Opalinski v. Robert Half International Inc. , 761 F.3d 326 ( 2014 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 12-4444
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DAVID OPALINSKI;
JAMES MCCABE, on behalf of themselves
and all others similarly situated
v.
ROBERT HALF INTERNATIONAL INC;
ROBERT HALF CORPORATION;
Appellants
________________
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 2-10-cv-02069)
District Judge: Honorable Faith S. Hochberg
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Argued April 7, 2014
Before: AMBRO, JORDAN, and ROTH, Circuit Judges
(Opinion filed: July 30, 2014)
Richard L. Alfred, Esquire (Argued)
Patrick J. Bannon, III, Esquire
Carla J. Easton, Esquire
James M. Hlawek, Esquire
Seyfarth Shaw LLP
Two Seaport Lane
World Trade Center East, Suite 300
Boston, MA 02210
Christopher H. Lowe, Esquire
Seyfarth Shaw LLP
620 Eighth Avenue
New York, NY 10018
James M. Harris, Esquire
Seyfarth Shaw LLP
2029 Century Park East, Suite 3500
Los Angeles, CA 90067
Adam N. Saravay, Esquire
McCarter & English
100 Mulberry Street
Four Gateway Center, 14th Floor
Newark, NJ 07102
Alexander Wood, Esquire
Paul Hastings
75 East 55th Street
New York, NY 10022
Counsel for Appellants
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Shannon Liss-Riordan, Esquire (Argued)
Lichten & Liss-Riordan, P.C.
100 Cambridge Street, 20th Floor
Boston, MA 02114
Anthony L. Marchetti, Jr., Esquire
Marchetti Law, P.C.
900 North Kings Highway
Cherry Hill, NJ 08034
Counsel for Appellees
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OPINION OF THE COURT
________________
AMBRO, Circuit Judge
We consider whether a district court, rather than an
arbitrator, should decide if an agreement to arbitrate disputes
between the parties to that agreement also authorizes
classwide arbitration. Because of the fundamental differences
between classwide and individual arbitration, and the
consequences of proceeding with one rather than the other,
we hold that the availability of classwide arbitration is a
substantive “question of arbitrability” to be decided by a court
absent clear agreement otherwise.
I. Background
Plaintiffs David Opalinski and James McCabe
(sometimes collectively referred to as “Appellees”), former
employees of Robert Half International, Inc. (“RHI”), bring
this action on behalf of themselves and other individuals,
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alleging that RHI failed to pay them overtime and improperly
classified them as overtime-exempt employees in violation of
the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et
seq. Both McCabe and Opalinski signed employment
agreements that contained arbitration provisions. They
provide that “[a]ny dispute or claim arising out of or relating
to Employee’s employment, termination of employment or
any provision of this Agreement” shall be submitted to
arbitration. Neither agreement mentions classwide
arbitration.
RHI moved to compel arbitration of Opalinski and
McCabe’s claims on an individual basis. In October 2011,
the District Court granted the motion in part, thus compelling
arbitration but holding that the propriety of individual (also
known as bilateral) versus classwide arbitration was for the
arbitrator to decide (the “October 2011 Order”). The Court
subsequently entered an order terminating the case. Rather
than immediately appealing the October 2011 Order, RHI
proceeded with the arbitration process and did not return to
the District Court until the arbitrator issued a partial award
and ruled that the employment agreements permitted
classwide arbitration. RHI then moved the District Court to
vacate the arbitrator’s partial award. The District Court
denied the motion to vacate (the “December 2012 Order”).
RHI appeals the December 2012 Order. The crux of
the appeal, however, is not the underlying issue whether the
employment agreements between the parties permit classwide
as opposed to only bilateral arbitration. Rather, the question
before us is who decides – that is, should the availability of
classwide arbitration have been decided by the arbitrator or
by the District Court?
