E. Class Action Arbitration

• Jurisdiction: New York

E. Class Action Arbitration

Arbitration can be used to decide class action disputes.⁶¹ However, the U.S. Supreme Court held in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. that a party cannot be forced to submit to class arbitration unless there is a "contractual basis for concluding that the party agreed to do so."⁶² According to the Court, this is because "class action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator."⁶³ Therefore, a court cannot find an implied agreement to arbitrate a class action dispute based only on the silence of the parties' agreement.⁶⁴

Parties can explicitly contract out of class action arbitration.⁶⁵ Generally, courts will enforce an agreement that requires arbitration but waives a consumer's right to bring class action claims.⁶⁶ The U.S. Supreme Court found that a state's common law rule that imposed a blanket prohibition on class action waivers in arbitration agreements was preempted by the Federal Arbitration Act.⁶⁷

Class action arbitration proceeds in three phases. First, the arbitrator decides whether the applicable arbitration clause permits class action arbitration,⁶⁸ then the arbitrator decides whether the arbitration should proceed as a class arbitration, and, finally, the arbitrator decides the dispute on the merits.⁶⁹

PRACTICE GUIDE

Parties should state in their arbitration clause whether or not they want class action disputes to be submitted to the arbitrator. If the parties contract out of class action...