District Court Overrules Arbitrator’s Authority on Class Certification

By Ginsey Varghese

A recent decision in a long-running New York case permitting federal review of an arbitrator’s authority in class arbitration may have substantial implications for arbitration law.

In January, a New York Southern District Court decision vacated an arbitrator’s class certification award to protect the due process rights of more than 70,000 absent class members in a gender discrimination matter, Jock v. Sterling Jewelers Inc., No. 08 CIV. 2875, 2018 WL 418571 (S.D.N.Y. Jan. 15, 2018) (available at http://bit.ly/2EjEQWp).

U.S. District Court Judge Jed Rakoff held that the arbitrator exceeded her powers under the Federal Arbitration Act because an arbitrator cannot bind non-parties when the arbitration agreement does not allow class-action procedures. Id. at 2018 WL 418571, at *5; 9 U.S.C. §10(a)(statute available at http://bit.ly/120BmfV).

The FAA authorizes vacatur in four limited circumstances, one of which Rakoff employed in this case, “where the arbitrators exceeded their powers, or so imperfectly executed them that a . . . final and definite award upon the subject matter was not federal made.” 9 U.S.C. §10(a).

The case began in March 2008 with several female Sterling employees filing a class action discrimination suit against the company. The district court compelled arbitration. Jock v. Sterling Jewelers, Inc., 564 F. Supp. 2d 307, 310-12 (S.D.N.Y 2008).

The case has since endured several procedural appeals, with the latest decision resting in part on U.S. Supreme Court Associate Justice Samuel A. Alito Jr.’s concurrence in Oxford Health Plans LLC v. Sutter, where Alito distinguished “absent members,” reasoning that “it is far from clear [whether] they will be bound by the arbitrator’s ultimate resolution of the dispute.” 569 U.S. 564, 574 (2013).

This case appears to be the first time that Alito’s concurrence has been used to overrule an arbitrator’s authority. See Andrew C. Glass, Robert W. Sparkes III, Roger L. Smerage, and Elma Delic, “A First in Second (Circuit): On Remand, District Court Breaks New Ground by Vacating Arbitrator’s Class Certification Award,” K&L Gates blog (Feb. 1, 2018)(available at http://bit.ly/2ELn66I).

At this stage, Rakoff’s decision provides protection for companies with arbitration provisions that are silent on class action procedures, but it undermines and challenges arbitrator authority.

As has been a constant in the litigation, there’s more to come. Rakoff’s decision is the subject of a Jan. 18 notice of appeal, and is now, once again, pending review before the Second U.S. Circuit of Appeals. Jock v. Sterling Jewelers Inc., 18-153.

More on Jock, including its long history and pending appeal will appear in the April issue of Alternatives. March is out now, free here for CPR members, and here for the public.

The author is a CPR Institute 2018 intern. She is a law student at Pepperdine University’s School of Law in Malibu, Calif.

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