Case: 11-50509 Document: 00511860596 Page: 1 Date Filed: 05/18/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
May 18, 2012
No. 11-50509 Lyle W. Cayce
Clerk
JEFFREY H. REED,
Plaintiff–Appellee
v.
FLORIDA METROPOLITAN UNIVERSITY, INCORPORATED;
CORINTHIAN COLLEGES, INCORPORATED,
Defendants–Appellants
Appeal from the United States District Court
for the Western District of Texas
Before KING, BENAVIDES, and DENNIS, Circuit Judges.
KING, Circuit Judge:
Defendants–Appellants Florida Metropolitan University and Corinthian
Colleges appeal the district court’s confirmation of an arbitral award that
requires them to submit to class arbitration. They contend that the district
court, not the arbitrator, should have decided whether the parties’ agreement
provided for class arbitration, and that the district court should have vacated the
arbitrator’s class arbitration award. Because the parties agreed that the
arbitrator should decide the class arbitration issue, we conclude that the district
court correctly referred that issue to the arbitrator. The district court erred,
however, in confirming the award because the arbitrator exceeded his powers.
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We therefore REVERSE the district court’s order and REMAND for further
proceedings.
I. FACTUAL AND PROCEDURAL BACKGROUND
In 2008, Plaintiff–Appellee Jeffrey Reed (“Reed”) enrolled in Everest
University Online’s (“Everest”) distance learning program,1 and subsequently
obtained a bachelor’s degree in paralegal studies. Reed planned to attend law
school upon graduation, and enrolled in Everest after receiving assurances from
school officials that the college’s degree would be accepted by educational
institutions and employers. Reed soon discovered, however, that law schools
would not recognize his bachelor’s degree, nor would the local police department,
where he sought employment. Reed accrued more than $51,000 in student loan
debt while attending Everest.
Dissatisfied with his experience at Everest, Reed filed a putative class
action in Texas state court, alleging that Defendants–Appellants Corinthian
Colleges and Florida Metropolitan University (together, the “School”) had
violated certain provisions of the Texas Education Code by soliciting students in
Texas without the appropriate certifications.2 Reed sought approximately
$51,000 in damages, plus attorney’s fees. Reed defined the putative class as
“[a]ny person who contracted to receive distance education from Everest
University Online while residing in Texas.”
1
Everest is a brand of Defendant–Appellant Corinthian Colleges, Inc.
Defendant–Appellant Florida Metropolitan University, Inc. is a subsidiary of Corinthian
Colleges.
2
Specifically, Reed alleged violations of Texas Education Code § 132.051(a), which
requires that schools not advertise or solicit in Texas until they receive the appropriate
certificate of approval from the Texas Workforce Commission, and Texas Education Code §
132.059(a), which requires employees of career schools or colleges to register with the
Commission.
2
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The School removed the action to the district court, and then moved to
compel individual arbitration pursuant to the arbitration provision of the
Enrollment Agreement. The arbitration provision provides, in relevant part:
The student agrees that any dispute arising from my enrollment at
Everest University, no matter how described, pleaded or styled,
shall be resolved by binding arbitration under the Federal
Arbitration Act conducted by the American Arbitration Association
(“AAA”) under its Commercial Rules. The award rendered by the
arbitrator may be enforced in any court having jurisdiction.
Terms of Arbitration
1. Both student and Everest University irrevocably agree that any
dispute between them shall be submitted to Arbitration.
2. Neither the student nor Everest University shall file or maintain
any lawsuit in any court against the other, and agree that any suit
filed in violation of this Agreement shall be dismissed by the court
in favor of an arbitration conducted pursuant to this Agreement.
...
4. The arbitrator’s decision shall be set forth in writing and shall set
forth the essential findings and conclusions upon which the decision
is based.
5. Any remedy available from a court under the law shall be
available in the arbitration.
...
Acknowledgment of Waiver of Jury Trial and Availability of
AAA Rules
By my signature on the reverse, I acknowledge that I understand
that both I and Everest University are irrevocably waiving rights to
a trial by jury, and are selecting instead to submit any and all
claims to the decision of an arbitrator instead of a court. I
understand that the award of the arbitrator will be binding, and not
merely advisory.
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The district court granted the School’s motion to compel arbitration and
stayed the action pending arbitration. It found that a valid arbitration
agreement existed, that the parties’ dispute was within the scope of the
agreement, and that the arbitration clause was not unconscionable. The district
court declined, however, to address whether the parties’ agreement provided for
class arbitration, concluding that the issue is “more appropriately decided by the
arbitrator.”
The case then proceeded before an American Arbitration Association
(“AAA”) arbitrator. Reed moved for a Clause Construction Award under the
AAA Supplementary Rules for Class Arbitration, seeking class arbitration. The
arbitrator determined that the parties implicitly agreed to class arbitration and
entered an award to that effect. Reed then sought to confirm the arbitration
award in the district court, and the School moved to vacate the award on the
basis that the arbitrator exceeded his powers. The School argued that the award
conflicted with the recent Supreme Court decisions in Stolt-Nielsen S.A. v.
AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), and AT&T Mobility
LLC v. Concepcion, 131 S. Ct. 1740 (2011). The district court confirmed the
award, finding it to be consistent with recent precedent and a “reasonable
interpretation of the contract in light of the [Federal Arbitration Act] and Texas
law.” The School appealed.
II. DISCUSSION
This appeal requires us to address two issues. Our first task is to
determine whether the district court erred when it allowed the arbitrator to
decide whether the parties agreed to class arbitration. Second, we must decide
whether the district court properly denied the School’s motion to vacate the
arbitrator’s award.
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1. The District Court Properly Referred the Class Arbitration Issue to the
Arbitrator
The School contends that the district court erred when it allowed the
arbitrator to determine whether the parties’ arbitration agreement allowed for
class arbitration, instead of deciding the issue itself. We disagree.
The Supreme Court has not definitively decided this issue. In Green Tree
Financial Corp. v. Bazzle, 539 U.S. 444 (2003), four Justices concluded that the
class arbitration issue did not constitute a “gateway” or arbitrability matter that
is generally decided by a court, but was instead a procedural matter for the
arbitrator. Id. at 452. In Stolt-Nielsen, the Court confirmed that Green Tree “did
not yield a majority decision” on this issue. 130 S. Ct. at 1772. The Stolt-Nielsen
Court declined to revisit the question because the parties in that case had agreed
to submit the question to the arbitrator rather than the court. Id. At least at
the Supreme Court level, therefore, the question remains open.3
According to the School, the district court should have resolved the class
arbitration issue because the parties expressly submitted that issue to the court
for resolution. We disagree. Reed’s opposition to the School’s motion to compel
arbitration was restricted largely to issues of the applicability and
unconscionability of the arbitration clause. Reed, in fact, requested that the
court “find that no valid, enforceable arbitration agreement exists, and that
Plaintiff may proceed with this case before [the district court].” Reed’s
discussion of class arbitration came only when he argued that requiring
3
In Pedcor Management Co., Inc. Welfare Benefit Plan v. Nations Personnel of Texas,
Inc., 343 F.3d 355 (5th Cir. 2003), a panel of this court held that the class arbitration decision
should be made by an arbitrator rather than a court. The Pedcor panel premised its decision
upon Green Tree, which it interpreted to hold that class arbitration determinations “should
be for the arbitrator, not the courts, to decide.” Id. at 359. The Supreme Court in Stolt-Nielsen,
however, emphasized that, on this point, Green Tree was only a plurality decision. 130 S. Ct.
at 1772. Because the parties here consented to the Supplementary Rules, and therefore agreed
to submit the class arbitration issue to the arbitrator, we need not and do not revisit this
issue.
