Del Webb Communities, Inc. v. Roger Carlson , 817 F.3d 867 ( 2016 )


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  •                               PUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    No. 15-1385
    DELL WEBB COMMUNITIES, INC.; PULTEGROUP, INC.,
    Petitioners - Appellants,
    v.
    ROGER F. CARLSON; MARY JO CARLSON,
    Respondents - Appellees.
    Appeal from the United States District Court for the District of
    South Carolina, at Beaufort.       Solomon Blatt, Jr., Senior
    District Judge. (9:14−cv−01877−SB)
    Argued:   December 9, 2015                  Decided:   March 28, 2016
    Before TRAXLER, Chief Judge, GREGORY and DIAZ, Circuit Judges.
    Reversed, vacated, and remanded by published opinion. Judge Diaz
    wrote the opinion, in which Chief Judge Traxler and Judge
    Gregory joined.
    ARGUED: Robert Leon Widener, MCNAIR LAW FIRM, P.A., Columbia,
    South Carolina, for Appellants.     Michael S. Seekings, LEATH
    BOUCH   &   SEEKINGS,  LLP,  Charleston,  South  Carolina,  for
    Appellees.    ON BRIEF: A. Victor Rawl, Jr., Henry W. Frampton,
    IV, MCNAIR LAW FIRM, P.A., Charleston, South Carolina, for
    Appellants.     William Jefferson Leath, Jr., LEATH BOUCH &
    SEEKINGS, LLP, Charleston, South Carolina; Phillip W. Segui,
    Jr., Amanda Morgan Blundy, SEGUI LAW FIRM, PC, Mount Pleasant,
    South Carolina, for Appellees.
    DIAZ, Circuit Judge:
    Roger and Mary Jo Carlson signed a sales agreement with
    PulteGroup, Inc. and its subsidiary Del Webb Communities, Inc.
    (together, “Pulte”) for the purchase of a lot and construction
    of    a    home     in    Hilton      Head,    South        Carolina.        The     agreement
    contained an arbitration clause.                           This appeal stems from the
    Carlsons’ attempt to arbitrate class-action claims against Pulte
    under the agreement, and Pulte’s efforts to limit arbitration to
    the claims between the three parties.                         The district court held
    that the availability of class arbitration under an arbitration
    agreement is a procedural question for the arbitrator to decide,
    rather than a question for the court.
    Because       the   primary       goal      in    enforcing     an     arbitration
    agreement is to discern and honor party intent, and because of
    the       fundamental         differences          between      bilateral          and    class
    arbitration—which change the nature of arbitration altogether—we
    hold      that    whether      parties        agree    to     class    arbitration         is    a
    gateway question for the court.                        Accordingly, we reverse the
    district         court’s      order     denying       Pulte’s       motion     for       partial
    summary       judgment,        vacate        the      judgment        dismissing         Pulte’s
    petition,         and     remand      the    case     for     the     district       court      to
    determine         whether       the         arbitration        clause     permits         class
    arbitration.
    2
    I.
    The relevant facts are not in dispute.            The Carlsons signed
    the sales agreement at issue in March of 2002.            Section 4.3 of
    the agreement contains an arbitration clause that, in relevant
    part, states:
    Any controversy or claim arising out of or
    relating to this Agreement or Your purchase
    of the Property shall be finally settled by
    arbitration . . . .
    After Closing, every controversy or claim
    arising   out   of   or  relating   to   this
    Agreement, or the breach thereof shall be
    settled by binding arbitration as provided
    by the South Carolina Uniform Arbitration
    Act. . . .   The   rules  of   the   American
    Arbitration Association (AAA), published for
    construction industry arbitrations, shall
    govern the arbitration proceeding and the
    method of appointment of the arbitrator.
    . . . .
    Any party to this Agreement may bring
    action . . . to compel arbitration . . . .
    J.A. 34–35.
    In     September   2008,   the    Carlsons   filed   suit    in    South
    Carolina state court against Pulte and two other parties.                  The
    complaint     raised    several       claims,   all   regarding        alleged
    construction defects.      The Carlsons later moved to amend their
    complaint to add class-action allegations because their lawsuit
    was one of approximately 140 like cases pending against Pulte.
    The state court granted the motion over Pulte’s objection.
    3
    Pulte then moved to dismiss the amended complaint, or in
    the     alternative,    to   compel    bilateral    arbitration      of     the
    Carlsons’ claims.      The state court denied both motions, but the
    South Carolina Court of Appeals reversed, finding the Carlsons’
    claims subject to arbitration under the sales agreement with
    Pulte.     Carlson v. S.C. State Plastering, LLC, 
    743 S.E.2d 868
    ,
    875 (S.C. Ct. App. 2013).
    The Carlsons subsequently filed a demand for arbitration
    with the American Arbitration Association (AAA).               Their demand
    sought class arbitration and class certification, and set the
    claim    amount   at   $75,000    “until   such   time   as   the   Class   is
    certified.”       J.A. 86.       The class size, as identified in the
    demand for arbitration and attached amended complaint, accounts
    for approximately 2,000 homes—significantly more than the 140 or
    so similar claims pending against Pulte when the Carlsons moved
    to proceed as a class.
    On May 6, 2014, the AAA manager held a conference call with
    the Carlsons and Pulte.          During the call, the manager notified
    the parties that the arbitrator would decide whether the sales
    agreement permits class arbitration.
    Three days later, Pulte filed in federal court a Petition
    and Complaint to Compel Bilateral Arbitration (“Petition”) under
    § 4 of the Federal Arbitration Act (FAA), 
    9 U.S.C. § 1
     et seq.
    As relevant here, Pulte argued that whether the sales agreement
    4
    authorizes class arbitration is a question of arbitrability for
