Fifth Circuit Class Action Litigation | Winter 2019/2020
Texas Supreme Court weighs in on arbitrability of class actions.
In this case, the Texas Supreme Court held that, absent a clear contractual provision to the contrary, a court should decide the threshold issue of whether class allegations must be arbitrated. The ruling overturned prior precedent holding that class arbitration was an issue for the arbitrator where the contract submitted all disputes arising out of the agreement to the arbitrator.
The case arose out of a dispute between homeowners, the Robinsons, with their home-warranty company. The Robinsons sued in Texas state court concerning construction-related defects. The defendant moved to compel arbitration. The arbitration provision in the warranty compelled mandatory binding arbitration under the Federal Arbitration Act (FAA). The warranty did not address who decides issues of arbitrability. On the eve of the arbitration hearing, the Robinsons submitted an amended statement of claim adding class allegations against the defendant alleging it required overbroad releases as a precondition to fulfilling warranty obligations. Defendant vigorously contested this amendment before the arbitrator and filed a motion with the state court. The trial court ruled in the defendant’s favor, holding that whether the parties agreed to class arbitration was a question to be decided by the court and the parties’ warranty agreement did not permit class arbitration.
The Texas Supreme Court noted that this issue was consequential because courts have exceptionally limited scope to review the decisions of an arbitrator even when wrong on issues of law. Accordingly, the Court addressed two fundamental questions: (1) whether class arbitration is a question of arbitrability presumptively for the court or a question to be arbitrated and, thus, presumptively for the arbitrator; and (2) whether the arbitration agreement clearly and unmistakably evinces a contrary intent.
On the first issue, the Texas Supreme Court held that the question was presumptively for the courts. The Court was persuaded in part based on the unique nature of class litigation and the observation that “arbitrators are not generally knowledgeable in the often-dominant procedural aspects of certification, such as the protection of absent parties.”
On the second issue, the Court held that silence on the issue of class arbitration could not be equated to consent. “[T]o interpret silence or ambiguity on the ‘who should decide arbitrability’ point is giving arbitrators the power . . . [and] might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide.” For class arbitration to be an issue decided by an arbitrator, the contract must unambiguously and explicitly delegate such authority. The default position will be for the court to decide whether class arbitration is arbitrable.