Fifth Circuit Holds Propriety of Class Arbitration Is “Gateway” Issue for Courts
The Fifth Circuit has joined a number of other circuits and concluded that whether class arbitration is appropriate under the terms of a particular arbitration agreement is a “gateway” issue to be decided by courts, not an arbitrator, absent “clear and unmistakable” language to the contrary.
The court further concluded that there was no “clear and unmistakable” language allowing an arbitrator to rule on the propriety of class arbitration in the agreement before it.
20/20 Communications Inc. employs a number of field sales managers. It requires them to sign an arbitration agreement that bars class arbitration. Several sales managers initiated arbitration and sought to assert class claims. 20/20 filed a declaratory judgment action seeking a declaration that class claims were barred under the agreement. While that action was pending, however, an arbitrator concluded that the class arbitration bar was unenforceable under the National Labor Relations Act. 20/20 filed a separate action seeking to vacate that ruling. The district court denied 20/20’s request and confirmed the arbitrator’s ruling. The district court in 20/20’s declaratory judgment action subsequently concluded that the arbitration agreement at issue authorized arbitrators, not the courts, to determine the propriety of class arbitration.
The Fifth Circuit consolidated 20/20’s appeals from both rulings against it. The court first held that whether an agreement allows or prohibits class arbitration is a threshold/”gateway” issue for courts to decide unlessthe arbitration agreement “clearly and unmistakably” provides that the issue is for an arbitrator to decide. The Fifth Circuit noted that this conclusion was consistent with the conclusion reached by every other circuit court (the 4th, 6th, 7th, 8th, 9th, and 11th Circuits) to consider the issue. Turning to the agreement at issue, the Fifth Circuit concluded that the arbitration agreement did not clearly and unmistakably allow the arbitrator to determine the propriety of class arbitration. The agreement “prohibit[ed] class arbitrations to the maximum extent permitted by law,” and it made no sense for the parties to have included such language yet at the same time mean for the arbitrator to decide whether he could hear class claims. The court also rejected the claim that various provisions that vested arbitrators with broad and general powers allowed them to adjudicate whether class arbitration was allowed. Those provisions did not include “the requisite clear and unmistakable language that arbitrators, rather than courts, shall decide questions of class arbitrability.” Thus, the court reversed and vacated the judgments of the district court.
20/20 Commc’ns, Inc. v. Crawford, No. 18-10260 (5th Cir. July 22, 2019) (consolidated with 20/20 Commc’ns, Inc. v. Blevins, No. 19-10050).