Fifth Circuit Joins Other Circuit Courts in Holding that Class Arbitration Is a Gateway Issue for Courts—Not Arbitrators—to DecideJuly 25, 2019
On July 22, 2019, in 20/20 Communications, Inc. v. Crawford, 2019 WL 3281412 (5th Cir. July 22, 2019), the Fifth Circuit held that class arbitration is a gateway issue to be decided by the courts—not arbitrators—absent “clear and unmistakable” language in the arbitration agreement to the contrary. In so deciding, the Fifth Circuit followed the holdings of the six other circuits (the Fourth, Sixth, Seventh, Eighth, Ninth, and Eleventh) that have addressed this issue.
20/20 Communications, Inc. (“20/20”), a national direct-sales and marketing company, has an arbitration protocol whereby employees as a condition of employment must enter into a Mutual Arbitration Agreement. That Agreement contains a provision which provides that any dispute between an employee and the company will be an individual arbitration, not by a class or collective proceeding. In relevant part, the language provides: “[T]he parties agree that this Agreement prohibits the arbitrator from consolidating the claims of others into one proceeding, to the maximum extent permitted by law. This means that an arbitrator will hear only individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group of employees in one proceeding, to the maximum extent permitted by law.”
A number of employees filed separate individual arbitration claims against 20/20. These employees later amended their claims to assert identical class claims. In response, 20/20 brought suit (hereinafter, the “Blevins action”) in the District Court for the Northern District of Texas seeking a declaration from the court that the issue of class arbitrability is a gateway issue for the court to decide, and that the Mutual Arbitration Agreement foreclosed class arbitration. The District Court held that the Mutual Arbitration Agreement authorized the arbitrator—not the court—to decide the issue of class arbitrability, and dismissed 20/20’s complaint.
While the Blevins action was pending, some of the employees who had filed arbitration claims asked the arbitrators to issue clause construction awards stating that the class arbitration bar in the Mutual Arbitration Agreement was prohibited by the National Labor Relations Act (“NLRA”). Six of the individual arbitrators issued clause construction awards. Of those six, one arbitrator concluded that the class arbitration bar was unenforceable under the NLRA. 20/20 then filed a second action (hereinafter, the “Crawford action”) in the Northern District of Texas, asking the court to vacate the individual arbitrator’s clause construction award. The District Court instead confirmed the clause construction award.
The Blevins and Crawford actions were consolidated by the Fifth Circuit for appeal.
The Fifth Circuit’s Decision
On July 22, 2019, the Fifth Circuit held that the availability of class arbitration is a gateway issue that a court—not an arbitrator—must decide in the absence of clear and unmistakable language in the arbitration agreement to the contrary. 20/20 Communications, Inc. v. Crawford, 2019 WL 3281412 (5th Cir. July 22, 2019). The court explained: “Like our sister circuits [the Fourth, Sixth, Seventh, Eighth, Ninth, and Eleventh], we regard the decision to arbitrate a dispute as a class, rather than on an individual basis, as a threshold question of arbitrability, because class arbitrations differ from individual arbitrations in fundamental ways.”
The court detailed a number of ways that an individual arbitration proceeding may differ from a class arbitration. A class arbitration, the court noted, “adjudicates the rights of absent parties,” thereby raising “important due process concerns” that may result in increased costs and reduced efficiency of the arbitration proceeding. A class arbitration proceeding may also “dramatically increase . . . the size . . . [and] the complexity of the dispute.” The court further explained that “privacy and confidentiality [are] threatened in a class arbitration,” potentially “frustrating the parties’ assumptions when they agreed to arbitrate.” In its decision, the Fifth Circuit relied on the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 348 (2011), which spelled out the significant differences between class and individual arbitrations.
Having determined that class arbitration is a gateway issue presumptively decided by courts, the Fifth Circuit then examined 20/20’s Mutual Arbitration Agreement to determine whether the parties had clearly and unmistakably agreed to allow an arbitrator to decide the issue. Relying on the language of the class arbitration bar, the court held that the “class arbitration bar operates not only to bar class arbitrations to the maximum extent permitted by law, but also to foreclose any suggestion that the parties meant to disrupt the presumption that questions of class arbitration are decided by courts rather than arbitrators.”
The Fifth Circuit, therefore, reversed the judgment of the district court in the Blevins action and vacated the district court’s decision in the Crawford action, remanding both cases for review.
The 20/20 Communications decision is an important workplace arbitration decision in particular for employers operating in the Fifth Circuit (Louisiana, Mississippi, and Texas), and provides yet another precedent on which all employers can rely to enforce their arbitration provisions, as drafted.
Class and Collective Actions