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Agreeing to arbitrate disputes, in lieu of traditional litigation, is not a new phenomenon. As consumers, we all contractually agree to arbitrate disputes on an almost daily basis. While not everyone may read the entire contact, mandatory arbitration clauses are frequently included we sign up for credit cards, buy songs online, or purchase a cell phone. Consumer contracts have contained mandatory arbitration clauses for decades. Increasingly, however, courts are confronted a new issue in consumer contracts - class arbitration. While courts have issued various decisions on the issue over the last fifteen years, class arbitration has assumed particular importance as of late. The Fourth Circuit’s 2016 decision Del Webb Communities, Inc. v. Carlson is the most recent and perhaps the most significant.
In its March 2016 decision, the Fourth Circuit changed course in its approach to class action arbitration, rejected its prior holding in Davis v. ECPI, and declined to follow a 2003 Supreme Court plurality decision in Green Tree Financial Corp v. Bazzle. In doing so, the Del Webb court held that, unless the parties clearly and unmistakably agree otherwise, whether an arbitration agreement provides for class arbitration is a matter for judicial resolution. The decision may come as a surprise to some, particularly corporate counsel, and a welcome change to others, namely consumer advocates. Irrespective of one’s perspective, the issue is significant to all South Carolina practitioners. Although Del Webb is a federal court decision, the Federal Arbitration Act governs the vast majority of arbitrations, and therefore, significant to both state and federal practitioners of class action litigation.
While the Del Webb decision represents a course change from prior Fourth Circuit case law, it is consistent with other circuit’s recent treatment of the issue. Earlier this year, the Third Circuit issued a decision in Chesapeake Appalachia LLC v. Scout Petroleum, LLC, where it reached the same conclusion as the Del Webb court and held that the availability of class arbitration is reserved for judicial determination, and not the arbitrator. Chesapeake is currently being appealed to the Supreme Court. That appeal presents the Court with an opportunity to clarify its position on class arbitration and provide a cohesive- perhaps conclusive-decision on the viability of Bazzle. This article will analyze the principles and policies underlying class arbitration, explores Fourth Circuit jurisprudence on the issue, and discuss the potential implications for class arbitration in South Carolina.
II. Arbitration and Arbitrability
Under the Federal Arbitration Act (or “FAA”), arbitration agreements that implicate interstate commerce are enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” The United States Supreme Court has ruled that, because the statute invokes Congress's Commerce Power as its jurisdictional basis, the FAA applies in state and federal court and preempts conflicting state law. Thus, unless the parties have contracted to the contrary, the FAA applies in federal or state court to any arbitration agreement regarding a transaction that involves interstate commerce.
While courts are empowered to settle disputes by both a state and federal constitution and legislation, an arbitrator derives authority only through contract. That is, the arbitrator may only resolve the issues that he is authorized to resolve under the arbitration agreement. Courts retain jurisdiction to decide all other matters. Accordingly, courts have historically divided threshold questions into two categories: questions of arbitrability and procedural issues.
With respect to arbitrability, courts decide whether a party is contractually bound to arbitrate and, if so, whether the arbitration clause’s scope makes the disputed issue arbitrable. Judicial review is generally limited to three issues (1) whether the parties agreed to arbitrate their dispute, (2) whether third parties are bound to arbitrate, and (3) whether the arbitration clause applies to a particular dispute between the parties.
Conversely, procedural questions, which arise after the arbitrator has authority to hear a matter, are within the arbitrator’s providence. These issues only arise once a dispute has become arbitrable. After all, “arbitrators ‘exist’ as dispute-resolving entities only if there is a valid contract so empowering them.” In addition to the merits of the dispute, the arbitrator is empowered to determine procedural matters relating to the statute of limitations, equitable defenses, and similar issues.
Interestingly, to date the Supreme Court has not conclusively determined whether the issue of class arbitration is a matter for the arbitrator or judicial resolution. The Del Webb decision sought to resolve the issue in the Fourth Circuit in light of recent dicta from the Supreme Court and several decisions from other courts.
