Fourth Circuit: Classwide Arbitration a Question for Courts, Not Arbitrators

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Fourth Circuit: Classwide Arbitration a Question for Courts, Not Arbitrators

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The Fourth Circuit has held that the issue of whether an arbitration agreement permits class arbitration is a gateway question of arbitrability for courts, not arbitrators, to decide, unless the parties “clearly and unmistakably” agreed otherwise. Dell Webb Communities, Inc., v. Carlson, No. 15-1385, ___ F.3d ___, 2016 WL 1178829 (4th Cir. Mar. 28, 2016).

The court joined the Third and Sixth Circuits on this issue, appearing to signal an emerging consensus among federal appellate courts. Although the Supreme Court has held that parties cannot be forced to submit to classwide arbitration unless there is a contractual basis for concluding that they agreed to do so, the Court has not definitively resolved who decides whether the agreement authorizes classwide arbitration—the court or the arbitrator. Dell Webb and the other federal appellate cases will assist companies seeking individual arbitration by providing for meaningful judicial review of this important question.

The Lower Court Decisions

The case took a circuitous route on its way to the Fourth Circuit. Roger and Mary Jo Carlson signed an agreement for purchase of property and construction of a home from Pulte, a builder. The agreement contained a mandatory arbitration clause that did not explicitly state whether class claims were subject to arbitration. When the Carlsons were not satisfied with the construction quality of the home, they filed suit in state court, bringing claims on behalf of themselves and about 140 other purchasers.         

The state trial court denied Pulte’s motion to dismiss, but the state appellate court reversed, holding that the Carlsons’ claims were subject to the mandatory arbitration clause. The Carlsons then filed an arbitration demand with the American Arbitration Association, seeking class arbitration for their claims.

In response, Pulte filed a declaratory judgment action in federal court, asserting that the arbitration clause required only bilateral, not class, arbitration. Relying on the Supreme Court’s 2003 plurality opinion in Green Tree Financial Corp. v. Bazzle,[1] the district court held that interpretation of the arbitration agreement as to class arbitrability was a procedural question for the arbitrator to decide. Accordingly, the court dismissed Pulte’s complaint. Meanwhile, the arbitrator ruled that the agreement authorized class arbitration, but stayed that ruling pending resolution of the federal litigation.

The Fourth Circuit Decision

The Fourth Circuit reversed, holding that “whether an arbitration clause permits class arbitration is a gateway question of arbitrability for the court.” The court remanded the case to the district court for a determination of class arbitrability.

The Fourth Circuit first reviewed the state of Supreme Court jurisprudence on the issue. Although the court noted that the plurality opinion in Bazzle suggested that class arbitrability is a “matter of contract interpretation” for the arbitrator, the court pointed to a later Supreme Court opinion, Stolt–Nielsen S.A. v. AnimalFeeds International Corp.,[2] that “effectively disavowed” the reasoning of the Bazzle plurality. In Stolt–Nielsen, the Supreme Court held that “class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.”

In Stolt–Nielsen, however, the arbitration agreement “expressly assigned” the issue of classwide arbitrability to the arbitration panel, leaving open the question of who decides class arbitrability when the parties have not expressly agreed on the issue. The Fourth Circuit in Del Webb concluded that Stolt–Neilsen was “but a short step away from the conclusion” that questions of classwide arbitrability require judicial review.

Further, the Fourth Circuit observed that the question of class arbitrability is critically important, given the profound differences between bilateral and classwide arbitration. The benefits parties expect from arbitration—“less rigorous procedural formalities, lower costs, privacy and confidentiality, greater efficiency, specialized adjudicators, and . . . finality”—are “dramatically upended in class arbitration.” Furthermore, classwide arbitration presents defendants with higher risks and greater costs. And given the high-stakes nature of classwide arbitration, the limited judicial review of arbitrators’ decisions is particularly problematic. For all of these reasons, the court concluded that “whether an arbitration clause permits class arbitration is a gateway question of arbitrability for the court.”

Del Webb represents the third federal appellate decision reaching the same conclusion in a published decision.[3] Although some district courts have held otherwise, no federal appellate court has held that classwide arbitrability is a question for the arbitrator, unless the arbitration agreement clearly provides that the arbitrator decides the issue.

Of course, companies will still face uncertainty in circuits that have not resolved this question. Companies that do not want classwide arbitration should therefore expressly prohibit classwide arbitration in their arbitration agreements. But when there is no such explicit language, these appellate decisions provide the added assurance of meaningful judicial review before a company can be forced into classwide arbitration.


[1] 539 U.S. 444 (2003).

[2] 559 U.S. 662 (2010).

[3] See Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, (6th Cir. 2013); Opalinski v. Robert Half Int’l Inc., 761 F.3d 326 (3d Cir. 2014); see also Eshagh v. Terminix Int’l Co., L.P., 588 F. App’x 703 (9th Cir. 2014) (unpublished).