Arbitration, Class Action Waivers, Class Arbitration, U.S. Supreme Court

Who Determines if Class Arbitration is Available? Why it Matters and Will the Supreme Court Decide

SONY DSCIn the wake of several favorable U.S. Supreme Court decisions, companies increasingly are using arbitration agreements to control their exposure to class action liability.  Although recent cases have reinforced the power of arbitration agreements, companies must tread carefully when crafting their arbitration contracts and related class waivers.  In conjunction with giving force to arbitration agreements, the Federal Arbitration Act (“FAA”) limits the federal courts’ ability to review and reverse arbitrator decisions construing those agreements.  The Supreme Court’s Oxford Health decision warned that if companies grant an arbitrator the power to decide whether class arbitration is available, the “arbitrator’s construction holds, however good, bad, or ugly.”  In that case, the defendant company was stuck facing class arbitration based on the arbitrator’s interpretation of the agreement.  The Supreme Court recently was asked to answer the next burning question in the quest to delineate class arbitration jurisprudence:  if the arbitration agreement is silent with respect to the availability of class arbitration, who has the authority to decide if it is available when the parties have not clearly delegated the responsibility to the arbitrator?

The Supreme Court seemingly invited this question in Oxford Health, noting that it had not yet determined whether the availability of class arbitration is a “gateway” question of substantive arbitrability that must be decided by the courts or whether it is the type of procedural question that should rest in the hands of arbitrators.  Earlier this year, however, the High Court denied a request to review the Sixth Circuit’s Reed Elsevier decision, which held that the authority to decide the availability of class arbitration rests with the courts.  At the end of November, the Supreme Court was presented with another opportunity to provide the clarity that lower courts and parties seek.  Plaintiffs filed a petition seeking review of the Third Circuit’s Opalinski decision, which similarly held that courts have the authority to decide the availability of class arbitration. The petitioners argued that stripping arbitrators of the power to decide the availability of class arbitration contradicts the Third Circuit’s own precedent, as well as decisions of the First, Second, Seventh and Eleventh Circuits.  The petitioners did indicate that the other Circuit Court decisions they cite either implicitly held the question is to be decided by arbitrators or they were decided in contexts other than (but similar to) class arbitration.  The Third and Sixth Circuit decisions were based, in part, on the Supreme Court’s recent discussions regarding the fundamental differences between individual and class arbitration.

Whether the High Court passes on the opportunity to clarify this issue again remains to be seen, but the answer is not inconsequential – if the decision is made by an arbitrator, Oxford Health makes clear that there will be little to no room for a court to reverse it if the arbitrator gets it wrong.  Even if the authority ultimately rests with the courts, it is critically important that arbitration agreements use precise language.  Silence on the issue is not a guarantee that class procedures will be prohibited, no matter who makes the decision.  If a company wishes to avoid class actions and class arbitrations, its arbitration clauses should contain class waivers and explicitly preclude class arbitration.  Given the limited opportunity for review of an arbitrator’s decision, companies that already are in the throes of arbitration with an agreement that is silent on the class issue should take caution in deciding whether to agree to allow the arbitrator to decide if class arbitration is permissible.

Tony Lathrop

About Tony Lathrop

Tony Lathrop brings experience and a high level of analytical ability, professional credibility and creativity to handling litigation matters. He rigorously represents his clients' interests in a diverse range of claims and actions. A certified mediator, Mr. Lathrop has extensive experience representing business clients in mediation. His service to the legal profession in North Carolina has allowed him to develop relationships across the state that benefit the firm's clients.

Leave a comment

Your email address will not be published. Required fields are marked *

Spam Protection by WP-SpamFree

Welcome to the MVA Litigation Blog!

In an increasingly globalized and regulated business environment, companies are faced with ever-changing and complicated litigation and regulatory challenges. The Moore & Van Allen Litigation Blog provides cutting-edge information regarding developments in federal, North Carolina State, and international litigation, as well as in arbitration, regulatory enforcement, and related business practices.

Connect to Recent Authors

  • Tony Lathrop:  View Tony Lathrop's Bio View Tony Lathrop's LinkedIn profileFollow @TonyLathropLaw on Twitter
  • Subscribe to Blog Via Email

    Follow MVA


    Blog Topics


    Our Litigation Practice

    Headquartered in the banking and energy hub of Charlotte, North Carolina, Moore & Van Allen has assembled a team of litigators with the intellectual acuity, knowledge of complex commercial transactions, and breadth of experience necessary to successfully serve our clients in all aspects of sophisticated business litigation and white collar criminal defense.

    Guided by trial lawyers with years of substantial state, federal, and international experience, our team addresses the diverse challenges facing our clients, ranging from general commercial litigation and matters involving employment, antitrust, trust & estate, securities or corporate governance issues, to class actions, regulatory enforcement proceedings, and government & internal investigations.

    We represent large Fortune 500® corporations, as well as start-ups, in banking, securities, healthcare, manufacturing, construction, energy, and other industries. We work closely with our clients to develop strategies to meet their business needs, whether that includes taking a case to trial or appeal, arbitrating a case or finding an alternative means of resolution. Read More About Our Practice and Meet the MVA Litigation Team.


    No Attorney-Client Relationship Created by Use of this Website: Neither your receipt of information from this website, nor your use of this website to contact Moore & Van Allen or one of its attorneys creates an attorney-client relationship between you and Moore & Van Allen. As a matter of policy, Moore & Van Allen does not accept a new client without first investigating for possible conflicts of interests and obtaining a signed engagement letter. (Moore & Van Allen may, for example, already represent another party involved in your matter.) Accordingly, you should not use this website to provide confidential information about a legal matter of yours to Moore & Van Allen.

    No Legal Advice Intended: This website includes information about legal issues and legal developments. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. You should contact an attorney for advice on specific legal problems. (Read All)