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Decided: March 28, 2016

The Fourth Circuit reversed, vacated, and remanded the district court’s holding.

Roger and Mary Jo Carlson entered into a sales agreement with PulteGroup, Inc. and its subsidiary Del Webb Communities, Inc. (together “Pulte”) for the purchase of a lot and construction of a home in Hilton Head, South Carolina. The agreement contained an arbitration clause. Following the Carlsons’ attempt to arbitrate class-action claims against Pulte under the agreement, and Pulte’s efforts to limit arbitration to the Carlsons’ claims, the district court held that the availability of class-action arbitration under an arbitration agreement is a procedural question for the arbitrator to decide, rather than a question for the court.

In response to the district court’s dismissal of the claims, the Fourth Circuit held that because the primary goal in enforcing an arbitration agreement is to “discern and honor party intent, and because of the fundamental differences between bilateral and class arbitration—which change the nature of arbitration altogether— [the question of whether] parties agree to class arbitration is a gateway question for the court.” As such, the Court remanded the case for the district court “to determine whether the arbitration clause permits class arbitration.”

The facts of the case are not in dispute. Following the Carlsons’ signing of the agreement containing the arbitration clause, the Carlsons filed suit against Pulte and two other parties that raised claims of construction defects in the construction of their house. Later, the Carlsons moved to amend their complaint to add class-action allegations because their claim was one of approximately 140 like cases pending against Pulte.

Despite the Carlsons’ objections, the Fourth Circuit ruled that the claim was appropriate for federal jurisdiction. In reviewing the district court’s holding regarding whether or not an arbitration agreement allows for class-action claims, the Fourth Circuit turned to the Supreme Court. The Fourth Circuit noted that the Court has not conclusively ruled on who gets to decide whether an arbitration agreement provides for class arbitration; however, the Court has provided by some guidance. As pointed out by the Fourth Circuit, the evolution of Supreme Court holdings on this issue have formulated the rule that “whether an arbitration agreement authorizes class arbitration presents a question as to the arbitrator’s power, which requires judicial review.” Moreover, the Fourth Circuit adopted the rule that whether an arbitration agreement authorizes class actions is a question of arbitrarily, which is a question for the court.

Accordingly, because the contract between the parties in this case made no mention of whether class actions would be allowed, the Fourth Circuit held that the district court erred in concluding that the question was a procedural one for the arbitrator. Therefore, the Fourth Circuit reversed the district court’s order denying Pulte’s motion for partial summary judgment, vacated the judgment dismissing the petition, and remanded the case for further proceedings in determining whether class arbitration was appropriate. In its conclusion, the Fourth Circuit tasked the district court with determining whether the parties agreed to class arbitration.

Full Opinion

Brandon Gregg