Supreme Court: Alito, in Stolt-Nielsen, Bars Class Arb Without Party Agreement (Web)

The U.S. Supreme Court, in a 5-3 opinion by Associate Justice Samuel Alito, this morning ruled that a court cannot impose class arbitration on parties who have not agreed to authorize the process, and doing so is is inconsistent with the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq.

Today's decision in Stolt-Nielsen S.A. et al. v. AnimalFeeds International Corp., No. 08-1198 (available here) reverses and remands a Second U.S. Circuit Court of Appeals opinion that permitted a panel of arbitrators to allow for class arbitrations under the FAA when the contract arbitration clause is silent on that point. The Court took the case to determine whether the FAA permits arbitrators to certify a class arbitration when the arbitration clause in the contract is silent on the issue.

This is the second time this issue has been raised in the Supreme Court within the past seven 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 opinions, 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.

Today's Alito opinion says that the multiple Bazzle opinions “appear to have baffled the parties” in Stolt-Nielsen and attempts to set the record the straight.

Alito was joined by Chief Justice John Roberts Jr., and Associate Justices Antonin Scalia, Anthony Kennedy, and Clarence Thomas.  Associate Justice Ruth Bader Ginsburg wrote a dissent, joined by Associate Justices Breyer and John Paul Stevens, who this week is hearing his final oral arguments on the bench before his retirement.  Associate Justice Sonia Sotomayor didn't participate. 

Yesterday, the Court heard arguments in another potentially significant FAA case, Rent-a-Center West Inc. v. Jackson,  No. 09-49 (links and preview here).

More will be posted here soon on the Court's clarification on these issues.

Further background on today's decision:

Though 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 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).

The cert petition in this case was brought by big maritime companies accused of price-fixing by their customers, including the respondent, AnimalFeeds International. The petitioners included Stolt-Nielsen, Odfjell, Jo Tankers, and Tokyo Marine. 

AnimalFeeds originally filed suit against the petitioners for antitrust violations in district court by consolidating their suit with other plaintiffs accusing Stolt-Nielsen of antitrust violations before a multidistrict litigation panel, but was ordered into arbitration under the parties’ arbitration clause. The parties negotiated a supplemental agreement permitting the arbitrators to determine whether the arbitration clause allows for class certification.

A panel of arbitrators issued a decision interpreting the clause to permit class arbitration. Petitioners sought review in the United States District Court for the Southern District of New York, moving to vacate the panel’s award on the grounds that the arbitrators had exceeded their powers and manifestly disregarded the law. The Second Circuit reversed the Southern District’s vacatur decision, concluding that the arbitrators’ award did not “rise to the level of manifest disregard of the law.”

At oral argument in front of the Supreme Court on Dec. 9 the petitioners’ counsel, Seth Waxman, a partner in the Washington, D.C. office of WilmerHale, stressed that the Bazzle decision did not answer the question as to whether an arbitrator can certify a class where the arbitration clause is “truly silent.” Stolt-Nielsen, he said, puts the issue precisely before the court.

Waxman contended that the Stolt-Nielsen arbitration panel found that the parties’ arbitration clause was “truly silent” on class certification, but decided that in the wake of Bazzle, a tribunal may permit parties to proceed as a class so long as the arbitration clause does not expressly prohibit doing so. 

Respondent countered, however, that the panel did not find that the parties’ arbitration clause was silent on the issue of class certification.  Cornelia Pillard, a professor at Washington’s Georgetown University Law Center, arguing on behalf of AnimalFeeds, noted that the arbitration panel determined that based on the broad language in the clause allowing for arbitration of “any dispute,” the parties’ intent should be interpreted to permit class arbitration.

Pillard argued that class arbitration has been around for more than 25 years, and parties can choose to contract around this by expressly precluding class arbitration in their arbitration clauses. 

Associate Justice Antonin Scalia pointed out that class arbitration may not be a regular practice in the maritime industry.  Scalia’s point was the principal subject of an amicus brief supporting Stolt-Nielsen and the other petitioners by numerous shipping companies, led by the Association of Ship Brokers and Agents.  The brief states that maritime contracts are not drafted by attorneys, but rather by “commercial men employed usually in the chartering departments of their employers” with no legal experience.  It goes on to say that “asking commercial persons to protect themselves from risks of which they are unaware is unrealistic.”

In his rebuttal on behalf of Stolt-Nielsen asking the Court to bar class arbitration, Waxman suggested that the American Arbitration Association’s rule on clause construction “encapsulate[d] the question that the parties presented to the Court.  . . .” 

Rule 3, “Construction of the Arbitration Clause,” in the AAA’s Rules for Class Arbitrations, states that “the arbitrator shall determine as a threshold matter, in a reasoned, partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class.”

The AAA’s brief didn’t support either side, but instead offered guidance on interpreting arbitration clauses.

Rule 3 involves construing the contract-- whether the parties had a “meeting of the minds.”  Still, Waxman told the Court, the amicus brief did not take a position on what a tribunal should do if, under Rule 3, the tribunal did not find that there was a “meeting of the minds”—that is, if the contract was silent on the issue of class arbitration.  Waxman’s apparent point was that the arbitrators could not invoke FAA processes without deciding specifically what the parties had agreed to.

For the briefs, the Second Circuit's opinion in the case, and the transcript, see Scotusblog’s Stolt-Nielsen S.A. v. AnimalFeeds International Corp. wiki, here.


This website’s earlier stories on Stolt-Nielsen can be found here and here.

--Russ Bleemer, Editor, Alternatives & Abby Geller, CPR Intern