Southern Communications Services, Inc. v. Derek Thomas ( 2013 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 11-15587
________________________
D.C. Docket No. 1:10-cv-02975-AT
SOUTHERN COMMUNICATIONS SERVICES, INC.,
d.b.a. Southernlinc Wireless,
Plaintiff - Appellant,
versus
DEREK THOMAS,
individually and on behalf of others similarly situated,
Defendant - Appellee.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(July 12, 2013)
Before TJOFLAT, CARNES, and JORDAN, Circuit Judges.
TJOFLAT, Circuit Judge:
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Southern Communications Services, Inc., (d/b/a SouthernLINC Wireless)
(“SouthernLINC”) appeals the District Court’s November 3, 2011, order denying
its motion to vacate two arbitration awards, one construing the arbitration clause so
as to allow for class litigation, the other certifying a class. We conclude that, under
the standard set forth by the Supreme Court in Oxford Health Plans LLC v. Sutter,
569 U.S. ___, 133 S. Ct. 2064, ___ L.Ed.2d ___ (2013), the arbitrator did not
“exceed[] [his] powers” under § 10(a)(4) of the Federal Arbitration Act (“FAA”), 9
U.S.C. § 1 et seq. (2006), either in construing the arbitration clause as he did or in
certifying a class.
In Part I, we lay out the facts and procedural history of the dispute between
SouthernLINC and its former wireless customer, Derek Thomas. In Part II, we
find that, in reaching the decisions he did, the arbitrator was “‘arguably construing
. . . the contract,’” Sutter, 569 U.S. at ___, 133 S. Ct. at 2068 (quoting E.
Associated Coal Corp. v. United Mine Workers of Am., Dist. 17, 531 U.S. 57, 60,
121 S. Ct. 462, 466, 148 L. Ed. 2d 354 (2000)), and that we thus “may not correct
his mistakes under § 10(a)(4),” id. at ___, 133 S. Ct. at 2070. We briefly close in
Part III.
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I.
A.
SouthernLINC is a wireless provider in the southeastern United States
headquartered in Atlanta, Georgia. A subsidiary of Southern Company, which
owns a number of major electric utility companies in the same region,
SouthernLINC was formed in the mid-1990s to run a wireless network that would
serve its parent company’s operations. The company uses excess capacity on the
network to provide commercial mobile telephone services to customers.
During the relevant period, SouthernLINC required that each customer sign
a standard contract, which included a set of Terms and Conditions. 1 One provision
therein, titled “Term/Termination,” set forth the charge that a customer would
incur in the event he or she terminated a contract early:
If you terminate this Agreement or if we terminate this Agreement for
cause prior to the end of the Initial Term, then you will pay an Early
Termination Fee(s) (ETF) of $200.00 per handset or as otherwise set
forth on the web site order page and any other charges owing under
this Agreement within 10 days of the payment due date of your billing
statement.
1
For the sake of accuracy, we make clear that not all plans offered by SouthernLINC are
subject to early termination fees. While “affiliate customers” and government entities are not
subject to such fees, “[m]edium business, small business, and consumer customers all sign
identical Terms and Conditions containing the ETF provision.” Record, no. 1-6, at 8.
3
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Record, no. 1-4, at 19–20. The contract also contained a provision on arbitration,
which, in its entirety, reads:
The parties will make good faith attempts to resolve any disputes. If
the parties cannot resolve the dispute within 60 days after the matter is
submitted to them, then, unless otherwise agreed, the parties will
submit the dispute to arbitration. The parties will request that
arbitrator(s) hold a hearing within 60 days following their designation,
and render a final and binding resolution within 30 days after the
hearing. The parties will conduct the arbitration in Atlanta, Georgia
pursuant to applicable Wireless Industry Arbitration Rules of the
American Arbitration Association.
Id. at 22–23. The arbitration provision contained no reference to class arbitration.
Derek Thomas became a customer of SouthernLINC on June 7, 2005, when
he contracted to begin his first line of service. He added a second line of service
for his wife on October 23, 2006, and a final line for his son on September 10,
2007. Thomas agreed to SouthernLINC’s terms and conditions with each added
line.
After contracting to add his third line, on February 20, 2008, Thomas
canceled his son’s line of service. He was charged an ETF, but SouthernLINC
promptly waived the charge when he protested the fee. Two days later, Thomas
canceled his wife’s line of service. Thomas paid his wife’s cancelation fee. 2 One
month later, on March 25, 2008, Thomas terminated his final line of service.
