Marc J. Goldstein Arbitrator & Mediator NYC
July 01, 2014

Brush Up Your Bazzle

If you don’t remember Bazzle, you had best put it on the beach-and-boat-reading list. Come September, you will need to know it well for survival at every luncheon and cocktail reception on the arbitration circuit. Why? Because the Next Cool Thing in US arbitration law, now that BG Group v Argentina is just . . . So Last Term, is the question whether interpretation of the arbitration agreement to determine if it permits class arbitration presents a “gateway” issue of (or akin to) “arbitrability” that a court not an arbitrator should, presumptively and thus quite often,  decide.

In Bazzle (Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003)), a four-Justice plurality of the United States Supreme Court was of the view that this question was one for the arbitrator to decide, and whereas no arbitrator had yet decided it, but only the courts of South Carolina, the case was remanded to the arbitrators. A fifth Justice (Mr. Justice Stevens, now retired to the literary life) concurred in the result, saying that the plurality’s reasoning was “close to his own” but that he did not agree with the plurality that a remand to the arbitrators was necessary here, as he would have found that South Carolina’s highest court had correctly determined as a matter of State law (not contract interpretation) that class arbitration was permitted, and because Petitioner did not advance the contention that the wrong decisionmaker had decided the class arbitration question.

That leaves Bazzle as a tenuous precedent, one to be eventually perhaps ratified by a majority decision of the Court, or to be relegated to obsolescence by a different-minded majority.

And we now have a decision from a US District Court that possibly will in due course find its way to the Supreme Court. In In re A2P SMS Antitrust Litigation, 2014 WL 2445756 (S.D.N.Y. May 29, 2014), the Court found the Bazzle plurality’s position persuasive and held — in the context of an AAA international arbitration spawned by a federal judicial antitrust class action — that the task of interpreting the arbitration agreement to decide if it allows class arbitration is a non-gateway procedural issue for arbitral decision.

The posture of this case at the time of the decision is itself worthy of a practitioners’ note. Plaintiffs filed the case as a class action in the court and when defendant moved to compel arbitration, Plaintiffs argued that the arbitration clause was unenforceable as a matter of public policy because, if construed to require individual arbitration, it precluded “effective vindication” of the Plaintiffs’ rights under the antitrust laws. After supplemental briefing of that issue following the Supreme Court’s 2013 decision in the Amex-Italian Colors case, the District Court granted the Defendant’s motion to compel arbitration — without deciding if the clause required only individual arbitration. Plaintiffs then filed a Demand for Arbitration seeking class arbitration. And Defendants responded by asking the Court to decide that class arbitration was not permissible. Presumably (we do not know), Claimants asked the arbitral tribunal to decide the question, and presumably (we do not know) the arbitral tribunal decided to wait for the court to decide who decides. Uncertainty about the law concerning arbitral power prompts arbitrators to defer to judges, and the efficiency of arbitration suffers if judges cannot act swiftly (swift action being painfully difficult when the legal issue is unsettled, as this one is in the Second Circuit, and the parties wish to have ample time for briefing and argument).

Here the District Court voraciously devoured not only the Supreme Court’s arbitration class action jurisprudence, but also the relevant decisions of lower federal courts nationwide, and concluded that the position of the plurality in Bazzle remained the most persuasive: whether arbitration will proceed on an individual or class basis despite the fundamental changes in the process if class arbitration is ordered, remains a question of procedure not a question of consent and therefore does not qualify for “gateway” status (i.e. Questions ordinarily to be decided by courts) under the Supreme Court’s arbitration jurisprudence. The District Court found the question presented to be “a close one,” mainly because the Supreme Court in the Stolt-Nielsen case (2010), and again last year in the Oxford case, took pains to draw attention to the fact that they were not deciding (and that Bazzle as a plurality decision had not decided) if the class arbitration clause construction issue is a “gateway” question for courts to handle. The question was not presented in either case because the parties had agreed to submit the clause construction issue to the arbitrators, which left for the courts only questions about the scope of review and (retrospective) limits on arbitral power.

“Gateway” issues are, broadly speaking, issues of consent: Did you agree to arbitrate at all? Did you agree to arbitrate this type of issue? Argentina argued in BG Group that when it agreed to arbitrate only with investors who first litigated pointlessly for 18 months in Argentine courts, an investor’s by-pass of that requirement presented an issue of consent. The Chief Justice and one of his brethren bought in (the sistren, refusing to cry for Argentina, all gave this pitch the thumbs down).

But BG Group is … just So Last Term.

So what is the proper view of the question “Did you agree to arbitrate in one arbitration with a nameless faceless mass of persons ostensibly in the same boat as the signatory claimant who filed the case, all of the said boatmates having signed arbitration agreements with you but none of them save one having asserted any claims?” Is the question only about process, or (as five Justices suggested in Stolt-Nielsen) is class arbitration such a transformation from the arbitration archetype of Halcyon Days that it deserves to be classified with pure questions of consent as a matter presumptively for determination by judges?

Brush up your Bazzle, readers. This is So Next Term.

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