Rickenbaugh v. Power Home Solar, LLC, 2019 NCBC 79.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 19 CVS 244
JAMES RICKENBAUGH; and MARY RICKENBAUGH, Individually and on Behalf of all Others Similarly Situated, ORDER AND OPINION ON Plaintiffs, DEFENDANT’S MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO v. COMPEL BILATERAL ARBITRATION POWER HOME SOLAR, LLC, AND STAY PROCEEDINGS
Defendant.
1. THIS MATTER is before the Court upon Defendant Power Home Solar,
LLC’s (“Power Home”) Motion to Dismiss or, in the Alternative, to Compel Bilateral
Arbitration and Stay Proceedings (the “Motion”). (ECF No. 15.)
2. After considering the Motion, the related briefs, and the arguments of
counsel, the Court hereby DENIES the Motion, DEFERS to an arbitrator to be
selected by the parties the determination of the availability of class arbitration for
the claims Plaintiffs James (“James”) and Mary (“Mary”) Rickenbaugh (together, the
“Rickenbaughs”) have asserted in this action, ORDERS all claims asserted by
Plaintiffs to arbitration, and STAYS litigation of Plaintiffs’ claims in this civil action
pending the outcome of arbitration proceedings between the parties.
Weaver, Bennett & Bland, P.A., by Matthew M. Villmer and Bo Caudill, for Plaintiffs James and Mary Rickenbaugh.
The Law Office of B. Elizabeth Todd, PLLC, by Elizabeth Todd; Womble Bond Dickinson (US) LLP, by James P. Cooney; DarrowEverett LLP, by David A. Sullivan, for Defendant Power Home Solar LLC.
Bledsoe, Chief Judge. I.
FINDINGS OF FACT
3. Power Home is a Delaware limited liability company with its principal place
of business in Mooresville, North Carolina. The company is one of the largest solar
installation companies in the United States and operates in North Carolina, South
Carolina, Virginia, Ohio, and Michigan. (Class Action Compl. ¶¶ 1, 3, 14–15, ECF
No. 3.)
4. The Rickenbaughs are residents of Mecklenburg County. In 2017, they
agreed to have Power Home install its standard energy savings package, including a
NEST thermostat, ten LED lightbulbs, blown attic insulation, a hot water heater
“blanket,” and twelve solar panels at their residence and at a detached building that
served as a home office in Charlotte, North Carolina. (Class Action Compl. ¶¶ 16, 25,
30, 32.)
5. According to the Rickenbaughs, Power Home’s sales process was designed
to make customers believe they would experience a “guaranteed drop in their energy
bills” of between 80% and 99% over the 25-year lifespan of the Power Home solar
energy system. (Class Action Compl. ¶ 21.) They allege that the Power Home
representative they spoke with advised that the standard energy savings package
they eventually purchased “was guaranteed to save [them] at least 97% on their
energy bills, and any bill from Duke Energy would be a nominal amount.” (Class
Action Compl. ¶ 30.) Based on these representations, on February 21, 2017, James,
with Mary’s consent, agreed to pay $15,708 for Power Home’s energy savings package. (Class Action Compl. ¶ 32, Ex. A.) James and Power Home’s representative
electronically signed Power Home’s standard purchase contract (the “Agreement”) to
effect the transaction. (Class Action Compl. ¶ 32, Ex. A.)
6. Of significance here, the Agreement contained the following provision titled
“Arbitration of Disputes”:
In the event of any dispute the parties will work together in good faith to resolve any issues. If such issues cannot be resolved, the parties agree that any dispute arising out of or relating to the negotiation, award, construction, performance or non-performance, of any aspect of this agreement, shall be settled by binding arbitration in accordance with the Construction Industry Rules of the American Arbitration Association and judgment upon the award rendered by any such arbitrator may be entered in any court having jurisdiction thereof.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY NORTH CAROLINA & SOUTH CAROLINA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OF JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPLELLED [sic] TO ARBITRATE UNDER THE AUTHORITY OF THE BUSINESS AND PROFESSIONS CODE OR OTHER APPLICABLE LAWS, YOUR AGREEMENT TO THE ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTER INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION OF NEUTRAL ARBITRATION.
(Class Action Compl. Ex. A. ¶ 13.)