    the   court      to    determine—not             a    procedural         question          for   the
    arbitrator.           Pulte     sought       a       declaratory        judgment         that    the
    parties did not agree to class arbitration.
    Between May 2014 and March 2015, the parties filed several
    motions    in    the    district          court,      including         Pulte’s       motion     for
    partial summary judgment that is the subject of this appeal.                                      In
    the   meantime,        the    arbitrator         ruled      that       the   sales       agreement
    authorized class arbitration, but he stayed the matter for the
    resolution of the federal litigation.                        Subsequent motions in the
    district    court       and    this       court       resulted         in    a    stay      of   the
    arbitration proceedings pending this appeal.
    The district court denied Pulte’s partial summary judgment
    motion    and    dismissed          the    Petition.             Relying     on    the      Supreme
    Court’s    plurality          decision       in       Greentree        Financial         Corp.    v.
    Bazzle,    
    539 U.S. 444
        (2003),          and    this      court’s        unpublished
    decision in Davis v. ECPI College of Technology, L.C., 227 F.
    App’x 250 (4th Cir. 2007), the court reasoned that whether the
    arbitration       clause       permits       class          arbitration          is    a     simple
    contract      interpretation              issue,       and       because         the       question
    “concerns the procedural arbitration mechanisms available to the
    Carlsons,”       the     threshold          inquiry         is     a    question         for     the
    arbitrator rather than for the court.                         Del Webb Cmtys., Inc. v.
    Carlson, No. 9:14-cv-01877-SB, at 7 (D.S.C. Mar. 25, 2015).
    5
    This appeal followed.
    II.
    We review a district court’s grant of summary judgment de
    novo.       Thompson v. Aluminum Co. of Am., 
    276 F.3d 651
    , 656 (4th
    Cir. 2002).
    A.
    We turn first to the Carlsons’ contention that we should
    dismiss         the    appeal—and      that       the    district      court   should    have
    dismissed the Petition—for lack of subject-matter jurisdiction.
    The Carlsons first challenge Pulte’s assertion of diversity
    jurisdiction,               contending           that     the        amount-in-controversy
    requirement            is     not     met     and       that    the     parties    are    not
    geographically diverse.                     We, however, are satisfied that the
    district court had diversity jurisdiction. 1                            “In considering a
    suit       to    compel       arbitration,        the     question      of   jurisdictional
    amount      may       be    determined      by    reference     to    the    possible    award
    resulting from the requested arbitration.”                            Delta Fin. Corp. v.
    Paul D. Comanduras & Assocs., 
    973 F.2d 301
    , 304 (4th Cir. 1992).
    The    Carlsons’            amended   complaint         and    demand    for   arbitration,
    together, provide that the value of their individual claim is
    1
    The Carlsons complain (incorrectly) that the district
    court never explained why it had jurisdiction over the Petition.
    During a hearing on July 8, 2014, the district court denied the
    Carlsons’ motion to dismiss for lack of jurisdiction and
    explained the grounds for its ruling.
    6
    $75,000,    plus     treble     damages       and    attorneys’      fees,    which
    satisfies the statutory floor.            See 
    28 U.S.C. § 1332
    (a); Francis
    v. Allstate Ins. Co., 
    709 F.3d 362
    , 368 (4th Cir. 2013) (stating
    that   attorneys’     fees    count   towards        the   amount-in-controversy
    calculation    when    the     contract       provides     for    them);   J.A.    40
    (providing in sales agreement that award of attorneys’ fees goes
    to the prevailing party).          Moreover, the parties are completely
    diverse, as the Carlsons are South Carolina citizens, and the
    Pulte parties are Michigan and Arizona citizens.                    See 
    28 U.S.C. § 1332
    (a)(1); Home Buyers Warranty Corp. v. Hanna, 
    750 F.3d 427
    ,
    433 (4th Cir. 2014).
    The Carlsons, however, resist this conclusion on the ground
    that South Carolina State Plastering, LLC (“SCSP”), a defendant
    named in the original state court complaint, is a South Carolina
    citizen.    But SCSP is not a party to the federal proceedings,
    and its citizenship is therefore irrelevant.                     Further, SCSP did
    not agree to arbitrate with the Carlsons and is not a party to
    the underlying arbitration.           See Moses H. Cone Mem’l Hosp. v.
    Mercury    Constr.    Corp.,    
    460 U.S. 1
    ,    20   (1983)    (calling     for
    piecemeal resolution in different forums of a dispute when the
    plaintiff has an arbitration agreement with some defendants and
    not others because “an arbitration agreement must be enforced
    notwithstanding the presence of other persons who are parties to
    the underlying dispute but not to the arbitration agreement”).
    7
    We also conclude that the district court had jurisdiction
    under    the    Class     Action    Fairness     Act     of    2005     (CAFA),         which
    provides that a district court has original jurisdiction over
    class     actions     with    an    amount      in   controversy        greater         than
    $5,000,000 and in which “any member of a class of plaintiffs is
    a citizen of a State different from any defendant.”                              
    28 U.S.C. § 1332
    (d)(2)(A).          To determine federal jurisdiction over an FAA
    § 4 petition, the court “may ‘look through’ [the] petition to
    determine whether it is predicated on an action that ‘arises
    under’ federal law.”              Vaden v. Discover Bank, 
    556 U.S. 49
    , 62
