“’When I use a word’ Humpty Dumpty said, in a rather scornful tone, ‘it means just what I choose it to mean—neither more nor less.’
‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’
‘The question is,’ said Humpty Dumpty, ‘which is to be master—that is all.’”
As I have observed previously, the notion that who decides a question is more significant than the objectively correct answer is deeply cynical. However, that is the present state of affairs with class arbitration. Who decides whether arbitration can proceed on a class-wide basis has become as big a battleground as whether it is appropriate in a given case. Which is to be master—the courts or the arbitrators?
Arbitration is a matter of contract, but arbitration agreements historically did not specify who was to decide arbitrability. This changed as corporations and consumers began to battle over the enforceability of mandatory arbitration provisions slipped into the contractual boilerplate that typically accompanies a consumer purchase. State and federal courts in certain states (most particularly California) resisted these agreements, while other courts vigorously enforced them.
While the United States Supreme Court almost always resolved these battles in favor of more arbitration, consumer-facing businesses found the ebb and flow of litigation unsettling. Better to leave the decision of arbitrability to the arbitrators, businesses reasoned. Arbitrators can be counted on to take an expansive view of their mandate. So, businesses began to include in their contractual boilerplate so-called “Delegation Clauses” that operate to exclude the courts from deciding whether a particular dispute is within the scope of the parties’ arbitration “contract.”
Predictably, the lower courts disagreed over the force and effect of Delegation Clauses. Two recently decided United States Supreme Court cases have somewhat clarified this area of the law, but one of them may have inadvertently provided the fuel for an even larger conflagration over class-wide arbitrations.
In New Prime, Inc. v. Oliveria, the Supreme Court considered a statutory exclusion from arbitration. Section 1 of the Federal Arbitration Act (“FAA”) states that it may not be used to compel arbitration in disputes involving “contracts of employment.” However, before the high court could decide whether this exemption applied to a trucker who operated under an independent contractor agreement, it first had to decide whether it had the authority to decide. The agreement between the parties contained a Delegation Clause, and the trucking company argued that this provision vested the arbitrator with sole authority to decide arbitrability. Writing for a unanimous court, Justice Gorsuch held that the issue was one for the judiciary. He reasoned that only a court could decide the threshold question of whether the FAA was even applicable. Thus, the question was one of jurisdiction, not arbitrability.
The Court favored arbitrators over judges in the other arbitration decision issued so far this term. In Henry Schein, Inc. v. Archer & White Sales, Inc, the Court once again confronted a Delegation Clause. In an effort to avoid the effect of this provision, the plaintiff invoked a judicially created doctrine whereby a court can refuse to order arbitration if the defendant’s motion to compel arbitration was “wholly groundless.” The district court and Fifth Circuit agreed with plaintiff, but a unanimous Supreme Court reversed. In his maiden opinion for the high court, Justice Kavanaugh stated:
"We must interpret the Act as written, and the Act in turn requires that we interpret the contract as written. When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. This is true even if the court thinks the argument that the arbitration agreement applies to a particular dispute is wholly groundless."
139 S.Ct. at 529.
The Supreme Court’s pronounced fealty to Delegation Clauses will be sorely tested when it soon confronts the question of who decides whether an arbitration agreement authorizes class-wide relief. The Court previously has expressed the view that arbitration may be an inappropriate forum for this procedural mechanism.  Currently pending before the high court is a case in which the question presented is: “Whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.” The case has already been argued, so the Court will soon provide insight into what an arbitration agreement must say to authorize class-wide proceedings.
But will the United States Supreme Court be willing to allow arbitrators to make this decision, even with Supreme Court guidance on the appropriate legal standard? Arbitration decisions are subject to only minimal judicial review, and arbitrators arguably have a financial incentive to expand the proceedings over which they preside. Until September 2018, the federal courts of appeal uniformly required a more specific Delegation Clause in class arbitrations than what they require in a bilateral setting. The United States Supreme Court initially expressed skepticism about class arbitration, no contested Delegation Clause had been found sufficiently explicit.
This uniformity changed with the Eleventh Circuit’s decision in JPay, Inc. v. Kobel. The Atlanta based Court of Appeals first concurred with its sister circuits’ holdings that the availability of class arbitration is a fundamental question presumptively for the courts to decide. The presumption can only be rebutted by a “clear and unmistakable intent to delegate questions of [class] arbitrability to the arbitrator….”  However, the Eleventh Circuit then broke with the other federal courts of appeal to find an unequivocal delegation based on the arbitration agreement’s multiple references to the American Arbitration Association’s Rules. “By expressly incorporating two sets of AAA Rules, JPay’s Terms of Service clearly and unmistakably give the arbitrator power to rule on his own jurisdiction, thus delegating questions of arbitrability to the arbitrator.” Interestingly, as the dissent pointed out, the arbitration agreement did not mention class arbitration or even incorporate by reference AAA’s Supplementary Rules for Class Arbitration.
On December 28, 2018, JPay (the losing party in the Eleventh Circuit case) petitioned the United States Supreme Court for a Writ of Certiorari, so the high court presently has before it an ideal vehicle to declare “Which Is To Be Master.” While mindful of Yogi Berra’s malapropism about predictions, I nonetheless anticipate that the judiciary will prevail. As the Eleventh Circuit decision shows, contract terms are easily construed in varying ways. While it has professed fealty to Delegation Clauses, the Supreme Court is unlikely to allow a circumstance where decisions on an issue as important as class arbitration essentially become unreviewable.