United States: Reading Tea Leaves: Judge Gorsuch's Arbitration Decisions And The Future Of Class Action Waivers In The Supreme Court

On January 31, 2017, President Trump nominated Judge Neil Gorsuch of the Tenth Circuit Court of Appeals to the Supreme Court of the United States.

As we discussed in our article " Supreme Court Jumps Into Class Action Waiver Fight," the high court recently announced it will consider this term whether the National Labor Relations Board  (NLRB) can ban class action waivers in employment arbitration agreements under the National Labor Relations Act (NLRA) or whether such waivers are protected under the Federal Arbitration Act (FAA). The current eight-member Court faces the real risk of ending up in a 4–4 tie on this critical question, leaving it unresolved and the Courts of Appeals split.

Judge Gorsuch, assuming he is confirmed and participates in these cases now pending before the Supreme Court, could cast the deciding vote and break the five-year-old deadlock between most courts and the NLRB on the contentious class-action-waiver issue. 

Although we recognize "past performance is not necessarily indicative of future results," we reviewed Judge Gorsuch's opinions touching on arbitration and related matters to try to discern which way he might lean. Here are some highlights:

In one case—Genberg v. Porter, 566 F. App'x 719 (10th Cir. 2014) —Judge Gorsuch authored an opinion rejecting an employee's attempt to force his former employer's senior managers, board members, and outside counsel to arbitrate his wrongful termination claims against them. Judge Gorsuch explained these individuals were not signatories to the plaintiff's arbitration agreement with his employer and agreed with a prior court decision that an arbitration agreement can "be invoked only by a signatory of the agreement, and only against another signatory." Although Genberg didn't involve class action issues, Judge Gorsuch's reasoning would be an impediment to class arbitration, which often seeks to include individuals in an arbitration who aren't parties to the underlying arbitration agreement. Judge Gorsuch's literal reading of arbitration agreements is consistent with employers' attempts to enforce class action waiver bans in those agreements.

Reflecting similar reasoning, Judge Gorsuch dissented in another case involving arbitration—Ragab v. Howard, 841 F.3d 1134 (10th Cir. 2016). There, the court's majority refused to compel arbitration because the parties had entered not one but six different arbitration agreements containing provisions the majority found were in conflict and irreconcilable. The majority concluded the parties never had a meeting of the minds regarding arbitration so no enforceable agreement existed. Judge Gorsuch disagreed. He concluded the parties clearly intended to arbitrate, even if some of the non-essential details regarding how the arbitration would be carried out remained up in the air. "Because the plaintiff asked for and received assent to three arbitration clauses he drafted and signed three others, all in a commercial setting and while represented by counsel, I just don't see how he can now seriously claim that he never intended to arbitrate—or how we might rightly rescue him from the consequences of his choice." In his dissent, Judge Gorsuch emphasized the FAA's requirement that arbitration agreements be treated just like other contracts. This is a critical line of reasoning used by employers in defending class action waivers in employment arbitration agreements.

In another case—Howard v. Ferrellgas Partners, L.P., 748 F.3d 975 (10th Cir. 2014)— Judge Gorsuch wrote an opinion chastising the parties and the district court for failing to move quickly to determine whether the parties had agreed to arbitrate. After the defendant moved to compel arbitration, the district court allowed over 18 months of discovery and extensive motions practice on the threshold issue of whether an arbitration agreement existed. At the conclusion of this drawn out process, the district court denied the motion to compel, finding disputed facts made it unclear whether an agreement to arbitrate was formed. Judge Gorsuch criticized the district court for failing to conduct a summary trial as required by the FAA to resolve these fact disputes promptly. "The object [under the FAA] is always to decide quickly—summarily—the proper venue for the case, whether it be the courtroom or the conference room, so the parties can get on with the merits of their dispute." Significantly, Judge Gorsuch embraced the view that one purpose of the FAA is to foster expedient dispute resolution. That presumption underlies several of the Supreme Court's more recent decisions approving class action waivers in arbitration agreements outside the employment context. In those cases, the Supreme Court reasoned that the FAA presumes arbitration will be bilateral since such arbitration is far quicker and less complicated than class arbitration.

Also of note is Judge Gorsuch's dissent in N.L.R.B. v. Community Health Services, 812 F.3d 768 (10th Cir. 2016). That case did not involve arbitration under the FAA, but it did raise questions about the scope of the NLRB's authority in issuing new rules and the limits of courts' obligation to defer to the NLRB. In Community Health Services, the Tenth Circuit reviewed a Board decision to award certain employees full backpay as a result of an improper reduction in their hours without deducting the amount of income those employees' earned from secondary employment. This was a significant change in the Board's approach. It was well established in the Board's prior cases involving unlawful terminations that interim earnings should be deducted from backpay awards to avoid giving the employee a windfall double-recovery. The court majority deferred to the Board and enforced its new rule. Judge Gorsuch dissented, finding the Board's numerous policy justifications for the changed law were outside its authority under the NLRA. He concluded powerfully: "In the end, it's difficult to come away from this case without wondering if the Board's actions stem from a frustration with the current statutory limits on its remedial powers—a frustration that it cannot pursue more tantalizing goals like punishing employers for unlawful actions or maximizing employment." He continued: "But . . . frustration should not beget license. In our legal order the proper avenue for addressing any dissatisfaction with congressional limits on agency authority lies in new legislation, not administrative ipse dixit."

Notably, Judge Gorsuch's strong dissent in Community Health Services is consistent with many of the objections employers have made to the Board's class-action-waiver ban. Critics of that ban similarly chide the Board for deviating from 80 years of precedent by seeking to solve perceived problems that are well beyond the Board's limited jurisdiction to address.

Finally, some of Judge Gorsuch's comments on class actions in general are relevant. In 2005, he authored an article on settlements in securities fraud class actions in which he observed that "economic incentives" in "securities litigation encourage class action lawyers to bring meritless claims and prompt corporate defendants to pay dearly to settle such claims." That same concern is one of the justifications for class action waivers generally because they allow the parties to focus on the merits of a claim rather than tangential litigation costs and risks. For example, in our brief on behalf of D.R. Horton, Inc. in its challenge of the NLRB's class-action-waiver ban, we argued:

[T]he mere possibility of certification may impose such substantial defense costs and risks on a defendant that it is forced to settle irrespective of the merits of the underlying claims. . . . Employers thus have a legitimate interest in agreeing to procedures – such as individualized arbitration – allowing the parties to adjudicate the employee's claim on its merits while also avoiding substantial costs and risks unrelated to the strength of that claim.

The above decisions and commentary offer some window into Judge Gorsuch's thinking on questions that will be at the heart of the Supreme Court's upcoming class action waiver cases. If Judge Gorsuch's views on the role of arbitration under the FAA, the problems posed by class actions, and the limits on the Board's authority continue along this trajectory, employers may have reason to be optimistic.

Ron Chapman, Jr. (shareholder, Dallas) and Christopher C. Murray (shareholder, Indianapolis) represented employers in successfully challenging the NLRB's class-action-waiver ban in the Second and Fifth Circuits. Presently they are preparing an amicus brief on this issue on behalf of multiple organizations to be filed in the Supreme Court's pending cases, Murphy Oil, Lewis v. Epic Systems, and Morris v. Ernst & Young.

This article first appeared on Law360.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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