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individual arbitration would render the arbitration agreement unconscionable.
Although Reed argued that the case should proceed as a class even if it were
referred to arbitration, he did so only in response to the School’s motion to
compel arbitration. Nor did the district court understand Reed to make a class
arbitration argument. It summarized, “Reed . . . argues that his claims are not
within the scope of the arbitration agreement, that Defendants are not parties
to the arbitration agreement, that Texas law makes the arbitration agreement
unenforceable, and that the arbitration agreement is illusory and
unconscionable, and thus unenforceable.” Indeed, as Reed sought to avoid
arbitration altogether and to proceed as a class action, we cannot conclude that
he intended to submit the class arbitration issue to the district court.
We now turn to the arbitration rules to which the parties agreed. As noted
above, the parties explicitly agreed to adopt the AAA’s Commercial Rules when
they entered into their agreement in 2008. These rules do not contain class
arbitration procedures; rather, such procedures are provided in the separate
Supplementary Rules for Class Arbitration, which were enacted in October 2003
after the Supreme Court’s Green Tree decision. See Stolt-Nielsen, 130 S. Ct. at
1765 (discussing development of Supplementary Rules). Shortly before it issued
the Supplementary Rules, the AAA explained, “[t]he Association’s various rules
are silent on the issue of class arbitration and the Association has taken no
position on the availability of class arbitrations. To accommodate these types of
cases, the Association has commenced drafting supplementary rules that will
govern the Association’s administration of class arbitrations.” AAA Policy
Statement, available at http://www.adr.org/index2.1.jsp?JSPssid=15753&
JSPaid=43425. By their terms, these Supplementary Rules apply “to any dispute
arising out of an agreement that provides for arbitration pursuant to any of the
rules of the American Arbitration Association (‘AAA’) where a party submits a
dispute to arbitration on behalf of or against a class or purported class, and shall
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supplement any other applicable AAA rules.” Suppl. R. 1(a). They also apply
“whenever a court refers a matter pleaded as a class action to the AAA for
administration.” Id.
Commentators and AAA arbitral tribunals have consistently concluded
that consent to any of the AAA’s substantive rules also constitutes consent to the
Supplementary Rules.4 A major arbitration treatise concludes that “[t]hese AAA
Supplementary Rules for Class Arbitrations . . . supplement any other applicable
AAA rules. For example, if a dispute that otherwise would be arbitrated under
the Commercial Arbitration Rules involves a purported class, then the
proceeding is governed by both the AAA Commercial Arbitration Rules and the
AAA Supplementary Rules for Class Arbitrations.” Thomas H. Oehmke, 1
COMMERCIAL ARBITRATION § 16:16 (Apr. 2012). The few courts to have considered
this issue have agreed. See Bergman v. Spruce Peak Realty, LLC, No. 2:11-CV-
127, 2011 WL 5523329, at * (D. Vt. Nov. 14, 2011) (relying upon Supplementary
Rules when referring class arbitration issue to the arbitrator, where parties
agreed to “the Commercial Arbitration Rules of the AAA”); S. Commc’ns Servs.,
Inc. v. Thomas, __ F. Supp. 2d __, 2011 WL 5386428, at *10 (N.D. Ga. Nov. 3,
2011) (holding that AAA Wireless Industry Arbitration Rules “incorporate the
AAA Supplementary Rules for Class Arbitrations, which gave the arbitrator the
power to decide whether the Arbitration Clause implicitly authorized class
4
One arbitral tribunal confronted with this issue concluded that the Supplementary
Rules applied to an arbitration commenced in 2004, even though the parties’ arbitration
agreement—which was governed by “the Rules of the American Arbitration Association”—was
signed approximately five years before the Supplementary Rules were enacted. See Presidents
and Fellows of Harvard College v. JSC Surgutneftegaz, 770 PLI/Lit. 127, 135 n.5 (2008). The
panel, relying upon Supplementary Rule 1, explained, “[s]ince the AAA rules apply
here—something clear on the face of the [parties’] Agreement—the Supplementary Rules also
apply.” Id. One member of the panel dissented from this conclusion, reasoning that the
Supplementary Rules could not be incorporated into the parties’ arbitration clause because the
Supplementary Rules did not exist at the time the parties entered into their agreement. Id.
at 170 (Zykin, dissenting).
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proceedings”); Yahoo! Inc. v. Iversen, __ F. Supp. 2d __, 2011 WL 4802840, at *4
(N.D. Cal. Oct. 11, 2011) (holding that parties’ agreement to AAA National Rules
for the Resolution of Employment Disputes also constituted agreement to the
Supplementary Rules). Consistent with these authorities, we conclude that the
parties’ agreement to the AAA’s Commercial Rules also constitutes consent to
the Supplementary Rules.5
With this conclusion, we now turn to the substance of the Supplementary
Rules. Under Supplementary Rule 3, “the arbitrator shall determine as a
threshold matter . . . whether the applicable arbitration clause permits the
arbitration to proceed on behalf of or against a class . . . .” AAA Suppl. R. 3
(emphasis added). The parties’ consent to the Supplementary Rules, therefore,
constitutes a clear agreement to allow the arbitrator to decide whether the
party’s agreement provides for class arbitration. As such, we need not determine
whether, in the absence of such an agreement, the threshold matter of bilateral
or class arbitration should be decided by a court or an arbitrator.6
In light of the foregoing, we conclude that the district court correctly
referred the class arbitration issue to the arbitrator. We now must decide
whether the district court properly confirmed the arbitrator’s class arbitration
award.
5
In so holding, we note that the parties have never specifically disputed the
applicability of the Supplementary Rules. The School, in its motion to vacate the clause
construction award, in fact represented to the district court that it had agreed to those Rules.
See R. 341 (“The AAA rules to which these parties agreed provide that a clause construction
award would be subject to a motion to vacate . . . .”) (citing Supplementary Rule 3) (emphasis
added).
6
The parties’ adoption of the AAA Commercial Rules and the Supplementary Rules
cannot, however, be considered in deciding whether they agreed to arbitrate as a class. See
AAA Suppl. R. 3 (“In construing the applicable arbitration clause, the arbitrator shall not
consider the existence of these Supplementary Rules, or any other AAA rules, to be a factor
either in favor of or against permitting the arbitration to proceed on a class basis.”).
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2. The District Court Erred in Confirming the Arbitration Award
After a hearing, the arbitrator issued an award in which he determined
that the parties’ arbitration provision allowed for class arbitration. The district
court granted Reed’s motion to confirm the award and denied the School’s cross-
motion to vacate the award. The School contends that the arbitration award is
inconsistent with Stolt-Nielsen, and that the arbitrator exceeded his authority
by ordering the parties into class arbitration without a sufficient contractual
basis. Reed responds that the award is compatible with Stolt-Nielsen, and that
the exceedingly deferential standard of review applicable to arbitration awards
precludes us from vacating the award. For the reasons discussed below, we
agree with the School and conclude that the district court erred in failing to
vacate the award pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C.
§ 10(a)(4).
A. Standard of Review
Our review of the district court’s confirmation of an arbitral award is de
novo, “using the same standard as the district court.” DK Joint Venture 1 v.
Weyand, 649 F.3d 310, 314 (5th Cir. 2011). Because we have concluded that the
district court properly referred the class arbitration issue to the arbitrator, our
review of the arbitration award itself is governed by the FAA.7 Under the FAA,
a party to an arbitration may apply to a court for an order confirming an
arbitration award, and the court “must grant such an order unless the award is
vacated, modified, or corrected . . . .” 9 U.S.C. § 9. Section 10 of the FAA lists
7
The School contends that de novo review of the award is proper because the class
arbitration issue is one of arbitrability that should have been considered by the district court.