2
SouthernLINC applied an $85.96 “offset credit” to Thomas’s account at this point,
bringing Thomas’s actual payment down to $114.04.
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SouthernLINC charged a $200 ETF. When Thomas did not pay the bill, he
received a $250 bill from a collections agency. Thomas disputed the bill by
returning it, unpaid, to the agency with a note. He heard nothing further from the
agency and has not seen any impact of the unpaid bill on his credit report. Thomas
has no intention to become a SouthernLINC subscriber in the future.
B.
On July 31, 2008, Thomas filed “on behalf of himself and a nationwide class
of consumers” a demand for arbitration with the American Arbitration Association
(“AAA”). Record, no. 1-4, at 2. Among other things, he argued that
SouthernLINC’s termination fees were unlawful penalties under Georgia law, see
O.C.G.A. § 13-6-7, and unjust, unreasonable, and unlawful charges under the
Federal Communications Act, 47 U.S.C. § 201(b) (2006). He sought from the
arbitrator a declaration that the fees he paid were unlawful; an injunction on behalf
of the class (Thomas having no intention to become a SouthernLINC customer
again) to prevent SouthernLINC from engaging in deceptive, unjust, and
unreasonable practices; statutory, consequential, and incidental damages;
disgorgement of all termination fees; additional appropriate declaratory relief; and
interest.
On November 24, SouthernLINC counterclaimed for breach of contract,
seeking compensatory, incidental, and consequential damages; interest; and
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attorneys’ fees and costs. That same day, Thomas moved, pursuant to Rule 3 of
the AAA’s Supplementary Rules for Class Arbitrations, for a Clause Construction
Award to allow class action treatment. On April 2, 2009, the appointed arbitrator
issued a Partial Final Clause Construction Award. He found that the arbitration
clause at hand permitted arbitration to proceed on behalf of a class because 1)
under Georgia law, because the arbitration clause did not expressly bar class
treatment, such treatment was permitted; 2) Georgia law, as set out by this circuit
in Dale v. Comcast Corp., 498 F.3d 1216 (11th Cir. 2007), “permit[s]—and even
favor[s]—[class action] when individual class member[s’] claims are meager” so
that they might vindicate their rights; and 3) class action presents an efficient
mechanism for dispute resolution. Record, no. 1-2, at 6–8.
On November 20, 2009, Thomas moved for class certification. The
arbitrator certified the class on June 24, 2010, in a Partial Final Class
Determination Award that found that the proposed class fulfilled state and federal
requirements for class certification: 3 commonality, typicality, adequacy of class
3
The arbitrator reasoned that Supplementary Rule 4(a) of the American Arbitration
Association’s Supplementary Rules for Class Arbitrations (the “Supplementary Rules”), in
instructing that “the arbitrator shall consider the criteria enumerated in this Rule 4 and any law or
agreement of the parties the arbitrator determines applies to the arbitration,” Supplementary Rule
4(a), freed him to consider federal class action authority and Georgia class action cases, the
primary sources to which the parties turned for support.
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representative, predominance, and superiority. 4 Immediately thereafter, on July 2,
2010, SouthernLINC moved for reconsideration of the Clause Construction Award
based on the Supreme Court’s April 2010 decision in Stolt-Nielsen S.A. v.
Animalfeeds Int’l Corp., 559 U.S. 662, 130 S. Ct. 1758, 176 L. Ed. 2d 605 (2010).
Upon reconsideration of his award, the arbitrator determined that, although his first
and third grounds for finding class treatment permissible under the arbitration
clause were “improper” under Stolt-Nielsen, his second ground “satisfied the
rigorous requirements set forth in Stolt-Nielsen,” for, by relying on Eleventh
Circuit interpretation of Georgia law to reach the conclusion that Georgia law
favored class treatment where the amount in controversy was very small so that
parties might “vindicate their rights,” he “based the Clause Award on a rule of law
or rule of decision as Stolt-Nielsen requires.” Record, no. 7-4, at 6.
On September 17, 2010, SouthernLINC petitioned the District Court for the
Northern District of Georgia5 under 9 U.S.C. § 10(a)(4) to vacate the Clause
Construction and Class Determination Awards. In declining to do so, the court
cited White Springs Agric. Chems., Inc. v. Glawson Invs. Corp. for the proposition
4
The arbitrator noted that “[t]hree of the eight class certification tests—numerosity,
adequacy of counsel, and substantially similar arbitration clause—are not disputed by
[SouthernLINC].” Record, no. 1-3, at 7.
