A significant recent decision by the Fourth Circuit confirms that arbitration agreements that contain class-action waiver provisions can be a powerful tool to defeat class certification.  In In re Marriott International, Inc., the Fourth Circuit observed that while “no court has had occasion to expressly hold as much,” the “consensus practice” of courts is to “resolve the import of waivers at the certification stage—before they certify a class, and usually as the first order of business.”  2023 WL 5313006, at *6 (4th Cir. Aug. 18, 2023).  The Fourth Circuit held that courts must address the implication of an arbitration clause containing a class-action waiver before, not after, a class is certified.  And because the district court in this case did not do so, the Fourth Circuit vacated the district court’s class certification ruling.  Id. at *1.

The operative complaint asserted claims under various states’ laws based on alleged harm from a disclosed data leak that resulted in unauthorized access to Marriott guests’ records.  The district court certified Rule 23(b)(3) classes against Marriott for monetary damages on the breach of contract and statutory consumer-protection claims.  Id. at *1.  Although the district court concluded that plaintiffs lacked a class-wide theory of injury for their negligence claims, the court nonetheless certified “issue” classes against Marriott and Accenture (a third-party provider of IT services) on the duty and breach elements of negligence under Rule 23(b)(4).  Id. at *4.  

Among other defenses to class certification, the defendants argued that the class representatives’ claims were not typical of the class because they were all members of Marriott’s “Starwood Preferred Guest Program” (“SPG”).  As SPG members, they had agreed to pursue claims individually in arbitration, rather than as class members.  Id. at *3.  The district court concluded that this raised “serious typicality concerns,” since Marriott intended to argue that the representatives—unlike some of the absent class members—could not pursue class litigation against Marriott.  Id.  To resolve this issue, the district court redefined the classes against Marriott to include only SPG members.  Id.  Based in part on the court’s certification of these damages classes, it concluded that the potential efficiency gains warranted certification of issue classes on the duty and breach elements of plaintiffs’ negligence claims.  Id. at *4.

As a result of the district court’s decision limiting the damages classes to SPG members, every member of the certified classes had agreed to a class action waiver.  The district court acknowledged this issue only in a passing footnote, noting that the enforceability of the class waiver could be resolved along with other affirmative defenses at the merits stage.  Id. at *3.

On appeal, the Fourth Circuit decided that the district court’s failure to properly consider the impact of the arbitration clause was fatal to the entire certification order.  The Fourth Circuit explained. “That error . . . affected the certification of [the] negligence issue classes . . .  because certification of the Marriott damages classes was the lynchpin of the district court’s Rule 23(b)(3) superiority analysis.”  Id. at 5. 

The Fourth Circuit reasoned that addressing class waivers before certification is “consistent with the nature of class actions and the logic of class waivers.”  Id.  Class certification is the “key moment in class action litigation,” and thus the essential purpose of a class waiver would be undermined if a class is certified despite plaintiffs’ contractual agreement to pursue litigation individually.  Id. at *6.  Thus, the enforceability of the class action waiver should have been resolved before certifying the class, rather than at the merits stage.

In re Marriott International, Inc. thus indicates that arbitration clauses are important tools in defeating class certification, and defendants should thus rigorously assert this defense at the pre-certification stages of litigation.