We opined on several occasions that cases dealing with a party’s entitlement to class or collective arbitration were a dying breed because of the increased use of class action waivers. And we have been proven wrong by several subsequent decisions. (See our November 11, 2013, March 12, 2015 and September 9, 2015 blog articles dealing with “gateway issues” and class arbitration.) Recently, the Fifth Circuit was confronted with the question in Neffertiti Robinson v. J&K Administrative Management Services, Incorporated, Case No. 15-10360 (5th Cir. Mar. 17, 2016), a case alleging unpaid overtime wages under the Fair Labor Standards Act (FLSA).
Based on the breadth of the contract language, the appellate court concluded there was “unambiguous evidence” of the parties’ intention to submit arbitrability disputes – including disputes over whether class or collective arbitration is available – to the arbitrator.
The Robinson case arose from J&K Administrative Management Services, Inc.’s (“J&K”), entry into arbitration agreements with its employees covering, among other things, “claims for wages or other compensation.” After several unsuccessful attempts to arbitrate collective claims for unpaid overtime under the FLSA, Neffertiti Robinson, a former employee of J&K, filed a complaint and motion to compel arbitration of her claims, appoint JAMS as the arbitrator, and permit the arbitrator to decide if collective arbitration was permitted by the agreement.
Ultimately the district court found, based on Pedcor Management Co. Inc. Welfare Benefit Plan v. Nations Personnel of Texas, Inc., 343 F.3d 355 (5th Cir. 2003), that whether class arbitration was permissible should be decided by the arbitrator.
On appeal, the Fifth Circuit recognized that “gateway disputes” in arbitration cases generally are for the court and that procedural questions are for the arbitrator. However, the court recognized that gateway issues may be subject to arbitration when the agreement “clearly and unmistakably” provides for it, citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002).
J&K argued on appeal that Stolt-Nielson S.A. v. Animalfeeds International Corp., 559 U.S. 662 (2010), abrogated the Circuit’s Pedcor Management decision. First, because Pedcor Management improperly concluded that the “majority” in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 451-53 (2003), required the arbitrator to decide the issue of class arbitration, it was not a proper basis for a decision on the issue. While admitting that Green Tree was not a majority decision and Pedcor Management was “not accurate” on that issue, the Fifth Circuit still concluded it should not be set aside. This was because the majority in Stolt-Nielson never decided whether a court or arbitrator should decide the question of class arbitration when the contract was “silent” on the issue.
J&K’s second argument, that Stolt-Nielson “enunciated a national policy against class arbitration that precludes arbitrators from determining the arbitrability of class or collective procedures,” also failed to persuade the appellate court. The Fifth Circuit found that Stolt-Neilson concluded Green Tree was inapplicable because the majority answered only who decides whether class arbitration is available, not the standard for deciding if it is permissible. So, Stolt-Neilson held, “A party may not be compelled to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” Id. at 684. But the appellate court emphasized that Stolt-Nielsen did not overrule prior Supreme Court and Fifth Circuit opinions, finding that questions of arbitrability, including the option of class or collective procedures, could be “deferred to arbitration by agreement.” Hence, the Pedcor Management decision still bound the court. Next, the court applied the Pedcor Management standards to the language of the agreement at issue. Section (g) of the arbitration agreement assigned “claims challenging the validity or enforceability of this Agreement (in whole or in part) or challenging the applicability of the Agreement to a particular dispute or claims” to arbitration. J&K argued that because Section (g) didn’t mention class arbitration it could not authorize deferral to an arbitrator. But, the court found the dispositive issue was who decides if the agreement permits aggregate procedures not whether they were available.
The Fifth Circuit recognized that similar language in both Green Tree and Pedcor Management was found sufficient for deferral to the arbitrator. See 539 U.S. at 448 and 343 F.3d at 359. Consequently, the court concluded that Section (g) of the J&K agreement was “unambiguous evidence of the parties’ intention to submit arbitrability disputes to arbitration” and that it was properly ordered.
The Robinson opinion illustrates that broad agreement language can cause a class or collective arbitration authorization issue to be sent to an arbitrator, even when the agreement is “silent” on those procedures. And, more importantly, it demonstrates that companies must periodically review their arbitration agreements to ensure that they are in keeping with legal developments impacting arbitration and contain appropriate class, collective, and aggregate action waivers to avoid these disputes in the first place.