Should Class Arbitration Be Decided by a Court or an Arbitrator?

Courts throughout the country are split on the question of whether a court or an arbitrator should decide whether an arbitration agreement allows for class arbitration. The U.S. Supreme Court, in fact, has hinted at two different outcomes on that question in separate cases. Particularly in California, the issue remains unsettled, as different appellate districts of the California Court of Appeal have issued conflicting rulings over the past months on whether a court or an arbitrator should determine whether class arbitration is available. The California Supreme Court has the opportunity to weigh-in on this question in Sandquist v. Lebo Automotive, a case currently pending before the court that deals with this issue.

Munger, Tolles & Olson attorneys E. Martin Estrada and Jessica Barclay-Strobel examine this issue in an article they authored for the 2014 California Litigation Review titled “A Court or an Arbitrator – Who Decides Whether Arbitration Agreements Provide for Class Arbitration?” It addresses the conflicting legal precedent that the California Supreme Court will be considering when making its ruling and why that decision could have a significant impact on arbitrations moving forward.

As Mr. Estrada and Ms. Barclay-Strobel point out, the stakes surrounding who determines whether class arbitration is available are high. Since an arbitrator’s decision can only be reviewed on a standard of misconduct and not a mistaken ruling, an arbitrator’s decision on the availability of class arbitration would, in effect, be unreviewable. Class claims also raise the costs of arbitration exponentially because of the large number of potential claimants and claims. Lastly, as the U.S. Supreme Court has pointed out, class arbitration can potentially jeopardize absent claimants’ due process rights.

There are two existing schools of thought on whether courts or arbitrators should decide whether an arbitration agreement allows for class arbitration. Those arguing that an arbitrator should decide this question point to the U.S. Supreme Court’s plurality ruling in Green Tree Financial v. Bazzle, which concluded that an arbitrator should determine the availability of class arbitration because the issue is a matter of procedure and, therefore, is within the jurisdiction of an arbitrator. Those arguing that a court should decide whether class arbitration is available rely on two other U.S. Supreme Court decisions – Stolt-Nielsen S.A. v. Animalfeeds International Corp. and Oxford Health Plans LLC v. Sutter. In Stolt-Nielsen, the court noted that Bazzle was not binding since it was decided by a plurality, and, in ruling that an arbitrator had overstepped its authority by finding that an arbitration agreement allowed for class arbitration, pointed out the problematic nature of permitting an arbitrator to decide class claims. In Oxford, the court reiterated that it had still yet to make a final decision as to who determines whether class arbitration is permissible.

In “A Court or an Arbitrator,” Mr. Estrada and Ms. Barclay-Strobel delve into the conflicting rulings surrounding this legal question and set the scene for a California Supreme Court decision that is eagerly anticipated by litigators in California and throughout the United States. To read the entire article, please click here.

Based in the Los Angeles office, Mr. Estrada is a litigator who focuses his practice on trials, complex litigation, internal investigations, and appeals. Also based in Los Angeles, Ms. Barclay-Strobel is a civil litigator whose practice encompasses complex business litigation, including class actions, antitrust and intellectual property matters.