California Court Determines Arbitrator Must Decide Whether Class Claims Are Subject to Arbitration Agreement

When an employee who has signed an arbitration agreement files a lawsuit alleging individual claims along with class action claims, and the trial court has ordered him to take his individual claims to arbitration, what happens to the class claims? A California appellate court recently addressed that question in a case titled Sandquist v. Lebo Automotive, Inc. California Court of Appeal, No. B244412 (June 25, 2014).

Timothy Sandquist signed an arbitration agreement when Lebo Automotive, Inc. hired him to work as a car salesman. The arbitration agreement contained a number of standard provisions and was silent on the permissibility of class arbitration. Sandquist later filed a race discrimination lawsuit alleging a violation of the California Fair Employment and Housing Act, among other claims. He alleged discrimination on an individual basis as well as on a class-wide basis.

Trial Court Dismisses Class Claim

Given that Sandquist had signed an arbitration agreement, Lebo filed a motion to compel arbitration. Finding that the agreement was subject to the Federal Arbitration Act and that the agreement was not unconscionable, the court granted the motion.

At the same time, the trial court dismissed the class action allegations, finding them to be irrelevant. The court determined that (1) the arbitration agreement provided no basis for compelling class arbitration; and (2) since Lebo’s individual claim was going to arbitration, there would no longer be a class representative to represent the class action in court. The court gave the plaintiff’s counsel 60 days to find a new class representative. The plaintiff’s counsel later notified the court that they had been unable to find another employee of the dealership who had not signed the arbitration agreements.

Appellate Court Reinstates Class Claim

Sandquist appealed. He argued that the trial court should not have determined whether or not the arbitration agreement provides for class actions. Rather, the arbitrator should have made this determination. Lebo argued that the trial court correctly relied on a case issued by the Supreme Court of the United States in 2010, Stolt-Nielsen S.A. et. al. v. AnimalFeeds International Corp. 559 U.S. 662, in ruling that the court decides this issue. After a lengthy discussion of prior published cases on the issue, the court of appeal held that

the question whether the parties agreed to class arbitration in cases where the arbitration agreement is silent is determined by the arbitrator. The court relied in part on a 2003 U.S. Supreme Court case, Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444.

The appellate court left the decision regarding whether the arbitration agreement permits class arbitration for the arbitrator to decide.

Practical Considerations

A key fact in this case is that the arbitration agreement was silent on the issue of whether class claims can be arbitrated. Had the agreement specified that class claims could not be arbitrated, the trial court’s ruling dismissing the class claims would likely have been upheld. However, even where an arbitration agreement is silent on the issue, other published decisions have decided the issue differently. Based on the Green Tree decision, the Sandquist court left the decision regarding whether the arbitration agreement permits class arbitration for the arbitrator to decide. According to Spencer C. Skeen, a shareholder in the San Diego office of Ogletree Deakins, “the Sandquist court’s reliance on Green Tree is curious. The United States Supreme Court’s subsequent decision in Oxford Health Plans LLC v. Sutter (2013) 133 S.Ct. 2064 makes it clear that Green Tree does not dictate who should decide the issue of class arbitration. In the Oxford Health Plans decision, the Court stated: ‘this Court has not yet decided whether the availability of class arbitration is a question of arbitrability,’ which would have to be resolved by the court. The Sandquist court appears to be citing Green Tree for a proposition that the Supreme Court expressly renounced in the Oxford Health Plans case.”

The Sandquist case presently continues its journey on appeal. Lobo has now filed a petition for review with the California Supreme Court. In the petition, Lobo forcefully argues that in holding that an arbitrator should decide whether to allow class claims in the absence of authorizing language in the arbitration agreement, the Second District reached a result that is contrary to the California Supreme Court’s decision in City of Los Angeles v. Superior Court (2013) 56 Cal.4th 1086, as well as decisions by the Supreme Court of the United States and federal appellate court rulings in other circuits.

Regardless of the ultimate outcome of this case, in light of the recent California Supreme Court decision endorsing class action waivers in Iskanian v. CLS Transportation Los Angeles, LLC, employers retain the ability to limit class action litigation. Recent developments in this area of law should prompt employers to review and update their employee arbitration agreements to better navigate the changing legal landscape.