Significant Developments in Arbitration Under Federal and State Law
Presented by:
Terry F. Moritz - Goldberg Kohn Ltd., Chicago, Illinois
Hiro N. Aragaki – Loyola Law School, Los Angeles, California
Eric Tuchmann – American Arbitration Association
August 2012
AT&T Mobility
In AT&T Mobility, the Supreme Court decided that a California
judicially crafted rule that served to invalidate an arbitration classaction waiver as unconscionable is in conflict with the Federal
Arbitration Act and therefore ineffective.
How did the Court get to this position?
Is this case mainly about whether class actions generally are
appropriate in an arbitration setting?
2
U.S. Chamber of Commerce as Amicus
A class-action waiver is a key component of many Chamber
members’ arbitration agreements. Decisions like the opinion
below, which invalidated a class-action waiver in an arbitration
agreement, frustrate the parties’ intent, undermine their existing
agreements, and erode the benefits offered by arbitration as an
alternative to litigation.
3
The Counterpoint by Amici States of IL, MD, MN, MT, NM, TN, and VT,
and the District of Columbia
“States have long declined to enforce contracts that are unconscionable
or offensive to public policy. These and other state law contract defenses
are an important means of protecting consumers against predatory or
unfair treatment. In urging FAA preemption of a state-law determination
that an adhesive class-action waiver is unconscionable, petitioner asks
federal courts to second-guess decades of state contract law, without any
administrable standard to guide them.”
4
Brief History of Class Actions in Arbitration Before the Court.
In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003)
the Court remanded a matter, ultimately to be returned to an
arbitrator to determine whether an arbitration agreement that
was silent on class arbitration would permit them.
5
Essential Facts.
The parties entered into a contract, governed by South Carolina law, which contained a broad arbitration
clause.
It was alleged that Green Tree, a lender, failed to provide to the borrowers a legally required form informing
them of their rights to counsel and insurance agents.
Two sets of borrowers brought separate actions in South Carolina State Court and both sets of respondents
compelled arbitration by the same arbitrator. The arbitrator allowed the matters to proceed as class actions.
The arbitrator found for the class in both proceedings and awarded significant damages.
The South Carolina Supreme Court withdrew both cases from the Court of Appeals after Green Tree appealed
the arbitrator's rulings.
"[W]e ... hold that class-wide arbitration may be ordered when the arbitration agreement is silent if it would
serve efficiency and equity, and would not result in prejudice. If we enforced a mandatory, adhesive arbitration
clause, but prohibited class actions in arbitration where the agreement is silent, the drafting party could
effectively prevent class actions against it without having to say it was doing so in the agreement.“ In essence,
the South Carolina Supreme Court determined the scope of the arbitration agreement. Id., at 266, 569 S.E.2d,
at 360.
6
The issue before the U. S. Supreme Court was whether the
South Carolina Supreme Court's action was consistent with the
FAA. A plurality of the Court said no, vacating and remanding
the case for an arbitrator to decide the question of contract
interpretation.
7
Green Tree was read to espouse a rule that whether an
arbitration agreement -- silent as to the issue of class arbitration
-- allows for class arbitration is a matter of contractual
interpretation for the arbitrator and not a court. The court did
not validate class arbitration.
8
The next major decision: Stolt-Nielsen SA v. AnimalFeeds
International Corp., 130 S.Ct. 1758 (2010).
Stolt-Nielsen SA, an international shipping company, along with
other shippers, found itself facing a class action arbitration
demand by a customer, AnimalFeeds International.
9
AAA Class Certification Rules
The parties agreed that the arbitrators would follow and be
bound by Rules 3 through 7 of the American Arbitration
Association's Supplementary Rules for Class Arbitrations.
Rule 3 provides that the arbitrator decides whether the
arbitration clause allows for class arbitration in a particular
instance.
The arbitration panel looked at the relevant arbitration
clauses and determined that they were silent as to the
issue of class arbitration.
10
Competing Contentions
AnimalFeeds and its co-plaintiffs argued that the class
arbitration could -- and should -- proceed, citing Rule 3 and
public policy, in addition to claiming the contracts would
otherwise be unconscionable.