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II. Jurisdiction and Standard of Review
The District Court had jurisdiction over this action per
28 U.S.C. § 1331 because Plaintiffs brought claims under the
FLSA. We have jurisdiction under 9 U.S.C. § 16(a)(1)(D)
(“An appeal may be taken from . . . an order . . . confirming
or denying confirmation of an award or partial award[.]”).
Appellees argue that this appeal is untimely because
although RHI styles it as one based on the District Court’s
December 2012 Order denying its motion to vacate, the
appeal actually challenges only the October 2011 Order’s
holding that the availability of classwide arbitration is a
question for the arbitrator. The October 2011 Order,
Appellees contend, was a final decision that was immediately
appealable on an interlocutory basis, and RHI’s attempt now
to appeal the merits of that decision is untimely. See Fed. R.
App. P. 4(a)(1)(A) (party seeking to appeal a final decision
must file notice of appeal within 30 days of entry of the
judgment or order appealed from).
The Federal Arbitration Act “preserves immediate
appeal of any ‘final decision with respect to an arbitration,’ . .
. whether the decision is favorable or hostile to arbitration.”
Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 86
(2000) (quoting 9 U.S.C. § 16(a)(3)). A “final decision” is
one that “ends the litigation on the merits and leaves nothing
more for the court to do but execute the judgment.” Id.
(quotation marks and citation omitted). Here the October
2011 Order was not a final decision because it effected only a
non-final, administrative closure, and explicitly
acknowledged the potential need for further litigation before
the District Court. Freeman v. Pittsburgh Glass Works, LLC,
709 F.3d 240, 247 (3d Cir. 2013) (“administrative closings
are not final orders”). RHI timely appealed the District
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Court’s final decision – the December 2012 Order – and we
have jurisdiction to consider this appeal.
“On appeal from a district court’s ruling on a motion
to confirm or vacate an arbitration award, we review its legal
conclusions de novo and its factual findings for clear error.”
Sutter v. Oxford Health Plans LLC, 675 F.3d 215, 219 (3d
Cir. 2012), aff’d, 133 S. Ct. 2064 (2013).
III. Discussion
We decide first what arguments we may properly
consider on this appeal. Appellees contend that because RHI
did not argue in its Motion to Vacate that the District Court
(and not the arbitrator) should have determined the
permissibility of classwide arbitration, it has waived its right
to raise that argument in this appeal. However, waiver, which
is intended to protect litigants from unfair surprise and
prevent district courts from being reversed on grounds that
were never argued before them, does not apply in this
instance. Appellees were well aware of RHI’s argument that
the District Court, not the arbitrator, should decide the
availability of classwide arbitration: the Court expressly
addressed the issue in its October 2011 Order, RHI objected
to the arbitrator’s determination whether classwide arbitration
was permissible throughout the arbitration proceedings, and
RHI did flag the “who decides” issue in its Motion to Vacate
by reminding the Court that “from the outset [RHI] has
maintained that the class action issue is for this Court to
decide.” Thus, our addressing the issue on appeal prejudices
neither Appellees nor the District Court.
We proceed to the merits of the case and consider
whether, in the context of an otherwise silent contract, the
availability of classwide arbitration is to be decided by a court
rather than an arbitrator. The analysis is twofold. We decide
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first whether the availability of classwide arbitration is a
“question of arbitrability.” See Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79, 83 (2002) (internal quotation
marks and citation omitted). If yes, it is presumed that the
issue is “for judicial determination unless the parties clearly
and unmistakably provide otherwise.” Id. (internal quotation
marks, citations, and alteration omitted). If the availability of
classwide arbitration is not a “question of arbitrability,” it is
presumptively for the arbitrator to resolve. See First Options
of Chi., Inc. v. Kaplan, 514 U.S. 938, 944-45 (1994).
A. Is the availability of classwide arbitration a “question
of arbitrability”?
