Consumer Finance Insights
March 27, 2018

Supreme Court Grants Cert. to Determine Who Decides Arbitrability

On February 26, 2018, the Supreme Court granted certiorari in New Prime, Inc. v. Oliviera, 17-340, a First Circuit case arising from the District of Massachusetts.  The case is posed to resolve a split among the circuit courts as to who – the court or the arbitrator – decides whether a case should go to arbitration under the Federal Arbitration Act (FAA).  The case also raises interesting FAA exception and preemption issues.

According to the Court, the questions presented are:

  1. Whether a dispute over applicability of the FAA’s Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause; and
  2. Whether the FAA’s Section 1 exemption, which applies on its face only to “contracts of employment,” is inapplicable to independent contractor agreements.

The facts of the underlying case are fairly straightforward.  Plaintiff trucking employee brought a putative class action against the company for which he worked, New Prime, Inc., for violation of various labor laws.  New Prime moved to enforce the arbitration clause in the independent contractor agreement with Plaintiff and compel arbitration under the FAA.  Plaintiff responded that the FAA did not apply to his contract, due to exceptions articulated in Section 1, because he was a transportation worker and independent contractor.  Section 1 of the FAA does not apply “to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

New Prime argued that the applicability of the FAA, and thus the arbitrability of the action, should be decided by an arbitrator, not the court.  The District of Massachusetts denied the motion and instead ordered discovery, so that it could determine whether Section 1 of the FAA applied.  Oliveira v. New Prime, Inc., 141 F. Supp. 3d 125 (D. Mass. October 27, 2015).  New Prime then appealed.

On May 12, 2017, the First Circuit Court of Appeals affirmed, holding that “the question of whether the § 1 exemption applies is an antecedent determination that must be made by the district court before arbitration can be compelled under the FAA.”  857 F.3d 7, 15 (2017).  The First Circuit noted the split between the Eighth Circuit, which held that an arbitrator should decide, and the Ninth Circuit, which held that the court should decide, but ultimately sided with the Ninth Circuit.  Id. at 12.  The First Circuit also held that, under the FAA, “‘contracts of employment … means agreements to perform work and includes independent-contractor agreements.”  Id. at 23.  However, because Plaintiff was a “transportation worker,” the FAA did not apply.  Id. at 22-23.  The First Circuit further noted that its holding only applies when arbitration is sought under the FAA, and not when compelled under other laws, including state arbitration acts.  Id. at 24.

The Supreme Court ruling will be an important decision for any cases involving contracts with arbitration clauses.  The outcome of this matter will determine the venue for disputes over whether a case should be arbitrated, as well as the enforceability of certain arbitration clauses, under the FAA.  In addition, the decision may impact the preemptive effect of the FAA, as well as whether courts applying state law will enforce certain arbitration provisions, including class action waivers, as permissible under the FAA.