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Class-Arbitration-Consent: The Eleventh Circuit Creates Circuit Split by Ruling that Incorporation of AAA Rules is Clear and Unmistakable Consent to Arbitrate Class-Arbitration-Consent Questions

August 24th, 2018 Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Consent to Class Arbitration, FAA Preemption of State Law, United States Court of Appeals for the Eleventh Circuit, United States Supreme Court Comments Off on Class-Arbitration-Consent: The Eleventh Circuit Creates Circuit Split by Ruling that Incorporation of AAA Rules is Clear and Unmistakable Consent to Arbitrate Class-Arbitration-Consent Questions By Philip J. Loree Jr.

Introduction

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Class-Arbitration-Consent 1

In prior posts we’ve discussed how footnote 2 of the U.S. Supreme Court’s decision in Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2072 n.2 (2013) said it was an open issue whether class-arbitration-consent presented a question of arbitrability, and how certain U.S. Circuit Courts of Appeals have, subsequent to Oxford, held that consent-to-class-arbitration presents a question of arbitrability, which is ordinarily for the court to decide. (See, e.g., here.)

We have also discussed how, under First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-46 (1995), even though questions of arbitrability are ordinarily for the court to decide, parties may clearly and unmistakably agree to submit questions of arbitrability to the arbitrators. In Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2777 (2010), the Supreme Court of the United States referred to such agreements as “delegation provisions.” Id.

Class-Arbitration-Consent 2

Class-Arbitration-Consent 2

In Spirit Airlines, Inc. v. Maizes, ___ F.3d ___, slip op. (11th Cir. August 15, 2018), the United States Court of Appeals for the Eleventh Circuit addressed a question that called in to play these two related concepts: “whether the [parties’] agreement’s choice of American Arbitration Association rules, standing alone, is clear and unmistakable evidence that [the parties] intended that the arbitrator decide” the consent-to-class-arbitration question. Slip op. at 2. The Court said the answer to that question was “yes.”

Split in the Circuits

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Class-Arbitration-Consent 3

By ruling as it did, the Court created a split in the Circuits, for, as the Court explained, four other circuits “have held that adoption of the AAA rules is not clear and unmistakable evidence of the parties’ intent to have an arbitrator decide whether the agreement allows class arbitration[,]” citing Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966, 972-73 (8th Cir. 2017); Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 762-63 (3d Cir. 2016); Dell Webb Cmtys., Inc. v. Carlson, 817 F.3d 867, 876-77 (4th Cir. 2015); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599-600 (6th Cir. 2013). Slip op. at 8.

These cases, the Court said, impose “a higher burden for showing ‘clear and unmistakable’ evidence for questions of class arbitrability than for ordinary questions of arbitrability.” Slip op. at 8-9. They justify that higher burden on Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 686-87 (2010)’s reasoning that “class arbitration dramatically changes what ordinarily goes on in arbitration.” Slip op. at 7-8.

Court Says Stolt-Nielsen does not Require a Heightened Showing of “Clear and Unmistakable” Intent to Arbitrate Class-Arbitration-Consent Questions

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Class-Arbitration-Consent 4

But the Court found no basis in U.S. Supreme Court precedent for imposing a higher burden for showing “clear and unmistakable” evidence of an intent to arbitrate consent-to-class-arbitration questions. Slip op. at 9. The Court said it “read[s] Stolt-Nielsen to address the question of whether an agreement allows class arbitration at all, separate from the issue of who decides the question to begin with.” Slip op. at 8.

Incorporation of AAA Rules is Clear and Unmistakable Intent to Arbitrate Class-Arbitration-Consent

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Class-Arbitration-Consent 5

The Court held that the parties’ incorporation by reference into their agreement of the AAA Commercial Arbitration Rules provided clear and convincing evidence of the parties’ intent to arbitrate consent-to-class-arbitration questions. First, the Court said that Terminix International Co. v. Palmer Ranch Ltd. Partnership, 432 F.3d 1327, 1332 (11th Cir. 2005) “weighed heavily in our consideration.” Slip op. at 5.

There the Eleventh Circuit held that the parties’ incorporation of the AAA Commercial Arbitration Rules constituted clear and convincing evidence of the parties’ intent to arbitrate questions of arbitrability. In Terminix the Eleventh Circuit “observed that Rule 8(a) of the AAA Commercial Arbitration Rules 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.’” Slip op. at 6 (quoting Terminix, 432 F.3d at 1332). By incorporating the AAA Commercial Rules, including Rule 8(a), into their agreement, the Terminix  parties clearly and unmistakably agreed to arbitrate arbitrability questions. See Slip op. at 6.

