take this first-impression issue to Richmond for ultimate decision.

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U.S. Supreme Court Rebukes California Court for Failing to Enforce an Arbitration Agreement with a Class-Arbitration Waiver

View Mark Hiller’s Complete Bio at RBH.com On Monday, the Supreme Court held in DIRECTV, Inc. v. Imburgia that a California appellate court erred by declining to enforce an arbitration agreement that prohibits arbitration on a class-wide basis. The decision is the latest in a steady line from the Supreme Court chastising lower courts for failing to give effect to arbitration agreements. Perhaps most interesting, the opinion is written by Justice Breyer, who recently authored a dissent arguing that the Supreme Court has expanded the Federal Arbitration Act (FAA) too far. In the Imburgia opinion, Justice Breyer acknowledges his prior dissent but makes clear that the Court’s decisions are the law of the land: While “[l]ower court judges are certainly free to note their disagreement” with Supreme Court precedent, “the judges of every State must follow it.”

We recently previewed Imburgia on this blog. The plaintiffs brought a putative class action in California state court alleging that the defendant, DIRECTV, violated California consumer-protective legislation by imposing large early-termination fees. The DIRECTV service agreement contains a provision requiring consumers to arbitrate their disputes with DIRECTV individually and not on a class-wide basis. The agreement further provides, however, that if the “law of your state” makes the waiver of class arbitration unenforceable, then the entire arbitration provision is unenforceable, thus permitting consumers to litigate their disputes with DIRECTV in court.

When the plaintiffs filed their lawsuit in 2008, existing California law held that class-arbitration waivers like the one in DIRECTV’s service agreement were unenforceable. Therefore, per the terms of the service agreement, the entire arbitration provision was unenforceable. In 2011, however, the U.S. Supreme Court held in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), that the California law is preempted by the FAA. In light of Concepcion, DIRECTV moved to stop the litigation and compel arbitration on an individual basis.

The California trial court denied DIRECTV’s motion, and the California Court of Appeal affirmed. The Court of Appeal focused on the provision of the service agreement making the arbitration agreement unenforceable if the “law of your state” makes the waiver of class arbitration unenforceable. The court acknowledged that, after Concepcion, California law does not prohibit DIRECTV’s class arbitration waiver. But, applying California contract law, the court interpreted the words “law of your state” to mean California law without regard to whether that law is preempted. Because pre-Concepcion California law made DIRECTV’s class-arbitration waiver unenforceable, the court held that the entire arbitration agreement is unenforceable.

The U.S. Supreme Court reversed, holding that the arbitration agreement must be enforced. The Court began its analysis by conceding that the parties to the agreement were free to define the words “law of your state” however they like, including, “[i]n principle,” “by the law of Tibet, the law of pre-revolutionary Russia, or (as is relevant here) the law of California . . . irrespective of that [law’s] invalidation in Concepcion.” The Court further acknowledged that because the meaning of “law of your state” is a question of state law, and the Supreme Court reviews only federal law issues, the Court will accept the Court of Appeal’s interpretation of those words. Nonetheless, the Court stated, the FAA prohibits courts from discriminating against arbitration agreements by applying state law principles to such agreements in a manner different from how courts would apply those principles to other agreements. The Court concluded that the Court of Appeal’s interpretation of the words “law of your state” is unique to arbitration contracts and therefore is preempted by the FAA.

The Court gave several reasons for its conclusion. First, the Court said that the phrase “law of your state” unambiguously means valid state law. Second, consistent with this, California case law provides that references to California law incorporate retroactive legislative changes to that law. Third, “nothing in the Court of Appeal’s reasoning suggests that a California court would reach the same interpretation of ‘law of your state’ in any context other than arbitration.” Fourth, the language the Court of Appeals used when discussing California interpretive principles focused on arbitration. Fifth, the Court of Appeal’s reasoning implies that preempted state law maintains legal force—a view the Supreme Court said is unlikely to be accepted by courts or outside of the arbitration context. And finally, “there is no other principle invoked by the Court of Appeal that suggests that California courts would reach the same interpretation of the words ‘law of your state’ in other contexts.”

Justice Ginsburg wrote a heated dissent, which Justice Sotomayor joined. Much of the dissent—which, at 14 pages, is three pages longer than the majority opinion—focuses on what Justice Ginsburg believes is the Court’s improper expansion of the FAA. She opens her dissent by stating that “[i]t has become routine, in a large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no-class-action arbitration clauses.” The Court’s decisions, she states, “have predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer-protection laws.” With respect to this case, Justice Ginsburg says it is clear that when DIRECTV originally drafted the service agreement, DIRECTV meant the words “law of your state” to mean state law without regard to federal preemption. And, to the extent “law of your state” is ambiguous, Justice Ginsburg says that the ambiguity should be resolved against DIRECTV because DIRECTV could have avoided the ambiguity through more precise drafting. According to Justice Ginsburg, the Court reaches its holding by substituting its interpretation of “law of your state” for the Court of Appeal’s. Justice Ginsburg says that, in doing so, the Court’s decision “steps beyond” its precedents and is a “dangerous first.”

As noted, it seems meaningful that Justice Breyer, in particular, authored the majority opinion. He was the lead dissenter in Concepcion, where he, joined by Justices Ginsburg, Sotomayor, and Kagan, argued that “the Court is wrong” to hold that the FAA preempts California’s prohibition on certain class-action arbitration waivers. Now, in Imburgia, Justices Breyer and Kagan have moved to the majority, while Justices Ginsburg and Sotomayor remain as dissenters. In the Imburgia opinion, Justice Breyer acknowledges his prior dissent but emphasizes that Concepcion is controlling law: “The fact that Concepcion was a closely divided case, resulting in a decision from which four Justices dissented, has no bearing on [the] undisputed obligation” that “the judges of every State must follow it.” This portion of the opinion reads almost like a personal note to lower court judges who may hesitate to enforce arbitration clauses with class action waivers. The most lasting effect of Imburgia, therefore, may be to chasten such judges from resisting Concepcion.

Finally, Justice Thomas wrote a brief dissent reaffirming his view that the FAA does not apply to proceedings in state courts.

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