Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Arbitration agreement requires stay of action challenging restrictions on A2P text message senders, (Jun 2, 2014)

By Jeffrey May, J.D.

The federal district court in New York City has denied a request from wireless service providers to preclude complaining mobile marketers from pursuing class arbitration of antitrust claims over alleged restrictions on the delivery of application-to-person text messages (A2Ps). It was up to the arbitrator, and not the court, to decide whether class arbitration was available (In re A2P SMS Antitrust Litigation, May 29, 2014, Nathan, A.).

Club Texting Inc. brought the action on behalf of a putative class of businesses that sent, through so-called “aggregators,” A2P text messages (as opposed to person-to-person or P2P text messages) to large numbers of wireless subscribers simultaneously using “common short codes” (CSCs). Aggregators are intermediaries between the complaining businesses and the wireless service providers. CSCs are 5 or 6 digit numbers that are leased to businesses and institutions (CSC Lessees) for the purpose of sending A2P SMS. The businesses must obtain the CSC lease from Neustar, Inc. under a “Registrant Sublicense Agreement” (RS Agreement) that contains an arbitration provision. In a September 2013 decision, the court compelled arbitration of the claims subject to the agreements and stayed the remainder of the action. In response to that order, the plaintiffs submitted a "Demand for Arbitration" to the American Arbitration Association that sought a class arbitration of the parties' dispute.

At the outset, the court ruled that the plaintiffs had not waived their argument that the arbitrator should decide the availability of class arbitration. The wireless service providers had contended that the plaintiffs could not now argue that the arbitrator should decide the issue of class arbitration, rather than the court, because they did not previously argue this point. In light of the strong federal policy favoring arbitration, waivers of arbitration are not lightly inferred and doubts concerning waiver are resolved in favor of arbitration, the court noted.

Moreover, the plaintiffs' failure to argue that the availability of class arbitration proceedings was for the arbitrator rather than the court made sense in the context of the proceedings. Under the Second Circuit precedent governing at the time, the plaintiffs were arguing against the availability of arbitration at all based on the view that the unavailability of class arbitration would render the arbitration clause unenforceable as a whole. In the court's view, it would have been inconsistent for the plaintiffs to argue against referring the matter as a whole to an arbitrator while simultaneously arguing that the predicate for their position-the unavailability of class arbitration-was a matter that must be decided by an arbitrator.

With the waiver issue resolved, the court concluded that, despite divergent views on the issue, the weight of authority likely favored the plaintiffs' position that the arbitrator should decide whether class arbitration is available in the first instance. The court had already determined that the parties' agreement to arbitrate was clear, that the agreement was enforceable, and that the arbitration clauses covered the parties' substantive claims. In the face of a valid agreement to arbitrate, courts should be reluctant to expand the categories of "questions of arbitrability" left to courts. Moreover, removing an issue from consideration by the arbitrator and assigning it the courts to address through relatively formal procedures and multilayered review tended to run counter to the Federal Arbitration Act's policy in favor of arbitration.

The court did not reach the parties' arguments as to whether class arbitration was available or whether the plaintiffs had waived or conceded the merits of the issue. These issues were to be decided by the arbitrator.

The case is No. 12 CV 2656 (AJN).

Attorneys: Robert N. Kaplan (Kaplan Fox & Kilsheimer LLP) for Club Texting, Inc. Luke A. Connelly (Winston & Strawn LLP) for Cellco Partnership.

Companies: Club Texting Inc.

Cases: Antitrust NewYorkNews