Antitrust, Arbitration, Class Action Waivers, Class Actions, Class Arbitration, U.S. Supreme Court

The U.S. Supreme Court Ended the Term with an Exclamation Mark at the End of Its Statement on Class Actions and Arbitration: The Amex and Oxford Health Decisions

            The Supreme Court’s October 2012 Term could rightly be named “The Year of the Class Action.”  The High Court received many petitions for review and ultimately issued more than five decisions that tackled issues impacting the landscape of class action practice from questions regarding federal jurisdiction under the Class Action Fairness Act of 2005 to class certification requirements in fraud-on-the-market securities class actions.  Two of the Court’s final class action decisions addressed the impact of arbitration agreements on class actions and class arbitration, which has been the subject of the Court’s attention for several years.  The Court issued its decision in Oxford Health Plans, LLC v. Sutter, 569 U.S. ___ (2013) on June 10th and its highly anticipated decision in American Express Company, et al. v. Italian Colors Restaurant, et al., 133 S. Ct. 2304, 570 U.S. ___ (2013) on June 20th.  In Oxford Health, a unanimous Court resolved a split among the Circuit Courts of Appeals by holding that an arbitrator’s determination that the parties’ generic arbitration provision that required the arbitration of all disputes allows class arbitration must stand.  In Amex, a divided Court held that a class arbitration waiver cannot be invalidated due to the high costs associated with proving a federal antitrust claim through an individual action.  We discussed these two cases in detail as they developed: visit our previous Oxford Health post and previous Amex posts (here, here, here, here) and article. These two decisions punctuate the statement made by the High Court’s recent class action/arbitration jurisprudence: the Federal Arbitration Act (“FAA”) gives substantial force to arbitration agreements and their ability to curb plaintiff’s access to the class action mechanism. 

            Oxford Health on Arbitrator’s Power:  At first glance, the Oxford Health decision seems to favor class action plaintiffs.  However, the decision actually favors the arbitral forum.  Although the Court held that the arbitrator’s interpretation of the parties’ generic and broadly worded arbitration provision must stand, the Court’s decision was grounded in the power given to arbitration agreements and arbitrators under the FAA.  The entire decision was based, not on a determination that the arbitrator’s reading of the arbitration clause was correct, but on a determination that the parties granted the arbitrator the power to decide whether class arbitration was permitted and, having done so, the arbitrator’s decision must stand under the FAA.  In fact, the Court strongly suggested that it disagreed with the arbitrator’s interpretation of the provision.  But, Section 10 (a)(4) of the FAA severely limits a court’s ability to intervene and reverse an arguably erroneous decision of an arbitrator.  And the Supreme Court noted, “[t]he potential for those mistakes is the price of agreeing to arbitration….It is the arbitrator’s construction [of the contract] which was bargained for….The arbitrator’s construction holds, however good, bad, or ugly.  In sum, Oxford chose arbitration, and it must now live with that choice.”  The Court’s emphasis on the power the parties granted to the arbitrator and the limited opportunity to reverse an arbitrator’s decision construing the contract should be a resounding alert to companies that precision in the wording of arbitration clauses is of the utmost importance. If seeking to avoid class actions and class arbitrations, contract language in an arbitration clause should explicitly preclude class arbitration.  Silence on the issue is not a guarantee that such procedures will be prohibited.  And if the decision is made by an arbitrator, there will be little to no room for reversal of the decision by a court.  You have the right to remain silent…but doing so in an arbitration provision may cost you.  You also have the opportunity to clearly prohibit class arbitration in a carefully crafted arbitration provision.

