First Circuit Issues Major Arbitration Decision

The First Circuit released Friday a consumer arbitration case that will significantly affect employment arbitration on the issues of discovery, shortened limitations periods, restricted damage awards, prohibitions on shifting costs and attorneys’ fees, and prohibitions on class actions.  The case is Kristian v. Comcast Corp., Nos. 04-2619 & 04-2655 (Apr. 20, 2006) (Westlaw password required).

Consumers sued Comcast, a cable television provider, for federal and state antitrust violations.  When Comcast moved to compel arbitration, plaintiffs made five arguments that the arbitration agreement would nullify their ability to vindicate their statutory rights.  First, they argued that a clause in the arbitration agreement warning that “participating in arbitration may result in limited discovery” made the arbitration agreement unenforceable.  However, the court held that, pursuant to Gilmer, discovery restrictions would not preclude arbitration, and that discovery issues should be left to the arbitrator.

Second, plaintiffs argued that the arbitration agreement’s one-year limitations period was inconsistent with the four-year limitations period provided by the state antitrust statute.  The court, however, ruled that this issue was for the arbitrator because the plaintiffs’ claims of ongoing injuries would require an examination of the merits of the case.

Third, plaintiffs argued that an arbitration clause forbidding treble damage awards rendered the arbitration agreement unenforceable.  The court, citing an article by David Schwartz (photo bottom left), held that this clause was unenforceable as to claims brought under federal law, which required treble damage awards.  The court ruled that these federal claims should be submitted to arbitration without the damage restriction.  However, the court held that the clause was enforceable as to claims brought under state law, which permitted but did not require treble damage awards.

Fourth, plaintiffs challenged an arbitral provision forbidding an award to plaintiffs of costs and attorneys’ fees.  The court held that this provision would burden plaintiffs “with prohibitive arbitration costs, preventing [p]laintiffs from vindicating their statutory rights in arbitration.”  However, rather than refusing to enforce the arbitration agreement on this basis, the court severed the offending clause.

Fifth, plaintiffs challenged an arbitral provision prohibiting class actions.  The court recognized that this provision did not conflict with any explicit provision of the antitrust statutes.  However, the court held, the provision did conflict with FRCP 23;  “because the [arbitration agreement] creates a mandatory arbitration regime, a bar on class arbitration effectively forecloses the use of any class-based mechanism.”  Citing Jean Sternlight (photo bottom right), the court held that plaintiffs’ attorneys would be unlikely to undertake a costly and complex antitrust case such as this one absent the class action device.  This would effectively weaken if not eliminate the private enforcement scheme provided in the antitrust statutes, and therefore was inconsistent with those statutes.  However, once again, rather than refusing to enforce the arbitration agreement, the court severed the offending provision.

Thus, after refusing to enforce the treble damage limitation as to federal claims, and severing the clauses on costs, attorneys’ fees, and class actions, the court held that the plaintiffs’ antitrust claims were arbitrable.

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