Last September, we reported on a 2-1 Ninth Circuit decision holding that even if an arbitration clause appears to be unenforceable under the prospective waiver doctrine, a delegation provision requiring the arbitrator to decide that issue in the first instance is still enforceable. Brice v. Haynes Invs., LLC, 13 F.4th 823 (9th Cir. 2021). This decision reversed the district court’s order denying defendants’ motion to compel arbitration. Because the district court action was not stayed pending the appeal, it proceeded through class certification and pretrial motions. The Ninth Circuit now has vacated the panel decision and decided to rehear the case en banc.
Three sets of amicus briefs filed by over ten public interest organizations in support of the rehearing petition raised various issues with the majority opinion. For example:
- One brief, submitted by two amici, points out that it is unclear what will happen to the class certified by the lower court. If an arbitrator agrees with a plaintiff that the arbitration agreement is void, and the plaintiff re-files claims in federal court, can that plaintiff bring class claims on behalf of everyone? Or can that plaintiff bring class claims on behalf of only putative class members who have themselves brought arbitrations and received rulings that the arbitration agreement is void? See Dkt. No. 74 at 16–17.
- Another brief, submitted on behalf of eleven amici, highlights the effect of decisions that protect payday loan companies, describing payday loans as “designed to be ‘debt traps’ for consumers,” as targeting consumers that may not have the ability to repay them, and as having usurious interest rates that “can fall anywhere from 381% to 782%.” Dkt. No. 80 at 10–11.
- The final amicus brief argues that because arbitrations are unfair and not efficient, arbitration agreements are “not worthy of enforcement by federal courts” at all. Dkt. No. 77 at 19–20.
It is unknown how the full Ninth Circuit will rule. Even if the full court reverses the panel decision, the court can avoid some of the weighty issues raised by amici if it chooses to adopt the path proposed by the Brice dissent. In that dissent, Judge Fletcher interpreted the delegation clause in the agreement at issue as prohibiting the arbitrator from applying federal or state law to the threshold issue of whether the arbitration agreement is enforceable. 13 F.4th at 845. For that reason, according to Judge Fletcher, the delegation provision was “invalid” because it created the “foreordained result that Plaintiffs will be required to arbitrate under an agreement that categorically forecloses relief on their federal and state claims.” Id. Because Judge Fletcher further found that the arbitration agreement as a whole prohibited plaintiffs from raising potential federal claims, he found the agreement as a whole was invalid. Id. at 845–856.
Were the Ninth Circuit to adopt this approach, it would leave open the question of what happens when (i) a delegation clause does permit the arbitrator to apply federal and state law to decide whether that agreement is enforceable in a situation where (ii) the arbitration agreement as a whole still plainly violates the prospective waiver doctrine. That would, in turn, leave some of the issues raised by amici above for another day. For example, could a company avoid class action claims with an arbitration agreement that is not enforceable, but has a delegation clause that is enforceable? Adoption of the dissent’s position would not resolve the answer to that question.