On September 19th, the Eleventh Circuit Court of Appeals resolved a question of first impression in the circuit: whether the availability of the class action mechanism is a question of arbitrability that presumptively should be decided by the court. The Court ruled that the availability of class arbitration presumptively should be decided by the court. But, in a second ruling that could overshadow the first for many existing arbitration agreements, the Court proceeded to determine that the terms of the agreement at issue evinced a clear and unmistakable intent to overcome the presumption that the court decides arbitrability. Thus, the end result was that the availability of a class action in this case would be decided in arbitration, not by the court.
This case involves services offered by Defendant JPay. Those "services allow friends and family of inmates around the country to purchase various goods and services on inmates' behalf." Plaintiffs alleged that JPay breached its contractual obligations and violated a Florida consumer protection statute by, inter alia, charging inflated transfer fees and offering kickbacks to corrections officials. Plaintiffs demanded arbitration and sought to represent a class of JPay users in the arbitration proceeding. The parties agreed that Plaintiffs' individual claims would be resolved in arbitration, but JPay disputed whether the arbitration could proceed as a class proceeding as Plaintiffs envisioned. So JPay filed a declaratory judgment action and moved for summary judgment. After an interlocutory appeal by Plaintiffs was dismissed for lack of jurisdiction, the district court granted summary judgment to JPay and determined that the arbitration could not proceed on a class basis. Plaintiffs appealed.
The Court framed the two issues on appeal:
We must decide as a matter of first impression whether the availability of a class is a "question of arbitrability" that presumptively goes to a court. If we hold that it is — and we do so today — we must then decide whether the terms of the parties' agreement evince a clear and unmistakable intent to overcome that presumption.
On the question of first impression, the Court held that "the availability of class arbitration is a question of arbitrability, presumptively for a court to decide, because it is a gateway question that determines what type of proceeding will determine the parties' rights and obligations." "We leave the question of class availability presumptively with the court because we do not want to force parties to arbitrate so serious a question in the absence of a clear and unmistakable indication that they wanted to do so."
But, from JPay's perspective, what the panel gave with one hand it took away with the other. That is, on the second question, the majority determined that the parties actually agreed to arbitrate the issue of class availability. The panel did this in the face of numerous arguments from JPay to the contrary. For instance, in its answer brief, JPay made the following point:
[C]onsent to class arbitration is a momentous concession that the Supreme Court has equated to "bet[ting] the company with no effective means of review." This Court should be extremely skeptical that JPay intended to assume this potentially ruinous risk, and chose to do so implicitly rather than expressly. The lack of express consent raises a major red flag that only the most compelling implicit evidence of consent can overcome. But there is none. Instead, the Terms of Service contain numerous indicia that JPay only intended to arbitrate bilateral disputes.
Nonetheless, the majority found "a clear and unmistakable intent to delegate questions of arbitrability to the arbitrator throughout the arbitration provision in JPay's Terms of Service." It determined that the express delegation provision, though it did not mention class arbitration at all, necessarily encompassed the issue of class arbitration. "Put succinctly, an express delegation clause like this one delegates questions of arbitrability, one of which is the question of class availability." The majority determined that it was bound by prior precedent in this regard. "The long and short of it is that our case precedent compels that we read the JPay agreement as clearly and unmistakably evincing an intent to delegate questions of arbitrability."
District Judge Graham (Southern District of Ohio), sitting by designation, dissented from this second ruling. Although he agreed with the Court's resolution of the first question, he wrote: "But I disagree with the majority's conclusion that the language these parties used in their contract expressed a clear intent to permit the arbitrator to decide the question of the availability of class arbitration." His view was that "a general delegation to arbitrate issues of arbitrability is not sufficient and that without a specific reference to class arbitration the court should presume that the parties did not intend to delegate to an arbitrator an issue of such great consequence." Judge Graham found support for his views in decisions from the Third, Sixth, and Eighth Circuits.
In the end, two thoughts bear emphasis.
First, although the Court's first ruling is consistent with decisions from other circuits that have considered the issue, the majority's second ruling appears to be in tension, and possibly outright conflict, with decisions in other circuits. That issue may find its way to the United States Supreme Court at some point.
Second, while perhaps providing little solace to those with existing arbitration agreements such as the one analyzed in this case, the panel did take pains to emphasize that parties are free to write their arbitration agreements as they wish: "Finally, we reiterate that our aim in this analysis is only to give meaning to the parties' expressed will by applying the words they used, and remind future parties that they are free to draft using language as specifically or generally as they want." Accordingly, companies who wish to arbitrate disputes with customers but not on a classwide basis should reexamine their arbitration agreements in light of this decision.
JPay, Inc. v. Kobel, No. 17-13611, 2018 WL 4472207 (11th Cir. Sept. 19, 2018)
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