Opinion ID: 4563969
Heading Depth: 2
Heading Rank: 2

Heading: The Availability of Class Arbitration

Text: Plaintiffs brought this suit as a putative class action against Defendants involving “hundreds if not thousands” of class members. The district court, however, ordered individual arbitration. We must determine next (1) whether the availability of class arbitration is a “gateway question” that a court must presumptively decide and, if so, (2) whether the parties nevertheless clearly and unmistakably delegated the issue to the arbitrator, and (3) if not, whether the Agreements permit class arbitration. We address each issue in turn. A. The Availability of Class Arbitration is a Gateway Issue for a Court to Presumptively Decide The Supreme Court has distinguished between two categories of issues, each of which has a different presumption as to whether a court or an arbitrator should decide them. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002); Martin v. Yasuda, 829 F.3d 1118, 1122–23 (9th Cir. 2016). In the first category of issues are “potentially dispositive gateway question[s] . . . of arbitrability” that “contracting parties would likely have expected a court to . . . decide[].” Howsam, 537 U.S. at 83 (internal quotation marks omitted). “This category includes issues . . . such as ‘whether the parties are bound by a given arbitration clause’ or whether ‘an arbitration clause in a concededly binding contract applies to a particular type of 24 SHIVKOV V. ARTEX RISK SOLUTIONS controversy.’” Martin, 829 F.3d at 1123 (quoting Howsam, 537 U.S. at 84). “These disputes are ‘for judicial determination unless the parties clearly and unmistakably provide otherwise.’” Id. (quoting Howsam, 537 U.S. at 83). The second category encompasses “procedural” issues, which are “presumptively not for the judge, but for an arbitrator, to decide.” Id. (quoting Howsam, 537 U.S. at 84). Examples of issues in this category are whether a party has satisfied the arbitral forum’s statute of limitations for filing a case, whether a party has satisfied certain requirements of a procedural grievance, and “allegation[s] of waiver, delay, or a like defense to arbitrability.” Howsam, 537 U.S. at 84– 85 (quoting Moses H. Cone, 460 U.S. at 25). The Supreme Court has not had occasion to decide whether the availability of class arbitration is a gateway issue for a court to decide pursuant to this framework. See Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1417 n.4 (2019) (not deciding the question because the parties agreed that the issue was one for the court to decide); Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 n.2 (2013) (not deciding the question because the parties agreed that the issue was one for the arbitrator to decide); Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 680 (2010) (not deciding the question because the parties entered into a supplemental agreement that expressly assigned the issue of the availability of class arbitration to the arbitration panel). Seven of our sister circuit courts, however, have concluded that the availability of class arbitration is a gateway question for a court to presumptively decide. 11 See 11 The Second and Tenth Circuits have assumed without deciding that the availability of class arbitration is a gateway issue that is presumptively for a court to decide. See Dish Network, L.L.C. v Ray, SHIVKOV V. ARTEX RISK SOLUTIONS 25 20/20 Commc’ns, Inc. v. Crawford, 930 F.3d 715, 718–19 (5th Cir. 2019); Herrington v. Waterstone Mortg. Corp., 907 F.3d 502, 506–07 (7th Cir. 2018); JPay, Inc. v. Kobel, 904 F.3d 923, 935–36 (11th Cir. 2018); Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966, 972 (8th Cir. 2017); Del Webb Cmtys., Inc. v. Carlson, 817 F.3d 867, 873 (4th Cir. 2016); Opalinski v. Robert Half Int’l Inc., 761 F.3d 326, 334–35 (3d Cir. 2014); Reed Elsevier, Inc. v. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 598–99 (6th Cir. 2013). We have also concluded that the availability of class arbitration is a gateway issue in an unpublished and nonprecedential memorandum disposition. See Eshagh v. Terminix Int’l Co., 588 F. App’x 703, 704 (9th Cir. 2014). Faced with whether class arbitration is a gateway question here, we see no reason to create an unnecessary circuit split, or to depart from what we have already suggested. We find persuasive the three reasons that the Seventh Circuit has succinctly identified for why class arbitration is a gateway issue. See Herrington, 907 F.3d at 507–08. The first and second reasons assimilate the issue of class arbitration into what we have already recognized are gateway issues presumptively for a court to decide: “(1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (citing Howsam, 537 U.S. at 84). The third reason concerns 900 F.3d 1240, 1245 (10th Cir. 2018) (acknowledging the consensus among “many circuits” but assuming the issue and concluding that the parties clearly and unmistakably delegated the issue to an arbitrator); Wells Fargo Advisors, L.L.C. v. Sappington, 884 F.3d 392, 395 (2d Cir. 2018) (same). 