    (2009)    (determining        jurisdiction       over    a     petition          to   compel
    arbitration      of    class-action     claims);        see    also     
    9 U.S.C. § 4
    (providing that a petition to compel arbitration is proper in
    federal    court      when   the    court    “would     have    jurisdiction            under
    title 28 . . . of a suit arising out of the controversy between
    the parties”).
    Jurisdiction under CAFA, then, depends on the underlying
    substantive controversy—here, the putative class action.                              And in
    “looking       through”      Pulte’s    FAA      petition,       we     find          federal
    jurisdiction      would      be   proper.       Vaden,    
    556 U.S. at 62
    .      As
    discussed, Pulte and the Carlsons are completely diverse, and
    the Carlsons have made class-action allegations. 2                    Although Pulte
    2 Again relying on SCSP’s South Carolina citizenship, the
    Carlsons urge that the district court should have dismissed the
    Petition under an exception to CAFA, which requires district
    8
    seeks     only    bilateral       arbitration,        the     substantive        matter
    currently in arbitration has an amount in controversy exceeding
    $5,000,000:      the   amended     complaint       attached    to    the   Carlsons’
    demand for arbitration alleged claims “encompass[ing] thousands
    of houses,” and the demand for arbitration valued the Carlsons’
    claim alone at $75,000, J.A. 4.
    Next, the Carlsons assert that the Rooker–Feldman doctrine
    precludes    federal     jurisdiction          over   the   matter    because       the
    issues presented in the Petition and on appeal were decided by
    the state courts.         Under Rooker–Feldman, only the U.S. Supreme
    Court may review state court final judgments; a federal district
    court has no such authority.            D.C. Ct. of App. v. Feldman, 
    460 U.S. 462
    , 482 (1983); Rooker v. Fid. Trust Co., 
    263 U.S. 413
    ,
    416 (1923).      But the Supreme Court has since clarified—after we
    and   several    of    our   sister   circuits        interpreted     the    Rooker–
    Feldman doctrine broadly—that the doctrine “applies only when
    the loser in state court files suit in federal district court
    seeking    redress     for   an   injury       allegedly    caused   by    the   state
    court’s decision itself.”           Davani v. Va. Dep’t of Transp., 
    434 F.3d 712
    , 713 (4th Cir. 2006) (citing Exxon Mobil Corp. v. Saudi
    Basic Indus. Corp., 
    544 U.S. 280
     (2005)).                     Here, Pulte is not
    courts to decline to exercise jurisdiction over a class action
    “in which . . . at least [one] defendant is a defendant . . .
    who is a citizen of the State in which the action was originally
    filed     [i.e.,     South     Carolina].”         
    28 U.S.C. § 1332
    (d)(4)(A)(i)(II)(cc). As discussed, SCSP’s citizenship is
    immaterial to the underlying arbitration.
    9
    the state-court loser; when Pulte moved to compel arbitration in
    state court, the motion was ultimately granted.                             Moreover, the
    Petition does not challenge the state court decision.                                 Rather,
    it    disputes     the   availability         of    class       arbitration       under    the
    sales agreement and the proper forum for deciding that issue,
    questions that were never litigated in the state court. 3
    Last,     the     Carlsons     argue        that    Pulte       cannot       establish
    federal     subject-matter         jurisdiction          through      the   FAA.       Pulte,
    however, has never contended that the district court had federal
    question jurisdiction based on the FAA, acknowledging, as it
    must, that the FAA “does not create any independent federal-
    question       jurisdiction”       but     rather        only    permits      the     federal
    district court to compel arbitration when the court “would have
    jurisdiction over a suit on the underlying dispute,” through
    “diversity       of    citizenship       or   some       other       independent     basis.”
    Moses H. Cone, 460 U.S. at 25 n.32.
    At   oral       argument,     the      Carlsons      pressed         the     purported
    jurisdictional defect, arguing for the first time that Pulte is
    not    an   aggrieved      party     under         the    FAA    because      the    statute
    provides     a   remedy     only    where      a    party       is    “aggrieved      by   the
    alleged failure, neglect, or refusal of another to arbitrate
    3
    We reject the Carlsons’ assertion that these questions
    were decided by the South Carolina Court of Appeals. That court
    found that the claims alleged by the Carlsons in their complaint
    should be arbitrated, but it said nothing about the issue of
    class-wide arbitration.
    10
    under a written agreement for arbitration.”                  
    9 U.S.C. § 4
    .         The
    Carlsons’ contention, however, does not implicate the district
    court’s subject-matter jurisdiction.                Rather, it is a question
    of statutory standing, Discover Bank v. Vaden, 
    489 F.3d 594
    , 607
    n.20 (4th Cir. 2007), overruled on other grounds by 
    556 U.S. 49
    (2009), which the Carlsons waived by failing to raise the point
    in the district court, see, e.g., Merrimon v. Unum Life Ins. Co.
    of Am., 
    758 F.3d 46
    , 53 n.3 (1st Cir. 2014) (“[A]rguments based
    on statutory standing, unlike arguments based on constitutional
    standing, are waivable.”).
    In any case, Pulte has statutory standing.                   The “central or
    ‘primary’       purpose   of    the   FAA      is   to    ensure        that   ‘private
    agreements to arbitrate are enforced according to their terms,’”
    and a party may not be forced to submit to class arbitration
    absent    express      agreement.     Stolt-Nielsen        S.A.     v.     AnimalFeeds
    Int’l Corp., 
    559 U.S. 662
    , 682, 684 (2010) (quoting Volt Info.
    Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ.,
    