Because we have concluded that the parties agreed to submit the issue to the arbitrator, we
need not consider whether class arbitration constitutes an arbitrability issue. Nor would the
arbitrability determination necessarily be conclusive, as parties may agree to submit
arbitrability questions to an arbitrator. See Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct.
2772, 2777 (2010) (“We have recognized that parties can agree to arbitrate ‘gateway’ questions
of ‘arbitrability’ . . . .”) (citing Howsam v. Dean Witters Reynolds, Inc., 537 U.S. 79, 83-85
(2002)).
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four grounds upon which to vacate an award, the last of which allows for
vacateur “where the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the subject matter
submitted was not made.” 9 U.S.C. § 10(a)(4).
Of the various grounds for vacating an arbitral award provided in Section
10, this fourth ground has received the most attention. In Wilko v. Swan, 346
U.S. 427 (1953), overruled on other grounds by Rodriguez de Quijas v.
Shearson/American Express, Inc., 490 U.S. 477 (1989), the Supreme Court
explained that the “[p]ower to vacate an award is limited,” but an arbitrator’s
failure to decide a case in accordance with the applicable law may constitute
grounds for vacating the award if that failure is “made clearly to appear.” Id. at
436. On several occasions, the Court has considered whether a lower court
properly set aside an arbitrator’s interpretation of a collective bargaining
agreement or other contract. The Court has consistently made clear that a court
may not decline to enforce an award simply because it disagrees with the
arbitrator’s legal reasoning. See, e.g., Major League Baseball Players Ass’n v.
Garvey, 532 U.S. 504, 509 (2001); E. Associated Coal Corp. v. United Mine
Workers of Am., 531 U.S. 57, 62 (2000). Nevertheless, an arbitrator’s award is
not entirely beyond reproach:
[A]n arbitrator is confined to interpretation and application of the
collective bargaining agreement; he does not sit to dispense his own
brand of industrial justice. He may of course look for guidance from
many sources, yet his award is legitimate only as long as it draws its
essence from the collective bargaining agreement. When the
arbitrator’s words manifest an infidelity to this obligation, courts
have no choice but to refuse enforcement of the award.
United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363 U.S. 593, 597
(1960) (emphasis added).8 In United Steelworkers, the Court explained that “[i]t
8
We have explained that an arbitrator’s award “draws its essence” from the contract
where the award “ha[s] a basis that is at least rationally inferable, if not obviously drawn,
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is the arbitrator’s construction [of the contract] which was bargained for; and so
far as the arbitrator’s decision concerns construction of the contract, the courts
have no business overruling him because their interpretation of the contract is
different from his.” Id. at 599. This principle was echoed in United
Paperworkers International Union v. Misco, Inc., 484 U.S. 29 (1987), where the
Supreme Court again discussed the limited role of a court in reviewing an
arbitrator’s interpretation of a contract. The Court explained that “[t]he
arbitrator may not ignore the plain language of the contract; but the parties
having authorized the arbitrator to give meaning to the language of the
agreement, a court should not reject an award on the ground that the arbitrator
misread the contract.” Id. at 38. Thus, “as long as the arbitrator is even
arguably construing or applying the contract and acting within the scope of his
authority, that a court is convinced he committed serious error does not suffice
to overturn his decision.” Id. The Supreme Court’s recent decision in Stolt-
Nielsen, 130 S. Ct. 1758 (2011), which we discuss further below, reaffirmed this
exceptionally deferential standard of review. See id. at 1767-68.
Consistent with this precedent, we have recognized that “judicial review
of an arbitration award is extraordinarily narrow” and “exceedingly deferential.”
Rain CII Carbon, LLC v. ConocoPhillips Co., __ F.3d __, 2012 WL 753263, at *2
(5th Cir. Mar. 9, 2012) (citation and internal quotation marks omitted). We will
therefore not set aside an award for “a mere mistake of fact or law.” Id. (citation
and internal quotation marks omitted); see also Apache Bohai Corp. LDC v.
Texaco China BV, 480 F.3d 397, 401 (5th Cir. 2007).
from the letter or purpose of the . . . agreement. . . . [T]he award must, in some logical way,
be derived from the wording or purpose of the contract.” Anderman/Smith Operating Co. v.
Tenn. Gas Pipeline Co., 918 F.2d 1215, 1218 (5th Cir. 1990) (citations and internal quotation
marks omitted) (alteration in original); see also Executone Info. Sys., Inc. v. Davis, 26 F.3d
1314, 1320 (5th Cir. 1994).
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B. The Arbitrator Exceeded his Powers
With this understanding of our limited review, we now consider whether
the arbitrator in this case exceeded his powers when he concluded that the
parties’ agreement permitted class arbitration. Because we find that the
arbitrator forced the parties into class arbitration without a contractual basis for
doing so, we conclude that the arbitrator exceeded his powers and that the
award must be vacated.
i. Stolt-Nielsen
This appeal comes before us in the wake of the Supreme Court’s recent
decision in Stolt-Nielsen, 130 S. Ct. 1758 (2010). In that case, Stolt-Nielsen and
AnimalFeeds had entered into an agreement for the shipment of goods. The
parties’ agreement contained an arbitration provision that provided in part:
“[a]ny dispute arising from the making, performance or termination of this
Charter Party shall be settled in New York . . . . Such arbitration shall be
conducted in conformity with the provisions and procedure of the United States
Arbitration Act [i.e., the FAA], and a judgment of the Court shall be entered
upon any award made by said arbitrator.” Id. at 1765. After a Department of
Justice criminal investigation revealed that Stolt-Nielsen was engaged in an
illegal price-fixing conspiracy, AnimalFeeds brought a putative class action in
federal court. Id. AnimalFeeds subsequently served Stolt-Nielsen with a
demand for class arbitration, and the parties agreed to submit the class
arbitration question to a panel of three arbitrators. Id. The parties also
stipulated that their agreement was “silent” with respect to class arbitration,
meaning that they had reached “no agreement” on the issue. Id. at 1766. The
arbitrators concluded that the parties’ agreement provided for class arbitration.
On Stolt-Nielsen’s motion, the district court vacated the award, but the Second
Circuit reversed. Id.
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On appeal, the Supreme Court held that the district court properly vacated
the award. The Court first reemphasized that a party seeking vacateur must
“clear a high hurdle,” as it is “not enough for petitioners to show that the panel
committed an error—or even a serious error.” Id. at 1767. As the Court
explained, “[i]t is only where [an] arbitrator strays from interpretation and
application of the agreement and effectively dispense[s] his own brand of
industrial justice that his decision may be unenforceable.” Id. (citations and
internal quotation marks omitted). Where that happens, an arbitration award
may be vacated on the basis that the arbitrator exceeded his powers, “for the
task of an arbitrator is to interpret and enforce a contract, not to make public
policy.” Id.
The Court explained that, because the parties stipulated that their
agreement was silent on class arbitration, the arbitrators’ “proper task was to
identify the rule of law that governs,” presumably “the FAA itself or to one of the
two bodies of law that the parties claimed were governing, i.e., either federal
maritime law or New York law.” Id. at 1768. However, instead of “inquiring
whether the FAA, maritime law, or New York law contains a ‘default rule’ under
which an arbitration clause is construed as allowing class arbitration in the
absence of express consent, the panel proceeded as if it had the authority of a
common-law court to develop what it viewed as the best rule to be applied in
such a situation.” Id. at 1768-69. The arbitrators perceived a consensus
favoring class arbitration, and considered only whether there was a “good reason
not to follow that consensus.”9 Id. at 1769. Finding no such reason, the
arbitration panel determined that the parties’ agreement permitted class
9
In this respect, the Court faulted the arbitrators for discounting expert evidence that
bilateral rather than class arbitration was customary in maritime agreements. The Court also
explained that, “[u]nder both New York law and general maritime law, evidence of ‘custom and
usage’ is relevant to determining the parties’ intent when an express agreement is
ambiguous.” Stolt-Nielsen, 130 S. Ct. at 1769 n.6.
