Outsourcing Justice

California Supreme Court Splits With Federal Courts on Class Arbitration Issue

In Sandquist v. Lebo Automotive, Inc., S220812 (Cal. Sup. Ct. July 28, 2016) (click here for a copy of the decision), the California Supreme Court, in a divided 4-3 opinion, addressed an important “who decides” problem in arbitration law: who decides whether an arbitration agreement allows for class arbitration, a court or an arbitrator?  This issue heavily split the United States Supreme Court in 2003 in Green Tree v. Bazzle, which did not produce a majority opinion.  A majority of the California Supreme Court in Sandquist concluded that the availability of class arbitration is presumptively for an arbitrator, not a court, to decide.

This California Supreme Court decision in Sandquist creates a clear split with federal appellate courts, notably the Third Circuit in Opalinski v. Robert Half Intern, and the Sixth Circuit in Reed Elsevier, Inc. v. Crockett.  These federal appellate courts have reached the opposite conclusion and held that the availability of class arbitration is presumptively for a court, not an arbitrator, to decide.

The majority in Sandquist reasoned that allocating the decision-making authority to the arbitrator is consistent with the parties’ expectations.   When parties enter into an arbitration agreement, they should typically expect disputes to be resolved in an efficient manner, without any court involvement.  Allowing an arbitrator to determine the availability of class arbitration is consistent with these expectations.  Also, the majority relied on the interpretative rule that doubts should be resolved in favor of arbitration.  Furthermore, this case involved an employment dispute, and the employer drafted the arbitration clause.  Under the general contract principle that ambiguities should be resolved against the drafter, the majority found that it should favor the non-drafter’s or employee’s interpretation of the arbitration clause in this case.  In sum, for several reasons, the majority held that arbitrators should generally decide whether an arbitration agreement provides for class arbitration.

Three dissenting justices in Sandquist, however, believed that the availability of class arbitration is presumptively for a court, not an arbitrator, to decide.  The dissent explained that the differences between bilateral arbitration and class arbitration are fundamental, and in light of these fundamental differences, it would be wrong to presume that parties intended for arbitrators to make a virtually unreviewable determination on this critical issue of whether a bilateral or class arbitration would occur.

Because of the clear split between the California Supreme Court and federal appellate courts, I expect a cert petition will be filed in this case and in future cases raising this issue.   When Justice Scalia was alive, I would have given a cert petition in this Sandquist case a better-than-average chance of a grant because there is a perception that California is the wild, wild west of arbitration law.  But I’m not sure what will happen with the current makeup of the Court.  If a liberal justice ultimately replaces Justice Scalia, there is a possibility that the FAA pendulum will start swinging the other way, and perhaps the Court may cut back or limit its many pro-business FAA cases from recent years.  (Since the 1980s, the FAA pendulum has been swinging far right, and I believe the Court crossed a line with its DIRECTV decision from last year.  If you are interested, please see an article I recently wrote: DIRECTV, Inc. v. Imburgia: How the Supreme Court Used a Jedi Mind Trick To Turn Arbitration Law Upside Down.)

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