“[A]rbitration is a matter of contract and a party cannot
be required to submit to arbitration any dispute which he has
not agreed so to submit.” Howsam, 537 U.S. at 83 (internal
quotation marks and citation omitted). While federal policy
favors arbitration agreements, an arbitrator has the power to
decide an issue only if the parties have authorized the
arbitrator to do so. Because parties frequently disagree
whether a particular dispute is arbitrable, courts play a limited
threshold role in determining “whether the parties have
submitted a particular dispute to arbitration, i.e., the ‘question
of arbitrability[.]’” Id. at 83 (emphasis in original).
“Questions of arbitrability” are limited to a narrow
range of gateway issues. They may include, for example,
“whether the parties are bound by a given arbitration clause”
or “whether an arbitration clause in a concededly binding
contract applies to a particular type of controversy.” Id. at 84.
On the other hand, questions that the parties would likely
expect the arbitrator to decide are not “questions of
arbitrability.” Id. Those include “‘procedural’ questions that
grow out of the dispute and bear on its final disposition[,]” as
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well as allegations of waiver, delay, or similar defenses to
arbitrability. Id.
The Supreme Court has not yet decided whether the
availability of class arbitration is a “question of arbitrability.”
In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444
(2003), a plurality of the Court concluded that the availability
of classwide arbitration was not a question of arbitrability
because “it concerns neither the validity of the arbitration
clause nor its applicability to the underlying dispute between
the parties . . . [, but only] contract interpretation and
arbitration procedures.” Id. at 451, 452-53.
Subsequent Supreme Court decisions, however, cast
doubt on the Bazzle plurality’s decision. In Stolt-Nielsen S.A.
v. AnimalFeeds International Corp., 559 U.S. 662 (2010), the
Court specifically noted that “only the plurality” in Bazzle
decided that an arbitrator should determine whether a contract
permits classwide arbitration and Bazzle is accordingly not
binding on this point. Id. at 680. And in Oxford Health
Plans LLC v. Sutter, 133 S. Ct. 2064 (2013), the Court again
stated that it “has not yet decided whether the availability of
class arbitration” is for a court or for an arbitrator to resolve.
Id. at 2069 n.2.
Our Court has also not decided whether the availability
of classwide arbitration is a question of arbitrability. We
briefly addressed the issue in Quilloin v. Tenett HealthSys.
Philadelphia, Inc., 673 F.3d 221 (3d Cir. 2012), where we
concluded that classwide arbitration was not a question of
arbitrability. Id. at 232 (“Silence regarding class arbitration
generally indicates a prohibition against class arbitration, but
the actual determination as to whether class action is
prohibited is a question of interpretation and procedure for the
arbitrator.”). However, this single sentence addressing “who
decides” is a dictum because at the district court level the
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parties in Quilloin had already agreed that the arbitrator
should be the one to determine whether the contract provided
for class action arbitration. See Quilloin v. Tenett HealthSys.
Philadelphia, Inc., 763 F. Supp. 2d 707, 727 n.22 (E.D. Pa.
2011). Additionally, Quilloin relied solely on the Supreme
Court’s decision in Stolt-Nielsen for its conclusion that the
availability of class arbitration is a question of procedure for
the arbitrator to decide. See 673 F.3d at 232. This reliance
falls short: not only does Stolt-Nielsen expressly state that the
Supreme Court has not yet resolved the “who decides” issue
but, as explained below, the opinion also indicates that the
availability of classwide arbitration is a question of substance
rather than procedure. Thus, whether the availability of
classwide arbitration is a “question of arbitrability” to be
presumptively decided by a court remains an open question.
Our Court has explained that questions of arbitrability
generally fall into two categories – (1) when the parties
dispute “whether [they] have a valid arbitration agreement at
all” (whose claims the arbitrator may adjudicate); and (2)
“when the parties are in dispute as to whether a concededly
binding arbitration clause applies to a certain type of
controversy” (what types of controversies the arbitrator may
decide). Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 178
(3d Cir. 2010) (en banc) (internal quotation marks and
citation omitted). The crucial consideration is the expectation
of the contracting parties: We do not “forc[e] parties to
arbitrate a matter that they may well not have agreed to
arbitrate.” Howsam, 537 U.S. at 83. We now hold that
whether an agreement provides for classwide arbitration is a
“question of arbitrability” to be decided by the District Court.
