Wednesday, November 16, 2016

Fifth Circuit Holds Arbitrability is a Gateway Issue Where Arbitration Agreement Exists

Originally published by Beth Graham.

Bank Teller Counting Money for Customer --- Image by © Duncan Smith/Corbis

The Fifth Circuit Court of Appeals has ordered a worker’s Fair Labor Standards Act (“FLSA”) lawsuit to arbitration.  In Reyna v. International Bank of Commerce, No. 16-40057 (Oct. 4, 2016), a Texas bank teller, Reyna, filed a proposed collective action lawsuit against his employer, International Bank of Commerce (“IBC”), on his own behalf and on behalf of other similarly situated bank workers over the bank’s purported failure to pay overtime to its tellers.  In response, IBC filed a motion to compel the dispute to arbitration based on an employment agreement that was signed by Reyna.  After a district court denied the bank’s motion because the certification process for a FLSA action was not yet completed, IBC filed an interlocutory appeal with the nation’s Fifth Circuit.

On appeal, the Fifth Circuit Court of Appeals said the district court committed error when it failed to consider the issue of arbitrability prior to issuing its order denying the bank’s motion to compel arbitration.  The appellate court stated arbitrability was a gateway issue in situations where a defendant “promptly moved to compel the sole plaintiff to arbitrate his claim, pursuant to an arbitration agreement that undisputedly exists.”

The Fifth Circuit added:

In addition, we have instructed that a district court must consider an agreement to arbitrate as a “threshold question.” Auto Parts, 782 F.3d at 196. To hold otherwise would present a justiciability issue: a court could conditionally certify a collective action solely on the basis of a claim that the plaintiff was bound to arbitrate and was therefore barred from bringing it in court in the first place. Cf.  James v. City of Dallas, 254 F.3d 551, 563 (5th Cir. 2001) (“If the litigant fails to establish standing, he or she may not seek relief on behalf of himself or herself or any other members of the class.” (citing O’Shea v. Littleton, 414 U.S. 488, 494 (1974)). Furthermore, deciding whether Reyna should be compelled to arbitrate his FLSA claim prior to conditional certification more closely aligns with the “national policy favoring arbitration” embodied by the FAA. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 346 (2011) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006)); see also Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 297 (5th Cir. 2004) (“[T]here is a strong presumption in favor of arbitration . . . .”). Accordingly we have instructed that “a court is required to enforce a party’s commitment to arbitrate his federal statutory claims.” Carter, 362 F.3d at 297. We conclude that the district court erred when it deferred deciding the “threshold question” of whether Reyna is required to arbitrate his claims until after the conditional certification stage. Auto Parts, 782 F.3d at 196.  Upon a motion to compel arbitration, a court should address the arbitrability of the plaintiff’s claim at the outset of the litigation.

The United States Court of Appeals for the Fifth Circuit next stated only an arbitrator has the authority to decide the issue of arbitrability before reversing the district court’s decision and remanding the case with instructions to compel arbitration.

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Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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