7. Between February and April 2017, Power Home installed its energy
efficiency products at the Rickenbaughs’ residence and home office, and on April 11, 2017, the newly installed solar panels were activated. (Class Action Compl. ¶¶ 33–
34.) The Rickenbaughs allege that the actual energy savings reflected in their power
bills for May and June 2017 were only “a fraction” of the 97% energy savings promised
by Power Home. (Class Action Compl. ¶¶ 30, 35–36.) The Rickenbaughs complained
to a Power Home representative, and they allege in this lawsuit that Power Home
refused to provide the promised energy savings or otherwise afford them a remedy.
(Class Action Compl. ¶¶ 37–40.)
8. The Rickenbaughs commenced this action on January 7, 2019 “as
representatives of all others similarly situated under the provisions of Rule 23(a) of
the North Carolina Rules of Civil Procedure[.]” (Class Action Compl. ¶¶ 41–43.) They
assert claims against Power Home for common law fraud and fraud in the
inducement, unfair and deceptive trade practices under N.C.G.S. § 75-1.1, breach of
contract, punitive damages, and unjust enrichment. (See Class Action Compl.) The
Rickenbaughs allege that other members of the purported class include homeowners
in the states in which Power Home does business and “in other places throughout the
United States[,]” thus creating a class that could be made up of more than 10,000
people. (Class Action Compl. ¶¶ 59–60.)
9. On March 26, 2019, Power Home filed the Motion with supporting brief,
contending that the Agreement requires that the Rickenbaughs’ claims be
adjudicated through bilateral arbitration. (ECF Nos. 15–17.) The Motion was fully
briefed and came on for hearing before the Court on May 10, 2019. The Court
thereafter entered a stay of these proceedings under N.C.G.S. § 1-569.7(f) pending the Court’s determination of the Motion and requested supplemental briefing. (ECF
No. 31.) Supplemental briefing was completed on June 10, 2019. (ECF Nos. 32–35.)
10. The Motion has been fully briefed and is now ripe for resolution.
II.
CONCLUSIONS OF LAW
A. Applicable Law
11. “[I]t is incumbent upon a trial court when considering a motion to compel
arbitration to ‘address whether the Federal Arbitration Act (“FAA”) or the North
Carolina Revised Uniform Arbitration Act [(“NCRUAA”)] applies’ to any agreement
to arbitrate.” King v. Bryant, 225 N.C. App. 340, 344, 737 S.E.2d 802, 806 (2013)
(quoting Cornelius v. Lipscomb, 224 N.C. App. 14, 18, 734 S.E.2d 870, 872 (2012)).
“Determining whether the FAA applies ‘is critical because the FAA preempts
conflicting state law[.]’ ” Epic Games, Inc. v. Murphy-Johnson, 247 N.C. App. 54, 60,
785 S.E.2d 137, 142 (2016) (quoting Sillins v. Ness, 164 N.C. App. 755, 757–58, 596
S.E.2d 874, 876 (2004)). A “trial court should . . . address[ ] the issue of choice of law
before addressing any other legal issue.” Bailey v. Ford Motor Co., 244 N.C. App. 346,
350, 780 S.E.2d 920, 924 (2015).
12. The Agreement here provides that covered disputes will be resolved by
arbitration “AS PROVIDED BY NORTH CAROLINA & SOUTH CAROLINA LAW[,]”
(Class Action Compl. Ex. A ¶ 13), suggesting that the parties agreed that either the
NCRUAA or the South Carolina Arbitration Act, as appropriate, should apply to the
application and interpretation of the arbitration provision in the Agreement. Defendant argues, however, that the FAA should govern the arbitration provision
despite the parties’ choice of law. (Def.’s Brief Supp. Mot. Dismiss or, Alternative,
Compel Bilateral Arbitration & Stay Proceedings [hereinafter “Def.’s Brief ISO”] 6–
7, ECF No. 16.) The Court agrees.
