FACT SUMMARY In January 2013 an Australian teenager measured his Subway Footlong sandwich and discovered it...

   

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FACT SUMMARY In January 2013 an Australian teenager measured his Subway Footlong sandwich and discovered it was only 11 inches long. He photographed the sandwich alongside a tape measure and posted the photo on his Facebook page. It went viral, and soon after a number of lawsuits were filed across the United States against Subway for damages and injunctive relief under state consumer-protection laws. The lawsuits were combined and several plaintiffs sought class action certification. During discovery, Subway established that their unbaked bread sticks are uniform, and the baked rolls rarely fall short of 12 inches. The minor variations that do occur are wholly attributable to the natural variability in the baking process and cannot be prevented. Nonetheless. Subway entered into a settlement agreement and implemented certain measures to ensure, to the extent practicable, that all Footlong sandwiches are at least 12 inches long. The settlement acknowledged, however, that even with these measures in place, some sandwich rolls will inevitably fall short due to the natural variability in the baking process. The parties also agreed to cap the fees of class counsel at $525,000. The settlement provided $500 for each of 10 class representatives (class members who allowed their name to be used as lead plaintiffs). However, Theodore Frank (Frank), one of the class members who received no payment, argued that the settlement enriched only the lawyers and provided no meaningful benefits to the class. The trial court preliminarily approved the settlement and Frank appealed. SYNOPSIS OF DECISION AND OPINION The U.S. Court of Appeals for the Seventh Circuit reversed the decision of the trial court and ruled in favor of Frank. The court held that the procedures required by the settlement do not benefit the class in any meaningful way and act only to benefit the class action lawyers. They reasoned that because there were no identifiable benefits to class members, the class should not have been certified, and the settlement should not have been approved. WORDS OF THE COURT: No Meaningful Relief "A class settlement that results in fees for class counsel but yields no meaningful relief for the class is 'no better than a racket. If the class settlement does not provide 'effectual relief to the class and its 'principal effect' is to induce the defendants to pay the class's lawyers enough to make them go away," then the class representatives have failed in their duty... to 'fairly and adequately protect the interests of the class.... No class action settlement that yields zero benefits for the class should be approved, and a class action that seeks only worthless benefits for the class should be dismissed out of hand." Case Questions 1. Why do you think that the class representatives approved this settlement? 2. The plaintiff's counsel argued that the settlement did provide meaningful benefits to the class because Subway has bound itself to a set of procedures designed to achieve better bread-length uniformity. Is that a convincing argument? Why or why not? 3. Focus on Critical Thinking: Could there be any remedies that the court would find "meaningful"? If the Footlong sub was only 9", how would that impact the case? Is there a baseline as to how much a merchant can deceive a consumer? FACT SUMMARY Archer and White (Archer) is a North Carolina-based business that distributes dental equipment. Archer entered into a distribution contract with Henry Schein, Inc. (Schein), 10 a dental equipment manufacturer. The contract contained the following arbitration clause: Disputes. This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [Schein]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association. The place of arbitration shall be in Charlotte, North Carolina. The relationship eventually soured, and Archer filed suit against Schein in a federal court in Texas alleging violations of federal and state antitrust law and seeking both money damages and injunctive relief. After Archer sued. Schein invoked the Federal Arbitration Act and asked the trial court to refer the parties' antitrust dispute to arbitration in accordance with the original distribution contract. However, the trial court ruled in favor of Archer based on precedent set out by the U.S. Court of Appeals for the 5th Circuit that recognizes an exception to arbitration agreements if the demand for arbitration is "wholly groundless." The appellate court affirmed the decision of the trial court. Schein appealed to the U.S. Supreme Court arguing that the contract's express incorporation of the American Arbitration Association's rules meant that an arbitrator-not the court-had to decide whether the defendant's argument for arbitration is wholly groundless. SYNOPSIS OF DECISION AND OPINION The U.S. Supreme Court reversed the decision of the lower courts and ruled in favor of Schein. It held that the wholly groundless exception to arbitrability is inconsistent with the Federal Arbitration Act and because arbitration is a matter of contract, courts must enforce arbitration contracts according to their terms. The Court reasoned that parties to a contract may agree to have an arbitrator decide not only the merits of a particular dispute, but also gateway questions of arbitrability. When the parties' contract delegates gateway questions (e.g., is arbitration an appropriate forum) to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is wholly groundless. WORDS OF THE COURT: Exception Inconsistent with FAA "We conclude that the "wholly groundless' exception is inconsistent with the text of the [FAA] and with our precedent. We must interpret the [FAA] as written, and the Act in turn requires that we interpret the contract as written. When the parties' contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue.... That conclusion follows not only from the text of the FAA but also from precedent. We have held that a court may not 'rule on the potential merits of the underlying claim' that is assigned by contract to an arbitrator, 'even if it appears to the court to be frivolous."" Case Questions 1. Why do you suppose that the 5th Circuit Court of Appeals adopted the "wholly groundless" exception in the first place? Could the exception prevent frivolous arbitration claims? 2. Why was it important to Schein's argument that the contract expressly incorporated the American Arbitration Association's rules? 3. Focus on Critical Thinking: Why did the Court interpret the Federal Arbitration Act so strictly in this case? Should courts have more leeway when interpreting statutes? 