Last summer, I* wrote about the First Circuit’s June 27, 2012 decision in Download Fantastic Sams v FSRO Assoc, a case holding that, in the event of an arbitration provision that does not explicitly address the subject of individual versus collective or “class-wide” arbitration, it is up to the arbitrator to determine whether the contract binds both parties to submit to such collective or class-wide arbitration when demanded by either party. Such determinations, the Fantastic Sams Court ruled, are subject to the deferential standard of judicial review required under the Federal Arbitration Act for all but the “gateway” issues reserved to the court, such as arbitrability in the first instance. The First Circuit specifically rejected the argument that whether or not an arbitration provision binds the parties to collective or class-wide arbitration is such a gateway issue.
The Court in Fantastic Sams distinguished the Supreme Court’s decision in Download Stolt Nielsen SA v Animal Feeds International Corp, a case holding that in the absence of contractual language authorizing class-wide arbitration no party could be compelled to arbitrate on a class-wide basis, on the ground that, in Stolt-Nielsen, the parties had stipulated that their arbitration provision was silent on the issue of class-wide arbitration, thereby eliminating any possibility that the contract required it. In the absence of such a stipulation (never likely to be seen again, as I noted in my earlier post), the First Circuit concluded, either party is free to argue that the arbitration provision requires class-wide arbitration notwithstanding the absence of affirmative language to that effect, including based on industry custom and practice, extra-contractual statements, and other parol evidence. On this issue, the First Circuit followed the lead of two other circuits that had addressed this question since the Stolt-Nielsen decision, Download Jock v Sterling Jewelers Inc 2nd Cir 2011 and Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3rd Cir. 2012).
On March 25, the Supreme Court will hear argument in Oxford Health Plans LLC v. Sutter, one of the two cases relied upon by the First Circuit in Fantastic Sams, on the following question: “Whether an arbitrator acts within his power under the Federal Arbitration Act or exceeds those powers by determining that parties affirmatively agreed to authorize class arbitration, based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.” It seems likely that at least some members of the Supreme Court will find the Third Circuit’s (and by extension the First Circuit’s) reading of Stolt-Nielsen too cramped, and give the courts a greater role in determining when class-wide arbitration will be allowed. As noted in my earlier post on the Fantastic Sams case, which presented a collective arbitration of a finite number of claims rather than a true class arbitration (another basis the First Circuit cited for distinguishing Stolt-Nielsen), the First Circuit acknowledged some of the policy concerns that arise in a true class arbitration. Similar policy concerns were noted by Justice Scalia in Download AT&T Mobility LLC v Concepcion 2011, including that class-wide arbitration conflicts with the usual informality and privacy of individual arbitration proceedings, and removes from the courts intricate legal questions relating to class certification, the outcome of which can raise the stakes considerably for parties defending such claims. Such concerns logically presage a reluctance to require class-wide arbitration except where both parties have clearly and explicitly agreed to it.
In summary, this case gives the Supreme Court an opportunity to clarify its holding in Stolt-Nielsen, and the very restrictive readings of that decision to date by the First, Second, and Third Circuits, on the very important issue of when class-wide arbitration will be required. Stay tuned.
*this post was written by John Aromando