13. The FAA applies to any “contract evidencing a transaction involving
commerce[.]” 9 U.S.C. § 2 (2012). As used here, “the word ‘involving’ is broad and is
indeed the functional equivalent of ‘affecting[,]’ ” which “signals an intent to exercise
Congress’ commerce power to the full.” Allied-Bruce Terminix Cos. v. Dobson, 513
U.S. 265, 273–74, 277 (1995). The phrase “a contract evidencing a transaction
involving commerce” requires only that the transaction involve interstate commerce;
the parties to the transaction need not “contemplate” an interstate commerce
connection. Id. at 278–81. Here, Plaintiffs are residents of North Carolina, and
Power Home is a limited liability company organized in Delaware that operates from
its North Carolina principal place of business. (Def.’s Brief ISO 7; Class Action
Compl. ¶ 14–16.) According to Plaintiffs, Power Home “operates a sophisticated and
fraudulent scheme throughout the states of North Carolina, South Carolina, Virginia,
Ohio, and Michigan.” (Def.’s Brief ISO 7; Class Action Compl. ¶ 1.) Plaintiffs’
proposed class consists of Power Home customers who reside in those states and “in
other places throughout the United States and its territories” who purchased Power
Home’s energy efficiency equipment in reliance on Power Home’s guarantee of
substantial energy savings. (Def.’s Brief ISO 7; Class Action Compl. ¶¶ 59–60.) 14. Although “the mere circumstance of diversity of citizenship between [the
parties] is not sufficient to command the application of the [FAA],” Maxum Founds.,
Inc. v. Salus Corp., 779 F.2d 974, 978 n.4 (4th Cir. 1985), Plaintiffs’ claims are based
on more, including Power Home’s sale and installation of its energy efficiency system
to customers inside and outside North Carolina and its allegedly fraudulent scheme
to deceive customers in at least five states. Although denying Plaintiffs’ claims,
Power Home does not deny that its conduct at issue occurred both inside and outside
North Carolina. As such, the Court concludes that the arbitration provision here is
“[a] written provision in . . . a contract evidencing a transaction involving [interstate]
commerce” under 9 U.S.C. § 2 and thus that the FAA applies. See, e.g., Martin &
Jones, PLLC v. Olson, 2017 NCBC LEXIS 87, at *5 (N.C. Super. Ct. Sept. 25, 2017)
(“The FAA applies to ‘a written provision in . . . a contract evidencing a transaction
involving [interstate] commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction.’ ” (quoting 9 U.S.C. § 2)); see also Benezra
v. Zacks Inv. Research, Inc., No. 1:11-CV-596, 2012 U.S. Dist. LEXIS 47769, at *7 n.1
(M.D.N.C. Mar. 30, 2012) (“The parties reside in different states, and the transactions
. . . were conducted across state lines through interstate commerce.”).
15. The parties’ choice of law provision in the Agreement does not change this
result. The Supreme Court of North Carolina has held that “where the FAA applies
to a particular contract, the FAA supersedes conflicting state law even if the contract
has a choice of law provision.” AP Atl., Inc. v. Crescent Univ. City Venture, LLC, 2016
NCBC LEXIS 60, at *11 (N.C. Super. Ct. July 28, 2016); see also, e.g., Burke Co. Pub. Sch. Bd. of Educ. v. Shaver P’ship, 303 N.C. 408, 424, 279 S.E.2d 816, 825 (1981)
(holding “the choice of law provision in the contract does not preclude application of
the [FAA]”). Even so, “when [as here] the FAA governs a dispute, state law fills
procedural gaps in the FAA as it is applied in state courts.” Worldwide Ins. Network
v. Messer Fin. Grp., 2018 NCBC LEXIS 103, at *6 (N.C. Super. Ct. Oct. 2, 2018)
(quoting Gaylor, Inc. v. Vizor, LLC, 2015 NCBC LEXIS 102, at *12 (N.C. Super. Ct.
Oct. 30, 2015)).
B. Arbitrability
16. “Arbitration, in various aspects, is governed by both state and federal law.”
Forshaw Indus. v. Insurco, Ltd., 2 F. Supp. 3d 772, 786 (W.D.N.C. 2014). “[S]tate law
govern[s] the formation of contracts [while] giving due regard to the federal policy
favoring arbitration.” Local Soc., Inc. v. Stallings, 2017 NCBC LEXIS 94, at *13 (N.C.
Super. Ct. Oct. 9, 2017). Disputes over arbitrability require a two-step inquiry: “First,
[courts] determine who decides whether a particular dispute is arbitrable: the
arbitrator or the court. Second, if [the court] concludes that the court is the proper
forum in which to adjudicate arbitrability, [the court] then decides whether the
dispute is, in fact, arbitrable.” Gaylor, 2015 NCBC LEXIS 102, at *14 (emphasis
omitted) (quoting Peabody Holding Co., LLC v. UMW, 665 F.3d 96, 101 (4th Cir.
2012)). “To determine if a particular dispute is subject to arbitration, [a trial court]
must examine the language of the agreement, including the arbitration clause in
particular, and determine if the dispute falls within its scope.” Fontana v. S.E.
Anesthesiology, 221 N.C. App. 582, 589, 729 S.E.2d 80, 86 (2012) (citation omitted). “[C]ourts must enforce arbitration contracts according to their terms.” Henry Schein,
Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019).