    489 U.S. 468
    ,   479     (1989)).        Here,     Pulte     is     sufficiently
    aggrieved under § 4 by the alleged refusal of the Carlsons to
    arbitrate bilaterally, as required under the written agreement.
    Cf. Puleo v. Chase Bank USA, N.A., 
    605 F.3d 172
    , 181 (3d Cir.
    2010)     (en     banc)      (rejecting        appellants’       non-arbitrability
    argument that they “are amenable to arbitration in the abstract”
    because “a district court does not issue an order compelling
    11
    arbitration      in    the    abstract[;        r]ather, . . .         § 4    of   the    FAA
    ‘confers     only     the     right     to    obtain     an    order    directing        that
    “arbitration        proceed      in     the     manner    provided       for       in    [the
    parties’] agreement”’” (alteration in original) (quoting Volt,
    
    489 U.S. at 475
    )).
    Accordingly, we deny the Carlsons’ request that we dismiss
    the appeal for lack of subject matter jurisdiction.
    B.
    The     district      court     denied       Pulte’s     motion       for    partial
    summary      judgment,        concluding        that     the     inquiry—whether          an
    arbitration clause permits class arbitration—is procedural and
    therefore for the arbitrator.                 We disagree and hold that whether
    an arbitration clause permits class arbitration is a gateway
    question of arbitrability for the court.
    Under     the      FAA,        arbitration        agreements          are    “valid,
    irrevocable, and enforceable, save upon such grounds as exist at
    law or in equity for the revocation of any contract.”                              
    9 U.S.C. § 2
    .      Despite      this    “liberal . . . .          federal       policy      favoring
    arbitration,” Moses H. Cone, 
    460 U.S. at 24
    , the FAA seeks to
    enforce arbitration agreements “in the manner provided for in
    such agreement,” § 4; see Stolt-Nielsen, 
    559 U.S. at 682
    .
    The Supreme Court has reiterated the contractual nature of
    arbitration      agreements,          careful      to   avoid    forcing      parties     to
    resolve their disputes through means not intended at the time of
    12
    contract       formation.         E.g.,     Stolt-Nielsen,          
    559 U.S. at 681
    (“[T]he    FAA       imposes    certain     rules       of   fundamental     importance,
    including the basic precept that arbitration ‘is a matter of
    consent,       not     coercion.’”       (quoting       Volt,   
    489 U.S. at 479
    ));
    Howsam v. Dean Witter Reynolds, Inc., 
    537 U.S. 79
    , 83 (2002)
    (“[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.” (quoting United Steelworkers of Am. v.
    Warrior    &     Gulf    Nav.   Co.,     
    363 U.S. 574
    ,   582   (1960)));         First
    Options of Chi., Inc. v. Kaplan, 
    514 U.S. 938
    , 945 (1995) (“[A]
    party     can     be     forced     to     arbitrate         only   those    issues       it
    specifically has agreed to submit to arbitration . . . .”).
    Advancing the prioritization of party intent in arbitration
    agreements, the Supreme Court has identified two categories of
    threshold questions—procedural questions for the arbitrator, and
    questions of arbitrability for the court.                       See Howsam, 
    537 U.S. at
    83–84.         Procedural questions arise once the obligation to
    arbitrate a matter is established, and may include such issues
    as   the        application        of     statutes        of    limitations,        notice
    requirements, laches, and estoppel.                       See 
    id. at 85
    ; see also
    John Wiley & Sons, Inc. v. Livingston, 
    376 U.S. 543
    , 557 (1964)
    (“Once it is determined . . . that the parties are obligated to
    submit     the       subject      matter    of      a    dispute      to    arbitration,
    ‘procedural’ questions which grow out of the dispute and bear on
    13
    its final disposition should be left to the arbitrator.”).                                     The
    Court has explained that these are questions for the arbitrator
    not   only    because          the      “parties      would     likely    expect        that   an
    arbitrator would decide [them],” Howsam, 
    537 U.S. at 84
    , but
    also because the questions do not present any legal challenge to
    the   arbitrator’s            underlying        power,    see    AT&T     Techs.,       Inc.    v.
    Commc’ns Workers of Am., 
    475 U.S. 643
    , 648–49 (1986); United
    Steelworkers, 
    363 U.S. at
    582–83.
    Questions          of        arbitrability,        on     the     other     hand,        are
    something     else        entirely.             When     the    answer     to     a     question
    “determine[s] whether the underlying controversy will proceed to
    arbitration        on    the       merits,”      that    question       necessarily         falls
    within the “narrow circumstance[s]” of arbitrable issues for the
    court to decide.                Howsam, 
    537 U.S. at 83
    ; see also Rent-A-
    Center,      W.,        Inc.       v.    Jackson,        
    561 U.S. 63
    ,     78        (2010)
    (“‘[Q]uestion[s]              of     arbitrability’            thus     include        questions
    regarding     the        existence         of     a     legally       binding     and       valid
    arbitration agreement, as well as questions regarding the scope
    of a concededly binding arbitration agreement.” (alterations in
    original)).
    The Supreme Court has not conclusively told us who gets to
    decide    whether        an        arbitration        agreement       provides        for   class
    arbitration, but the Court has provided some guidance.                                      First,
    although a plurality of the Court in Green Tree Financial Corp.
    14
    v. Bazzle found that the issue was a procedural one for the
    arbitrator, 
    539 U.S. at
    452–53, the Court’s treatment of Bazzle
    in   subsequent       decisions        has      effectively       disavowed      that
    rationale, see Oxford Health Plans LLC v. Sutter, 
    133 S. Ct. 2064
    , 2068 & n.2 (2013) (explaining the high bar for overturning
    an arbitrator’s decision on the grounds that he exceeded his
    powers, but stating, “We would face a different issue if [the
    petitioner]    had   argued     below      that   the    availability      of   class
    arbitration is a so-called ‘question of arbitrability.’                         Those
    questions . . .      are     presumptively        for    courts    to    decide.”);
    Stolt-Nielsen, 
    559 U.S. at 680
     (“Unfortunately, the opinions in
    Bazzle appear to have baffled the parties in this case . . . .
    [T]he   parties     appear    to    have     believed    that   the     judgment   in
    Bazzle requires an arbitrator, not a court, to decide whether a
    contract permits class arbitration.                In fact, however, only the
    plurality    decided    that       question.”     (emphasis     added)    (citation
    omitted)).
    Second, the Court over several decades has crafted legal
    rules regarding      the     interpretation       of    arbitration     agreements,
    which, together, demonstrate that the issue presented here is
    one of arbitrability.          To begin with, it is well established
    that whether the parties have submitted a particular dispute to
    arbitration is “undeniably an issue for judicial determination[]
    [u]nless      the    parties        clearly       and    unmistakably       provide
    15
    otherwise.”        AT&T Techs., 
    475 U.S. at 649
    ; see also John Wiley,
    
