Federal National Mortgage Ass'n v. Prowant
209 F. Supp. 3d 1295
| N.D. Ga. | 2016Background
- Two former Fannie Mae employees (Prowant, Mitchell-Johnson) filed an FLSA demand in JAMS seeking collective/class treatment under Fannie Mae’s Dispute Resolution Policy (DRP), which delegates interpretation and arbitrability to the arbitrator and incorporates JAMS rules; the DRP is silent on “class” language.
- The arbitration progressed for months; Claimants moved for clause construction and class/conditional certification and the arbitrator set hearings; Fannie Mae briefed clause construction in arbitration without objecting to arbitrator jurisdiction.
- On the eve of an arbitrator hearing, Fannie Mae filed a federal declaratory-judgment action asking the court to decide whether the DRP permits class arbitration and sought an injunction to prevent class arbitration.
- Claimants agreed (by email-drafted stipulation terms) to toll limitations and to let the court decide “all issues of arbitrability,” but reserved objections and did not formally enter a stipulation; Claimants later pled counterclaims asserting Fannie Mae waived arbitration and materially breached the DRP.
- The district court found no material factual disputes: Fannie Mae substantially invoked the litigation machinery by filing the suit mid-arbitration and procuring litigation that caused delay and expense; the court held Fannie Mae waived the right to arbitrate and also materially breached the DRP, rescinding it; the case proceeds in federal court on the underlying FLSA claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether DRP permits class/collective arbitration | DRP is silent on class claims; its language contemplates single-employee procedures and allows employee de novo court suit after arbitration, so no class arbitration | DRP language (plural “employees”, "indirectly relate", omission of class exclusion) permits class/collective claims | Court did not decide on substantive interpretation because issue became moot after finding waiver/breach; arbitrability had been delegated to arbitrator under DRP if issue remained live |
| Whether Fannie Mae waived right to arbitrate by filing federal action | Filing sought to preserve arbitration scope and was a prompt, limited action; no prejudice to Claimants | Filing came mid-arbitration after substantial participation in arbitration and just before a hearing; caused delay and litigation expense — prejudicial | Waiver found: Fannie Mae substantially invoked litigation machinery and caused prejudice; summary judgment for Defendants on waiver counterclaim granted |
| Whether Fannie Mae materially breached the DRP by filing suit | Court review was warranted under DRP’s FAA governing clause; stipulation narrowed issues to arbitrability | Fannie Mae’s court filing contravened DRP delegation of arbitrability to arbitrator; filing was a material breach that defeated the contract’s object; rescission appropriate | Breach found as matter of Georgia law; material nonperformance that defeated DRP’s object; DRP rescinded and summary judgment for Defendants granted |
| Effect of parties’ stipulation/email agreement | Stipulation limited the court to deciding only class availability; Fannie Mae relied on it to justify federal filing | Stipulation (email terms) agreed to let court decide "all issues of arbitrability" and preserved Claimants’ objections; did not cure Fannie Mae’s prior breach or preclude Claimants’ waiver/breach claims | Court held stipulation did not limit its review; it did not cure the earlier breach and did not estop Claimants from asserting waiver/breach |
Key Cases Cited
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (federal policy favors arbitration)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (procedural gateway issues presumptively for arbitrator)
- AT&T Techs., Inc. v. Communications Workers, 475 U.S. 643 (1986) (questions of arbitrability presumptively for courts unless parties clearly and unmistakably delegate)
- Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003) (plurality: class‑arbitration availability is a procedural question for arbitrator)
- Krinsk v. SunTrust Banks, Inc., 654 F.3d 1194 (11th Cir. 2011) (two‑part Eleventh Circuit waiver test: inconsistent litigation conduct + prejudice)
- S. Commc’ns Servs., Inc. v. Thomas, 720 F.3d 1352 (11th Cir. 2013) (parties’ choice of rules and failure to dispute arbitrator jurisdiction can delegate class‑availability to arbitrator)