Opposing Class Arbitration Where the Arbitration Agreement is Entirely Silent on the Issue
This was an appeal from a federal District Court decision upholding an arbitrator’s ruling that a pre-dispute arbitration agreement permitted class arbitration, even though the agreement was undisputedly silent with respect to class proceedings.
The United States Supreme Court’s held in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758 (2010), that “a party may not be compelled under the [Federal Arbitration Act (“FAA”)] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” (Emphasis in original.) The issue on appeal therefore was whether an arbitration agreement that makes no reference whatsoever to class arbitration can ever be interpreted as authorizing class arbitration.
In the case four servers at a Smith & Wollensky (“S&W”) restaurant, who were parties to an S&W arbitration agreement, asked the arbitrator (retired Massachusetts Superior Court judge Allan van Gestel), to allow them to proceed on a class basis. Deciding the issue in 2008 (before the Stolt-Nielsen decision by the Supreme Court), Judge van Gestel, while acknowledging that the arbitration provision was silent on the issue of class arbitration, nonetheless concluded that the agreement allowed a class proceeding. He imposed a purported default rule of contract construction, which NELF argued had been subsequently invalidated by the Stolt-Nielsen decision, that the right to class action is an implied term in an arbitration agreement because, in his view, the term is essential to a determination of the parties’ rights. Further, again taking a position firmly rejected by Stolt-Nielsen, Judge van Gestel espoused the view that the implied right to class arbitration could only be overcome by an express class-action waiver.
After Stolt-Nielsen, S&W moved for reconsideration of the arbitrator’s 2008 decision. Judge van Gestel, while paying lip-service to Stolt-Nielsen, affirmed his earlier ruling, purporting to find consent to class arbitration in the facts that, first, the scope of the arbitration provision embraced all claims, including claims for wages, compensation, or benefits and, second, that the provision gave the arbitrator the power to award “any remedy and relieve” available to a court under the same claim.
S&W moved to vacate the arbitrator’s revised class arbitration decision in federal District Court. The District Court (Harrington, J.) upheld the arbitrator’s decision, distinguishing the case from Stolt-Nielsen on the ground that in Stolt-Nielsen, in addition to the arbitration agreement silence on the class-action question the parties to that case had also stipulated that they had not agreed to a class proceeding. Because there was no such stipulation in this case, the District Court took the position that the arbitrator was free to interpret the agreement, despite its silence, to determine whether there was a “contractual basis” supporting class arbitration. The arbitrator “reasoned” that these two contract provisions incorporated by reference the broad statutory class action provisions contained in both the FLSA and Massachusetts wage-hour laws, and that class actions are a form of a “remedy or relief.”.
S&W appealed the District Court’s decision to the First Circuit and NELF filed an amicus brief in support of S&W on the important question of whether, in the absence of a stipulation by the parties, Stolt-Nielsen nevertheless precluded class arbitration where there was no express agreement to proceed on that basis in the arbitration agreement. NELF argued, inter alia, that, as the Supreme Court has described in subsequent decisions (e.g., AT&T Mobility LLC v. Concepcion, 131 S.Ct 1740 (2011), proceeding on a class basis so fundamentally changes the nature of arbitration as originally envisioned by the FAA that some indication of an express agreement by the parties should be required under Stolt-Nielsen before a class proceeding can be imposed on the parties.
Shortly after NELF filed its brief, we were informed that the parties had settled their dispute. Apparently the settlement followed Judge van Gestel’s refusal to stay the class arbitration pending the First Circuit’s decision on S&W’s appeal. Apparently, in the arbitral as well as the judicial forum, class certification increases the pressure on the defendant to settle. The upshot is that the important question that NELF addressed in its brief remains undecided.
This was an appeal from a federal District Court decision upholding an arbitrator’s ruling that a pre-dispute arbitration agreement permitted class arbitration, even though the agreement was undisputedly silent with respect to class proceedings.
The United States Supreme Court’s held in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758 (2010), that “a party may not be compelled under the [Federal Arbitration Act (“FAA”)] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” (Emphasis in original.) The issue on appeal therefore was whether an arbitration agreement that makes no reference whatsoever to class arbitration can ever be interpreted as authorizing class arbitration.
In the case four servers at a Smith & Wollensky (“S&W”) restaurant, who were parties to an S&W arbitration agreement, asked the arbitrator (retired Massachusetts Superior Court judge Allan van Gestel), to allow them to proceed on a class basis. Deciding the issue in 2008 (before the Stolt-Nielsen decision by the Supreme Court), Judge van Gestel, while acknowledging that the arbitration provision was silent on the issue of class arbitration, nonetheless concluded that the agreement allowed a class proceeding. He imposed a purported default rule of contract construction, which NELF argued had been subsequently invalidated by the Stolt-Nielsen decision, that the right to class action is an implied term in an arbitration agreement because, in his view, the term is essential to a determination of the parties’ rights. Further, again taking a position firmly rejected by Stolt-Nielsen, Judge van Gestel espoused the view that the implied right to class arbitration could only be overcome by an express class-action waiver.
After Stolt-Nielsen, S&W moved for reconsideration of the arbitrator’s 2008 decision. Judge van Gestel, while paying lip-service to Stolt-Nielsen, affirmed his earlier ruling, purporting to find consent to class arbitration in the facts that, first, the scope of the arbitration provision embraced all claims, including claims for wages, compensation, or benefits and, second, that the provision gave the arbitrator the power to award “any remedy and relieve” available to a court under the same claim.
S&W moved to vacate the arbitrator’s revised class arbitration decision in federal District Court. The District Court (Harrington, J.) upheld the arbitrator’s decision, distinguishing the case from Stolt-Nielsen on the ground that in Stolt-Nielsen, in addition to the arbitration agreement silence on the class-action question the parties to that case had also stipulated that they had not agreed to a class proceeding. Because there was no such stipulation in this case, the District Court took the position that the arbitrator was free to interpret the agreement, despite its silence, to determine whether there was a “contractual basis” supporting class arbitration. The arbitrator “reasoned” that these two contract provisions incorporated by reference the broad statutory class action provisions contained in both the FLSA and Massachusetts wage-hour laws, and that class actions are a form of a “remedy or relief.”.
S&W appealed the District Court’s decision to the First Circuit and NELF filed an amicus brief in support of S&W on the important question of whether, in the absence of a stipulation by the parties, Stolt-Nielsen nevertheless precluded class arbitration where there was no express agreement to proceed on that basis in the arbitration agreement. NELF argued, inter alia, that, as the Supreme Court has described in subsequent decisions (e.g., AT&T Mobility LLC v. Concepcion, 131 S.Ct 1740 (2011), proceeding on a class basis so fundamentally changes the nature of arbitration as originally envisioned by the FAA that some indication of an express agreement by the parties should be required under Stolt-Nielsen before a class proceeding can be imposed on the parties.
Shortly after NELF filed its brief, we were informed that the parties had settled their dispute. Apparently the settlement followed Judge van Gestel’s refusal to stay the class arbitration pending the First Circuit’s decision on S&W’s appeal. Apparently, in the arbitral as well as the judicial forum, class certification increases the pressure on the defendant to settle. The upshot is that the important question that NELF addressed in its brief remains undecided.
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