26 SHIVKOV V. ARTEX RISK SOLUTIONS the Supreme Court’s treatment of class arbitration. We briefly consider each of these reasons. The Seventh Circuit has explained first that “[t]he availability of class . . . arbitration involves a foundational question of arbitrability: whether the potential parties to the arbitration agreed to arbitrate.” Herrington, 907 F.3d at 507. This is the familiar gateway question of whether there is an agreement to arbitrate between the parties. See Brennan, 796 F.3d at 1130. Plaintiffs filed a putative class complaint, seeking to represent “hundreds if not thousands of” possible class members. The availability of class arbitration raises the question whether any of those possible class members have actually agreed to arbitration in the first place as well as the question whether the Agreements show that Artex and Tribeca agreed to arbitrate rather than litigate with those members. Thus, answering this question “resolves the foundational question of ‘with whom’ [Artex and Tribeca] chose to arbitrate.” See Herrington, 907 F.3d at 508 (quoting Stolt-Nielsen, 559 U.S. at 683). Relatedly, the Seventh Circuit has explained that “whether a contract permits class . . . arbitration involves a second . . . question of arbitrability: whether the agreement to arbitrate covers a particular controversy.” Id. This is the familiar gateway question of scope. See Brennan, 796 F.3d at 1130. Notably, the Clause here provides that “[y]ou and we agree that in the event of any dispute that cannot be resolved between the parties,” “such disputes” will be resolved by mediation and arbitration. The availability of class arbitration raises the question whether Artex and Tribeca agreed to arbitrate particular disputes not only with the Plaintiffs, but also with possible class members. Answering this question resolves the question of whether the parties agreed to arbitrate particular disputes. SHIVKOV V. ARTEX RISK SOLUTIONS 27 Third, and “most important[ly],” the Seventh Circuit has explained that class arbitration belongs to the gateway category because “the structural features of class arbitration make it a ‘fundamental’ change from the norm of bilateral arbitration.” Herrington, 907 F.3d at 509 (quoting StoltNielsen, 559 U.S. at 686). The Supreme Court has all but endorsed this reason for treating class arbitration as a gateway issue. According to the Court, class arbitration: (1) “sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment,” Concepcion, 563 U.S. at 348, (2) “requires procedural formality” because “[i]f procedures are too informal, absent class members would not be bound by the arbitration,” id. at 349, and (3) “greatly increases risks to defendants,” id. at 350. In short, “class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.” StoltNielsen, 559 U.S. at 685. As seven circuits have recognized, the Court’s discussion of class arbitration is a weighty thumb on the scale in favor of treating class arbitration as a gateway issue for a court to presumptively decide. See 20/20 Commc’ns, 930 F.3d at 719; Herrington, 907 F.3d at 509; JPay, 904 F.3d at 933–34; Catamaran Corp., 864 F.3d at 971–72; Del Webb Cmtys., 817 F.3d at 875–76; Opalinski, 761 F.3d at 333–34; Reed Elsevier, 734 F.3d at 598. We are not persuaded by Plaintiffs’ arguments for why we should not treat the availability of class arbitration as a gateway issue for a court. Plaintiffs rely on a concurrence that is concededly not the law of any circuit. See Dish Network, L.L.C., 900 F.3d at 1252–57 (Tymkovich, C.J., concurring). That concurrence criticizes the third reason we have identified as nothing more than “Supreme Court dicta 28 SHIVKOV V. ARTEX RISK SOLUTIONS and good policy.” Id. at 1255. But when the Court speaks, we should take notice. See Zal v. Steppe, 968 F.2d 924, 935 (9th Cir. 1992), as amended (July 31, 1992) (Noonan, J., concurring in the result in part and dissenting in part) (“[D]icta of the Supreme Court have a weight that is greater than