Jock et al v. Sterling Jewelers, Inc

Filing 168

OPINION AND ORDER re: 162 MOTION to Vacate the Arbitrator's Class Determination Award. filed by Sterling Jewelers, Inc. The Court finds that the Arbitrator may not so bind non-parties to class action procedures where, as h ere, the Court has determined that the arbitration agreement does not, in fact, permit class action procedures. Therefore the Court finds that the Arbitrator here had no authority to decide whether the RESOLVE agreement permitted class action proce dures for anyone other than the named parties who chose to present her with that question and those other individuals who chose to opt in to the proceeding before her. See Granite Rock, 561 U.S. at 299; see also Porzig v. Dresdner, Kleinwort, Benson, N. Am. LLC, 497 F.3d 133, 140-41 (2d Cir. 2007). As the arbitrator exceeded her powers, see Porzig, 497 F.3d at 140 (an arbitrator exceeds her powers when she "goes beyond [the] self-limiting agreement between consenting parties"), the Cou rt grants Sterling's motion to vacate the February 2, 2015 Award in so far as that Award certifies a class that includes individuals who have not affirmatively opted in to the arbitral proceedings. The Clerk is directed to close docket entry number 162. SO ORDERED. (Signed by Judge Jed S. Rakoff on 1/15/18) (yv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

-------------------------------------x
LARYSSA JOCK, et al.,
Plaintiffs,

08 Civ. 2875

-v-

OPINION AND ORDER

STERLING JEWELERS INC.,
Defendant.

-------------------------------------x
JED S. RAKOFF, U.S.D.J.
Plaintiffs, current and former female employees of defendant
Sterling
action
agai~st

Jewelers

on

March

Inc.

18,

("Sterling"),

2008

alleging

filed
that

this

putative

Sterling

class

discriminated

them in pay and promotion on the basis of their gender.

See Complaint,
arbitration

Dkt.

1.

pursuant

Subsequently,
to

a

dispute

plaintiffs moved to compel
resolution

agreement

(the

"RESOLVE agreement"), see Dkt. 25, which motion this Court granted
by Order dated June 18, 2008, see Dkt. 52. There followed extensive
proceedings

before

Circuit Court

the

Arbitrator,

of Appeals,

this

Court,

and

the

Second

some of which are briefly summarized

below and more specific familiarity with which is here presumed.
Now before the Court is Sterling's motion to vacate a Class
Determination

Award

issued

by

the

Arbitrator

certifying,

for

plaintiffs' Title VII disparate impact claims for declaratory and
inJunctive relief, a class that, Sterling estimates, includes over

70,000 "absent" class members,

/

~,

1

Sterling employees other than

the

named

plaintiffs

affirmatively

opted

and
in

several
to

the

hundred
class

individuals

proceedings

who

have

before

the

Arbitrator. See Dkts. 137-1-3. According to Sterling, even though
the Arbitrator is planning to permit members of the certified class
to opt out, the Arbitrator exceeded her authority by purporting to
bind this larger group in any way as they never submitted to her
authority or presented to her the question of whether the RESOLVE
agreement

permits

class

action

arbitration.

See

Defendant's

Memorandum of Law in Support of its Renewed Motion to Vacate the
Arbitrator's Class Certification Award ("Def. Mem.") at 5-7, Dkt.
163.

Plaintiffs oppose Sterling's motion,

arguing that the Court

must defer to the Arbitrator's interpretation of the agreement and
her

decision

Defendant's

to

certify

Renewed

this

Motion

larger

to

Vacate

class.
the

See

Opposition

Arbitrator's

to

Class

Certification Award ("Pl. Mem.") at 8-9, Dkt. 165.
As

mentioned,

this

is

but

the

latest

chapter

in a

rather

convoluted litigation. Briefly, in 2009, the Arbitrator determined
that the RESOLVE agreement permitted class arbitration.

Sterling

moved to vacate that determination, and by bottom-line Order dated
August 31, 2009, the Court initially denied Sterling's motion. See
Dkt.

64;

Opinion

and

Order

Sterling timely appealed.

dated

See Dkt.

