Supreme Court Again Declines a “Who Decides?” Case in Class Arbitration

By Russ Bleemer

The U.S. Supreme Court this morning declined to hear a case that would have covered two issues that are familiar arbitration turf at the nation’s top court—whether rules incorporated into an ADR agreement are a specific-enough designation for the arbitration to go forward, and whether arbitrators can invoke class processes.

The court denied cert in Shivkov v. Artex Risk Solutions Inc., 20-1313, where an appeals court, compelling arbitration, also held that “the availability of class arbitration is a gateway issue that a court must presumptively decide,” but because the agreements “do not clearly and unmistakably delegate that issue to the arbitrator,” and “[b]ecause the Agreements are silent on class arbitration, they do not permit class arbitration.” Shivkov v. Artex Risk Sols. Inc., 974 F.3d 1051 (9th Cir. 2020) (available at https://bit.ly/3y6e9jL).

This morning’s order can be found here.

The issues presented challenging the Ninth Circuit petition to the Supreme Court by the petitioners—more than 80 individual and business plaintiffs who had filed suit against insurance management companies that set up captive insurance firms for the petitioners that were audited and held liable for unpaid federal taxes—covered the incorporation by reference rules question, and class arbitration.  The specific questions presented by the petitioners that the Court declined today were:

1. The parties’ arbitration clause expressly designates the American Arbitration Association (“AAA”) as their default dispute-resolution method. The clause did not also specifically mention the AAA Rules themselves, which, according to the AAA, apply whenever parties select a AAA arbitration. Must an agreement that specifies arbitration before the AAA as the default dispute-resolution method also specifically mention the AAA Rules to avoid being considered ambiguous about whether the parties intended to apply the AAA Rules?

2. Under the plain text of the Federal Arbitration Act, courts—not arbitrators—decide gateway issues, such as whether there is an agreement to arbitrate and what controversies does it cover. Procedural questions, however, are reserved for arbitrators. Is the availability of class arbitration a matter for an arbitrator to decide, or for a court to decide?

The Shivkov cert denial isn’t surprising because the incorporation of AAA rules issue that the petitioner attempted to have the Court examine already was rejected, indirectly, in a startling move earlier this term.  The Court heard arguments in December in Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963 on whether a contract’s delegation agreement sending a matter to arbitration “clearly and unmistakably” designated the case for arbitration because the contract had a carve-out provision from arbitration for injunctions.

But in January, just a month after the oral arguments, the Court dismissed the case as improvidently granted, after justices at the hearing appeared to get stuck on whether the incorporation by reference to the AAA rules was sufficient for the clear and unmistakable delegation to arbitration.

The Court a year ago, in focusing on the Henry Schein contract carve-out language in granting certiorari, had denied a cross petition in the case on the incorporation-by-reference issue. The cross petition had asked the Court to address the AAA rules that encompassed a provision that arbitrators decide arbitrability. That denial appeared to have a hand in the Court’s January dismissal of the carve-out language interpretation issue.

At the same time in Shivkov, on the petitioners’ second issue, there have been attempts to revisit class arbitration at the U.S. Supreme Court periodically since the Court’s recent seminal cases reviewing and restricting arbitrators’ power to use a class process without a contract authorization. See Lamps Plus Inc. v. Varela, 139 S. Ct. 1407 (2019); Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013); Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010).

The Shivkov petitioners contended that the Court has left open the class arbitration determination. They urged the Court to preserve the decision for judges.

For example, last year, the Court declined to hear a case asking whether an arbitrator may compel class arbitration—binding the parties and absent class members—without finding actual consent, instead based only on a finding that the agreement does not unambiguously prohibit class arbitration and should be construed against the drafter. See Cristina Carvajal, “Supreme Court Rejects Decade-Old Class Arbitration Employment Discrimination Case,” CPR Speaks (Oct. 5, 2020) available at https://bit.ly/35WsvHm) (discussing the Court’s second cert denial in the history of Jock v. Sterling Jewelers Inc., 942 F.3d 617 (2d Cir. 2019) (available at https://bit.ly/30yP3eZ)).

The Shivkov petition contended that the agreement to use the AAA means agreeing to the AAA rules, which put the arbitrability question in the arbitration tribunal’s hands–a cousin to the Jock argument, and which achieved the same cert-denied result. 

The Ninth Circuit Shivkov decision linked above stands, and the case, at least for now, is headed for arbitration under the AAA rules, with the appeals court, not the arbitration tribunal, determining that there will not be a class process.

* * *

The author edits Alternatives to the High Cost of Litigation, which CPR Speaks’ owner, the International Institute for Conflict Prevention & Resolution publishes with John Wiley & Sons.

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