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Alito on Why Class Action Arbitration is a Different Animal (Web)

In his majority opinion in today’s Stolt-Nielsen S.A. et al. v. AnimalFeeds Int’l Corp., No. 08-1198 (available here)(full details and background in our earlier story, here and here), associate Justice Samuel Alito traces the history of party self determination in arbitration.  

Then, near the end of his 23-page opinion, he spells out why arbitrators do not have the power to declare a class action arbitration unless the parties consent.  

Dissenting Justice Ruth Bader Ginsburg suggests that the contract may indicate a basis for declaring that the parties agreed to submit a case to class arbitration, and she indicates that an express consent isn’t required in the majority opinion.

Her point is based on Alito’s words–specifically, in the majority opinion, “it follows 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.”

Still, the majority opinion pushes for something closer to an affirmative authorization.

Here’s why:
Alito invokes the commercial nature of the Stolt-Nielsen-AnimalFeeds arbitration agreement, and the absence of class arbitration in maritime law, as reasons that the parties didn’t have an expectation or intent for class processes.  The opinion also cites the custom of shippers choosing the shipment “charter party” terms.

As a result of these factors, Alito concluded, the arbitral panel’s “conclusion is fundamentally at war with the foundational FAA principle that arbitration is a matter of consent.”

 “In certain contexts,” the opinion notes, it is implict that the agreement authorizes arbitrators to adopt procedures “necessary to give effect to the parties’ agreement.”  

The “background principle” for such determinations, the opinion states, is:  “[T]he parties have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court,” citing Restatement (Second) of Contracts §204 (1979).

But there are no implicit agreements to back class arbitration after Stolt-Nielsen.  “[C]lass-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing tosubmit their disputes to an arbitrator,” writes Alito.  “In bilateral arbitration, parties forgo the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.”

The majority opinion casts doubt on “the relative benefits of class-action arbitration.”  Specifically, Alito enumerates “the fundamental changes” with a move to class arbitration from a bilateral ADR setting:

  • ù    It’s no longer “a single dispute between the parties to a single agreement.”  The matter instead becomes “many disputes between hundreds or perhaps even thousands of parties.”
  • ù    “[T]he presumption of privacy and confidentiality” that applies in many bilateral arbitrations “doesn’t apply in class arbitrations, the opinion notes, citing the American Arbitration Association as friend-of-the-Court brief discussing Class Rule 9(a).
  • ù    The arbitrator’s award no longer binds just the parties, but may adjudicate the rights of absent parties.
  • ù    And:  “the commercial stakes of class-action arbitration are comparable to those of class-action litigation.”

As a result, the majority opinion concludes, “We think that the differences between bilateral and class action arbitration are too great for arbitrators to presume, consistent with their limited powers under the FAA, that the parties’ mere silence on the issue of class-action arbitration
constitutes consent to resolve their disputes in class proceedings.”

The opinion concludes that there must be a consideration of the parties’ intent to invoke class arbitration.  “Contrary to the dissent, but consistent with our precedents emphasizing the consensual basis of arbitration,” writes Justice Alito, “we see the question as being whether the parties agreed to authorize class arbitration. Here, where the parties stipulated that there was ‘no agreement’ on this question, it follows that theparties cannot be compelled to submit their dispute to class arbitration.”                

–Russ Bleemer, Editor, Alternatives