In a terse but well-reasoned decision, the Eighth Circuit recently affirmed the grant of a motion to compel arbitration and enforced a class action waiver despite arguments that it was unenforceable under Minnesota law. The Appellate panel also considered whether cases sent to arbitration should be stayed rather than dismissed.

In Green v. SuperShuttle International, Inc.pdf, Case No. 10-3310, U.S. Court of Appeals for the Eighth Circuit, (Sept. 6, 2011), Mack Green and the other plaintiffs (collectively “Green”) brought suit, originally in Minnesota state court, raising violations of the Minnesota Fair Labor Standards Act based upon SuperShuttle’s alleged misclassification of its drivers as franchisees rather than employees. The plaintiff drivers sought lost wages, employment benefits and restitution of franchise fees.

After removal, the district court granted SuperShuttle’s motion to compel arbitration and required the drivers to submit their claims to individual arbitration because of class action waivers in their Unit Franchise Agreements. The class action waiver provision of the Franchise Agreements stated:

“Any arbitration suit, action or other legal proceeding shall be conducted and resolved on an individual basis only and not a class-wide, multiple plaintiff, consolidated, or similar basis.”

Green also had argued he was exempt from arbitration under the Federal Arbitration Act (“FAA”) because he is a transportation worker. The FAA (9 U.S.C. § 1) does not apply “to contracts of . . . any . . . class of workers engaged in . . . interstate commerce.” The district court decided it need not determine whether Section 1 of the FAA exempted Green from arbitration because the Unit Franchise Agreement gave the threshold question of arbitrability to the arbitrator. Consequently, the lower court granted SuperShuttle’s motion to compel arbitration but left the question of Green’s FAA exemption as a transportation worker to the arbitrator. The district court then dismissed the federal action without prejudice. (See the September 13, 2010 District Court Opinion.pdf).

On appeal, Green asserted the district court: (1) improperly granted the motion to compel because the drivers were exempt from the FAA; (2) erred in enforcing the class action waiver in the Unit Franchise Agreements because they were invalid under Minnesota law, and (3) improperly dismissed the federal action rather than staying it pending arbitration.

The Eighth Circuit affirmed in part and reversed in part. Citing Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2777 (2010) the appellate court found parties can agree to have arbitrators decide threshold questions of arbitrability. And, the Unit Franchise Agreements incorporated the rules of the American Arbitration Association (AAA) which provide an arbitrator the power to determine his or her jurisdiction over a particular dispute. The Court held by incorporating the AAA Rules the parties agreed to allow the arbitrator to decide if the FAA transportation workers exemption applied. So, the district court properly granted the motion to compel arbitration.

Green also maintained that the district court erred when it directed the drivers to submit their claims individually, since those waivers violated Minnesota law. Alternatively, he argued that the district court should have permitted the arbitrator to resolve the issue of whether the class action waivers were enforceable.

The Eighth Circuit read AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1753 (2011) to mean that the Minnesota law challenge to the class action waiver was preempted by the FAA. (See our related post on the Concepcion decision).

Lastly, the court reviewed Green’s contention that the district court should not have dismissed the action. The district court had relied on a judicially-created exception to the FAA in dismissing the case, because the entire controversy between the parties would be resolved by arbitration. See Jann v. Interplastic Corp., 631 F. Supp. 1161, 1167 (D. Minn. 2009). The Eighth Circuit found “it is not clear all of the contested issues . . . will be resolved by arbitration. The arbitrator may very well determine the transportation worker exemption applies.” Should that occur, the drivers may be prejudiced by the dismissal “because the statute of limitations may run and bar them from refilling complaints in state or federal court.”

In a separate concurring Opinion, Judge Bobby Shepherd examined the approach in other circuits, concluding “the plain language of Section 3 [of the FAA] and the purpose of the FAA require district courts to stay an action pending arbitration upon a parties’ application, and . . . district courts should not be afforded discretion to dismiss the action.”

The Bottom Line: At least some courts are giving full effect to the Supreme Court’s Concepcion Opinion. But, questions about proper FAA procedures, such as when district courts must stay the action, still remain.