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The Supreme Court will Address Another Class Arbitration Issue

The legal profession as a whole is familiar with the basic principles of both class action litigation and bilateral arbitration. Class arbitration is a less common form of dispute resolution that the courts have debated for years. As the name suggests, class arbitration allows for a party to represent a class of individuals who have suffered the same harm in an arbitration setting. A major point of contention has been determining when class arbitration is appropriate and who can make this determination.

Supreme Court will Address Another Class Arbitration

The Courts on Class Action Arbitration

The courts have already ruled the following regarding the class arbitration authorization issue:

  • Parties must clearly intend in their arbitration agreement that they agree to use class arbitration. This relates back to the traditional principle that courts will decipher intent by analyzing a contract.1
  • Although express intent is always favored among the courts, intent to allow class arbitration can be implicit in the agreement.2  This reasoning is based on the belief that incorporating the American Arbitration Association (“AAA”) rules into an agreement authorizes consent.
  • Generally, courts should be the governing body that determine whether an arbitration agreement authorizes class arbitration.3  It is not proper for arbitrators to decide this because there is no opportunity for appellate review. Additionally, there are due process considerations for uninvolved class members since there is the potential of binding nonsignatories to decisions if class arbitration is authorized. However, there is still a debate about whether AAA rules allow for delegation of this issue to the arbitrator instead of the courts exclusively.

While it seems that the Supreme Court of the United States (“SCOTUS”) has fully tackled that the issue of when class arbitration is authorized, the Court has agreed to hear yet another case on the topic. The Ninth Circuit recently tried to carve out an exception to the widely accepted rule that there must be clear consent in order to allow class arbitration. In the Lamps case, the court determined that since the arbitration agreement was unclear about whether class arbitration was appropriate, it would use state law contract principles to construe the ambiguous terms against the employer who drafted the contract. Based on this, the Ninth Circuit authorized class arbitration.4

SCOTUS and Class Action Arbitration

What is interesting about the Ninth Circuit ruling is that SCOTUS already addressed this issue in the Stolt-Nielsen decision and came out with the opposite result by finding that silence on the class arbitration issue does not provide courts with the right to presume consent. So why did SCOTUS agree to hear this case? The narrow issue before SCOTUS is “whether the Federal Arbitration Act forecloses a state law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.”

Based on the trend, SCOTUS probably just wants to make it clear that nothing, including state law principles, will authorize class arbitration unless there is clear intent by the parties. To that end, it will be interesting to see if SCOTUS will tackle the debated issue of whether this intent must be express or if implicit intent is allowed, and if so what constitutes implicit intent. It does not seem that the remaining controversy of whether the court or arbitrator should decide when class arbitration is authorized is within the purview of the Lamps case, however, SCOTUS may decide to address this point as well. On the surface, it appears that class arbitration has been thoroughly analyzed by the courts. However, taking a closer look shows that there are still minor details that need to be clarified. Hopefully SCOTUS will decide to tackle all of these issues in one sweep, but only time will tell.
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1 Stolt-Nielsen, S.A. v. Animal Feeds International Corp., 559 U.S. 662, 130 S.Ct. 1758 (2010)
2 Oxford Health Plans v. Sutter, 559 U.S. 564, 574-75 (2013)
3 Catamaran Corp. v. Towncrest Pharmacy, 2017 U.S. App. LEXIS 13689 (8th Cir. July 28, 2017); Chesapeake Appalachia LLC v. Scout Petroleum LLC, 809 F.3d 746, 2016 WL 53860 (3d Cir. Jan. 5, 2016)
4 Lamps Plus Inc. v. Varela, No. 17-988, 2018 WL 398496 (U.S. April 30, 2018)

Filed under: class action

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