April 03, 2019 Practice Points

District Court Defers to Appellate Arbitration Panel

The interesting aspect of the district court decision is that it applies the same standard of review to the appellate arbitration award as it would apply to an initial award under the FAA.

By Mark Kantor and Mitchell Marinello

If you have been paying attention to ADR developments, you know that the American Arbitration Association (AAA) and several other major arbitration associations allow consenting parties to appeal an arbitration award to a panel of arbitrators. There are very few court decisions that address awards that have gone through this appellate process. On February 14, 2019, a federal district court upheld an arbitration appellate panel that reversed an arbitration award. Hamilton v. Navient Solutions, LLC., No. 18 Civ. 5432 (PAC) (S.D.N.Y. February 14, 2019).

In the underlying dispute, Ms. Hamilton, a student loan borrower, claimed that Navient, a collection company, had breached the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227, by harassing her with phone calls. After Ms. Hamilton told Navient that she revoked her consent to such calls, Navient made an additional 237 calls to her using auto-dialer technology.

Hamilton brought an arbitration claim for harassment against Navient under the AAA arbitration agreement in her student loan documents. That arbitration agreement included a reference to the AAA’s Optional Appellate Arbitration Rules.

In her student loan documents, Hamilton apparently had consented to being called by a collection company. After she defaulted on her loan payments, Navient used an auto-dialer to call her as part of its collection efforts. However, after receiving a number of such calls, Hamilton contacted Navient and revoked her consent to be called. In the arbitration proceeding, Navient (here, NSL) and Hamilton stipulated as follows.

On April 21, 2016, Ms. Hamilton instructed one of NSL's call-center agents to stop calling her on her cellular telephone.  She was advised that she would be "taken off the autodialer."

On April 21, 2016, NSL's call-center agent updated NSL's system of record to update Ms. Hamilton's autodial consent permission from "Y" to "N."

After the conversation on April 21, 2016, NSL no longer possessed Ms. Hamilton's consent to place calls to her cellular telephone using an automatic telephone dialing system.

NSL called Ms. Hamilton's cellular telephone number two hundred thirty-seven (237) times after April 21, 2016.

After the arbitration hearing but before the arbitrator had issued an award, the Second Circuit decided that the TCPA did not permit a person to unilaterally revoke a consent to receive telephone calls that was made as part of a bargained-for exchange, such as a loan. Reyes v. Lincoln Automotive Financial Services, 861 F.3d 51 (2d Cir. 2017).

Navient promptly asked the arbitrator to reopen the record to consider the potentially dispositive effect of Reyes on Hamilton’s claim. The arbitrator denied Navient’s request reasoning that the revocation of Hamilton’s consent was not an issue presented in the arbitration. Relying on the stipulation, the arbitrator issued an award for damages in Hamilton’s favor. 

Navient appealed under the AAA Optional Appellate Procedure. After considering the impact of Reyes on the stipulation, the appellate arbitration panel ruled that Hamilton’s consent was not unilaterally revocable. It held that her withdrawal of consent was null and void, vacated the damage award in her favor and affirmed the initial arbitrator’s award in favor of Navient for the outstanding balance of Hamilton’s student loan. 

Hamilton sought to vacate the appellate award in federal district court, arguing that the appellate arbitration panel had exceeded its powers and manifestly disregarded the law by vacating the initial damage award in her favor. The district court applied the traditional test under FAA jurisprudence that “a district court's role in reviewing an arbitral award is "narrowly limited," and requires "great deference" to arbitrators' determinations. It declined to vacate the appellate arbitration award, stating:

The arbitration panel also did not manifestly disregard the law. . . . To the contrary, rather than "willfully flout[ing] the governing law . . .," . . . the arbitration panel applied a Second Circuit holding to conclude that the factual stipulation regarding withdrawal of consent had no legal impact. The arbitration panel did not ignore a clear law, but rather obeyed one. . . . Moreover, even if the Court believed that Reyes was ambiguous (it does not), application of an ambiguous legal standard would still not constitute manifest disregard.

(Citations omitted.) The district court then confirmed the award as modified by the appellate arbitration panel.

Practice Point: The AAA’s appellate arbitration procedures are voluntary. They are not frequently used, and the bases for appellate reversal of an award are narrow. This case presents the unusual situation where an appeal took place and resulted in a reversal of the initial award. The interesting aspect of the district court decision is that it applies the same standard of review to the appellate arbitration award as it would apply to an initial award under the FAA. Query if the appellate arbitration panel had not reversed, would the district court have confirmed the initial award notwithstanding the Reyes decision? 

Mark Kantor is a member of the College of Commercial Arbitrators in Washington, D.C., and Mitchell Marinello is a partner at Novack and Macey LLP in Chicago, Illinois.

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