Sixth Circuit Reviews Classwide Arbitration

In Reed Elsevier, Inc. v. Crockett, Case No. 12-3574, the United States Court of Appeals for the Sixth Circuit struck yet another blow to consumers whose contracts of adhesion force arbitration of any disputes.  Prior to Crockett, in some cases, arbitrators were permitted to determine the appropriateness of classwide arbitration, which allowed consolidated proceedings and relief, even in instances where, under Stolt-Nielson S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), a court might be constrained to find such proceedings precluded.  Crockett holds that arbitrators cannot determine classwide arbitrability.

Crockett owned a law firm and contracted with the legal search engine LexisNexis for unlimited access to certain databases for a flat, monthly fee.   Access to additional databases was available for a fee, and the user was supposed to be notified that he or she was about to access such a database (and thus incur the extra fee) with a warning sign.  Crockett asserted that his firm was charged additional database fees for years, when no such warning signs were provided.

Crockett filed an arbitration demand with the American Arbitration Association, as required by his firm’s contract with LexisNexis, asserting claims for fraud, negligent misrepresentation, breach of contract, negligence, gross negligence, unjust enrichment and violations of the New York Consumer Fraud Act.  He asserted these claims on behalf of two classes.  Class 1 consisted of law firms that were charged additional fees by LexisNexis and Class 2 consisted of the clients onto whom these charges were passed.   LexisNexis filed an action in the Southern District of Ohio seeking a declaration that the contract barred classwide arbitration.  The district court entered summary judgment in LexisNexis’s favor, declaring that classwide arbitration was not permissible.

Crockett first argued that the arbitrator, and not a court, should determine the availability of classwide arbitration.  The Sixth Circuit discussed, at some length, whether the availability of classwide arbitration is a “gateway issue,” to be determined by courts, absent a clear and unmistakable intent reserving such decisions to the arbitrator, or a “subsidiary issue,” to be determined by the arbitrator.  With regard to gateway issues, courts should retain jurisdiction in the face of silence or ambiguity.  With regard to subsidiary issues, the presumption is reversed—if the provision is silent or ambiguous, the issue should be sent to the arbitrator for determination.

The Court of Appeals noted that the Supreme Court has expressly stated that it has not decided the question of whether the availability of classwide arbitration is a gateway or subsidiary issue.  See Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064,2068 n.2 (2013).  The Sixth Circuit then concluded that classwide arbitration is a gateway issue, relying on Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003), Stolt-Nielson S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) and AT&T Mobility LLC v Concepcion, 131 S. Ct. 1740, 1750 (2011).  The appellate court held that classwide arbitrability is “fundamental to the manner in which the parties will resolve their dispute” and not just a “detail[].”  Because in this case, the arbitration provision was silent on the issue of classwide arbitration, the Sixth Circuit held that no such arbitration could proceed.

Finally, and perhaps most illustrative of the current dire state of affairs for consumers hoping to vindicate their rights is the Court’s comments with respect to Crockett’s argument that precluding classwide arbitration would be unconscionable.  The Court stated:

Crockett’s remaining argument is that, if read not to permit classwide arbitration, the arbitration clause is unconscionable. The clause is indeed as one-sided as Crockett says: the clause favors LexisNexis at every turn, and as a practical matter makes it economically unfeasible for Crockett or any other customer to assert the individual claims that Crockett seeks to assert here. The clause provides that any arbitration of any dispute concerning LexisNexis’ s charges must occur in Dayton, Ohio, where LexisNexis is headquartered. The customer must pay his own legal fees, even if the arbitrator concludes that LexisNexis’ s charges were improper. And unlike many corporations that require arbitration of disputes with their customers, LexisNexis makes its customer split the tab for the arbitrator’s fee.

The idea that the arbitration agreement in this case reflects the intent of anyone but LexisNexis is the purest legal fiction.

(Emphasis supplied.)  Despite these observations, the Court was constrained by American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013) to enforce the arbitration agreement and foreclose any avenue for meaningful relief for Crockett and all those similarly situated.