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Texas Supreme Court Clarifies Requirements for Arbitration Agreements: Arbitrability of Class Claims is an Issue for Courts to Decide Unless the Arbitration Agreement Clearly Provides Otherwise

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Reversing a fifteen-year precedent, on November 22, 2019, the Texas Supreme Court held that courts, and not arbitrators, should decide whether class claims are arbitrable unless the parties have unambiguously agreed otherwise.  In Robinson v. Home Owners Management Enterprises, Inc., the plaintiffs sought to pursue claims on behalf of a putative class in an arbitration where the plaintiffs already prevailed on their individual claims.  The defendants filed a motion with the trial court arguing that (1) the arbitration agreement did not authorize class arbitration, and (2) only the court could make that determination.  Both the trial and appellate courts agreed with the defendants, and the Texas Supreme Court granted the plaintiffs' petition for review.

In its opinion, the Court acknowledged that in 2004 it had relied on a plurality opinion in Green Tree Financial Co. v. Bazzle, 539 U.S. 444 (2003), as holding “that the arbitrator has the power to rule on class certification issues when the contract commits all disputes arising out of the agreement to the arbitrator.”  Robinson, 2019 WL 6223128, at *5 (citing In re Wood, 140 S.W.3d 367, 368–69 & n.1 (Tex. 2004)).  But subsequent United States Supreme Court opinions had clarified that “whether the availability of class arbitration is a question of arbitrability” remained an open question.  Id. at *7 (quoting Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 n.2 (2013)).  Additionally, every federal circuit that addressed the question following those clarifications “has concluded that class arbitrability is for the courts to determine as a gateway matter absent clear and unmistakable language delegating arbitrability matters to the arbitrator.”  Id.

The Texas Supreme Court noted that those circuit court decisions were largely animated by two persuasive rationales.  First, class arbitration entails contract-formation issues, as it requires determining whether presently binding arbitration agreements exist as to each class member.  Second, class arbitration is so obviously, structurally, and fundamentally different from bilateral arbitration that an agreement to class arbitration cannot be inferred from an agreement to bilateral arbitration.  The Court therefore reversed its prior precedent and held: “arbitrability of class claims is presumptively for the court, but ultimately depends on what the parties’ contract says about the matter.”  Id. at *9.

To overcome that presumption, parties must clearly and unmistakably delegate arbitrability determinations to the arbitrator.  Although “[m]agic words are not necessarily required” to do so, silence cannot speak “with unmistakable clarity.”  Id. at *11 (quoting Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 632 (Tex. 2018)).  Because the plaintiffs’ arbitration agreement was silent “about ‘who decides’ arbitrability questions,” the Court held that their class-claim arbitrability was a matter for the courts.  Id. 

The Court next addressed whether there was any basis to refer the class claims against the defendants to arbitration, concluding that there was not.  It reasoned that the parties’ bilateral arbitration agreement—which made no reference to class claims—could not give rise to an inference that the parties agreed to class arbitration given the “‘crucial differences’ between individual and class arbitration.”  Id. at *12 (quoting Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1419 (2019)).

In light of the Texas Supreme Court’s decision in Robinson, parties who prefer arbitrability questions and class claims to be decided in front of an arbitrator, rather than a Texas court, should draft arbitration agreements to explicitly empower the arbitrator to adjudicate those issues—silence or ambiguity will not suffice. 

 

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