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1. The availability of class arbitration implicates
whose claims the arbitrator may resolve.
The Supreme Court has long recognized that a district
court must determine whose claims an arbitrator is authorized
to decide. In John Wiley & Sons, Inc. v. Livingston, 376 U.S.
543 (1964), the defending company claimed it was not bound
by the arbitration provisions of an agreement signed by a
company with which it had merged. Id. at 546-47. The Court
stated that there was “no doubt” that the issue “whether or not
the company was bound to arbitrate, as well as what issues it
must arbitrate, is a matter to be determined by the Court . . . .”
Id. at 546-47 (internal quotation marks and citations omitted).
Similarly, in First Options individual business owners argued
that they were not personally bound by an arbitration
agreement they had signed on behalf of their wholly owned
company. See 514 U.S. at 941-42. The Court again
concluded that this was a “question of arbitrability” to be
presumptively determined by a court absent clear contractual
language to the contrary. Id. at 946-47. Our Circuit has also
held repeatedly that whose claims an arbitrator may decide is
an issue for the courts. See, e.g., Allstate Settlement Corp. v.
Rapid Settlements, Ltd., 559 F.3d 164, 169 (3d Cir. 2009)
(“[w]hether the arbitrator’s award binds [a third-party] is a
question that the court must decide”); Sandvik AB v. Advent
Int’l Corp., 220 F.3d 99, 107 (3d Cir. 2000) (determining
“whether Huep’s signature bound Advent” was “a necessary
prerequisite to the court’s fulfilling its role of determining
whether the dispute is one for an arbitrator to decide”).
Here, based on the agreement to arbitrate with
Opalinski and McCabe, RHI moved to compel bilateral
arbitration with each of them. By seeking classwide
arbitration, however, Opalinski and McCabe contend that
their arbitration agreements empower the arbitrator to resolve
not only their personal claims but the claims of additional
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individuals not currently parties to this action. The
determination whether RHI must include absent individuals in
its arbitrations with Opalinski or McCabe affects whose
claims may be arbitrated and is thus a question of arbitrability
to be decided by the court. See Stolt-Nielsen, 559 U.S. at 683
(“parties may specify with whom they choose to arbitrate their
disputes” (emphasis in original)); id. at 686 (in classwide
arbitration, the arbitrator “no longer resolves a single dispute
between the parties to a single agreement, but instead resolves
many disputes between hundreds or perhaps even thousands
of parties”). Additionally, as Justice Alito warned in his
concurrence in Oxford Health, courts should be wary of
concluding that the availability of classwide arbitration is for
the arbitrator to decide, as that decision implicates the rights
of absent class members without their consent. 133 S. Ct. at
2071-72 (Alito, J., concurring) (“at least where absent class
members have not been required to opt in, it is difficult to see
how an arbitrator’s decision to conduct class proceedings
could bind absent class members who have not authorized the
arbitrator to decide on a classwide basis which arbitration
procedures are to be used” (emphasis in original)).
2. The availability of classwide arbitration
implicates the type of controversy submitted to arbitration.
The availability of classwide arbitration is a “question
of arbitrability” for a second, independent reason – it
concerns “whether a concededly binding arbitration clause
applies to a certain type of controversy.” Puleo, 605 F.3d at
178 (internal quotation marks and citation omitted); see also
Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287,
297 (2010) (“[A] court may order arbitration of a particular
dispute only where the court is satisfied that the parties
agreed to arbitrate that dispute[.]” (emphasis in original)).