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arbitration. The Court concluded that “the panel simply imposed its own
conception of sound policy,” and thereby exceeded its powers. Id. Finding that
there was only one possible outcome—bilateral arbitration—the Court vacated
the award and declined to direct a rehearing by the arbitrators. Id. at 1770.
The Court then addressed the “standard to be applied by a decision maker
in determining whether a contract may permissibly be interpreted to allow class
arbitration,” a question left undecided by Green Tree. Id. at 1772. The Court
based its analysis on the FAA’s basic precept that arbitration “is a matter of
consent, not coercion.” Id. at 1773. In this respect, parties are “generally free
to structure their arbitration agreements as they see fit,” and to “specify with
whom they choose to arbitrate their disputes.” Id. at 1774 (emphasis in original)
(citations and internal quotation marks omitted). As such, the 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.”
Id. at 1775 (emphasis in original). The arbitrators had erred by “impos[ing]
class arbitration even though the parties concurred that they had reached ‘no
agreement’ on that issue.” Id. In fact, the panel had faulted the parties for
failing to preclude class arbitration, and “regarded the agreement’s silence on
the question of class arbitration as dispositive.” Id. This conclusion, the Court
found, was “fundamentally at war with the foundational FAA principle that
arbitration is a matter of consent.” Id.
In so deciding, the Court explained that arbitrators may properly presume
authorization to impose certain procedural requirements, but “[a]n implicit
agreement to authorize class-action arbitration . . . is not a term that the
arbitrator may infer solely from the fact of the parties’ agreement to arbitrate.”
Id. This is so, the Court explained, “because class-action arbitration changes the
nature of the arbitration to such a degree that it cannot be presumed the parties
consented to it by simply agreeing to submit their disputes to an arbitrator.” Id.
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The Court then described several fundamental differences between bilateral and
class arbitration. For example, in class arbitration, the arbitrator “no longer
resolves a single dispute between the parties to a single agreement, but instead
resolves many disputes between hundreds or perhaps even thousands of
parties,” and the presumption of privacy and confidentiality that applies in many
bilateral arbitrations would not apply in class arbitrations. Id. at 1776.
Further, “[t]he arbitrator’s award no longer purports to bind just the parties to
a single arbitration agreement, but adjudicates the rights of absent parties as
well.” Id. Additionally, although the stakes are similar to those in class action
litigation, “the scope of judicial review is much more limited.” Id. The Court
explained that these differences and disadvantages “give reason to doubt the
parties’ mutual consent to resolve disputes through class-wide arbitration.” Id.
at 1775-76. The Court therefore concluded that “the differences between
bilateral and class-action arbitration are too great for arbitrators to presume,
consistent with their limited powers under the FAA, that the parties’ mere
silence on the issue of class-action arbitration constitutes consent to resolve their
disputes in class proceedings.” Id. at 1776. In light of these “crucial differences,”
the majority saw the question as “being whether the parties agreed to authorize
class arbitration.” Id. (emphasis in original). Because the parties had agreed
that their contract was silent on the subject, they could not be “compelled to
submit their dispute to class arbitration.” Id. The Court, however, declined to
“decide what contractual basis may support a finding that the parties agreed to
authorize class-action arbitration,” in light of the parties’ stipulation of silence.
Id. at 1776 n.10.
Justice Ginsburg, joined by Justices Stevens and Breyer, dissented. The
dissent criticized the majority for not affording the arbitration award the proper
deference. Because the parties had agreed to submit the class arbitration issue
to the arbitrators, the arbitrators did not exceed their authority in resolving the
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dispute. Id. at 1780 (Ginsburg, J., dissenting). Rather, they properly addressed
the “procedural mode available for presentation of AnimalFeeds’ antitrust
claims.” Id. at 1781.
The Supreme Court reiterated many of the same concerns regarding class
arbitration a year later in Concepcion, 131 S. Ct. 1740 (2011), wherein it held
that a state law prohibiting class action waivers in arbitration agreements was
preempted by the FAA. Id. at 1753. In so holding, the Concepcion Court
explained that class arbitration “includes absent parties, necessitating
additional and different procedures and involving higher stakes. Confidentiality
becomes more difficult. And while it is theoretically possible to select an
arbitrator with some expertise relevant to the class-certification question,
arbitrators are not generally knowledgeable in the often-dominant procedural
aspects of certification . . . .” Id. at 1750. The Court also emphasized that
arbitral awards are subject to limited appellate review, and raised concerns that
defendants might feel increased pressure to settle questionable claims when
confronted with class arbitration. Id. at 1752. Given these disadvantages, the
Court found “it hard to believe that defendants” would agree to class arbitration
and thereby “bet the company with no effective means of review.” Id. As such,
Concepcion held that “class arbitration, to the extent it is manufactured by [state
law] rather than consensual, is inconsistent with the FAA.” Id. at 1751-52.
Therefore, in light of the significant disadvantages of class arbitration as
discussed in both Stolt-Nielsen and Concepcion, an arbitrator (or a court) should
not conclude that parties—and defendants in particular—consented to such a
proceeding absent a contractual basis for doing so. Although the agreement to
submit to class arbitration may be implicit, it should not be lightly inferred.10
10
This understanding is consistent with Texas law, which provides: “[F]or a court to
read additional provisions into [a] contract, the implication must clearly arise from the
language used, or be indispensable to effectuate the intent of the parties. It must appear that
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See 130 S. Ct. at 1775; id. at 1782 (Ginsburg, J. dissenting) (“The breadth of the
arbitration clause, and the absence of any provision waiving or banning class
proceedings, will not [support class arbitration].”) (footnote omitted); id. at 1783
(“[T]he Court does not insist on express consent to class arbitration.”); see also
Christopher R. Drahozal & Peter B. Rutledge, Contract and Procedure, 94 MARQ.
L. REV. 1103, 1151 (2011) (“[In Stolt-Nielsen], [t]he Supreme Court held that the
default rule is that class arbitration is not permitted, explaining that class
arbitration is sufficiently different from individual arbitration that the parties
must agree as a contractual matter to override that default rule.”); Terry F.
Moritz & Brandon J. Fitch, The Future of Consumer Arbitration in Light of Stolt-
Nielsen, 23 LOY. CONSUMER L. REV. 265, 270 (2010) (“Stolt-Nielsen seems to
signal the end of inferred class arbitration . . . . A court cannot compel class
arbitration without a contractual basis for concluding that the parties agreed to
it; and presumably no potential defendant would agree to it.”). In the absence
of a contractual agreement, an arbitrator should inquire into “whether the FAA,
[or state law] contains a ‘default rule’ under which an arbitration clause is
construed as allowing class arbitration,” instead of simply “develop[ing] what
[he] view[s] as the best rule to be applied in such a situation.” Stolt-Nielsen, 130
S. Ct. at 1768-69. Without a contractual or other legal basis for class arbitration,
an arbitrator has no authority to order the parties to submit to class arbitration.
See Concepcion, 131 S. Ct. at 1750 (“In [Stolt-Nielsen] we held that an
arbitration panel exceeded its powers under § 10(a)(4) of the FAA by imposing
class procedures based on policy judgments rather than the arbitration
agreement itself or some background principle of contract law that would affect
its interpretation.”); see also United Steelworkers of Am. v. Enter. Wheel and Car
the implication was so clearly contemplated by the parties that they deem it unnecessary to
express it.” Fuller v. Phillips Petroleum Co., 872 F.2d 655, 658 (5th Cir. 1989); see Danciger
Oil & Ref. Co. of Tex. v. Powell, 154 S.W.2d 632, 635 (Tex. 1941).
