An arbitrator’s award allowing an individual to file class-action litigation, despite a mandatory arbitration provision forbidding it, is confirmed in Emilio v. Sprint Spectrum L.P., d/b/a Sprint PCS, Case No. 11-Civ-3041 (JPO) (S.D. N.Y. February 11, 2014).
In early 2005, one of Sprint’s wireless telephone customers filed a Demand for Class Arbitration, claiming, on behalf of more than two million New York Sprint customers, that Sprint had wrongly passed along New York State’s Excise Tax to customers when the tax was intended to fall solely on the cellphone provider. Sprint’s customer agreement, however, provided that the customer agreed not to “assert a claim in a representative capacity on behalf of anyone else.”
An arbitrator was appointed by JAMS as designated by the parties. Following the arbitrator’s October 2006 ruling that Kansas’s Unfair Trade and Consumer Protection Act (“KCPA”) – which prohibits customers from waiving a class-action remedy – applied to the dispute, the parties briefed the customer’s motion for class certification during 2009.
On April 27, 2010, the United States Supreme Court decided Stolt–Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), holding that a party cannot be forced to submit to class arbitration without having agreed to do so. Sprint asked the arbitrator to reconsider her earlier decision in light of Stolt-Nielsen, and on December 27, 2010, she agreed that Sprint could not be compelled to participate in class arbitration. She also ruled, however, that it would be unfair to enforce the arbitration provision as written (denying the class arbitration remedy) when she had already found the KCPA applicable. Accordingly, the arbitrator ruled that the customer could proceed with class-action litigation if the parties could not agree to class or bilateral arbitration.
When Sprint announced that it would not participate in class arbitration and the customer announced that he would not participate in bilateral arbitration, the arbitrator issued a Partial Final Award stating that the case could go forward as a putative class action in a court of law. In May 2011, the customer filed a petition in the District Court for the Southern District of New York to confirm the award. Sprint filed an answer and cross-petition seeking to vacate the award insofar as it compelled Sprint to litigate a class action and allowed the customer to avoid bilateral arbitration.
In March 2012, the District Court granted Sprint’s cross-petition on the basis that enforceability of the class action waiver in Sprint’s customer agreement was a question of arbitrability for a court to decide. But the Second Circuit reversed, holding that the parties had clearly delegated the question of arbitrability to the arbitrator by incorporating JAMS rules into their agreement to arbitrate. The Second Circuit then remanded to the District Court to address vacatur of the award.
In its February 11, 2014 ruling, the District Court applied the traditional “narrow” review of an arbitrator’s award, reciting that the court must grant a motion to confirm an award unless the court finds that a party did not agree to arbitration or the arbitrator has manifestly disregarded the law. Manifest disregard, the court observed, requires a showing that the arbitrator knew of and ignored a governing legal principle that was explicitly and clearly applicable to the case.
Sprint was unable to meet this heavy burden. The District Court found that although the award relied upon cases that were no longer good law, an intervening change of law, standing alone, cannot provide grounds for vacating an otherwise proper arbitral award. The court pointed out that a finding of manifest disregard of controlling law was unlikely where the law relied upon had been the subject of a circuit split later resolved by the Supreme Court (here, AT & T Mobility LLC v. Concepcion, 131 S.Ct. 1740 [2011)]) (FAA preempted KCPA’s anti-waiver provision). In sum, Sprint was unable to demonstrate that the arbitrator ignored applicable precedent.
The District Court also rejected Sprint’s argument that the arbitrator exceeded her authority when she determined that the parties must proceed in class-action litigation if they could not agree on bilateral or class arbitration. The District Court held that an arbitrator’s reasonable interpretation of the JAMS rules would be afforded great deference because, under the terms of the parties’ agreement to arbitrate, construction of that agreement was delegated to the arbitrator.
The lesson, as always, is that courts are reluctant to disturb an arbitrator’s award, even in the face of subsequent authority that renders the arbitrator’s legal analysis improper.
Scott D. Simon, Goetz Fitzpatrick LLP, New York, New York. This article was originally published by the ABA Section of Litigation News & Developments.