A recent Second Circuit decision suggests that there may be a loophole in the Supreme Court’s decision in Stolt-Nielsen, S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), which may allow arbitrators to decide, in some circumstances, whether an arbitration agreement permits class arbitration where it does not expressly provide for it.

In Jock v. Sterling Jewelers Inc., 2011 U.S. App. LEXIS 13633 (2d Cir. July 1, 2011), the plaintiff filed a Title VII complaint with the EEOC and later a class action suit alleging that she and other female employees of the defendant suffered gender discrimination in pay and promotion.  The employment contract provided for arbitration through AAA, and the litigation was stayed pending what the plaintiff sought to pursue as a class arbitration.  The arbitration agreement did not make any mention of a class arbitration, but the arbitrator found that a class arbitration was permissible, construing the contract against the employer because the employer drafted the contract and the arbitrator found it to be a contract of adhesion.  The arbitrator also noted that the agreement gave the arbitrator “the power to award any types of legal or equitable relief that would be available in a court of competent jurisdiction.”  Id. at *8-9.

The district court held that the arbitrator’s decision was contrary to the Supreme Court’s opinion in Stolt-Nielsen and should be vacated.  The Second Circuit reversed, in a 2-1 decision.  The majority extensively analyzed the Stolt-Nielsen opinion, focusing intently on the parties’ stipulation in that case that the arbitration clause was “silent” with respect to class arbitration, and what that stipulation meant.  The court found that in Stolt-Nielsen there was a stipulation not only that the arbitration clause did not mention class arbitration, but also that the parties did not intend to reach any agreement, expressly or implicitly, with respect to class arbitration.  Id. at *16-18.  According to the Second Circuit, the Supreme Court did not hold that an arbitration agreement must expressly provide for class arbitration; rather, it is possible for class arbitration to be permissible if there was an implicit agreement to class arbitration which somehow can be inferred from the terms of the contract.  Id. at *19-20.  The Second Circuit further held that the arbitrator did not exceed her authority in deciding that the arbitration agreement implicitly permitted class arbitration, explaining that the arbitrator’s decision was not contrary to the Supreme Court’s opinion in Stolt-Nielsen, and in any event the arbitrator’s decision was made prior to the Supreme Court’s opinion and an intervening change in controlling law by itself is not grounds to vacate an arbitration award.  Id. at *32-33.  The court suggested in a footnote that in deciding class certification the arbitrator may need to consider the Supreme Court’s Wal-Mart decision.  Id. at *40 n.3.

Judge Winter dissented, describing Stolt-Nielsen as “binding precedent on all fours.”  Id. at *41 (Winter, J., dissenting).  He read the Court’s reference to “silence” in Stolt-Nielsen as simply referring to the fact that the arbitration clause did not expressly allow or bar a class arbitration.  Id. at *43.  He noted that if the Supreme Court’s decision were as narrowly focused on the parties’ stipulation in Stolt-Nielsen as the Second Circuit majority suggests, the Court would not have granted certiorari to address such a narrow, idiosyncratic issue.  Id. at *45 n.2.  He further read Stolt-Nielsen as barring an inference that an arbitration agreement allows class arbitration based on the absence of an express bar on class arbitrations; otherwise, there would have been a remand in Stolt-NielsenId. at *46.  Judge Winter also interpreted the arbitrator’s decision as finding that class arbitration was allowable because the arbitration agreement did not prohibit it, not because the parties implicitly agreed to it.  Id. at *56.  He would have found this to be a manifest disregard of the law.  Id.

The key takeaway here is that, at least according to this Second Circuit panel, Stolt-Nielsen may not have fully resolved whether an arbitration agreement that is silent with respect to class arbitration (in the sense that it does not expressly provide for or prohibit it) may allow an arbitrator to find that class arbitration is appropriate.  Although en banc rehearings in the Second Circuit are quite rare, this case might call for it, and a grant of certiorari is also possible.   

In insurance policies, arbitration and appraisal clauses are often narrowly constructed, and it would be difficult for plaintiffs to argue that class treatment was implicitly agreed to.  Nevertheless, if the decision of whether there was an implicit agreement is left in the hands of an arbitration panel with only limited court review, there will be some risk.  In drafting new policy provisions, insurers would be wise to include an express bar on class treatment if feasible. 

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.