17. In determining whether a court or an arbitrator decides arbitrability,
“[c]ourts distinguish between issues of procedural arbitrability, on the one hand, and
issues of substantive arbitrability, on the other hand.” Stallings, 2017 NCBC LEXIS
94, at *14. “[Q]uestions such as ‘whether the parties are bound by a given arbitration
clause,’ or ‘whether an arbitration clause in a concededly binding contract applies to
a particular type of controversy’ ” are those of “substantive arbitrability.” Bailey, 244
N.C. App. at 351, 780 S.E.2d at 925 (quoting BG Grp. PLC v. Republic of Argentina,
572 U.S. 25, 34 (2014)). There is a presumption that “issues of substantive
arbitrability . . . are for a court to decide[.]” Howsam v. Dean Witter Reynolds, 537
U.S. 79, 85 (2002); see also Glass v. Kidder Peabody & Co., Inc., 114 F.3d 446, 453–
54 (4th Cir. 1997) (“It is clear from . . . over thirty years of Supreme Court and federal
circuit court precedent that issues of ‘substantive arbitrability’ are for the court to
decide, and questions of ‘procedural arbitrability[ ]’ . . . are for the arbitrator to
decide.”).
18. “But ‘parties can, and often do, delegate arbitrability to the arbitrator.’ ”
Cherokee South End, LLC v. PAP Invs. Scaleybark, LLC, 2018 NCBC LEXIS 106, at
*7 (N.C. Super. Ct. Oct. 12, 2018) (quoting Charlotte Student Hous. DST v. Choate
Constr. Co., 2018 NCBC LEXIS 88, at *8 (N.C. Super. Ct. Aug. 24, 2018)). “Just as
the arbitrability of the merits of a dispute depends upon whether the parties agreed
to arbitrate that dispute, . . . the question ‘who has the primary power to decide arbitrability’ turns upon what the parties agreed about that matter.” First Options
of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995); see also Henry Schein, 139 S. Ct.
at 527. The presumption that a court will decide issues of substantive arbitrability
can be overcome if “there is ‘clear and unmistakable’ evidence that the parties agreed
to ‘submit the question of arbitrability to arbitration.’ ” Cold Springs Ventures, LLC
v. Gilead Scis., Inc., 2014 NCBC LEXIS 10, at *9 (N.C. Super. Ct. Mar. 26, 2014)
(quoting First Options, 514 U.S. at 944–47); see also Bailey, 244 N.C. App. at 352–53,
780 S.E.2d at 925 (“A party can overcome this presumption if it shows that the parties
‘clearly and unmistakably’ intended for an arbitrator, instead of a court, to decide
issues of substantive arbitrability.”).
19. Under the FAA, “the parties’ express adoption of an arbitral body’s rules in
their agreement, which delegate questions of substantive arbitrability to the
arbitrator, presents clear and unmistakable evidence that the parties intended to
arbitrate questions of substantive arbitrability.” Bailey, 244 N.C. App. at 353, 780
S.E.2d at 926. “ ‘[V]irtually every [federal] circuit to have considered the issue’ has
held that incorporation of the AAA Rules into an arbitration agreement serves as
clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”
Worldwide Ins. Network, 2018 NCBC LEXIS 103, at *8–9 (quoting Oracle Am., Inc.
v. Myriad Grp. A.G., 724 F.3d 1069, 1074 (9th Cir. 2013)); see also Petrofac, Inc. v.
DynMcDermott Petro. Operations Co., 687 F.3d 671, 675 (5th Cir. 2012) (holding “the
express adoption of [AAA] rules presents clear and unmistakable evidence that the
parties agreed to arbitrate arbitrability”); Fallo v. High-Tech Inst., 559 F.3d 874, 878 (8th Cir. 2009) (same); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1373 (Fed. Cir.
2006) (same), abrogated on other grounds by Henry Schein, 139 S. Ct. 524; Terminix
Int’l v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327, 1332–33 (11th Cir. 2005) (same);
Contec Corp. v. Remote Sol. Co., 398 F.3d 205, 208 (2d Cir. 2005) (same).
