Who Has the Authority to Order Class Arbitration? The Eighth Circuit Weighs In
Several circuit courts of appeal have considered a critical aspect of class litigation: does the court or arbitrator decide if arbitration agreements permit class arbitration (the “who decides” question)? The U.S. Supreme Court has not yet resolved this issue. However, the Eighth Circuit, in Catamaran Corporation v. Towncrest Pharmacy, No. 16-3275 (July 28, 2017), joined the Third, Fourth, and Sixth Circuits when holding that courts, not arbitrators, should answer the “who decides” question when the arbitration agreement at issue is silent on the subject.
The Eighth Circuit concluded that the “who decides” question is a substantive question of arbitrability rather than a preliminary procedural question, and that courts are thus the proper authority to answer the question (whereas arbitrators decide preliminary procedural questions). Indeed, according to the Eighth Circuit, courts must play a threshold role to determine whether parties have submitted a particular dispute to arbitration because such issues presumptively lie with the courts.
The Eighth Circuit reached this conclusion “because of the fundamental differences between bilateral and class arbitration.” The court noted that arbitration is poorly suited to class litigation where the rights of absent members are determined, thereby fundamentally affecting both the nature and scope of the parties’ arbitration.
After explaining its rationale, the Eighth Circuit reversed the district court’s order denying Catamaran’s motion for summary judgment because the district court erred when concluding that the question of class arbitration was procedural rather than substantive. The Eighth Circuit remanded the matter to the district court to determine whether a contractual basis for class arbitration exists in the agreements at issue.
As mentioned above, the “who decides” question is currently an unsettled and dynamic area of law. Accordingly, employers may wish to consult with counsel prior to drafting arbitration agreements to consider the business and legal ramifications of potentially defending a class action in court versus in arbitration, as well as the language to include in such agreements. And, as always, we will continue to follow this emerging area of law here, so stay tuned.