Stolt-Nielsen argued that the silence meant the parties did not
intend to allow for class arbitration, citing cases and arbitration
decisions and purporting to distinguish decisions cited by
AnimalFeeds.
11
Clause Construction
Award
The arbitration panel issued a Clause Construction Award,
concluding that the agreements and the arbitration clauses
allowed for class arbitration. It based the award on 21 other
class arbitration awards in similar circumstances, though not in
international maritime contracts.
12
The case made several trips to the Second Circuit Court of
Appeals which ultimately let the matter go forward as a class
action arbitration. 548 F.3d 85 (2d Cir. 2008). The Supreme
Court reversed the 2nd Circuit and held that a party could not
be bound to a class action arbitration if it had not agreed to
such a procedure.
13
The Arbitration Panel’s Decision
The Supreme Court noted that the Arbitration Panel concluded:
"The parties' arbitration clause should be construed to allow
class arbitration because (a) the clause is silent on the issue of
class treatment and, without express prohibition, class
arbitration is permitted under Bazzle; (b) the clause should be
construed to permit class arbitration as a matter of public policy;
and (c) the clause would be unconscionable and unenforceable
if it forbade class arbitration."
14
The Supreme Court analyzed the panel's decision as follows:
Because the parties agreed their agreement was "silent" in the sense that they had not reached
any agreement on the issue of class arbitration, the arbitrators' proper task was to identify the
rule of law that governs in that situation.
Had they engaged in that undertaking, they presumably would have looked either to the FAA
itself or to one of the two bodies of law that the parties claimed were governing, i.e., either
federal maritime law or New York law.
But the panel did not consider whether the FAA provides the rule of decision in such a situation;
nor did the panel attempt to determine what rule would govern under either maritime or New
York law in the case of a "silent" contract.
Instead, the panel based its decision on post-Bazzle arbitral decisions that "construed a wide
variety of clauses in a wide variety of settings as allowing for class arbitration." The panel did
not mention whether any of these decisions were based on a rule derived from the FAA or on
maritime or New York law.
15
One of the core decisions.
Ultimately, the Court concluded: (T)he differences between
bilateral and class-action arbitration are too great for arbitrators
to presume, consistent with their limited powers under the FAA,
that the parties' mere silence on the issue of class-action
arbitration constitutes consent to resolve their disputes in class
proceedings.
16
No Inferred Intent
The Court went on to find that such a result could not be inferred
"solely from the fact of the parties' agreement to arbitrate" because
class-action arbitration "changes the nature of arbitration" in various
ways: (1) the arbitrator is charged with resolving not just a single
dispute, "but instead resolves many disputes between hundreds or
thousands of parties"(2) the "presumption of privacy and
confidentiality" is lost; (3) the arbitrator's award "adjudicates the rights
of absent parties"; and (4) the commercial stakes are particularly
significant, as in class-action litigation.
17
Rent-A-Center West v. Jackson, 130 S.Ct. 2772, June 21, 2010
Rent-A-Center West v. Jackson involves the allocation of authority
between arbitrators and courts to decide whether an arbitration
agreement is unconscionable in a situation where the arbitration
clause expressly allocated to the arbitrator any challenge that the
arbitration agreement itself was unconscionable.
18
A Rule of Construction – The Interpretive Rule
In Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct.
588, 154 L.Ed.2d 491 (2002), the Court established an "interpretive
rule," based on an assumption about the parties' expectations. In
"circumstance[s] where contracting parties would likely have expected
a court to have decided the gateway matter," we assume that is what
they agreed to. Thus, "[u]nless the parties clearly and unmistakably
provide otherwise, the question of whether the parties agreed to
arbitrate is to be decided by the court, not the arbitrator." AT&T
Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649,
106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). fn 1
19
Section 2 (of the FAA) operates on the specific "written
provision" to "settle by arbitration a controversy" that the party
seeks to enforce. Accordingly, unless Jackson challenged the
delegation provision specifically, we must treat it as valid under
§ 2, (of the FAA) and must enforce it under §§ 3 and 4, (of
the FAA) leaving any challenge to the validity of the Agreement
as a whole for the arbitrator.