December

28,

68. However,

2009,

Dkt.

66.

while Sterling's

appeal was pending, the Supreme Court issued an opinion in StoltNielsen S.A. v. AnimalFeeds Int' l Corp., which reversed the Second

2

Circuit's reversal of the undersigned's decision holding that a
class action proceeding is not available in arbitration unless the
contracting parties so provide,
Int'l Corp.,

Stolt-Nielsen SA v.

435 F. Supp. 2d 382, 384

Animalfeeds

(S.D.N.Y. 2006), rev'd,

548

F.3d 85

(2d Cir. 2008), rev'd and remanded sub nom., 559 U.S. 662

(2010)

Thereafter,

Civil

Sterling moved pursuant to Federal Rules of

Procedure 62. 1 and 60 (b)

2009 Opinion and Order

for

re 1 i ef from the December 2 8,

(which had relied,

inter alia, on the now

reversed Second Circuit decision in Stolt-Nielsen), and the Second
Circuit

remanded

the

case

to

permit

this

Court

to

address

Sterling's motion.
On August 6,

2010,

this Court reversed its earlier decision

and granted Sterling's motion to vacate, see Order dated August 6,
2010,

Dkt.

"fail [ed]

87,

finding

in

relevant

part

to identify any concrete basis

that

plaintiffs

had

in the

record for

the

arbitrator to conclude that the parties manifested an intent to
arbitrate class claims." Memorandum Order dated July 27, 2010 at
10, Dkt. 85. Plaintiffs timely appealed, see Dkt. 88, and a divided
panel of the Second Circuit reversed,

with the majority finding

that (1) the parties had squarely presented the question of whether
the

RESOLVE

agreement

arbitrator and

(2)

allowed

for

class

arbitration

to

the

"whether the arbitrator was right or wrong in

her analysis, she had the authority to make the decision, and the

3

parties

to

the

Jewelers Inc.,
Several
issued a

arbitration are

bound by

646 F.3d 113, 124-127
years

Class

approximately

later,

on

Determination Award,
class

disparate impact claims. See Dkts.
moved to vacate that Award,

Jock v.

(2d Cir. 2011)

February

70,000-person

it."

2,

2015,

certifying,
for

Ster ling

("Jock I").
the

Arbitrator

inter alia,

plaintiffs'

Title

an
VII

137-1-3. On March 3, Sterling

arguing that the Arbitrator exceeded

her authority by purporting to bind employees other than the named
plaintiffs

and

those

who

had

affirmatively

opted

into

the

proceedings before the Arbitrator. See Dkts. 135, 136. On November
15, 2015, the Court denied Sterling's motion, finding that vacatur
was "foreclosed by earlier rulings in this case." Opinion and Order
at

4,

Dkt.

144.

Specifically,

given Jock

I,

which affirmed the

Arbitrator's prerogative to decide whether the RESOLVE agreement
permitted class action procedures,
is "no basis
ground

that

for
the

the Court reasoned that there

vacating the C 1 ass
Arbitrator

has

now

Determination Award on the
exceeded

her

authority

in

purporting to bind absent class members." Id.
Sterling,
2017,

once again,

the Second Circuit

appealed.

See Dkt.

145.

On July 24,

vacated the November 2015 Opinion and

Order, holding that the "decision in Jock I .

. did not squarely

address whether the arbitrator had the power to bind absent class
members

to class arbitration given that

members] ,

unlike

the

parties

here,

4

they

never

[the absent class
consented

to

the

arbitrator determining whether class arbitration was permissible
under

the

agreement

Jewelers,

Inc.,

(emphasis

added)

in

703 F.

[the]

first

App'x 15,

The panel

place."
(2d Cir.

17

further

Jock

v.

2017)

Sterling

("Joe~")

instructed the parties and

this Court that the issue "pertinent" on remand is:

"whether an

arbitrator, who may decide .

whether an arbitration agreement

provides

because

for

presented'

class

procedures

it for decision,

the

parties

'squarely

may thereafter purport to bind non-

parties to class procedures on this basis." Id. at 18.
For the

reasons

set

forth below,

the Court

finds

that

the

Arbitrator may not so bind non-parties to class action procedures
where,

as

here,

the

agreement does not,

Court

has

determined

that

the

arbitration

in fact, permit class action procedures.

