Who resolves class arbitrability?

• Author: Reif, David

This article originally appeared in the July 2014 Alternative Dispute Resolution Committee newsletter.

THE United States Supreme Court's 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., (1) reaffirmed the principle that the parties' intention governs the determination of whether an arbitration should proceed on a classwide basis. Left open in Stolt-Nielsen, however, was the issue of whether the court or the arbitrator would determine that intent. Arbitration practitioners and litigators were looking forward to the Court resolving that issue by way of its decision in Oxford Health Plans, LLC v. Sutter. (2)

The Sutter decision left those expectations unsatisfied. Based on the record before the Court, Justice Kagan, writing for a majority bench, (3) held that, as the parties had stipulated that the arbitrator would determine whether there was an intention to allow class arbitration, the court would review his determination that the case should proceed as a class under the limited scope of review permitted by Section 10(a)(4) of the Federal Arbitration Act. (4) Applying that limited review, the Court affirmed the lower court's denial of an application to vacate the decision, finding that there was no fraud or other defense which would have required the court to set aside the award. Interestingly, the majority opinion states that, faced with the question of class arbitrability ab initio, the court might very well have differed from the conclusion of the arbitrator. "Nothing we say in this opinion should be taken to reflect any agreement with the arbitrator's contract interpretation, or any quarrel with Oxford's contrary reading. ... The potential for those mistakes is the price of agreeing to arbitration.... [The arbitrator's] interpretation went against Oxford, maybe mistakenly so." (5)

The issue which many had hoped the Supreme Court would resolve--who decides class status--was relegated to a footnote and left for another day. In footnote 2, the Court raised the issue of who makes the decision, but moved no further toward its resolution. While Justice Kagan describes "questions of arbitrability" as being "presumptively for courts to decide," she does not address whether class arbitrability is such a "question." "Stolt-Nielsen made clear that this Court has not yet decided whether the availability of class arbitration is a question of arbitrability. See 559 U.S. at 680. But this case gives us no opportunity to do so because Oxford agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures." (6)

Given the outcome in Sutter, this article will take a look at how some of the lower courts have resolved the issue in the absence of guidance from above.

As the lower court cases consistently rely upon or, at least, discuss the Supreme Court's decision in Green Tree Fin. Corp. v. Bazzle, (7) some preliminary understanding of that case is necessary. Bazzle was an appeal from the South Carolina Supreme Court, which had held that an arbitration clause which was silent as to the availability of a class-wide proceeding could be interpreted under South Carolina substantive law as permitting class certification. The lineup of the opinions in Bazzle made for a very confusing array of potential holdings. The plurality of the Court, in an opinion by Justice Breyer, joined by Justices Scalia, Souter and Ginsburg, very specifically held that the question of whether the arbitration agreement forbids class certification is for the arbitrator to decide, (8) and that the courts below erred in making that determination. They considered the appropriate remedy to be the vacating of the judgment below and a remand for further proceedings. Chief Justice Rehnquist and Justices O'Connor and Kennedy dissented and would have held that the decision of whether a matter may proceed as a class arbitration is "one for the courts, not for the arbitrator...." (9) They also would have held that the Federal Arbitration Act, not South Carolina substantive law, governed the dispute and that, under that federal law, the South Carolina Supreme Court wrongly interpreted the agreement. As a remedy, they would have reversed the decision below. (10)

Justice Thomas, in a separate dissent, held that he would have affirmed, as, contrary to the Chief Justice's opinion, he did not believe that the FAA governed proceedings in state court. Justice Thomas did not address at all the question of whether class arbitrability was a determination to be made by the arbitrator or the court. (11) Therefore, absent the opinion from Justice Stevens, the Court lined up as follows: four Justices to vacate and remand; three Justices to reverse; and one Justice to affirm.

Justice Stevens, in a three paragraph concurring opinion, stated that, while he would have affirmed, that would have left the court with no controlling judgment. Therefore, "because Justice Breyer's opinion expresses a view of the case close to my own ...," he concurred in the judgment. (12) Accordingly, with four Justices in the plurality and Justice Stevens joining in the judgment, the case was simply remanded to the court below. (13)

On the issue addressed in this article whether the court decides if an arbitration goes forward on behalf of a class--Justice Stevens stated, rather nondefinitively: "Arguably interpretation of the parties' agreement should have...