A Possible Game-Changer For 'Silent' Arbitration Clauses

Law360, New York (October 23, 2014, 7:37 PM EDT) -- Companies and other business entities use arbitration clauses to protect themselves from class action liability. While they often use class action waivers that state the parties agree not to pursue class claims in arbitration, the United States Supreme Court does not require such express waivers. Recent Supreme Court decisions indicate clauses that are "silent" as to class claims also preclude class arbitration. Instead, the default result under these agreements is to bilateral (individual) arbitration, thereby protecting the company from class liability altogether. But when this battle moves out of court, and arbitrators are asked to interpret such "silent" arbitration clauses, they have at times reached the opposite conclusion and permitted class arbitration. Under the Federal Arbitration Act's restrictive judicial review of arbitration decisions, these decisions are upheld, even if they arguably reach the wrong result under Supreme Court precedent. If a lower court had reached the same result, then the appellate court could review the decision de novo, thereby making it easier for the practitioner to argue the decision is contrary to recent Supreme Court decisions. This difference in judicial review standards in turn makes the answer to "who decides" the class arbitration question extremely important. Indeed, it is a multimillion-dollar question for many companies and other business entities because so many "silent" arbitration clauses still exist today, and arbitrators too often permit class arbitration under these clauses....

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