Weiss v. Sallie Mae, Inc.

18-2362
Weiss v. Sallie Mae, Inc.
In the
United States Court of Appeals
for the
Second Circuit
August Term, 2018
Argued: May 16, 2019
Decided: September 12, 2019
Docket No. 18‐2362
ROBIN WEISS,
Plaintiff‐Appellant,
ANDREW SCHAUS,
Plaintiff,
v.
SALLIE MAE, INCORPORATED,
Defendant‐Appellee.
Appeal from the United States District Court
for the Western District of New York (Vilardo, J.)
No. 13‐cv‐689
Before:
WALKER, CABRANES, HALL, Circuit Judges.
Appeal from the July 13, 2018 decision and order of the United States District
Court for the Western District of New York (Vilardo, J.) granting Defendant‐
Appellee’s motion to vacate an arbitration award based on the arbitrator’s failure
to apply a general release provision in a settlement agreement that barred all of
Plaintiff‐Appellant’s claims. We agree with the district court that the arbitrator
ignored the unambiguous terms of the general release and therefore conclude that
the award of statutory damages for a subset of Plaintiff’s claims is irreconcilable
with the arbitrator’s determination that Plaintiff was a member of the settlement
class and that she received adequate notice of its terms. The arbitrator’s failure
to provide an explanation for these mutually exclusive determinations renders this
Court unable to ascertain whether the arbitrator adhered to applicable substantive
law as required by the parties’ arbitration agreement and, consequently, whether
the arbitral award was issued in manifest disregard of the law, as the district court
held. We therefore vacate the decision and order of the district court and remand
the case to provide an opportunity for the district court to require the arbitrator to
clarify whether he intended to deem the class notice sufficient and, if determined
to be sufficient, to construe the general release in the first instance and vacate or
modify the award as necessary.
VACATED AND REMANDED.
KENNETH R. HILLER, (Seth J. Andrews, on the
brief), Law Offices of Kenneth Hiller, PLLC,
Amherst, NY, for Plaintiff‐Appellant.
CHRISTOPHER R. RAMOS, (Lisa M. Simonetti,
on the brief), Vedder Price (CA), LLP, Los
Angeles, CA, for Defendant‐Appellee.
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HALL, Circuit Judge:
Plaintiff‐Appellant Robin Weiss appeals from a decision and order entered
in the United States District Court for the Western District of New York (Vilardo,
J.) vacating an arbitration award on the grounds that it was issued in manifest
disregard of the law. The arbitral award granted Weiss $108,500 in statutory
damages under the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C.
§§ 227 et seq. The arbitrator, however, determined simultaneously that Weiss was
a class member in a class action against Defendant‐Appellee Sallie Mae, Inc. that
had been resolved by a settlement agreement containing a general release barring
class members from bringing TCPA claims against Sallie Mae and its successors.
We agree with the district court’s conclusion that the arbitrator ignored the
unambiguous general release provision in that settlement agreement. The
arbitral award is therefore in tension with the arbitrator’s finding that Weiss was
a member of the settlement class and that she received adequate notice of its terms.
Because the arbitrator neglected to explain these mutually exclusive
determinations, we are unable to identify whether the arbitrator abided by
applicable substantive law as mandated by the parties’ arbitration agreement and,
consequently, whether the arbitral award was issued in manifest disregard of the
3
law, as the district court held. For the reasons that follow, we remand the case to
the district court with instructions to require the arbitrator to clarify whether he
intended to deem the class notice sufficient and, if determined to be sufficient, to
construe the general release in the first instance and vacate or modify the award
as necessary.
BACKGROUND
In 2008 Weiss incurred student loan debt with Sallie Mae (now Navient
Solutions, LLC, or “NSL”), on which she subsequently defaulted. Starting
sometime around September 2011, Sallie Mae began calling Weiss’s cell phone as
often as seven or eight times per day in an effort to collect on its debt. In 2013
Weiss brought this action against Sallie Mae under the TCPA for Sallie Mae’s
unlawful use of an automated telephone dialing system (“ATDS”).1 The parties
stipulated to arbitration pursuant to an arbitration agreement in Weiss’s student
loan promissory note, thus staying the litigation. An arbitration hearing was
conducted on April 27, 2016.
