Arbitration, which involves agreements between parties to settle disputes in a private forum rather than in court, might seem like a fairly dry area of the law. But recent Supreme Court rulings interpreting the scope of the Federal Arbitration Act have had significant implications in consumer protection, labor, and class action contexts. Justice Antonin Scalia was the prime mover in many of these cases, writing majority opinions in several 5-4 rulings that divided along ideological lines. These rulings, on balance, read the FAA as both trumping state consumer protection law and overriding the ability of class action plaintiffs to pursue collective lawsuits in the courts. Although the U.S. Court of Appeals for the 10th Circuit, on which Judge Neil Gorsuch has served since 2006, does not see many arbitration cases, a look at the arbitration rulings Gorsuch has made there suggests that he is likely to continue the trend on the court in favor of FAA pre-emption.
The Federal Arbitration Act was passed in 1925, largely to address widespread judicial refusal to enforce arbitration agreements in court. Proponents of arbitration argue that it is cheaper and more efficient than litigation; arbitration skeptics argue that it favors businesses and unfairly reduces the options of parties who may not have understood that they were relinquishing their day in court. The FAA makes written arbitration agreements enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” Beginning in the early 1980s, the Supreme Court began to treat what was arguably a procedural statute governing arbitration clauses in federal court as, according to the majority in Southland Corp. v. Keating in 1984, “a national policy favoring arbitration” that pre-empted the authority of states to provide a judicial forum for disputes covered by arbitration clauses. The court’s decision in Southland opened the door to what has been termed “mandatory arbitration,” or inclusion of arbitration clauses in standard, industry-drafted consumer contracts, such as credit card agreements or cell phone contracts. In a series of cases over the last few years, the court has repeatedly rejected lower-court efforts to cut back on arbitration.
Scalia joined the court in 1986, and, as one commentator has noted, his “tenure on the Court overlapped with most of the FAA’s doctrinal developments.” Scalia’s opinions for the court in three relatively recent 5-4 cases illustrate his influence on Supreme Court arbitration jurisprudence. In Rent-a-Center v. Jackson, in 2010, Scalia wrote for a 5-4 majority, holding that a delegation provision in an arbitration contract conferring on the arbitrator exclusive authority to decide questions about the enforceability of the agreement was valid, even when the relevant question was whether the arbitration agreement itself was unconscionable.
Two subsequent cases, AT&T Mobility v. Concepcion, a 5-4 decision in 2011, and American Express Co. v. Italian Colors Restaurant, in 2013, which was decided 5-3 with Justice Sonia Sotomayor recused, focused on the application of the FAA to class actions, which allow consumers to band together in a suit to vindicate claims that might not be worth bringing on a case-by-case basis. In AT&T Mobility, a group of consumers had entered into cell phone contracts that contained arbitration clauses requiring disputes to be resolved individually. Scalia wrote for the majority that the California state-law unconscionability doctrine that required some aggregated avenue for redress to remain open was pre-empted by the FAA. “Arbitration is a matter of contract, and the FAA requires courts to honor parties’ expectations,” he wrote. Italian Colors, in which Scalia’s majority opinion upheld a class-action ban in an antitrust case, extends the sweep of FAA pre-emption to allow enforcement of class-action bans that preclude bringing claims in federal court. Scalia reasoned that because “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim,” the fact that “the plaintiff ‘s cost of individually arbitrating a federal statutory claim exceeds the potential recovery” did not change the outcome.
Because Gorsuch was bound as a court of appeals judge to follow Supreme Court precedent, his arbitration rulings have treated the FAA as establishing a substantive federal law favoring arbitration that pre-empts conflicting state law doctrines. The central question in most of these cases has been whether, under generally accepted principles of contract interpretation, the parties agreed to submit their disputes to arbitration. In answering this question, Gorsuch’s opinions have interpreted the arbitration clauses in light of the overriding presumption in favor of arbitration. For example, in Ragab v. Howard, in 2016, a majority of the three-judge panel upheld a district court’s denial of a motion to compel arbitration, reasoning that conflicting arbitration provisions in six different agreements indicated that there had been no meeting of the minds between the parties. Gorsuch dissented, and would have compelled arbitration because, in his view, “parties to a commercial deal could have hardly demonstrated with greater clarity an intention to arbitrate their disputes and I see no way we might lawfully rescue them from their choice.” He also invoked “the federal policy favoring arbitration embodied in the FAA and armed with preemptive force” in counseling against reliance on a New Jersey doctrine that ruled out arbitration when multiple contracts conflicted as to its terms. And in Chelsea Family Pharmacy v. Medco Health Solutions, in 2009, Gorsuch wrote a concurring opinion, in a case finding that an injury fell within an arbitration clause, that objected to circuit doctrine distinguishing between “broad” and “narrow” arbitration clauses: “There is nothing in the language of the Act that suggests some clauses are more equal than others – a sort of four legs good, two legs bad… Our job is always to enforce the parties’ intent and, absent such clear intent, apply the presumption of arbitrability.”
Gorsuch stressed in his dissent in Ragab that he does not “believe conflicting contract provisions might never render an arbitration agreement void for lack of a meeting of the minds.” In Genberg v. Porter, in 2014, Gorsuch wrote a panel opinion imposing just such an outcome, ruling that the defendants, members of the board of a company from which the plaintiff had been fired, were not bound by the arbitration agreement because they had not signed it. One of the two other arbitration cases in which he wrote focuses on the importance of determining whether an arbitration agreement is valid. In Howard v. Ferrellgas Partners LLP, in 2014, Gorsuch wrote for the panel reversing a district court denial of a motion to compel arbitration. He wrote that rather than deny a motion for arbitration because of a factual dispute about the agreement, the district court was required to move quickly to resolve the dispute. According to Gorsuch, “before the Act’s heavy hand in favor of arbitration swings into play, the parties themselves must agree to have their disputes arbitrated. While Congress has chosen to preempt state laws that aim to channel disputes into litigation rather than arbitration, even under the FAA it remains a ‘fundamental principle’ that ‘arbitration is a matter of contract,’ not something to be foisted on the parties at all costs.”
Because many of the most controversial arbitration cases that come before the court involve class action waivers in the context of contracts of adhesion, traditional principles of contract interpretation will not often come into play, so it is difficult to predict how Gorsuch may rule in such cases. One relevant factor, though, may be Gorsuch’s much-discussed repudiation of Chevron deference, a doctrine once embraced by Scalia that requires judges to defer to agencies’ reasonable interpretations of ambiguities in the statutes they are called on to administer. Gorsuch’s views in this area have significant implications in arbitration cases, particularly in the labor law context. For example, in January, the justices agreed to review three consolidated cases that ask whether agreements to forgo class actions or collective proceedings and instead resolve employer-employee disputes through individual arbitration are enforceable under the FAA or whether, as the National Labor Relations Board has held, such agreements violate the National Labor Relations Act. In a recent dissent, Gorsuch rebuked the NLRB for exceeding its authority under its enabling statute. He may well see these cases as an opportunity to limit the discretion of the NLRB by concluding that its holding invalidating class-action waivers exceeds its authority under federal labor law. Ironically, the result of such an approach would achieve an outcome Scalia would have welcomed – a muscular interpretation of the FAA – through legal reasoning the late justice might not have endorsed.
On February 8, the court informed the lawyers in these three cases that argument would be postponed until October Term 2017, by which time Gorsuch, if he is confirmed, will likely have taken his seat on the court. Although we can’t know for sure, the court may well have decided to defer the cases to avoid a 4-4 tie, which would have left in place conflicting rulings by the lower courts.