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Employer Law Report

The Sixth Circuit And Ohio Supreme Court Hand Two Major Class Action Wins To Defendants

Posted in Employment Class & Collective Actions

On November 5, 2013, the Sixth Circuit Court of Appeals and Ohio Supreme Court handed down a pair of class action decisions that are major wins for companies and employers. The Sixth Circuit held that courts, not arbitrators, must decide whether an arbitration clause permits classwide arbitrations—and that an arbitration clause that is silent on the issue bars classwide arbitrations. The Ohio Supreme Court followed recent decisions from the United States Supreme Court and held that trial courts must conduct a rigorous analysis when ruling on class certification, including resolution of factual disputes, factual findings and an examination of the merits where necessary. Both decisions addressed issues that have been vigorously debated by parties and lower courts, and they unambiguously did so in favor of class action defendants.

The Sixth Circuit held that courts, not arbitrators, must decide the “gateway” issue of whether an arbitration clause permits classwide arbitration—and that clauses that are silent on the issue do not permit classwide arbitrations.

In Reed Elsevier, Inc. v. Crockett, No. 12-3574, (6th Cir. Nov. 5, 2013), the plaintiff was a Texas attorney who alleged that his firm was being charged steep fees for using research databases outside of its LexisNexis Subscription Plan without any displayed warning. The parties’ contract contained an arbitration clause that was silent on the issue of classwide arbitration. Crockett filed a classwide arbitration demand for $500 million on behalf of two putative classes, and LexisNexis asked a federal district court to declare that the arbitration clause did not authorize classwide arbitration. The district court awarded judgment to LexisNexis.

On appeal, Crockett argued that an arbitrator, rather than a court, should have decided whether the arbitration clause authorizes classwide arbitration. The Sixth Circuit disagreed. Resolving an issue left open by the United States Supreme Court, it held that “the question whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved ‘for judicial determination unless the parties clearly and unmistakably provide otherwise.’” The Sixth Circuit concluded that because the arbitration clause was silent on the issue of classwide arbitrability, it did not “clearly and unmistakably” assign that question to an arbitrator and the court was therefore the proper decisionmaker.

Turning to the parties’ arbitration clause, the Sixth Circuit held that because it did not expressly address classwide arbitrations it must be read to bar them. The court felt compelled to reach this conclusion even though “[t]he idea that the arbitration agreement in this case reflects the intent of anyone but LexisNexis is the purest legal fiction,” the arbitration clause appeared in an “adhesion contract” and its provisions made Crockett’s individual claim “economically unfeasible.” Nevertheless, the Sixth Circuit concluded that under United States Supreme Court precedent, the arbitration clause was not unconscionable and it must be interpreted to bar classwide arbitrations.

Reed Elsevier is a major win for companies and employers. Classwide arbitrations are effectively barred unless they are expressly authorized by an arbitration clause. Defendants can ask courts to enforce this limitation at the outset and need not submit the question to an arbitrator, who may rule differently and whose decision is not easily appealable. Finally, plaintiffs cannot avoid these results by arguing that the parties’ contract is one-sided, adhesive or unconscionable. All of these holdings are a major win for companies and employers that do not want to be forced to defend class arbitrations.

The Ohio Supreme Court effectively overruled a prior decision by holding that trial courts must “rigorously analyze” class certification requirements, including resolution of factual disputes, factual findings and an examination of the merits where necessary.

In Cullen v. State Farm Mut. Auto. Ins. Co., 2013-Ohio-4733, the Ohio Supreme Court reversed a decision certifying a class of policyholders who alleged that State Farm failed to disclose benefits available for claimants with damaged windshields. Applying the United States Supreme Court’s recent class action decisions in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) and Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), the Ohio Supreme Court held that (1) a trial court’s “rigorous analysis” at the class certification stage must “resolve factual disputes” and make factual findings with regard to each class action prerequisite, and (2) trial courts may examine the underlying merits of a claim where necessary to its rigorous analysis, effectively overruling Ojalvo v. Bd. of Trustees of Ohio State Univ., 12 Ohio St. 3d 230 (1984).

Cullen answered the question of whether Comcast and Wal-Mart apply to Ohio class actions (an issue that had been debated by lower courts) in the affirmative, and “clarified” a prior decision that some lower courts had interpreted as barring any examination of the merits at the class certification stage. For the first time, the Ohio Supreme Court held that trial courts must resolve factual disputes and make factual findings at the class certification stage as part of its required “rigorous analysis” of whether a proposed class should be certified. These holdings will result in greater scrutiny by trial courts at the class certification stage and are a major win for companies and employers that defend class actions in Ohio state courts.