Robinson v. Home Owners Management Enterprises, Inc.
Opinion by Justice Guzman (linked here)
This past summer, the United States Fifth Circuit held that whether arbitration under the Federal Arbitration Act may proceed on a class rather than an individual basis is a “gateway issue” to be decided by the court and not the arbitrator, absent the parties’ “clear and unmistakable” agreement to the contrary—joining every other circuit court to have considered the issue. 20/20 Communications, Inc. v. Crawford, 930 F.3d 715 (5th Cir. 2019). Fifteen years earlier, in In re Wood, the Supreme Court of Texas had held the opposite, that “issues of class arbitration are for the arbitrator to decide.” 140 S.W.3d 367, 368 (Tex. 2004). But the ruling in Wood was predicated on language in federal cases that has been “walked back” in more recent decisions. And so, given the opportunity, the Texas Court has now recanted, overruled In re Wood, and joined the majority of courts in holding that class arbitrability is for the court to decide rather than the arbitrator, unless the parties have clearly and unmistakably agreed otherwise.
The Robinsons sued Home Owners Management Enterprises (clever acronym, “HOME”) for poor construction of their new house and for HOME’s failure to repair defects. HOME moved to compel arbitration of the Robinsons’ claims based on provisions in their home warranty. While the matter was pending in arbitration, the Robinsons attempted to add class-action allegations. The arbitrator bifurcated those class issues and proceeded to hearing on the Robinsons’ individual claims. After the arbitrator ruled in their favor on those claims, the Robinsons returned to court, asserted class claims, and demanded that HOME be compelled to arbitrate those claims on a class-wide basis. The trial court, however, held that the issue of class arbitration was for it to decide, rather than the arbitrator, and then ruled that the HOME arbitration agreement did not provide for class arbitration. The Fort Worth Court of Appeals affirmed. The appeals court duly noted that the Supreme Court of Texas previously had held in In re Wood that class arbitrability would be delegated to the arbitrator, rather than the trial court. But it went on to analyze the federal decisions that had addressed the issue after In re Wood, determined that this more recent authority “effectively abrogated the legal premise on which Wood was based,” and concluded the Court likely would now decide the issue differently. It was right.
After reviewing the more recent federal authority for itself, the Supreme Court overruled In re Wood and held, “with the benefit of a more full-bodied jurisprudential debate,” that class arbitrability is “not a procedural question presumptively for the arbitrator,” but, instead—
“(1) arbitrability of class claims is a ‘gateway’ issue for the court unless the arbitration agreement ‘clearly and unmistakably’ expresses a contrary intent; (2) ‘[a] contract that is silent on a matter cannot speak to that matter with unmistakable clarity’; and (3) an agreement to arbitrate class claims cannot be inferred from silence or ambiguity—an express contractual basis is required.”
The HOME arbitration agreement did not provide for delegation of arbitrability to the arbitrator or even mention class arbitration. And the Court rejected the Robinsons’ argument that the “broad and sweeping” language of the agreement’s arbitration clause was sufficient to support an inference of intent to delegate. The Court therefore could not infer the parties “clearly and unmistakably” intended to entrust such issues to the arbitrator, and affirmed the lower courts’ rulings on this issue, as well.
The Supreme Court left two issues unresolved, or at least unaddressed. First, the Robinson decision, like the federal cases it found persuasive, dealt with arbitration under the FAA, because the HOME agreement specifically referenced that statute. The Court did not discuss whether the same result would follow under the Texas Arbitration Act. But there is little reason to think it would not. Second, the Court noted that many courts have found “clear and unmistakable” intent to delegate threshold issues to the arbitrator where the agreement expressly incorporates the broad AAA arbitration rules. The HOME agreement however, neither referenced nor incorporated the AAA rules. So, the question whether incorporation of those rules would demonstrate the necessary “clear and unmistakable” intent to delegate arbitrability to the arbitrator was “not presented here,” and the Supreme Court declined to address it.