ordinary judicial dicta as prophecy of what that Court might hold. We should not blandly shrug them off because they were not a holding.”). As we have explained, the Supreme Court has repeatedly underscored why class arbitration is different and thus should be treated differently. See Stolt-Nielsen, 559 U.S. at 685; Concepcion, 563 U.S. at 348–50. Naturally, seven circuits have taken notice, and so do we. Plaintiffs also argue that class arbitration is a procedural issue for an arbitrator to decide in light of the Court’s passing references to class actions as “procedures” in Epic Systems, 138 S. Ct. at 1624–25, and the fact that the Federal Rules of Civil Procedure treat class actions as procedural. We are not persuaded. As the Seventh Circuit has observed, Epic Systems did not decide whether class arbitration is a gateway question, see Herrington, 907 F.3d at 506, and thus that decision is not of any help. More fundamentally, that a class action is a “classically” procedural mechanism in federal court under Federal Rule of Civil Procedure 23, Dish Network, L.L.C., 900 F.3d at 1254 (Tymkovich, C.J., concurring), is of no moment here. In the arbitration context, we are concerned with whether the parties to the requested arbitration have agreed to that particular dispute resolution, and, if so, what the scope of that agreement is. See StoltNielsen, 559 U.S. at 687 (underscoring “the consensual basis of arbitration”). Therefore, the relevant metric is not the labeling of a particular mechanism in federal court as “procedural”, but rather the categories of gateway issues in reviewing an arbitration agreement that the Court has SHIVKOV V. ARTEX RISK SOLUTIONS 29 instructed determine whether an issue is presumptively for a court or an arbitrator to decide absent further agreement by the parties. See Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 69 (2010) (describing gateway questions for a court as issues “such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy” (emphasis added)). We have already explained how the question of the availability of class arbitration interlocks with gateway issues that a court must presumptively decide. Plaintiffs offer no persuasive reason for why we should nevertheless treat class arbitration as akin to the exemplary questions for an arbitrator to presumptively decide, nor do we see one that would warrant a circuit split. See Howsam, 537 U.S. at 85 (identifying as “procedural” questions presumptively for an arbitrator as “whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met”); see also Global Linguist Solutions, LLC v. Abdelmeged, 913 F.3d 921, 923 (9th Cir. 2019) (reaching result partly to avoid an unnecessary circuit split). Thus, we conclude that class arbitration is a gateway issue for a court to presumptively decide. B. The Parties Did Not Clearly and Unmistakably Delegate the Issue of Class Arbitration to the Arbitrator Having resolved that class arbitration is a gateway issue, Plaintiffs tell us that the Clause evidences a clear and unmistakable intent to delegate the issue to the arbitrator as follows: (1) the Clause refers to the AAA (i.e., the American Arbitration Association), (2) which renders the AAA Rules applicable, (3) which in turn encompass the AAA’s Supplementary Rules, (4) which include Supplementary 30 SHIVKOV V. ARTEX RISK SOLUTIONS Rule 3’s instruction that “the arbitrator shall determine as a threshold matter . . . whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class,” and (5) thus the parties delegated the issue of class arbitration to the arbitrator. Plaintiffs’ argument touches on a circuit split on whether incorporation of the AAA Rules is sufficient evidence that the parties clearly and unmistakably delegated the issue of class arbitration to the arbitrator. Compare Catamaran Corp., 864 F.3d at 973 (concluding that an arbitration agreement’s incorporation of the AAA Rules without specific reference to class arbitration is insufficient); Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 761 (3d Cir. 2016) (same), cert. denied, 137 S. Ct. 40 (2016), Reed Elsevier, 734 F.3d at 599 (concluding that a clause which incorporated the AAA Rules “does not clearly and unmistakably assign to an arbitrator the question whether the agreement permits classwide arbitration”), with JPay, 904 F.3d at 936–42 (reasoning that incorporation of the AAA Rules is sufficient and explaining disagreement with Third, Sixth, and Eighth Circuits). We need not take sides in this circuit split here because Plaintiffs fail to clear a threshold hurdle. The crux of Plaintiffs’ argument is our decision in Brennan v. Opus Bank. The arbitration clause there provided that “any controversy or claim arising out of this [Employment] Agreement or [Brennan’s] employment with the Bank or the termination thereof . . . shall be settled by binding arbitration in accordance with the Rules of the American Arbitration Association.” 