Consolidation, joinder and class action

Dispute Resolution Journal, Nov 2002-Jan 2003

What Arbitrators and Courts May and May Not Do

The latest information on procedures affecting related claims, multiple claimants, and the potential for classwide arbitration.

Advocates and arbitrators must all, from time to time, confront the old and as yet unresolved issues of consolidation of cases and joinder of parties. These related procedures, so welldefined and regulated in state and federal courts, continue to cause confusion and delay in a forum otherwise designed for ease of use and expedition. The problem resides in the fundamentally contractual nature of arbitration. If the parties to a dispute are not all signatories to the same arbi- tration agreement, absent their collective consent, there is no universal rule of "arbitral economy" that permits arbitrators, arbitration providers, or courts to order consolidation or joinder in the arbitration context.

Federal and State Law

There is no federal statute authorizing an arbitrator or a court to consolidate related arbitrations or to join a third party in an arbitration proceeding. The Federal Arbitration Act1 makes no mention of these procedures. The FAA, however, requires arbitration agreements to be enforced in accordance with their terms.2

Certain states, either by legislative enactment or precedent, do allow for consolidation by court order in certain circumstances.3 A few have even considered the special circumstances of international arbitration in this context.4 The number of states with legislation permitting consolidation is likely to increase as they enact the Revised Uniform Arbitration Act 2000 (RUAA), which expressly authorizes courts to consolidate separate arbitrations, as long as the parties' agreements do not prohibit it.5

Section 10 of the RUAA permits a court to consolidate related arbitrations in the following circumstances: (1) the claims arise from substantially the same transaction or series of related transactions; (2) common issues of law or fact exist, creating the possibility of conflicting decisions; and (3) prejudice would result absent consolidation, which is not outweighed by the risk of undue delay, prejudice or hardship to the party or parties opposing consolidation.

AAA Arbitration Rules

The Commercial Arbitration Rules of the American Arbitration Association are completely silent on the issue of consolidation and joinder. Thus, these rules do not authorize arbitrators to order either procedure. The AAA Construction Industry Arbitration Rules mention consolidation and joinder in Rule R7, but this rule does not provide authority to order either procedure. It merely addresses what will happen "[i]f the parties' agreement or the law provides for consolidation or joinder." Rule R-7 provides:

If the parties' agreement or the law provides for consolidation or joinder of related arbitration, all involved parties will endeavor to agree on a process to effectuate the consolidation or joinder. If they are unable to agree, the Association shall directly appoint a single arbitrator for the limited purpose of deciding whether related arbitrations should be consolidated or joined and, if so, establishing a fair and appropriate process for consolidation or joinder. The AAA may take reasonable administrative action to accomplish the consolidation or joinder as directed by the arbitrator.

Judicial Approaches

Most federal circuit courts have held that a district court may not consolidate multiple arbitrations when an arbitration agreement is silent on the issue of consolidation.6 One federal circuit court, however, applies a looser rule. It allows a district court to examine the arbitration agreements to see whether, using ordinary principles of contract construction, the parties impliedly consented to consolidation.7 This is, however, a minority view.8

Thus, as a general rule, unless the parties, issues, and arbitration clauses are consistent, and have expressly provided for consolidation (or where a court finds that a party is impliedly bound by the arbitration clause), separate proceedings may be unavoidable.9 Indeed, a recent federal court decision in New York demonstrates that multiple arbitrations are the order of the day, even with a match of parties, issues and arbitration clauses, unless explicit consolidation language is found in the parties' agreement.10

In this case, Clarendon National Insurance Company and John Hancock entered into numerous reinsurance treaties, all containing substantially similar arbitration provisions, which made no mention of consolidation. Disputes arose under 10 treaties, which were grouped into three types of programs. The claimant, Clarendon, commenced three arbitrations (one for each program). After Hancock unsuccessfully demanded that the three proceedings be consolidated into a single arbitration, Hancock brought the dispute to the Southern District of New York. Everything seemed to be going Clarendon's way. Citing UK v. Boeing Co.,11 and its progeny, the court made clear that the FAA provides no authority to consolidate absent express authorization in the parties' agreement. The FAA does no more than raise arbitration to the same level as any other contractual obligation; it was not designed to achieve efficiency or avoid what Hancock accurately characterized as a "massive duplication of effort." Unfortunately for Hancock, it argued that Clarendon, which would not agree to a single proceeding, did not have the unilateral right to compress 10 distinct treaty disputes into three. The court agreed, and the parties ended up with 10 separate arbitrations.