Chapter 6 - § 6.8 • CLASS ACTION ARBITRATIONS

• Jurisdiction: Colorado

§ 6.8 • CLASS ACTION ARBITRATIONS

Generally, at least until recently, class actions in arbitration have proceeded similarly to class actions in courts, except that they are privately administered. Generally, arbitrators have followed the rules established by judicial decisions as to when an arbitration may proceed as a class arbitration, as well as the various procedural requirements. (The AAA has special rules for class action arbitration.) Generally, class arbitrations have been under federal law.

Generally, class arbitrations occur in the same kind of proceedings as judicial class actions, particularly consumer and labor claims. Examples of consumer class action claims are claims premised on actions of a credit card issuer. Examples of labor class actions include employee claims against employers for compensation not paid.

Generally, class action status has been obtained when the individual claims are too small to justify the attorney fees and costs necessary to prosecute them.

While numerically infrequent in arbitration, issues with respect to class actions in arbitration have dominated judicial arbitration decisions over the past few years — particularly the U.S. Supreme Court. Generally, the class action issues have been:

• May a claimant bring a class action arbitration when it and many others in a similar position have entered into individual arbitration agreements with the proposed respondent (e.g., consumer contracts)? Does the arbitration agreement allow class actions? Are class actions within the scope of the arbitration agreement?
• Whether an arbitration agreement "explicitly or implicitly" allows class action arbitration.
• Whether clauses in arbitration agreements that waive/prohibit class action arbitration are enforceable. Are they barred by the doctrine of unconscionability or other equitable doctrine?

As will be seen hereafter, the U.S. Supreme Court has directed substantial attention to these and related issues under the FAA. As most asserted arbitration class actions by their very nature involve interstate commerce and are therefore governed by the FAA (unless the parties otherwise agree), there are relatively few Colorado or other state decisions on the issues.

§ 6.8.1—U.S. Supreme Court Decisions On Class Action Arbitration

Greentree Financial Corp. v. Bazzle⁸⁷

In 2003, after concluding that the arbitration agreement did not expressly forbid a class action, a plurality of the U.S. Supreme Court held that the question of whether the arbitration agreement forbids class action arbitration is for the arbitrator to decide. Thus, the Court held that the FAA did not foreclose class arbitration, and the issue was one of state law contract interpretation.

Stolt-Nielsen S.A. v. AnimalFeeds International Corp.⁸⁸

The rules for determining whether a class action arbitration can be maintained under the FAA were dramatically changed by the U.S. Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds International Corp.⁸⁹ The Court noted that because arbitration is a consensual process, only parties who consent to arbitration are bound to arbitrate, and only on the terms agreed to. Therefore, under the FAA, "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."⁹⁰ The Court rejected any presumption that the parties so consented by a general arbitration clause. The Court held that the arbitrator cannot decide the issue on any basis other than whether the parties agreed class action arbitration could be maintained. Thus, when the parties stipulated that the arbitration agreement does not consent to or prohibit class action, it means a class action cannot be maintained, as there is no evidence of an agreement of the parties that a class action can be maintained.

While this holding has been subject to extensive commentary and analysis, a point from the Court's opinion should be noted: Arbitration contract interpretation decisions are ripe for judicial review. But must/may a party aggrieved by an award construing the arbitration clause immediately seek vacatur under the FAA or risk being found to have waived the right to seek vacatur due to the three-month period under the FAA for seeking vacation of awards? See AAA rules regarding "partial final awards."

Of equal interest is the question of to what extent the Concepcion decision affects the application of other state law contract defenses to arbitration agreements. Clearly, there is a federal law of grounds that "exist at law or in equity for the revocation of any contract" that in some circumstances will preempt state law of defenses.

AT&T Mobility LLC v. Concepcion⁹¹

AT&T Mobility LLC v. Concepcion⁹² held that the FAA preempts state law that renders class arbitration bans unenforceable — clauses waiving/prohibiting any right for the arbitration to proceed as a class action. Previously, many courts had held such waiver clauses to be unconscionable on multiple grounds, including in cases where it was not economically feasible for a claimant to prosecute his or her claims individually.

Normally, defenses to enforceability of arbitration clauses are decided under state law. However, the Supreme Court also held that the FAA preempted state law as to the unconscionability of clauses that prohibited class arbitration. Here, under California law, the waiver was unconscionable, but was preempted by the FAA. Therefore, the prohibition of class actions was valid and enforceable.

Thereafter, see Direct TV, Inc. v. Imburgia.⁹³

American Express Co. v. Italian Colors Restaurant⁹⁴

In In re American Express Merchants' Litigation,⁹⁵ the Second Circuit considered a mandatory arbitration clause in a commercial contract that also contained a class action waiver ("a provision which forbids the parties to the contract from pursuing anything other than individual claims in the arbitral forum"). The court held the waiver unenforceable because it "would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs."⁹⁶ The Supreme Court vacated and remanded for reconsideration in light of Stolt-Nielsen. The Second Circuit thereafter essentially affirmed its prior decision and remanded to the trial court for further proceedings, but stayed the mandate. Concepcion was then issued, holding that the FAA preempted California law barring the enforcement of class action waivers in consumer contracts. The Second Circuit still again affirmed its holding that the class action waiver was unenforceable.

That decision brought the case to the Supreme Court again, which held that the FAA does not permit courts to invalidate a contractual waiver on the ground that the plaintiff's cost of individually arbitrating a federal claim exceeds the potential recovery.

Oxford Health Plans v. Sutler, LLC⁹⁷

Dr. Sutter filed a class action against Oxford Health Plans alleging Oxford had improperly denied, underpaid, and delayed reimbursement of insurance claims. The trial court granted Oxford's motion to compel arbitration and ordered all procedural issues be resolved by the arbitrator, including those pertaining to class certification. The arbitration clause provided, "No civil action concerning any dispute . . . shall be instituted before any court...