20
The 5-4 decision holds that when a contract contains an
arbitration clause, then it is up to the arbitrator to decide
whether the agreement is enforceable or not. The only time a
court considers the validity of the arbitration agreement is when
a party challenges the validity of the agreement to delegate the
validity question to the arbitrator.
21
Where Does This Leave Us: Some Basic Rules
A.
Under the Federal Arbitration Act (“FAA”), courts must enforce
arbitration contracts according to their terms.
B.
Agreements to arbitrate are a matter of consent, not coercion, and
parties are generally free to structure their arbitration agreements as
they see fit.
C.
Doubts about the scope of arbitrable issues or the meaning of
arbitration clauses should be resolved in favor of arbitration.
22
Some Basic Rules
D. Congress enacted the FAA to overcome judicial hostility toward
arbitration and Congress utilized the full extent of its Commerce
Clause power in enacting the FAA.
E.
An arbitration agreement under the FAA is “valid, irrevocable, and
enforceable, save upon such grounds as exist law or in equity for the
revocation of any contract.
F.
The §2 savings clause “embodies the national policy favoring
arbitration and places arbitration agreements on equal footing with all
other contracts.
23
In AT&T Mobility LLC v. Vincent & Lisa Concepcion, Supreme Court
Docket #09-893, the Supreme Court granted Certiorari to consider.
"Whether the Federal Arbitration Act preempts states from conditioning
the enforcement of an arbitration agreement on the availability of
particular procedures -- here, class-wide arbitration -- when those
procedures are not necessary to ensure that the parties to the
arbitration agreement are able to vindicate their claims.“
The courts below found that the Concepcions were "essentially
guaranteed" to obtain full relief under ATTM's arbitration provision.
They thus invalidated that provision not because it precluded the
Concepcions from vindicating their own claims, but because it
precluded them from serving as the agents for the vindication of claims
of third parties.
24
AT&T Mobility focused on two essential facts.
The courts below found that the Concepcions were "essentially
guaranteed" to obtain full relief under ATTM's arbitration
provision.
The lower courts invalidated that provision not because it
precluded the Concepcions from vindicating their own claims,
but because it precluded them from serving as the agents for
the vindication of claims of third parties.
25
The Discover Bank Rule
The rule deems unconscionable under California law class-action
or class-arbitration waivers where: (a) "the waiver is found in a
consumer contract of adhesion in a setting in which the disputes
between the contracting parties predictably involve small amounts
of damages"; and (b) "it is alleged that the party with the superior
bargaining power has carried out a scheme to deliberately cheat
large numbers of consumers out of individually small sums of
money. . . ." Discover Bank v. Superior Court, 36 Cal. 4th 148,
162-63 (2005) (citing Cal. Civ. Code § 1668).
26
The Discover Bank Rule
The Discover Bank rule is grounded in a California-law principle – embodied in
Cal. Civ. Code § 1668 – that "contracts which have for their object, directly or
indirectly, to exempt anyone from responsibility for his own fraud. . . are against
the policy of the law." See Cal. Civ. Code § 1668. If a company is allegedly
engaging in fraudulent acts designed to cheat numerous consumers out of small
amounts of money, a class action or class arbitration waiver may, if enforced,
effectively act as and exculpatory provision that insulates the company from the
consequences of its small scale, but widespread fraud, because the individual,
allegedly defrauded consumers have little incentive to pursue separate actions or
arbitrations to recoup trivial amounts of damages.
27
AT&T Mobility – Consumer Class Action Confronts
Arbitration
The Court focused on §2 of the FAA, acknowledging that this
provision,
“permits
arbitration
agreements
to
be
declared
‘unenforceable’ upon such grounds as exist at law or in equity for
the revocation of any contract” but that arbitration agreements can
only be invalidated by generally applicable contract defenses, such
as fraud, duress, or unconscionability – not by defenses that apply
only to arbitration or that derive their meaning from the fact that an
agreement to arbitrate is at issue.
