Scientology and Arbitration

Prof. Michael Helfand (Pepperdine), a leading expert on religious arbitration, passes this along.

Two readers asked me about this case, so I asked Prof. Helfand in turn, and he very kindly gave this answer:

I don't think I ever read an article in the Hollywood Reporter until last week, when numerous friends and colleagues sent me the following story: "The Church of Scientology Says Danny Masterson Stalking Suit Must Go to "Religious Arbitration." I have a long standing interest in—and support of—religious arbitration; moreover, I just finished a paper addressing, in part, the boilerplate Church of Scientology arbitration agreement. So especially given the timing of this story, I'm grateful Eugene asked what I thought about the case.

Religious arbitration is best defined as the voluntary submission of a dispute for binding resolution to religious authorities for adjudication in accordance with religious law. Religious arbitration agreements and arbitration awards are routinely enforced by courts, which comports with arbitration law more generally. But this case has raised concerns because of the facts of the case. The plaintiffs allege they were sexually assaulted by Daniel Masterson, himself a member of the Church of Scientology, and that the Church of Scientology sought not only to cover up these incidents, but also threatened and harassed the plaintiffs once they reported the incidents.

In response to the complaint, the Church of Scientology filed a motion to compel arbitration, arguing that the claims in the complaint must all be submitted for binding arbitration pursuant to an arbitration agreement executed between the plaintiffs and the church when the plaintiffs joined the church. While I am sure this litigation will twist and turn in a variety of ways, I see two primary issues with enforcing the religious arbitration agreement in this case:

[I.] Scope

All arbitration agreements define the scope of the controversies they cover. In this case, the arbitration agreement states: "I hereby expressly agree that any controversy arising under this Application/Agreement or in connection with my participation in the Service shall be resolved by such Binding Religious Arbitration." The term religious services varies by agreement. In some it is defined as the specific religious coursework in which the plaintiffs enrolled (see Exhibits 1-7); in others, it refers to the general rubric of church activities and practices (see paragraph 2d in Exhibits 8-14).

However, according to the complaint, most of the plaintiffs' causes of action are based upon conduct after they left the Church of Scientology.  As a result, it would be difficult to read them as falling under the umbrella of religious services as defined by any of the agreements.

The Church of Scientology addresses this argument in two ways. First, by arguing that some of the implicated conduct—for example, the alleged sexual assaults—took place while the plaintiffs were members of the church. Therefore, the causes of action should still fall under the arbitration agreement. This seems like a tough sell, but is ultimately a question of contract interpretation.

The second argument is more interesting. Here the Church of Scientology argues that the body that should adjudicate the question of scope—that is, who should decide whether the complaint falls within the scope of the arbitration agreement—are the religious arbitrators and not the court.

The Church of Scientology is correct that arbitration agreements can require parties to submit these sorts of disputes (i.e. questions of substantive arbitrability) to the arbitrators themselves. Once again, this is a question of contract interpretation. Thus, if an arbitration agreement states that any questions regarding validity, enforceability and scope will also be heard by the arbitrators—what the law often refers to as a "delegation clause"—then not only would arbitrators have the authority to adjudicate the underlying merits, but they would have the right to address any such threshold issues.

This was the case in a recent Supreme Court decision, Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019), which the Church of Scientology cites as support in its motion to compel. In Henry Schein, the arbitration agreement incorporated the American Arbitration Association rules, which include Rule 7: "The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim." Thus, in Henry Schein, the only reason the courts were willing to entertain granting the arbitrators the power to determine the scope of the arbitration agreement was because the agreement incorporated the AAA rules, which by their terms aim to grant that authority to the arbitrators.

By contrast, it does not appear that there is a delegation clause in the Church of Scientology arbitration agreement that expressly submits questions of scope to the arbitrators. I therefore think that this issue would likely be heard by a court; and, I also think the court would find these claims as falling outside the scope of the arbitration agreement, thereby allowing the suit to go forward in court.

[II.] Arbitrator Qualification Clause

In the future, the Church of Scientology could remedy the limited scope of their agreement by simply including a delegation clause in their boilerplate arbitration agreements. Issues related to their arbitrator qualification clause are not obviated quite so easily.

