Back in April, Blawgletter read the Court's decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., No. 08-1198 (U.S. Apr. 27, 2010), to mean that arbitrators "will have no choice but to deny almost all class certification requests."
The Stolt-Nielsen majority held, 5-3, that an arbitration panel exceeds its authority under the federal Arbitration Act when it construes an agreement to arbitrate as allowing class treatment of a dispute unless the agreement shows the parties intended to permit such a thing.
Today, the Second Circuit ruled that an arbitration clause barring class arbitration "is unconscionable under California law" but that, "under Stolt-Nielsen, we have no authority to order class-based arbitration". Fensterstock v. Education Finance Partners, No. 09-1562-cv, slip op. at 31 (2d Cir. July 12, 2010). The panel thus affirmed the district court's order denying a motion to compel arbitration.
The court noted that the district court may handle the case on a class basis. Id. at 11 ("[T]here is no longer any contractual challenge to Fensterstock's entitlement to litigate his claims against EFP in the district court — whether asserted against both EFP and ACS or against EFP along — and to litigate them on a class basis.").
We suspect that the court would have reached the same result even if the defendants hadn't withdrawn their challenge to the plaintiff's right to litigate – due to the fact that the arbitration clause didn't bar a class action in court. It said only that the "Claims subject to Arbitration include, but are not limited to: . . . Claims made as part of a class action or other representative action" and said that "the arbitration of such Claims must proceed on an individual (non-class, non-representative) basis." Id. at 7.
Some contracts do bar both class actions in court and class arbitrations. This one didn't. But we bet that, after Stolt-Nielsen and Fensterstock, you'll see more contracts that do take the belt-and-suspender approach.