Last month the U.S. Supreme Court significantly limited access to class arbitration proceedings by finding arbitration agreements must clearly permit class arbitration for class arbitration to proceed. The court, however, failed to elucidate what “clearly” really means. Nevertheless, consumers and employees subject to arbitration agreements must now utilize other measures to pursue effective relief in arbitration against powerful economic entities.

Class arbitration is a procedural device that incorporates components of Federal Rule of Civil Procedure 23 class actions into the arbitration framework. Like class actions, class arbitration facilitates large-scale relief in claims pursued by a representative on behalf of dozens, hundreds or thousands of injured parties subject to similar harm and arbitration clauses. Class arbitration is not prohibited by the Federal Arbitration Act, 9 U.S.C. Section 1, et seq., has been in existence since at least the early 1980s (see Keating v. Superior Court, 645 P.2d 1192, 1209-10 (Cal. 1982) and Southland v. Keating, 465 U.S. 1 (1984)), and gained implicit approval by the Supreme Court in 2003 in Green Tree Financial v. Bazzle, 539 U.S. 444 (2003). Class arbitration is also recognized by major alternative dispute resolution organizations like the American Arbitration Association and JAMS, as each institution has specific rules for class arbitration proceedings. In fact, since 2003 the AAA has conducted over 450 class arbitrations under its Supplementary Rules for Class Arbitration.

SCOTUS Precedent Is Not Kind to Class Arbitration

Despite its legitimacy, the Supreme Court and some legal critics have disparaged class arbitration over the years, claiming it changes arbitration's fundamental bilateral nature contemplated by the FAA, and characterizing it as an “oxymoron,” see AT&T Mobility v. Concepcion, 563 U.S. 333, 348-51 (2011); Stolt-Nielsen v. AnimalFeeds International, 599 U.S. 662, 686-87 (2010); see also Gilbert A. Samberg, “Class Arbitration”: The Current Law, Law360 (June 12, 2017). Last year the Supreme Court reiterated its disfavor for collective arbitration proceedings in Epic Systems v. Lewis, 138 S. Ct. 1612 (2018), by upholding class action waivers in employment arbitration agreements. Writing for the five-member majority, Justice Neil Gorsuch echoed Justice Antonin Scalia in Concepcion and Justice Samuel Alito in Stolt-Nielsen, asserting that with class arbitration “the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away, and arbitration would wind up looking like the litigation it was meant to displace.”

Yet, no court has ever ruled on a comprehensive factual record that class arbitration, in fact, disrupts arbitration's perceived procedural and economic benefits. As Justice Stephen Breyer noted in his Concepcion dissent, the court has pursued this course even though “neither the history nor present practice suggests that class arbitration is fundamentally incompatible with arbitration itself.” Well-thought scholarly opinion also demonstrates that class arbitration promotes efficiency and fairness in arbitration proceedings, and that arbitration is well suited for the higher stakes of collective dispute resolution, see Adam Raviv, ”Too Darn Bad: How the Supreme Court's Class Arbitration Jurisprudence Has Undermined Arbitration,” (2014) (explaining how class arbitration is a more efficient adjudicatory process than thousands of individual arbitrations); S.I. Strong, ”Does Class Arbitration “Change the Nature” of Arbitration? Stolt-Nielsen, AT&T, and A Return to First Principles,” (2012) (conducting a data based and comparative arbitral analysis, and, concluding that class arbitration is not too dissimilar from multiparty arbitration and does not change the fundamental nature of arbitration).

Although Gorsuch's Epic Systems opinion criticized class arbitration permissibility under the FAA, he ultimately relented to a degree, recognizing that “parties remain free to alter arbitration procedures to suit their tastes;” thus deferring to the principle announced in Stolt-Nielsen: class arbitration is permitted if there is a contractual basis for concluding the parties agreed to do so. Exactly what that contractual basis is remains murky. Even so, the class arbitration door—although less open than before—stood ajar after Epic Systems.

