For the second time in as many months, the Eleventh Circuit addressed the question of who—a court or an arbitrator—decides whether an arbitration agreement allows for class arbitration. The court faced this question just last month in Spirit Airlines, Inc. v. Maizes, 899 F.3d 1230 (11th Cir. 2018), but its more recent decision in JPay, Inc. v. Kobel, 2018 WL 4472207 (11th Cir. Sept. 19, 2018), goes further to decide what it terms a “matter of first impression” “that has been expressly left open by the Supreme Court”: Is the availability of class arbitration a “question of arbitrability” that is presumptively for a court to decide?
The court in JPay concluded that it is and that the question of class-arbitration availability therefore can be delegated to an arbitrator only if the terms of the parties’ contract evince a “clear and unmistakable intent” to do so. In a portion of the decision that drew a dissent from the visiting member of the panel, the court also held that such intent can be found in language delegating questions of arbitrability generally; the agreement need not specifically refer to delegation of the class-arbitration question.
In JPay, two individuals filed a demand for arbitration with the American Arbitration Association (AAA) against JPay, a company that provides money-transfer and other services to prisoners. JPay then filed an action in state court seeking declaratory relief, a stay of the class arbitration proceedings, and to compel individual (“bilateral”) arbitration under the arbitration agreement contained in JPay’s terms of service. The individuals removed the case to federal court under the Class Action Fairness Act (CAFA), and the district court eventually granted summary judgment to JPay. The district court concluded that the availability of class arbitration was a “question of arbitrability” presumptively for the court and that JPay’s arbitration agreement did not evince a clear and unmistakable intent to overcome that presumption, leaving it for the court to decide, which it did in JPay’s favor.
On appeal, the Eleventh Circuit agreed with the first part of the district court’s decision—that class arbitrability is presumptively a question for the court—but it disagreed on the reading of the arbitration agreement at issue, concluding that the agreement did delegate that question to the arbitrator. The court therefore vacated the judgment and remanded the case so that an arbitrator could decide whether the parties’ agreement allows for class arbitration.
The court first reviewed the various standards and presumptions governing interpretation of arbitration agreements laid out by the Supreme Court and the Federal Arbitration Act (FAA). Generally, courts must resolve “any doubts concerning the scope of arbitrable issues” in favor of arbitration. Slip Op. at 8 (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). As the court explained, however, “this presumption is reversed [] when the contract presents ambiguity on the assignment of a ‘question of arbitrability’ — when it is unclear ‘whether a party has agreed that arbitrators should decide arbitrability.” Id. at 9 (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). Courts therefore require “clear and unmistakable evidence” of an intent to arbitrate arbitrability before delegating such questions to an arbitrator. Id. at 10 (quoting First Options, 514 U.S. at 944).
In concluding that the availability of class arbitration is a “question of arbitrability,” the court noted that such questions “are better understood as substantive questions, rather than ‘procedural’ issues ‘which grow out of the dispute and bear on its final disposition.’” Id. at 12 (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)). Procedural gateway questions include, for example, “whether the parties have fulfilled ‘prerequisites to arbitration,’ like time limits or notice requirements, as well as defenses like waiver and delay.” Id. (quoting Howsam, 537 U.S. at 84–85). Because parties to an arbitration agreement implicitly have agreed to arbitrate such “procedural” gateway questions, these questions are presumptively for an arbitrator to decide. There are, however, two categories of substantive gateway questions, laid out in Howsam, that presumptively should be decided by a court: (1) “whether the parties are bound by a given arbitration clause” and (2) “whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.” 537 U.S. at 84.
The availability of class arbitration fits into the second category. Given their fundamental differences, class arbitration is a different “type” of proceeding than bilateral arbitration. It should therefore be assumed (absent language to the contrary) that the parties intended for a court to decide whether this type of proceeding is available. This conclusion, the court determined, is further supported by the Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S.662 (2010), which highlighted the differences between class and individual arbitration. The court also noted that its conclusion is consistent with those of the Third, Fourth, Sixth, and Eighth Circuits (but inconsistent with the Fifth Circuit’s precedent).
In the end, however, it turns out that the court did not need to decide this “matter of first impression” at all, because JPay’s arbitration agreement, the court concluded, expressly delegated questions of arbitrability to the arbitrator. The court found such intent expressed in the agreement’s references to the AAA rules generally and to the AAA rules governing consumer-related disputes and its commercial-arbitration rules specifically, both of which state that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement.” Based on the court’s prior precedent, including the recent Spirit Airlines decision, these references alone were enough to delegate questions of arbitrability. There is no requirement, the court noted, that the incorporated AAA rules address the “particular question of arbitrability” at issue (here, class arbitrability).
Even absent the reference to the AAA rules, the agreement itself stated that “[t]he ability to arbitrate the dispute, claim or controversy shall likewise be determined in the arbitration” and further notes “the foregoing Agreement of the parties to arbitrate any and all such disputes.” Slip Op. at 31 (emphasis added in JPay). The court rejected the argument that an arbitration agreement delegating questions of arbitrability nonetheless does not delegate the question of class arbitrability when written using “bilateral terminology.” Overall, “the breadth of the delegation achieved by the language found in this agreement is as extensive as possible.”
The court also rejected JPay’s reliance on cases from other circuits narrowly interpreting contract language to find no delegation of the class-arbitration question. Not only are those cases contrary to Circuit precedent, but they conflate the question of whether class arbitration is available with the question of who decides that question.
U.S. District Judge James L. Graham, sitting by designation, dissented as to the second part of the court’s decision. While he agreed that the availability of class arbitration is a question of arbitrability presumptively for the court, he disagreed as to how “clear and unmistakable” an agreement to delegate the question must be. Unlike the majority, he would conclude that “a general delegation to arbitrate issues of arbitrability is not enough and that without a specific reference to class arbitration the court should presume that the parties did not intend to delegate to an arbitrator an issue of such great consequence.”
The questions addressed in JPay are related to, but distinct from, the issue currently pending before the Supreme Court in Lamps Plus, Inc. v. Valera, 138 S. Ct. 1697 (Apr. 30, 2018) (No. 17-988). In Lamps Plus, the Court granted certiorari on the issue of “[w]hether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.” That is, Lamps Plus deals with the standards for determining whether class arbitration is available, not who decides that question. But the conflicting decisions coming from the circuit courts on these related issues could soon prompt direction from the Supreme Court.