Church of Scientology arbitration agreements include an arbitrator qualification clause that requires "all arbitrators shall be Scientologists in good standing with the Mother Church." Prior plaintiffs seeking to file suit against the Church of Scientology have previously challenged Church of Scientology arbitration agreements on that basis, arguing that having their claims submitted to arbitrators affiliated with the Church of Scientology would make it impossible for the arbitration proceedings to be fair and neutral.

For example, in Garcia v. Church of Scientology, Maria and Luis Garcia—former church members—filed suit in federal district court against the Church of Scientology, alleging fraud and breach of contract claims predicated on monies they had previously given the church. When the church filed a motion to compel arbitration, the Garcias claimed that the agreement was unconscionable, in part, because of the arbitrator selection clause. As summarized by the court, the Garcias argued that they had been "declared 'Suppressive' by the Church and according to Church doctrine, have no rights as Scientologists and are not eligible for the benefits of the Codes of the Church." Moreover, they alleged it would "be impossible for them to receive a fair and neutral arbitration because Scientologists in good standing are prohibited by Church doctrine from communicating with suppressive individuals."

The court, however, rejected the Garcias' claim because addressing the claim would require adjudication of a religious question, which the Establishment Clause prohibits: "it necessarily would require an analysis and interpretation of Scientology doctrine. That would constitute a prohibited intrusion into religious doctrine, discipline, faith, and ecclesiastical rule, custom, or law by the court."

But as I've argued, I don't think this is correct—in fact, I think the opposite is true. Even if assessing the unconscionability challenge would be unconstitutional, enforcing the Church of Scientology arbitrator qualification clause would still violate Establishment Clause pursuant to the religious question doctrine.

As an example of why, consider In Matter of Ismailoff, where a New York surrogate court refused to enforce an arbitrator qualification clause that required selection of "three persons of the Orthodox Jewish faith." The court concluded that enforcing such a provision would violate the Establishment Clause because it would require a judicial determination as to whether the arbitrators were "orthodox." And doing so would entail impermissibly resolving an "issue concerning religious doctrine or practice."

This logic would seem to apply equally to determining whether an arbitrator is "in good standing with the Mother Church." Determining whether proposed arbitrators satisfied this standard would presumably require judicial interrogation of religious doctrine; it seems most likely that interpreting and applying that standard both entails identifying what religious behaviors are necessary for good standing and then applying those religious standards to prospective arbitrators. As a result, it would be unconstitutional to enforce the arbitrator qualification clause.

One can imagine the Church of Scientology responding with the following counter-argument: the arbitrator qualification provision in Garcia does not require adjudication of a religious question, but simply asking the church whether the proposed arbitrators satisfied the theological requirements of good standing.

The problem with this argument is that it would empower one party to determine which prospective arbitrators are, and which are not, eligible to serve as members of the arbitral tribunal. And granting one party authority to either control the arbitrator selection process or to circumscribe the pool of eligible arbitrators renders an arbitration provision unconscionable precisely because it threatens to undermine the neutrality of the arbitration panel. See Zabrowski v. MHN Gov't Servs., 601 F. App'x 461, 463 (9th Cir. 2014); Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir. 1999). Indeed, granting the Church of Scientology final say over which arbitrators satisfied the "in good standing" requirement is particularly problematic given that no court could ever review the Church's determination because of the religious question doctrine.

Importantly, there's an additional consequence to invalidating the arbitrator selection clause. To the extent a court were to invalidate the arbitrator qualification provision, it is quite likely that it also should invalidate the entire arbitration agreement. This is because courts are to invalidate the entirety of an arbitration agreement "where the designation of the arbitrator was 'integral' to the arbitration provision [and not] merely an ancillary consideration." See, e.g., Khan v. Dell Inc., 669 F.3d 350, 354 (3d Cir. 2012); see also Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1222 (11th Cir. 2000); Gutfreund v. Weiner (In re Salomon Inc. Shareholders' Derivative Litig.), 68 F.3d 554, 561 (2d Cir. 1995). Given the nature of the overall arbitration agreement, it seems to my mind that the arbitrator qualification clause requiring arbitrators in good standing with the Church of Scientology ought to be viewed as integral to the Church of Scientology arbitration agreement.

UPDATE 1/26/20: Last sentence of Henry Schein discussion revised.