28
AT&T Mobility – Consumer Class Action Confronts
Arbitration
Ruling that §2 of the FAA preempts California’s Discover Bank rule – a
rule that declared the classification of class arbitration waivers in
consumer contracts unconscionable – the Court noted that:
Class-wide arbitration includes absent parties, necessitating additional
and different procedures and involving higher stakes. Confidentiality
becomes more difficult. And while it is theoretically possible to select
an arbitrator with some expertise relevant to the class-certification
question, arbitrators are not generally knowledgeable in the often
dominant procedural aspects of certification, such as the protection of
absent parties. The
conclusion follows that class arbitration, to the
extent it is manufactured by Discover Bank rather than consensual, is
inconsistent with the FAA.
29
AT&T Mobility – Consumer Class Action Confronts
Arbitration
The Court concluded that “[a]rbitration is poorly suited to the
higher stakes of class litigation,” and, thus, struck down the
Discover Bank Rule as hostile to the use of individual arbitration to
resolve consumer disputes.
30
Following AT&T Mobility There Are Several More Refined Rules.
The FAA supplants state laws that discriminate against arbitration.
G. States cannot require a dispute to be resolved in a judicial forum
where the parties have agreed to arbitration.
H.
The FAA preempts state law that undermines a primary objective of
an
arbitration
agreement,
such
as
“achieving
streamlined
proceedings and expeditious results.”
I.
Under the FAA, pre-dispute arbitration agreements are valid even if
the governing state law provides that such arbitration agreements are
unenforceable.
31
How Lower Courts Have Viewed AT&T Mobility
Some courts skirt the holding of AT&T Mobility by finding a particular arbitration
agreement to be unenforceable for reasons aside from the inclusion of a class
arbitration waiver.
Kanbar- v. O’Melveny for example, “arbitration agreements are still subject to
unconscionability analysis... [and] the doctrine of unconscionability can
override the terms of an arbitration agreement and the parties’ expectations in
connection therewith.” The Kanbar court held that the arbitration agreement
was both procedurally and substantively unconscionable based on its “take it
or leave it” condition of employment, its strict notice requirements and overly
burdensome confidentiality provisions.
32
How Lower Courts Have Viewed AT&T Mobility
The court in NAACP of Camden County East v. Foulke
Management Corp. held that the arbitration agreement was
unenforceable due to lack of mutual assent and because of
confusing and inconsistent provisions. Likewise, in Sanchez v.
Valencia Holding Co., LLC, a California Court of Appeal for the
Second District declared an
arbitration
agreement to
be
procedurally and substantively unconscionable based on the
cumulative effect of various provisions.
33
Some Lower Courts Expanded the AT&T Mobility Holding
In Litman v. Cello Partnership, the Third Circuit refused to follow the New Jersey
Supreme Court’s holding in Muhammed v. County Bank of Rehoboth Beach,
Delaware, which prohibited class waivers in consumer contracts of adhesion that
involved disputed involving small amounts of damages. In overturning Muhammed
and enforcing the particular arbitration agreement at issue, the Third Circuit noted:
We understand the holding of Concepcion to be both broad and clear: a state
law that seeks to impose class arbitration despite a contractual agreement for
individualized arbitration is inconsistent with, and therefore preempted by, the
FAA, irrespective of whether class arbitration ‘is desirable for unrelated
reasons.’
34
Some Lower Courts Expanded the AT&T Mobility Holding
The Eleventh Circuit applied a strict interpretation of AT&T Mobility
to the Florida Deceptive and Unfair Trade Practices and held that
“[i]nsofar as Florida law would invalidate [arbitration] agreements
as contrary to public policy, such a state law would ‘stand as an
obstacle to the accomplishment and execution’ of the FAA.”
35
The Vindication of Rights Doctrine –
Does It Apply When Federal Policy Considerations Are At Issue?
In Kaltwasser v. AT&T Mobility, LLC, the plaintiff argued that Concepcion
did not disturb the vindication of rights doctrine (i.e., the common law
doctrine that applies a cost-benefit analysis to class arbitration) under
federal common law. Instead, plaintiff argued that Concepcion left room
for a court to conduct an “individualized case-by-case” analysis of whether
binding plaintiff to individual arbitration would prevent a vindication of
rights, in which case the arbitration agreement should be unenforceable.
