After Stolt-Nielsen, Circuits Split, But AAA Filings Continue

Transcription

1 MEALEY S TM International Arbitration Report After Stolt-Nielsen, Circuits Split, But AAA Filings Continue by Gregory A. Litt Skadden, Arps, Slate, Meagher & Flom LLP New York Tina Praprotnik Duke Law School and Duke University A commentary article reprinted from the July 2012 issue of Mealey s International Arbitration Report

2 MEALEY S International Arbitration Report Vol. 27, #7 July 2012 Commentary After Stolt-Nielsen, Circuits Split, But AAA Filings Continue By Gregory A. Litt and Tina Praprotnik [Editor s Note: Gregory A. Litt is counsel in litigation and international arbitration in the New York office of Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Litt represents clients in complex commercial disputes before state and federal courts and domestic and international arbitral tribunals. This article does not necessarily represent the views of Skadden Arps or any one or more of its clients. Tina Praprotnik is a student in the joint program in law and environmental management at Duke Law School and the Nicholas School of the Environment at Duke University. Copyright # 2012 by Gregory A. Litt and Tina Praprotnik. Responses are welcome.] The Supreme Court placed substantial limits on the growing field of class arbitration with its 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., holding that a party may not be compelled under the FAA [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. 1 Since that time, parties have continued to file class arbitrations, but the federal courts of appeals have split over when it is permissible for arbitrators to infer a contractual basis for class arbitration in the face of an arbitration clause that does not expressly provide for the procedure. AAA Class Arbitration Filings Continue After Stolt-Nielsen As set out in the table below, 2 class arbitration filings with the American Arbitration Association (AAA) widely believed to be the leading provider of class arbitration exploded immediately after the AAA promulgated its class arbitration rules in The filings continued in large numbers up to the decision in Stolt-Nielsen in 2010, which many in the field read as a death knell for class arbitration in the United States. Indeed, class arbitration filings at the AAA dipped to 27 in 2010, the lowest full-year total since the AAA procedure was initiated. And in 2011, the Supreme Court issued a related decision in AT&T Mobility LLC v. Concepcion, which bolstered the effectiveness of contractual language waiving the right to class arbitration. 3 But the number of class arbitration filings surprisingly increased in 2011, rising to 36 new filings, and though 2012 appears to be slow, there were 9 additional class cases filed in the first half of the year. Cases Filed AAA Class Arbitration Filings * Through 30 June 2012* The continued filings may be attributable, in part, to ongoing uncertainty about the latitude arbitrators still possess, after Stolt-Nielsen, to permit class actions in the absence of express authorization (or waiver) on the face of an arbitration clause. The Second and Third Circuits Uphold Class Arbitrations with Facially Silent Clauses Since the Supreme Court s decision in Stolt-Nielsen, both the Second and Third Circuits have upheld arbitrators awards that construed arbitration clauses to permit class arbitration even though the clauses made no mention of class actions in arbitration or otherwise

