Chapter § 5.12 Classwide Arbitration

• Jurisdiction: United States
• Publication year: 2020

§ 5.12 Classwide Arbitration

[1] The Class Arbitration Jurisprudence

Several seminal Supreme Court decisions have shaped the present-day class arbitration landscape. To begin, today’s class arbitration is very different than the bilateral arbitration Congress contemplated when it enacted the Federal Arbitration Act (“FAA”) in 1925; indeed, Rule 23 wasn’t promulgated until 1938,²³⁷ and the “modern class action practice” didn’t emerge until “the 1966 revision of Rule 23.”²³⁸ The court underscored the “fundamental” changes “brought about by the shift from bilateral arbitration to class-action arbitration” in Stolt–Nielsen S.A. v. AnimalFeeds International Corp.²³⁹ and again in AT&T Mobility LLC v. Concepcion.²⁴⁰ In these cases, the court cautioned that (1) a class arbitrator no longer resolves a single dispute between two parties, but, instead, resolves many disputes between multiple parties,²⁴¹ (2) the presumption of privacy that applies in bilateral arbitrations doesn’t apply in some class arbitrations,²⁴² (3) the arbitrator’s award in class arbitration no longer purports to bind just the parties to the arbitration agreement, but also adjudicates the rights of absent parties,²⁴³ (4) class arbitration sacrifices the informality of arbitration and makes the process slower and more costly,²⁴⁴ (5) class arbitration requires procedural formality that Congress didn’t envisioned when it passed the FAA,²⁴⁵ and (6) arbitration is “poorly suited to the higher stakes of class litigation” as it increases risks to defendants with only a limited appellate review.²⁴⁶

These differences between bilateral and class arbitration, and the parties’ corollary right to agree to individualized bilateral arbitration, underpin some the key Supreme Court decisions regarding class arbitration. For instance, in Stolt–Nielsen, the Court held that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”²⁴⁷ The Court said that the “differences between bilateral and class-action arbitration are too great for arbitrators to presume . . . that the parties’ mere silence on the issue of class-action arbitration constitutes consent to resolve their disputes in class proceedings.”²⁴⁸ Relying on this principle, the Concepcion court held that class arbitration waivers in form contracts are enforceable.²⁴⁹ The Supreme Court reiterated this rule in American Express Co. v. Italian Colors Restaurant,²⁵⁰ holding that courts cannot invalidate arbitration agreements on the ground that they don’t permit class arbitration, even when individualized arbitration would be cost-prohibitive. And, most recently, in Epic Systems Corp. v. Lewis,²⁵¹ the Court held that the individualized nature of arbitration proceedings is one of its “fundamental attributes.”²⁵² In reaching this decision, the Court noted that “Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.”²⁵³

One other Supreme Court decision, and the question of whether a judge or arbitrator decides if an arbitration agreement authorizes class arbitration, are also important to the present class arbitration framework. In Oxford Health Plans LLC v. Sutter,²⁵⁴ the Court held that courts should not disturb an arbitration award so long as the arbitrator made a “good faith attempt” at interpreting the contract in question. In this case, the Court found that the arbitrator construed “the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration.”²⁵⁵ Courts may “vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly.”²⁵⁶

The question of who decides the availability of class arbitration was not an issue in Sutter, because “the parties agreed that the arbitrator should decide” if “their contract authorized class arbitration.”²⁵⁷ While the Supreme Court hasn’t considered this question, “every federal court of appeals to reach” it (including the Third, Fourth, Sixth, Seventh, Eighth, and Eleventh Circuits) has held that the question of whether an arbitration agreement permits class arbitration is an issue of arbitrability for a court, not an arbitrator, to decide—unless the parties clearly and unmistakably delegated that question to an arbitrator.²⁵⁸ These courts conclude that the availability of class arbitration involves gateway questions of arbitrability, such as whether...