Whether an arbitrator may certify an arbitration class binding non-parties who signed an arbitration agreement authorizing an arbitrator to determine whether the agreement permits class procedures.
Plaintiffs are a group of female current and former retail sales employees of Defendant Sterling Jewelers Inc. ( "Sterling"), who allege that they were paid less than their male counterparts on account of their gender, in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and the Equal Pay Act, 29 U.S.C. § 206(d).
Each plaintiff agreed to a mandatory arbitration agreement called the "RESOLVE Program" agreement.1 The RESOLVE agreement provides that any claim arising under the agreement will be arbitrated "in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association,"2 and that "[q]uestions of arbitrability" and other "procedural questions" "shall be decided by the arbitrator."3
The parties asked the arbitrator to decide whether the RESOLVE agreement allowed class arbitration. The arbitrator ruled that the agreement did permit class arbitration, and certified a class of approximately 44,000 women with respect to the Title VII disparate impact claim seeking declaratory and injunctive relief. The class includes 254 named plaintiffs, as well as absent class members who had neither submitted claims nor opted in to the arbitration proceeding.
The district court vacated the arbitrator's class determination ruling, holding that the arbitrator incorrectly interpreted the RESOLVE agreement, and that even if the 254 plaintiffs who made claims or opted in to the proceeding could be bound by that interpretation, the arbitrator's erroneous interpretation could not bind absent class members.
The Second Circuit reversed the district court's decision and held that the absent class members — all of whom had agreed to the RESOLVE agreement— had authorized the arbitrator to determine whether the agreement permits class procedures, and therefore had consented to be bound by class procedures.
As relevant to this case, a court is empowered to vacate an arbitration award only "where the arbitrator exceeded [his or her] powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made."4 This deferential standard of review framed the court's inquiry: "whether the arbitrator had the power, based on the parties' submissions or the arbitration agreement, to reach a certain issue, not whether the arbitrator correctly decided that issue."5
As an initial matter, the Court noted that the district court's holding that the arbitrator incorrectly interpreted the RESOLVE agreement was irrelevant; as long as the arbitrator was interpreting the agreement, the correctness of that interpretation was not properly within the scope of the court's review.
The Court then determined that the absent class members gave the power to decide class arbitrability to the arbitrator for two reasons. First, the RESOLVE agreement explicitly incorporated the American Arbitration Association's rules, which give the arbitrator the authority "to determine as a threshold matter . . . whether the applicable arbitration clause permits the arbitration to proceed on behalf of . . . a class."6 Under Second Circuit precedent, an agreement which explicitly incorporates rules empowering an arbitrator to decide an issue "serves as clear and unmistakable evidence of the parties' intent to delegate such issues to an arbitrator."7
Second, the RESOLVE agreement provided that "[q]uestions of arbitrability" and other "procedural questions" "shall be decided by the arbitrator."8 The Second Circuit noted that the Supreme Court has suggested that the availability of classwide arbitration is a "question of arbitrability" that is presumptively for the court to decide,9 though the parties assumed that it was a "procedural question,"10 such that it would ordinarily be the province of the arbitrator. In either case, the Second Circuit concluded that the RESOLVE agreement clearly committed the question to the arbitrator.
Ultimately, the Court held that the absent class members, "no less than the parties . . . 'bargained for the arbitrator's construction of their agreement' with respect to class arbitrability,"11 and could thus be bound by the arbitrator's decision to subject them to class procedures.
A series of recent Supreme Court opinions have taken relatively narrow views of the circumstances under which arbitrators may resolve classwide claims.12 Nevertheless, classwide arbitration remains a real possibility, particularly where, as here, the parties agreed (including by incorporating the AAA rules) to submit the question of classwide arbitrability to the arbitrator.
The standard of review also played a key role in this case; because the parties submitted all "question[s] of arbitrability" to the arbitrator, the correctness of the arbitrator's decision was not reviewable by the Court. By contrast, in the Supreme Court's recent Lamps Plus decision, the parties explicitly agreed that the question of class arbitration was one for the court, not for the arbitrator, and the Supreme Court ultimately overruled the state court's contrary holding.
Read the opinion here.
1. Judgment at 4, Jock v. Sterling Jewelers Inc. , No. 18-153 (2d Cir. Nov. 18, 2019), ECF No. 132-1.
2. Id. at 4-5 (citation omitted).
3. Id. at 13 (citation omitted).
4. 9 U.S.C. § 10(a)(4).
5. Judgment, supra note 1, at 9-10.
6. Id. at 12-13 (citation omitted).
7. Id. at 13 (quoting Wells Fargo Advisors, LLC v. Sappington, 884 F.3d 392, 396 (2d Cir. 2018)).
8. Id. at 13 (citation omitted).
9. Id. at 14 (citing Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 n.2 (2013)).
11. Id. at 15 (citing Oxford Health , 569 U.S. at 569).
12. See Stolt-Nielsen S.A. v. AnimalFeeds, 559 U.S. 662, 687 (2010) (holding that class arbitration was inappropriate when parties stipulated that they had reached "no agreement" on the issue); Oxford Health , 569 U.S. at 574 (Alito, J., concurring) (agreeing with the majority that classwide arbitration would bind the parties who asked the arbitrator to decide the issue, but doubting whether absent class members who did not make the request could be so bound); Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1419 (2019) ( "Courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis").
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