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Corp., 363 U.S. 593, 597 (1960) (stating that an arbitrator’s award is “legitimate
only as long as it draws its essence” from the contract).
With this understanding of Stolt-Nielsen, we now turn to whether the
arbitrator in this case exceeded his powers by ordering the parties to submit to
class arbitration.
ii. Arbitrator’s Award
In his award, the arbitrator began by acknowledging that the class
arbitration issue presented a “close case,” and was primarily governed by Stolt-
Nielsen. After determining that the FAA and Texas law applied,11 he then
focused on two provisions of the parties’ arbitration agreement: (1) the “any
dispute” provision, which provides, “[t]he student agrees that any dispute arising
from my enrollment at Everest University, no matter how described, pleaded or
styled, shall be resolved by binding arbitration under the Federal Arbitration
Act conducted by the American Arbitration Association . . . under its Commercial
Rules;” and (2) the “any remedy” provision, which provides, “[a]ny remedy
available from a court under the law shall be available in the arbitration.” The
arbitrator concluded that, “[w]hen these two provision[s] are read in the context
of the entire Agreement, the [School] implicitly agreed to class arbitration,” and
there was a sufficient “‘contractual basis’ for class arbitration.” The arbitrator
based his conclusion in part upon Section 132.121(a) of the Texas Education
Code, which provides for class action litigation to address certain violations of
the Education Code. He reasoned that, if the arbitration clause had not been
included in the contract, then the School “would have clearly been required to
submit to a class action lawsuit.” While he acknowledged that this provision of
Texas law was not controlling, he explained that it is “not inconsistent with the
FAA,” and it “provides guidance in interpreting the contract language agreed to
11
The parties agreed that Texas law governed.
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by the Parties.” The arbitrator also relied upon the School’s failure to expressly
ban class arbitration, reasoning that the School “drafted the Agreement in
question,” and they “could have clearly set forth that class arbitration was
barred if they so chose,” but they “chose not to do so.”
Upon our deferential review of the award, we conclude that the arbitrator
exceeded his authority by ordering the parties into class arbitration without a
sufficient basis for concluding that the parties agreed to resolve their dispute in
this manner. Stolt-Nielsen, 130 S. Ct. at 1775. Although the parties here did
not stipulate that their agreement was silent on class arbitration, unlike the
parties in Stolt-Nielsen, Reed admitted before the arbitrator that “the parties
clearly did not discuss whether class arbitration was authorized,” and that “[t]he
arbitration agreement at issue here fails to address class arbitration.” In light
of these concessions, the arbitrator should have consulted state or federal law to
determine if a certain “default” class arbitration rule existed in the absence of
an agreement. Id. at 1770.12 Instead, the arbitrator focused upon the terms of
the parties’ contract. None of the provisions the arbitrator identified, however,
even remotely relates to or authorizes class arbitration.
First, the arbitrator improperly relied upon the “any dispute” clause of the
arbitration agreement. The “any dispute” clause is a standard provision that
may be found, in one form or another, in many arbitration agreements. See
Stolt-Nielsen, 130 S. Ct. at 1765 (arbitration agreement provided: “[a]ny dispute
arising from the making, performance or termination of this Charter Party shall
be settled [by arbitration]”); Jock v. Sterling Jewelers Inc., 646 F.3d 113, 116 (2d
Cir. 2011) (arbitration agreement provided: “I hereby utilize the Sterling
12
The parties do not provide any such “default rule” under federal or Texas law, nor are
we aware of such a rule. The Texas General Arbitration Act makes no reference to class
arbitration. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.001 et seq. The FAA also has no such
default rule.
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RESOLVE [arbitration] program to pursue any dispute, claim, or controversy
. . . against Sterling”); Complaint of Hornbeck Offshore (1984) Corp., 981 F.2d
752, 755 (5th Cir. 1993) (explaining that “any dispute” clauses are very broad,
and collecting cases involving such clauses); see also American Arbitration
Association, Drafting Dispute Resolution Clauses: A Practical Guide 7 (Sept. 1,
2007) (suggesting following clause: “[a]ny controversy or claim arising out of or
relating to this contract . . . shall be settled by arbitration”); JAMS ADR Clauses,
available at www.jamsadr.com/clauses/#Standard (suggesting the following
clause: “[a]ny dispute, claim or controversy arising out of or related to this
Agreement . . . shall be determined by arbitration . . . .”). On its face, the “any
dispute” clause merely reflects an agreement between the parties to arbitrate
their disputes. Stolt-Nielsen makes clear, however, that an “implicit agreement
to authorize class-arbitration . . . is not a term that the arbitrator may infer
solely from the fact of the parties’ agreement to arbitrate.” 130 S. Ct. at 1775
(emphasis added). This clause is therefore not a valid contractual basis upon
which to conclude that the parties agreed to submit to class arbitration. See,
e.g., Christopher R. Drahozal & Peter B. Rutledge, Contract and Procedure, 94
MARQ. L. REV. 1103, 1155 (2011) (arguing that a class arbitration award based
upon an “any dispute” clause would be “insufficient” under Stolt-Nielsen, and
stating that “[a] general arbitration clause, according to the Stolt-Nielsen Court,
does not authorize class arbitration because class arbitration differs too much
from individual arbitration”).
Second, the arbitrator’s reliance upon the “any remedy” clause was also
improper. The “any remedy” clause, which merely allows the arbitrator to grant
any “remedy available from a court under the law,” says nothing whatsoever
about class arbitration, and does not constitute an “agree[ment] to authorize
class arbitration.” Stolt-Nielsen, 130 S. Ct. at 1776 (emphasis omitted). A
“remedy” is “anything a court can do for a litigant who has been wronged or is
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about to be wronged.” BLACK’S LAW DICTIONARY 1320 (8th ed. 2004); see also
Knapp, Stout & Co. v. McCaffrey, 177 U.S. 638, 644 (1900) (“A remedy is defined
. . . as the means employed to enforce a right, or redress an injury.”) (internal
quotation marks omitted). Remedies may include, for example, equitable relief
such as an injunction or restitution, or legal relief such as monetary damages.
See Mertens v. Hewitt Assocs., 508 U.S. 248, 255 (1993). In contrast, we have
characterized a class action as “a procedural device.” Blaz v. Belfer, 368 F.3d
501, 505 (5th Cir. 2004); see also Sw. Refining Co. v. Bernal, 22 S.W.3d 425, 437
(Tex. 2000) (“The class action [under Texas Rule of Civil Procedure 42] is a
procedural device intended to advance judicial economy by trying claims
together that lend themselves to collective treatment.”). Thus, while a class
action may lead to certain types of remedies or relief, a class action is not itself
a remedy. See Jock, 646 F.3d at 132 (Winter, J., dissenting) (“My colleagues also
rely upon the provision in the present agreement that the arbitrator may award
any legal or equitable relief generally available in courts. Clearly, this provision
refers only to relief in the form of an award based on a violation of law or
contract —damages, injunctions, etc.—and not to the availability of procedures
used to pursue such relief. A class can be certified and yet not get ‘relief,’ i.e. it
may lose.”).
The arbitrator concluded that class arbitration was a potential remedy
here because Section 132.121(a) of the Texas Education Code allows for class
action lawsuits to address violations of the Code. Even aside from the fact that
a class action cannot properly be considered a “remedy” under state or federal
law, Section 132.121(a) addresses only class action litigation in state court, and
does not support the conclusion that the parties agreed to class arbitration.