    376 U.S. at 547
     (“[W]hether or not [a party] [i]s bound to
    arbitrate, as well as what issues it must arbitrate, is a matter
    to be determined by the Court on the basis of the contract
    entered into by the parties.” (quoting Atkinson v. Sinclair Ref.
    Co., 
    370 U.S. 238
    , 241 (1962))).
    In    First     Options   of     Chicago,      Inc.     v.    Kaplan,      the   Court
    extended this rule to the determination of who has the primary
    power—the arbitrator or the court—to decide whether the parties
    delegated a question of arbitrability to arbitration, stating
    that “[c]ourts        should   not     assume      that     the    parties      agreed   to
    arbitrate    arbitrability”          absent      “‘clea[r]        and    unmistakabl[e]’
    evidence.”        
    514 U.S. at 944
     (alterations in original) (quoting
    AT&T Techs., 
    475 U.S. at 649
    ).
    The         Court   in     Stolt-Nielsen              S.A.         v.     AnimalFeeds
    International       Corp.     took    its        refusal    to     “‘force       unwilling
    parties to arbitrate’ contrary to their expectations” one step
    further.     
    559 U.S. at 686
     (quoting First Options, 
    514 U.S. at 945
    ).      There, it announced a rule for determining whether an
    arbitration       agreement    permits       class    arbitration.              The   Court
    found     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.       Rather, the Court held
    16
    that parties cannot be forced to arbitrate on a class-wide basis
    absent “a contractual basis for concluding that the party agreed
    to do so.”    Id. at 684.
    The evolution of the Court’s cases are but a short step
    away from the conclusion that whether an arbitration agreement
    authorizes    class    arbitration     presents        a   question       as    to   the
    arbitrator’s inherent power, which requires judicial review.                          In
    that    regard,    the   Court     has      highlighted        the        significant
    distinctions between class and bilateral arbitration, and these
    fundamental    differences       confirm       that     whether      an    agreement
    authorizes the former is a question of arbitrability.
    When parties agree to forgo their right to litigate in the
    courts and in favor of private dispute resolution, they expect
    the    benefits    flowing      from     that    decision:        less         rigorous
    procedural        formalities,         lower          costs,      privacy            and
    confidentiality,      greater    efficiency,      specialized        adjudicators,
    and—for the most part—finality.             These benefits, however, are
    dramatically upended in class arbitration, which brings with it
    higher risks for defendants.             See Stolt-Nielsen, 
    559 U.S. at
    686–87 (contrasting the high stakes of class-action arbitration
    with its limited scope of judicial review).
    In litigation, certification decisions may be appealed on
    both an interlocutory basis and after a final judgment, and the
    appellate court reviews questions of law de novo and factual
    17
    findings for clear error.                   E.g., Teamsters Local 445 Freight
    Div. Pension Fund v. Bombardier Inc., 
    546 F.3d 196
    , 201 (2d Cir.
    2008).      The       FAA,   however,       provides       very    limited       grounds      for
    vacating an arbitration award.                      See 
    9 U.S.C. § 10
     (providing
    grounds, such as: an award “procured by corruption, fraud, or
    undue means;” and when the arbitrator evidences “partiality or
    corruption,” is “guilty of misconduct” or “other misbehavior”
    that prejudices the party’s rights, or “exceed[s] [his or her]
    powers”).        A reviewing court’s ability to modify or correct an
    award is similarly cabined.                 See 
    9 U.S.C. § 11
    .             And the FAA has
    been     interpreted         to      prohibit        parties        from     contractually
    expanding the scope of judicial review.                           See Hall St. Assocs.,
    L.L.C. v. Mattel, Inc., 
    552 U.S. 576
     (2008).
    As   a    result,     “[t]he     absence       of     multilayered         review”      in
    arbitration        “makes       it     more        likely     that    errors           will    go
    uncorrected.”           AT&T Mobility LLC v. Concepcion, 
    563 U.S. 333
    ,
    350 (2011).           This is a cost that “[d]efendants are willing to
