Fifth Circuit Rules that Courts, Not Arbitrators, Decide “Gateway Issue” of Class Arbitrability

In 20/20 Communications, Inc. v. Crawford, the U.S. Court of Appeals for the Fifth Circuit recently ruled that the question of whether a dispute can be arbitrated on a class-wide basis is a threshold issue that is presumptively for a court, not an arbitrator, to decide. This is the latest in a series of decisions by the Supreme Court of the United States and courts of appeals in favor of arbitration agreements that waive class procedures.

Background

The issue of class arbitrability has been hotly litigated in recent years. In Epic Systems v. Lewis, the Supreme Court held that an arbitration agreement that includes a class-action waiver does not violate the National Labor Relations Act. In Epic Systems, the Court reversed several rulings by courts of appeals and paved the way for employers nationwide to include class waivers in arbitration agreements with their employees. In so doing, it noted that class arbitration sacrifices “the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness.”

The long and complicated factual background of the 20/20 case exemplifies the Supreme Court’s concerns. 20/20 and certain of its employees had agreed to arbitrate employment-related claims. Furthermore, they had agreed that the arbitrator could “hear only individual claims” and that class arbitrations were prohibited “to the maximum extent permitted by law.” Prior to the Supreme Court’s Epic Systems decision, several 20/20 employees had brought individual arbitrations against 20/20. A number of those employees then converted their individual claims to class claims and asked the various arbitrators to rule on whether the class claims were permissible. All but one of the arbitrators ruled against the employees, but one arbitrator decided otherwise and ordered 20/20 to submit to a class-wide arbitration.

The issue before the Fifth Circuit in 20/20 was not the ultimate question of whether class arbitration was permissible. Rather, the court was asked to determine who should decide the ultimate question—a court or an arbitrator. The employees argued that the question was for an arbitrator. 20/20, represented by Ogletree Deakins, argued that class arbitrability is a “gateway issue” that a court should decide unless the parties plainly agree otherwise.

The Fifth Circuit’s Ruling

The court sided with 20/20. Observing that “class arbitrations differ from individual arbitrations in fundamental ways,” the Fifth Circuit held that a court should presumptively decide whether the parties agreed to arbitrate on a class basis. The parties to an arbitration agreement may agree to allow an arbitrator to decide this issue, but only if they do so with “clear and unmistakable” language.

The court also agreed with 20/20 that there was no such language in the parties’ agreement. It noted that the agreement permits only individual arbitrations and expressly prohibits arbitrators from commencing class arbitrations. In the court’s words, “That language is, at best, in substantial tension with—and in any event, not clear and unmistakable support for—the notion that the parties authorized the arbitrator to decide the gateway issue of class arbitration.”

The Impact of the Decision

The decision is good news for employers, which generally prefer for a court to decide the question of class arbitrability to avoid the potential for multiple, conflicting rulings from various arbitrators as occurred in this case. In ruling that class arbitrability is a threshold issue that is presumptively for a court to decide, the Fifth Circuit agreed with the Third, Fourth, Sixth, Seventh, Eighth, Ninth, and Eleventh Circuits on this issue. By requiring the parties to clearly and unmistakably delegate this issue to arbitrators, the court helped ensure that parties do not end up in a class proceeding to which they never agreed.

Jeremy W. Hays, Gavin S. Martinson, and Andrew T. Turner served as 20/20’s counsel on appeal.