143 F. Supp. 3d 127
S.D.N.Y.2015Background
- Plaintiffs (female Sterling employees) sued for Title VII sex discrimination and moved to arbitrate under Sterling’s RESOLVE employment arbitration agreement; the Court compelled arbitration in 2008.
- After extensive arbitration proceedings, the arbitrator (Feb. 2, 2015) certified a class for plaintiffs’ Title VII disparate-impact claims limited to declaratory and injunctive relief, denied certification for monetary damages, and allowed opt-outs from the injunctive/declaratory class.
- Sterling moved to vacate the Class Determination Award under 9 U.S.C. § 10(a)(4), arguing the arbitrator exceeded her authority by (1) purporting to bind absent class members and (2) permitting opt-outs from a Rule 23(b)(2)-type class.
- The Second Circuit had previously held the arbitrator was presented with, and could decide, whether the RESOLVE agreement permits class arbitration; all putative class members signed RESOLVE.
- District court confirmed the arbitrator’s authority to bind absent class members (rejecting Sterling’s first ground) but vacated the portion of the award that allowed opt-outs from a class certified for classwide injunctive/declaratory relief, finding that conflicted with Wal‑Mart v. Dukes and exceeded the arbitrator’s powers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitrator could bind absent class members in class arbitration | Arbitrator properly certified class; RESOLVE permits class arbitration and absent members are bound | Absent members did not consent; arbitrator lacked authority to bind those who did not opt in | Court: Arbitrator did not exceed authority on this point — earlier appellate rulings foreclose vacatur |
| Whether arbitrator could permit opt-outs from a class certified for classwide injunctive/declaratory relief | Opt-outs permissible under AAA Supplementary Rules and arbitration procedures; some remedies could be individualized | Opt-outs incompatible with mandatory Rule 23(b)(2)-type class seeking relief that "must perforce affect the entire class at once" | Court: Vacated award to the extent it allowed opt-outs from a class seeking classwide injunctive/declaratory relief; arbitrator exceeded authority and acted in manifest disregard of law |
| Proper standard for vacatur of arbitral award | Defer to arbitrator; award should be upheld if a "barely colorable justification" exists | Vacatur appropriate where arbitrator exceeded powers or manifestly disregarded clear law | Court applied narrow FAA review but found no "barely colorable justification" for opt-outs and found manifest disregard of Wal‑Mart |
| Interaction of AAA Supplementary Rules and Rule 23 | AAA rules track Rule 23 and permit class procedures in arbitration | AAA rules do not authorize opt-outs that conflict with Rule 23(b)(2) principles | Court: AAA rules do not cure the arbitrator’s error; the arbitrator’s reliance on Supplementary Rules did not justify permitting opt-outs |
Key Cases Cited
- ReliaStar Life Ins. Co. of N.Y. v. EMC Nat. Life Co., 564 F.3d 81 (2d Cir. 2009) (FAA vacatur review is narrow—award upheld if arbitrator offers a barely colorable justification)
- Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011) (arbitrator’s authority to decide whether agreement permits class arbitration was squarely presented and upheld)
- Wal‑Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) (Rule 23(b)(2) classes are mandatory; members cannot opt out and classwide equitable relief affects the class as a whole)
- Oxford Health Plans v. Sutter, 133 S. Ct. 2064 (2013) (arbitrator may decide question of contractual authority for class arbitration; concurrence flagged concerns about binding absent class members)
- Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 304 F.3d 200 (2d Cir. 2002) (standard for manifest disregard of law requires clearly applicable governing law that arbitrator appreciated and consciously ignored)