WIth apologies to The Clash

With apologies to The Clash

The class-action variety of plaintiffs’ lawyer abhors the federal Arbitration Act.

You can see why. The Supreme Court has turned the FAA into a class action killer. See AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011) (holding that FAA pre-empts state law against bans on class treatment of claims),  and Am. Express Co. Italian Colors Restaurant, 133 S. Ct. 2304 (2013) (holding that FAA requires enforcement of class action ban even if it thwarts claimants’ ability to vindicate their rights).

But a new FAA ruling by the Second Circuit may afford some comfort to other plaintiffs’ lawyers. Not a lot. Some.

Background

The case that produced the somewhat helpful decision arose from Verizon’s tacking of an “Administrative Charge” on to the bills of its wireless customers. The practice sparked the outrage of a man from Westchester County and his White Plains lawyer. They brought a state-law action for consumer fraud on behalf of a class of Empire State customers in the Southern District of New York.

But the Verizon subscriber contract included a clause that barred class actions and required individual arbitration. The district court enforced the arbitration agreement and ordered the parties to arbitrate.

The Second Circuit affirmed the ruling but disagreed with how the lower court had disposed of the case. Under the FAA, the panel held, a district court that compels arbitration must not dismiss the case but must instead stay it pending the outcome of the arbitration. Katz v. Cellco Partnership, No. 14-138 (2d Cir. July 28, 2015). It relied on FAA section 3, which provides as follows:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

Id., slip op. at 8 (quoting 9 U.S.C. § 3) (emphasis in original). The “shall”, the court concluded, leaves no discretion; it means a court must not dismiss the case and must instead keep and stay it.

Aid for plaintiffs

How does that help a plaintiffs’ lawyer? It does so by giving her a forum to go to for assistance that arbitrators lack the power to provide.

As the Second Circuit pointed out, “[a]rbitrating parties may return to court, inter alia, to resolve disputes regarding the appointment of an arbitrator or to fill an arbitrator vacancy, 9 U.S.C. § 5; to compel attendance of witnesses or to punish witnesses for contempt, id. § 7; and to confirm, vacate, or modify an arbitral award, id. §§ 9–11.” Id. at 11 n.7.

While arbitrators have a lot of leeway in ruling on the merits and fashioning their own proceedings, they have no authority to do much else — including the three things that the Second Circuit highlighted.

Take subpoenas, which arbitrators lack the authority to enforce. The district court’s authority to compel witnesses to attend arbitration proceedings may not seem like a big deal, but the ability to seek prompt relief can make a large difference, particularly in light of the short time-frames that arbitrations may involve. If the subpoena requires compliance within the her or his district, the judge that stayed the case pending arbitration will likely also handle a motion to quash or compel. See Fed. R. Civ. P. 45(d)(3). The judge may deal with the motion even if the subpoena calls for testimony or production of documents outside the district. See id. 45(f) (providing that a court “may transfer a motion under this rule to the issuing court if the person subject to the subpoena consents or if the court finds exceptional circumstances”).

Clearing up disputes over appointment of arbitrators, filling vacancies, and confirmation of awards will also fall within the court’s bailiwick.

And having a judge who already has some familiarity with the case should make the process go more smoothly and quickly — both things that plaintiffs’ counsel prize (or should).

Credibility

The idea of hurrying back to the court that ordered you to arbitrate may seem counterintuitive. The judge ruled against you, right? But presumably you had a better than good-faith basis for resisting arbitration, and although you lost on that point you shouldn’t have lost credibility with the judge.

Don’t squander that most precious of resources, by the way. Once you lose it, you’ll have great difficulty earning it back. And you’ll need it at every stage of the process.

 

The Contingency Factor

If fortune favors the bold, plaintiffs prefer speed. The Second Circuit's decision in Katz v. Cellco Partnership should help make the process of facilitating an arbitration a little quicker and easier. It wins a 6 on The Contingency Factor scale.