III. Del Webb Communities Inc. v. Carlson
In 2002, Roger and Mary Jo Carlson signed a sales agreement with PulteGroup and its subsidiary, Del Webb Communities, for the purchase of a lot and the construction of a home in Hilton Head South, Carolina. Under their contract, the Carlsons agreed to arbitrate “any controversy or claim arising out of or relating to “its contract or property acquisition from the defendants.” Six years later, in 2008, the Carlsons sued Pulte and Del Webb, alleging various construction defects. Although the Carlsons initially filed suit individually, they amended the complaint to add class action allegations. At the time of their suit, there were approximately 140 cases pending against Pulte.
Relying on the arbitration clause in their agreement, Pulte moved to dismiss or, in the alternative, to compel arbitration with the Carlsons. The trial court denied the motion, but the Court of Appeals reversed and granted the motion to dismiss on appeal. Subsequently, the Carlsons filed a demand for arbitration with the American Arbitration Association, seeking class arbitration and certification. Pulte filed a petition and complaint to compel bilateral arbitration in federal court, arguing that the issue of whether their agreement authorizes class arbitration is a matter of arbitrability, which is a question for the court to decide. The district court disagreed, finding that the availability of class arbitration is an issue of contract interpretation, which is a procedural question for the arbitrator. Dell Webb appealed to the Fourth Circuit.
Writing for the Fourth Circuit, Judge Diaz held that, unless the parties have clearly and unmistakably provided otherwise, whether an arbitration agreement permits class arbitration is a “gateway” question for judicial determination. Because the Carlson’s purchase agreement did not speak to class arbitration, the parties had not “clearly and unmistakably” left the matter to the arbitrator to decide. Whether class arbitration was proper, therefore, was a gateway issue for judicial determination. The decision is notable because the court not only disavows its unpublished 2007 decision in Davis v. ECPI, wherein the court reached the opposite conclusion, but also the reasoning underlying the Supreme Court’s 2003 plurality decision in Green Tree Financial Corp. v. Bazzle.
In Bazzle, homeowners sued a commercial lender, Green Tree, for failing to provide the legally required forms that would have informed of their rights to select their own lawyers and insurance agents for the loan transaction. When the Bazzles sought class certification, Green Tree moved to stay court proceedings and stay arbitration. A class arbitration proceeding followed and the arbitrator awarded almost eleven million to the defendants along with attorneys’ fees. The following year, two other borrowers brought a similar suit and won just over nine million dollars. The trial court confirmed both awards and Green Tree appealed. The South Carolina Supreme Court took the appeal, consolidated the cases, and held that, because the contracts were silent as to the matter, class arbitration was authorized. The award would stand.
On appeal, the United States Supreme Court examined whether a state court's decision ordering class arbitration was consistent with the FAA. The Court vacated and remanded the cases with the instruction that the arbitrator, not the court, first must determine if class-wide arbitration is available. Given that the decision did not garner support from a majority of the Justices, Green Tree did not create binding precedent (although numerous courts have treated it as such).
Green Tree formed the analytical groundwork for the Fourth Circuit’s unpublished decision in Davis v. ECPI, which held that, in direct contrast to the subsequent decision in Del Webb, “’what kind of arbitration proceedings’ are required under [an] arbitration clause is not a gateway issue for the court to decide.”
Green Tree v. Bazzle has slowly eroded in recent years, however. While the Supreme Court has not expressly overturned the decision, the Court has implicitly rejected its reasoning and emphasized that the Court’s plurality decision is not binding authority. For instance, in a landmark 2010 arbitration decision, Stolt-Nielsen SA v. Animal Feeds Int’l Corp.,, the Supreme Court emphasized that, “[n]o single rationale commanded a majority in Bazzle” and “only the plurality decided that question.” Academics, too, have noted Bazzle’s narrow holding. Relying on recent decisions in Stolt-Nielsen, Concepcion, and Oxford Health Plans, the Del Webb court followed suit, rejected the Court’s reasoning in Green Tree, and declared that the Green Tree holding was no longer good law. The Fourth Circuit reasoned that, given that Green Tree is no longer viable in light of recent Supreme Court decisions, the Fourth Circuit’s ECPI decision, which relied almost exclusively on Green Tree, was not persuasive authority.
