The case arose from a putative class action by former employees of travel nursing agency Aya Healthcare Services, who alleged the company reduced their pay mid-contract in violation of wage and hour laws. Aya had arbitration agreements with each employee containing delegation clauses requiring arbitrators to determine the validity of the agreements themselves.
Circuit Judge Eric Tung wrote that the district court's approach "effectively transformed the parties' individualized proceedings into a bellwether-type class action proceeding to which the parties never agreed." The panel found that nowhere in the Federal Arbitration Act did Congress contemplate "that a non-mutual preclusion doctrine could be deployed to frustrate an arbitration that the parties had agreed to undertake."
The dispute began when four separate arbitrators reached split decisions on the agreements' validity — two found them unconscionable while two upheld them. The district court then applied non-mutual offensive collateral estoppel to the two adverse rulings to block arbitration for 255 additional opt-in plaintiffs, while declining to give effect to the favorable arbitral awards.
The Ninth Circuit's reversal reinforces strong federal policy favoring arbitration and could limit creative uses of preclusion doctrine to avoid arbitration clauses. The decision sends the case back to the district court for further proceedings, likely compelling the hundreds of individual arbitrations Aya originally sought.