The Fifth Circuit seldom affirms class certification orders. Can it stand class actions?

The court's ruling last week in Reed v. Florida Metro. Univ., No. 11-50509 (5th Cir. May 18, 2012), suggests not. The case dealt with the near-worthless degrees that Everest College sold — awarded — online and from store-front "campuses", where (per Everest's introductory video) aspiring students meet first with a "Director of First Impressions".

Jeffrey H. Reed, a Texan, spent $51,000 for an online bachelor's degree in "paralegal studies" only to find that law schools and the local police deemed the Everest degree no degree. Mr. Reed sued under the Texas Education Code, which sets basic rules for degree-awarding outfits, on behalf of himself and a class of the other Everest victims — graduates — who lived in the Lone Star state.

The district court enforced an arbitration clause in Mr. Reed's Enrollment Agreement with Everest. The court left to the arbitrator whether to handle the arbitration on a class basis.

The arbitrator ruled that, because the arbitration clause gave him the power to award any "remedy", it therefore authorized him to certify an arbitration class. The district court confirmed what Blawgletter will call the certification award, which seems not to have dealt at all with the merits.

The Fifth Circuit reversed. The panel held that the arbitrator "exceeded his powers when he concluded that the parties' agreement permitted class arbitration." Id. at 12. The court leaned mainly on Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010), which we thought when it came out meant "that arbitrators will have no choice but to deny almost all class certification requests." Although the panel said "the agreement to submit to class arbitration may be implicit", it added that such an agreement "should not be lightly inferred." Id. at 16 (footnote omitted). It went on to say that the arbitrator inferred way too much from his express power under the parties' contract to award "[a]ny remedy available from a court under the law". "[A] class action cannot properly be considered a 'remedy' under state or federal law", the panel averred. Id. at 21 (emphasis added).

The Second and Third Circuits do not agree with that outcome, as the panel noted. Id. at 22 & n.13 (rejecting Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3d Cir. 2012) (post here), and Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011), cert. denied, 132 S. Ct. 1742 (2012)). The panel pointed to "the Supreme Court's lengthy discussion of the significant disadvantages of class arbitration". Id. at 25 (citing Stolt-Nielsen, 130 S. Ct. at 1776) (emphasis added).

We wish to highlight Judge Dennis's concurring opinion, at least the part where he says "in different kinds of future cases" — ones that involve such small stakes that "bilateral arbitration would . . . offer claimants . . . no practicable or realistic remedy" — "an arbitrator can properly find an implicit agreement to class arbitration procedures". Id. at 33 (citing In re Am. Express Merchants' Litig., 667 F.3d 204, 214) (2d Cir. 2012)).

We wish also to aim a pinky at the panel's spin on the phrase "any remedy available from a court under the law". The court seems to have added "substantive" before "remedy" and "law". But why? The Securities Litigation Uniform Standards Act, for instance, describes "Class action limitations" as "Limitations on remedies". 15 U.S.C. 78bb(f)(1) (emphasis added). And courts often refer to class treatment as a "remedy" instead of merely a "procedure". E.g., Quilloin v. Tenet HealthSystem Philadelphia, Inc., 673 F.3d 221, 233 (3d Cir. 2012) (quoting Thibodeau v. Comcast Corp., 912 A.2d 874, 884 (Pa. Super. 2006)); In re Am. Express Merchants' Litig., 634 F.3d 187, 196 (2d Cir. 2011), on rehearing, 667 F.3d 204 (2d Cir. 2012).

So why didn't the arbitrator have the power to construe "remedy" in the sense of a "procedural remedy"? Don't arbitrators have broad authority? The Second and Third Circuits based their holdings on that precept. Why not the Fifth Circuit?