As we stated previously, the potential impact of whether entitlement to class arbitration is a “gateway issue” will likely diminish with each passing year. (See our March 12, 2015, blog article on the denial of certiorari in Opalinski v. Robert Half International, Inc.) This is because of the increasing number of class action waivers now being placed in arbitration agreements.
Nevertheless, since December 2014, two Ohio appellate courts have decided the issue, holding that when the contract is silent, it is a gateway issue to be decided by the judiciary. First, in Bachrach v. Cornwell Quality Tools Co., 9th Dist. No. 27113, 2014-Ohio-5778, the Ninth Appellate District considered who should decide whether a franchise agreement authorized class arbitration. The trial court had concluded as a matter of law that “an arbitration agreement that is silent as to class versus individual arbitration is a question for the arbitrator, not the court to decide.”
The court of appeals disagreed. Following the Sixth Circuit’s opinion in Reed Elsevier, Inc. v. Crockett, 734 F.3d. 594, 598 (6th Cir. 2013), the Bachrach court held, “[w]hen a contract between parties is silent on who will decide whether a claim may be arbitrated as a class, the issue is one for the courts not the arbitrators to decide.” We discussed the Crockett opinion in our November 11, 2013, blog article.
In June of this year, a second Ohio court of appeals addressed the gateway issue in Shakoor v. VXI Global Solutions, Case No. 14 MA 59, 2015-Ohio-2587. Shakoor arose from a class action complaint alleging that XVI Global Solutions, with call centers in Youngstown, Canton, and Cincinnati, Ohio, violated Ohio wage and hour law by requiring its employees to perform certain computer- and phone system-related work before clocking in.
The appellate court considered two related questions. The first was whether the activity complained of was covered by the arbitration agreement. Both sides, however, agreed that the wage and hour claim was an arbitrable issue. The second issue, the type of arbitration (class or individual) required, was therefore dispositive of the appeal.
The Shakoor court found that the confusion over whether class arbitration was a gateway or subsidiary issue had its genesis in two U.S. Supreme Court decisions – Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-453 (2003) (plurality opinion) and Stolt-Nielsen S.A. v. AnimalFeeds Internatl. Corp., 559 U.S. 662, 687 (2010).
Justice Stevens, in the plurality Bazzle opinion, stated that “arguably the interpretation of the parties’ agreement should have been made in the first instance by the arbitrator.” Bazzle, 539 U.S. at 455. Yet in Stolt-Nielsen S.A., the Supreme Court recognized that Bazzle was only a plurality opinion and did not decide whether class arbitration was a gateway issue because the parties had stipulated that there was no agreement on that issue. 559 U.S. at 687. So the Supreme Court determined that the parties could not be compelled to submit the controversy to class arbitration. Id.
With that foundation, the Shakoor court looked to federal appellate decisions on whether class arbitration is a gateway issue. It found that the Sixth Circuit in Crockett and Third Circuit in Opalinski opinions were in agreement that whether class arbitration was authorized is a gateway issue. Thus, Shakoor declared:
“ . . . we are in agreement with our sister district’s decision in Bachrach, which adopted the Federal Sixth Circuit . . . decision in Crockett that class arbitration is an issue for the judiciary, unless the agreement specifies otherwise.”
This led the Shakoor court to the question of whether the specific language of the contract authorized the arbitrator to determine arbitrability. Judge Carol Ann Robb found that the agreement’s incorporation of the American Arbitration Association (“AAA”) Rules was not enough. Like the Sixth Circuit in Crockett, the Shakoor opinion found that the mere adoption of AAA rules “did not clearly and unmistakably indicate that class arbitration is a question for the arbitrator.” And while the AAA’s Supplemental Rules allow for class arbitration, those rules were mentioned neither in the Crockett agreement nor in the VXI Global Solutions agreement. ¶47.
Hence, the Shakoor case was remanded to the trial court to determine: “Specifically, did the parties agree that arbitration would include class arbitration?” ¶51.
So, whether class arbitration is available under an arbitration agreement still arises in state and federal courts. Indeed, the U.S. District Court for the Eastern District of Michigan in AlexPartners, LLP v. Thompson, No. 2:14-cv-14942, Opinion at Order of September 4, 2015, at 22 has been called upon to decide the issue in the context of a demand for class arbitration of racial discrimination claims filed with the AAA.
While cases questioning the authorization for class arbitration may be diminishing, the Bachrach and Shakoor opinions demonstrate that they can still arise and be hotly contested. The good news is the Ohio appellate courts are now following the Crockett decision when no class action waiver is present.