3 Vol. 27, #7 July 2012 MEALEY S International Arbitration Report In July 2011, the Second Circuit endorsed a AAA arbitrator s pre-stolt-nielsen decision to permit class arbitration in Jock v. Sterling Jewelers Inc. despite the lack of express authorization for class actions in the arbitration clause. 4 Considering Stolt-Nielsen, the Second Circuit noted the Supreme Court s contemplation that an arbitration agreement may contain an implicit agreement to authorize class arbitration, though such agreement may not be inferred solely from the fact of the parties agreement to arbitrate. 5 The Jock arbitrator found that the agreement did not prohibit class arbitration and issued a Clause Construction Award permitting the case to proceed on behalf of a class. 6 After the Supreme Court issued its decision in Stolt-Nielsen, the district court vacated the award. 7 On appeal, the Second Circuit held that unlike the arbitrators in Stolt-Nielsen, the arbitrator in Jock had not exceeded her powers, particularly given the limited scope of review permitted under section 10(a)(4) of the FAA, 8 and the district court had improperly substitut[ed] its interpretation of the agreement for that already undertaken by the arbitrator. 9 The court noted approvingly that the arbitrator s decision was based on the language of the arbitration agreement, rather than the arbitrator s view of public policy, the approach that had been criticized in Stolt-Nielsen. 10 Specifically, the court observed that the arbitrator focused on portions of the arbitration agreement stating that the claimant was waiving any right to seek relief through any government agency or court but could be awarded equal remedy in arbitration, and that the arbitrator would have power to award any types of legal or equitable relief that would be available in a court of competent jurisdiction. 11 In dissent, Judge Winter disapproved of the Jock majority s attempt to distinguish Stolt-Nielsen. 12 While Judge Winter acknowledged that the Supreme Court in Stolt-Nielsen left open the possibility of an implied agreement to arbitrate, he emphasized that it also held that an implied agreement could not be inferred from an arbitration clause s failure to preclude class arbitrations. 13 Judge Winter also disagreed with the majority s view of the parties contractual language, reasoning that the references to relief and remedies relate only to damages, injunctions, etc.[,] and not to the availability of procedures used to pursue such relief. 14 On April 3, 2012, in Sutter v. Oxford Health Plans LLC, the Third Circuit similarly upheld an arbitrator s decision to permit class arbitration despite the lack of an explicit reference to class actions in the arbitration clause. 15 The arbitration clause in Sutter stated that [n]o civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration. 16 In a pre-stolt-nielsen decision, the arbitrator in Sutter construed thebroadtext of the arbitration clause to authorize class arbitration, and the courts confirmed the partial award containing the arbitrator s decision. 17 After Stolt-Nielsen was decided, the defendant unsuccessfully moved before the arbitrator for reconsideration, and then challenged the class arbitration determination again in court, arguing that the arbitrator had exceeded his powers. 18 The district court denied the motion, and the defendants appealed. 19 Upon review, the Third Circuit emphasized that judicial review of an arbitral award is extremely narrow, but also noted that under Stolt-Nielsen, [a]n arbitrator may exceed his powers by ordering class arbitration... unless there is a contractual basis for concluding that the parties agreed to that procedure. 20 However, the court also cited Stolt-Nielsen and Jock for the proposition that class actions in arbitration are not limited to situations where the arbitration agreement incants class arbitration or otherwise expressly provides for aggregate procedures. 21 Turning to the case before it, the court acknowledged that the arbitrator relied on the breadth of the arbitration agreement to determine that class arbitration was permissible, but held that under Stolt-Nielsen, where the parties intent with respect to class arbitration is in question, the breadth of their arbitration agreement is relevant to the resolution of that question. 22 Accordingly, the court found that the arbitrator performed his duty appropriately and endeavored to give effect to the parties intent, which insulated the award from the defendants claim that the arbitrator had exceeded his powers. 23 On June 27, 2012, the First Circuit in Fantastic Sams Franchise Corp. v. FSRO Ass n Ltd. cited Jock and Sutter approvingly, which suggests that it may take a similar approach when reviewing arbitrators decisions whether to permit class arbitration. 24 The Fifth Circuit Splits with the Second and Third Two months ago, the Fifth Circuit expressly rejected Jock and Sutter 25 and reversed a district court s decision confirming a AAA arbitrator s Clause Construction 2