'Lamps Plus' Closes the Door Further

Last month, the court considered whether the class arbitration door would remain cracked open in Lamps Plus v. Varela, 587 U.S. ___ (Apr. 24, 2019), a case concerning class arbitration availability for a dispute between an employee and employer, where the arbitration agreement was found by the lower court to be ambiguous as to class arbitration permissibility. Writing for the five-member majority, Chief Justice John Roberts all but battened the class arbitration hatch; finding that a party may not be compelled to class arbitration if the parties' agreement does not clearly state the parties agreed to do so. The Lamps Plus majority reversed a divided U.S. Court of Appeals for the Ninth Circuit panel that held an ambiguous contract provides a contractual basis for class arbitration, because under California contract law's contra proferentem doctrine (a contractual precept recognized in every state) ambiguous contracts should be construed against the drafter. The Lamps Plus majority reasoned that because class arbitration is markedly different than the “traditional individualized arbitration” contemplated by the FAA, the statute requires more than ambiguity to ensure that the parties agreed to arbitrate on a classwide basis.

Justice Clarence Thomas filed a short concurring opinion, asserting, without developed explanation, that the arbitration agreement unambiguously required bilateral arbitration and did not trigger a contra proferentem analysis. Thomas questioned the court's implied preemption of California's contra proferentem rule, but ultimately joined the majority because it “correctly applies our FAA precedents …”

The court's four dissenting justices disagreed, however. Justice Elena Kagan—who penned the principal dissent—denounced the majority's reasoning, arguing that the majority improperly displaced state contract law principles in favor of federal common law, and ignored the long-recognized refrain that the FAA places arbitration agreements “upon the same footing as other contracts” and that the construction of those contractual terms is “a question of state law …”

The Lamps Plus decision proceeds from the court's majority belief that the FAA promotes a federal policy favoring bilateral arbitration that preempts conflicting state common law. The Lamps Plus decision also solidifies the court's majority view (without any factual record) that class arbitration is fundamentally different from bilateral arbitration, that bilateral arbitration is the FAA's default arbitration regime, and that bilateral arbitration shall apply unless the arbitration agreement unambiguously says otherwise. The Lamps Plus majority reached these conclusions yet sidestepped obvious gaps in its reasoning: those who draft arbitration agreements have no incentive to expressly authorize class arbitration, and under Epic Systems, contract drafters can use class waivers to ensure bilateral arbitration.

A Few Ways to Contest Bilateral Arbitration

Although the Lamps Plus decision significantly limits opportunities for class arbitration, a few paths nevertheless remain for employees and consumers either to avoid arbitration altogether or require class arbitration.

• Attack an arbitration agreement's enforceability.

Claimants opposed to arbitration in any form should always first challenge an arbitration clause's enforceability before either a judge or arbitrator. Because the FAA places arbitration agreements on the same footing as any contract, sound legal arguments on contract formation and validity (e.g., scope, lack of mutual assent, unconscionability, waiver, duress) can defeat an arbitration clause's enforceability, thus allowing a claimant to proceed in a judicial class proceeding. New Jersey claimants should particularly focus on whether the arbitration agreement is conspicuous (i.e., bolded or underlined, and in ample size font) and clearly explains that arbitration constitutes a waiver of the right to sue in court, because hidden and confusing arbitration agreements do not establish mutual assent in New Jersey, see Kernahan v. Home Warranty Administrator of Florida, 236 N.J. 301 (2019). Other state courts should look to the New Jersey standard as it promotes a “rule of fundamental importance under the FAA, namely, that arbitration is a matter of consent, not coercion.”

• Does your client fall under an FAA exception?