Indeed, the central purpose of the arbitration agreement is to avoid such
provisions of state law, not to incorporate them into the arbitration agreement.
In other words, the mere fact that the parties would otherwise be subject to class
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action in the absence of an arbitration agreement is not a sufficient basis to
conclude that they agreed to class arbitration when they entered into an
arbitration agreement. Nor can the Texas Education Code class action provision
be considered “a ‘default rule’ under which an arbitration clause is construed as
allowing class arbitration in the absence of express consent.” Stolt-Nielsen, 130
S. Ct. at 1768-69.
Finally, the arbitrator erroneously based his conclusion on the agreement’s
silence with respect to class arbitration. The arbitrator suggested that the
School, as the drafter of the agreement, had an obligation to affirmatively state
that the agreement precluded class arbitration. This rationale, however, is
directly contrary to Stolt-Nielsen’s holding that arbitrators should not “presume,
consistent with their limited powers under the FAA, that the parties’ mere
silence . . . constitutes consent” to class arbitration. Id. at 1776. Stolt-Nielsen
requires that the parties “agree[] to authorize” class arbitration, not merely that
they fail to bar such a proceeding. Id. (emphasis omitted).
We conclude, therefore, that the arbitrator lacked a contractual basis upon
which to conclude that the parties agreed to authorize class arbitration. At
most, the agreement in this case could support a finding that the parties did not
preclude class arbitration, but under Stolt-Nielsen this is not enough. The
arbitrator therefore exceeded his authority in ordering the parties to submit to
a class arbitration proceeding, and the district court should have vacated the
award. 9 U.S.C. § 10(a)(4); see Stolt-Nielsen, 130 S. Ct. at 1776.
The Second Circuit, applying Stolt-Nielsen, has come to a different
conclusion.13 In Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011), cert.
13
The Third Circuit has also recently addressed this issue. See Sutter v. Oxford Health
Plans LLC, 675 F.3d 215 (3d Cir. 2012). Like the Second Circuit, the Third Circuit in Sutter
confirmed an arbitrator’s class arbitration award, finding it consistent with Stolt-Nielsen. Id.
at 223-25. We disagree with Sutter for essentially the reasons stated herein with respect to the
Second Circuit’s Jock decision.
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denied Mar. 19, 2012, a group of female employees filed both a class action
lawsuit and a class arbitration complaint, alleging that their employer, Sterling
Jewelers, engaged in gender discrimination. Id. at 115-16. The district court
referred the class action lawsuit to arbitration and the parties submitted to the
arbitrator the question of whether their agreement permitted class arbitration.
Id. at 116. The arbitrator found that the agreement permitted class arbitration
because it “cannot be construed to prohibit class arbitration,” and there was “no
mention of class claims.” Id. at 117. The arbitrator interpreted the agreement
under applicable state law, and “construed the absence of an express prohibition
on class claims against the contract’s drafter, Sterling.” Id. The arbitrator also
reasoned that Sterling had declined to revise the contract “despite several
arbitral decisions permitting class claims in the absence of an express
prohibition.” Id. The district court denied Sterling’s motion to vacate the award,
and Sterling appealed. In the interim, the Supreme Court issued Stolt-Nielsen,
and Jock moved the district court for relief from its order. The district court
then vacated the award based upon Stolt-Nielsen. The plaintiffs appealed. Id.
at 118.
On appeal, a panel of the Second Circuit, with one judge dissenting,
reversed the district court’s order and remanded with instructions to confirm the
award. The majority explained that the district court erroneously “focused . . .
on whether the arbitrator had correctly interpreted the arbitration agreement
itself.” Id. at 123. Instead, it should have restricted its analysis to whether the
parties had submitted the class arbitration issue to the arbitrator and “whether
the agreement or the law categorically prohibited the arbitrator from reaching
that issue.” Id. at 123.
The majority distinguished the case before it from the stipulation of silence
in Stolt-Nielsen, explaining “[t]he plaintiffs’ concession that there was no explicit
agreement to permit class arbitration . . . is not the same thing as stipulating
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that the parties had reached no agreement on the issue.” Id. The district court
erred when it substituted its own judgment for the arbitator’s in deciding
whether the record demonstrated an implicit class arbitration agreement. Id.
at 124. The majority reasoned that, because the class arbitration issue was
submitted to the arbitrator, and neither the law nor the agreement barred the
arbitrator from deciding the issue, the arbitrator did not exceed her powers in
resolving the issue. Id.
In so holding, the majority “reemphasiz[ed] that the primary thrust of [its]
decision is whether the district court applied the appropriate level of deference
when reviewing the arbitration award.” Id. The majority criticized the dissent
for focusing on the “correct” interpretation of Stolt-Nielsen rather than whether
the arbitrator exceeded her powers. Id. at 125. Ultimately, the majority
concluded, regardless of “whether the arbitrator was right or wrong in her
analysis, she had the authority to make the decision, and the parties to the
arbitration agreement are bound by it.” Id. at 127 (footnote omitted).
Judge Winter dissented. He first noted that the same “silence” at issue in
Stolt-Nielsen was present in Jock, as neither party claimed that the arbitration
clauses at issue either “specifically authorize[d] or specifically preclude[d] class
arbitration.” Id. at 128 (Winter, J., dissenting). He acknowledged that an
implicit agreement to arbitrate is permissible under Stolt-Nielsen, but argued
that an implicit agreement cannot be inferred from an arbitration agreement’s
silence or failure to preclude class arbitrations, “much less from thin air.” Id.
at 129. Nowhere in the arbitrator’s opinion, Judge Winter reasoned, did the
arbitrator “purport to identify any provision of the agreement supporting the
existence of an implied agreement”; in fact, many provisions of the agreement
supported the conclusion that only bilateral arbitration was permissible. Id. In
this regard, Judge Winter discounted the arbitrator’s reliance on the “any relief”
provision of the arbitration agreements, concluding that it could not support an
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implicit agreement to submit to class arbitration, as class arbitration is a
“procedure[] used to pursue . . . relief,” not relief itself. Id. at 132. Finally,
Judge Winter rejected the majority’s reliance on the deferential standard of
review, noting that the same standard of review was applicable in Stolt-Nielsen,
but it did not prevent the Court from vacating the award. Id. at 133.
We respectfully disagree with the Second Circuit’s decision in Jock. We
read Stolt-Nielsen as requiring courts to ensure that an arbitrator has a legal
basis for his class arbitration determination, even while applying the
appropriately deferential standard of review. 130 S. Ct. at 1775. Such an
analysis necessarily requires some consideration of the arbitrator’s award and
rationale. Instead of examining the arbitrator’s award, the Jock majority
confirmed the award even though the award based its conclusion in part upon
the agreement’s failure to expressly prohibit class arbitration, a rationale that
is incompatible with Stolt-Nielsen.14 To the extent that the Second Circuit
decided not to undertake an inquiry into the arbitrator’s reasoning, we must part
ways.
Nor can we agree that the deferential standard of review applicable to
arbitration awards precludes such an inquiry. Indeed, the same standard of
review was at issue in Stolt-Nielsen, but it did not prevent the Court from
examining and vacating the arbitrator’s award. Furthermore, we are persuaded
by the Supreme Court’s lengthy discussion of the significant disadvantages of
class arbitration, id. at 1776, a discussion that the Jock majority largely
14
We note that the arbitral award in Jock was issued before the Supreme Court’s Stolt-
Nielsen decision. This led the Jock majority to explain that the “arbitrator faithfully followed
the law as it existed at the time of her decision,” and an “intervening change of law, standing
alone, [does not] provide[] grounds for vacating an otherwise proper arbitral award.” 646 F.3d
at 125. It is not clear, however, whether the court would have reached the same result if the
arbitrator’s award had been issued after Stolt-Nielsen.