20. In this case, “the parties agree[d] that any dispute arising out of or relating
to the negotiation, award, construction, performance or non-performance, of any
aspect of this agreement, shall be settled by binding arbitration in accordance with
the Construction Industry Rules of the American Arbitration Association[.]” (Class
Action Compl. Ex. A ¶ 13 (emphasis added).) This provision and the AAA Rule it
incorporates are nearly identical to the arbitration provision and incorporated AAA
Rule the Court of Appeals considered in Epic Games: “Any disputes between
Employee and Epic in any way concerning . . . this Agreement . . . shall be submitted
. . . to mandatory arbitration before a single arbitrator and conducted pursuant to the
rules of the [AAA] applicable to the arbitration of employment disputes then in
effect[.]” 247 N.C. App. at 62–63, 785 S.E.2d at 143 (emphasis added). The
incorporated rule here (Rule 9(a) of the AAA Construction Rules) and the one in Epic
Games (Rule 6(a) of the AAA Employment Rules) both provide that “[t]he arbitrator
shall have the power to rule on his or her own jurisdiction, including any objections
with respect to the existence, scope or validity of the arbitration agreement.”
(emphasis added).
21. The Court of Appeals concluded that the provision and incorporated AAA
rule in Epic Games provided “clear and unmistakable evidence” that the parties had agreed that an arbitrator would determine issues of substantive arbitrability. 247
N.C. App. at 64, 785 S.E.2d at 144. The Court deems itself bound by that
determination, given that the provision and incorporated AAA rule at issue now are
nearly identical. As in Epic Games, even if the broad language of the Agreement “by
itself[ ] does not resolve the issue of whether the parties agreed to arbitrate [issues of
substantive] arbitrability, the requirement for arbitration to be conducted pursuant
to the AAA rules does.” Id.; see also Bailey, 244 N.C. App. at 355–56, 780 S.E.2d at
927 (holding an agreement incorporating a substantially similar rule indicated
parties delegated issues of substantive arbitrability to the arbitrator); Hall v. Dancy,
2018 NCBC LEXIS 63, at *8 (N.C. Super. Ct. June 27, 2018) (holding the same for an
agreement incorporating a rule with the same language as the AAA Construction
Rule); Cherokee South End, LLC, 2018 NCBC LEXIS 106, at *8 (same); AP Atl., 2016
NCBC LEXIS 60, at *14–15 (holding the same for an agreement incorporating the
same AAA Construction Rule).
C. Class Arbitration
22. The issue for decision on this Motion thus becomes whether the availability
of class arbitration is an issue of “substantive arbitrability” the parties have agreed
an arbitrator must decide or an issue that presumptively remains for the Court. This
question has been consistently left open by the United States Supreme Court, see
Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1417 n.4 (2019); Oxford Health Plans
LLC v. Sutter, 569 U.S. 564, 569–70 n.2 (2013); Stolt-Nielsen S. A. v. AnimalFeeds
Int’l Corp., 559 U.S. 662, 678 (2010), although numerous federal circuit courts that have addressed this question “have concluded that class arbitrability is a gateway
issue” that “presumptively must be decided by courts, not arbitrators[,]” 20/20
Communs., Inc. v. Crawford, 930 F.3d 715, 718 (5th Cir. 2019) (listing cases); see also
Del Webb Cmtys., Inc. v. Carlson, 817 F.3d 867, 875 (4th Cir. 2016) (“The evolution of
the [United States Supreme] Court’s cases are but a short step away from the
conclusion that whether an arbitration agreement authorizes class arbitration
presents a question as to the arbitrator’s inherent power, which requires judicial
review.”).
23. In determining whether the availability of class arbitration is an issue of
substantive arbitrability, courts have focused on the “significant distinctions between
class and bilateral arbitration[.]” Del Webb Cmtys., 817 F.3d at 875; see also Lamps
Plus, 139 S. Ct. at 1416 (“[I]t is important to recognize the ‘fundamental’ difference
between class arbitration and the individualized form of arbitration envisioned by
the FAA.”). While “[i]n individual arbitration, ‘parties forgo the procedural rigor and
appellate review of the courts in order to realize the benefits of private dispute
resolution: lower costs, greater efficiency and speed, and the ability to choose expert
adjudicators to resolve specialized disputes[,]’ ” Lamps Plus, 139 S. Ct. at 1416
(quoting Stolt-Nielsen, 559 U.S. at 685), class arbitration does not allow for those
same benefits. “[Class arbitration] ‘sacrifices the principal advantage of arbitration—
its informality—and makes the process slower, more costly, and more likely to
generate procedural morass than final judgment.’ ” Id. (quoting AT&T Mobility LLC
v. Concepcion, 563 U.S. 333, 348 (2011)); see also Del Webb Cmtys., 817 F.3d at 876 (observing that in class arbitration, “the arbitrator must determine, before ruling on
the merits, whether to certify the class, whether the named parties satisfy mandatory
standards of representation and commonality, how discovery will function, and how
to bind absent class members”). “Class arbitration not only ‘introduce[s] new risks
and costs for both sides[ ]’ . . . [but] also raises serious due process concerns by
adjudicating the rights of absent members of the plaintiff class . . . with only limited
judicial review.” Lamps Plus, 139 S. Ct. at 1416 (quoting Epic Sys. Corp. v. Lewis,
138 S. Ct. 1612, 1623 (2018)); see also Del Webb Cmtys., 817 F.3d at 875 (“The FAA,
however, provides very limited grounds for vacating an arbitration award. . . . As a
result, ‘[t]he absence of multilayered review’ in arbitration ‘makes it more likely that
errors will go uncorrected.’ ” (quoting Concepcion, 563 U.S. at 350)).
