Class Action Waivers Redux: Ninth Circuit Upholds Arbitration Provision Delegating Enforceability Determination To Arbitrator

Published date24 September 2021
Subject MatterCorporate/Commercial Law, Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Class Actions, Shareholders
Law FirmSheppard Mullin Richter & Hampton
AuthorMs Anna McLean and Michael Lundholm

In Brice v. Haynes Investments LLC, No. 19-15707 (9th Cir. Sept. 16, 2021), the Ninth Circuit considered an appeal by shareholders in Native American tribe-linked online lenders of a district court order denying the shareholders' motion to compel arbitration. The Ninth Circuit reversed the order because, under the terms of the parties' agreement, the enforceability of the arbitration agreement was a question for the arbitrator, not the judge, to decide.

A class of consumers filed suit against investors in the now-defunct online lender Think Finance, alleging that investors violated federal racketeering law, charged consumers interest rates that were usurious under California law, and that tribal sovereign immunity did not apply. The borrowers' loan documents contained an arbitration agreement with a provision delegating to the arbitrator questions concerning its enforceability. The district court denied the defendant shareholders' motion to compel arbitration, holding that a choice of law provision in the parties' agreement requiring the arbitrator to apply tribal law effectively constituted a "prospective waiver" of the plaintiffs' substantive rights to pursue federal statutory claims.

On appeal, the shareholders argued that the lower court erred because it failed to address the threshold question of whether the provision delegating questions of arbitrability to the arbitrator was unenforceable. If the delegation provision was enforceable, then any questions concerning the enforceability of the broader agreement to arbitrate were for the arbitrator to decide.

In an opinion authored by the Hon. Danielle J. Forrest, the Ninth Circuit panel majority agreed with the defendant shareholders. "Where a delegation provision exists, courts first must focus on the enforceability of that specific provision, not the enforceability of the arbitration agreement as a whole." Under the governing Supreme Court precedents of Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) and Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 235 (2013) "the delegation provision is enforceable because...

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