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Sixth Circuit in Reed Elsevier v. Crockett Decides “Classwide Arbitrability” is a Matter for Courts – Not Arbitrators – to Decide; Circuits Remain Split

On November 5, 2013, the Sixth Circuit in Reed Elsevier v. Crockett, 2013 U.S. App. LEXIS 22408; 2013 FED App. 0323P (6th Cir.); 2013 WL 5911219 (6th Cir. 2013) held that (1) courts, not arbitrators, presumptively have the power to determine whether an arbitration agreement permits classwide arbitration, and (2) the absence of a class-action right in an arbitration clause does not render the clause unconscionable and unenforceable. 

The issue before the Sixth Circuit was “whether classwide arbitrability is presumptively for an arbitrator to decide, or presumptively for a judge.” The Sixth Circuit defined “classwide arbitrability” as
the question of “whether an agreement provides for classwide arbitration.”

The Sixth Circuit affirmed an Ohio district court’s decision to grant summary judgment in a billing dispute between LexisNexis, a business division of Reed Elsevier, and Craig Crockett, a lawyer whose law firm signed an adhesion contract with LexisNexis containing an arbitration clause. Crockett, observing that the clause provided terms that made individual claims economically unfeasible, had filed an arbitration demand on his own behalf and that of a putative class, seeking damages of more than $500 million. In response, LexisNexis sued Crockett in a federal district court in Ohio, seeking a declaration that the arbitration clause did not authorize class arbitration, as well as an injunction barring Crockett from proceeding with classwide arbitration. The district court granted LexisNexis summary judgment on its declaratory claim and dismissed the injunction claim.

At the appellate level, the Sixth Circuit held “that the question whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved ‘for judicial determination unless the parties clearly and unmistakably provide otherwise’” (emphasis added). “An arbitrator,” the court specified, “has authority to answer [the question of classwide arbitrability] only if the parties have authorized the arbitrator to answer that question” (emphasis added). With its holding, the Sixth Circuit set out to resolve a question left open by Supreme Court precedent, including Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064 (2013) and Stolt-Nielsen S.A. v. Animal-Feeds Int’l Corp., 559 U.S. 662 (2010). For further commentary on Sutter, see CPR News analysis here and discussions in the January 2013 and February 2013 issues of CPR’s Alternatives [subscription required], and for further commentary on Stolt-Nielsen, see, e.g., CPR News analysis here and discussions in the November 2009, January 2010, June 2010, and December 2011 issues of CPR’s Alternatives [subscription required].

Moreover, in deciding that the question of classwide arbitration is one for the courts, the Sixth Circuit seemed simply to confirm what it saw as obvious: “recently the [Supreme] Court has given every indication, short of an outright holding, that classwide arbitrability is a gateway question [for courts to decide,] rather than a subsidiary one [for arbitrators to decide].” In support, the court reasoned that arbitration was “poorly suited to the higher stakes of class litigation,” characterizing class arbitration as being of “momentous consequence” to parties.

Here, the Sixth Circuit found that “at best, the [arbitration] agreement is silent or ambiguous as to whether an arbitrator should determine the question of classwide arbitrability; and that is not enough to wrest that decision from the courts.” After asserting its power to decide on classwide arbitrability, the Sixth Circuit concluded that “[t]he agreement in this case does not provide for classwide arbitration.” Among other reasons, the court observed that the clause referred to “this Order” and not those of other LexisNexis customers.

Next, the Sixth Circuit rejected Crockett’s argument that “if read not to permit classwide arbitration, the arbitration clause is unconscionable.” Despite finding the arbitration clause “one-sided,” exclusively reflecting LexisNexis’ intent, and “adhesive,” the court refused to find the agreement unconscionable.  Relying on American Express v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013), the court found that the arbitration clause’s problems were not enough to overcome the conclusion that “the absence of a class-action right does not render an arbitration agreement unenforceable.” In parentheses, the court suggested that Crockett seek “a market solution” and switch to LexisNexis’s competitor, Westlaw.

Significantly, the Sixth Circuit in Reed Elsevier v. Crockett sends a clear message that commercial parties in that circuit with adhesive contracts and concerned with future classwide claims can resort to the courts even if an arbitration clause remains silent on the issue of class arbitration. In turn, commercial parties drafting or negotiating arbitration clauses should make clear any intention to arbitrate – or expressly exclude - classwide claims.

The U.S. Supreme Court has yet to issue a definitive opinion on the issue of who decides whether parties agreed to arbitrate class claims, and the circuits seem divided. Facing the same question, the Second and Third Circuits have determined that arbitrators decide the issue of class arbitrability. See Vilches v. Travelers Cos., 413 Fed. Appx. 487, 492 (3rd Cir. Feb. 9, 2011) (“[W]e must . . . refer the questions of whether class arbitration was agreed upon to the arbitrator.”); Jock v. Sterling Jewelers Inc., 646 F.3d 113, 115 (2nd Cir. July 1, 2011) (agreeing with an arbitrator’s decision to construe an arbitration agreement’s silence on class arbitration to mean that the parties did not prohibit class arbitration). Recently, in DirecTV, LLC v. Arndt, 2013 U.S. App. LEXIS 21387 (11th Cir. Oct. 22, 2013; see our coverage here) the Eleventh Circuit upheld an arbitrator’s determination that classwide arbitration was permissible, even thought the parties’ contract did not expressly provide for it, or expressly authorize the arbitrator to make this determination. The Fourth and Fifth Circuits, however, appear to share the Sixth Circuit view that courts determine class arbitrability; Cent. W. Va. Energy, Inc. v. Bayer Cropscience LP, 645 F.3d 267, 275 (4th Cir. July 14, 2011) (“Stolt-Nielsen found that the particular question of whether parties had ‘agreed to authorize class arbitration’ was not one of procedure”); Reed v. Fla. Metro. Univ., 681 F.3d 630, 644–45 (5th Cir. May 18, 2012) (finding that an arbitrator lacked a contractual basis to decide on class arbitrability where agreement was silent on class arbitration, and disagreeing with the Second Circuit in Jock).

 -      - Cynthia Galvez, CPR Legal Intern