Daily Blast July 28, 2016

Finally, the Supreme Court weighs in on who decides whether an arbitration agreement permits arbitration on a class wide basis -- the court or the arbitrator. In Sandquist v. Lebo Automotive, Inc. (July 28, 2016, S220812) __ Cal.4th __, the California Supreme Court held that no universal rule allocates the decision in all cases to either arbitrators or courts. Rather, who decides is in the first instance as a matter of agreement. (Slip opn., p. 1.) Thus, courts must turn to the arbitration agreement in each case when reaching a decision. 

The defendant, Lebo Automotive, Inc. (“Lebo”) hired the plaintiff to work as a salesperson at an automotive dealership. Lebo required plaintiff to sign several documents, including an arbitration agreement, as a condition of his employment. (Slip opn., p. 2.) Later, plaintiff sued Lebo for racial discrimination and sought to bring a class action. Lebo moved to compel individual arbitration. (Ibid.) The trial court granted Lebo’s motion to compel arbitration and determined that it would decide whether class arbitration was available. (Id. at p. 3.) The court, finding the arbitration agreements did not permit class arbitration, struck the class allegations and dismissed the class claims with prejudice. The Court of Appeal reversed in part holding the availability of class arbitration was a question of contract interpretation for the arbitrator to decide. (Ibid.) Lebo petitioned for review on the existing state and federal split over who should decide whether an arbitration agreement permits class arbitration. The Supreme Court granted review. (Ibid.)

The Supreme Court noted that no universal one-size-fits-all rule allocates the question to one decision-maker or the other in every case. Rather, who decides arbitrability turns upon what the parties agreed about that matter. (Slip opn., p. 4.) Thus, in analyzing who decides arbitrability, the agreement is the mandatory starting point. (Ibid.) In the presence of ambiguity, the court turns to other principles applicable to the interpretation of arbitration clauses and contracts generally. (Id. at p. 9.) The court next held that this examination must be conducted under state law because it is a matter of contract interpretation. (Id. at p. 5.) In this case, the Supreme Court held that the parties arbitration provisions allocated the decision on the availability of class arbitration to the arbitrator, rather than reserving it for a court. (Id. at p. 12.) The court also held that nothing in the FAA supports the presumption that the question should be submitted to a court rather than an arbitrator unless the parties have provided otherwise. (Id. at p. 29.)

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