DISCUSSION

The Federal Arbitration Act provides that a district court
may vacate an arbitration award where the arbitrator has exceeded
her powers.
1 O (a) ( 4)

See 9 U.S.C.

§

lO(a).

The Court's "inquiry under§

thus focuses on whether the arbitrator []

had the power,

based on the parties' submissions or the arbitration agreement, to
reach

a

certain

issue,

not

whether

the

arbitrator []

correct 1 y

decided that issue." Westerbeke Corp. v. Daihatsu Motor Co., Ltd.,
304 F. 3d 200, 220

(2d Cir. 2002)

(internal quotation omitted).

5

Plainly it is the law of the case that the Arbitrator does
not

have

the

authority,

based

on

the

agreement,

to

certify

a

70,000-person class. The Court considered the question of whether
the

RESOLVE

decided that
2010,

Dkt.

agreement
it does

85.

Thus,

authorizes
not.

1

class

procedures

in

2010

and

See Memorandum Order dated July 27,

those individuals who did not affirmatively

opt in to the class proceeding here did not agree to permit class
procedures by virtue of having signed RESOLVE agreements.2

1

The RESOLVE agreements authorize arbitration to be conducted by
the American Arbitration Association ("AAA") in accordance with
AAA rules, as amended or modified by certain RESOLVE-specific
provisions,
including the
requirement
that
the arbitration
agreement be construed according to Ohio
law.
See Clause
Construction Award, Ex. F. to Sterling Memorandum of Law in Support
of Motion to Vacate, Dkt. 58. Nowhere do the RESOLVE agreements
mention class procedures. The Arbitrator, however, decided that
class procedures were nonetheless available as ( 1) the RESOLVE
agreements did not prohibit class arbitration; (2) under Ohio law
the RESOLVE agreements were contracts of adhesion; and in a
contract of adhesion, (3) unless the drafter expressly prohibits
class arbitration,
plaintiffs may avail themselves of that
procedural right. See id. at 4-5. But an Ohio intermediate
appellate court construing the very same agreements expressly
found that they were not adhesive or unconscionable. See W.K. v.
Farrell, 167 Ohio App. 3d 14, 26-27 (2006) (rejecting Sterling
employee's claim that the RESOLVE agreement was adhesive or
unconscionable). Moreover, the AAA Supplementary Rules for Class
Arbitrations, which the Arbitrator applied here, are not, by their
own terms, to be automatically incorporated. See Reed Elsevier,
Inc. v. Crockett, 734 F.3d 594, 599-600 (6th Cir. 2013).
2 Note that, for the reasons stated below, the Court need not reach
the question of whether, had the RESOLVE agreement, in fact,
permitted class procedures, the Arbitrator would have had the
authority to bind absent class members based on the fact that each
absent class member agreed to such procedures by virtue of having
signed the agreement.
6

Thus,

the remaining question here is whether the Arbitrator

had the authority to certify a
named

plaintiffs

and

the

70,000-person class because the

defendant

submitted

the

question

of

whether the RESOLVE agreement allowed for class procedures to the
Arbitrator.
Whether

a

party

has

arbitrator is "typically an
Granite Rock Co.
(2010)
83

v.

agreed

to

submit

a

dispute

to

an

'issue for judicial determination.'"

Int'l Bhd.

of Teamsters,

561 U.S.

287,

296

(quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,

(2002)).

