United States: Who Decides The Availability Of Class Arbitration? Second Circuit's Analysis Is A Bit Murky In Wells Fargo Advisors Cases

Last Updated: March 13 2018
Article by John B. Lewis

For years, courts have struggled with who decides the availability of class arbitration and the applicable standards. We most recently addressed the thorny issues in a March 23, 2016, blog post. Unfortunately, a recent Second Circuit opinion in two consolidated appeals does little to establish clear standards or instill confidence in allowing arbitrators to decide the issue. The two cases are Wells Fargo Advisors, LLC v. Sappington, No. 16-3833-cv, (2d Cir. March 7, 2018) (Sappington), and Wells Fargo Advisors, LLC v. Tucker, No. 16-3854-cv, (2d Cir. Mar. 7, 2018) (Tucker).

Both cases involved former entry-level financial advisors of Wells Fargo Advisors LLC (Wells Fargo) subject to broad arbitration clauses in their employment agreements. All six brought unpaid overtime claims under the Fair Labor Standards Act (FLSA) and state wage and hour law, seeking class arbitration. Wells Fargo responded by petitioning the district court in each case to compel bilateral arbitration. Wells Fargo's petitions were denied in the case involving the Tucker claimants and also in the second involving the Sappington claimants.

The Second Circuit Opinion

The Second Circuit opinion authored by Judge Raymond J. Lohier ultimately determined that an arbitrator should resolve whether class arbitration is available. The opinion's most detailed analysis involved what it is termed "the Tucker clause."

The court's two-step analysis began with the "presumption" that courts decide questions of arbitrability. The appellate opinion also then assumed that whether an arbitration clause authorizes class arbitration was such a gateway matter. The next step, however, involved determining whether the presumption was overridden by "clean and unmistakable" evidence from the arbitration agreement that the parties intended that the arbitrator decide arbitrability.

Applying relevant state law (Missouri) to the analysis, the court found that the parties' intent was demonstrated in three ways – all circumstantial. First, like many agreements, the Tucker clause declared "any controversy or dispute" relating to the employment relationship was arbitrable. The Second Circuit panel noted that Missouri law did not require that an arbitration agreement explicitly state that the parties agreed to arbitrate arbitrability to demonstrate "clear and unmistakable agreement," citing Dotson v. Dillard's, Inc., 472 S.W. 3d 599, 604 (Mo. Ct. App. 2015).

Second, the Tucker clause expressly excluded from arbitration disputes over unemployment insurance and employee benefits. These common exclusions "reinforced" the court's view that the parties wished the arbitrator to decide whether class claims were arbitrable. In the court's view, by excluding certain proceedings from arbitration, it "strongly implied" that others were subject to arbitration.

Finally, the Tucker clause incorporated the May 1993 Securities Arbitration Rules of the American Arbitration Association (AAA). Beginning with that analytical platform, the court found that while the 1993 rules didn't authorize an arbitrator to decide arbitrability issues, the amendments to them (which were covered in the rules), including the 2003 Supplemental Rules for Class Arbitration, left the class arbitration determination to an arbitrator.

The fact that the arbitration agreement used "bilateral terminology" – "you and Wells Fargo" – failed to persuade the court. Finally, the Second Circuit declined to join some of its sister circuits that require specific delegation of the class arbitration question to an arbitrator in order to be enforceable. Indeed, the Eighth, Third and Sixth circuits require specific language. See e.g., Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966, 973 (8th Cir. 2017); Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 763 (3d Cir. 2016); and Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013). The explicit language requirement in these circuits generally is based on the inherent problems with class arbitration, including coverage of putative class members, due process issues, costs and loss of confidentiality – to name a few.

In a May 3, 2017, blog post, we discussed issues surrounding the use of a silent agreement to support class arbitration. But the views of the other circuits didn't change the court's analysis.

The Sappington Clause

Turning to the Sappington clause, the court found explicit authorization in its arbitration provision, which stated that "any action instituted as a result of any controversy" arising out of the employment relationship between Wells Fargo and Sappington must be arbitrated. And the clause also contained an express delegation provision declaring "Any controversy relating to your duty to arbitrate hereunder, or to the validity or enforceability of this arbitration clause, or to any defense to arbitration, shall also be arbitrated[.]"

Applying Missouri law, the court felt those provisions were sufficient to provide clear and unmistakable evidence that required the issue be sent to an arbitrator.

The Wells Fargo opinion again illustrates that an agreement silent as to class or aggregate arbitration can be construed to authorize it. Nothing relied upon by the panel was other than circumstantial evidence at best. Stating that all controversies were subject to arbitration, excluding proceedings handled by specialized dispute resolution procedures or citing 1993-vintage rules that didn't discuss class arbitration did not seem like compelling evidence supporting an arbitrator's ability to decide this crucial issue. The opinion does illustrate why arbitration agreements must specifically address class, collective and representative proceedings and the arbitrator's authority or lack of authority to address these issues.

Bottom Line

The Wells Fargo opinion again demonstrates that broad agreement language can cause a class or collective arbitration authorization issue to be sent to an arbitrator for resolution, even when the agreement is silent on the issue. Only specifically addressing class procedures in a waiver provision and denying the arbitrator the authority to resolve class, collective or aggregate disputes will suffice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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