36
The Competing Federal Cases
American Express Merchants Litigation Feb. 1, 2012
The class action waiver in the Card Acceptance Agreement cannot be
enforced in this case because to do so would grant Amex de facto
immunity from antitrust liability by removing the plaintiffs’ only reasonably
feasible means of recovery. As already set forth, Section 2 of the [Federal
Arbitration Act], 9 U.S.C. §2, provides that an agreement to arbitrate
“shall be valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract.” Given that we
believe that a valid ground exists for the revocation of the class action
waiver, it cannot be enforced under the FAA.
37
American Express Merchants Litigation
The Court relied on a detailed testimony from an economist by a
supported affidavit which stated that “[i]n my experience, even a
relatively small economic antitrust study will cost at least several
hundred thousand dollars, while a larger study can easily exceed
$1 million... after reviewing the complaint and doing some
preliminary research in this case, it is my opinion that... the cost for
this case will fall in the middle of the range.
38
American Express Merchants Litigation
The Court found that based on the affidavit that the only
economically feasible means for enforcing plaintiffs statutory rights
is via a class action,” and remanded the case to the district court.
39
American Express Merchants Litigation
Stolt-Nielsen
and
Concepcion
do
not
require
that
all
class-action waivers be deemed per se enforceable. That leaves open the
question presented on this appeal; whether a mandatory class action
waiver clause is enforceable even if the plaintiffs are able to demonstrate
that the practical effect of enforcement would be to preclude their ability to
bring federal antitrust claims. While we cannot rely on Concepcion or
Stolt-Nielsen to answer the question before us, we continue to find useful
guidance in other Supreme Court decisions addressing the issue of
vindicating federal statutory rights via arbitration.
40
American Express Merchants Litigation
Supreme Court precedent recognizes that the class action device is the
only economically rational alternative when a large group of individuals or
entities has suffered an alleged wrong, but the damages due to any single
individual or entity are too small to justify bringing an individual action.
A critical fact in this litigation is that petitioner’s individual stake in the
damages award he seeks is only $70. No competent attorney would
undertake this complex antitrust action to recover so inconsequential
an amount. Economic reality dictates that petitioner’s suit proceed as
a class action or not at all.
Eisen v. Carlisle & Jacquelin 917.2S156 161 (1974)
41
American Express Merchants Litigation
Arbitration is also recognized as an effective vehicle for vindicating
statutory rights, but only “so long as the Prospective litigant may
effectively vindicate its statutory cause of action in the arbitral forum.
“Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,
632 (1985) (emphasis added). Indeed, in dicta the Mitsubishi Court noted
that should clauses in a contract operate “as a prospective waiver of a
party’s right to pursue statutory remedies for antitrust violations, we would
have little hesitation in condemning the agreement as against public
policy.”
42
American Express Merchants Litigation
Neither Stolt-Nielsen no Concepcion overrules Mitsubishi, and neither makes mention of Green
Tree. We continue to find Green Tree “controlling here to the extent that it holds that when ‘a
party seeks to invalidate an arbitration agreement on the ground that arbitration would be
prohibitively expensive, that party bears the burden of showing the likelihood of incurring such
costs.’” Amex II, 634 F.ed at 197 (quoting Green Tree, 531 U.S. at 92). Other Circuits permit
plaintiffs to challenge class action waivers on the grounds that prosecuting such claims on an
individual basis would be a cost prohibitive method of enforcing a statutory right. See e.g. In re
Carton Yarn Antitrust Litig., 505 F.3d 274, 285 (4th Cir. 2007) (“[I]f a party could demonstrate
that the prohibition on class actions likely would make arbitration prohibitively expensive, such a
showing could invalidate an agreement.”) (citation omitted; Livingston v. Assoc. Fin. Inc., 339
F.3d 553, 557 (7th Cir. 2003).
43
American Express Merchants Litigation
As detailed above, we are persuaded by the record before us that if plaintiffs
cannot pursue their allegations of antitrust law violations as a class, it is financially
impossible for the plaintiffs to seek to vindicate their federal statutory rights. Since
the plaintiffs cannot pursue these claims as class arbitration, either they can pursue
them as judicial class action or not at all. If they are not permitted to proceed in a
judicial class action, then they will have been effectively deprived of the protection
of the federal antitrust law. The defendant will thus have immunized itself against all
such antitrust liability by the expedient of including in its contracts of adhesion an
arbitration clause that does not permit class arbitration, irrespective of whether or
not the provision explicitly prohibits class arbitration.
