In JPay, Inc. v. Kobel, Case No. 17-13611 (decided September 19, 2018), the United States Court of Appeals for the Eleventh Circuit addressed whether a court or an arbitrator must decide whether a matter could be arbitrated as a class action.
The two claimants at issue had purchased services from JPay. As part of their purchases, they entered into agreements that provided that any dispute between the parties arising out of their agreements would be resolved by arbitration. The agreements specifically said that disputes would be arbitrated pursuant to Rules of the American Arbitration Association. The agreement further provided that “[t]he ability to arbitrate the dispute, claim or controversy shall likewise be determined in the arbitration.” Opinion, p. 4.
The claimants sought to pursue their claims in the form of a class action. JPay argued that the district court should decide whether a class arbitration could move forward. The district court agreed. The district court ruled that it could decide whether class arbitration was available and determined that it was not. The claimants appealed.
The Eleventh Circuit broke the question into two parts. First, it addressed whether the default rule was that the court or the arbitrator should determine the availability of class arbitration. The Eleventh Circuit concluded that the availability of class arbitration is presumptively a question for the court to decide.
Next, the Court considered whether the agreement of the parties had overcome that presumption. The Court found that the agreement did so. The Court focused particularly on the contract provision that provided that the arbitration would be governed by the Rules of the American Arbitration Association. Those Rules provided that the arbitrator had the power to rule on his or her own jurisdiction, including any objection to the existence, scope, or validity of the arbitration agreement. Opinion, pp. 28-29. Relying on its prior precedents, the Court concluded that such language was sufficiently clear to overcome the default rule and establish that the parties intended for the arbitrator to decide whether class arbitration was available under the parties’ agreement.
This decision is important to parties drafting arbitration agreements. If the parties want a court to decide whether class arbitration is available, they will need to expressly state that in their arbitration agreement.