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The Next Class Act: U.S. Supreme Court Takes Its First Arbitration Case for 2009-10 (Web)

Yesterday, the U.S. Supreme Court granted certiorari to hear Stolt-Nielsen S.A. et al. v. AnimalFeeds International Corp., No. 08-1198 (June 15, 2009), presumably to answer whether class arbitrations are allowed under the Federal Arbitration Act when the contract arbitration clause is silent on that point.

This is the second time this issue has been raised in the Supreme Court within the past six years.  In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S.Ct. 2402 (2003), the Court failed to resolve the circuit split over granting class arbitrations.

In Bazzle’s plurality opinion, the case was remanded to an arbitrator, with the Court holding that the South Carolina Supreme Court had erroneously granted the certification of a class arbitration. The Court noted that silence about class actions in a clause is for the arbitrator to decide, not the South Carolina courts.

Additionally, Bazzle, written by Associate Justice Stephen G. Breyer, notes that disputes involving contract interpretation and arbitration procedures should be reserved for the arbitrator.

While Stolt-Nielsen has similar issues to Bazzle, there is one notable difference between the two that may have sparked the Court to grant certiorari.  The main difference between the two cases is while the Bazzle plurality opinion noted that the “arbitrator’s decision reflected a court’s interpretation of the contracts rather than an arbitrator’s interpretation,” the Stolt-Nielsen arbitration panel independently rendered a decision for class arbitration. See Stolt-Nielsen et al. v. AnimalFeeds International Corp., 548 F.3d 85, 89 (2d Cir. 2008).

This difference could render Bazzle moot; the Court may be ready to answer a question many analysts believed that it sidestepped in 2003.

The case also affords the Court the opportunity to do deal, once again, with the ability of the judiciary to overturn arbitration awards on a non-FAA/nonstatutory ground—that is, that the arbitrator acted in manifest disregard of the law. 

The Stolt-Nielsen case highlights and analyzes a circuit split that still exists on the vitality of manifest disregard, despite the opinion that appeared to eliminate the nonstatutory ground, Hall Street Associates LLC v. Mattel Inc., 552 U.S. ___ (2008)

Stolt-Nielsen was appealed on the class arbitration issue.  But with manifest disregard such a big issue for the Second Circuit, it’s possible the Court could revisit.  The Court is expected to hear the case sometime this fall.

--Richard C. Arce, CPR Intern