Appeals Court: Combining Arbitration Claims is Up to Arbitrator, Not Trial Court
Whether to consolidate multiple arbitration claims is a decision for the arbitrator, and not the trial court, unless the arbitration agreement specifically addresses the issue, the Michigan Court of Appeals has ruled in a published decision.
The ruling in Lauren Bienenstock & Associates, Inc v Lowry, et al (Docket No. 323986) solidifies that, when there is no contractual language indicating otherwise, an arbitrator will determine the procedural question of whether numerous arbitration claims should be combined.
The Bienenstock case began when the defendants sued the plaintiff, claiming they were owed more than $1 million for court reporting services they had provided as independent contractors. The independent contractor agreements included the following arbitration provision:
“Any dispute relating to this Agreement, or breach thereof, shall be settled pursuant to the rules and regulations of the American Arbitration Association (‘AAA’). Either Party requesting arbitration under this Agreement shall make a demand on the other party by registered or certified mail, with a copy to the AAA’s Southfield, Michigan office, which shall be the location of any arbitration hearing. The arbitration shall then take place as noticed by the AAA, and the outcome thereof shall be binding regardless of whether one of the parties fails or refuses to participate.”
Based on this clause, the trial court granted summary disposition to the plaintiff. The defendants appealed, claiming the agreements were unenforceable. The Court of Appeals disagreed in a December 2014 unpublished ruling, Lowry v Lauren Bienentock & Associates, Inc (Docket No. 317516).
When the defendants filed a demand for arbitration with the AAA, the plaintiff brought a declaratory judgment action, asserting the defendants could not pursue a class arbitration. The plaintiff argued a trial court must determine the “gateway issue” of whether class arbitration is allowed, and not an arbitrator.
The Court of Appeals rejected this argument, finding that an arbitrator has the authority under the Federal Arbitration Act, 9 USC § 1, et seq., to determine whether a class arbitration should proceed.
According to the court, there are two scenarios where a trial court can determine whether consolidation is permissible:
if the contract explicitly states the court should decide the issue (i.e., the intent is clear); and
if the parties’ intent in unclear from the face of the contract, the court must make presumptions regarding the parties’ intent, and should only decide an issue if it is a gateway issue involving whether a contract to arbitrate exists, or whether a particular type of claim falls under the arbitration agreement.
In this case, the Court of Appeals noted the arbitration clause did not mention consolidation. Therefore, the court turned to making presumptions about the parties’ intent, and whether a gateway issue existed.
Looking at the arbitration clause at issue, the Court of Appeals pointed out the defendants’ underlying claim for past-due payments fell within the contract’s terms. “Consequently, the issue of who decides whether to consolidate arbitration claims does not fall within the general purview of a gateway issue … and is instead a procedural or subsidiary issue for the arbitrator to decide,” the court said. “Under the facts presented, the issue of consolidation is a procedural one.”
According to the Court of Appeals, an arbitrator is in the best position to decide whether arbitrations should be consolidated. In making this ruling, the court relied on authority from the federal circuit courts and the U.S. Supreme Court, including its decision in Stolt-Nielsen SA v Animal Feeds Int’l Corp, 559 US 662 (2010).
In conclusion, the Court of Appeals held: “The virtual unanimity amongst the federal courts prior to (and after) Stolt-Nielson, holding that consolidation decisions are subsidiary ones left to the arbitrator to decide under the contract (when the contract does not provide for a different venue or otherwise address consolidation), remain persuasive authority, and nothing in the case law since then requires a different conclusion. We therefore agree with and follow the rationale of those cases and hold that, absent any contractual language addressing the issue, whether multiple arbitrations should be consolidated is a procedural or subsidiary issue for the arbitrator to decide.”