    accept” in bilateral arbitration “since [the errors’] impact is
    limited     to    the    size     of    individual          disputes,      and    presumably
    outweighed       by    savings       from   avoiding        the    courts.”        
    Id.
            But
    “bet[ting] the company” without effective judicial review is a
    cost   of   class       arbitration         that    defendants       would       not    lightly
    accept.     
    Id. at 351
    .
    18
    Moreover, in bilateral arbitration, the lack of rigorous
    procedural rules greatly increases the speed and lowers the cost
    of the dispute resolution, but in class arbitration, procedural
    formality is required, reducing—or eliminating altogether—these
    advantages.        This    is    because    the    arbitrator      must     determine,
    before    ruling    on    the    merits,    whether       to    certify    the   class,
    whether    the     named     parties       satisfy       mandatory       standards    of
    representation and commonality, how discovery will function, and
    how to bind absent class members.                 Concepcion, 
    563 U.S. at
    348–
    49.     In turn, costs and time increase.                    See 
    id.
     (finding that
    the    average   bilateral       arbitration       begun       between    January     and
    August 2007 reached a final disposition in four-to-six months,
    whereas none of the class arbitrations initiated as of September
    2009 had resulted in a final merits award, and the average time
    from    filing   to   resolution—through           settlement,       withdrawal,      or
    dismissal, not judgment on the merits—was 630 days).
    It is not surprising then that those circuit courts to have
    considered the question have concluded that, “unless the parties
    clearly    and      unmistakably        provide        otherwise,”        whether      an
    arbitration agreement permits class arbitration is a question of
    arbitrability       for    the   court.         Reed   Elsevier,      Inc.    ex     rel.
    LexisNexis    Div.    v.    Crockett,      
    734 F.3d 594
    ,    597–99     (6th    Cir.
    2013)    (quoting     Howsam,     
    537 U.S. at 83
    )     (reasoning    that     the
    Supreme Court “has given every indication, short of an outright
    19
    holding, that classwide arbitrability is a gateway question” for
    the    court,    and       focusing      on        Stolt-Nielsen          and    Concepcion’s
    observations         of   the   fundamental          differences      between         bilateral
    and class arbitration); see also Opalinski v. Robert Half Int’l
    Inc., 
    761 F.3d 326
    , 331–34, 335-36 (3d Cir. 2014) (finding that
    the Supreme Court had “cast doubt” on the Bazzle plurality, and
    that     an     agreement’s           authorization            of    class        arbitration
    implicates      both      whose      claims    and    the   type     of     controversy       an
    arbitrator may resolve).
    Leaving the question of class arbitration for the court
    also   flows     logically        from       our    own   cases.          In    Central    West
    Virginia Energy, Inc. v. Bayer Cropscience LP, for example, we
    stated (albeit in dicta) that “consent to class arbitration did
    not fall within [the] category of ‘procedural’ questions . . . .
    because the class-action construct wreaks ‘fundamental changes’
    on the ‘nature of arbitration.’”                     
    645 F.3d 267
    , 274–75 (4th Cir.
    2011) (quoting Stolt-Nielsen, 
    559 U.S. at
    685–86).                                Since then,
    at least two district judges in this circuit have held that
    whether an agreement permits class arbitration is a question of
    arbitrability for the court.                  See Chesapeake Appalachia, LLC v.
    Suppa,    
    91 F. Supp. 3d 853
    ,     861    (N.D.W.       Va.    2015);      Bird   v.
    Turner,   No.    5:14CV97,           slip.    op.    at   *7    (N.D.W.         Va.   Sept.   1,
    2015).
    20
    A review of the kinds of disputes we have found to be
    procedural in nature shows that our decision today aligns with
    circuit precedent.         E.g., Bayer Cropscience, 
    645 F.3d at 274
    (whether    an   arbitration      panel   in    Richmond,         Virginia,    or    in
    Charleston, West Virginia, should resolve the dispute); Dockser
    v. Schwartzberg, 
    433 F.3d 421
     (4th Cir. 2006) (the question of
    the number of arbitrators); Durham Cty. v. Richards & Assocs.,
    
