Eleventh Cir. Applies Sutter To Affirm Class Arbitration; Ninth Cir. Applies Concepcion To Preempt Montana Law

by Stinson Leonard Street - Arbitration Nation
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74 SU1HXzEwOTkuanBnWithin weeks of its issuance, SCOTUS’s Sutter decision is already making an impact on other cases. Both the Eleventh Circuit and the D.C. Court of Appeals cite Sutter repeatedly in recent decisions that refuse to vacate arbitration awards.  Of course, new decisions are not the only ones that reverberate: Concepcion, a 2011 decision, was just applied by the Ninth Circuit to preempt Montana case law on contracts of adhesion.

Sutter

In Southern Commc’n Servs., Inc. v. Thomas, __ F.3d __, 2013 WL 3481467 (11th Cir. July 12, 2013), the court affirmed an arbitrator’s decision to allow a class action.  The plaintiffs are mobile phone consumers who allege they were charged unlawful penalties for canceling phone service.  Under the Wireless Industry Arbitration Rules of the AAA, an arbitrator found the arbitration clause allowed class actions and certified the class.  The wireless provider then moved to vacate that determination in federal court, claiming the arbitrator exceeded his authority and refused to apply the law.  The court, however, carefully applied the language of the recent Sutter decision and said that because the arbitrator engaged with the contract’s language and the parties’ intent, his construction of the contract must be upheld.

The D.C. Court of Appeals also cited Sutter recently in refusing to vacate an arbitration award.  In Wolf v. Sprenger + Lang, PLLC, __ A.3d. __, 2013 WL 3466348 (D.C. Ct. App. July 11, 2013), two attorneys sought to vacate an arbitration award against them in a fight over attorneys’ fees.  They argued the arbitrator exceeded his powers by addressing an issue outside the scope of the arbitration and by basing his award on notions of ethics instead of the co-counsel agreement.  In its analysis, the court summarized that the “‘sole question’ before the court in a challenge [that an arbitrator exceeded his power] is ‘whether the arbitrator (even arguably) interpreted the parties’ contract,’” citing Sutter.  Given that limited question, and the fact that the court said there was “no doubt” the arbitrator reached his decisions after interpreting the parties’ co-counsel agreement, the court affirmed the district court’s denial of the motion to vacate.

Concepcion

In a ruling that applies Concepcion in a new context, the Ninth Circuit just struck down Montana case law finding many arbitration agreements void as against public policy.  Mortensen v. Bresnan Commc’ns, LLC, __ F.3d. __, 2013 WL 3491415 (9th Cir. July 15, 2013), a putative class of Montana internet service subscribers asserted claims against the internet provider, based on the provider’s decision to allow an advertising company to create profiles of subscribers based on their internet usage and target them with “preference-sensitive advertising.”  The provider moved to compel arbitration, but the district court denied the motion under Montana law (even after considering application of Concepcion).

The Ninth Circuit reversed.  It found the Montana state law at issue was preempted by the FAA, even though it was ostensibly generally applicable contract law and not specific to arbitration.  The rule at issue said that provisions within contracts of adhesion are void as against public policy if they are not “in the reasonable expectations of both parties when contracting.”  Applying that rule, Montana has found that arbitration agreements in contracts of adhesion are void (because they waive parties’ right to trial by jury and access to court) unless they are explained to and initialed by consumers.  The court found that doctrine disproportinoally affects arbitration agreements and is therefore preempted by the FAA under the reasoning set forth in Concepcion.

The Ninth Circuit repeatedly distances itself from the result by noting that it is simply applying Supreme Court mandates.  For example: “Montana has an interest in protecting its consumers from unfair agreements, particularly those that force waiver of fundamental rights without notice.  But the Supreme Court in Concepcion told us to hold that the FAA preempts all laws that have a disproportional impact on arbitration agreements.”  It feels like making a promise while crossing your fingers behind your back.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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