Eleventh Circuit: Court Will Decide Parties’ Intentions in ‘Unclear’ Arbitration Agreements
In a matter of first impression before the Eleventh Circuit Court of Appeals, and an issue left open by the U.S. Supreme Court, the Eleventh Circuit has ruled that who decides whether an action can be litigated as a class in arbitration is an issue of “arbitrability” and those are all to be decided by the court in the absence of terms of the arbitration agreement that evince a “clear and unmistakable intent” to overcome that default presumption. JPay, Inc. v. Kobel, No. 17-13611 (11th Cir. Sept. 19, 2018).
The plaintiffs, Cynthia Kobel and Shalanda Houston, sought to compel class action arbitration against JPay, a company providing fee-for-service amenities in prisons, alleging a violation of Florida’s consumer protection laws. JPay filed a motion to preclude class arbitration and to force the plaintiffs to litigate individually in arbitration.
The District Court granted JPay’s motion. It found that there was nothing in the agreement indicating that the court should not decide the issue and that class arbitration was not available under the terms of the agreement.
The Eleventh Circuit agreed and disagreed with the District Court.
The Eleventh Circuit agreed with the lower court that, in the absence of a clear intent by the parties in the their agreement saying otherwise, the question of whether a matter can proceed as a class action in arbitration is a matter for the court to decide. However, the Eleventh Circuit reversed the District Court’s ruling because “the language these parties used in their contract expressed their clear intent to overcome the default presumption and to arbitration gateway questions of arbitrability, including the availability of class arbitration.”
The appellate court’s analysis began with the basic premise that arbitration is a matter of contract and consent, treated under the Federal Arbitration Act on equal footing with other contracts, and that it is the courts’ job to enforce those agreements. If a contract is “ambiguous or silent” with respect to the parties’ intent to arbitrate a particular issue, the court will apply “default” presumptions to determine what the parties intended. When the agreement is not clear on who the parties intended to decide the “question of arbitrability,” this is considered a “gateway” question and the issue is presumptively decided by the court.
The Eleventh Circuit next evaluated the words used by the parties in their agreement to determine whether they intended to overcome the default presumption and delegate the question of arbitrability to the arbitrator. The Court found that the agreement at issue clearly evinced an intent to arbitrate a question of arbitrability. The agreement mentioned American Arbitration Association (AAA) three times and stated that all disputes would be resolved by AAA using its rules. According to the Eleventh Circuit, this alone “serves as a clear and unmistakable delegation of questions of arbitrability to an arbitrator.” The agreement also stated that the ability to arbitrate would be determined in arbitration. Finally, the Court noted that the agreement’s scope was quite broad, stating that the parties would arbitrate all disputes.
This case is a good reminder to review your arbitration agreements to ensure that your intent is clearly stated so the court does not decide for you.