The federal district court for the Southern District of New York recently issued a thoughtful opinion analyzing whether the availability of class arbitration procedures is presumptively a question for a court or an arbitrator to decide (the “who decides” issue). See In re A2P SMS Antitrust Litigation, No. 12-CV-2656 (S.D.N.Y. May 29, 2014) (click here for a copy of the decision). This “who decides” issue is plaguing and dividing the courts, and I expect/hope the Supreme Court will take up this issue one day.
The plaintiffs filed a class action alleging that the largest wireless service providers, like AT&T, Verizon, and Sprint, engaged in an antitrust conspiracy regarding the pricing for bulk commercial text messaging. The relevant documents contained a “silent” arbitration clause, an arbitration clause that does not explicitly prohibit the use of class proceedings. In response to the class action lawsuit, the defendants asked the court to compel arbitration, and in a prior order from September 2013, the district court compelled arbitration. When the plaintiffs then filed a demand for class arbitration, the defendants asked the district court to intervene to order that arbitration proceed on an individual basis.
There are conflicting circuit and district court decisions regarding whether a court or arbitrator should determine the availability of class arbitration procedures. After surveying the conflicting decisions on this “who decides” issue, the district court concluded the better approach would be for an arbitrator to decide whether an arbitration clause permits class proceedings. The court reasoned that this decision about the availability of class arbitration does not concern the enforceability of the arbitration agreement, and hence, this decision does not implicate the power of the arbitrators to hear a dispute. In sum, it will be up to the arbitrators to decide whether the parties are paying the arbitrators to administer a simple two-person, bilateral arbitration, or a complex, lengthy class action proceeding. Sounds like the metaphorical fox and henhouse, doesn’t it?
I strongly disagree with the district court’s rationale. Class arbitration procedures are different than other procedures, like whether and when responsive pleadings are due, or whether motion practice will be allowed, or how many documents will be exchanged in an arbitration. Whether a class arbitration proceeding will occur involves the enforceability of potentially hundreds or thousands of other contracts from absent parties. The authority of the arbitrators with respect to these absent parties is directly at issue, and I believe this authority should be for a court to decide. Moreover, I can’t understand how “silent” arbitration clauses can be construed to allow for class arbitration procedures. When the FAA was enacted in 1925, modern class actions did not exist. The “silent” arbitration clauses of today are no different from the arbitration clauses from the 1920s, when parties would have understood a commercial arbitration agreement to involve two-party, bilateral arbitration. The FAA’s legislative history does not envision class arbitration procedures. If this practice continues of allowing arbitrators to decide the availability of class procedures, the arbitrator(s) engaging in the clause construction analysis should be different than the arbitrator(s) who ultimately handle the class proceeding. I understand that the lack of class action availability presents a serious problem for consumers and employees. However, I don’t believe the FAA was intended to cover consumer or employment arbitration as used today, and Congress could easily fix these problems by passing the Arbitration Fairness Act.