Arb~trator's

Plaintiffs
authority

here
to

see

decide

no

difference

that

the

RESOLVE agreements permitted class procedures,

between

named

the

plaintiffs'

brought by these

plaintiffs on behalf of themselves and all others who opted into
the class, and the Arbitrator's authority to decide that the absent
class members' RESOLVE agreements permitted class procedures that
would bind these individuals unless they opted out. According to
plaintiffs, the named and absent class members "have all executed
the same arbitration agreement which the Arbitrator interpreted to
. as long as the due process

permit the aggregate litigation .

requirements of Rule 23, tracked in AAA Supplementary Rule 4, are
satisfied." Pl. Mem. at 9.
Given

the

seeming

tension

between

plaintiffs'

position has some force.

fact

unlike

that,

the

named

I

and

Jock

II,

But plaintiffs overlook the

plaintiffs

7

Jock

and

defendants,

these

"absent members

of

opt-in

class]

to

the

the plaintiff class
have

not

[who have not

submitted

chosen to

themselves"

to

the

Arbitrator's authority "1n any way." Oxford Health Plans LLC v.
Sutter, 569 U.S. 564, 574 (2013)

(Alito, J., concurring); contrast

Jock I, 646 F.3d at 124 (holding that the Arbitrator had authority
to

decide

"the

issue

of

whether

the

agreement

permitted

class

arbitration" because it "was squarely presented to the arbitrator"
by the parties).

Although absent

class members may have

signed

contracts with arbitration clauses "materially identical to those
signed

by

the

pla1nt1ff

who

brought"

suit,

an

"arbitrator's

erroneous interpretation of contracts that do not authorize class
arbitration

cannot

bind

someone

who

has

arbitrator to make that determination."
Moreover,
absent

class

were
members

the

Court

with

an

not

authorized

the

Id.

to permit

the Arbitrator

to bind

erroneous

reading

RESOLVE

of

the

agreement, then her improper assertion of authority would open the
door

to

because,

collateral

lawsuits

by

absent

class

members.

That

is

given that the Arbitrator was wrong as a matter of law

about whether the RESOLVE agreement permits opt-out classes, it is
hard to see how courts could bind individuals who do not opt out,
but who have not otherwise opted in, to her decisions. After all,
arbitrators are not Judges. Nowhere in the Federal Arbitration Act
does Congress confer upon these private citizens the power to bind
i ndi vi duals

and

b'Jsinesses

except

8

in

so

far

as

the

re 1 evant

individuals
Options

of

and

businesses

Chicago,

Inc.

have

v.

bound

Kaplan,

themselves.

514

U.S.

938,

See
943

First
(1995)

(arbitration is "simply a matter of contract between the parties");
Volt

Information Sciences,

Stanford Junior Univ.,

Inc.

489 U.S.

v.
468,

a matter of consent,

not coercion")

to

authority,

arbitrators

such

as

Board of
479

Trustees of Leland

(1989)

(arbitration "is

Nor could Congress delegate
Article

III

of

the

federal

Constitution entrusts the judicial power to the Judicial branch.3
Therefore

the Court

finds

that

the Arbitrator here had no

authority to decide whether the RESOLVE agreement permitted class
action procedures for anyone other than the named parties who chose
to present her with that question and those other individuals who
chose to opt in to the proceeding before her.
561 U.S.

at 299; see also Porzig v.

Dresdner,

See Granite Rock,
Kleinwort,

Benson,

N. Am. LLC, 497 F.3d 133, 140-41 (2d Cir. 2007).
As the arbitrator exceeded her powers,
at

140

see Porzig,

497 F.3d

(an arbitrator exceeds her powers when she "goes beyond

3

Moreover, as Justices Alito and Thomas suggested in their
concurring opinion in Oxford Health, the "distribution of opt-out
notices does not cure this
fundamental
flaw in the class
arbitration proceeding," because an "offeree's silence does not
normally modify the terms of a contract." 569 U.S. at 574 (citing
Restatement (Second) of Contracts § 69 (1) (1979)). "Accordingly,
at least where absent class members have not been required to opt
in, it is difficult to see how an arbitrator's decision to conduct
class proceedings could bind absent class members who have not
authorized the arbitrator to decide on a classwide basis which
arbitration procedures are to be used." Id. at 574-75.
9

[the]

self-limiting agreement between consenting parties"),

the

Court grants Sterling's motion to vacate the February 2, 2015 Award
in so far as that Award certifies a class that includes individuals
who have not affirmatively opted in to the arbitral proceedings.
The Clerk is directed to close docket entry number 162.

SO ORDERED.

J~~9tts.D. J.

Dated: New York, NY
January
2018

LJ..,

10