5
The District Court had jurisdiction under 28 U.S.C. § 1331 (2006) and 28 U.S.C.
§ 1332.
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that an arbitrator’s “incorrect legal conclusion is not grounds for vacating or
modifying [an] award,” 660 F.3d 1277, 1280 (11th Cir. 2011), and Frazier v.
CitiFinancial Corp., 604 F.3d 1313, 1324 (11th Cir. 2010), for the proposition that
a district court has no jurisdiction to vacate an award even in the event of an
arbitrator’s manifest disregard of the law. The court found “[t]he arbitrator in the
present case engaged in the exact analysis Stolt-Nielsen requires.” Southern
Commc’n Servs., Inc. v. Thomas, 829 F. Supp. 2d 1324, 1339 (N.D. Ga. 2011).
He “identified generally applicable contract law principles to determine whether
the parties implicitly authorized class arbitration. . . . [H]e identified legal
principles governing the situation: state law governing contract formation and
interpretation.” Id.While the present case was before us, the Supreme Court in Sutter, 569 U.S.
at ___, 133 S. Ct. at 2068, set about to resolve a circuit split by answering the
question of whether an arbitrator acts within his powers or exceeds his powers
under the FAA by determining that parties affirmatively “agreed to authorize class
arbitration,” Stolt-Nielsen, 559 U.S. at ___, 130 S. Ct. at 1776, based solely on
their use of broad contractual language precluding litigation and requiring
arbitration of any dispute arising under their contract. Because the resolution of
that question is dispositive of the present case, we stayed the case until the
Supreme Court could reach its decision.
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II.
A.
Congress enacted the Federal Arbitration Act, 9 U.S.C. § 10(a)(4), to
supplant the judiciary’s distaste for arbitration with a “national policy favoring [it]
and plac[ing] arbitration agreements on equal footing with all other contracts.”
Hall Street Assoc., LLC v. Mattel, Inc., 552 U.S. 576, 581, 128 S. Ct. 1396, 1402,
170 L. Ed. 2d 254 (2008) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546
U.S. 440, 443, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006)) (changes in original).
As such, the statute instructs that a district court “must grant such an order
[confirming an award] unless the award is vacated, modified, or corrected as
prescribed in sections 10 and 11 of this title.” 9 U.S.C. § 9 (emphasis added).
Sections 10 and 11 proceed to lay out the exceedingly narrow grounds upon which
an award can be vacated, modified, or corrected. Section 11, irrelevant to our
present purposes, allows for modification or correction in the event of such things
as miscalculation of figures and mistakes as to description. Section 10(a), upon
which we focus, provides four grounds for vacatur:
(1) where the award was procured by corruption, fraud, or undue
means;
(2) where there was evident partiality or corruption in the arbitrators,
or either of them;
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(3) where the arbitrators were guilty of misconduct in refusing to
postpone the hearing, upon sufficient cause shown, or in refusing to
hear evidence pertinent and material to the controversy; or of any
other misbehavior by which the rights of any party have been
prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the
subject matter submitted was not made.
9 U.S. C. § 10. These sections together give “substan[ce to] a national policy
favoring arbitration with just the limited review needed to maintain arbitration’s
essential virtue of resolving disputes straightaway.” Hall Street, 552 U.S. at 588,
128 S. Ct. at 1405.
The Supreme Court in Hall Street held that “§§ 10 and 11 respectively
provide the FAA’s exclusive grounds for expedited vacatur and modification.” Id.
at 584, 128 S. Ct. at 1403. In light of the Court’s decision in Hall Street, we held
that the “judicially-created bases for vacatur” that we had formerly recognized,
such as where an arbitrator behaves in manifest disregard of the law, “are no longer
valid.” Frazier, 604 F.3d at1324. Nor is an “incorrect legal conclusion . . . grounds
for vacating or modifying an award.” White Springs, 660 F.3d at 1280.