    742 F.2d 811
     (4th Cir. 1984) (limitations period expressed in
    arbitration agreement raised as defense to arbitration); In re
    Mercury Constr. Corp., 
    656 F.2d 933
     (4th Cir. 1981) (en banc)
    (whether untimeliness, waiver, or laches were for the arbitrator
    or court’s determination), aff’d sub nom. Moses H. Cone Mem’l
    Hosp. v. Mercury Constr. Corp., 
    460 U.S. 1
    .
    Most     notably,     these    decisions         do    not     challenge       the
    underlying agreement to submit the dispute to arbitration.                          See
    Marrowbone Dev. Co. v. Dist. 17, United Mine Workers of Am., 
    147 F.3d 296
    , 300 (4th Cir. 1998) (“[T]he court decides, as issues
    of contract law, the threshold questions of whether a party is
    contractually bound to arbitrate and whether, if so bound, the
    arbitration      provision’s      scope      makes    the    issue     in     dispute
    arbitrable.”).      Further, we have made clear that the scope of
    arbitrability     itself    is    not   an    issue    presumptively        for     the
    arbitrator to decide.            See Va. Carolina Tools, Inc. v. Int’l
    Tool Supply, Inc., 
    984 F.2d 113
    , 117 (4th Cir. 1993) (finding
    21
    both that “except as clearly and unmistakably indicated in their
    contract, the parties d[o] not intend to commit the very issue
    of the scope of arbitrability itself to arbitration,” and that
    “the    typical,       broad     arbitration       clause”    does    not    meet       that
    standard).
    In reaching its contrary result, the district court relied
    on     our    unpublished        decision    in     Davis     v.    ECPI    College       of
    Technology, L.C., 227 F. App’x 250 (4th Cir. 2007).                              There, we
    found        that    “[t]he      question    of     ‘what    kind    of     arbitration
    proceedings’ are required under the arbitration clause is not a
    gateway issue for a court to decide.”                       
    Id. at 253
    .          But Davis
    was decided before Stolt-Nielsen, Concepcion, and Oxford Health
    Plans, and relied exclusively on the plurality in Bazzle.                            Given
    the thin reed that is now Bazzle, we decline to follow our
    unpublished precedent.
    III.
    In this case, the parties did not unmistakably provide that
    the arbitrator would decide whether their agreement authorizes
    class arbitration.            In fact, the sales agreement says nothing at
    all about the subject.             Accordingly, the district court erred in
    concluding          that   the   question     was    a   procedural        one    for   the
    arbitrator.           We therefore reverse the district court’s order
    denying Pulte’s motion for partial summary judgment, vacate the
    22
    judgment   dismissing   the    Petition,       and    remand    for    further
    proceedings.    On   remand,   the    district       court   shall    determine
    whether the parties agreed to class arbitration.
    REVERSED, VACATED, AND REMANDED
    23
    

