A South Carolina federal court dismissed a petition to compel class arbitration, reasoning “that whether the arbitration clause permits class arbitration is a simple contractual interpretation issue, and because the question ‘concerns the procedural arbitration mechanisms available to the [respondent]’, the threshold inquiry is a question for the arbitrator rather than for the court.” The Fourth Circuit Court of Appeals reversed the decision, and found the question of whether a sales agreement authorized class arbitration should be determined by the court. Other circuit courts have similarly held.
Relying on Supreme Court precedent, the Court identified two categories of threshold questions: (1) procedural questions to be decided by the arbitrator and; (2) questions of arbitrability for the court. As to the latter category, whether or not the underlying controversy will proceed to arbitration on the merits is a question of arbitrability for the court to decide. Moreover, it cautioned that, “courts should not assume that the parties agreed to arbitrate arbitrability absent “clear and unmistakable evidence”.
The Court concluded by noting in class arbitrations, as compared to bilateral arbitrations, there are higher risks for defendants as the result of the limited scope of judicial review. While this is a cost defendants may be willing to accept in bilateral arbitration – since any errors impact only the limited size of the individual dispute – “betting the company” without such review “is a cost of class arbitration that defendants would not lightly accept.” Lastly, class arbitrations require more procedural formality, and thwart the benefits of arbitration by increasing cost and decreasing the speed of proceedings. Dell Webb Communities, Inc. v. Roger F. Carlson, No. 15-1385 (4th Cir. Mar. 28, 2016).
This post written by Nora A. Valenza-Frost.
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