United States: The Fifth Circuit Agrees With Its Sister Circuits That Class Arbitrability Is A Gateway Issue For Courts, Not Arbitrators

Last Updated: August 20 2019
Article by John B. Lewis

In a predictable decision, the Fifth Circuit has held that the availability of class arbitration is a gateway issue for the courts to decide, absent "clear and unmistakable" language in the arbitration agreement to the contrary. The appellate court didn't find such language in 20/20 Commc'ns v. Crawford, Case No. 18-10260 (5th Cir. July 22, 2019).

Instead, the Court followed the lead of several of its sister circuits – the Fourth, Sixth, Seventh, Eighth, Ninth and Eleventh Circuits. We previously blogged a number of those decisions dealing with "gateway issues" and arbitration (See our October 25, 2018 blog that also referenced our prior articles on the subject).

One might question why this issue deserves a blog, but it is indeed one of note because of the view of the arbitrator, one that unfortunately is not alone. In this case, the arbitration agreement used straightforward language allowing the arbitrator to "hear only individual claims" and generally forbidding class or collective arbitration. Undeterred, the arbitrator permitted class arbitration on the theory that the class action prohibition was invalid under federal law.

The Proceedings Below

The Crawford case, which was consolidated with 20/20 Commc'ns v. Blevins, No. 19-10050, for appeal purposes, involved claims by several field sales managers who had signed mutual arbitration agreements with the sales and marketing company. Initially, the field sales managers filed separate individual arbitration claims but later amended them to proceed as a class. In response, 20/20 Communications asked the district court to rule that class arbitrability is a gateway issue for the court, not an arbitrator, and that the class action waiver did bar class arbitrations. See 20/20 Commc'ns, Inc. v. Blevins, No. 4:16-cv-00810-Y (N.D. Tex.).

While the Blevins case was pending, some employees sought clause construction awards arguing that the class arbitration bar in the agreement violated the National Labor Relations Act (NLRA). One arbitrator agreed. In response, 20/20 filed a district court action seeking to vacate the clause construction award. Instead, the district court confirmed the award and the Crawford appeal resulted. While Crawford was pending, the district court in Blevins held the arbitration agreement empowered the arbitrator to decide class arbitrability, and that ruling was also appealed by 20/20 and consolidated with the first case.

After agreeing with the other circuits that had decided the question, the Fifth Circuit went through a detailed analysis of why courts generally should decide the issue.

"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." Slip Op. at 5.

According to the panel, the difference was more than form but had concrete consequences as well. Class actions not only increase the size and complexity of the proceeding but "raise important due process concerns." Citing AT&T Mobility v. Concepcion, 563 U.S. 333, 348-49 (2011), the panel acknowledged that class actions can bind unnamed parties who must be accorded due process, including notice, ability to be heard and to opt out of the class. Finally, the appellate court also found one of the benefits of arbitration "threatened" in class proceedings – "the protection of the privacy and confidentiality of the parties." Consequently, the panel had little problem agreeing that the availability of class arbitration was "a foundational question of arbitrability," citing Herrington v. Waterstone Mortg. Corp., 907 F. 3d 502, 507 (7th Cir. 2018).

Once the panel determined that class arbitrability was a gateway issue, it easily determined if the arbitration agreement "clearly and unmistakably agreed" to permit the arbitrator to determine the issue. It did not:

"[T]he parties agree that this Agreement prohibits the arbitrator from consolidating the claims of others into one proceeding, to the maximum extent permitted by law. This means that an arbitrator will hear only individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group of employees in one proceeding, to the maximum extent permitted by law." (Emphasis added.) Slip. Op. at 6.

The panel could not conceive of why the parties would prohibit class arbitration but then permit an arbitrator to decide the issue. "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?" Slip Op. at 7.

The panel found that none of the provisions cited by the employees overcame the rules of contract construction or the class arbitration bar, and authorized arbitrators, not courts, to make the decision.

So, another appellate court has followed its sisters, finding that class arbitration is a "gateway" issue that must be decided by the courts – unless clear and unmistakable language provided otherwise.

BOTTOM LINE:

The Fifth Circuit has joined six other circuits in holding that the availability of class or collective arbitration is a threshold question of arbitrability to be decided by the courts absent clear and unmistakable language to the contrary.

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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