Pamela Herrington v. Waterstone Mortgage Corporatio
907 F.3d 502
7th Cir.2018Background
- Pamela Herrington sued Waterstone for FLSA overtime/minimum-wage violations (collective action) and breach of contract (Rule 23 class claim); she had signed an employment arbitration agreement.
- The arbitration clause stated disputes would be arbitrated under AAA employment rules and that arbitration "may not be joined with or join or include any claims by any persons not party to this Agreement."
- The district court compelled arbitration but struck the sentence forbidding joinder/class/collective proceedings as unlawful under the NLRA (relying on NLRB precedent) and directed the arbitrator to allow joinder/collective proceeding.
- The arbitrator proceeded with a collective (opt-in) arbitration, interpreting the AAA rules incorporation to permit class/collective arbitration, and ultimately awarded > $10 million to Herrington and 174 opt-in claimants.
- After the Supreme Court decided Epic Systems v. Lewis (holding that such waivers do not violate the NLRA), Waterstone appealed, arguing the waiver was lawful and the collective arbitration exceeded the parties’ agreement. The Seventh Circuit vacated enforcement of the award and remanded for the district court to determine whether the agreement permits class/collective arbitration.
Issues
| Issue | Plaintiff's Argument (Herrington) | Defendant's Argument (Waterstone) | Held |
|---|---|---|---|
| Validity of the waiver barring joinder/class/collective arbitration | Waiver violated NLRA and was therefore unlawful (so it should be struck) | Waiver is valid and enforceable; it bars class/collective arbitration | Epic Systems makes the waiver lawful; district court erred in striking it (waiver valid) |
| Whether the arbitration agreement affirmatively permits class/collective arbitration despite the waiver | Agreement’s incorporation of AAA employment rules (and supplementary rules) shows consent to class/collective arbitration | The waiver and the agreement contain no affirmative evidence of consent to class/collective arbitration | Court treated the argument as plausible enough to require adjudication, but did not resolve merits; remand for district court to decide whether agreement affirmatively authorizes class/collective arbitration |
| Who decides whether class/collective arbitration is available (threshold arbitrability vs. substantive arbitrator question) | The arbitrator may decide (party argued arbitrator had done so) | Court should decide gateway arbitrability questions | Availability of class/collective arbitration is a gateway question of arbitrability for the court to decide (unless parties clearly and unmistakably delegate that question to the arbitrator) |
| Effect of a court finding the agreement requires single-claimant arbitration | If court finds class/collective arbitration authorized, award may be confirmed | If court finds only single-claimant arbitration authorized, collective award must be vacated and arbitration redone for single claimants | On remand, district court must conduct threshold inquiry; if it finds single-claimant requirement, it should vacate the award and send matters back to arbitration individually |
Key Cases Cited
- Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) (Supreme Court holds class/collective-waiver clauses do not violate the NLRA)
- Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) (class arbitration requires affirmative contractual consent)
- Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013) (distinguishes gateway arbitrability questions)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (parties may agree to arbitrate gateway arbitrability questions; delegation must be clear and unmistakable)
- John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964) (courts decide whether parties agreed to arbitrate a dispute)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (class arbitration is a fundamental structural change from bilateral arbitration)
- Hall Street Assocs., LLC v. Mattel, Inc., 552 U.S. 576 (2008) (parties may not expand judicial review of arbitral awards by contract)