Alert

Court Excludes Class Members with Binding Arbitration Agreements

June 20, 2024

In an important decision regarding the size and potential scope of a putative class, the United States District Court for the Southern District of Ohio recently granted a defendant’s motion to exclude from a class action all individuals with binding arbitration agreements. This decision highlights not only the importance of arbitration agreements when it comes to defending a class action, but also how defendants can utilize them to reduce the number of class members.

Background of the Eaton Case

Eaton began as a class action lawsuit over a dispute involving mineral rights in the state of Ohio. Eventually, a class was certified in January 2021. Subsequently, after conducting a manual review of each lease, the defendant moved to modify the class definition to exclude class members with leases containing arbitration agreements. The number of class members the defendant sought to exclude totaled more than 4,400.

Plaintiff’s Opposition and Court’s Exception

The plaintiff opposed the request and argued, among other things, that the defendant had waived its right to seek to compel arbitration of the unnamed class members’ claims to arbitration by first litigating the lawsuit in court. While agreeing that the defendant’s conduct by litigating the case in court (and not raising arbitration earlier) typically does rise to the level of waiver, the district court found an exception in this case. As the court noted:

One exception to that rule occurs in class actions when a party participates in the litigation without moving to compel arbitration before the class is certified. Until the class is certified, proposed new members of the class are not parties to the action who could be compelled to arbitrate.

Id. at *3 (Citations omitted.)

Court’s Ruling on Class Definition Modification

Having found that the defendant did not waive its right to seek arbitration of the unnamed class members’ claims, the district court then found good cause to modify the class definition and exclude members of the class whose leases included arbitration agreements. Notably, the court found that while in certain circumstances the presence of arbitration agreements may destroy the typicality requirement of Rule 23, the court found it preferable to modify the class definition to exclude those with arbitration agreements rather than to decertify the entire class.

Implications of the Eaton Decision and Binding Arbitration Agreements

Eaton outlines how a defendant can successfully utilize arbitration agreements to narrow a class or preclude class certification altogether, even when the named class representative did not agree to arbitrate his or her claims.