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Herrington v. Waterstone Mortgage Corp.

United States Court of Appeals, Seventh Circuit

October 22, 2018

Pamela Herrington, individually and on behalf of all others similarly situated, Plaintiff-Appellee,
v.
Waterstone Mortgage Corporation, Defendant-Appellant.

          Argued May 29, 2018

          Appeal from the United States District Court for the Western District of Wisconsin. No. 3:ll-cv-00779 - Barbara B. Crabb, Judge.

          Before Bauer, Barrett, and St. Eve, Circuit Judges.

          BARRETT, CIRCUIT JUDGE.

         Pamela Herrington filed class and collective actions against Waterstone Mortgage Corporation, her former employer, for wage and hour violations. The district court compelled arbitration pursuant to an agreement between Herrington and Waterstone, but it struck as unlawful a waiver clause that appeared to forbid class or collective arbitration of Herrington's claims. The arbitrator conducted a collective arbitration over Water stone's objection and ultimately awarded more than $10 million in damages and fees to Herrington and 174 similarly situated employees.

         A recent Supreme Court decision has now put this award in doubt. In Epic Systems Corp. v. Lewis, ___ U.S. ___, 138 S.Ct. 1612 (2018), the Court upheld the validity of waiver provisions like the one in Herrington's agreement with Water stone. If imposing collective arbitration on Waterstone violated that waiver, we must instruct the district court to vacate the award, which would put Herrington back at square one.

         But Herrington does not concede that the collective arbitration violated the waiver. In an attempt to save her award, she insists that her agreement with Waterstone affirmatively permits class or collective arbitration of her claims despite the presence of a valid waiver indicating otherwise. While this argument is weak, someone must evaluate it-and we must decide who has that job. If the availability of class or collective arbitration is a threshold question of arbitrability, the district court has to decide it. Otherwise, it falls to the arbitrator.

         For reasons we explain below, we conclude that the availability of class or collective arbitration is a threshold question of arbitrability. On remand, the district court, rather than the arbitrator, must evaluate Herrington's contract with Waterstone to determine whether it permits class or collective arbitration.

         I.

         Pamela Herrington sued Waterstone Mortgage Corporation in federal court, asserting two claims. First, she alleged that Waterstone had failed to pay her minimum wages and overtime pay under the Fair Labor Standards Act. She brought that claim as a collective action under the Act, which meant that other employees could opt in to the lawsuit. 29 U.S.C. § 216(b). Second, she claimed that Waterstone had breached its contract with her. She brought that claim as a class action under Federal Rule of Civil Procedure 23, which meant that Herrington would represent a class of absent claimants unless they opted out.

         But Herrington had signed an agreement to arbitrate employment disputes, and Waterstone moved to enforce it. Herrington's employment agreement with Waterstone contained an arbitration clause, which provided in part:

In the event that the parties cannot resolve a dispute by the [alternative dispute resolution] provisions contained herein, any dispute between the parties concerning the wages, hours, working conditions, terms, rights, responsibilities or obligations between them or arising out of their employment relationship shall be resolved through binding arbitration in accordance with the rules of the American Arbitration Association applicable to employment claims. Such arbitration may not be joined with or join or include any claims by any persons not party to this Agreement.

         Based on this language, Waterstone asked the district court to either dismiss the suit for lack of jurisdiction or stay it and compel arbitration.

         Herrington responded that the arbitration clause was unenforceable. She argued that the entire clause, which required her to pay half of the arbitration costs, was invalid because it imposed excessive costs on her. She also challenged the validity of the sentence waiving her right to join the claims of others in the proceeding. According to Herrington, this waiver violated both the Fair Labor Standards Act, which permits collective actions, and the National Labor Relations Act, which protects concerted activity. She did not contest Water-stone's position that her claims were within the scope of the waiver in the arbitration clause; ...


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