Circuit Courts of Appeal Disagree on Class Arbitration

On May 18, 2012, the U.S. Court of Appeals (5th Cir.) inĀ Reed v. Florida Metropolitan University Incorporated concluded that an arbitrator had exceeded his authority by ordering the parties into class arbitration without a sufficient contractual basis that established that the parties had agreed to class arbitration. While the Court noted that arbitrators’ awards are treated deferentially and that courts will not vacate an award because of a mere mistake of fact or law, arbitration awards must be set aside under s. 10(a)(4) of the Federal Arbitration Act if the arbitrator exceeded his powers. In this case, the Court of Appeals determined that the arbitrator had exceeded his powers because there was no contractual basis to support a finding that the parties had agreed to class arbitration. The Court of Appeals disagreed with the Second Circuit Court of Appeals’ 2011 decision in Jock v. Sterling Jewelers Inc. which held that the district erred in vacating an arbitration award which ordered class arbitration because the district court substituted its own judgment for that of the arbitrator on the issue of whether the record demonstrated an implicit agreement by the parties to class arbitration.