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1.7.2.3 Are Class Actions Available in an Arbitration Proceeding?

Often arbitration clauses not only prohibit class actions in court but also prohibit arbitration on a class-wide basis. The Supreme Court has upheld such bans on class arbitration in two different cases. In AT&T Mobility v. Concepcion40 the Court overruled a challenge to the unconscionability of such a provision. Then, in American Express Co. v. Italian Colors Restaurant,41 the Court concluded that class waivers within arbitration clauses were valid even in cases in which the plaintiffs could establish that the requirement that they bring their claims individually would prevent them from effectively vindicating their federal rights.

As a result, if such a clause banning class arbitration is found in the contract, the requirement will generally be effective and class-wide arbitration will not be possible. The consumer will have to either find an alternative ground to throw out the arbitration requirement (as detailed in § 1.7.2.4, infra) or arbitrate the case on an individual basis.

On the other hand, if an arbitration clause does not contain a provision explicitly prohibiting class arbitration, then class-wide arbitration may be possible, and the very threat of such arbitration will be treated very seriously by the defendant. Defendants typically fear class-wide arbitration more than a court-based class action. The arbitration can proceed much faster than a court-based class action, with virtually no judicial review, and the arbitrator, being paid by the hour, may not view a complicated case with as much disfavor as a judge with an overwhelmingly large caseload.

If an arbitration clause is silent on class arbitration, the key is to interpret the parties’ intent in drafting the arbitration agreement, based in part on the language of the contract itself. If the contract is construed as allowing class arbitration, then the next decision is whether to certify a class action to be litigated before an arbitrator.

The Supreme Court has made clear that the clause interpretation should not be based on policy considerations but on the meaning of the contract itself.42 On the other hand, if the parties agree that an arbitrator does the interpretation and the arbitrator interprets the contract as allowing class arbitration, then the Supreme Court has ruled that a reviewing court should not overturn the ruling except in extremely unusual circumstances and that the arbitrator’s interpretation must be accorded great deference.43

Nevertheless, one unresolved issue is who—the arbitrator or a court—should interpret whether the clause allows class arbitration. The case law in this area is still divided and developing.44 On the other hand, if the arbitration agreement contains a clause delegating matters of enforceability to the arbitrator, then the arbitrator should be the one interpreting whether the arbitration clause allows class arbitration.45

Footnotes

  • 40 {40} AT&T Mobility, L.L.C. v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011).

  • 41 {41} Am. Express Co. v. Italian Colors Rest., ___ U.S. ___, 133 S. Ct. 2304, 186 L. Ed. 2d 417 (2013).

  • 42 {42} Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 130 S. Ct. 1758, 176 L. Ed. 2d 605 (2010).

  • 43 {43} Oxford Health Plans v. Sutter, L.L.C., ___ U.S. ___, 133 S. Ct. 2064, 186 L. Ed. 2d 113 (2013).

  • 44 {44} National Consumer Law Center, Consumer Arbitration Agreements § 9.2.1 (7th ed. 2015), updated at www.nclc.org/library.

  • 45 {45} See National Consumer Law Center, Consumer Arbitration Agreements § 2.2.3 (7th ed. 2015), updated at www.nclc.org/library.