130 FACT SUMMARY In January 2013 an Australian teenager measured his Subway Footlong sandwich and discovered it was only 11 inches long. He photographed the sandwich alongside a tape measure and posted the photo on his Facebook page. It went viral, and soon after a number of lawsuits were filed across the United States against Subway for damages and injunctive relief under state consumer-protection laws. The lawsuits were combined and several plaintiffs sought class action certification. During discovery, Subway established that their unbaked bread sticks are uniform, and the baked rolls rarely fall short of 12 inches. The minor variations that do occur are wholly attributable to the natural variability in the baking process and cannot be prevented. Nonetheless. Subway entered into a settlement agreement and implemented certain measures to ensure, to the extent practicable, that all Footlong sandwiches are at least 12 inches long. The settlement acknowledged, however, that even with these measures in place, some sandwich rolls will inevitably fall short due to the natural variability in the baking process. The parties also agreed to cap the fees of class counsel at $525,000. The settlement provided $500 for each of 10 class representatives (class members who allowed their name to be used as lead plaintiffs). However, Theodore Frank (Frank), one of the class members who received no payment, argued that the settlement enriched only the lawyers and provided no meaningful benefits to the class. The trial court preliminarily approved the settlement and Frank appealed. SYNOPSIS OF DECISION AND OPINION The U.S. Court of Appeals for the Seventh Circuit reversed the decision of the trial court and ruled in favor of Frank. The court held that the procedures required by the settlement do not benefit the class in any meaningful way and act only to benefit the class action lawyers. They reasoned that because there were no identifiable benefits to class members, the class should not have been certified, and the settlement should not have been approved. WORDS OF THE COURT: No Meaningful Relief "A class settlement that results in fees for class counsel but yields no meaningful relief for the class is 'no better than a racket. If the class settlement does not provide 'effectual relief to the class and its 'principal effect' is to induce the defendants to pay the class's lawyers enough to make them go away," then the class representatives have failed in their duty... to 'fairly and adequately protect the interests of the class.... No class action settlement that yields zero benefits for the class should be approved, and a class action that seeks only worthless benefits for the class should be dismissed out of hand." Case Questions 1. Why do you think that the class representatives approved this settlement? 2. The plaintiff's counsel argued that the settlement did provide meaningful benefits to the class because Subway has bound itself to a set of procedures designed to achieve better bread-length uniformity. Is that a convincing argument? Why or why not? 3. Focus on Critical Thinking: Could there be any remedies that the court would find "meaningful"? If the Footlong sub was only 9", how would that impact the case? Is there a baseline as to how much a merchant can deceive a consumer? FACT SUMMARY Archer and White (Archer) is a North Carolina-based business that distributes dental equipment. Archer entered into a distribution contract with Henry Schein, Inc. (Schein), 10 a dental equipment manufacturer. The contract contained the following arbitration clause: Disputes. This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [Schein]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association. The place of arbitration shall be in Charlotte, North Carolina. The relationship eventually soured, and Archer filed suit against Schein in a federal court in Texas alleging violations of federal and state antitrust law and seeking both money damages and injunctive relief. After Archer sued. Schein invoked the Federal Arbitration Act and asked the trial court to refer the parties' antitrust dispute to arbitration in accordance with the original distribution contract. However, the trial court ruled in favor of Archer based on precedent set out by the U.S. Court of Appeals for the 5th Circuit that recognizes an exception to arbitration agreements if the demand for arbitration is "wholly groundless." The appellate court affirmed the decision of the trial court. Schein appealed to the U.S. Supreme Court arguing that the contract's express incorporation of the American Arbitration Association's rules meant that an arbitrator-not the court-had to decide whether the defendant's argument for arbitration is wholly groundless. SYNOPSIS OF DECISION AND OPINION The U.S. Supreme Court reversed the decision of the lower courts and ruled in favor of Schein. It held that the wholly groundless exception to arbitrability is inconsistent with the Federal Arbitration Act and because arbitration is a matter of contract, courts must enforce arbitration contracts according to their terms. The Court reasoned that parties to a contract may agree to have an arbitrator decide not only the merits of a particular dispute, but also gateway questions of arbitrability. When the parties' contract delegates gateway questions (e.g., is arbitration an appropriate forum) to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is wholly groundless. WORDS OF THE COURT: Exception Inconsistent with FAA "We conclude that the "wholly groundless' exception is inconsistent with the text of the [FAA] and with our precedent. We must interpret the [FAA] as written, and the Act in turn requires that we interpret the contract as written. When the parties' contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue.... That conclusion follows not only from the text of the FAA but also from precedent. We have held that a court may not 'rule on the potential merits of the underlying claim' that is assigned by contract to an arbitrator, 'even if it appears to the court to be frivolous."" Case Questions 1. Why do you suppose that the 5th Circuit Court of Appeals adopted the "wholly groundless" exception in the first place? Could the exception prevent frivolous arbitration claims? 2. Why was it important to Schein's argument that the contract expressly incorporated the American Arbitration Association's rules? 3. Focus on Critical Thinking: Why did the Court interpret the Federal Arbitration Act so strictly in this case? Should courts have more leeway when interpreting statutes? 130