Jeffrey Reed v. Florida Metro University, Inc., et
2012 U.S. App. LEXIS 10048
| 5th Cir. | 2012Background
- In 2008, Reed enrolled in Everest Online and incurred over $51,000 in student loan debt after seeking a degree that would be accepted by schools and employers.
- Reed filed a putative Texas state‑court class action alleging Texas Education Code violations related to Everest's solicitation in Texas; the School removed the case and moved to compel arbitration under the Enrollment Agreement.
- The Enrollment Agreement requires binding arbitration under AAA Commercial Rules, with the arbitrator's award to be enforceable in court, and includes an acknowledgment waiving jury trial.
- The district court granted arbitration, found the agreement valid and within scope, and declined to rule on class arbitration, leaving that issue to the arbitrator under AAA Supplementary Rules for Class Arbitration.
- An AAA arbitrator awarded class arbitration, determining the agreement implicitly allowed class proceedings; Reed moved to confirm the award in district court, while the School moved to vacate for lack of contractual basis and excess of power.
- The district court confirmed the award; the School appealed, arguing the arbitrator exceeded authority under Stolt-Nielsen and Concepcion, and that class arbitration was not contractually authorized.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides class arbitration? | Reed contends the arbitrator should decide class arbitration under AAA rules as agreed. | Corinthian/Florida Metropolitan University argue the district court should decide and/or vacate under FAA if improper. | District court properly referred to arbitrator; later holding vacated due to arbitrator exceeding powers. |
| Did the arbitrator exceed powers by ordering class arbitration? | Reed argues arbitrator acted within contract and applicable law, consistent with Green Tree/Stolt-Nielsen precedent permitting class arbitration when authorized. | School argues no contractual basis exists to order class arbitration and that the arbitrator ignored Stolt-Nielsen and Concepcion. | Arbitrator exceeded powers by ordering class arbitration without contractual or legal basis; award vacated and bilateral arbitration ordered. |
Key Cases Cited
- Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) (class arbitration issue not a gateway matter; held to be arbitrator's decision in Green Tree plurality)
- Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010) (arbitrators cannot infer class arbitration absent contractual basis; heightened deference to arbitration contract; decision vacated if exceeds powers)
- AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (class arbitration preemption and FAA coherence; reaffirmed limits of class arbitration under FAA)
- United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363 U.S. 593 (1960) (arbitrator's award must draw essence from the contract; limited review of interpretation)
- United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29 (1987) (limits on judicial review of arbitration interpretations of contracts)
- Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011) (Second Circuit held arbitrator could decide class arbitration when not expressly prohibited)
- Pedcor Management Co., Inc. Welfare Benefit Plan v. Nations Personnel of Texas, Inc., 343 F.3d 355 (5th Cir. 2003) (precedent that arbitrators decide class arbitration questions under Green Tree framework)
- Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3d Cir. 2012) ( Third Circuit upholds arbitrator's class arbitration award; contrasted with Stolt-Nielsen)