            Amex on Costs of Individual Arbitration:  The Supreme Court’s decision in Amex likely will be a game changer.  We have seen lower courts continue to invalidate class arbitration waivers since the AT&T Mobility, LLC v. Concepcion, 562 U.S. ___,131 S. Ct. 1740 (2011) decision.  These courts have done so in the face of federal claims, low value claims, and particular substantive claims (e.g., FLSA claims, Title VII pattern & practice discrimination claims, claims under the NLRA), often by holding that Concepcion was inapposite because it was limited to state pre-emption issues, that Concepcion was distinguishable in some other way (e.g., the provision in Concepcion provided for cost-shifting that made the cost of arbitration irrelevant to plaintiffs), and/or that the federal vindication of rights doctrine served as grounds to invalidate the arbitration provision.  The Amex decision clarified that (1) Concepcion is not limited to cases involving state pre-emption issues and it applies to federal cases, (2) the vindication of rights doctrine cannot be used to invalidate arbitration agreements with class arbitration waivers due to the low value of an individual claim when compared to the high cost of proving a claim in an individual proceeding, and (3) class procedures cannot be required to allow resolution of claims that would otherwise slip through the legal system – “[Concepcion] established that the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims.”  The Amex Court confirmed that individuals are not entitled to disregard the arbitration agreement that they signed and access the class action process merely because it is the most economical means of enforcing their statutory rights: “[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”

            What’s Next: The Oxford Health decision, backed up by Amex, affirms that a carefully worded arbitration clause can still preclude plaintiffs from accessing the class action mechanism to litigate state and federal claims in court, as well as in arbitration.  But, this does not necessarily mean the end of challenges regarding class arbitration and class arbitration waivers – there are still open questions to be explored.  While it is clear that class arbitration must be agreed upon by the parties, courts have differed, to some extent, in deciding whether it is within the purview of the court or the arbitrator to decide whether the contract evinces an agreement to class arbitration.  Some courts have treated the issue as one of substantive arbitrability that should be decided by the court, while many others have found that it is one of procedural arbitrability that is to be decided by an arbitrator.  This is an issue that has been left open by the U.S. Supreme Court, which it explicitly addressed in a footnote in the Oxford Health decision (seemingly inviting the question to be presented for its consideration).  The fact that the parties in Oxford Health agreed to allow the arbitrator to decide whether the arbitration provision permitted class arbitration prevented the Supreme Court from addressing the issue.  But, the High Court noted that a court’s review of issues of substantive arbitrability are reviewed “de novo absent ‘clear[] and unmistakabl[e]’ evidence that the parties wanted an arbitrator to resolve the dispute.”  Accordingly, as Oxford Health illustrates, parties should be cautious about agreeing to allow an arbitrator decide whether the contract permits class arbitration, given the limited review of an arbitrator’s decision that is permitted by the FAA.

            The Amex decision left room for continued probing of the validity of class arbitration waivers.  The Court’s analysis in Amex highlighted the need to determine whether there is Congressional intent to prevent the arbitration of a particular type of claim or to require access to class procedures for a particular claim.  So, the door still is open to challenges in contexts other than antitrust suits.  For example, questions regarding the ability of class arbitration waivers to preclude class actions in the context of employment cases are still on the horizon.  The Fifth Circuit Court of Appeals is considering the appeal of the National Labor Relations Board’s decision that class arbitration waivers are unenforceable in individual employment contracts because it interferes with the right to act collectively provided by the National Labor Relations Act in the D.R. Horton v. NLRB case.  And Amex did leave open the possibility that the costs of filing fees & arbitration administration fees could perhaps invalidate an arbitration agreement under the vindication of rights doctrine if they “are so high as to make access to the forum impracticable.” Accordingly, companies should consider including cost-shifting provisions in arbitration agreements that provide that they will cover some portion or all of such fees upfront.  We likely will continue to see development in these areas of class action jurisprudence in the lower courts and these issues may find themselves back at the Supreme Court.

Tony Lathrop

About Tony Lathrop

Tony Lathrop brings experience and a high level of analytical ability, professional credibility and creativity to handling litigation matters. He rigorously represents his clients' interests in a diverse range of claims and actions. A certified mediator, Mr. Lathrop has extensive experience representing business clients in mediation. His service to the legal profession in North Carolina has allowed him to develop relationships across the state that benefit the firm's clients.

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