1Weiss’s husband, Andrew Schaus, was also named as a plaintiff but was dismissed as a
party early in the proceedings.
4
In early June, the arbitrator issued a decision in which he explained that
Weiss provided her cell phone number ending in 8683 (“the 8683 number”) to NSL
or its predecessor in connection with her student loan agreement and consented
to the receipt of calls from an ATDS, which she subsequently received through
September 2010. Weiss did not make any claim with respect to those calls but
asserted that she obtained a new cell phone number ending in 6452 (“the 6452
number”) in May or June 2010 which she did not provide to NSL or Sallie Mae.
The parties stipulated that Weiss received 774 ATDS calls from NSL at the 6452
number between September 16, 2011, and July 1, 2013.
The arbitrator also found that Weiss was a member of the settlement class
in the case of Mark A. Arthur et al. v. Sallie Mae, Inc. in the United States District
Court for the Western District of Washington (“the Arthur Settlement”). The
Arthur Settlement included, as a class member, “any person who received ATDS
calls from Navient’s predecessor, Sallie Mae, between October 27, 2005 and
September 14, 2010.” App. 58. Weiss conceded that the calls she received at the
8683 number placed her within the settlement class but claimed that the settlement
did not apply to the calls she received at the 6452 number. Finding this
contention “unpersuasive,” the arbitrator ruled that Weiss was a class member
5
and that “the proof was conclusive that Navient provided Ms. Weiss with the
required notice of the settlement and of her rights and obligations under the terms
of the settlement.” App. 58–59. That notice offered class members the
opportunity to file a “consent revocation” document by September 15, 2012; absent
such a filing, “the ATDS calls would not stop and the borrower’s prior consent to
give them [sic] would be deemed to have been given.” App. 57. Though Weiss
maintained that she was unaware of the Arthur Settlement, NSL’s witness testified
that legal notice of the settlement was emailed and successfully delivered to
Weiss’s email address.
The Arthur Settlement agreement contained a general release provision
under which class members were “deemed to have fully released and forever
discharged Sallie Mae” and NSL from any and all claims and causes of action, inter
alia, “that arise out of or are related in any way to the use of an ‘automatic
telephone dialing system’ . . . used by any of the Released Parties in connection
with efforts to contact or attempt to contact Settlement Class Members including,
but not limited to, claims under or for violations of the [TCPA].” App. 120–21.
Thus, under the plain terms of the settlement to which the arbitrator found Weiss
was bound, Weiss was deemed to have waived “any and all” TCPA claims
6
effective the date of final judgment in the Arthur Settlement action. The
arbitrator, however, did not even acknowledge this release provision.
Instead, the arbitrator interpreted Weiss’s failure to submit a consent
revocation pursuant to the Arthur class notice as precluding recovery for any calls
placed to the 6452 number after the September 15, 2012 deadline but also as
permitting recovery for ATDS calls placed to the 6452 number between September
6, 2011, and September 16, 2012.2 The arbitrator then awarded Weiss statutory
damages totaling $108,500—that is, $500 for each of the 217 ATDS calls placed
during that time period.
NSL moved to vacate the arbitration award and Weiss cross‐moved to
affirm. Following oral argument, the district court issued a written decision and
order holding that by neglecting to “apply—or even address—an explicit,
unambiguous term of the settlement agreement,” which “clearly and
unambiguously bars recovery for claims until and including the date of the
agreement,” the arbitrator manifestly disregarded the law. App. 168–69. The
district court vacated the arbitration award. This appeal followed.
2As written, the arbitration award both precludes Weiss from recovering and permits
Weiss to recover for calls placed on September 16.
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DISCUSSION
I. Standard of Review
The Federal Arbitration Act (“FAA”) provides four bases upon which a
federal district court may vacate an arbitration award. One of these grounds
permits vacatur “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(a)(4). 3 The Supreme Court has
interpreted section 10(a)(4) as requiring that “an arbitral decision even arguably
construing or applying the contract must stand, regardless of a court’s view of its
(de)merits.” Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 (2013) (internal
quotation marks omitted).