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ignored.15 Together, Stolt-Nielsen and Concepcion indicate that arbitrators
should not find implied agreements to submit to class arbitration, and courts
should not confirm arbitral awards that order parties into such a proceeding,
without a contractual or legal basis for doing so. While we cannot substitute our
own judgment for that of an arbitrator, we also cannot confirm an award that
Supreme Court precedent requires us to vacate.
To summarize, we conclude that the arbitrator in this case exceeded his
powers by ordering the parties to submit to class arbitration without a
contractual or legal basis. The district court thus erred in denying the School’s
motion to vacate the award. 9 U.S.C. § 10(a)(4); see Stolt-Nielsen, 130 S. Ct. at
1775-76. Pursuant to Section 10(b) of the FAA, we must either “‘direct a
rehearing by the arbitrators’ or decide the question that was originally referred
to the panel.” Stolt-Nielsen, 130 S. Ct. at 1770 (internal quotation marks
omitted). Because we conclude, as did the Stolt-Nielsen Court, that “there can
be only one possible outcome on the facts before us,” there is no need to direct a
rehearing by the arbitrator. Id. This arbitration must proceed bilaterally.
III. CONCLUSION
For the reasons stated above, we REVERSE the order of the district court
and REMAND this case with instructions to refer the parties to bilateral
arbitration.
15
Only the dissent in Jock discussed at length the Supreme Court’s recent concerns
about class arbitration. 646 F.3d at 131 (Winter, J., dissenting).
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DENNIS, Circuit Judge, specially concurring:
I join the majority’s opinion, except Part II.1, and write separately to add
some observations regarding Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130
S. Ct. 1758 (2010), which might prove to be crucial in future cases.
1.
I agree with the majority’s conclusion in Part II.1 of its opinion that the
district court did not err in referring the issue of class arbitration vel non to the
arbitrator, but I am not persuaded that “the parties’ agreement to the AAA’s
Commercial Rules also constitutes consent to the Supplementary Rules.”
Majority Op. 8. Instead, I believe that reference of the question to the arbitrator
is required by our circuit precedent in Pedcor Management Co., Inc. Welfare
Benefit Plan v. Nations Personnel of Texas, Inc., 343 F.3d 355 (5th Cir. 2003),
which held that, “pursuant to Green Tree [Financial Corp. v. Bazzle, 539 U.S.
444 (2003)], arbitrators should decide whether class arbitration is available or
forbidden.” Pedcor, 343 F.3d at 363.
In Pedcor, this court considered the upshot of the splintered decision in
Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003). In Green Tree, Justice
Breyer wrote a plurality opinion, joined by Justices Scalia, Souter, and
Ginsburg, which concluded that the arbitrator, not the court, should decide the
class arbitration question. Id. at 453.1 Justice Stevens cast the fifth vote for the
judgment to vacate and remand the state court’s decision; but he did not join
Justice Breyer’s opinion. Id. at 454-55 (Stevens, J., concurring in the judgment
and dissenting in part). Justice Stevens noted that “[a]rguably the
interpretation of the parties’ agreement [to permit class arbitration or not]
1
Chief Justice Rehnquist, joined by Justices O’Connor and Kennedy, dissented on the
grounds that “this determination is one for the courts, not for the arbitrator,” Green Tree, 539
U.S. at 455 (Rehnquist, C.J., dissenting); and Justice Thomas dissented separately on the
basis that he “believe[d] that the [FAA] does not apply to proceedings in state courts,” 539 U.S.
at 460 (Thomas, J., dissenting).
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should have been made in the first instance by the arbitrator, rather than the
court.” Id. at 455. However, because Justice Stevens believed that the state
court’s “decision to conduct a class-action arbitration was correct as a matter of
law, and because petitioner has merely challenged the merits of that decision
without claiming that it was made by the wrong decisionmaker,” he did not
think that remanding the case was necessary. Id. Nonetheless, Justice Stevens
concurred in the plurality’s judgment “[i]n order to avoid [there being no
controlling judgment of the Court], and because Justice BREYER’s opinion
expresses a view of the case close to my own.” Id.
In analyzing Green Tree, the Pedcor panel applied the well-established
principle that “when we are confronted with a plurality opinion, we look to that
position taken by those Members who concurred in the judgments on the
narrowest grounds.” 343 F.3d at 358 (internal quotation marks omitted). The
panel reasoned that Justice Stevens’ opinion “fails to constitute the most narrow
grounds on which the case was decided.” Id. at 358. Instead, the Pedcor panel
concluded that the narrowest grounds for the Green Tree judgment were those
expressed by Justice Breyer’s plurality opinion. Id. at 358-59. Thus, the panel
held that “pursuant to Green Tree, arbitrators should decide whether class
arbitration is available or forbidden.” Id. at 363. Although the Pedcor panel
indicated that Justice Stevens might have tacitly agreed with the plurality on
this point, see 343 F.3d at 358-59, that view was not necessary to or part of the
Pedcor panel’s holding.
In Stolt-Nielsen, the Court recognized that Justice Stevens’ opinion in
Green Tree did not decide the question of whether the arbitrator or the court
should decide the class arbitration question, and “[t]hus, [Green Tree] did not
yield a majority decision on” that issue. 130 S. Ct. at 1771-72. However, the
Stolt-Nielsen Court explicitly declined to address this issue: “[W]e need not
revisit that question here because the parties’ supplemental agreement
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expressly assigned this issue to the arbitration panel, and no party argues that
this assignment was impermissible.” Id. Thus, Stolt-Nielsen does not alter the
status of the Green Tree plurality opinion, and does not affect our holding in
Pedcor that the Green Tree plurality provided the narrowest grounds for the
judgment in that case. Accordingly, in my view we are still bound to follow our
precedent in Pedcor. See Martin v. Medtronic, Inc., 254 F.3d 573, 577 (5th Cir.
2001) (“[T]he Supreme Court decision must be more than merely illuminating
with respect to the case before us, because a panel of this court can only overrule
a prior panel decision if ‘such overruling is unequivocally directed by controlling
Supreme Court precedent.’” (quoting United States v. Zuniga-Salinas, 945 F.2d
1302, 1306 (5th Cir. 1991)). Similarly, the Seventh Circuit recently concluded
that Stolt-Nielsen did not upset that court’s post-Green Tree holding in
Employers Ins. Co. of Wausau v. Century Indem. Co., 443 F.3d 573 (7th Cir.
2006), that the arbitrator should decide whether an arbitration agreement
allows for class arbitration. Blue Cross Blue Shield of Mass., Inc. v. BCS Ins.
Co., 671 F.3d 635, 639 (7th Cir. 2011) (Easterbrook, C.J.) (“Stolt–Nielsen did not
[address whether an arbitrator should decide the class arbitration question].
This leaves in place our post-[Green Tree] decision in Wausau.”).2
Therefore, I would follow Pedcor to uphold the district court’s referral of
the class arbitration question to the arbitrator.
2
See also Quilloin v. Tenet HealthSystem Phila., Inc., 673 F.3d 221, 232 (3d Cir. 2012)
(“Silence regarding class arbitration generally indicates a prohibition against class arbitration,
but the actual determination as to whether class action is prohibited is a question of
interpretation and procedure for the arbitrator.” (citing Stolt-Nielsen, 130 S. Ct. at 1775));
Vilches v. The Travelers Companies, Inc., 413 F. App’x 487, 492 (3d Cir. 2011) (unpublished)
(following Green Tree plurality and Stolt-Nielsen in holding, “[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.’” (alteration in original) (quoting Stolt-Nielsen, 130 S. Ct. at 1771-72)
(internal quotation mark omitted)).
