The Fifth Circuit Joins the Majority of Circuits in Holding the Availability of Class Arbitration is an Issue to be Decided by the Court, Not an Arbitrator
The door to class arbitration, and class actions generally, continues to be pushed closed. In its 20/20 Communications, Inc. v. Crawford decision issued at the end of July of 2019, the Fifth Circuit joined six of the other federal circuit courts holding that the availability of class arbitration under an arbitration agreement is a gateway arbitrability issue to be decided by a court rather than an arbitrator.
The defendant company required its sales employees to enter into an arbitration agreement as a condition of employment. The arbitration agreement provided the arbitrator could “hear only individual claims” and prohibited arbitration “as a class or collective action.” Several sales employees filed arbitration claims and later amended to assert class claims. The defendant employer filed an action in federal court seeking a declaration that the availability of class arbitration is a gateway issue for the court to decide.
While the federal court action was ongoing, an arbitrator ruled that the prohibition on class arbitration in the arbitration agreement was unenforceable under a federal statute. The defendant employer filed a second action in federal court to vacate the arbitrator’s decision on the enforceability of the class arbitration prohibition, and the district court confirmed the arbitrator’s decision. The federal court hearing the defendant employer’s request for a declaratory judgment ruled against the defendant and held that the arbitration agreement permitted the arbitrator to decide the availability of class arbitration. The defendant employer appealed in both cases and the consolidated appeals resulted in the Fifth Circuit’s Crawford decision.
The Fifth Circuit concluded that class arbitrability is a gateway issue and that under Supreme Court precedent on gateway issues, the issue is thus one for courts to decide unless there is “clear and unmistakable language in the arbitration agreement to the contrary.” The Fifth Circuit found class arbitration to be a gateway issue because class arbitration decides the rights of absent parties, creates due process issues, increases the size and complexity of the dispute, “raises the costs and reduces the efficiency of arbitration,” and reduces the privacy and confidentiality of arbitration.
The Court then proceeded to determine whether the arbitration agreement “clearly and unmistakably” gave the arbitrator the power to determine class arbitrability. The Court’s holding indicates that such a clear and unmistakable provision allowing the arbitrator to decide the availability of class arbitration will essentially never exist absent a provision stating: “The arbitrator has the power to decide whether the agreement permits class arbitration.”
The arbitration agreement at issue in Crawford provided that if the parties “disagree over issues concerning the formation and meaning of this Agreement, the arbitrator will hear and resolve these arbitrability issues.” The agreement also provided that the arbitrator would use rules from the American Arbitration Association which provide that the arbitrator will decide class arbitrability. However, the Court found the agreement’s bar on class arbitration was relevant to and weighed against finding that any of those provisions gave the arbitrator the power to decide class arbitrability. The fact that an agreement has a provision addressing the availability of class arbitration seems immaterial to who decides the availability of class arbitration, and the Court relied on the class arbitration bar without any explanation as to how it addresses who decides class arbitrability. Ultimately, the Court concluded that “none of these provisions speak with any specificity to the particular matter of class arbitrations,” that the class arbitration bar “by contrast, specifically prohibits arbitrators from arbitrating disputes as a class action,” and accordingly, the provisions “do not clearly and unmistakably” give the arbitrator the power to decide class arbitrability.
As with decisions from the other circuits addressing this issue, the decision is questionable for two main reasons. First, the reasons for concluding class arbitration is a gateway issue are questionable. Circuit courts repeatedly rely on the factual assumptions in the Crawford decision—the rights of absent parties, increased size and complexity, increased costs, reduced efficiency, and reduced privacy and confidentiality— to conclude class arbitration is a gateway issue, but the courts have not engaged in an in-depth analysis of those items and the lens through which the courts consider them. For example, is it accurate to state that class arbitration increases the size and complexity of the dispute? Is it accurate to state that class arbitration increases the costs and reduces the efficiency of resolving the dispute? The statements that class arbitration increases the size and complexity of the dispute, is more costly, and reduces efficiency beg the question: “Compared to what?” Class arbitration is undeniably more complex than individual arbitration between a single party and a single defendant. However, class arbitration may be substantially less complex, less costly, and more efficient than tens or hundreds of individual arbitrations. Indeed, that is one of the reasons for the creation of the class action device.
Second, the presence of a class arbitration bar appears
irrelevant to the issue of whether a court or an arbitrator decides the
availability of class arbitration. The class
arbitration bar provision in the Crawford case and generally provisions barring class arbitration merely state that class
arbitration is not available. Those
provisions do not state who decides the enforceability and meaning of the
provision. An analogous situation that
may illuminate the lack of relevance would be if an arbitration agreement
provides that the arbitration is to be conducted in Charleston, South Carolina. Under the Crawford opinion’s reasoning, that provision would be relevant to whether a court or the
arbitrator decides whether that provision is enforceable and its meaning. As indicated by the absurd analogy, the mere
existence of a provision has no bearing on who decides the provision’s
enforceability and meaning.
 20/20 Communications, Inc. v. Crawford, 930 F.3d 715 (5th Cir. 2016).
 See, e.g., Del Webb Communities, Inc. v. Carlson, 817 F.3d 867 (4th Cir. 2016); Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013); JPay, Inc. v. Kobel, 904 F.3d 923 (11th Cir. 2018).
 The analogy admittedly requires that the location of the arbitration be of such importance that it could be a gateway issue, but assuming it is of such importance, the analogy stands.
The Steinberg Law Firm is excited to announce that our phones are now answered 24 hours a day, 7 days a week, 365 days a year! We know accidents don’t…