Who should decide the “gateway” issue of arbitrability? That is, should a court or an arbitrator decide whether a particular issue is subject to arbitration? According to the Fourth Circuit, it depends on the agreement to arbitrate.
On January 4, the Fourth Circuit issued an opinion in Novic v. Credit One, No. 17-2168, 2019 WL 103878 (4th Cir. 2019), holding that the “delegation clause” in a credit card agreement dictated that the “gateway” issue of arbitrability was itself subject to arbitration. Specifically, the arbitration provision of the agreement contained a clause that stated “[c]laims subject to arbitration include … disputes related to … enforceability or interpretation of this Agreement.”
The case concerned a consumer, Charleene Novic, who obtained a credit card from Credit One. After she accrued a past-due balance, Credit One sold the account to a debt collector. Novic, however, argued that the past-due balance was the result of fraudulent charges. The debt collector sued over the outstanding balance and Novic eventually prevailed. Novic then turned her sights on Credit One, suing the company for alleged violations of the Fair Credit Reporting Act resulting from reporting of the past-due balance. Credit One moved to compel arbitration under the cardholder agreement.
The district court denied Credit One’s motion to compel, concluding that the company had lost its right to compel arbitration after it assigned Novic’s account to a debt collector. Credit One appealed, arguing that an arbitrator should decide the “gateway” issue of whether Novic’s claims should be arbitrated as well as the actual merits of the case.
The Fourth Circuit agreed with Credit One and vacated the district court’s ruling. In its opinion, the Court held that parties may agree to arbitrate the threshold issue of arbitrability, which allows the arbitrator to determine his or her own jurisdiction. The Court cautioned, however, that any delegation of issue of arbitrability must be set out in “clear and unmistakable” language in the parties’ agreement. After applying that standard to the card holder agreement at issue, the Court concluded that it “unambiguously require[d] arbitration of any issues concerning the ‘enforceability’ of the arbitration provisions … .”
The Fourth Circuit’s decision represents another affirmation of the strong federal policy favoring arbitration, and serves as a reminder that the “gateway” to a favorable result when compelling arbitration is the use of “clear and unmistakable” language in arbitration agreements.