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First Circuit rules that class arbitration is not implicitly authorized in agreement

In American Institute for Foreign Study, Inc. v. Fernandez-Jimenez, the First Circuit recently affirmed a preliminary injunction enjoining class arbitration because, while the agreement required the parties to arbitrate their disputes, it did not authorize class arbitration.

An au pair from Spain filed a class arbitration demand against the entity that placed her with a host family in the United States (“the Institute”).  In turn, the Institute filed an action in federal court seeking to enjoin class arbitration. The district court granted a preliminary injunction in favor of the Institute. The au pair appealed.

The parties’ relationship is governed by an agreement that requires them to arbitrate their disputes. The arbitration clause makes no reference to class arbitration. Class arbitration, however, is mentioned in the waiver clause, whereby each party waives the right to bring “claims, either in an individual capacity or as a member of any class action, by any means and in any forum other than arbitration conducted by the American Arbitration Association [“AAA”].”

The au pair argued that the waiver clause only waives the right to raise a class claim in court and further reasoned that, by negative inference, the parties intended to preserve the right to arbitrate class action claims. The First Circuit disagreed. In doing so, the Court relied on the principle that arbitrators may only resolve disputes agreed upon by the parties. In interpretating an agreement, courts consider the intent of the parties in entering into the agreement. Because the arbitration clause was silent about class arbitration, the court concluded that the parties did not intend to authorize class arbitration.

Aside from its discussion regarding the interpretation of an arbitration clause, this decision offers a critical reminder that generally courts will not consider arguments that parties have failed to raise in a timely manner. In the footnotes, the Court noted that the au pair had waived twice any argument that the arbitrator should determine whether the agreement authorizes class arbitration by failing to raise that argument in her opening brief or to the District Court. Moreover, the Court refused to address the au pair’s argument, which was raised for the first time in her reply brief, that in adopting the AAA’s commercial rules the agreement implicitly authorized class arbitration under the AAA’s supplemental rules of class arbitration.

It is unclear whether the Court’s ruling would have been different had those arguments been timely raised. But one thing is clear: this decision is a cautionary tale for litigators.

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