24. Due to these fundamental differences, the United States Supreme Court has
made clear that “a party may not be compelled under the FAA to submit to class
arbitration unless there is a contractual basis for concluding that the party agreed to
do so.” Stolt-Nielsen, 559 U.S. at 684. In particular, “[a]lthough parties are free to
authorize arbitrators to resolve [gateway] questions, [a court] will not conclude that
they have done so based on ‘silence or ambiguity’ in their agreement, because ‘doing
so might too often force unwilling parties to arbitrate a matter they reasonably would
have thought a judge, not an arbitrator, would decide.’ ” Lamps Plus, 139 S. Ct. at
1417 (quoting First Options, 514 U.S. at 945). Moreover, “courts may not rely on state
contract principles to ‘reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent.’ ” Id. at 1418 (quoting
Epic Sys. Corp., 138 S. Ct. at 1623).
25. Although recognizing that the Supreme Court has not addressed whether
the court or an arbitrator should determine the availability of class arbitration under
an arbitration agreement, Defendant contends that “the threshold question involving
an arbitrator’s inherent power to preside over an unknown and widespread class of
parties . . . is such a fundamental and significant departure from individualized
arbitration that” an incorporation of the AAA Construction Rules in the parties’
Agreement, without more, cannot constitute clear and unmistakable evidence that
the parties agreed for an arbitrator to decide the availability of class arbitration.
(Def.’s Suppl. Br. Supp. Mot. Dismiss or, Alternative, Compel Bilateral Arbitration &
Stay Proceedings 14, ECF No. 26.) In contrast, Plaintiffs argue that under Epic
Games, the Court must conclude that the Agreement and its incorporation of the AAA
Construction Rules “clearly and unmistakably evidence[ ] the parties’ intention to
have the arbitrator . . . decide substantive issues, including class arbitrability.” (Pls.’
Suppl. Br. Opp’n Def.’s Mot. Dismiss or, Alternative, Compel Bilateral Arbitration &
Stay Proceedings 3, ECF No. 27.)
26. The North Carolina courts have not addressed whether a court or an
arbitrator should decide whether class arbitration is available under an arbitration
agreement, and the federal circuit courts have split in answering that question.
27. The Second, Fifth, Tenth, and Eleventh Circuits have concluded that an
agreement’s incorporation of AAA rules of the type in the Agreement here constitutes “clear and unmistakable evidence” of the parties’ intent to delegate the issue of the
availability of class arbitration to the arbitrator: see Wells Fargo Advisors, LLC v.
Sappington, 884 F.3d 392, 397 (2d Cir. 2018) (holding that incorporation of AAA rules
without more demonstrates “clear and unmistakable” intent for arbitrator to decide
arbitrability of class claims); Reed v. Fla. Metro. Univ., Inc., 681 F.3d 630, 635–36
(5th Cir. 2012) (holding that “agreement to AAA’s Commercial Rules also constitutes
. . . a clear agreement to allow the arbitrator to decide whether the party’s agreement
provides for class arbitration”), abrogated on other grounds by Sutter, 569 U.S. 564;
Dish Network L.L.C. v. Ray, 900 F.3d 1240, 1245–48 (10th Cir. 2018) (holding that
an agreement incorporating AAA rules “provides clear and unambiguous evidence
that the parties intended to delegate all issues of arbitrability to the arbitrator[,]”
including class arbitrability (emphasis in original)); JPay, Inc. v. Kobel, 904 F.3d 923,
936–38 (11th Cir. 2018) (holding incorporation of AAA rules “clearly and
unmistakably give[s] the arbitrator power to rule on his own jurisdiction, thus
delegating questions of arbitrability [of class claims] to the arbitrator”). In these
circuits, “if the arbitration agreement delegates all questions of arbitrability to the
arbitrator, the issue [of class availability] is for the arbitrator, not the court.” Fannie
Mae v. Prowant, 209 F. Supp. 3d 1295, 1311 (N.D. Ga. 2016) (emphasis in original).
