In Stolt-Nielsen S.A. v. Animal Feeds International Corp., the United States Supreme Court held that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” As the parties in Stolt-Nielsen stipulated that their arbitration “agreement was ‘silent’ in the sense that they had not reached any agreement on the issue of class arbitration,” the Court ruled that the arbitrator could not infer the parties’ consent to class arbitration solely from the fact of their agreement to arbitrate, or failure to preclude it.
However, in the absence of a stipulation that the arbitration agreement is “silent” on class arbitration, what constitutes “silence” where an arbitration provision makes no reference to class arbitration, and contains no class waiver precluding collective actions? The Third Circuit tried to answer that question in its April 3, 2012 precedential opinion in Sutter v. Oxford Health Plans LLC.
In Sutter, the parties’ arbitration agreement stated:
No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the Rules of the American Arbitration Association with one arbitrator.
When a dispute arose, the plaintiff physician filed an action in New Jersey state court. The court, on a motion to compel arbitration filed by the defendant, referred the putative class action to arbitration, and ordered that the arbitrator would decide whether the matter would proceed as a class arbitration. The arbitrator ruled that the arbitration provision allowed for class arbitration, which was then challenged by the defendant in the District Court of New Jersey. The District Court upheld the arbitrator’s decision.
Affirming the District Court, the Third Circuit held that “Stolt-Nielsen did not establish a bright line rule that class arbitration is allowed only under an arbitration agreement that incants ‘class arbitration’ or otherwise expressly provides for aggregate procedures.” Sutter rejected the argument that the arbitration clause was “silent” in the same way as the agreement in Stolt-Nielsen, noting that, unlike in Stolt-Nielsen, the parties had not stipulated that the agreement was silent. Rather, Sutter found that the arbitrator had a contractual basis for his decision to order class arbitration, i.e., “the phrase ‘no civil action . . . shall be instituted in any court’ meant that a class action may not be instituted in a court of law. ‘All such disputes’ must go to arbitration.” Thus, Sutter concluded that “[w]ithout a conclusive statement of the parties’ intent or clear evidence of arbitral overreaching, we must conclude that the arbitrator performed his duty appropriately and endeavored to give effect to the parties’ intent.”
The lesson from Sutter is that where “the parties’ intent with respect to class arbitration is in question, the breadth of their arbitration agreement is relevant to resolution of that question.” While Stolt-Nielsen prohibits an arbitrator from ‘inferring parties’ consent to class arbitration solely from their failure to preclude that procedure, the “lack of an express exclusion” may be “corroborative of” an arbitrator’s finding that a broad arbitration clause authorizes class arbitration.
Class arbitration waivers provide conclusive indicia of the parties’ intent regarding class arbitration and, following the United States Supreme Court decision in AT&T Mobility LLC v. Concepcion, will most likely be enforced by courts absent some independent basis to reject the arbitration agreement. As a result, prudent parties seeking to avoid the potential for class arbitration should strongly consider including class waivers in their arbitration provisions. In the absence of a class waiver, however, the Sutter decision makes clear that defendants should be cautious about seeking to compel arbitration of a class action. Even where the arbitration provision may appear “silent” on the issue, if you move to compel arbitration without a class waiver, you may wind up in class arbitration, which may be less favorable than litigating a class action in court.