Stipanowich on Stolt: Outcome Over Clarity (Web)
April 28, 2010
Writing on a list serv of private conflict resolution practitioners about his frustration with yesterday’s U.S. Supreme Court decision in Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., No. 08-1198 (April 27, 2010)(available here)(three CPR website articles are linked at the bottom), ADR scholar Thomas J. Stipanowich noted that the opinion seems to emphasize outcome over establishing “clarity, transparency, and reliability in the realm of commercial arbitration.”
Stipanowich, a law professor who is William H. Webster Chair in Dispute Resolution and
academic director of the Straus Institute for Dispute Resolution at Pepperdine University School of Law in Malibu, Calif., adapted his private remarks today for this website. Stipanowich was president and chief executive officer of the International Institute for Conflict Prevention and Resolution from 2000 through 2005, and currently sits on CPR’s board.
The thrust of the Stolt-Nielsen majority opinion was to shun the rationale of the Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) plurality—which characterized the question as whether class arbitration was a matter of “procedure” growing out of the dispute.
Instead, the majority founded its decision on Supreme Court “precedents [under the Federal Arbitration Act] emphasizing the consensual basis of arbitration.” The majority thus brings into play the body of substantive law of arbitrability that has grown up around the Federal Arbitration Act in the last quarter-century—and which preempts contrary state law.
The majority, in an opinion by Associate Justice Samuel Alito, explains that “[w]hile the interpretation of an arbitration agreement is generally a matter of state law, . . . the FAA imposes certain rules of fundamental importance, including the basic precept that arbitration ‘is a matter of consent, not coercion.’ . . . ” [Citations omitted.]
The contractual foundation of arbitration facilitates party choices—including, as Stolt-Nielsen states, “who will resolve specific disputes,” and “with whom they choose to arbitrate.”
Here, where the parties’ agreement was silent as to the issue of class-action arbitration—and, indeed, had stipulated that there was “no agreement” on the matter—there could be no basis upon which to authorize class arbitration:
The opinion states, “[T]he 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. “
Such a result could not be inferred “solely from the fact of the parties’ agreement to arbitrate,” as the Alito opinion states, because class-action arbitration “changes the nature of arbitration” in various ways: (1) the arbitrator is charged with resolving not just a single dispute, “but instead resolves many disputes between hundreds or thousands of parties,” (2) the “presumption of privacy and confidentiality” is lost; (3) the arbitrator’s award “adjudicates the rights of absent parties,” and (4) the commercial stakes are particularly significant, as in class-action litigation.
Thus, the Stolt-Nielsen majority concludes that, as a matter of federal law, there can be no class-action arbitration when the parties have stipulated there is “no agreement” on the matter.
While the present decision fits more squarely than Bazzle within the general body of American precedents involving multiparty conflict and multiple arbitration agreements (see Ian R. MacNeil, Richard E. Speidel & Thomas J. Stipanowich, “Federal Arbitration Law: Agreements, Awards & Remedies under the Federal Arbitration Act,” Ch. 33 “Consolidation of Hearings”), the majority opinion is likely to contribute to the controversy currently swirling around “waiver of class action” provisions in arbitration clauses in consumer and employment contracts.
Though the Alito opinion stops short of “decid[ing] what contractual basis may support a finding that the parties agreed to authorize class-action arbitration,” it may be perceived by some as a clear signal of the Court's lack of receptiveness to concerns about the impact of arbitration provisions on plaintiffs’ ability to bring class actions.
The latter concerns, however, are sharply focused on the context of standardized contracts of adhesion, while the present case involved arms-length bargaining between sophisticated parties.
Alito alludes to this in a footnote criticizing the arbitration panel for relying on “cited arbitration awards [,none of which] involved a contract between sophisticated business entities.” There is therefore room for surmise about how the Court would handle the class-action issue in an adhesion contract setting.
Might a moderate judge find that the FAA’s “consensual dictates” give way in any respect to the moderating realities of mass contracting? It remains to be seen.
For those concerned about the finality of arbitration awards and the purview of judicial scrutiny, the majority decision presents us the rare specter of the nation's high court vacating a commercial arbitration award. (The Court did so in Commonwealth Coatings Corp. v. Casualty Co., 393 U.S. 145 (1968), and in so doing mightily reinforced the perceived breadth of the concept of “evident partiality.”)
Although, as it maddeningly did in Hall Street Associates L LC. v. Mattel Inc., 552 U.S. 576 (2008) , the Court refused to give clear direction on the status of the doctrine of “manifest disregard of the law,” the majority nevertheless decided that if such a standard indeed exists, it was met!
The logic goes as follows: The arbitration panel failed to consider what body of law governed the issue of class arbitration, but instead rested its decision on a public policy argument supporting the concept. Such considerations must, however, give way to the preemptive “consensual” foundation established by the FAA—and the arbitrators’ failure to recognize and adhere to this approach was an act “in excess of their powers” and, furthermore, in “manifest disregard” of fundamental FAA precepts.
Justice Ginsberg’s dissent, joined by Justices Stevens and Breyer, questioned not only the level of scrutiny applied by the majority but, moreover, the ripeness of the matter for judicial action.
While it is highly doubtful that the majority actively contemplated (or relishes) the prospect, there is no doubt that many hopeful attorneys will seize on the wisp of a possibility that the gates of vacatur have finally opened.
The majority also borrowed, I believe for the first time in a high court commercial arbitration decision (and somewhat anachronistically), the maxim from the collective bargaining realm that “It is only when [an] arbitrator strays from interpretation and application of the agreement and effectively ‘dispense[s] his own brand of industrial justice’ that his decision may be unenforceable.”
This labor arbitration principle must heretofore be regarded as a part of the law surrounding FAA Section 10(a)(4). As [another participant in the list serv discussion] correctly notes, there is no hint of discussion about the varying policies at play in labor and commercial arbitration.
The majority’s decision clearly seeks to undermine Bazzle—which, the majority concludes, failed to yield a majority decision on any of the questions presented. It makes one wonder whether Alito and the majority regard post-Bazzle establishment of procedures to facilitate class action arbitration as a great deal of sound and fury signifying nothing.
It reminds me of the television show where a character woke up and discovered that the last couple of television seasons had all been a dream!
CPR posted three stories yesterday on Stolt-Nielsen. Here are direct links: