Former employees of Aya Healthcare Services, a travel-nursing agency, filed a putative class action alleging wage-related violations. As a condition of employment, each nurse signed an arbitration agreement containing a delegation clause requiring an arbitrator to decide the validity of that agreement. The district court initially sent four disputes to separate arbitrations. Two arbitrators found the agreements valid, while two others found them invalid due to unconscionability. When 255 additional employees opted into the case, the district court denied Aya's motion to compel arbitration. Instead of sending these cases to arbitration, the court applied non-mutual offensive collateral estoppel, relying solely on the two awards finding the agreements invalid to preclude arbitration for all remaining employees, effectively rendering the separate agreements unenforceable.
Judge Tung, writing for the panel, held that the application of non-mutual offensive collateral estoppel to invalidate arbitration agreements is incompatible with the Federal Arbitration Act. The court reasoned that the FAA mandates the enforcement of arbitration agreements according to their terms, absent generally applicable contract defenses like fraud, duress, or unconscionability. The court explained that non-mutual offensive issue preclusion is not a 'generally applicable contract defense' because it does not pertain to the formation of the contract itself but rather to the preclusive effect of a prior judgment. Furthermore, the court emphasized that the FAA is built on the principle that arbitration is a matter of consent, not coercion. By using prior awards to invalidate hundreds of separate agreements, the district court rendered the parties' consent meaningless. The ruling also effectively transformed individualized arbitral proceedings into a bellwether class action to which the parties never agreed. The court noted that this approach stripped the proceedings of the procedural safeguards inherent in class actions, such as adequate representation, and allowed a single arbitration result to bind hundreds of others without their agreement. The court rejected the plaintiffs' argument that Section 13 of the FAA, which equates confirmed awards with court judgments, supports this application of preclusion, stating that such an interpretation would eviscerate the FAA's requirement of mutual consent.
The decision requires the district court to enforce the arbitration agreements for the 255 remaining employees and compel them to arbitrate their disputes individually. It establishes a clear limit on the use of preclusion doctrines in the context of arbitration, ensuring that individualized proceedings are not converted into class actions without consent. The ruling leaves open the question of whether other forms of preclusion might apply in different contexts but firmly closes the door on using non-mutual offensive collateral estoppel to invalidate arbitration agreements.
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