Fifth Circuit Holds Class Arbitration is a Gateway Issue for the Courts to Decide

The United States Court of Appeals for the Fifth Circuit has issued an opinion holding the issue of class arbitration is a gateway matter for the courts to decide.  In 20/20 Communications, Inc. v. Crawford, No. 18-10260 (5th Cir., July 22, 2019), a number of employees signed 20/20 Communication’s arbitration agreement as a condition of employment.  The terms of the agreement required each employee to individually arbitrate any future claims against the company.

Several employees eventually filed various arbitration demands against 20/20, but later sought to file identical class arbitration claims instead.  In response, the company asked a district court to issue a declaration stating the issue of class arbitrability was for the courts, not an arbitrator, to decide.  Six of the proposed class members then “asked their individual arbitrators to issue clause construction awards holding that the class arbitration bar is prohibited by the National Labor Relations Act.” One of those arbitrators found the class arbitration bar included in 20/20’s arbitration agreement was unenforceable under the Act.

Next, 20/20 sought to vacate the arbitrator’s clause construction decision stating the parties’ arbitration agreement was unenforceable.  Instead, however, the district court confirmed the arbitrator’s award.  In another related case, the court also determined it was up to the arbitrator to decide the issue of class arbitrability under the terms of the parties’ agreement.  20/20 then filed an appeal to the nation’s Fifth Circuit Court of Appeals.

The appellate court consolidated the two cases and acknowledged although the United States Supreme Court has been silent on the issue, each Circuit Court has found that class arbitrability is a gateway issue that is for the courts to decide.  After that, the Fifth Circuit said:

We agree with our sister circuits and hold today that class arbitrability is a gateway issue for courts, not arbitrators, to decide, absent clear and unmistakable language to the contrary. Like our sister circuits, we regard the decision to arbitrate a dispute as a class, rather than on an individual basis, as a threshold question of arbitrability, because class arbitrations differ from individual arbitrations in fundamental ways.

The appellate court then turned to the question of whether the parties “clearly and unmistakably agreed to allow the arbitrator to determine” the issue of arbitrability.  The Fifth Circuit stated:

We conclude that this class arbitration bar operates not only to bar class arbitrations to the maximum extent permitted by law, but also to foreclose any suggestion that the parties meant to disrupt the presumption that questions of class arbitration are decided by courts rather than arbitrators.

After all, it is difficult for us to imagine why parties would categorically prohibit class arbitrations to the maximum extent permitted by law, only to then take the time and effort to vest the arbitrator with the authority to decide whether class arbitrations shall be available. Having closed the door to class arbitrations to the fullest extent possible, why would the parties then re-open the door to the possibility of class arbitrations, by announcing specific procedures to govern how such determinations shall be made?

In all events, we find nothing in the arbitration agreement that gives such authority to the arbitrator with the clear and unmistakable language required by Supreme Court precedent.

In addition, the court dismissed the employees’ claim that the issue of class arbitration should be determined by the arbitrator since the arbitral agreement incorporated the American Arbitration Association’s Rules.  According to the appellate court, the employees’ argument was unpersuasive because the provision at issue included a qualifier which stated “except where such rules are inconsistent with this Agreement, in which case the terms of this Agreement will govern.”  The Fifth Circuit continued by stating:

And even putting aside the exception clauses, none of these provisions speak with any specificity to the particular matter of class arbitrations. The class arbitration bar, by contrast, specifically prohibits arbitrators from arbitrating disputes as a class action, and permits the arbitration of individual claims only. See, e.g., Baton Rouge Oil and Chem. Workers Union v. ExxonMobil Corp., 289 F.3d 373, 377 (5th Cir. 2002) (“It is a fundamental axiom of contract interpretation that specific provisions control general provisions.”) (citing RESTATEMENT (SECOND) OF CONTRACTS § 203(c) (“specific terms and exact terms are given greater weight than general language”)).

Accordingly, the provisions cited by the employees do not clearly and unmistakably overcome the legal presumption—reinforced as it is here by the class arbitration bar—that courts, not arbitrators, must decide the issue of class arbitration.

Finally, the United States Court of Appeals for the Fifth Circuit reversed the district court’s judgment and remanded the consolidated case with instructions.

H/T to Henry Allen Blair at Arbitration Nation.

Photo by: Adeolu Eletu on Unsplash