In Reed v Florida Metro. Univ., No. 11-50509, (5th Cir. May 18, 2012), Jeffrey Reed (Reed) obtained a degree from Everest University's online distance learning programme (Everest), an affiliate of Florida Metropolitan University. When Reed enrolled, Everest assured him that educational institutions and employers would recognise the degree, but Reed later learned that law schools and employers would not accept the degree. As a result, he filed a putative class action alleging that Everest violated the Texas Education Code by soliciting students without having the required certifications. Everest responded by moving to compel arbitration according to the arbitration clause in Reed's enrolment agreement. The arbitration clause was silent on the issue of class arbitration.

The district court granted the school's motion to compel arbitration because the question of whether the agreement allowed class arbitration was "more appropriately decided by the arbitrator". The dispute then proceeded to arbitration. Although the arbitration agreement was silent on the issue of class arbitration, the arbitrator determined that the parties had implicitly consented to class arbitration and made an award. When Reed sought to confirm the award in district court, Everest responded by moving to vacate the award. Everest argued that the arbitrator had exceeded his powers by authorising class arbitration without a sufficient contractual basis. The district court confirmed the award and Everest appealed.

The Fifth Circuit concluded that the district court properly allowed the arbitrator to determine whether the parties' arbitration agreement allowed for class arbitration, but it erred in confirming the arbitrator's decision to allow class arbitration absent a sufficient contractual basis.

The court explained that the recent Supreme Court decisions in Stolt-Nielsen SA v AnimalFeeds Int'l Corp., 130 S.Ct. 1758 (2010) and AT&T Mobility LLC v Concepcion, 563 U.S. No. 09-893 (2011) (see Legal update, Supreme Court holds that Federal Arbitration Act preempts California rule on unconscionability: full update) emphasised that class arbitration is a matter of consent. Thus, arbitrators should not conclude that parties consent to class arbitration without a contractual basis for their decision. Although the court recognised that agreement to submit to class arbitration may be implicit, it cautioned that "it should not be lightly inferred."

The Fifth Circuit concluded that, in this case, the arbitrator exceeded his powers when he found that the parties' agreement permitted class arbitration. The court explained that the arbitrator improperly relied on the arbitration provision's broad "any dispute" and "any remedy" language; these standard terms could not reflect consent to class arbitration. The court vacated the award because the arbitrator lacked a contractual basis for concluding that the parties agreed to class arbitration where the arbitration provision did not explicitly address class arbitration.

This case demonstrates the importance of establishing a contractual basis for the availability of class arbitration. In light of the recent Supreme Court decisions on class arbitration, the Fifth Circuit was reluctant to infer consent to class arbitration. The Fifth Circuit pointed out, however, that the Second Circuit and the Third Circuit have come out differently on this question. See Jock v Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011) (confirming arbitrators' decision to allow class claims despite absence of express provision); Sutter v Oxford Health Plans LLC, (3d Cir. Apr. 3, 2012) (affirming arbitrators' decision to allow class arbitration based on an agreement that did not mention class arbitration).