Document Info

Docket Number: 15-1385

Citation Numbers: 817 F.3d 867

Filed Date: 3/28/2016

Precedential Status: Precedential

Modified Date: 1/12/2023

Authorities (29)

Teamsters Local 445 Freight Division Pension Fund v. ... , 546 F.3d 196 ( 2008 )

Puleo v. Chase Bank USA, N.A. , 605 F.3d 172 ( 2010 )

County of Durham v. Richards & Associates, Inc. , 742 F.2d 811 ( 1984 )

William B. Dockser H. William Willoughby C.R.I., ... , 433 F.3d 421 ( 2006 )

In Re Mercury Construction Corporation, Mercury ... , 656 F.2d 933 ( 1981 )

Marrowbone Development Company v. District 17, United Mine ... , 147 F.3d 296 ( 1998 )

James E. Thompson v. Aluminum Company of America United ... , 276 F.3d 651 ( 2002 )

Mozafar H. Davani v. Virginia Department of Transportation ... , 434 F.3d 712 ( 2006 )

Delta Financial Corporation v. Paul D. Comanduras & ... , 973 F.2d 301 ( 1992 )

Central West Virginia Energy, Inc. v. Bayer Cropscience LP , 645 F.3d 267 ( 2011 )

discover-bank-discover-financial-services-incorporated-v-betty-e-vaden , 489 F.3d 594 ( 2007 )

virginia-carolina-tools-incorporated-american-metal-industries , 984 F.2d 113 ( 1993 )

United Steelworkers v. Warrior & Gulf Navigation Co. , 80 S. Ct. 1347 ( 1960 )

Atkinson v. Sinclair Refining Co. , 82 S. Ct. 1318 ( 1962 )

John Wiley & Sons, Inc. v. Livingston , 84 S. Ct. 909 ( 1964 )

At&T Technologies, Inc. v. Communications Workers , 106 S. Ct. 1415 ( 1986 )

Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland ... , 109 S. Ct. 1248 ( 1989 )

First Options of Chicago, Inc. v. Kaplan , 115 S. Ct. 1920 ( 1995 )

Rent-A-Center, West, Inc. v. Jackson , 130 S. Ct. 2772 ( 2010 )

At&T Mobility LLC v. Concepcion , 131 S. Ct. 1740 ( 2011 )

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