28. The Third, Sixth, and Eighth Circuits have held otherwise, concluding that
specific contractual language, rather than broad AAA Rule incorporation, is
necessary to delegate a determination of the availability of class arbitration to an
arbitrator: see Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 763 (3d Cir. 2016) (declining to defer class arbitrability to arbitrator where
arbitration agreement lacked “express contractual language unambiguously
delegating the question of class arbitrability to the arbitrators” (citation omitted));
Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013) (declining to defer to
arbitrator where there was a “total absence of any reference to classwide arbitration
in [the arbitration] clause” because “the agreement . . . can just as easily be read to
speak only to issues related to bilateral arbitration” and thus is “silent or ambiguous
as to whether an arbitrator should determine the question of classwide arbitrability”);
Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966, 973 (8th Cir. 2017) (holding
that “a more particular delegation of the [class arbitration availability] issue than we
may otherwise deem sufficient in bilateral disputes” is necessary). In these circuits,
“to ‘clearly and unmistakably’ delegate class availability to an arbitrator, the
agreement must provide specific language to that effect, for example, ‘all issues of
arbitrability, including whether the agreement provides for class claims, shall be
decided by the arbitrator.’ ” Fannie Mae, 209 F. Supp. 3d at 1311. 1
29. The fundamental issue for the Court, therefore, is whether there is clear and
unmistakable evidence that the parties agreed that an arbitrator would decide
whether the parties agreed to class arbitration under the Agreement.
1 Although the parties each claim that the Fourth Circuit’s decision in Del Webb Cmtys. favors
their preferred rule, the Court agrees with the Central District of California that “the Fourth Circuit in Dell [sic] Webb Communities . . . did not directly address th[e] issue” of “whether incorporation of the AAA’s model rules is sufficient to delegate the question of whether class- wide arbitration is permissible to an arbitrator.” Guess?, Inc. v. Russell, No. 2:16-cv-00780- CAS(ASx), 2016 U.S. Dist. LEXIS 53765, at *15 (C.D. Cal. Apr. 18, 2016). 30. Here, the parties specifically agreed that “any dispute arising out of or
relating to the negotiation, award, construction, performance or non-performance, of
any aspect of this agreement shall be settled by binding arbitration in accordance
with the Construction Industry Rules of the American Arbitration Association[,]”
(Class Action Compl. Ex. A ¶ 13), and Rule 9(a) of the AAA Construction Rules
specifically provides that “the arbitrator shall have the power to rule on his or her
own jurisdiction, including any objections with respect to the . . . scope . . . of the
arbitration agreement[,]” (emphasis added).
31. “Although the AAA rules do not contain class arbitration procedures, such
procedures are provided for in the Supplementary Rules for Class Arbitration
[‘Supplementary Rules’], which were enacted in October 2003.” Chesapeake
Appalachia, LLC v. Burkett, No. 3:13-3073, 2014 U.S. Dist. LEXIS 148442, at *16
(M.D. Pa. Oct. 17, 2014). “By their terms, the Supplementary Rules apply ‘to any
dispute arising out of an agreement that provides for arbitration pursuant to any of
the rules of the [AAA] where a party submits a dispute to arbitration on behalf of or
against a class or purported class, and shall supplement any other applicable AAA
rules.’ ” Id. (quoting AAA Supplementary Rule 1(a)); see also Reed, 681 F.3d at 635
(concluding that “the parties’ agreement to the AAA’s Commercial Rules also
constitutes consent to the Supplementary Rules”). Of particular relevance here,
Supplementary Rule 3 states that “the arbitrator shall determine as a threshold
matter, in a reasoned, partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed
on behalf of or against a class[.]”
32. Epic Games and its progeny make clear that the parties’ incorporation of the
AAA Rules into the Agreement constitutes clear and unmistakable evidence that the
parties agreed to delegate issues of “substantive arbitrability,” including issues of
existence, scope, or validity of the Agreement, to the arbitrator. See, e.g., Hall, 2018
NCBC LEXIS 63, at *6–7 (“Under either the FAA or the North Carolina Act, when
the parties’ arbitration agreement specifically incorporates the [AAA] rules, such
incorporation demonstrates that the parties clearly and unmistakably intended for
the arbitrator to resolve disputes [of substantive] arbitrability.”); see also Bailey, 244
N.C. App. at 355, 780 S.E.2d at 927 (concluding that the parties’ express adoption of
an arbitral body’s rules constitutes clear and unmistakable evidence that the parties
intended to arbitrate questions of substantive arbitrability).
