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Southern Communications Services, Inc., d/b/a SouthernLINC Wireless v. Thomas

2/4/2014

 
Seeking Supreme Court Review of an Arbitral Award of Class Arbitration that Was Admittedly Not Based on the Parties’ Agreement but Was Instead Based Improperly on State Public Policy Favoring the Aggregation of Small-Value Claims

This case, which was before the United States Supreme Court on a petition for certiorari, raises the issue whether the Federal Arbitration Act (FAA) permits an arbitrator to order class arbitration against a business without the business’s consent.  Here, in plain violation of recent Supreme Court precedent interpreting the FAA, the arbitrator has failed to identify any contractual basis in the parties’ agreement to justify his order of class arbitration. In turn, the Eleventh Circuit has violated the FAA by affirming this arbitral award of class arbitration that lacks any contractual basis, under the mistaken belief that that the FAA requires this result. To the contrary, “[c]lass arbitration is a matter of consent [and not coercion]: An arbitrator may employ class procedures only if the parties have authorized them.” Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2066 (2013) (citingStolt–Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010) (FAA requires “a contractual basis” to justify award of class arbitration) (emphasis added)). NELF has participated in many recent Supreme Court cases on this issue, vigorously advocating the basic principle of party consent to class arbitration under the FAA. Preservation of this core principle of freedom of contract is crucial to protecting a business from being unwillingly exposed to the substantial burdens of class arbitration.

NELF was approached to participate in this case by counsel for the petitioner, Southern Communications Services, Inc., d/b/a SouthernLINC Wireless, based on the amicus brief that NELF had filed in Sutter, cited above. Unlike in this case, in Sutter the arbitrator awarded class arbitration based on a (strained) interpretation of the language of the arbitration clause at issue. Despite NELF’s and the Court’s apparent view that the arbitrator had misinterpreted the contract inSutter, the Court nevertheless upheld the arbitral award under the FAA’s deferential standard of review. The Court in Sutter explained that the arbitrator had fulfilled his duty under Stolt-Nielsen to find a contractual basis supporting class arbitration. (A contractual basis does not require an express reference to class arbitration but does require some affirmative textual basis in the agreement). “So the sole question for us [when reviewing an arbitral award under the FAA] is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” Sutter, 133 S. Ct. 2068 (emphasis added).

NELF argued that, in sharp contrast to Sutter, certiorari should be granted here to vacate an arbitral award of class arbitration that, by the arbitrator’s own admission, lacks any contractual basis whatsoever. Instead, the arbitrator based his award entirely on state judicial decisions favoring class actions for plaintiffs with small-value claims. In so ordering class arbitration as a matter of public policy, and not as a matter of the parties’ consent, the arbitrator exceeded his powers under the FAA in substantially the same way as the overruled arbitral panel in Stolt-Nielsen. Moreover, the public policy grounds that the arbitrator has invoked are preempted by the FAA under Concepcion.

Just as this case aligns squarely with Stolt-Nielsen, it is entirely distinguishable from Sutter. Unlike the arbitrator in this case, the arbitrator in Sutter “arguably interpreted” the parties’ contract to identify an affirmative textual basis that, in his view, authorized class arbitration. By contrast, the arbitrator in this case expressly interpreted the agreement to lack any such contractual basis but ordered class arbitration anyway, based on extracontractual factors that have nothing to do with the parties’ consent to class arbitration.

NELF also argued that certiorari was warranted to dispel any lingering confusion over the requirements for a valid award of class arbitration under the FAA, as explained in this Court’s recent FAA decisions. The arbitrator misinterpreted Stolt-Nielsen  as authorizing an arbitrator to order class arbitration based on contractual silence on the issue, and based on factors outside of the parties’ agreement, such as state decisional law. And the Eleventh Circuit, in turn, misinterpreted Sutter as requiring uncritical judicial deference to a facially invalid arbitral award of class arbitration, such as the one in this case, which is based entirely on public policy grounds and not at all on the parties’ consent. 

NELF argued further that certiorari should be granted to clarify that Stolt-Nielsen restricts the arbitrator to the four corners of the parties’ agreement to find a textual basis supporting class arbitration, and that Sutter does not require judicial deference where, as here, the arbitrator has ordered class arbitration without identifying any such contractual basis.

Despite the compelling arguments of both the petitioner and NELF, the Court denied the petition for certiorari on January 21, 2014.



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