Dell Webb Communities, Inc. v. Carlson, No. 45-1385 (4th Cir. Dec. 9, 2015)
Roger and Mary Jo Carlson (“Plaintiffs”), and the PulteGroup, Inc.’s subsidiary, Del Webb Communities, Inc. (“Defendants”) were parties to a sales agreement. Defendants were to purchase a lot and construct a home for Plaintiffs in Hilton Head, South Carolina. The agreement, which contained an arbitration provision, was signed in March 2002, and, in September 2008, Plaintiffs filed suit in South Carolina state court against Defendants and two other parties. Plaintiffs later were granted leave to amend their complaint—which focused on construction defects—because their lawsuit was one of approximately 140 similar cases pending against Defendants. The complaint was ultimately dismissed, however, based on a ruling by the South Carolina Supreme Court that Plaintiffs’ claims were subject to arbitration.
As a result of the state court decision, Plaintiffs filed a demand for arbitration with the American Arbitration Association. The demand sought class arbitration and class certification. In response to this demand, Defendants filed, in federal district court, a Petition and Complaint to Compel Bilateral Arbitration under section 4 of the Federal Arbitration Act (“FAA”). Defendants argued that whether the sales agreement authorized class arbitration was a question of arbitrability for the court to determine, not a procedural question for the arbitrator.
The district court was unpersuaded by Defendants’ argument and denied Defendants’ motion for partial summary judgment on the issue of whether the parties had agreed to class certification. Defendants appealed that decision.
On appeal, the Fourth Circuit reversed the decision of the district court, holding that whether an arbitration clause permits class arbitration is a gateway question of arbitrability for the court. The court noted that the Supreme Court has identified two categories of threshold questions—procedural questions for the arbitrator, and questions of arbitrability for the court. Procedural questions may include, for example, the application of statutes of limitations, notice requirements, laches, and estoppel. By comparison, questions of arbitrability implicate whether the underlying controversy will proceed to arbitration on the merits.
An exception to this general rule exists where the parties to the arbitration agreement explicitly agree to submit to the arbitrator the question of arbitrability. Where the parties clearly and unmistakably contract for this question to be decided by the arbitrator, the question becomes more “procedural.” In this case, however, the relevant agreement did not indicate that questions of arbitrability would be decided by the arbitrator, nor did it explicitly address the treatment of class actions. As such, the Fourth Circuit concluded that the question was properly addressed by the court. The Fourth Circuit reversed the district court’s denial of Defendants’ motion for summary judgment, and instructed the district court on remand to determine whether the parties had agreed to class arbitration.