The Supreme Court reaffirmed the national policy favoring arbitration in
relation to class arbitration in Sutter, 569 U.S. at ___, 133 S. Ct. at 2071. In Sutter,
a pediatrician, John Sutter, filed suit against Oxford Health Plans, a health
insurance company, on behalf of himself and a proposed class of other physicians
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under contract with Oxford. Oxford moved to compel arbitration, and the parties
agreed that the arbitrator should decide whether their contract authorized class
arbitration. Upon consideration of the arbitration clause, the arbitrator decided that
the contract, though silent as to the specific possibility of class arbitration, “on its
face . . . expresse[d] the parties’ intent that class arbitration can be maintained.”
Id. at ___, 133 S. Ct. at 2067. Oxford twice moved to vacate the arbitrator’s
finding, once before and once after the Supreme Court’s decision in Stolt-Nielsen.
In Stolt-Nielsen, the Court had found that an arbitrator exceeded his authority
under § 10(a)(4) where, faced with a contract silent as to class arbitration and a
stipulation between the parties that “they had reached ‘no agreement’ on th[e]
issue,” 559 U.S. at ___, 130 S. Ct. at 1775, the arbitrator reached a decision
without “identifying and applying a rule of decision derived from the FAA” or
applicable federal or state law, id. at ___, 130 S. Ct. at 1770.
In Sutter, the Supreme Court rejected Oxford’s effort to find support in
Stolt-Nielsen. The Court noted that the “unusual stipulation that [the parties] had
never reached an agreement on class arbitration” in Stolt-Nielsen meant
necessarily that “the arbitral decision there . . . lacked any contractual basis for
ordering class procedures,” Sutter, 569 U.S. at ___, 133 S. Ct. at 2069; “[s]o in
setting aside the arbitrators’ decision, we found not that they had misinterpreted the
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contract, but that they had abandoned their interpretive role,” id. at ___, 133 S. Ct.
at 2070.
Because the parties in Sutter “bargained for the arbitrator’s construction of
their agreement,” the Court opined, “an arbitral decision ‘even arguably construing
or applying the contract’ must stand, regardless of a court’s view of its
(de)merits.” 6 Id. at ___, 133 S. Ct. at 2068 (quoting E. Associated Coal, 531 U.S.
at 62, 121 S. Ct. at 466). Thus, “the sole question” a court should ask under the
exacting standards of § 10(a)(4) “is whether the arbitrator (even arguably)
interpreted the parties’ contract, not whether he got its meaning right or wrong.”
Id. at ___, 133 S. Ct. at 2068.
B.
6
The Supreme Court noted in Sutter that this would not be the case
if Oxford had argued below that the availability of class arbitration is a so-called
“question of arbitrability.” Those questions—which “include certain gateway matters,
such as whether parties have a valid arbitration agreement at all or whether a concededly
binding arbitration clause applies to a certain type of controversy”—are presumptively
for courts to decide. . . . [T]his Court has not yet decided whether the availability of class
arbitration is a question of arbitrability. . . . But this case gives us no opportunity to do
so because Oxford agreed that the arbitrator should determine whether its contract with
Sutter authorized class procedures.
Oxford Health Plans LLC v. Sutter, 569 U.S. ___, 133 S. Ct. 2064, 2069 n.2 (2013) (citations
omitted). Like the Supreme Court, we also have not decided whether the availability of class
arbitration is a question of arbitrability. However, as in Sutter, this case does not give us the
opportunity to consider the question, because here SouthernLINC gave the question of whether
the contract allowed for class arbitration to the arbitrator through its choice of rules and by
failing to “dispute th[e] [a]rbitrator’s jurisdiction to decide this threshold issue.” Record, no. 1-2,
at 3.
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Despite the extraordinary deference with which arbitral decisions are treated
under § 10(a)(4), SouthernLINC nonetheless argues that the arbitrator in the case at
hand “exceeded his authority” under that statute in issuing the Partial Final Clause
Construction Award. It attempts to distinguish the facts of Sutter from those
before us, arguing that, because there was an “absence of any textual indication of
agreement to class arbitration,” Appellant Letter Br. at 6, the standards laid out in
Stolt-Nielsen rather than Sutter apply. We think that SoutherLINC misinterprets
the relationship between the two cases. Sutter instructs us that, under § 10(a)(4), if
“the arbitrator (even arguably) interpreted the parties’ contract,” a court must end
its inquiry and deny a § 10(a) motion for vacatur. Sutter, 569 U.S. at ___, 133
S. Ct. at 2068. It is only in the rare instance where a court finds that a contract
“lack[s] any contractual basis for ordering class procedures,” id. at ___, 133 S. Ct.
