Supreme Court Will Not Review Sixth Circuit Ruling That Courts Decide the Availability of Classwide Arbitration

by K&L Gates LLP
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Recent Supreme Court decisions have favored the enforcement of consumer arbitration agreements requiring individual, rather than classwide, dispute resolution. A number of courts, however, have found that arbitrators, whose decisions are subject only to minimal scrutiny,[1] should decide the availability of classwide arbitration. Those courts relied on a 2003 plurality decision from the Supreme Court, Green Tree Financial Corp. v. Bazzle,[2] which suggested that ordinarily an arbitrator should make that decision. Recently, however, the Supreme Court declined to review a Sixth Circuit decision, Reed Elsevier, Inc. v. Crockett,[3] which reached the opposite conclusion from Bazzle. The Supreme Court’s refusal casts significant doubt on whether the Bazzle plurality’s suggestion remains a viable theory.

In Reed Elsevier, the Sixth Circuit held that the issue of whether an arbitration agreement provides for classwide arbitration was a gateway issue of arbitrability for a court, not an arbitrator, to decide. The subject dispute arose over legal research fees charged by LexisNexis (a division of Reed Elsevier, Inc.) to Crockett. To resolve the dispute, Crockett filed an arbitration demand pursuant to the terms of his agreement with LexisNexis. And, although the agreement contained no reference to classwide arbitration, Crockett purported to assert claims on behalf of a putative class of LexisNexis subscribers. LexisNexis sued Crockett in federal court seeking a declaration that the arbitration agreement did not allow Crockett to assert class claims. The district court agreed, and Crockett took an appeal to the Sixth Circuit.[4]

Before analyzing the district court’s reasoning, the Sixth Circuit first had to determine if the district court was the correct body to decide whether the arbitration agreement permitted class proceedings. Noting the Supreme Court’s recent reiteration in Stolt-Nielsen S.A. v. AnimalFeeds International Corp.[5] that the Bazzle decision was not precedential,the Sixth Circuit predicted the Supreme Court would rule differently from the Bazzle plurality if directly presented with the question.  Indeed, the court of appeals reasoned that “recently the [Supreme] Court has given every indication, short of an outright holding, that classwide arbitrability is a gateway question” presumptively for a court to decide. Accordingly, the Sixth Circuit held that the district court properly decided the classwide arbitrability issue, as the arbitration agreement contained no delegation of that issue to the arbitrator.[6]

Two other federal courts of appeal had previously adopted the Bazzle plurality position as their own, holding that an arbitrator should decide the availability of classwide arbitration on the basis that is a mere procedural determination.[7] In light of this split of authority among the courts of appeals, Crockett sought Supreme Court review of the Sixth Circuit’s decision.  Although the Court declined to grant Crockett’s petition, the Court’s recent discussion of the issue in dicta in Stolt-Nielsen—where the Court remarked that “we see the question as being whether the parties agreed to authorize class arbitration”—indicates that a majority of the justices view the issue as one that may worth consideration in a future case.[8]

In the meantime, Reed Elsevier remains the law of the Sixth Circuit, as recently recognized by another panel of judges of that court.[9]  In the Third and Fourth Circuits, a contrary position holds, and in some circuits, the question remains unanswered, leaving each district court judge free to decide whether to follow the Bazzle plurality or the Reed Elsevier approach. Accordingly, where an arbitration agreement lacks an express class waiver provision, whether the arbitrator or the court will decide whether arbitration will be classwide remains a jurisdiction-specific issue until the Supreme Court settles the issue.

Notes:
[1] See 9 U.S.C. § 10.

[2] 539 U.S. 444 (2003) (plurality op.).

[3] 734 F.3d 594 (6th Cir. 2013), petition for writ of certiorari denied 2014 WL 469583 (U.S. May 19, 2014; No. 13-928).

[4] 734 F.3d at 596.

[5] 559 U.S. 662 (2010).

[6] 734 F.3d at 598-99. The Sixth Circuit also affirmed the district court’s ruling on the merits, agreeing that the arbitration agreement contained neither an express or implied agreement to arbitrate claims on a classwide basis. Id. at 599-600 (“[t]he principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it”).

[7] See Quilloin v. Tenet Healthsystem Phila., Inc., 673 F.3d 221, 232 (3d Cir. 2012); Davis v. ECPI College of Tech., L.C., 227 F. App’x 250, 254 (4th Cir. 2007) (unpublished).  In Employers Insurance Co. of Wausau v. Century Indemnity Co., 443 F.3d 573, 577-81 (7th Cir. 2006), the Seventh Circuit concluded that although Bazzle was not controlling, the issue of whether consolidation of arbitrations (as opposed to classwide arbitration) was permissible under the arbitration agreement was a procedural one for the arbitrator to decide. Some courts consider the First Circuit to have adopted the Bazzle plurality’s suggestion in Fantastic Sam’s Franchise Corp. v. FSRO Ass’n Ltd., 683 F.3d 18 (1st Cir. 2012), but that casewas not a class action. Rather, the plaintiff-in-arbitration was an association of franchisees that sought to sue on behalf of its members. In Sanford v. MemberWorks, Inc., 483 F.3d 956 (9th Cir. 2007), the plaintiff presented the issue to the court, but the Ninth Circuit declined to address it.  Also, although two Ninth Circuit panels have suggested—in unpublished cases—that Bazzle is controlling, see Veliz v. Cintas Corp., 273 F. App’x 608 (9th Cir. 2008), Johnson v. Gruma Corp., 123 F. App’x 786 (9th Cir. 2005), those cases are not precedential under Ninth Circuit rules.  See 9th Cir. R. 36-3(a).

[8] 559 U.S. at 684-87 (emphasis in original).  Also, in a footnote in Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013), Justice Kagan, writing on behalf of a unanimous Court, noted that the Court had yet to have opportunity to decide the issue in the years following Bazzle.  133 S. Ct. at 2068 n.2.

[9] See Huffman v. Hilltop Cos., LLC, 747 F.3d 391, 398-99 (6th Cir. 2014).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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