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Monday, January 9, 2017

Sandquist v. Lebo Automotive: Under Arbitration Agreement at Issue, Arbitrator Decides Whether Class Arbitration is Available

The California Supreme Court has issued an important decision on the availability of class arbitration: Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233. 

Timothy Sandquist worked for Lebo Automotive, Inc., as a car salesman. On Sandquist's first day of employment, his manager gave him approximately 100 pages of forms to complete as a condition of his employment. Among those pages were three arbitration agreements.

Twelve years later, Sandquist sued Lebo individually and on behalf of others, alleging race discrimination against non-Caucasian workers. The trial court compelled individual arbitration, and, upon learning that all putative class members were subject to the same arbitration policies, dismissed the class allegations with prejudice. The Court of Appeal reversed in part, holding that the trial court should have allowed the arbitrator to decide whether class arbitration was available.

The Supreme Court granted review and affirmed the Court of Appeal, holding as follows: 

No universal rule allocates the decision regarding the availability of class arbitration to either the court or the arbitrator. Instead, he parties' agreement determines who will decide. State law applies generally to disputed issues of contract interpretation and governs here, at least in the first instance. 

Each of the three arbitration policies at issue contained similar, comprehensive language. Each extended to all claims "arising from, related to, or having any relationship or connection whatsoever" with Sandquist's employment. Both Sandquist's substantive claims and the procedural question presented, whether he could pursue those claims in class arbitration, arose from his employment with Lebo. Clauses excluding certain issues from the arbitrator's purview did not prevent the arbitrator from deciding the availability of class arbitration. As a result, under state contract law, the parties' contract gave the issue to the arbitrator.

Existing California law does not establish a presumption that the question should be determined by the court, rather than by the arbitrator. California law does include a "strong presumption" that courts should determine the jurisdiction of arbitrators, but this does not mean that the court must determine the availability of class arbitration. Rather, it means that the court must decide the preliminary issue: Does the arbitrator have jurisdiction to decide whether class arbitration is available?

The Federal Arbitration Act (FAA) does not impose an "interpretive presumption that, as a matter of federal law, preempts state law rules of contract interpretation and alters the conclusion state law would otherwise reach here." The Unites States Supreme Court in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 held that the arbitration agreement in that case allocated the class arbitration availability question to the arbitrator, "Green Tree contains no controlling view concerning what presumption, if any, the FAA requires when interpreting the parties' agreement as to who decides class arbitration availability."

In general, the FAA presumes that courts should decide gateway questions of arbitrability, "e.g., whether there is an enforceable arbitration agreement or whether it applies to the dispute at hand." On the other hand, the FAA presumes that questions regarding procedures to be applied in arbitration will be decided by the arbitrator. Availability of class arbitration is not a gateway question of arbitrability. It is a question of contract interpretation and procedure to which arbitrators are well suited.

Two further considerations weigh in favor of allowing the arbitrator to decide the question. First, doing so is more consistent with the desire for expeditious results in arbitration. Second, doubts concerning an arbitration agreement's scope are resolved in favor of arbitration. 

Justice Werdegar wrote the opinion, with Chief Justice Cantil-Sakauye and Justices Liu and CuĂ©llar joining. Justice Kruger dissented, arguing that under the FAA, the availability of class arbitration is a "gateway question of arbitrability" that is presumptively for the court to decide. Justices Chin and Corrigan joined in the dissent. 

The opinion is available here.

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