The U.S. Court of Appeals for the Eleventh Circuit recently held that a lower court erred in ruling that a bank waived its rights to compel arbitration of unnamed putative class members’ claims.
Prior to ruling on class certification, the lower court issued an order denying the bank’s conditional motions to compel arbitration of the unnamed putative class members’ claims in the event of class certification. The Eleventh Circuit held that the lower court lacked jurisdiction to resolve issues involving unnamed putative class members prior to certification, and that the named plaintiffs lack standing to defend the lower court’s ruling. Accordingly, the Eleventh Circuit reversed the district court’s order.
A copy of the Court’s opinion is available at: http://media.ca11.uscourts.gov/opinions/pub/files/201312082.pdf
The plaintiffs in the five separate putative class actions allege that a bank unlawfully charged them overdraft fees for their checking accounts.
The checking accounts are governed by agreements that provide for arbitration of disputes on an individual basis. The agreement stated that “either the customer or the bank may require the submission of a dispute to binding arbitration at any reasonable time notwithstanding that a lawsuit or other proceeding has been commenced,” but that neither a customer nor the bank may consolidate disputes or “include in any arbitration any dispute as a representative or member of a class.”
The trial court gave the bank a deadline to file a motion to compel arbitration. Instead, the bank filed a motion to dismiss. After the lower court denied the motion to dismiss, it set another deadline for the bank file its motion to compel arbitration.
The bank did not file such a motion, but instead filed a statement reserving its right to compel arbitration against any plaintiffs “who might later join, individually or as putative class members, in this litigation,” explaining that “its arbitration rights as to a nationwide class, for newly added plaintiffs, and/or for from plaintiffs from newly added states are not yet at issue.” When it filed its answer, the bank again gave notice that it was reserving its right to arbitrate the claims of future plaintiffs.
While the parties engaged in discovery, the United States Supreme Court issued its ruling in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which held that § 2 of the Federal Arbitration Act, 9 U.S.C. § 2, preempts state-law rules prohibiting consumer arbitration agreements that bar classwide arbitration agreements.
Thereafter, the bank moved to compel arbitration of the named plaintiffs in the five putative cases. The lower court denied the bank’s motion, ruling that the bank had waived its right to compel arbitration by failing to move to compel by the court-imposed deadlines. The bank appealed, and the Eleventh Circuit affirmed the District Court’s ruling.
On remand, the plaintiffs moved for class certification. The bank filed its opposition, arguing that the court should not certify a class due to lack of numerosity. The bank argued that all customers with enforceable arbitration agreements would be excluded from the class, and because all of its customers had signed the agreements containing the arbitration provisions, there would not be enough class members to make a class action viable.
The bank simultaneously filed conditional motions to dismiss the claims of the unnamed or absent class members in favor of arbitrations in the event the lower court certified a class. In essence, the bank was informing the court in advance that, if the court certified a class, the bank intended to move to compel arbitration with all unnamed class members.
The lower court denied the bank’s conditional motion to dismiss in favor of arbitration, and the bank appealed.
On appeal, the Eleventh Circuit clarified that the bank had adequately preserved its rights to seek arbitrations of any claims the unnamed putative class members might have against it should the lower court certify them as members of the proposed class.
Next, the Eleventh Circuit concluded that, because a class including the unnamed putative class members had not been certified, Article III’s jurisdictional limitations precluded the lower court from entertaining the bank’s conditional motions to dismiss those members’ claims as subject to arbitration. The Court also concluded that the named plaintiffs lacked standing to seek the affirmance of the lower court’s provisional holding that if a class is certified the bank will be estopped to assert its contractual rights to arbitration.
The Circuit Court also held that, because a class had not been certified at the time the bank moved conditionally to compel arbitration of the claims of all unnamed class members, those unnamed individuals necessarily remained putative participants in the case. The Court noted that: (1) not until the class is certified are the putative members subject to the court’s power; (2) absent class certification, there is no justiciable controversy between the bank and the unnamed putative class members; and (3) because the unnamed putative class members are not yet before the court, any claims that they might have against the bank exist only by hypothesis, which would result in the court issuing an impermissible advisory opinion.
The Eleventh Circuit also concluded that the named plaintiffs did not have standing to attempt to defend the lower court’s ruling that the bank had waived its right to compel the unnamed putative class members to arbitrate their claims. According to the Eleventh Circuit, the named plaintiffs’ own legal rights and interests were not at issue, which is the general principle in addressing a party’s standing.
The Court acknowledged that there are exceptions to that general principle, but that the named plaintiffs did not have such a close relationship with the unnamed plaintiffs to invoke the exceptions. “The named plaintiffs have already received a favorable ruling as to whether the bank waived its rights to compel arbitration against them. Whether or not the bank is precluded from asserting arbitration rights against other individuals has no legal relevance to the named plaintiffs.”
Holding that the lower court lacked jurisdiction to rule on the arbitration obligations of unnamed putative class members, and that the named plaintiffs lacked standing to raise any arguments on the unnamed putative class members’ behalf, the Eleventh Circuit vacated the lower court’s order.
Ralph T. Wutscher
McGinnis Wutscher LLP
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