Picture Credit: Jpay

In a matter of first impression, a federal appeals court has held that a court, not an arbitrator, should decide whether to arbitrate a class action—but then sent the case before it to an arbitrator because of the contract's language.

In a 2-1 ruling Wednesday, the U.S. Court of Appeals for the Eleventh Circuit cited recent U.S. Supreme Court decisions distinguishing class actions from individual cases in the context of arbitration agreements, primarily Stolt-Nielsen S.A. v. AnimalFeeds International in 2010 and AT&T Mobility v. Concepcion in 2011. The Eleventh Circuit concluded that a court, not an arbitrator, was the appropriate authority to decide whether a contract allowed for the arbitration of class claims, which are fundamentally different from individual cases.

The panel rejected the argument of Public Counsel, which represented two plaintiffs seeking arbitration of their class action against JPay Inc., that the question was merely procedural in nature.

“The differences between class and bilateral arbitration are substantial, and have been repeatedly emphasized by the Supreme Court,” Judge Stanley Marcus wrote. “In light of these differences, we think it likely that contracting parties would expect a court to decide whether they will arbitrate bilaterally or on a class basis. We leave the question of class availability presumptively with the court because we do not want to force parties to arbitrate so serious a question in the absence of a clear and unmistakable indication that they wanted to do so.”

But the panel split on whether the terms in the arbitration agreement before it showed such an indication, with the majority finding the language “expressed their clear intent” to arbitration class claims. However, U.S. District Judge James Graham of the Southern District of Ohio, sitting by designation, said in a dissent that the contract contained no specific language about class actions to rebut the presumption that a court decide the matter.

Karla Gilbride, Public Counsel's Washington staff attorney who represented plaintiffs Cynthia Kobel and Shalanda Houston, said no such “magic words” were required.

“We are pleased that the Eleventh Circuit has concluded that parties can express their intent to have an arbitrator decide the availability of class action procedures with the same sort of language used to delegate other issues to an arbitrator, and that no heightened standard or special, magic words are required just because a class action is involved,” she wrote in an emailed statement. “Here, the arbitration provision that JPay drafted made it very clear that all disputes regarding the agreement should be handled by an arbitrator. We hope the arbitrator will decide that our clients can represent others who were harmed by JPay's deceptive and exploitative conduct.”

JPay's attorney, Devin “Velvel” Freedman, counsel at Boies Schiller Flexner in Miami, declined to comment.

The case originated in 2015 as a demand for arbitration with the American Arbitration Association filed by the plaintiffs, who alleged Miami-based JPay, which helps friends and family members send money to inmates, was violating Florida consumer protection laws by charging excessive fees. JPay responded with a declaratory relief action filed in Florida state court, insisting its arbitration agreement excluded class actions.

Plaintiffs removed the case to the U.S. District Court for the Southern District of Florida, where Judge Darrin Gayles agreed with JPay, noting the arbitration contract was silent on class claims. He denied the plaintiffs' motion to compel arbitration in 2016 and granted summary judgment in 2017.

The Eleventh Circuit affirmed Gayles' holding that, as a general rule, class claims belonged in court, not arbitration. The panel cited several other decisions that JPay referenced, such as those in the Sixth, Third, Eighth and Fourth circuits. But it disagreed with the plaintiffs' reliance on a 2003 “nonbinding” decision by the U.S. Supreme Court called Green Tree Financial v. Bazzle, in which a plurality, not a majority, found that deciding the arbitration of class claims was a procedural issue.

“Lacking any controlling precedent, we conclude for the first time in this circuit that the availability of class arbitration is a question of arbitrability, presumptively for the courts to decide,” Marcus wrote.

But the Eleventh Circuit parted with Gayles in finding that, while JPay may not have intended to do so, its broad language in its arbitration agreement specifically required that all disputes be arbitrated.

Graham, in his dissent, disagreed that the language in the contract “expressed a clear intent” to arbitrate class claims.

“I believe that a general delegation to arbitrate issues of arbitrability is not enough and that without a specific reference to class arbitration the court should presume that the parties did not intend to delegate to an arbitrator an issue of such great consequence,” he wrote.

The case is one of two class actions against JPay. In the other case, which involved video chats with inmates, U.S. District Judge Donald L. Graham in Miami sent the class action to an arbitrator. JPay appealed Graham's decision last year, but both sides halted that appeal amid ongoing settlement talks.