Court Enjoins Arbitration of Even Individual Claim Based on No-Class-Action Provision of Parties’ Contract

by Cadwalader, Wickersham & Taft LLP

AT&T Mobility LLC v. Sandra Smith,  Civil Action No. 11-cv-5157 (E.D. Pa. 2011), considers the question whether a claim in arbitration by an individual was arbitrable as an individual claim or rather whether it was in effect a collective action and thus barred by the parties’ contract.  Issues relating to class or collective actions are arising with greater frequency in international litigation and deserve as clear an understanding as the developing case law will permit the international practitioner to gain.

At issue in this AT&T Mobililty case is the claimant’s effort to enjoin and/or remedy the effects of the merger between AT&T Mobility and T-Mobile.  The law firm representing the claimant similarly filed arbitration demands for more than 1,000 other AT&T customers seeking the same relief.  AT&T sought to enjoin the Smith arbitration, claiming that the demand fell outside the arbitration agreement. 

The District Court began its analysis with the recent decision in AT&T Mobility v. Conception, 131 S.Ct. 1740 (2011), which involved different claims and underlying relief.  Conception, however, did adumbrate the legal principles that the Court here relied on — and then went beyond.  The respects in which the Court relied on Conception included arrogating to the Court the threshold question of whether the dispute was arbitrable.  The answer was yes in one respect:  the governing arbitration clause called for arbitration of “all disputes and claims between us”.  However, the operative clause also said that claims could only be brought in the claimant’s individual capacity “and not as a plaintiff or class member in any purported class or representative proceeding”.  The Court determined that the arbitration provision did not prohibit the claimant from seeking an injunction of the merger or in the alternative divestiture (based on alleged competition concerns), though the Court said that the arbitrator was barred by the contract from granting injunctive relief.

The Court, though, went beyond Conception.  The Court felt that “courts consistently prioritize substance and function over form when characterizing the nature of a dispute or claim”.  As a result, the Court felt that “Smith’s arbitration bears all the hallmarks of a ‘class arbitration’ laid out in Conception.  The grounds for so finding were the following:

Smith’s arbitration certainly “typifies” and is “illustrative of” the class of arbitrations at issue here: the same law firm represents all 1,000-plus people who filed arbitration demands, including Smith; all demands are functionally identical; and all demands, including Smith’s, seek the same, indivisible relief, i.e., enjoining or restructuring the proposed ATTM /T-Mobile merger”

The Court did not discuss what this rule would do to the arbitration of similar claims, how many claims become “too many” to permit arbitration, how the claimant could be seeking class-like relief when the Court had already found that the claimant could not be awarded injunctive relief.

Posted in Adjudication, Arbitration, International Practice | Tagged

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Cadwalader, Wickersham & Taft LLP

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