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Opalinski and McCabe argue that, because class
actions in the context of traditional litigation are a procedural
construct, the availability of classwide arbitration is also a
procedural question. In Stolt-Nielsen, however, the Supreme
Court expressly disclaimed classwide arbitration as simply
procedural. 559 U.S. at 687 (the differences between class
and individual arbitration cannot be characterized as a
question of “merely what ‘procedural mode’ [i]s available to
present [a party’s] claims”). The Court stated that “class-
action arbitration changes the nature of arbitration to such a
degree that it cannot be presumed the parties consented to it
by simply agreeing to submit their disputes to an arbitrator.”
Id. at 685. To further the point, it continued on to explain the
numerous differences between bilateral and class arbitration,
notably that
[(1) a]n arbitrator . . . no longer resolves a
single dispute between the parties to a single
agreement, but instead resolves many disputes
between hundreds or perhaps even thousands of
parties . . . [; (2)] the presumption of privacy
and confidentiality that applies in many bilateral
arbitrations [does] not apply in class
arbitrations[,] thus potentially frustrating the
parties’ assumptions when they agreed to
arbitrate[; (3) t]he arbitrator’s award no longer
purports to bind just the parties to a single
arbitration agreement, but adjudicates the rights
of absent parties as well[; and (4)] the
commercial stakes of class-action arbitration are
comparable to those of class-action litigation,
even though the scope of judicial review is
much more limited.
Id. at 686-87 (internal quotation marks and citations omitted).
In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740
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(2011), the Court similarly emphasized that the “changes
brought about by the shift from bilateral arbitration to class-
action arbitration are fundamental,” concluding that
“[a]rbitration is poorly suited to the higher stakes of class
litigation” and that classwide arbitration “is not arbitration as
envisioned by the FAA.” Id. at 1750, 1751-53 (internal
quotation marks and citations omitted) (emphasis added).
Accordingly, we read the Supreme Court as
characterizing the permissibility of classwide arbitration not
solely as a question of procedure or contract interpretation but
as a substantive gateway dispute qualitatively separate from
deciding an individual quarrel. Traditional individual
arbitration and class arbitration are so distinct that a choice
between the two goes, we believe, to the very type of
controversy to be resolved. We turn below to the support our
Sixth Circuit colleagues give to this conclusion.
3. Other Circuits
The only other Circuit Court of Appeals to have
squarely resolved the “who decides” issue is the Sixth, which
has also held that “whether an arbitration agreement permits
classwide arbitration is a gateway matter” that is
presumptively “for judicial determination[.]” Reed Elsevier,
Inc. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013) (internal
quotation marks and citation omitted). Citing to Concepcion,
Oxford Health, and Stolt-Nielsen, the Sixth Circuit Court
reviewed the differences between classwide and bilateral
arbitration and noted that “recently the [Supreme] Court has
given every indication, short of an outright holding, that
classwide arbitrability is a gateway question rather than a
subsidiary one.” Id. at 598. Specifically, the Sixth Circuit
reasoned that
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[g]ateway questions are fundamental to the
manner in which the parties will resolve their
dispute – whereas subsidiary questions, by
comparison, concern details. And whether the
parties arbitrate one claim or 1,000 in a single
proceeding is no mere detail. Unlike the
question whether, say, one party to an
arbitration agreement has waived his claim
against the other – which of course is a
subsidiary question – the question whether the
parties agreed to classwide arbitration is vastly
more consequential than even the gateway
question whether they agreed to arbitrate
bilaterally. An incorrect answer in favor of
classwide arbitration would “forc[e] parties to
arbitrate” not merely a single “matter that they
may well not have agreed to arbitrate” but
thousands of them.
Id. at 598-99 (second alteration in original) (internal citation
omitted) (quoting Howsam, 537 U.S. at 84). This analysis is
persuasive and guides our own.
Appellees argue that the First, Second and Eleventh
Circuits have also considered the “who decides” question and
have concluded that the availability of classwide arbitration is
not a question of arbitrability for the court but rather a
question of procedure for the arbitrator to decide. See S.