Some employee groups may also be able to pursue collective action by avoiding the arbitration agreement entirely under the FAA's “transportation worker exemption.” Last term, the court unanimously held in New Prime v. Oliveira, 139 S. Ct. 532 (2019), that the FAA's provision exempting transportation workers involved in interstate commerce from arbitration includes independent contractor truck drivers. A U.S. District Court for the Western District of Washington recently implemented the New Prime ruling, finding that plaintiff Amazon delivery drivers—although only driving intrastate to make deliveries—are nonetheless transportation workers involved in interstate commerce, because the goods they deliver “originated, or transformed into its final condition, in a different state than the delivery state,” see Rittmann v. Amazon.com, No. C16-1554-JCC, 2019 U.S. Dist. LEXIS 68755 (W.D. Wash. Apr. 23, 2019). The Rittmann ruling further implicates local UPS or FedEx drivers as also likely being exempt from the FAA under the transportation worker exception.

• Have an arbitrator determine class arbitrability

If an arbitration agreement is deemed enforceable, claimants may achieve collective redress in arbitration by having an arbitrator decide the class arbitrability issue. Importantly, the Lamps Plus decision did not decide if arbitration is a “gateway issue” of arbitrability which courts must decide, nor did it prohibit an arbitrator from deciding if class arbitration is permitted. However, most circuits recognize class arbitration availability as a threshold question of arbitrability to be determined by a court, unless the arbitration agreement includes “clear and unmistakable evidence” providing the parties intended the arbitrator to decide, see JPay v. Kobel, 904 F.3d 923, 930 (11th Cir. 2018) (noting that it and every other federal court of appeals to consider the question anew since Stolt-Nielsen­—including the Third, Fourth, Sixth, and Eighth circuits—has determined that class availability is a fundamental question of arbitrability for a court to decide, but that the Fifth Circuit solely stands by an earlier contrary precedent); see also Chesapeake Appalachia v. Scout Petroleum, 809 F.3d 746 (3d Cir. 2016).

Despite most courts agreeing that class arbitration is a substantive “gateway question” of arbitrability for a court, there is a circuit split on what constitutes “clear and unmistakable evidence” allowing the arbitrator to decide class arbitration availability. Courts in the Second, Fifth, Tenth, and Eleventh circuits have found that an arbitration agreement's broad language stating, “any and all disputes, claims, or controversies will be resolved by and through arbitration,” and continued reference to, and incorporation of class arbitration rules constitutes the parties' “clear and unmistakable” intent to have an arbitrator determine class arbitration availability. See Wells Fargo Advisors v. Sappington, 884 F.3d 392 (2d Cir. 2018); Dish Network v. Ray, 900 F.3d 1240 (10th Cir. 2018); Spirit Airlines v. Maizes, 899 F.3d 1230 (11th Cir. 2018); JPay v. Kobel, 904 F.3d 923 (11th Cir. 2018); Reed v. Florida Metropolitan University, 681 F.3d 630 (5th Cir. 2012). Courts in the Third, Fourth, Sixth, and Eighth circuits have conversely held that broad arbitration language and incorporation of the AAA rules does not satisfy the “clear and unmistakable” intent standard to have an arbitrator decide class arbitrability. See Catamaran v. Towncrest Pharmacy, 864 F.3d 966 (8th Cir. 2017); Chesapeake Appalachia v. Scout Petroleum, 809 F.3d 746 (3d Cir. 2016); Del Webb Communities v. Carlson, 817 F.3d 867 (4th Cir. 2016); Reed Elsevier v. Crockett, 734 F.3d 594 (6th Cir. 2013). Lawyers representing employees or consumers subject to arbitration agreements using broad boiler plate language should consider filing claims in the Second, Fifth, Tenth, or Eleventh circuits, as they have strong arguments before those courts that the arbitrator and not the court shall decide whether the arbitration agreements permits class arbitration.

