|
In a case filed solely for the purpose of challenging a class action waiver, the Fourth Circuit Court of Appeals held that the enforceability of a class action waiver is a procedural question for the arbitrator rather than "a gateway issue" for the court.
In Davis v. ECPI College of Technology, L.C., No. 05-2122, 2007 WL 840506 (4th Cir. Mar. 20, 2007), forty-seven former ECPI students filed an arbitration claim with the American Arbitration Association (AAA), alleging that ECPI was liable for misrepresentation. In filing the claim, the students requested class arbitration.
AAA denied the request for class arbitration because the arbitration clause in the enrollment agreement contained a class action waiver prohibiting consolidation and class-wide proceedings. The students subsequently filed individual claims with AAA and renewed their request for class arbitration. AAA again denied the request.
Following denial of the second request for class arbitration, the students sued ECPI in court, seeking an order declaring the class action wavier unconscionable and enjoining the individual arbitrations. The district court granted the students' request for injunctive relief.
On appeal, ECPI argued that the Federal Arbitration Act (FAA) does not permit courts to dictate the procedures used in arbitration. The Court agreed and reversed the order granting injunctive relief. Specifically, the Court held that the enforceability of the class action waiver was a question for the arbitrator because "the validity and meaning of particular provisions within the arbitration clause are for the arbitrator to determine."
In reaching its holding, the Court explained that whether an arbitration agreement is unconscionable is "a gateway issue" for a court to decide, but the enforceability of the agreement's procedural terms (e.g., a class action waiver) is not a gateway issue and thus must be resolved by the arbitrator in accordance with the FAA and Green Tree Financial Corp. v. Bazzle, 539 U.S. 44 (2003).
AAA has adopted a policy on class arbitrations whereby it will not administer class arbitration under an agreement that prohibits class-wide proceedings "unless an order of a court directs the parties to the underlying dispute to submit any aspect of their dispute involving class claims . . . or the enforceability of such provisions, to an arbitrator or to the Association." This case comes within the caveat to AAA's general policy because the Court directed the parties to submit the enforceability of the class action waiver to the arbitrator.
This case is noteworthy because it reinforces the principle that under Bazzle, the permissibility and availability of class-wide proceedings is a procedural question for the arbitrator. This principle necessarily implies FAA preemption of state law imposing class-wide proceedings on parties who have agreed to arbitrate on an individual basis because (1) the FAA requires courts to enforce arbitration agreements in accordance with their terms and (2) Bazzle precludes courts from dictating the procedural aspects of arbitration. See Deposit Guaranty Nat'l Bank, Jackson, Miss. v. Roper, 445 U.S. 326, 332 (1980) (noting "the right of a litigant to employ Rule 23 is a procedural right only").
Subscribe to a free weekly update on ADR case law and
legislation
|