Fourth Circuit Holds that Court, Not Arbitrators, Decides Whether Arbitration Agreement Provides for Class Arbitration

Characterizing an unpublished 2007 decision to the contrary as a “thin reed” displaced by later Supreme Court guidance, the Fourth Circuit held that the question of whether an arbitration agreement permits class proceedings is a “gateway” issue for the court, and not a procedural question left to the arbitrator to decide. Del Webb Communities, Inc. v. Carlson, No. 15-1385 (4th Cir. March 28, 2016). The case was filed after a builder – facing numerous construction defect claims and an arbitrator’s decision whether to certify those claims as a class proceeding – filed a petition to compel “bilateral arbitration” under the Federal Arbitration Act. The district court found that the decision whether to conduct class arbitration was a threshold question for the arbitrator. A unanimous Fourth Circuit panel disagreed.

After dealing with some jurisdictional issues – including CAFA jurisdiction and the Rooker-Feldman doctrine – the Court found that, although the Supreme Court had not decided the question, the high court’s adumbrations provided strong guidance on the subject. Writing for the panel, Judge Diaz concluded that a decision concerning “class arbitration” was tantamount to a question concerning arbitrability, which placed the issue squarely within the province of the judiciary under prevailing authority. In Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), the Supreme Court had held that a party cannot be forced to arbitrate on a class-wide basis absent “a contractual basis for concluding that the party agreed to do so.” But the Court didn’t decide in that case who (the Court or the arbitrator) determined whether this “contractual basis” existed. The Fourth Circuit, agreeing with other Circuits on the question, observed that there was a world of difference between assuming the risk of an error in a bilateral arbitration agreement and accepting such a risk in a class arbitration proceeding. The Court viewed this question as tantamount to a decision on the scope of arbitration, which is a question reserved for the court unless the parties have clearly and unmistakably provided to the contrary.

Never mentioned by the Court in its decision is a line of cases holding that when the parties adopt the AAA rules in their contract, they have “clearly and unmistakably” committed the issue of arbitrability to the arbitrator. In Del Webb, the parties had selected the AAA Construction Arbitration Rules, and Rule R-9 of those rules expressly provides that “The 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.” In a recent North Carolina Business Court decision, Judge Bledsoe – citing numerous federal district and circuit court opinions on the subject – held that the adoption of the AAA rules in the parties’ contract “clearly and unmistakably” committed the issue of the arbitrability of a claim to the arbitrator. But Judge Bledsoe’s case did not involve class arbitration, and it is clear that the Fourth Circuit was not about to give final say to an arbitrator concerning certification of a putative class unless every party to the contract had clearly signed off on that proposition.