Quantcast

LEGAL NEWSLINE

Thursday, March 28, 2024

Fourth Circuit also finds district courts, not arbitrators, must decide class action arbitrability

Arbclause

RICHMOND, Va. (Legal Newsline) - Another federal appeals court has ruled that courts, not arbitrators, must determine whether arbitration clauses permit class action arbitration.

The U.S. Court of Appeals for the Fourth Circuit filed its opinion in Dell Web Communities Inc. v. Carlson last week.

In its March 28 ruling, the Fourth Circuit -- joining the Third and Sixth circuits -- said whether an arbitration clause permits class arbitration is a “gateway question” for a court.

Judge Albert Diaz authored the 23-page opinion, reversing, vacating and remanding the decision of the U.S. District Court for the District of South Carolina. Chief Judge William Byrd Traxler Jr. and Judge Roger Gregory joined.

Plaintiffs Roger and Mary Jo Carlson signed a sales agreement with PulteGroup Inc. and its subsidiary Del Webb Communities Inc. for the purchase of a lot and construction of a home in Hilton Head, S.C. The agreement contained an arbitration clause.

The Fourth Circuit appeal stems from the Carlsons’ attempt to arbitrate class action claims against Pulte under the agreement, and Pulte’s efforts to limit arbitration to the claims between the three parties.

At issue in Carlson was whether a federal judge or an arbitrator would decide if class arbitration was appropriate for the class, which accounts for about 2,000 homes.

The district court held that the availability of class arbitration under an arbitration agreement is a procedural question for the arbitrator to decide, rather than a question for the court.

“Because the primary goal in enforcing an arbitration agreement is to discern and honor party intent, and because of the fundamental differences between bilateral and class arbitration -- which change the nature of arbitration altogether -- we hold that whether parties agree to class arbitration is a gateway question for the court,” Diaz wrote.

The Fourth Circuit noted that while the U.S. Supreme Court has not conclusively said who gets to decide whether an arbitration agreement provides for class arbitration, it has provided “guidance.”

The appeals court, pointing to various cases, said it is “well established” that whether the parties have submitted a particular dispute to arbitration is “undeniably” an issue for judicial determination unless the parties “clearly and unmistakably” provide otherwise.

“In this case, the parties did not unmistakably provide that the arbitrator would decide whether their agreement authorizes class arbitration,” Diaz wrote. “In fact, the sales agreement says nothing at all about the subject.

“Accordingly, the district court erred in concluding that the question was a procedural one for the arbitrator.”

The Fourth Circuit reversed the district court’s order denying Pulte’s motion for partial summary judgment, vacated the judgment dismissing Pulte’s petition, and remanded the case for the district court to determine whether the arbitration clause permits class arbitration.

The Third Circuit recently issued a similar ruling in an oil and gas leasing case.

In its Jan. 5 precedential opinion, the federal appeals court said district courts can make such a determination in the absence of a clear agreement giving authority to an arbitrator.

It rejected the argument that by incorporating American Arbitration Association, or AAA, rules into an arbitration provision, an arbitrator is required to determine the question of arbitrability.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

More News