Class arbitration confusion at the California Supreme Court

Question: Does a particular arbitration agreement permit (or prohibit) classwide arbitration? Bigger question: Who decides whether the agreement permits or prohibits classwide arbitration – a court or the arbitrator? The California Supreme Court has split 4-3 on the answer. And the majority's answer: It all depends. Sandquist v. Lebo Automotive (Calif Supreme Ct 07/28/2016)

When Timothy Sandquist was hired, he signed three arbitration agreements. Later Sandquist sued on behalf of "a class of current and former employees of color" raising an individual claim for constructive discharge and class claims for discrimination and creation of a hostile work environment.

The trial court granted the employer's motion to compel arbitration, and ruled that the agreements did not permit class arbitration. The Court of Appeal held that the availability of class proceedings under an arbitration agreement is a question of contract interpretation for the arbitrator to decide in the first instance.

The California Supreme Court 4-member majority affirmed and laid out this analysis:

  • "No universal one-size-fits-all rule allocates that question to one decision maker or the other in every case. Rather, 'who decides' is a matter of party agreement."
  • "The question 'who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter."
  • "The question who has the power to decide the availability of class arbitration turns upon what the parties agreed about the allocation of that power."
  • "This examination must be conducted, at least initially, through the prism of state law."
  • The specific agreements in this case are ambiguous, so the rule of construing agreements against the drafter and the presumption favoring allocation to arbitration "tips the scales in favor of allocating the class arbitration availability question to the arbitrator."
  • US Supreme Court cases interpreting the Federal Arbitration Act support a finding that state law interpretation of these issues is not preempted by the FAA.

Three judges read the US Supreme Court tea leaves differently. Here's how they put it:

In Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444, 451–452 (Green Tree), a plurality of the United States Supreme Court took the view that the classwide arbitrability question is a procedural matter, rather than a gateway question of arbitrability. The majority of this court today draws on the reasoning of the plurality opinion to reach the same conclusion. But in more recent years, the United States Supreme Court has not only disavowed any notion that Green Tree decided the issue, it has also, as another court put it, ―given every indication, short of an outright holding, that classwide arbitrability is a gateway question rather than a subsidiary one.‖ (Reed Elsevier, Inc. v. Crockett (6th Cir. 2013) 734 2 F.3d 594, 598 (Reed Elsevier), cert. denied (2014) ___ U.S. ___ [189 L.Ed.2d 173, 134 S.Ct. 2991].) In light of these post-Green Tree developments, every federal court of appeals to consider the issue on the merits has concluded — in contrast to the majority‘s holding today — that whether an arbitration agreement permits class arbitration is presumptively a question for the court, rather than the arbitrator. (See p. 8, post.) Because I, too, read the high court‘s cases as indicating that classwide arbitrability is a gateway question for purposes of the FAA, I would affirm the trial court‘s decision in this case, and respectfully part company with my colleagues in the majority.

This is an important issue. Too much time and energy is being spent litigating the appropriate way to hand off a case to an arbitrator. This diminishes one of the key features of arbitration — speed and efficiency.