If successful in having an arbitrator delegated as the party to determine class arbitrability, lawyers should argue the arbitration agreement provides a contractual basis allowing the arbitrator to permit class arbitration. Although the chances an arbitration agreement will expressly provide for class arbitration are slim-to-none—as a commercial entity has no reason to include class arbitration in an employment or consumer agreement—Lamps Plus, on its face, does not require an express incantation for class arbitration to proceed. The Lamps Plus majority indeed failed to elucidate what satisfies its clear and unambiguous standard. For the same reasons a court finds “clear and unmistakable evidence” to allow an arbitrator to decide class arbitrability, an arbitrator can find a contractual basis to permit class arbitration. See, e.g., Sutter v. Oxford Health Plans, 675 F.3d 215 (3d Cir. 2012). And an arbitrator's decision on class arbitration availability is essentially unreviewable in court, even if reached erroneously. See Oxford Health Plans v. Sutter, 569 U.S. 564 (2013) (noting that an arbitrator's award will not be vacated unless the arbitrator totally disregarded the law and exceeded its powers).

This “arbitrator decides” option should exist for the immediately foreseeable future, but its long-term prospects remain vulnerable given these recent Supreme Court majority opinions. And yet, despite a circuit split on the “clear and unmistakable evidence” issue, and Roberts and Kagan referencing the issue in their Lamps Plus opinions, the Supreme Court declined to take up the issue next term, denying petitions for writ of certiorari in both JPay and Spirit Airlines.

• If all else fails, proceed with mass individual arbitrations.

In the event bilateral arbitration is unavoidable, employees or consumers should consider mass individual arbitrations as an alternative to class arbitration. Although costly and time consuming upfront, this strategy has achieved success; especially in scenarios where the employer agreed to cover arbitration fees. For example, in 2011, attorneys for approximately 900 24 Hour Fitness employees alleging National Labor Relations Act wage-and-hour violations filed hundreds of individual petitions to compel arbitration after a district court in the Northern District of California decertified a class per the employment agreement's collective action waiver. The employer, 24 Hour Fitness, ultimately agreed to a settlement that resolved the individual arbitration claims at once. Likewise, lawyers for over 300 Buffalo Wild Wings employees initiated a similar game plan, submitting hundreds of individual arbitration demands for wage-and-hour violations and are reported to be in settlement talks with the employer. The most significant mass individual arbitration to date is being brought by approximately 12,500 Uber drivers pursuing arbitration claims alleging Uber mischaracterized them as independent contractors, see Abadilla v. Uber Technologies, No. 3:18-cv-7347 (N.D. Cal. 2018). Uber is attempting to stall the arbitration proceedings by not paying its arbitration fees. Even more remarkable, Uber rejected the claimants' suggestion to proceed with nine bellwether arbitrations and subsequent mediation, instead advocating for four representative arbitrations and no mediation, all after Uber convinced the Ninth Circuit to compel individual arbitration.

Moving Forward

In sum, ignoring the benefits of collective adjudicative proceedings, the Lamps Plus majority departed from traditional principles of state contract law to champion a federal policy promoting bilateral arbitration, on the disputed basis that bilateral arbitration is cheaper and more efficient than class arbitration. Although Lamps Plus dims the lights on class arbitration to an all-time low, a few ways to pursue collective relief still exist: claimants can attack an arbitration agreement's enforceability, and those in favorable jurisdictions can argue that an arbitrator should determine whether the arbitration agreement provides a sufficient contractual basis to permit class arbitration. If such opportunities are restricted—claimants should not back down—and should instead pursue individual arbitration claims in large numbers. Mass individual arbitration is indeed an ironic, unintended and adverse consequence of prohibiting class arbitration proceedings, but—unless Congress acts to outlaw class arbitration waivers or forced arbitration agreements, which is presently unlikely—mass individual arbitration may very well be an employee's or consumer's last option to pursue effective relief against powerful economic entities.

Robert Pratter is a member and Silvio Trentalange is an associate at Cohen, Placitella and Roth in Philadelphia. Their firm was counsel in Chesapeake Appalachia v. Scout Petroleum on behalf of lessors who unsuccessfully sought class arbitration in a gas royalty dispute.