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Arbitrator had authority to bind ‘absent’ class members in longstanding Sterling Jewelers gender pay dispute

By Marjorie Johnson, J.D.

The Second Circuit cautioned that it was not for the court to decide whether the arbitrator’s class certification decision was correct on the merits; rather, it was merely deciding “that the arbitrator had the authority to reach such issues even with respect to absent class members.”

The Second Circuit reversed a decision by a federal district court in New York vacating an arbitrator’s certification of a Title VII class insofar as it included employees who did not affirmatively opt in to the specific arbitration proceeding. In this high-profile case, the district court had held that the arbitrator exceeded her authority in purporting to bind absent class members because she erred in determining that the arbitration agreement permitted class arbitration. Disagreeing, the Second Circuit ruled that the arbitrator’s determination that the agreement permitted class arbitration bound the absent class members because, by signing the arbitration agreement, they bargained for the arbitrator’s construction of that agreement with respect to class arbitrability. However, on remand the district court must now decide whether the arbitrator exceeded her authority in certifying an opt-out class, as opposed to a mandatory one (Jock v. Sterling Jewelers Inc., November 18, 2019, Hall, P.).

In this Title VII and Equal Pay Act putative class action, the plaintiffs alleged that Sterling Jewelers paid female salespersons less than their male counterparts. The parties had been battling for over a decade, with this being the fourth time that the case had come before the Second Circuit. After the court initially compelled arbitration pursuant to the parties’ dispute resolution agreement (the RESOLVE agreement), the arbitrator found that the agreement permitted class arbitration. While the district court initially denied Sterling’s motion to vacate, it subsequently reversed and vacated the award following the Supreme Court’s opinion in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.

Jock I. However, in Jock I, the Second Circuit reversed, holding that the district court impermissibly substituted its own legal analysis for that of the arbitrator instead of focusing its inquiry on whether the arbitrator was permitted to reach the question of class arbitrability that had been submitted to her by the parties. Furthermore, the arbitrator had a colorable justification under the law to reach the decision on the issue of class arbitrability.

Issue of absent class members. The arbitrator then issued a class determination award, certifying approximately 44,000 women, comprising the then-254 plaintiffs as well as absent class members who had neither submitted claims nor opted in to the arbitration proceeding. The district court denied Sterling’s motion to vacate the class determination, reasoning that Sterling’s argument that the arbitrator had exceeded her powers in “purporting to bind absent class members who did not express their consent to be bound” was “foreclosed” by the Second Circuit’s holding in Jock I that there was “no question that the issue of whether the agreement permitted class arbitration was squarely presented to the arbitrator.”

Jack II. In Jock II, the Second Circuit reversed, clarifying that Jock I “did not squarely address whether the arbitrator had the power to bind absent class members to class arbitration.” The Jock II panel identified the question to be considered on remand as “whether an arbitrator, who may decide whether an arbitration agreement provides for class procedures because the parties ‘squarely presented’ it for decision, may thereafter purport to bind non parties to class procedures on this basis.”

Latest order vacates class determination. At issue now was the district court’s most recent decision vacating the arbitrator’s class determination ruling based on its determination that the arbitrator had no authority to decide whether the RESOLVE agreement permitted class action procedures for anyone other than the named parties and those who chose to opt in to the proceeding before her. The district court vacated that award insofar as it certified a class that included individuals who had not affirmatively opted in to the arbitral proceeding.

Arbitrator to decide issue of class arbitrability. The Second Circuit now reversed, holding that although the absent class members had not affirmatively opted in to the arbitration proceeding, by signing the RESOLVE agreement, they consented to the arbitrator’s authority to decide the threshold question of whether the agreement permitted class arbitration. Each of the absent class members undisputedly signed the agreement, which clearly provided for the application of the American Arbitration Association (AAA) Rules. And the AAA Supplementary Rules for Class Arbitration provide that “the arbitrator shall determine as a threshold matter whether the applicable arbitration clause permits the arbitration to proceed on behalf of a class.” The incorporation of the AAA Rules thus evinced agreement to have the arbitrator decide the question of class arbitrability.

“Clearly and unmistakably.” Moreover, the RESOLVE agreement provided that the arbitrator shall decide “questions of arbitrability” and “procedural questions.” And this was also consistent with Ohio law, where the issue of whether an arbitration agreement permits class procedures “is to be decided by the arbitrator” when the parties “have clearly and unmistakably vested the arbitrator with the authority to decide the issue of arbitrability,” such as here.

Because the absent class members thus “bargained for the arbitrator’s construction of their agreement” with respect to class arbitrability, the arbitrator acted within her authority in purporting to bind the absent class members to class procedures. By virtue of the absent class members’ contractually expressed consent, they—like the parties—may be bound by the arbitrator’s determination that the agreement permitted class procedures regardless of whether that determination was “wrong as a matter of law.” Thus, the court’s reasoning in Jock I applied “with equal force to the absent class members” and it was not for the court to decide whether the arbitrator’s class certification decision was correct on the merits. Rather, it only decided that the arbitrator had the authority to reach such issues even with respect to absent class members.

Was opt-out class okay? However, while the Second Circuit found that the arbitrator acted within her authority in purporting to bind the absent class members to class proceedings, it remained to be decided whether she exceeded her authority in certifying an opt-out, as opposed to a mandatory, class for injunctive and declaratory relief. In the decision vacated in Jock II, the district court held that in the arbitrator had exceeded her authority in this regard. Because the correctness of that conclusion was not at issue on appeal, the district court was ordered to decide that issue on remand.