Fifth Circuit Overturns Class Action Arbitration Decision

June 1, 2012

     In Reed v. Florida Metropolitan University, Inc., No. 11-50509 (5th Cir. May 18, 2012), the United States Court of Appeals for the Fifth Circuit ruled that an arbitrator exceeded his powers in finding the parties\’ agreement authorized class arbitration (hat tip to Victoria VanBuren at Disputing). The case is remarkably similar to Sutter v. Oxford Health Plans, in which the Third Circuit reached the opposite conclusion, as discussed here previously.

     In Reed, the court found no express agreement to engage in class action arbitration, and refused to accept the arbitrator\’s interpretation of the parties\’ contract, which inferred class action intent from language referring to “any dispute.”  The court further rejected any argument that the absence of language prohibiting class action arbitration can be used to infer class action intent. In both regards, the Fifth Circuit based its opinion squarely on the Supreme Court\’s decision in Stolt-Nielsen.

     You can\’t explain the different outcomes in Reed and Sutter by distinguishing them on the facts. The two courts clearly wanted to adopt very different views of Stolt-Nielsen. Other Circuits have addressed the issue as well. See, e.g., Jock v. Sterling Jewelers, 646 F.3d. 113 (2nd Cir. 2011). Drafters of arbitration clauses and those choosing their arbitration venue should act accordingly.

[Image: A fork in the road, by Nicholas Mutton, September 16, 2007]