From the Employer Law Report (Caroline Gentry):
The Sixth Circuit held that courts, not arbitrators, must decide the “gateway” issue of whether an arbitration clause permits classwide arbitration—and that clauses that are silent on the issue do not permit classwide arbitrations.
In Reed Elsevier, Inc. v. Crockett, No. 12-3574, (6th Cir. Nov. 5, 2013), the plaintiff was a Texas attorney who alleged that his firm was being charged steep fees for using research databases outside of its LexisNexis Subscription Plan without any displayed warning. The parties’ contract contained an arbitration clause that was silent on the issue of classwide arbitration. Crockett filed a classwide arbitration demand for $500 million on behalf of two putative classes, and LexisNexis asked a federal district court to declare that the arbitration clause did not authorize classwide arbitration. The district court awarded judgment to LexisNexis.
On appeal, Crockett argued that an arbitrator, rather than a court, should have decided whether the arbitration clause authorizes classwide arbitration. The Sixth Circuit disagreed. Resolving an issue left open by the United States Supreme Court, it held that “the question whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved ‘for judicial determination unless the parties clearly and unmistakably provide otherwise.’” The Sixth Circuit concluded that because the arbitration clause was silent on the issue of classwide arbitrability, it did not “clearly and unmistakably” assign that question to an arbitrator and the court was therefore the proper decisionmaker.
Turning to the parties’ arbitration clause, the Sixth Circuit held that because it did not expressly address classwide arbitrations it must be read to bar them. The court felt compelled to reach this conclusion even though “[t]he idea that the arbitration agreement in this case reflects the intent of anyone but LexisNexis is the purest legal fiction,” the arbitration clause appeared in an “adhesion contract” and its provisions made Crockett’s individual claim “economically unfeasible.” Nevertheless, the Sixth Circuit concluded that under United States Supreme Court precedent, the arbitration clause was not unconscionable and it must be interpreted to bar classwide arbitrations.
Reed Elsevier is a major win for companies and employers. Classwide arbitrations are effectively barred unless they are expressly authorized by an arbitration clause. Defendants can ask courts to enforce this limitation at the outset and need not submit the question to an arbitrator, who may rule differently and whose decision is not easily appealable. Finally, plaintiffs cannot avoid these results by arguing that the parties’ contract is one-sided, adhesive or unconscionable. All of these holdings are a major win for companies and employers that do not want to be forced to defend class arbitrations.
The courts continue to ignore the benefits that class actions have to offer. This and previous wins effectively remove the means of redress for customers and employees that do not have large enough claims. If smaller claims cannot be grouped together, it makes it unlikely that the party will be able to retain counsel or bring the claim at all. The company, which is likely already in a better bargaining position than the individual, is given another victory. Although the public sometimes has a negative connotation when class actions are mentioned, one would expect judges and courts to understand these actions serve a purpose. I am still waiting for the “surprising” case that will give the weaker party a chance to bring their claim.
An organization’s ability to bar class actions through an arbitration clause that does not explicitly allow for class actions diminishes the bargaining power between purchasers of a product and the larger companies selling the product. This diminished bargaining power places an unfair burden on the customer to be equally represented in arbitration suits regarding issues with products. Barring class actions does accomplish a certain degree of speed and predictability with the way such issues are decided, benefiting the organization. However, allowing an organization to have a pre dispute arbitration agreement already shifts the bargaining power in favor of the organization. Also allowing an organization to prevent class actions by having an arbitration clause that is silent about them shifts the bargaining power too far in favor of the organization. Thus the scales have tipped too far away from the consumer and there should be a greater protection of the consumer’s interests.
The Sixth Curcuit ruling in Reed Elsevier, Inc. v. Crockett, No. 12-3574, (6th Cir. Nov. 5, 2013) is together with the Supreme Courts ruling in Stolt-Nielsen SA v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010) once again an decision in favour of the companies and employers.
The legal position is that arbitrators can decide whether class wide arbitration is permitted but must limit the basis of their decision to interpretation of the agreement of the parties.
Almost every company crafts arbitration clauses with the prohibition of class action and it gives companies an unfair advantage over consumers and employees. And after Reed Elsevier even a “silent” arbitration clause will be read to bar class actions.
The time is ripe for the Congress to change the Federal Arbitration Act (1925) to protect “little guys” such as consumers and employees in class actions. These segments are rarely in a position to challenge the company in an arbitration process by themselves and therefore the Congress should give them a statutory opportunity to class action.
Thank you for this update as our ADR class just finished grappling with class action arbitration. Beyond the obvious win for companies, I see the continued importance of careful contract drafting; unless the clause expressly permits class action, courts will not allow it. With that in mind, I wonder why companies today would even draft clauses that are silent as to such a contested topic (especially LexisNexis). On the other hand, the ‘unsurprising’ decision here does support their silence and companies can continue to leave class action out of their arbitration clauses altogether.