Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES NEWS: Supreme Court asked to review judicial resolution of classwide arbitration of consumer protection claim, (Feb 5, 2014)

By Linda O’Brien, J.D., LL.M.

The U.S. Supreme Court has been asked to consider whether a court or an arbitrator should decide if a putative class action dispute can be arbitrated, even though the arbitration clause in a subscription agreement between the parties refers any controversy, claim, or counterclaim to binding arbitration. A petition, filed on January 31, 2014, challenges a Sixth Circuit decision, finding that whether the subscription agreement’s arbitration clause authorized classwide arbitration was an issue for resolution by the court rather than an arbitrator (Crockett v. Reed Elsevier, Dkt. 13-928).

Craig Crockett and his law firm appealed an order granting summary judgment to the defendant. In a dispute over additional fees charged in connection with a legal research service offered by LexisNexis, a division of Reed Elsevier, Crockett filed an arbitration demand with the American Arbitration Association, pursuant to the arbitration clause in the subscription agreement. The demand asserted claims for fraud, negligent misrepresentation, breach of contract, negligence, gross negligence, unjust enrichment, and violation of the New York Consumer Protection Act. The claims were brought on behalf of a putative class of LexisNexis customers.

The Sixth Circuit upheld the district court decision, ruling that the availability of classwide arbitration was an issue for resolution by the court, rather than the arbitrator, unless the parties clearly provided otherwise, and an attorney’s claims, against legal research company LexisNexis over certain fees were not subject to classwide arbitration under the arbitration clause in the attorney’s subscription agreement.

The court held that the question whether an arbitration agreement permits classwide arbitration was a gateway matter that was “reserved for judicial determination unless the parties clearly and unmistakably provide otherwise.” Here, the arbitration clause provided that “any controversy” that arose “out of or in connection with this Order” would be resolved by binding arbitration, but did not mention classwide arbitration. Although the language could be interpreted as assigning the question of classwide arbitrability to the arbitrator, the court found the agreement could “just as easily be read to speak only to bilateral arbitration.” Moreover, the clause limited its scope to issues arising out of “this Order,” as opposed to issues arising out of the orders of other customers. Thus, the agreement did not provide for classwide arbitration, in the court’s view.

The petitioners presented two questions: (1)whether the arbitration clause and applicable law require that the arbitrability of class claims be decided by the arbitrator; and (2) whether the arbitration clause and applicable law permit an arbitration to proceed as a class arbitration under the American Arbitration Association’s Supplementary Rules on Class Arbitration.

The petitioners argued that class arbitrability should be determined by the arbitrator. Arbitration is a desirable alternative to litigation and consumer claimants often lack resources to justify appellate litigation. The arbitration clause in the subscription agreement authorizes class arbitration. Arbitration clauses with similar “any controversy” construction have been upheld by the courts to indicate the parties’ agreement to class arbitration. Additionally, the petitioners contend that, without class arbitration, they have no practical recourse. To force small consumers to arbitrate their disputes on an individual basis would render such arbitration clauses unconscionable, it was argued.

Attorneys: Blair C. Fensterstock and Michael T. Phillips II (Fensterstock & Partners LLP) for Craig Crockett and Craig M. Crockett P.C.

Companies: Reed Elsevier Inc.

News: StateUnfairTradePractices