E.D.N.Y.: Where Agreement to Arbitrate Is Silent As To Class Arbitration, Arbitrator Not Court to Decide Class Arbitrability Issue

Guida v. Home Savings of America, Inc.

Plaintiffs brought this putative class action on behalf of themselves, and on behalf of individuals similarly situated, against Defendants, asserting claims under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201 et. seq., and related New York state wage and labor laws.  Defendants moved to dismiss plaintiffs’ complaint, and compel arbitration on an individual basis pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et. seq.  While Plaintiffs agreed to arbitrate the dispute, they argued that the arbitrator should decide whether the arbitration can proceed on a class basis, because the arbitration agreement was silent on the issue of class arbitration.  The court agreed and held that while the parties were required to arbitrate the dispute, the determination of whether or not the arbitration should proceed on a class basis is for the arbitrator to make in the first instance.

Discussing the relevant provisions of the agreement(s) to arbitrate, the court explained:

“The terms of the Alternative Dispute Resolution Agreement are identical for all of the plaintiffs. The following are relevant portions from the Alternative Dispute Resolution Agreements:

I understand that Home Savings of America makes available arbitration for resolution of employment disputes that are not otherwise resolved by internal policies or procedures.

I agree that if I am unable to resolve any dispute through the internal policies and procedures of Home Savings … I will arbitrate … any legal claim that I might have against Home Savings … or its employees, in connection with my employment or termination of employment … whether arising out of issues or matters occurring before the date of this Agreement or after such date.

I agree to abide by and accept the final decisions of the arbitration panel as ultimate resolution of any disputes or issues for any and all events that arise out of employment or termination of employment.

I agree that the Employee Dispute Resolution Rules of the American Arbitration Association will apply to any resolution of any such matters. In exchange for the benefits of arbitration, I agree that the arbitrator will only have the power to grant those remedies available in court, under applicable law.”

In light of the silence as to class arbitration, the court held that the issue was one for the arbitrator, not the court to decide.  The court reasoned that Supreme Court jurisprudence supported this holding, because the issue was one of substantive interpretation of the contract language and not merely a procedural issue:

“This Court concludes, in light of StoltNielsen and Bazzle, that the ability of a class to arbitrate a dispute where the parties contest whether the agreement to arbitrate is silent or ambiguous on the issue is a procedural question that is for the arbitrator to decide.  Even though Bazzle does not have the full weight of Supreme Court precedent, it is nevertheless instructive. See, e.g., Barbour v. Haley, 471 F.3d 1222, 1229 (11 th Cir.2006) (“Plurality opinions are not binding on this court; however, they are persuasive authority.”); Galli v. N.J. Meadowlands Comm’n, 490 F.3d 265, 274 (3d Cir.2007) (concluding that dicta in Supreme Court opinions has persuasive value). The Second Circuit found Bazzle persuasive, as have other courts prior to Stolt–Nielsen. See Vaughn v. Leeds, Morelli & Brown, P.C., 315 F. App’x 327, 329 (2d Cir.2009) (concluding that the district court “properly compelled arbitration on the question of the arbitrability of class claims under the Settlement Agreement[,]” citing Bazzle and Howsam); JSC Surgutneftegaz v. President & Fellows of Harvard College, 04 Civ. 6069(RMB), 2007 U.S. Dist. LEXIS 79161, at *6 (S.D.N.Y. Oct. 11, 2007) (citing Bazzle for the proposition that “arbitrators are well situated to answer the question whether contracts forbid[ ] class arbitration” (quotation marks omitted)); Scout. com, LLC v. Bucknuts, LLC, No. C07–1444 RSM, 2007 WL 4143229, at *5 (W.D.Wa. Nov.16, 2007) (concluding that, in light of Bazzle, it was for the arbitrator to decide the procedural question of whether the plaintiffs can arbitrate as a class (collecting cases)). Furthermore, many courts since Stolt–Nielsen have continued to follow Bazzle’s conclusion that the ability to arbitrate on a class basis is a procedural question left for the arbitrator to decide. This Court finds the Third Circuit’s opinion in Vilches v. The Travelers Companies, Incorporated, No. 10–2888, 2011 U.S.App. LEXIS 2551 (3d Cir. Feb. 9, 2011), particularly instructive. In Vilches, the Third Circuit reconciled Bazzle and StoltNielsen as follows:

Although contractual silence [on the issue of arbitration on a class basis] has often been treated by arbitrators as authorizing class arbitration, Stolt–Nielsen suggests a return to the pre-Bazzle line of reasoning on contractual silence, albeit decided by an arbitrator, because it focuses on what the parties agreed to—expressly or by implication.

