By Georgia D. Koutouzos, J.D.
Employee failed to show that under the present law, the parties’ arbitration agreement permitted the collective arbitration that had occurred.
A collective arbitration award favoring a former mortgage company employee and 175 similarly situated individuals on alleged wage and hour violations was improperly rendered in light of language in the parties’ arbitration agreement, ruled a federal district court in Wisconsin on remand from the Seventh Circuit’s decision directing the lower court to inquire into whether the agreement authorized class or collective arbitration. Looking to the scope of the agreement, its waiver clause, and the U.S. Supreme Court’s recent ruling in Lamps Plus, Inc. v. Varela that courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis, the Wisconsin court vacated the arbitrator’s $10-million award, sent the lead plaintiff’s dispute to arbitration for a new proceeding, and instructed the remaining opt-in plaintiffs to decide individually whether to file their own arbitration requests or new lawsuits (Herrington v. Waterstone Mortgage Corp., April 25, 2019, Crabb, B.).
Collective arbitration. A former loan originator for a mortgage company filed a class action against the employer for wage and hour violations and breach of contract. The district court found that the claims had to be resolved through arbitration under an agreement between the parties and the class-action waiver in the parties’ arbitration agreement was unenforceable under the NLRA. The class proceeded with a collective arbitration, which ultimately resulted in a $10 million in damages and fees to the employee and 175 similarly situated employees.
Appeals court’s decision. The employer appealed the award and, while the appeal was pending, the U.S. Supreme Court decided Epic Systems Corp. v. Lewis, which held that the inclusion of a class-action waiver in an arbitration agreement did not violate the NLRA. With that decision in mind, the Seventh Circuit, in the instant case, ruled that the district court must evaluate the employee’s contract with the employer to determine whether it permitted class or collective arbitration and whether the district court had erred in invalidating the waiver clause in the parties’ arbitration agreement. Reasoning that the Epic ruling upheld the validity of waiver provisions like the one in the at-issue arbitration agreement, the appeals court vacated the district court’s order enforcing the arbitration award and directed the court to inquire into whether the agreement with her employer authorized class or collective arbitration.
Scope of remand. On remand, the district court looked first to the question of what issues were open for its consideration. Noting that the law of the case doctrine prohibits it from ruling on any issue conclusively decided by the court of appeals, the district court noted that the Seventh Circuit had specifically directed the district court—and not the arbitrator—to decide whether the parties’ agreement allowed for class or collective arbitration.
Delegation and waiver. In that regard, the employee’s contention that the appeals court’s decision left open the questions of whether the agreement delegated the question of arbitrability to the arbitrator or whether the employer had waived any objection to the arbitrator deciding questions of arbitrability was unpersuasive. Contrary to the employee’s argument, the questions of delegation and waiver were not “new” questions that arose for the first time on remand. Instead, those questions were highly relevant to, and intertwined with, the specific question addressed by the appeals court when it decided whether the arbitrator or district court should resolve questions of arbitrability.
Opportunity to raise issues. The employee also contended that even if delegation and waiver were relevant to the appeals court’s analysis, she had not had a fair opportunity to raise those issues. That contention was without merit, however, because both sides had the opportunity to file supplemental briefs addressing the question whether the court or the arbitrator should decide the question of whether an arbitration agreement allows for class or collective arbitration after the issue had been raised during oral argument before the appeals court. Furthermore, it was clear that the appeals court had considered the parties’ supplemental briefs in resolving the case and was aware that delegation and waiver could affect the outcome of the dispute.
Scope of appeals court’s mandate. In sum, the employee had attempted to raise arguments on remand that were directly relevant to the question decided by the appeals court and had been flagged by that court as potentially relevant issues. But the appeals court’s decision did not suggest that either delegation or waiver should affect the analysis in the case. Instead, its mandate was narrow and specific: i.e., whether the parties’ agreement permitted the collective arbitration that occurred.
Delegation language was precise. The employee argued on remand that class arbitration was permitted because the “class rules” were incorporated into the parties’ agreement. That argument lacked merit, however, because even if the agreement incorporated all the American Arbitration Association Rules—including the Supplemental Rules for Class Arbitrations—it did not follow that the incorporation of those rules automatically meant that she could proceed with a class or with collective arbitration. The employee pointed to nothing in the rules themselves stating that their incorporation into an agreement amounted to an automatic authorization of a class or collective arbitration. Moreover, the reference to the rules in the agreement at issue was followed immediately by the class waiver language. Thus, even if an agreement’s incorporation of the AAA Rules could authorize class or collective arbitration in some circumstances, the plain language of the agreement at issue clearly and unambiguously prohibited class arbitration.
Lamps Plus adds yet more support. Furthermore, on April 19, 2019, the U.S. Supreme Court held in Lamps Plus, Inc. v. Varela that “[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.” In a 5-4 decision authored by Chief Justice Roberts, the High Court reversed and remanded a Ninth Circuit decision upholding a lower court’s refusal to compel individual arbitration—instead compelling class arbitration—in an employee’s putative class action against the employer, Lamps Plus, on behalf of 1,300 employees whose tax information inadvertently had been disclosed to a hacker by the company.
Waiver language also was precise. As for the employee’s argument that the language in the class waiver in the agreement prohibiting joinder of claims by any person “who is not party to this [a]greement” should be read as prohibiting joinder only of individuals who did not sign the same form agreement as she had, the terms “agreement” and “parties” were specifically defined in the agreement itself and they specifically referred to the employee, the mortgage company, and the contract between them. They could not plausibly be interpreted as referring to other employees or agreements with other employees.
New arbitrations/trials necessary. Thus, the employee failed to show that under the present law, the parties’ arbitration agreement permitted the collective arbitration that had occurred. Therefore, in accordance with the appeals court’s direction, the class arbitration award was vacated and the loan originator’s dispute was sent to arbitration for a new proceeding on the question whether she is entitled to damages for wage and hour violations and breach of contract. The remaining opt-in plaintiffs had to decide individually whether to file their own arbitration requests or new lawsuits.
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