Under the Federal Arbitration Act, it is well settled that courts have the authority to decide "gateway" issues relating to enforcement and interpretation of arbitration agreements. Less clear, until Reed Elsevier v. Crockett, Case No. 12-3574 (6th Cir. Nov. 5, 2013), was whether the question of class arbitration was a gateway issue for the courts or a substantive one for an arbitrator. The Reed Court held, as an issue of first impression, that the question of whether an arbitration agreement provides for class arbitration is a gateway issue for the courts. The Court further held that an arbitration agreement does not allow for class arbitration unless the agreement specifically says so, and that failure to include a class arbitration provision does not make the agreement unconscionable as a matter of law.
In Reed, lawyer Craig Crockett had a contract with legal research provider LexisNexis which included an arbitration provision. Crockett disputed some of his LexisNexis charges, but the terms of the contract made arbitration of individual claims "economically unfeasible." So in 2010, Crockett filed a demand for arbitration with the American Arbitration Association on behalf of himself and two classes (law firms that were charged fees by LexisNexis and clients to whom those additional fees were ultimately passed). Crockett sought more than 500 million dollars in damages for the classes.
LexisNexis responded by suing Crockett in federal court, asking the district court to declare that its contract with Crockett did not allow for class arbitration. The district court, after considering the contract and recent case law, agreed and granted judgment in favor of LexisNexis. Crockett appealed, on two grounds. First, Crockett argued that an arbitrator, and not the district court, should have decided whether the arbitration agreement allowed for class arbitration. Second, Crockett argued that the district court erred by concluding that the agreement did not allow class arbitration and, that if the agreement did prohibit class arbitration, it was unconscionable as a matter of law.
The Sixth Circuit affirmed the district court on both counts. First, the Reed Court acknowledged that courts must resolve "gateway issues" concerning the enforcement of arbitration agreements while more substantive issues – such as waiver – are to be decided by the arbitrator. Although the United States Supreme Court has never directly addressed this question, it recently suggested that the question of class arbitration is one for the courts. Thus, the Reed Court held, as a matter of first impression, that class arbitration is a gateway issue. It was therefore appropriate for the district court to decide whether Crockett could bring a class arbitration action against LexisNexis.
The Court also upheld the district court's conclusion that the LexisNexis arbitration provision did not permit class arbitration, for several reasons. First, the Court noted that the contract did not mention class arbitration at all. Second, the agreement was limited to arbitration of all claims arising from or in connection with "this Order" (as opposed to other customer's orders). Finally, the Reed Court rejected Crockett's argument that rejection of class arbitration made the agreement unconscionable as a matter of law. Although the Court agreed that the contract was a one-sided adhesion contract which favored LexisNexis, it held that the absence of a provision allowing class arbitration does not make an arbitration agreement unenforceable as a matter of law.
Following Reed, it appears that class arbitration will not be permitted in the Sixth Circuit unless the agreement expressly allows for it. Reed also affirms that it is difficult to invalidate an arbitration agreement in this Circuit on grounds of unconscionability even when the contract is an adhesion contract between a corporation and an individual.
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