4 MEALEY S International Arbitration Report Vol. 27, #7 July 2012 Award. 26 On May 18, 2012, in Reed v. Florida Metropolitan University, Inc., the Fifth Circuit held that the arbitrator exceeded his powers 27 by authorizing class arbitration in reliance on, inter alia, arbitration clause provisions that referred any dispute to arbitration and stated that any remedy available in court would be available in arbitration. 28 The Fifth Circuit discussed at some length its disagreement with the decision in Jock. Among other things, the court noted that it differed with the Second Circuit on its approach to reviewing class arbitration determinations. The court explained: We read Stolt-Nielsen as requiring courts to ensure that an arbitrator has a legal basis for his class arbitration determination, even while applying the appropriately deferential standard of review. Such an analysis necessarily requires some consideration of the arbitrator s award and rationale. 29 The court rejected the arbitrator s reliance on the any dispute provision of the arbitration clause, noting that this standard provision can be found in many arbitration agreements, and that it merely reflects the parties agreement to arbitrate, which, under Stolt-Nielsen, does not suffice to infer consent to class arbitration. 30 The court also criticized the arbitrator s reliance on the any remedy provision, reasoning that class proceedings are not a remedy but a procedural device and favorablycitingjudge Winter s dissent in Jock. 31 Finally, the court rejected the arbitrator s argument that the defendants as the drafters of the arbitration clause should have explicitly excluded class arbitration, pointing out that relying on the clause s silence to infer the permissibility of class arbitration is directly contrary to Stolt-Nielsen. 32 Given the express split between the circuits, this issue mayberipeforresolutionbythesupremecourt,butit remains to be seen whether the Court is prepared to accept another class arbitration case on its limited docket. 33 For now, claimants ability to successfully maintain class actions in arbitration may depend in part on the location of the case, and the door to class arbitration remains open. 2. The AAA statistics were provided to the authors on June 15, 2012 and July 10, 2012 by Christian P. Alberti, assistant vice president at the AAA s International Centre for Dispute Resolution. Communications on file with the authors. 3. See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1746, 1753 (2011) (holding that the FAA preempts [a state] rule classifying most collective-arbitration waivers in consumer contracts as unconscionable ). 4. Jock v. Sterling Jewelers Inc., 646 F.3d 113, , 122 n.1 (2d Cir. 2011), cert. denied, 132 S. Ct (2012). 5. Id. at 121 (internal quotation marks and alteration omitted). 6. Id. at Id. at See Federal Arbitration Act 10(a)(4), 9 U.S.C. 10(a)(4) (2006) (allowing for vacatur of an arbitration award where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made ). 9. Jock, 646 F.3d at Id. at , (citing Stolt-Nielsen, 130 S. Ct. at , 1770, ). 11. Id. at 126 (quoting the arbitration clause) (internal quotation marks omitted). 12. Id. at 128 (Winter, J., dissenting). 13. Id. at 129 (quoting Stolt-Nielsen, 130 S. Ct. at 1775). 14. Id. at 132. Endnotes 1. Stolt-Nielsen S.A. v. AnimalFeeds Int l Corp., 130 S. Ct. 1758, 1775 (2010). 15. Sutter v. Oxford Health Plans LLC, 675 F.3d 215, (3d Cir. 2012). 16. Id. at 217 (quoting the arbitration clause). 3

5 Vol. 27, #7 July 2012 MEALEY S International Arbitration Report 17. Id. at Id. at Id. 20. Id. at Id. at 222 (citing Stolt-Nielsen, 130 S. Ct. at 1776 n.10; Jock, 646 F.3d at 124). 22. Id. at Id. 24. Fantastic Sams Franchise Corp. v. FSRO Ass n Ltd.,No , 2012 WL , at *4 (1st Cir. June 27, 2012). The First Circuit cited the Second and Third Circuit decisions in support of its holding that a district court properly compelled arbitration of the parties disagreement over whether a facially silent arbitration clause permitted arbitration of claims brought by an association of franchisees on behalf of its members, each of which had an agreement with the franchisor containing an arbitration clause. Id. at*4,* Reed v. Fla. Metro. Univ., Inc., 681 F.3d 630, 2012 WL , *12 13 & n.13 (5th Cir. May 18, 2012). 26. Id. at * Id. at * Id. at * Id. at *13 (citation omitted) (citing Stolt-Nielsen, 130 S. Ct. at 1775). 30. Id. at * Id. at *11 (quoting Blaz v. Belfer, 368 F.3d 501, 505 (5th Cir. 2004)) (internal quotation marks omitted) (citing Jock, 646 F.3d at 132 (Winter, J., dissenting)). 32. Id. at * The Jock defendants unsuccessfully petitioned the Supreme Court to review the Second Circuit s decision, Sterling Jewelers, Inc. v. Jock, 132 S. Ct (2012) (mem.), but the Supreme Court s rejection of their petition occurred two months before the Fifth Circuit created a circuit split in Reed. n 4

6 MEALEY S: INTERNATIONAL ARBITRATION REPORT edited by Lisa Schaeffer The Report is produced monthly by 1600 John F. Kennedy Blvd., Suite 1655, Philadelphia, PA 19103, USA Telephone: (215) MEALEYS ( ) Web site: ISSN