On September 19, the Eleventh Circuit Court of Appeals issued an opinion illustrating the importance of careful drafting of arbitration agreements.

Following the holdings of many other courts, the Eleventh Circuit panel held that if an agreement is silent regarding the ability to arbitrate claims on a class basis, then it is up to courts to decide whether the action may proceed to arbitration.

Despite its unremarkable holding on the legal issue, the Court nevertheless found that the agreement at issue was not silent as to arbitrability of claims on a class basis, but instead indicated an agreement to submit the issue to the arbitrator. Thus, the general presumption was defeated and the question of arbitrability should be decided by the arbitrator. The agreement’s multiple references to the American Arbitration Association, its statement that “[t]he ability to arbitrate the dispute, claim or controversy shall likewise be determined in the arbitration,” and the fact that the agreement was written in broad terms with respect to what type of disputes were arbitrable, all signaled to the Court that the parties intended that questions of arbitrability be submitted to the arbitrator.

The case is JPay, Inc. v. Kobel, No. 17-13611 (11th Cir. 2018).

The underlying dispute arose out of allegations that JPay, a company that provides services to the family and friends of prison inmates, including electronic money transfers, was charging excessive fees and then using those funds to provide kickbacks to correctional facilities. Claimants Cynthia Kobel and Shalanda Houston served a demand for class-wide arbitration on JPay in October of 2015. JPay responded by filing a complaint in Florida state court that sought to defeat the ability of the claimants to pursue class-wide arbitration and instead compel bilateral arbitration. The matter was eventually removed to the Southern District of Florida, where the district court found that “the availability of class arbitration is a substantive ‘question of arbitrability,’ presumptively for the court to decide, and that the Terms of Service did not clearly and unmistakably evince an intent to overcome this presumption and send the question to arbitration.”

In affirming the district court’s decision that availability of class arbitration is a question of arbitrability for the court to decide, the Eleventh Circuit reasoned that class availability is a gateway-to-arbitration question because it “determines what type of proceeding will determine the parties’ rights and obligations.” Further, due to the stark differences between bilateral and class arbitration, the court concluded that “contracting parties would expect a court to decide whether they will arbitrate bilaterally or on a class basis.” However, the Court disagreed with the lower court’s decision that the parties’ agreement did not clearly express an intent to submit questions of arbitrability the arbitrator.

The Eleventh Circuit’s decision is in line with that of the Sixth, Third, Fourth, and Eighth Circuits. However, the Supreme Court of California and the Fifth Circuit Court of Appeals have noted contrary opinions.

We will continue to monitor and report on developments in this area of the law.