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Who Decides the Arbitrability of Class Action Lawsuits?

In a recent case, the California Court of Appeal for the Fourth Appellate District handed down a decision involving the question of whether the court or the arbitrator decides if a case involving a class action can be arbitrated when the arbitration agreement is silent as to that issue. Specifically, the court asked: "Who decides whether an agreement to arbitrate disputes between the parties to the agreement authorizes class and/or representative arbitration when the contract is silent on the matter--the arbitrator or the court?"

In Garden Fresh Restaurant Corp. v. Superior Court, the plaintiff (who is named as the real party in interest in the case) sued her employer for various Labor Code violations and sought for her claim to be certified as a class action. The employer moved to compel arbitration. The trial court compelled the parties to arbitration and held that the arbitrator be the one to decide whether the parties could arbitrate the class action claims. The appellate court vacated the order, holding that the question of class action arbitrability was for the courts, not the arbitrator, and remanded the case so that the trial court could determine whether the arbitration agreement contemplated class action lawsuits.

The court reasoned that arbitration is a creature of contract and that parties cannot be compelled to arbitrate cases that they have not agreed to arbitrate - a central tenet of arbitration we have seen many times before. The court further reasoned that the question of arbitrability is a gateway issue, and thus almost always a matter for the courts, and not the arbitrator, to decide, echoing another central tenet of arbitration we have also seen before. The court then cited recent Supreme Court opinions suggesting that, although precedent held otherwise, that this issue should be referred to courts and not arbitrations. Because "parties have entered into an arbitration agreement does not mean that they have necessarily agreed to arbitrate class and/or representative claims," and individual proceedings and class actions are entirely different proceedings, the court concluded that a court has to decide the gateway question of whether the parties indeed agreed to arbitrate class action lawsuits. 

Since many agreements to arbitrate are unlikely to include or contemplate class action clauses, it is likely that more and more of these disputes will remain with the courts. This may be an appropriate consequence. As the court itself notes, the procedural complexities and scope of class action lawsuits may not be well suited for arbitration, which is primarily a vehicle for the efficient and economic resolution of disputes.

For more information about Fitch Law Partners LLP's arbitration practice, please click here

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