Summary
The First Circuit affirmed the denial of a franchisor’s petition to stay arbitration and compel individual arbitration under ten regional franchise agreements. The court held that Stolt-Nielsen does not require express contractual language authorizing class or collective arbitration and does not, as a matter of law, bar the associational arbitration sought by the franchisee association. Because the agreements broadly incorporated the AAA rules and the parties disputed the meaning and intent of the arbitration provisions, the arbitrators were to decide whether the association could compel arbitration under those agreements.
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Practice areas
Questions Presented
- Whether Stolt-Nielsen S.A. v. AnimalFeeds International Corp. requires express contractual language authorizing class or collective arbitration.
- Whether the broad arbitration agreements, which did not expressly authorize or prohibit associational arbitration, necessarily barred FSRO's associational arbitration as a matter of law.
- Whether the court or the arbitrators should decide whether the agreements authorize FSRO's associational action.
Holdings
- Stolt-Nielsen does not impose a categorical requirement that an arbitration agreement contain express language authorizing class or collective arbitration. An implicit contractual agreement may suffice, although authorization cannot be inferred solely from the parties' agreement to arbitrate.
- The broad arbitration clauses did not, as a matter of law, preclude FSRO's associational arbitration. FSRO's action was materially different from the class arbitration considered in Stolt-Nielsen because it sought relief only for signatories and did not involve absent parties or individualized damages.
- The arbitrators, rather than the court, should decide whether FSRO may bring its associational action under the broad arbitration agreements.
Key quotations
“We thus reject the very different precept, on which FSFC's argument depends, that there must be express contractual language evincing the parties' intent to permit class or collective arbitration.” (683 F.3d at 26)
“The question of whether the parties to this arbitration agreement "agreed to authorize" an action like FSRO's, Stolt-Nielsen, 130 S. Ct. at 1776 n.10, is one for the arbitrators to decide.” (683 F.3d at 35)
Factual background
Fantastic Sams Franchise Corporation licenses its brand to regional owners, who operate more than 1,200 salons and are parties to regional license agreements requiring arbitration. The regional owners formed FSRO Association, whose exclusive members are the regional owners. FSRO filed an arbitration demand on behalf of its members alleging that FSFC breached the license agreements by depressing the value of the members' regional businesses and asserting related Massachusetts Consumer Protection Act claims. The agreements at issue on appeal contained broad arbitration provisions but did not expressly prohibit class or associational arbitration.
Procedural history
FSRO Association filed an arbitration demand against Fantastic Sams Franchise Corporation on behalf of its regional-owner members, alleging breach of regional license agreements and related Massachusetts consumer-protection violations. FSFC petitioned under section 4 of the Federal Arbitration Act to stay the arbitration and compel individual arbitrations. The district court granted relief as to twenty-five agreements that expressly prohibited class arbitration but denied relief as to ten agreements containing broad arbitration clauses; after settlements, six agreements remained at issue on appeal. The First Circuit affirmed the denial of relief as to those agreements.