Court Adheres To Earlier Ruling that Arbitration Clause Is Unenforceable

Court Adheres To Earlier Ruling that Arbitration Clause Is Unenforceable

 Because It Interfered With Federal Right, Despite Supreme Court Ruling in Conception

By Louis M. Solomon


H. Cristina Chen-Oster, et al. v. Goldman, Sachs & Co., et al., 10 Civ. 6950 (S.D.N.Y. July 2011) (Francis, M.J.) [enhanced version available to subscribers], denies reconsideration of an earlier decision by that Court denying a motion to compel arbitration.  The earlier decision followed the Supreme Court's decision in Stolt-Neilsen S.A. v. AminalFeeds International Corp., 130 S.Ct. 1758 (2010) [enhanced version  / unenhanced version available from lexisONE Free Case Law], finding that the silence of an arbitration clause with respect to class arbitration rendered class arbitration unavailable.  The prior decision also followed the Second Circuit's decision in In re American Express, 634 F.3d 187 (2d Cir. 2011) [enhanced version  / unenhanced version ] (which we posted on), that "the federal common law of arbitrability precludes enforcement of an arbitration clause when doing so would interfere with a substantive federal statutory right" - in this case that right being the right to sue for an alleged "pattern and practice" of discrimination by an employer. 

Enter the U.S. Supreme Court's decision in AT&T Mobility LLC v. Concepcion, et al., No. 09-893 (U.S. 4/27/11) [enhanced version  / unenhanced version ], where the High Court's again struggled with freedom of contract principles, this time in the context of state law of unconscionability as applied to the arbitration of class actions.  The Supreme Court held that a state law rendering unenforceable a contract barring class arbitration was itself preempted. 

This decision prompted Goldman Sachs to seek reconsideration, claiming that Conception is "fundamentally incompatible" with the Court's ruling here.  The Magistrate Judge rejected the argument, finding no grounds to grant reconsideration.  In so deciding, however, the Court addressed the merits of the issue and reaffirmed its view that Conception, dealing with preempting state laws, was distinguishable in the case before the Court, which involved a federal claim.  In this context, says the Court, "demands consideration of a separate issue:  whether the FAA's objectives are also paramount when, as here, rights created by a competing federal statute are infringed by an agreement to arbitrate".   Under current law a plaintiff may not vindicate that federal claim individually but only in a class context.  Insofar as the arbitration provision precludes class arbitration, therefore, it is precluding the plaintiff from enforcing a federal right.  This, said the Court, renders the arbitration clause unenforceable. 

On May 2, 2011, the Supreme Court granted a petition for certiorari in Compucredit Corp., et al. v. Wanda Greenwood, et al., Dkt. No. 10-948 [enhanced version  / unenhanced version ], to review "whether claims arising under the federal Credit Repair Organizations Act . . . are subject to arbitration pursuant to a valid arbitration agreement" (emphasis supplied).


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