The California Supreme Court has held that an arbitrator, rather than a court, has the power to decide whether class claims can proceed in arbitration, where the parties’ arbitration agreement is ambiguous on the question.

The background of this case is as follows. When Plaintiff Timothy Sandquist was hired by Defendant Lebo Automotive (“Lebo”), a car dealership, he signed multiple arbitration agreements as a condition of employment. Plaintiff later sued Lebo and its owners, alleging racial discrimination, harassment, and retaliation. The complaint sought to bring claims on behalf of a “class of current and former employees of color.” Defendants filed a motion to compel arbitration based on the arbitration agreements. The trial court granted the motion but struck the class allegations, concluding that the arbitration agreements did not permit class arbitration. On appeal, the California court of appeal reversed in part, ruling (1) the trial court erred in concluding that existing precedent compelled the court to determine whether class arbitration was available; and (2) the availability of class proceedings under an arbitration agreement is for an arbitrator to decide in the first instance. Defendants petitioned for review to the California Supreme Court, contending that the court of appeal’s decision contributed to an existing state and federal split over who should decide whether an arbitration agreement permits class arbitration, and review was granted.

In a closely divided opinion, the California Supreme Court affirmed the court of appeals decision but on different grounds, holding that (1) there is no universal rule as to whether courts or arbitrators should decide the availability of class arbitration, but rather, who decides is in the first instance a matter of agreement with the parties’ agreement subject to interpretation under state contract law (and decided on a case by case basis); and (2) applying state law, that the parties’ arbitration agreement in this case included broad and all-encompassing language requiring an arbitrator to resolve the question of who decides whether class arbitration is permissible. In its analysis, the Court, specifically focusing on the agreements’ terms and resolving any ambiguities in favor of the non-drafting party, noted that the arbitration agreements at issue contained several indications that the parties intended for an arbitrator to decide the class arbitration issue. First, the agreement to submit any claim, dispute, or controversy to an arbitrator suggested a choice to have an arbitrator decide the class arbitration issue. Second, since the agreements give an arbitrator authority to decide any claim connected to employment, the class arbitration question that directly arises from underlying employment claims should be answered by an arbitrator. Third, because Lebo specifically excluded certain claims from the arbitration agreements, it “might well have specified other matters not for the arbitrator, such as the availability of class arbitration at issue here, but did not.” Finally, disagreeing with several federal courts of appeals, the California Supreme Court also held that the Federal Arbitration Act (the “FAA”) does not contain any presumption in favor of a court deciding this issue.

Sandquist v. Lebo Automotive, Inc., No. S220812 (Cal. July 28, 2016).