In addition, this Court has “held that the court may set aside an arbitration
award if it was rendered in manifest disregard of the law.” Schwartz v. Merrill
Lynch & Co., 665 F.3d 444, 451 (2d Cir. 2011) (internal quotation marks omitted).
3 The other statutory bases permit 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; [and] (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.” 9 U.S.C. §
10(a)(1)‐(3).
8
This inquiry encompasses situations “where the arbitrator’s award is in manifest
disregard of the terms of the [parties’ relevant] agreement.” Id. at 452 (quoting
Yusuf Ahmed Alghanim & Sons v. Toys ʺRʺ Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997)).
Here, the district court characterized the “manifest disregard” standard as “a fifth
reason why an arbitration award may be vacated.” App. 162. In light of recent
Supreme Court precedent, it is somewhat unclear whether the “manifest
disregard” paradigm constitutes an independent framework for judicial review,
as the district court thought, or a “judicial gloss” on the FAA’s enumerated
grounds in section 10(a). See Schwartz, 666 F.3d at 451–52 (citing, inter alia, Hall
Street Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 585 (2008)). But because this Court
has “concluded that manifest disregard remains a valid ground for vacating
arbitration awards” whether applied as judicial gloss or as an independent basis,
see id. at 452 (internal quotation marks omitted), we need not resolve this
epistemological debate.
We review de novo the district court’s application of the manifest disregard
standard. T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339 (2d
Cir. 2010). “A litigant seeking to vacate an arbitration award based on alleged
manifest disregard of the law bears a heavy burden, as awards are vacated on
9
grounds of manifest disregard only in those exceedingly rare instances where
some egregious impropriety on the part of the arbitrator is apparent.” Id.
(internal citations, quotation marks, and alterations omitted). We will uphold an
arbitration award under this standard so long as “the arbitrator has provided even
a barely colorable justification for his or her interpretation of the contract.”
Schwartz, 665 F.3d at 452 (quoting Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d
200, 222 (2d Cir. 2002)). Vacatur is only warranted, by contrast, “when an
arbitrator strays from interpretation and application of the agreement and
effectively dispenses his own brand of industrial justice.” Stolt‐Nielsen S.A. v.
AnimalFeeds Int’l Corp., 559 U.S. 662, 671 (2010) (internal quotation marks and
alterations omitted).
II. Remand to the Arbitrator is Appropriate
As already noted, the arbitrator construed the Arthur class notice as
establishing Weiss’s consent to receive future ATDS calls, but he determined that
such consent could not be applied retroactively to bar her recovery for calls placed
prior to the revocation deadline. Weiss advances two arguments in support of
that decision. Because the arbitrator’s award was ostensibly based on an
interpretation of the class notice, Weiss asserts that even the arbitrator’s
10
misinterpretation of what amounts to a contractual provision does not provide
sufficient grounds for vacatur under the FAA. She also attempts a collateral
attack on the sufficiency of the Arthur class notice, arguing that it does not satisfy
due process and, accordingly, that she cannot be bound by the Arthur Settlement’s
terms.
As an initial matter, Weiss is correct that “interpretation of the contract
terms is within the province of the arbitrator and will not be overruled simply
because we disagree with that interpretation.” Schwartz, 665 F.3d at 452 (internal
quotation marks and alterations omitted); cf. Oxford Health Plans, 569 U.S. at 569
(explaining that the Court’s inquiry under Section 10(a)(4) of the FAA is confined
to the narrow question of “whether the arbitrator (even arguably) interpreted the
parties’ contract, not whether he got its meaning right or wrong”). Yet the district
court concluded that “this is not a case where the arbitrator’s interpretation of the
contract was simply incorrect” as “the arbitrator’s decision here ignored and
contradicted an unambiguous term of the agreement”—namely, the general
release embodied in the Arthur Settlement. App. 170. In other words, even if
the arbitrator believed that the class notice entitled Weiss to recover for ATDS calls
made prior to the consent revocation deadline, it is impossible to square that
11
conclusion with the general release provision barring Weiss’s recovery for “any
and all” TCPA claims. App. 121. This is especially true given that the parties
agreed in their arbitration agreement that “[t]he arbitrator shall follow applicable
substantive law to the extent consistent with the FAA.” App. 32. Because the
arbitrator did not even mention the release in his decision, we are unable to
ascertain from the record whether the arbitrator in fact based his decision on the
four corners of the Arthur Settlement agreement and its accompanying class notice,
as Weiss appears to contend, or whether he instead discarded the agreement in
favor of his own policy preferences. See Stolt‐Nielsen, 559 U.S. at 671–72.