Commc’ns Servs., Inc. v. Thomas, 720 F.3d 1352 (11th Cir.
2013); Fantastic Sams Franchise Corp. v. FSRO Ass’n Ltd.,
683 F.3d 18 (1st Cir. 2012); Jock v. Sterling Jewelers Inc.,
646 F.3d 113 (2d Cir. 2011). This is untrue, as none of those
Circuits ruled, or even expressed a view, on the issue before
us. The First Circuit’s decision in Fantastic Sams involved
associational arbitration, not class arbitration, and expressly
recognized that an “associational action . . . is [not] equivalent
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to a class action.” 683 F.3d at 23. In Jock, the Second
Circuit noted repeatedly that the parties had submitted the
question whether their contract allowed for classwide
arbitration to the arbitrator, and so the “who decides”
question was not before the Court. See 646 F.3d at 116, 124.
And far from holding that the availability of classwide
arbitration is for the arbitrator to decide, the Eleventh Circuit
has specifically stated that the question remains unresolved.
See S. Commc’ns Servs., 720 F.3d at 1359 n.6 (“Like the
Supreme Court, we also have not decided whether the
availability of class arbitration is a question of
arbitrability[.]”).
Since Bazzle, the Supreme Court has not directly
decided whether the availability of class arbitration is a
question of arbitrability. The Court’s line of post-Bazzle
opinions, however, indicates that, because of the fundamental
differences between classwide and bilateral arbitration, and
the consequences of proceeding with one rather than the
other, the availability of classwide arbitrability is a
substantive gateway question rather than a procedural one.
We thus join the Sixth Circuit Court of Appeals in holding
that the availability of class arbitration is a “question of
arbitrability.”
B. There is no evidence rebutting the presumption that
the District Court should decide all questions of
arbitrability.
It is presumed that courts must decide questions of
arbitrability “unless the parties clearly and unmistakably
provide otherwise.” Howsam, 537 U.S. at 83 (internal
quotation marks and citation omitted). The burden of
overcoming the presumption is onerous, as it requires express
contractual language unambiguously delegating the question
of arbitrability to the arbitrator. See Major League Umpires
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Ass’n v. Am. League of Prof’l Baseball Clubs, 357 F.3d 272,
280-81 (3d Cir. 2004). Silence or ambiguous contractual
language is insufficient to rebut the presumption. Gen. Elec.
Co. v. Deutz AG, 270 F.3d 144, 154-55 (3d Cir. 2001). Here,
Opalinski and McCabe’s employment agreements provide for
arbitration of any dispute or claim arising out of or relating to
their employment but are silent as to the availability of
classwide arbitration or whether the question should be
submitted to the arbitrator. Nothing else in the agreements or
record suggests that the parties agreed to submit questions of
arbitrability to the arbitrator. Thus, the strong presumption
favoring judicial resolution of questions of arbitrability is not
undone, and the District Court had to decide whether the
arbitration agreements permitted classwide arbitration.
The District Court’s October 2011 Order directing the
arbitrator to decide the availability of classwide arbitration,
and December 2012 Order denying RHI’s motion to vacate
the arbitrator’s partial final award, are reversed. This case is
remanded for the District Court to determine whether
Appellees’ employment agreements call for classwide
arbitration.
* * * * *
“Arbitration is fundamentally a creature of contract,
and an arbitrator’s authority is derived from an agreement to
arbitrate.” Puleo, 605 F.3d at 194 (alteration in original)
(internal quotation marks and citation omitted). Here, where
we have an agreement to arbitrate individual disputes and no
mention of arbitration for a wider group, we believe the
parties would have expected a court, not an arbitrator, to
determine the availability of class arbitration. This is
especially so given the critical differences between individual
and class arbitration and the significant consequences of that
determination for both whose claims are subject to arbitration
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and the type of controversy to be arbitrated. Hence we hold
that the availability of class arbitration is a “question of
arbitrability” for a court to decide unless the parties
unmistakably provide otherwise.
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