Marc J. Goldstein Arbitrator & Mediator NYC
July 05, 2011

Another Sign of Life for Class Arbitration: The Second Circuit Reinstates a Case

As New York’s workforce took flight from offices and cubicles to launch the Independence Day Weekend, the US Second Circuit Court of Appeals in Manhattan found that there are still a few breaths of life remaining in class arbitration, deciding to reinstate an arbitrator’s award in favor of a proposed employment discrimination class arbitration. (Jock v. Sterling Jewelers, Inc., 2011 WL 2609853 (2d Cir. July 1, 2011)). The award at issue addressed only whether the arbitration clause permitted a class arbitration, and not whether the proposed class should be certified.

The panel majority in the Second Circuit rejected the District Court’s conclusion that the arbitrator’s award could not be upheld under the Supreme Court’s 2010 Stolt-Nielsen decision. Stolt-Nielsen, per this Second Circuit panel, does not prevent an arbitrator from interpreting an arbitration clause to permit class actions if the arbitrator finds the intent of the parties by reading the arbitration clause in light of the applicable law. In such a case, Stolt-Nielsen does not bar class arbitration, said the Court, because Stolt-Nielsen only limited the arbitrator in construing the clause because the parties had stipulated that they had not made any agreement concerning class arbitration. The panel understood Stolt-Nielsen to hold that this stipulation fully disposed of any issue concerning the intent of the parties, such that the arbitrator’s decision in favor of class arbitration in that case could only have been based on the arbitrator’s conception of sound policy.

In this case, however, intent of the parties was an open question in the opinion of the panel majority, given the text of the arbitration clause. The clause — inserted by the employer in what was conceded to be an adhesion employment contract of a national jewelry retail chain — stated that any action the employee could have brought in court had to be brought in arbitration, and that the employee would have the right to obtain from the arbitrator an “equal remedy” to what a court might have provided. The arbitrator had applied to this language a principle of Ohio contract law that, in an adhesion context, terms decidedly more favorable to the drafter will not be implied but must be stated expressly.

When the arbitrator proceeds in this fashion, the Second Circuit holds in Jock v. Sterling, she avoids the Stolt-Nielsen proscription against the arbitrator “dispensing [her] own brand of industrial justice.” Instead, she gains the benefit of the still-narrow post-Stolt-Nielsen conception of vacatur for “exceeding powers” under FAA Section 10(a)(4), i.e. that the issue resolved by the arbitrator either (i) was not submitted to her by the parties, or (ii) even if so submitted, was an issue that the text of the agreement or the applicable law clearly prevented her from deciding.


A curious element of Jock v. Sterling is what it may portend for judicial deference to arbitrators in contexts other than class arbitration, including arbitrators’ decisions purporting to apply or interpret rules of arbitration agreed upon by the parties.

In January 2010, four months before the Supreme Court decided Stolt-Nielsen, another Second Circuit panel had held that an arbitrator did not exceed his powers when he purported to interpret ICDR Rule 30.1 – the rule dealing with arbitral correction of clerical and similar errors — to permit re-weighing of all the evidence and issuance of an amended award with a different remedial result after correcting the arbitrator’s mis-description of certain invoices in the original final award. (T. Co Metals LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir. 2010)).

The Second Circuit in Dempsey Pipe stated that the “exceeding powers” ground for vacatur “focuses on whether the arbitrators had the power, based on the parties’ submissions or the arbitration agreement, to reach a certain issue….” But after Stolt-Nielsen, as the Jock v. Sterling panel acknowledges, agreement of the parties to the submission of the issue is only one branch of the analysis. There remains the question of whether the arbitrator decided the issue according to contractual rather than policy criteria.

Dempsey Pipe is notably not cited in Jock v. Sterling in its discussion of the Second Circuit’s recent “exceeding powers” jurisprudence.  And it is evident that Stolt-Nielsen has added a dimension to “exceeding powers” analysis: even if the arbitrator clearly had power to decide the issue, she must decide it on grounds that are appropriate contractual grounds (text, law, custom and usage of trade, etc.) and not based on conceptions of good policy.

The absence of a citation to Dempsey Pipe in Jock v. Sterling may be innocuous, but equally it may indicate that at least some Second Circuit judges would view what the arbitrator did in Dempsey Pipe – giving substantive reconsideration to the merits as an implied power under the clerical error correction rule — as a decision based on the arbitrator’s conception of sound policy that would not survive an “exceeding powers” vacatur challenge in light of Stolt-Nielsen.


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