Regarding Weiss’s attack on the sufficiency of the class notice, as previously
noted, the arbitrator expressly found that despite some of the “confusing” terms
of the Arthur Settlement agreement, “the proof was conclusive” that Weiss
received “the required notice of the settlement and of her rights and obligations
under the terms of the settlement.” App. 59. Nonetheless, he appeared to base
his award on the fact that the class notice only apprised Weiss of her consent to
receive a subset of ATDS calls—those placed prospectively. If in fact the
arbitrator were of the view that the class notice did not satisfy due process, as
Weiss contends, then the arbitrator, in following applicable substantive law,
12
would seemingly be obliged to hold that Weiss could not be bound by any of the
Arthur Settlement agreement’s terms. See, e.g., Wolfert ex rel. Estate of Wolfert v.
Transamerica Home First, Inc., 439 F.3d 165, 170 (2d Cir. 2006) (explaining that
whether a class action judgment may be afforded preclusive effect against an
absent class member depends, inter alia, on whether the absent class member
received notice that comports with constitutional due process). This is an all‐or‐
nothing inquiry. Instead, the arbitrator’s finding that the class notice “does not
state that the recipient (i.e., Weiss) will be deemed to have given prior express
consent to the making of calls by Sallie Mae,” App. 62, appears to rest on a parsing
of the applicable law grounded neither in a constitutional due process analysis nor
in a faithful exercise in contract interpretation.
Our concern is reinforced by the fact that the arbitrator’s analyses regarding
Weiss’s failure to consent to the ATDS calls at issue—either expressly or through
the implied consent that attached to the Arthur Settlement terms—appear in
separate sections of the arbitrator’s opinion that address the merits of NSL’s
defense to Weiss’s TCPA claims. The question of whether Weiss was on notice
of the Arthur Settlement’s terms, by contrast, is addressed up front as the first of
the “issues considered” by the arbitrator. App. 58. Once the arbitrator made
13
the determination that “Weiss was adequately advised of the terms of the
settlement and of the requirement that she revoke any consent given to [NSL] to
place ATDS calls to cell 6452,” App. 59, that conclusion would seem to obviate not
only the arbitrator’s subsequent analysis concerning whether NSL had met its
burden of proving Weiss’s consent but also any further determination as to the
effect of the class notice. In other words, if the arbitrator intended to deem the
class notice insufficient, he did not say so in his threshold analysis regarding the
settlement’s applicability and strongly implied the opposite.
In light of the incoherence of the arbitrator’s decision, we hereby VACATE
the district court’s order and REMAND the case to the district court to remand to
the arbitrator with instructions to clarify whether the class notice was or was not
sufficient and, if determined to be sufficient, then to construe the general release
provision in the first instance and to vacate or modify the arbitral award if
necessary. See Hardy v. Walsh Manning Sec., L.L.C., 341 F.3d 126, 134 (2d Cir. 2003)
(acknowledging this Court’s “authority to seek a clarification of whether an
arbitration panel’s intent in making an award evidences a manifest disregard of
the law” (internal quotation marks and alterations omitted)). The arbitrator shall
be instructed either to interpret and apply the terms of the Arthur Settlement
14
agreement’s general release provision or to explain why that provision does not
bar Weiss’s claims. Further, the district court shall thereafter hear and rule on
any subsequent objections to the arbitrator’s decision, which objections may be
advanced by appropriate motion of either party. Any appeal from the district
court’s decision thereon may be advanced by letter notice to the Clerk of this Court
without necessity of filing a new notice of appeal, and that appeal shall be assigned
to this panel.
CONCLUSION
We VACATE the district court’s July 13, 2018 decision and order vacating
the arbitral award and REMAND the case to the district court to remand to the
arbitrator with instructions to clarify whether the Arthur class notice was
sufficient, to construe the general release in the Arthur Settlement in the first
instance and, if necessary, to vacate or modify the arbitral award.
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