44
American Express Merchants Litigation
Therefore, in light of the fact that the arbitration provision at issue here
does not allow for class arbitration, under Stolt-Nielsen and by its terms, if
the provision were enforced it would strip the plaintiff of rights accorded
them by statute. We conclude that this arbitration clause is unenforceable.
We remand to the district court with the instruction to deny the defendant’s
motion to compel arbitration.
45
Reed v. Florida Metropolitan University Incorporated,
5th Circuit Arbitration Provisions
Both student and the University irrevocably agree that any dispute
between them shall be submitted to Arbitration.
Neither the student nor the University shall file or maintain any
lawsuit in any court against the other, and agree that any suit filed
in violation of this Agreement shall be dismissed by the court in
favor of an arbitration conducted pursuant to this Agreement.
46
The District Court Properly Referred the Class Arbitration Issue
to the Arbitrator.
The School contends that the district court erred when it allowed the arbitrator to determine
whether the parties’ arbitration agreement allowed for class arbitration, instead of deciding the
issue itself. We disagree.
The Supreme Court has not definitively decided this issue. In Green Tree Financial Corp. v,
Bazzle, 539 U.S. 444, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003), four Justices concluded that
the class arbitration issue did not constitute a “gateway” or arbitrability matter that is generally
decided by a court, but was instead a procedural matter for the arbitrator. Id. at 452. In StoltNielsen, the Court confirmed that Green Tree “did not yield a majority decision” on this issue.
130 S.Ct. at 1772. The Stolt-Nielsen Court declined to revisit the question because the parties
in that case had agreed to submit the question to the arbitrator rather than the court. Id. At the
least at the Supreme Court level, therefore, the question remains open.
47
The District Court Erred in Confirming the Arbitration Award.
After a hearing, the arbitrator issued an award in which he determined
that the parties’ arbitration provision allowed for class arbitration. The
district court granted Reed’s motion to confirm the award and denied the
School’s cross-motion to vacate the award. The School contends that the
arbitration award is inconsistent with Stolt-Nielsen, and that the arbitrator
exceeded his authority by ordering the parties into class arbitration
without a sufficient contractual basis.
48
The Basis For The Award.
The arbitrator began by acknowledging that the class arbitration issue
presented a “close case,” and was primarily governed by Stolt-Nielsen.
After determining that the FAA and Texas law applied, he then focused
on two provisions of the parties’ arbitration agreement: (1) the “any
dispute” provision, which provides, “[t]he student agrees that any dispute
arising from my enrollment at Everest University, no matter how
described, pleaded or styled, shall be resolved by binding arbitration
under the Federal Arbitration Act conducted by the American Arbitration
Association under its Commercial rules;” and (2) the “any remedy”
provision, which provides, “[a]ny remedy available from a court under the
law shall be available in the arbitration.” The arbitrator concluded that,
“[w]hen these two provision[s] are read in the context of the entire
Agreement, the [School] implicitly agreed to class arbitration,” and there
was a sufficient “’contractual basis’ for class arbitration.”
49
First, the arbitrator improperly relied upon the “any dispute” clause of the
arbitration agreement.
On its face, the “any dispute” clause merely reflects an agreement
between the parties to arbitrate their disputes. Stolt-Nielsen makes clear,
however, that an “implicit agreement to authorize class-arbitration is not a
term that the arbitrator may infer solely from the fact of the parties’
agreement to arbitrate.” 130 S.Ct. at 1775 (emphasis added). This
clause is therefore not a valid contractual basis upon which to conclude
that the parties agreed to submit to class arbitration.
50
Second, the arbitrator’s reliance upon the “any remedy” clause was
improper. The “any remedy” clause, which merely allows the arbitrator to
grant any “remedy available from a court under the law,” says nothing
whatsoever about class arbitration, and does not constitute an
“agree[ment] to authorize class arbitration.” Stolt-Nielsen, 130 S.Ct. at
1776 emphasis omitted). A “remedy” is “anything a court can do for a
litigant who has been wronged or is about to be wronged.” Black’s Law
Dictionary 1320 (8th ed.2004); see also Knapp, Stout & Co. v. McCaffrey,
177 U.S. 638, 644, 20 S.Ct. 824, 44L.Ed. 921 (1900) (“A remedy is
defined as the means employed to enforce a right, or redress an injury.”)