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2.
I agree with the majority that under the principles of Stolt–Nielsen that
are clearly applicable to this case, we must reverse the district court’s affirmance
of the arbitrator’s class arbitration award and remand the case with instructions
to refer the parties to bilateral arbitration. However, a careful reading and
assessment of Stolt-Nielsen reveals that it is distinguishable from the present
case in respects that may be significant in future cases.
First, as the majority notes, Majority Op. 11, Stolt-Nielsen fully reaffirmed
the exceedingly deferential standard that federal courts must apply when
reviewing arbitration decisions. Indeed, the Court began its analysis in Stolt-
Nielsen by restating this deference in no uncertain terms: “Petitioners contend
that the decision of the arbitration panel must be vacated, but in order to obtain
that relief, they must clear a high hurdle.” 130 S. Ct. at 1767. The Court
explained this exceptionally narrow standard of judicial review of arbitral
decisions: “It is not enough for petitioners to show that the [arbitration] panel
committed an error—or even a serious error.” Id. (citing E. Associated Coal
Corp. v. Mine Workers, 531 U.S. 57, 62 (2000); United Paperworkers Int’l Union
AFL-CIO v. Misco, Inc., 484 U.S. 29, 38 (1987)). Instead, the Court stated, “[i]t
is only when [an] arbitrator strays from interpretation and application of the
agreement and effectively ‘dispense[s] his own brand of industrial justice’ that
his decision may be unenforceable.’” Id. (alterations in original) (quoting Major
League Baseball Players Ass’n v. Garvey, 532 U.S. 504, 509 (2001) (per curiam),
in turn quoting United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363
U.S. 593, 597 (1960)); see also United Paperworkers, 484 U.S. at 38 (“[A]s long
as the arbitrator is even arguably construing or applying the contract and acting
within the scope of his authority, that a court is convinced he committed serious
error does not suffice to overturn his decision.”); United Steelworkers, 363 U.S.
at 597 (an arbitration award must be upheld “so long as it draws its essence”
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from the agreement). Thus, Stolt-Nielsen reaffirmed the Court’s longstanding
precedent that courts must review arbitration decisions with the utmost
deference.
The Court’s decision to vacate the arbitrator’s class arbitration decision in
Stolt-Nielsen did not alter this exceptionally deferential standard of review.
There, the Court, in deciding that the arbitration panel had exceeded its power,
relied upon and repeatedly called attention to the fact that the parties had
expressly stipulated that they had reached no agreement on the issue of class
arbitration. 130 S. Ct. at 1768 (“[T]he parties agreed their agreement was
‘silent’ in the sense that they had not reached any agreement on the issue of
class arbitration.”); id. at 1766 (“The parties . . . stipulated that the arbitration
clause was ‘silent’ with respect to class arbitration. Counsel for [the Respondent]
explained to the arbitration panel that the term ‘silent’ did not simply mean that
the clause made no express reference to class arbitration. Rather, he said, ‘[a]ll
the parties agree that when a contract is silent on an issue there's been no
agreement that has been reached on the issue.’”). Thus, “the [arbitration] panel
had no occasion to ascertain the parties’ intention” regarding class arbitration
“because [their stipulation stated that] the parties were in complete agreement
regarding their intent.” Id. at 1770 (internal quotation marks omitted) (“Th[eir]
stipulation left no room for an inquiry regarding the parties’ intent, and any
inquiry into that settled question would have been outside the panel’s assigned
task.”). The Court did not need to undertake a deferential review of the
arbitration contract or the arbitration panel’s class arbitration decision; but
instead, merely “held that [the] arbitration panel exceeded its power under the
FAA by imposing class arbitration procedures based on policy judgments rather
than the arbitration agreement itself or some background principle of contract
law.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1750 (2011) (citing
Stolt-Nielsen, 130 S. Ct. at 1773-76). Thus, the Court did not alter the usual,
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exceedingly deferential standard of judicial review that courts must apply to
arbitrators’ contract interpretations based on the parties’ written agreement
itself or on some background principle of contracts law.
Second, Stolt-Nielsen does not require that there be an express agreement
to class arbitration in order for arbitrators, within their powers, to find that the
parties agreed to class arbitration. See Stolt-Nielsen, 130 S. Ct. at 1775 (“[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.”); id.
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.”); see also
id. at 1783 (Ginsburg, J., dissenting) (“[T]he Court does not insist on express
consent to class arbitration.”). There simply is no basis for the arbitrator to find
such an implicit agreement to class arbitration in the present case; however,
there may be such a basis in the parties’ agreements in other cases.
Third, Stolt-Nielsen did not address a case in which a party is
unsophisticated and the arbitration agreement is part of a contract of adhesion;3
and in which “adjudication is costly and individual claims are no more than
modest in size, [in which case,] without [class proceedings], potential claimants
will have little, if any, incentive to seek vindication of their rights.” See id. at
1783 (Ginsburg, J., dissenting) (citing Amchem Prods., Inc. v. Windsor, 521 U.S.
591, 617 (1997)); see also id. (“‘The realistic alternative to a class action is not 17
million individual suits, but zero individual suits, as only a lunatic or a fanatic
sues for $30.’” (quoting Carnegie v. Household Int’l, Inc., 376 F.3d 656, 661 (7th
Cir. 2004))). In other cases, the Court has “recognized [arbitration] as an
3
In Stolt-Nielsen the arbitration agreement was between “sophisticated business
entities,” where the form of the agreement was selected by the entity seeking class arbitration,
and high-stakes, international antitrust claims were involved. 130 S. Ct. at 1775; id. at 1764-
65; Joint Appendix at 73a, Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010)
(No. 08-1198), 2009 WL 2777896.
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effective vehicle for vindicating statutory rights, but only ‘so long as the
prospective litigant may effectively vindicate its statutory cause of action in the
arbitral forum.’” In re Am. Express Merchants’ Litig., 667 F.3d 204, 214 (2d Cir.
2012) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 636-37 (1985)). That is, the Court has “noted that should clauses in a
contract operate ‘as a prospective waiver of a party’s right to pursue statutory
remedies for antitrust violations, we would have little hesitation in condemning
the agreement as against public policy.’” In re Am. Express Merchants’ Litig.,
667 F.3d at 214 (quoting Mitsubishi, 473 U.S. at 637 n.19). Such considerations
led the Second Circuit recently to conclude that a class arbitration waiver
provision was unenforceable, and that Stolt-Nielsen does not hold otherwise. Id.
at 216-19.4 Although the instant case involves an adhesive consumer contract,
the stakes—roughly $51,000 in student loan debt—are high enough that we may
not be justified in determining that “potential claimants,” such as Reed, “will
have little, if any, incentive to seek vindication of their rights.” Stolt-Nielsen,
130 S. Ct. at 1783 (Ginsburg, J., dissenting). However, in different kinds of
future cases, courts may need to consider whether an arbitrator can properly
find an implicit agreement to class arbitration procedures because bilateral
arbitration would otherwise offer claimants to modest amounts no practicable
or realistic remedy.
Subject to my disagreement with the majority’s reasoning in Part II.1, and
with the foregoing observations on the Court’s decision in Stolt-Nielsen, I concur
in the remainder of the majority opinion.
4
Cf. Cruz v. Cingular Wireless, LLC, 648 F.3d 1205, 1215 (11th Cir. 2011) (noting “the
possibility that in some cases, an arbitration agreement may be invalidated on public policy
grounds where it effectively prevents the claimant from vindicating her statutory cause of
action” because of a class arbitration waiver (citing Mitsubishi, 473 U.S. at 637)).
33