There are also compelling policy reasons for the Del Webb holding. At its core, arbitration is a creature of consent, designed to expedite litigation with lower costs, fewer formalities, and specialized adjudicators. Class arbitration upsets those expectations, however, by bogging down the process and increasing the cost of dispute resolution. The stakes are also far greater in class arbitration, where damages can be immense and the future viability of the defendant at stake.
Compounding this problem, errors are also likely to go uncorrected in class arbitration. While class action litigation permits review by appeal and interlocutory appeal, class arbitration does not. Section 10 of the Federal Arbitration Act permits an award to be vacated only on a limited number of grounds. Accordingly, the grounds for vacatur are exceedingly narrow. Without the traditional mechanisms for appeal and judicial review, class arbitration carries both increased risk for defendants and higher costs for both parties. Accordingly, the grounds for vacatur are exceedingly narrow. Without the traditional mechanisms for appeal and judicial review, class arbitration carries both increased risk for defendants and higher costs for both parties. Many fear that class arbitration undermines the benefits associated with arbitration. In many respects, class arbitration eviscerates the traditional benefits of arbitration proceedings by adding additional risk and fewer cost-saving features.
Although the Del Webb decision has not been appealed, the Supreme Court nonetheless has an opportunity to rule on the issue and clarify class arbitration. As noted above, just three months prior to Del Webb, in Chesapeake Appalachia LLC v. Scott Petroleum, LLC, the Third Circuit held that the availability of class arbitration is an issue of arbitrability and reserved for judicial determination. With its recent decisions in Stolt-Nielsen, Rent-A-Center and Concepcion, the Court has demonstrated a keen interest in alternative dispute resolution. Chesapeake presents an opportunity to revisit Bazzle more than ten years later. A decision by the High Court would not only resolve the uncertainty surrounding the viability of Bazzle; it would also provide South Carolina practitioners with much-needed guidance on the issue of class action arbitrability.
 Del Webb Communities, Inc. v. Carlson, 817 F.3d 867 (4th Cir. 2016).
 Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003).
 Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 766 (3d Cir. 2016), see also Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 597–99 (6th Cir.2013) (holding the same).
 9 U.S.C. § 2
 Southland Corp. v. Keating, 465 U.S. 1, 16 (1984).
 Munoz v. Green Tree Fin. Corp., 542 S.E.2d 360, 363 (S.C. 2001).
 Marrowbone Dev. Co. v. Dist. 17, United Mine Workers of Am., 147 F.3d 296, 300 (4th Cir.1998).
 Georgia Cas. & Sur. Co. v. Excalibur Reinsurance Corp., 4 F. Supp. 3d 1362 (N.D. Ga. 2014); See also Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) (“Questions of arbitrability…such as whether parties have valid arbitration agreement at all or whether concededly binding arbitration clause applies to certain type of controversy, are presumptively for courts to decide.”) Of course, as with many default rules of contract, parties may opt out of this framework. Parties may adopt language in an arbitration agreement that is sufficient to give the arbitrators jurisdiction to determine whether a dispute is arbitrable. Contract language submitting the issue of arbitrability to the arbitrator must be clear and unmistakable. Whether the parties have done so is for the court to decide.
David S. Schwartz, Understanding Remedy-Stripping Arbitration Clauses: Validity, Arbitrability, and Preclusion Principles, 38 U.S.F. L. Rev. 49, 80 (2003) (“The arbitrator has no legal existence prior to the finding of a valid arbitration agreement.”).
 Davis v. ECPI Coll. of Tech., L.C., 227 F. App'x 250, 253 (4th Cir. 2007).
 Davis v. ECPI Coll. of Tech., L.C., 227 F. App'x 250, 253 (4th Cir. 2007) (citing Green Tree Fin. Corp., v. Bazzle, 539 U.S. 444, 452 (2003)).
 Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 663, 680 (2010).
 David S. Schwartz, Understanding Remedy-Stripping Arbitration Clauses: Validity, Arbitrability, and Preclusion Principles, 38 U.S.F. L. Rev. 49, 79 (2003) (“Bazzle in the end resolved very little other than the case at hand. “)
 Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010) (discussing benefits of arbitration).
 9 U.S.C. § 10.
 AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 351 (2011).