Arbitration / Court Decisions

An association of franchisees, Fantastic Sams Regional Owners Association (“FSRO”) made a demand for arbitration on behalf of its members against Fantastic Sams Franchise Corporation (“FSFC”). FSRO’s members have individual license agreements with FSFC and alleged breach of contract and related violations of the Massachusetts Consumer Protection Act. FSFC moved to stay arbitration and to compel that each member arbitrate its claims individually. The district court granted FSFC’s motion with respect to most of the agreements, which provided that “arbitration be of a licensee’s individual claim only,” but denied it as to ten other agreements that provided in broad terms that all disputes must be resolved by arbitration under AAA rules, but did not specifically preclude collective arbitration.

FSFC argued that collective arbitration of the remaining claims was foreclosed by the Supreme Court’s decision in Stolt-Nielsen, which FSFC contended holds that no class or collective arbitration can proceed unless “expressly authorized” by an arbitration agreement. The First Circuit held that FSFC was reading Stolt-Nielsen too broadly. According to the First Circuit, although the Supreme Court held that class arbitration may not be imposed “unless there is a contractual basis for concluding that the party agreed to” it, the Supreme Court had not decided what might constitute a contractual basis for class arbitration. The First Circuit rejected FSFC’s argument that Stolt-Nielsen requires “express contractual language evincing the parties’ intent to permit class or collective arbitration,” citing in support the Third Circuit’s decision in Sutter v. Oxford Health Plans LLC and the Second Circuit’s decision in Jock v. Sterling Jewelers, Inc. The court further distinguished Stolt-Nielsen on the basis that FSRO sought to arbitrate claims collectively on behalf of the individual members of its association, rather than to commence a class action arbitration. According to the First Circuit, the concerns regarding class action arbitrations raised by the Supreme Court in Stolt-Nielsen were thus inapplicable. The arbitrators will decide whether collective arbitration will be permitted with respect to the agreements that provide that all disputes will be arbitrated but do not specifically require arbitration on an individual basis. Fantastic Sams Franchise Corp. v. FSRO Ass’n Ltd., No. 11-2300 (1st Cir. Jun. 27, 2012).

This post written by Ben Seessel.

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On June 25, 2012, we reported on Iskanian v. CLS Transportation Los Angeles, LLC, where a California appellate court, following the U.S. Supreme Court’s Concepcion decision, affirmed the enforcement of an arbitration clause waiving class claims, subsequent to the court’s pre-Concepcion suggestion that the waiver was unenforceable based on state precedent. In Samaniego v. Empire Today LLC, another California appellate court reached a different result in a similar context. There, the court found that a class action could proceed despite the existence of a class waiver arbitration clause, on the grounds that the entire agreement between the parties was unconscionable. The court construed Concepcion narrowly, noting Concepcion precluded only “defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue,” but did not preclude “generally applicable contract defenses, such as fraud, duress, or unconscionability.” Samaniego v. Empire Today LLC, Case No. A132297 (Cal. Ct. App. April 5, 2012).

This post written by Michael Wolgin.

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