Id. at *12–13 n. 3. The Third Circuit concluded that the ability of the plaintiffs to proceed on a class basis in arbitration was essentially a question of “what kind of arbitration proceeding the parties agreed to [,]” id. at *10 (emphasis in original) (citing Bazzle), and went on to conclude that “[w]here contractual silence is implicated, the arbitrator and not a court should decide whether a contract was indeed silent on the issue of class arbitration, and whether a contract with an arbitration clause forbids class arbitration.” Id. at *11 (quotation marks omitted) (citing StoltNielsen, 130 S.Ct. at 1771–72, describing the plurality opinion in Bazzle). In Vilches, the agreement in question “did not expressly reference class or collective arbitration or any waiver of the same.” Id. at *3. The parties debated whether a revised arbitration policy including a class arbitration waiver applied to plaintiffs but agreed that plaintiffs’ causes of action alleged in the complaint otherwise fell under the purview of the arbitration agreement. Id. at *3–6, *9–10. The court in Vilches referred the “questions of whether class arbitration was agreed upon to the arbitrator.” Id. This Court similarly concludes that Stolt–Nielsen and Bazzle are reconcilable and that arbitrating on a class basis is a procedural question that is for the arbitrators to decide in accordance with the Supreme Court’s analysis in Stolt–Nielsen, which provides a framework for the arbitrator’s analysis of the issue.

Nor is Vilches alone in its conclusion. There are a number of cases in addition to Vilches in which courts have concluded, subsequent to Stolt–Nielsen, that the ability of plaintiffs to arbitrate on a class basis is an issue to be determined by the arbitrator. See, e.g., Aracri v. Dillard’s Inc., No. 1:10cv253, 2011 WL 1388613, at * 4 (S.D.Ohio Mar.29, 2011) (concluding that “it is not for this Court, but for an arbitrator to decide whether class arbitration is forbidden under the Arbitration Agreement and Dillard’s Rules of Arbitration” where the arbitration agreement did not explicitly mention class arbitration but the parties contested whether Dillard’s Rules, to which all arbitration claims were subject, provided for class arbitration); Smith v. The Cheesecake Factory Restaurants, Inc., No. 3:06–00829, 2010 U.S. Dist. LEXIS 121930, at *7 (M.D.Tenn. Nov. 16, 2010) (concluding that “whether the parties agreed to class arbitration is to be resolved by the arbitrator[,]” citing Stolt–Nielsen and Bazzle); Fisher v. General Steel Domestic Sales, LLC, No. 10–cv–1509–WYD–BNB, 2010 U.S. Dist. LEXIS 108223, at *6–7 (D.Col. Sept. 22, 2010) (where parties agreed that plaintiffs’ claims were subject to arbitration but were contesting whether the agreement in question permitted class arbitration, “based on the plain language of Stolt–Nielsen, it is clear that an arbitrator may, as a threshold matter, appropriately determine whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class” (quotation marks omitted)). See also Clark v. Goldline Int’l, Inc., No. 6:10–cv–01884 (JMC), 2010 U.S. Dist. LEXIS 126192, at *21–22 (D.S.C. Nov. 30, 2010) (“[T]he court notes that whether a class is appropriately certified in this case or otherwise is yet to be determined. Second, whether the Account Agreement precludes any putative classmember from bringing a claim has no bearing on the validity or enforceability of the arbitration provisions. Such issues raised by Plaintiffs must be determined by an arbitrator, not this court.” (citing Bazzle)). But see Chen–Oster v. Goldman, Sachs & Co., No. 10 Civ. 6950(LBS)(JCF), 2011 U.S. Dist. LEXIS 46994, at *10 (S.D.N.Y. Apr. 28, 2011) (concluding that the ability to arbitrate on a class basis requires a “determination of the scope and enforceability of the arbitration clause, and therefore the issue is appropriately characterized as a dispute over arbitrability[,]” further noting that this question “fits into the narrow circumstances where contracting parties would likely have expected a court to have decided the gateway matter[,]” relying on Stolt–Nielsen’s emphasis that Bazzle was solely a plurality opinion).”

Interestingly, the court also addressed and rejected Defendants’ argument that the Supreme Court’s recent holding in AT & T Mobility LLC v. Concepcion stood for the proposition that the issue of whether or not to arbitrate on a class basis is not a procedural issue, which would have allowed the court to decide the issue.

Click Guida v. Home Savings of America, Inc. to read the entire Memorandum and Order.

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Filed under Arbitration, Class Waivers, Collective Actions

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