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Arbitrator improperly imposed class arbitration
May 20, 2012 by Ross Runkel at LawMemo

The 5th Circuit has held that an arbitrator improperly imposed class arbitration where the agreement was silent on that point. The dispute must be arbitrated, but on an individual basis rather than as a class action.

Reed v. Florida Metro University (5th Cir 05/18/2012)

Jeffrey Reed spent over $50,000 getting an online bachelor's degree in paralegal studies. Apparently he though this would qualify him to attend law school, but it didn't.

Reed brought a putative class action under a Florida statute to recover his expenses in getting his online bachelor's degree in paralegal studies, claiming that law schools and employers would not recognize it and claiming the school misled him.

The trial court granted the university's motion to compel arbitration and found that it was for the arbitrator to decide whether the parties' arbitration agreement provided for class arbitration.

The arbitrator determined that the parties implicitly agreed to class arbitration and entered an award to that effect.

The trial court confirmed the award, but the 5th Circuit reversed.

(1) The court first concluded that the trial court properly referred the class arbitration issue to the arbitrator. The parties agreed to use AAA Rules, and those say this is an issue for the arbitrator to decide.

(2) The court then vacated the arbitrator's decision, finding that the arbitrator exceeded his powers because "the arbitrator forced the parties into class arbitration without a contractual basis for doing so." The text of the arbitration agreement was silent on the subject of class actions. The court rejected the arbitrator's reasoning that there was a contractual basis for class arbitration; specifically

(a) that the parties agreed to arbitrate "any dispute,"

(b) that the parties agreed that "any remedy" available from a court is available in arbitration, and

(c) that the agreement's silence as to class arbitration was persuasive because the university could have drafted the agreement to preclude class arbitration.

[The court specifically rejected a contrary holding by the 2nd Circuit.]

My view: Basically, the court did not like the arbitrator's reasoning or the result he reached. Maybe the arbitrator's reasoning makes you scratch your head, but that really is not a legitimate ground for overturning an arbitration award. The parties bargained for the arbitrator's analysis - not the court's analysis. So, in the name of defending arbitration, the court fails to follow one of the basic rules. The end result is totally logical, but the means (taking the decision away from the arbitrator) was wrong.


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