The Question
A decision allowing class-wide arbitration can transform a routine dispute into a “bet the company” problem. Who makes that decision: an arbitrator or a court?
The Fourth Circuit Court of Appeals answered that question in Dell Webb Communities, Inc. v. Carlson (March 28, 2016). 1
The Answer
Courts – not arbitrators – decide whether class arbitration is available, unless the parties “clearly and unmistakably” agree otherwise.
What It Means
The decision in Dell Webb brings the Fourth Circuit in line with the Third and Sixth Circuits and has real, practical implications:
First, Dell Webb confirms that companies can challenge the availability of class arbitration in court, with access both to a growing body of cases denying class arbitration and to meaningful appeal rights.
Second, this decision is another reminder of the need to maintain up to date arbitration agreements. A decision on class arbitrability is equivalent to a decision on class certification. To ensure that these important decisions are made by courts, where an appeal is available, companies should make clear in their arbitration agreements that they do not agree to class wide arbitration, and do not agree to delegate that issue to the arbitrators.
Third, this may foretell a decision on a related important question: If an arbitration agreement incorporates the American Arbitration Association Rules, which themselves delegate deciding class arbitrability to the arbitrator, is that sufficient to show that the parties intended for an arbitrator to decide this issue? In the Third Circuit, it is not. See Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, et al., No. 15-1275 (3d Cir. Jan. 5, 2016) (court must decide availability of class arbitration notwithstanding the parties’ incorporation of the AAA Rules into their arbitration agreement). The Fourth Circuit did not address this in Dell Webb, but the district court may confront it on remand. Because the AAA Rules are so commonly incorporated into arbitration provisions, this is an issue worth watching, and also one that should be specifically addressed when drafting an arbitration agreement, as noted above.
1 “Dell Webb Communities, Inc.” is misspelled in the opinion, and should be “Del Webb Communities, Inc.”
