Sixth Circuit Relies on Recent Supreme Court Decision to Deny Class Arbitration

The United States Court of Appeals for the Sixth Circuit has held that a Texas attorney may not engage in class arbitration against the parent company of the legal research system LexisNexis.  In Reed Elsevier Inc. et al. v. Craig Crockett et al., No. 12-3574, (6^th Cir., November 5, 2013), attorney Craig Crockett signed an adhesion contract with LexisNexis (“Lexis”) that contained an arbitration clause.  The clause does not address class arbitration, but does specify that any arbitration must take place in the city where Lexis is based.   Because the venue provision made arbitrating his single claim economically unfeasible, Crockett filed a demand for arbitration with the American Arbitration Association on behalf of himself and a putative class of similarly situated Lexis customers and on behalf of clients who had unexpected Lexis fees passed on to them through legal bills.  Lexis responded to the demand by asking an Ohio district court to rule the arbitral provision bars class arbitration and to grant an injunction against Crockett’s proposed class-action arbitration.  The court granted summary judgment to Lexis and dismissed the company’s request for an injunction.  Crockett then appealed the case to the Sixth Circuit.

On appeal, Crockett argued that an arbitrator rather than a court is tasked with deciding whether an arbitral agreement permits class arbitration.  The court stated,

“[A]rbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration.” AT&T Techs., Inc. v. Commc’n Workers of Am., 475 U.S. 643, 648–49 (1986). Thus, an arbitrator has authority to answer the question whether an agreement provides for classwide arbitration—a question we refer to here as “classwide arbitrability”—only if the parties have authorized the arbitrator to answer that question.  See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). As to this much, the law is clear.

Next, the appeals court discussed whether the parties were required to specifically authorize an arbitrator to determine the question of class arbitrability in their agreement.   According to the court,

Less clear is the showing necessary for a court to decide that the parties have authorized an arbitrator to determine classwide arbitrability. On the one hand, courts presume that so-called “gateway disputes” are “for judicial determination unless the parties clearly and unmistakably provide otherwise.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (internal quotation marks and alterations omitted). Gateway disputes include “whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy.” GreenTree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003) (plurality opinion). These matters are important enough that courts “hesitate to interpret silence or ambiguity” as grounds or giving an arbitrator the power to decide them, because “doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide.” First Options, 514 U.S. at 945.

On the other hand, “the law reverses the presumption[,]” id., with respect to what we refer to here as “subsidiary questions.” Subsidiary questions “grow out of the dispute and bear on its final disposition[,]” John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964); and they include, for example, issues related to “waiver, delay,” or “whether a condition precedent to arbitrability has been fulfilled.” Howsam, 537 U.S. at 84–85 (quotation marks and citation omitted). Once a court decides that the parties have agreed to resolve a particular dispute through arbitration, it follows almost a fortiorari—absent clear language to the contrary in the parties’ agreement—that they would have agreed to have an arbitrator decide these subsidiary questions as well.

The Sixth Circuit analyzed United States Supreme Court precedent and said “recently the Court has given every indication, short of an outright holding, that classwide arbitrability is a gateway question rather than a subsidiary one.”

Next, the appeals court analyzed the parties’ agreement to arbitrate and determined they did not clearly and unmistakably assign the question of class arbitrability to an arbitrator.

After that, the Sixth Circuit discussed whether the court properly determined that the arbitral agreement does not provide for class arbitration.  The appeals court stated,

The principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it. A second reason, as the district court correctly observed, is that the clause limits its scope to claims “arising from or in connection with this Order,” as opposed to other customers’ orders.

. . .

The Supreme Court has made clear that “[a]n implicit agreement to authorize class-action arbitration” should not be inferred “solely from the fact of the parties’ agreement to arbitrate.”  Stolt–Nielsen, 559 U.S. at 685. That, at bottom, is the inference that Crockett asks us to make here. The agreement in this case does not provide for classwide arbitration.

Finally, the court analyzed the Supreme Court’s recent holding in American Express Co. v. Italian Colors Restaurant to address Crockett’s claim that the arbitration agreement would be unconscionable if class arbitration is prohibited.  The Sixth Circuit held,

The idea that the arbitration agreement in this case reflects the intent of anyone but LexisNexis is the purest legal fiction. But all of these things—the one-sided nature of the arbitration clause, and its adhesive nature—were also present in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013). And there the Supreme Court held that, all of those concerns notwithstanding, the absence of a class-action right does not render an arbitration agreement unenforceable. Id. at 2309 (The solution to Crockett’s problem is likely a market solution; as the district court observed, Westlaw’s agreement with its customers lacks any arbitration clause, much less a clause of the sort at issue here.) Under Italian Colors, therefore, the agreement here is not unconscionable.

Because the issue of class arbitrability was a question for the court to decide and the parties’ arbitral agreement was not unconscionable, the United States Court of Appeals for the Sixth Circuit affirmed the decision of the district court.