Popular Philly Wedding Venue Wins Motion to Compel Arbitration, Avoiding Class Litigation

It seems like everybody know somebody whose wedding was affected by COVID.  Often the stories are sad.  Venues were reserved; deposits were paid.  Then, the lockdowns occurred, and the venues were not permitted, under local ordinances, to hold events for more than 25 people, or at all.  Randall v. Cescaphe Limited, LLC involved a purported class action brought by disappointed couples (or relatives) seeking the return of their deposits from one such venue.  They alleged breach of contract, rescission, unjust enrichment, conversion, fraud, and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law.  

Plaintiffs each paid a non-refundable, non-transferrable $5000 deposit for weddings that were to take play in May, June, or July, 2020.  The venue contended that all claims were subject to its Letter Agreement, which provided for arbitration.  Plaintiffs argued that some of them had not signed the Letter Agreement, that the agreement was silent on class litigation, and that the arbitration provision was illegal.  The District Court for the Western District of Pennsylvania rejected plaintiffs’ arguments and granted the venue’s motion to compel arbitration.

The opinion begins inauspiciously by stating the the Federal Arbitration Act (FAA) “establishes a strong federal policy in favor of compelling arbitration over litigation.”  Actually, it does no such thing, as we have had occasion to note recently here and here, and the rest of the paragraph cites the correct statement of what the FAA does, which is to provide that agreements to arbitrate are to be treated neutrally, the same as a court would treat any other contractual provision.  Nonetheless, the opinion seems to reach the right outcome in this instance under current law, which has its problems.

First, whether or not they had signed the Letter Agreement, members of the purported class were equitably estopped from denying the efficacy of the Letter Agreement’s arbitration provision when the were suing to enforce the Letter Agreement.   Second, under Third Circuit precedent, issues of arbitrability, including questions of class-wide arbitration, are to be decided by a court, absent a clear indication that the parties intended otherwise.  Here, the agreement was silent, and so the court had to determine whether the parties had reserved the possibility of class litigation as an alternative to arbitration.  They had not. 

I’m not sure why plaintiffs thought it would matter whether that issue was decided by a court or the arbiter, as the Supreme Court made it clear in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  In a later case, the Supreme Court held that a party cannot be compelled to arbitrate on a class-wide basis even if the arbitration agreement is ambiguous.  Apparently only business entities that express say, “Yes, please do sue me on a class wide basis” are susceptible to such proceedings.  It takes a lot of AnimalFeeds to produce that much dreck.  But that being the law, there’s not much the district court could have done about it.  It is unclear on what basis plaintiffs thought their argument would fare better before an arbiter than it did before the court.

Plaintiffs’ final argument fared no better.  They argued that the Letter Agreement had become unenforceable because it would have been illegal for the venue to host a wedding because of COVID restrictions.  If the entire agreement is illegal, so is its arbitration provision.  SCOTUS has previously rejected that argument as well.   The arbiter and not the court decides the issue when plaintiffs allege that the entire agreement, not just the arbitration provision, is unlawful.  The district court granted the motion to compel arbitration, and that arbitration will now proceed on an individual basis.