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Third Circuit Rules that the Issue of Whether the Arbitration Agreement Contained An Explicit Class Action Waiver is Within the Discretion of the District Court to Decide


In this action, plaintiff sued defendant over principal and interest from several credit card agreements. The credit card agreement contained a very broad arbitration agreement requiring the parties to decide “all claims” by arbitration. In addition, the arbitration agreement also expressly barred class action lawsuits. Despite the bar on class action lawsuits, plaintiff commenced an action against defendant as a putative class action. Defendant moved to compel arbitration pursuant to the credit card agreement between the parties. With respect to whether the class action waiver was enforceable, plaintiff requested that the district court make a determination.

Defendant, again, opposed the court involving itself with this dispute and requested that the issue of enforceability of the class action waiver be decided by an arbitration panel. The district court concluded that the enforceability of the class action waiver is an issue of arbitribility and, as a result, such issues are within the discretion of the court to make a determination. Defendant appealed to the Third Circuit. In its motion papers, defendant cited to several Supreme Court opinions that supported the proposition that the issue of arbitrability is more appropriate for an arbitration panel to decide. The majority disagreed and found the issue of arbitrability rests within the discretion of the court except if the arbitration clause was clear that such decisions rest with the arbitrator. The dissent claimed that the language contained in the arbitration agreement gave that right to the arbitration panel.

IMPACT (ARBITRATION): Here is another important decision regarding the scope of an arbitration clause. The Third Circuit was faced with the issue of whether a class action waiver is enforceable. Based on the decision by the Third Circuit, the issue has yet to be fully decided and it depends on the language in the arbitration agreement. For those entitles wishing to have the arbitration panel decide the issue, the language in the agreement should be explicit to avoid any interpretation to the contrary.

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About this Author

Jeffrey L. Kingsley, Goldberg Segalla, Insurance attorney

Jeffrey Kingsley maintains an international practice that focuses on matters involving insurance and reinsurance coverage, commercial and regulatory issues, and extra-contractual liability arbitration and litigation. As a leader in Goldberg Segalla’s reinsurance practice he has extensive experience handling and consulting clients on complex reinsurance allocation issues, regulatory issues, arbitrations, transactional issues, and disputes involving the follow-the-fortunes doctrine.

Jeff provides comprehensive legal representation for Fortune 500 companies, insurers,...

Thomas F. Segalla, Insurance Attorney, Goldberg Segalla Law Firm

Thomas F. Segalla, is the co-author of the renowned insurance law treatise Couch on Insurance 3d and is one of the founding partners of the firm.  Mr. Segalla is a nationally recognized reinsurance and insurance expert who has been retained by numerous insurance carriers and policyholders.  His active practice focuses on the defense and insurance coverage aspects of matters involving bad faith; construction site personal injury accidents (Labor Law §§ 200, 240(1) and 241(6)); and toxic tort and environmental issues. As a member of the Defense Research Institute (DRI), he is the Past Chair of the Insurance Law Committee and served on the Board of Directors and is the past Chair of the Law Institute. In addition, as a member of the Federation of Defense and Corporate Counsel, he is integrally involved in the relationship between the Insurance Industry and defense counsel. He has published and lectured extensively for many professional organizations.  Mr. Segalla possesses an AV rating from Martindale-Hubbell and has been named to the Top 50 of the New York Super Lawyers.