Two recent Sixth Circuit decisions have filtered into other circuits’ jurisprudence, garnering both supporters and critics. In July, the Third Circuit agreed with the Sixth that the availability of classwide arbitration is a “substantive question of arbitrability,” and thus subject to review by a court rather than an arbitrator. Then, in August, the Eighth Circuit expressly disagreed with the Sixth as to whether guarantors are protected by the Equal Credit Opportunity Act (ECOA).
The Third Circuit encountered the issue of the arbitrability of classwide arbitration clauses in Opalinski v. Robert Half International, Inc. There, the plaintiffs brought a putative class action, alleging that RHI failed to pay them and similarly situated employees overtime in violation of the Fair Labor Standards Act. The district court held that the arbitrator should decide whether the plaintiffs’ agreement with RHI allowed bilateral or classwide arbitration, and RHI appealed the arbitrator’s decision in favor of classwide arbitration. On appeal, the Third Circuit first noted that although a plurality of the Supreme Court in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), believed that the availability of classwide arbitration is not a substantive question of arbitrability for a court to decide, the Court has not “squarely decided” the issue. The Third Circuit panel then expressly agreed with the Sixth Circuit’s decision in Reed Elsevier, Inc. v. Crockett, in which the court held that “whether an arbitration agreement permits classwide arbitration is a gateway matter that is presumptively for judicial determination.” (We covered that case here.) Thus, although a plurality of the Supreme Court disagreed with this proposition a decade ago, its subsequent decisions have retreated from that stance, and now two circuits have expressly disagreed with it. Whether the Court will revisit this issue in Opalinski remains to be seen, but we will be watching for further developments.
The issue of whether the ECOA protect “guarantors” as “applicants” confronted the Eighth Circuit in Hawkins v. Community Bank of Raymore. The ECOA prohibits discrimination against applicants for credit on a number of grounds, including marital status. The Federal Reserve’s regulations enforcing the ECOA extend the law’s protections to “guarantors” by including them in the definition of “applicants.” In Hawkins, the plaintiffs (two wives) alleged that Community Bank required them to execute personal guaranties securing loans to their husbands’ development company “solely because they are married to their respective husbands,” in violation of the ECOA. When the company defaulted on the loans and the bank demanded payment from the wives, they sued the bank for “damages and an order declaring that their guaranties were void and unenforceable.” Earlier this year, in RL BB Acquisition, LLC v. Bridgemill Commons Development Group, LLC, the Sixth Circuit held that the Federal Reserve’s regulations including guarantors under the ECOA’s protections were entitled to deference under Chevron because the ECOA itself is ambiguous as to whether third parties can be considered “applicants.” However, in Hawkins, the Eighth Circuit came to the opposite conclusion, holding that the Federal Reserve’s regulations are not entitled to deference because the ECOA clearly and unambiguously excludes third parties who do not directly request credit, including guarantors. The Hawkins decision thus creates a circuit split over the interpretation of a significant federal statute, with potentially far-reaching implications for both commercial and personal credit applicants. We will continue to monitor future decisions on this issue, including whether the Supreme Court decides to resolve this circuit split.