(internal quotation marks omitted.
51
Finally, the arbitrator erroneously based his conclusion on the
agreement’s silence with respect to class arbitration. The arbitrator
suggested that the School, as the drafter of the agreement, had an
obligation to affirmatively state that the agreement precluded class
arbitration. This rationale, however, is directly contrary to Stolt-Nielsen’s
holding that arbitrators should not presume, consistent with their limited
powers under the FAA, that the parties’ mere silence constitutes consent”
to class action. Id. at 1776. Stolt-Nielsen requires that the parties “agree
[ ] to authorize” class arbitration, not merely that they fail to bar such a
proceeding. Id. (emphasis omitted).
52
We conclude, therefore, that the arbitrator lacked a contractual basis
upon which to conclude that the parties agreed to authorize class
arbitration. At most, the agreement in this case could support a finding
that the parties did not preclude class arbitration, but under Stolt-Nielsen
this is not enough. The arbitrator therefore exceeded his authority in
ordering the parties to submit to a class arbitration proceeding, and the
district court should have vacated the award. 9 U.S.C. §10(a)(4): see
Stolt-Nielsen, 130 S.Ct. at 1776.
53
Other Issues - D.R. Horton, Inc. v. National Labor Relations Board, 5th Circuit
The issue presented is whether it is an unfair labor practice under Section
8(a)(1) of the National Labor Relations Act (NLRA) for an employment
contract to contain a class action waiver as part of its arbitration
provision. The decision of the National Labor Relations Board (NLRB)
below held that employers cannot condition employment on an
employee’s waiver of the right to bring class or collective actions in
arbitration. The NLRB described class actions as at “the core” of an
employee’s right “to redress workplace wrongs or improve working
conditions,” a right protected by Section 7 of the Act, which gives
employees the right to engage in “concerted activities” for the purposes of
“mutual aid or protection.” D. R. Horton, 2012 NLRB LEXIS 11, slip. op at
3. This decision cannot be harmonized with the fundamental principles
announced by the Supreme Court last Term in AT&T Mobility LLC v.
Concepcion, 131 S.Ct. at 1745, which upheld arbitration clauses that
waived the right to bring class claims in the consumer context. (Brief of
Amicus Pacific Legal Foundation.)
54
Other Issues - A Preemptive Strike By The National Labor Relations Act (NLRA)
“In one of the first cases of its kind, the National Labor Relations Board’s
San Francisco office has issued a complaint against a major California
employer, accusing it of instituting an arbitration policy that violates
federal law. According to the complaint filed Monday [04/30/12], 24 Hour
Fitness USA, Inc., violated the National Labor Relations Act with
provisions in its handbook “ . . . that require that employees forego any
rights they have to resolution of employment-related disputes by
collective or class action.” 24 Hour Fitness employees can only opt out of
the provision if they obtain the proper form by calling a phone number,
then fill it out and return it through interoffice mail within 30 days,
according to the government agency’s complaint. ... The complaint
alleges the handbook interferes with rights guaranteed by Section 7 of the
Act, which allows employees to band together to seek to improve working
conditions.” (Los Angeles Daily Journal 05/01/12).
55
Other Issues - The Arbitration Fairness Act of 2009
Congress is considering H.R. 1020, the so-called "Arbitration Fairness
Act of 2009") designed to limit the scope of the U.S. federal arbitration
law (the Federal Arbitration Act).
The bill, as proposed last year, would render invalid and unenforceable
any pre-dispute arbitration agreement that requires the arbitration of "an
employment, consumer, or franchise dispute," or "a dispute arising under
any statute intended to protect civil rights.“
The bill does not define the disputes to which this bar applies in specific
and limited terms, nor does it expressly limit the "civil rights statutes" to
which it refers.
The prospect exists for parties wishing to resist arbitration to seek court
intervention under broad readings of what qualifies as a "consumer" or
"civil rights" dispute.
56