33. The question thus is whether the parties’ agreement, through the
incorporation of the AAA Construction Rules (and by that incorporation, the
Supplementary Rules), that an arbitrator would decide the “scope” of the arbitration
proceeding constitutes an agreement that the arbitrator would determine whether
class arbitration is available in that proceeding. Giving the word “scope” its plain
and ordinary meaning and considering it in the context in which it is used in the AAA
Rules, the Court concludes that it does. Other courts have agreed. See, e.g., JPay,
904 F.3d at 931 (“Formally, the question whether class arbitration is available will
determine the scope of the arbitration proceedings.”); Reed, 681 F.3d at 635–36 (“The parties’ consent to the Supplementary Rules . . . constitutes a clear agreement to
allow the arbitrator to decide whether the party’s agreement provides for class
arbitration.”); Burkett, 2014 U.S. Dist. LEXIS 148442, at *22 (holding that a rule
vesting an arbitrator with authority to decide the scope of his or her own jurisdiction
includes “the issue of ‘who decides’ class arbitrability”).
34. Accordingly, since the Court concludes that a determination of the
availability of class arbitration necessarily involves a determination of the scope of
the arbitration, the Court further concludes that the parties here clearly and
unmistakably agreed in the Agreement that this determination is for the arbitrator
rather than the Court. See, e.g., Awuah v. Coverall N. Am., Inc., 554 F.3d 7, 11 (1st
Cir. 2009) (holding that a rule providing that an arbitrator may “ ‘rule on his or her
own jurisdiction’ including any objection to the ‘existence, scope or validity of the
arbitration agreement[ ]’ . . . is about as ‘clear and unmistakable’ as language can
get[.]”); Hedrick v. BNC Nat’l Bank, 186 F. Supp. 3d 1189, 1196 (D. Kan. 2016)
(“These Rules state that ‘The Arbitrator shall have the power to rule on his or her
own jurisdiction, including any objections with respect to the existence, scope or
validity of the arbitration agreement.’ Thus, . . . the arbitrator must determine
whether class arbitration falls within the scope of the clause.” (emphasis added)). 2
2 Although applying the FAA here, the Court concludes that the ruling on Defendant’s Motion
would be the same under either the FAA or the NCRUAA because, like in Epic Games, “[u]nder either law, the plain language of the arbitration clause, properly interpreted, delegates . . . threshold issue[s] of substantive arbitrability to the arbitrator - not to the trial court.” 247 N.C. App. at 61, 785 S.E.2d at 142. 35. In light of the foregoing, the Court does not address Defendant’s contention
that the arbitration agreement does not permit class arbitration. See, e.g., Henry
Schein, 139 S. Ct. at 531 (“When the parties’ contract delegates [a] question to an
arbitrator, the courts must respect the parties’ decision as embodied in the contract”
and should not “confuse[ ] the question of who decides . . . with the separate question
of who prevails[.]”); Robinson v. J & K Admin. Mgmt. Servs., 817 F.3d 193, 198 (5th
Cir. 2016) (“[Defendant] may be right that the agreement does not allow class or
collective arbitration, but that is not the issue before the court. The issue is who
decides if the arbitration agreement permits class or collective procedures.”).
III.
CONCLUSION
36. WHEREFORE, for the reasons set forth above, the Court hereby DENIES
Defendant’s Motion, and ORDERS as follows:
a. Plaintiffs’ claims asserted in this action are hereby ORDERED to
arbitration, the determination of whether class arbitration is available
is DEFERRED to a properly selected arbitrator, and the litigation of
all claims in this civil action is hereby STAYED pending the outcome of
the arbitration proceedings between the parties.
b. The parties shall notify the Court of the outcome of the arbitration
proceedings within seven days after the arbitrator has issued his or her
decision. Plaintiff shall submits to the Court a copy of the arbitrator’s decision accompanied by the parties’ recommendations concerning
further proceedings, if any, in this Court.
SO ORDERED, this the 20th day of December, 2019.
/s/ Louis A. Bledsoe, III Louis A. Bledsoe, III Chief Business Court Judge