While the Court’s reasoning in Terminix weighed heavily in its decision, the Court did not rely on Rule 8(a), or at least did not rely solely on Rule 8(a). The parties’ arbitration agreement provided that the parties would submit disputes to arbitration “in accordance with the rules of the American Arbitration Association then in effect.” Slip op. at 3, 6. “Those rules,” said the Court, “include AAA’s Supplementary Rules for Class Arbitrations, which, true to their name, supplement the other AAA rules.” Slip op. at 6.

“Supplementary Rule 3,” explained the Court, “provides that an arbitrator shall decide whether an arbitration clause permits class arbitration.” Slip op. at 7. Under Terminix, the Court held, the parties’ incorporation of the Rules constituted “clear and unmistakable evidence that the parties chose to have an arbitrator decide whether their agreement provided for class arbitration.” Slip op. at 7.

Court Rejects Arbitrability Opponent’s Fall-Back Arguments

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Class-Arbitration-Consent 6

The Court also rejected three fall-back arguments made against the arbitrability of the consent-to-class arbitration issue, one based on the last paragraph of Supplementary Rule 3, another on the Florida choice-of-law clause in the parties’ agreement, and another on the district court’s alleged error in refusing to hear testimony about the parties’ intent to arbitrate class arbitration consent questions.

The last paragraph of Supplementary Rule 3 states “[i]n construing the applicable arbitration clause, the arbitrator shall not consider the existence of these Supplementary Rules, or any other AAA rules, to be a factor either in favor of or against permitting the arbitration to proceed on a class basis.” The party opposing arbitration of consent-to-class arbitration argued that meant a “court should not consider the existence of the Supplementary Rules when deciding the parties empowered the arbitrator to decide the question of class arbitrability.” Slip op. at 9.

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Class-Arbitration-Consent 7

But that argument suffered from essentially the same flaw as the argument that Stolt-Nielsen should be construed to impose a higher burden to show “clear and unmistakable” intent to arbitrate consent-to-class arbitration. “Again,” said the Court, “we understand Spirit’s argument to substitute the question of whether a particular agreement permits class arbitration for the different question of whether the agreement delegates the decision on that question to the arbitrator.” Slip op. at 10. The Court interpreted Supplementary Rule 3’s last paragraph “to mean simply that the existence of the Supplementary Rules has no effect on whether the agreement permits class arbitration.” Slip op. at 10.

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Class-Arbitration-Consent 8

The agreement contained a Florida choice-of-law provision, which provided the agreement “shall be governed and construed in accordance with the laws of the State of Florida….” The party opposing arbitrability argued that “the laws of the State of Florida” included Florida’s Arbitration Code, and that Code provides for the courts to determine arbitrability questions. See Slip op. at 10 (citing Fla. Stat. § 682.02(2)). According to the party opposing arbitrability, the choice-of-law clause, viewed in conjunction with the rest of the Agreement, including AAA Supplementary Rule 3, created an ambiguity about whether the parties agreed to arbitrate consent-to-class-arbitration questions. Because the agreement was ambiguous, the argument went, the parties did not clearly and unmistakably agree to arbitrate consent-to-class arbitration issues. See slip op. at 10-11.

The Court rejected that argument, finding that “any perceived ambiguity can be resolved through normal interpretive methods.” Slip op. at 11. Citing Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63-64 (1995), the Court explained that the “best interpretation” “is that Florida law covers the parties’ substantive rights and duties while the choice of AAA rules covers dispute resolution procedures.” Slip op. at 11.

The Court also rejected the arbitrability opponent’s argument that the Court erred by deciding a question of fact on a motion to dismiss and erred by not allowing the arbitrability opponent’s “vice president to testify about Spirit’s intent in choosing the AAA rules.” Slip op. at 11-12. These arguments had no merit because: (a) the parties’ agreement, including the arbitration agreement, was attached to the complaint and thus was properly before the Court; (b) interpretation of an agreement is a question of law; (c) the district court’s finding that the parties clearly and unmistakably agreed to arbitrate consent-to-class arbitration was an “implicit[]” finding that the agreement was not ambiguous; and (d) because the agreement was not ambiguous, the district court could not rely on testimony to explain the agreement’s meaning. Slip op. at 11-12.

 

Photo Acknowledgements:

The photos featured in this post (captioned Class-Arbitration-Consent 1 – Class-Arbitration-Consent 8) are licensed from Yay Images and are subject to copyright protection under applicable law.  L&L added text to Class-Arbitration-Consent 1, 2, 7 & 8.

         

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