796 F.3d at 1128 (alterations in original; emphasis added). We concluded that, at least in a contract between sophisticated parties, “incorporation of the AAA Rules constitutes clear and unmistakable evidence that SHIVKOV V. ARTEX RISK SOLUTIONS 31 contracting parties agreed to arbitrate arbitrability.” Id. at 1130 (internal quotation marks omitted; emphasis added). Thus, we sided with “‘[v]irtually every circuit to have considered the issue.’” Id. (first alteration in original; quoting Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1074 (9th Cir. 2013)). Unlike the arbitration clause in Brennan, the Clause does not incorporate the AAA Rules, and thus Brennan does not apply. Unable to identify a textual reference to the AAA Rules, Plaintiffs nonetheless contend that the “obvious and unavoidable implication of an agreement to arbitrate before the AAA is an agreement to submit to the AAA’s arbitration rules.” But we have never held that a mere reference to the AAA shows clear and unmistakable intent to delegate a gateway issue to an arbitrator, and Plaintiffs identify no authority from any sister circuit holding as much. Even if we thought the “obvious and unavoidable implication” of a reference to the AAA is consent to the AAA Rules when a clause refers only to the AAA, the Clause here does not do so. The Clause provides first for mediation, second for arbitration by an arbitrator selected by the parties, and, only if the parties cannot agree on an arbitrator, arbitration before the AAA. We cannot find clear and unmistakable evidence that the parties intended to delegate the gateway issue of class arbitration to the arbitrator by virtue of the AAA Rules when arbitration before the AAA is but the final option in the dispute procedure that the Clause outlines. 12 12 Plaintiffs contend that only the non-AAA portions of the Clause are an unenforceable bare agreement to agree and thus the AAA is the default option. The FAA and Arizona’s Revised Uniform Arbitration Act, however, both permit enforcement of an agreement regarding the method of naming or appointing an arbitrator. See 9 U.S.C. § 5; Ariz. Rev. Stat. § 12-1503. 32 SHIVKOV V. ARTEX RISK SOLUTIONS In light of the Clause here, Plaintiffs’ reliance on Belnap v. Iasis Healthcare, 844 F.3d 1272 (10th Cir. 2017), is misplaced. The arbitration clause there provided that “[t]he arbitration shall be administered by JAMS and conducted in accordance with its Streamlined Arbitration Rules and Procedures (the “Rules”), except as provided otherwise herein.” Id. at 1276. Rejecting the plaintiff’s argument that the agreement left open the rules that would govern arbitration because the parties could choose another dispute resolution service, the Tenth Circuit explained that “[t]he plain language of the Agreement establishes the JAMS Rules as the default controlling rubric.” Id. at 1282. The Clause here, however, neither refers to the AAA Rules, nor does it establish those Rules as the “default controlling rubric.” See id. Although the Clause provides for the possibility that arbitration may occur before the AAA if the parties cannot agree on an arbitrator, “such a possibility is not enough for us to say that” the AAA Rules are the Clause’s “ordinary controlling standard.” See id. Because Plaintiffs do not claim that any other provision demonstrates a clear and unmistakable intent to delegate the availability of class arbitration to the arbitrator, we conclude that the availability of class arbitration remains a gateway issue. C. The Agreements Do Not Permit Class Arbitration The final issue that we must decide on class arbitration is straightforward. “Neither silence nor ambiguity provides a sufficient basis for concluding that parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself,” Lamps Plus, 139 S. Ct. at 1417, namely, “the individualized form of arbitration envisioned by the FAA,” id. at 1416. As the district court concluded, because the Agreements are silent on class arbitration, they do not SHIVKOV V. ARTEX RISK SOLUTIONS 33 permit it. Thus, the court properly compelled individual arbitration pursuant to the Agreements.