Employers like mandatory arbitration policies, and avoidance of judicial review – until they don’t. Here’s a case from the Second Circuit (decided 2-1) that affirms an arbitrator’s interlocutory decision to allow a putative Title VII pay and promotion class action, over the employer’s objection that it did not consent to such a procedure.
Jock v. Sterling Jewelers Inc., No. 10-3247 (2d Cir. July 1, 2011): Two terms ago, the U.S. Supreme Court held in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010) (a 5-4 decision by the Court), that if parties to an arbitration contract did not reach agreement about whether to allow a class-wide arbitration procedure, then an arbitrator exceeds its authority – and an award must be vacated under the Federal Arbitration Act (FAA) – if the award imposes such a procedure without support in the agreement, solely as a matter of public policy. The Stolt-Nielsen S.A. by the Supreme Court reversed a Second Circuit decision that, to the contrary, would have allowed a class under those circumstances.
This case involves an award that an arbitrator reached after the Second Circuit’s Stolt-Nielsen S.A. decision, but before the Supreme Court’s reversal of that decision. In this case, as in Stolt-Nielsen S.A., the arbitration agreement did not expressly allow or deny class procedures. (Hence this case did not implicate the issue in this term’s 5-4 decision, AT&T Mobility v. Concepcion, which involved an express waiver of class procedures.)
The plaintiffs in this case seek to certify a class action in a Title VII gender pay-and-promotion case. Their employment with Sterling Jewelers is governed by an arbitration agreement, called the RESOLVE program. The agreement provided:
“I hereby utilize the Sterling RESOLVE program to pursue any dispute, claim, or controversy (‘claim’) against Sterling . . . regarding any alleged unlawful act regarding my employment or termination of my employment which could have otherwise been brought before an appropriate government or administrative agency or in a [sic] appropriate court, including but not limited to, claims under . . . Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991, . . . the Fair Labor Standards Act. . .. I understand that by signing this Agreement I am waiving my right to obtain legal or equitable relief (e.g. monetary, injunctive or reinstatement) through any government agency or court, and I am also waiving my right to commence any court action. I may, however, seek and be awarded equal remedy through the RESOLVE program.
“The Arbitrator shall have the power to award any types of legal or equitable relief that would be available in a court of competent jurisdiction including, but not limited to, the costs of arbitration, attorney fees and punitive damages for causes of action when such damages are available under law.”
Following the n-prevailing Second Circuit law, the arbitrator held that the arbitration agreement, construed under Ohio law, in fact allowed a class procedure.
The employer then filed in U.S. District Court for the Southern District of New York to vacate this interlocutory award. The district court first denied the employer’s motion, based on the Second Circuit’s Stolt-Nielsen decision. While the case was on appeal to the Second Circuit, Stolt-Nielsen was decided in the Supreme Court, and – in an indicative ruling – the district court reversed field and held that the award ought to be vacated under the new Supreme Court decision.
The Second Circuit reverses this decision and orders that the award be confirmed. The panel majority, therein, makes two key holdings:
1. The district court erred by reviewing the arbitrator’s award for whether it was legally correct, rather than for whether the arbitrator exceeded authority in deciding it. “Regardless, whether the arbitrator was right or wrong in her analysis, she had the authority to make the decision, and the parties to the arbitration are bound by it. In sum, we hold that the arbitrator did not exceed her authority in determining that the agreement permitted the plaintiffs to proceed with their effort to certify a class in the arbitration proceedings” (footnote omitted).
2. In any event, the arbitrator’s decision was grounded in the RESOLVE program. “It is clear from the terms of the arbitration agreement that Sterling required its employees to sign that the parties intended to make available in arbitration all remedies and rights that would otherwise be available in court or before a government agency. It was not unreasonable, and clearly not manifestly wrong, for the arbitrator to construe this to mean that the parties also intended to include the right to proceed as a class and seek class remedies. To read that right out of the arbitration agreement would fail to give effect to the employees’ contractual rights and expectations of what the arbitration agreement provides.”
In particular, Stolt-Nielsen S.A. did not compel a different outcome despite that in that case and this one the agreements were both “silent” about class arbitration:
“Sterling’s attempt to equate the lack of an express agreement with a lack of intent to agree to class arbitration also misses the mark because it relies on a rationale that Stolt-Nielsen did not advance. Stolt-Nielsen did not hold that the intent to agree to arbitration must be stated expressly in an arbitration agreement. 130 S. Ct. at 1776 n.10 (‘We have no occasion to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration. Here, as noted, the parties stipulated that there was ‘no agreement’ on the issue of class-action arbitration.’).”
Judge Winter dissented, holding that the award allowing a class arbitration could not be squared with the intervening Stolt-Nielsen S.A. decision. As Judge Winter read Stolt-Nielsen S.A., agreements that were silent on the availability a class arbitration presumptively bar resort to that procedure: “Far from implying class arbitration from the agreement, therefore, the arbitrator manifestly disregarded both unique and common features of all the agreements based on the view of silence as to class arbitration upheld by the Second Circuit in Stolt-Nielsen but thereafter rejected by the Supreme Court. Having now been enlightened by the Supreme Court’s views, we do not have the arbitrator’s excuse.”
[DISCLOSURE: The author of this post authored and filed an amicus brief on behalf of a group of legal scholars specializing in arbitration issues, supporting reversal of the district court decision.]