at 2069, that it must proceed to the analysis directed by Stolt-Nielsen and ask
whether the arbitrator “identif[ied] and appl[ied] a rule of decision derived from
the FAA” or other applicable body of law or, alternatively, merely “imposed its
own policy choice and thus exceeded its powers,” Stolt-Nielsen, 559 U.S. at ___,
130 S. Ct. at 1770.
Here, however, the briefest glance at the Partial Final Clause Construction
Award reveals that the arbitrator in this case arguably “interpreted the parties’
contract.” Sutter, 569 U.S. at ___, 133 S. Ct. at 2068. The arbitrator began his
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award by recounting the text of the contract’s arbitration clause. He acknowledged
that the contract is “silent with respect to class actions” and went on to examine the
text of AAA Supplementary Rule 3, which was incorporated by reference into the
contract by the parties’ choice, stated in the arbitration clause, to “conduct the
arbitration . . . pursuant to applicable Wireless Industry Arbitration Rules of the
American Arbitration Association.” Record, no. 1-2, at 3. After parsing the
language of that rule, the arbitrator went on to consider the meaning of the words
“any disputes” in the clause itself. Id. at 5. He then, in a section headed
“Application of Georgia Contract Construction Law,” interpreted the meaning of
silence as to class arbitration within the clause and determined that “it is fair to
conclude that the intent [of the clause] was not to bar class arbitration.” Id. at 6.
Engaging as he did with the contract’s language and the parties’ intent, the
arbitrator did not “stray[] from his delegated task of interpreting a contract,” Sutter,
569 U.S. at ___, 133 S. Ct. at 2070, for he was “‘arguably construing’ the
contract,” id. (quoting E. Associated Coal, 531 U.S. at 62, 121 S. Ct. at 466). It is
not for us to opine on whether or not that task was done badly, for “‘[i]t is the
arbitrator’s construction [of the contract] which was bargained for. . . .’ The
arbitrator’s construction holds, however good, bad, or ugly.” Id. at ___, 133 S. Ct.
at 2070–71 (quoting United Steelworkers v. Enterprise Wheel & Car Corp., 363
U.S. 593, 599, 80 S. Ct. 1358, 1362, 4 L. Ed. 2d 1424 (1960)).
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C.
In addition to arguing that the arbitrator exceeded his authority in issuing the
Partial Final Clause Construction Award, SouthernLINC further argues that he
exceeded his authority in issuing the Partial Final Class Determination Award by
“not simply err[ing] in applying the applicable law [but in] affirmatively refus[ing]
to apply that law.” Appellant’s Br. at 19. SouthernLINC finds that the arbitrator
“refus[ed] to apply [applicable] law” because he did not recognize that
SouthernLINC’s “voluntary payment defense, which necessarily requires a
claimant-by-claimant factual analysis, makes it impossible for the putative class to
satisfy the commonality, typicality and predominance requirements” of class
certification. Id. at 20. SouthernLINC submits that, because the arbitrator realized
that the defense would prevent the elements of class certification from being met,
he “invented a new and different rule” by “decid[ing] that what he termed ‘the
overriding common legal question’ of whether the ETF is a valid liquidated
damages clause or a penalty was the real issue.” Id. at 22.
We agree with the District Court that SouthernLINC’s argument, at its core,
is simply that the arbitrator applied the agreed-upon class certification standard
erroneously. “SouthernLINC utterly fails to show how the arbitrator exceeded his
power, all the while enumerating his legal errors.” Southern Comm. Servs., Inc.,
829 F. Supp. 2d at 1342. Given that, in our circuit, we recognize neither an
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“incorrect legal conclusion,” White Springs, 660 F.3d at 1280, nor a “manifest
disregard of the law,” Frazier, 604 F.3d at 1323, as grounds for vacating or
modifying an award, we are left, under § 10(a)(4), with a single question: did the
arbitrator “exceed [his] powers, or so imperfectly execute[] them that a mutual,
final, and definite award upon the subject matter submitted was not made”? 9
U.S.C. § 10(a)(4). The answer to that question is no.
III.
Under the highly deferential standard of § 10(a)(4), the arbitrator did not
exceed his authority in his issuance either of the clause construction award or of
the class determination award.
For the forgoing reasons, the opinion of the District Court is
AFFIRMED.
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