REFUSAL TO ARBITRATE

Jones v. Starz Entertainment LLC, 129 F. 4th 1176

Jones was one of 7300 customers of Starz represented by the same law firm who filed individual arbitration demands asserting that Starz violated the Video Privacy Protection Act by sharing information about her with various social media outlets. Jones had signed an arbitration agreement which barred class actions and only permitted individual arbitration before JAMS. After mediation failed because of a dispute over allocation of mediation fees, JAMS, acting through its National Arbitration Committee, ordered consolidation of the 7300 claims before a single arbitrator pursuant to JAMS Rule 6(e). The arbitrations never occurred because each arbitrator appointed by JAMS was challenged by one of the claimants. Jones thereupon filed a motion to compel arbitration of Jones’ individual claim in district court pursuant to Section 4 of the FAA, which provides that a party “aggrieved by a failure of another party to arbitrate” may file a petition to compel arbitration against such party in federal court. The district court denied the petition, holding that Jones was not “an aggrieved party” and she appealed.

The Ninth Circuit affirmed. Jones's position boiled down to the assertion that by urging JAMS to consolidate these claims and attempting to participate in the consolidated proceeding, Starz refused to arbitrate individually with Jones as mandated by their agreement. But it was JAMS, not Starz, that made the decision to consolidate, so it is not clear how that decision could be characterized as a refusal by Starz to arbitrate.

More broadly, the premise of Jones's argument was incorrect. The agreement did not preclude consolidation of the 7,300 arbitrations demanded by Jones and the other claimants represented by the law firm. The agreement stated that: "You and Starz agree that each may bring claims against the other only in your or its individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding." The argument that the prohibition of "class or representative proceeding" precluded consolidation has no merit. Rather than prohibit consolidation, the agreement plainly contemplated its possibility by incorporating the JAMS Rules, including the rule that authorized JAMS to consolidate filings that shared common issues of fact or law. Consolidation is not the same as class or representative arbitration. In a class or representative arbitration, an individual brings claims on behalf of others, whereas a claimant in a consolidated arbitration brings the claim in her individual capacity. The reality is that Jones agreed to an arbitration that permitted consolidation and got what she agreed to.

Indeed, Jones was not aggrieved at all. Contrary to her grievance that she was prevented from a hearing on the merits of her claim, there were avenues of relief available to her. First, Jones could have argued to the arbitrator selected to preside over the consolidated hearing that the consolidation violated her contractual right to individual arbitration because JAMS Rule 11(a) states: "Once appointed, the Arbitrator shall resolve disputes about the interpretation and applicability of these Rules and conduct of the Arbitration Hearing." Second, she could have petitioned a California Superior Court to appoint an arbitrator. The California Code of Civil Procedure grants a party a single peremptory challenge against a court-appointed arbitrator and requires any subsequent disqualification to be based upon a showing of cause. There is thus a limit to the delay that can be caused by disqualifying arbitrators.

Jones also averred that a delegation clause in the agreement required the arbitrator, not the JAMS National Arbitration Committee, to determine whether she was an aggrieved party. The Ninth Circuit rejected this argument stating that it is not the business of a federal court to second-guess an independent arbitration provider's application of its own rule allowing it to consolidate thousands of identical arbitration demands. No court would tolerate having to try 7,300 identical cases separately. No arbitration provider should have to, either. Gateway questions of arbitrability usually concern the validity and scope of the agreement to arbitrate. The need to address such gateway questions, however, stems in the first place from the parties' disagreement about whether to arbitrate at all. The question of validity arises when one party characterizes the arbitration agreement as invalid; the question of scope arises when one party denies that the arbitration agreement covers the controversy at issue. In this case, nobody denied that there was a valid arbitration agreement here or that it covered the dispute at issue.

Finally, Jones argued that if Rule 6(e) permitted consolidation, the rule was unconscionable and that reference to the rule be stricken from the agreement, a result which would have forced Starz to defend 7300 cases. The Ninth Circuit stated that it was not aware of any precedent where the party petitioning to compel arbitration under section 4 simultaneously characterized as unconscionable the same arbitration agreement that it sought to enforce. A vast reservoir of precedents illustrates the commonsensical posture in which unconscionability is always invoked by the party seeking to avoid enforcement.