Stolt-Nielsen S.
A. v. Animalfeeds Int'l Corp. (U.S. S.C. April
27, 2010)
A class of purchasers of parcel
tanker transportation services sought arbitration in their antitrust suit
against a shipper for price fixing.
Although the charters contained an arbitration agreement, the agreement
was silent as to whether a class arbitration was permitted. The parties agreed to submit the question
whether their arbitration agreement allowed for class arbitration to a panel of
arbitrators, who would be bound by the class rules developed by the
American Arbitration Association. The
parties selected an arbitration panel, designated New York City as the arbitration site, and
stipulated that their arbitration clause was silent on the class arbitration
issue. The panel determined that the arbitration clause allowed for class
arbitration. However, the U.S. District
Court vacated the award, concluding that the arbitrators' award was made in “manifest
disregard” of the law, for had the arbitrators conducted a choice-of-law
analysis, they would have applied the rule of federal maritime law requiring
contracts to be interpreted in light of custom and usage.
The Second Circuit reversed, holding that
because petitioners had cited no authority applying a maritime rule of custom
and usage against class arbitration, the arbitrators' decision was not in
manifest disregard of maritime law; and that the arbitrators had not manifestly
disregarded New York law, which had not established a rule against class
arbitration.
The United States Supreme Court
vacated the arbitration award, holding that imposing class arbitration on
parties who have not agreed to authorize class arbitration is inconsistent with
the Federal Arbitration Act (FAA). Because
the parties agreed that their agreement was silent on the class arbitration
issue, the arbitrators' proper task was to identify the rule of law governing
in that situation. Rather than inquiring whether those bodies of law contained
a default rule permitting an arbitration clause to allow class arbitration
absent express consent, the panel proceeded as if it had a common-law court's
authority to develop what it viewed as the best rule for such a situation. Ultimately the panel imposed its own
conception of sound policy and permitted class arbitration. Since the
arbitration panel exceeded its powers by imposing its own policy choice instead
of identifying and applying a rule of decision derived from the FAA or from
maritime or New York law, the decision was vacated pursuant to the FAA on the
ground that the arbitrator strayed from interpretation and application of the
agreement and effectively “dispense[s] his own brand of industrial justice.”
Addressing the merits of the
inquiry concerning class arbitration where the agreement is silent, the Supreme
Court held that imposing class arbitration is inconsistent with the FAA which
follows the basic precept that arbitration “is a matter of consent, not
coercion.” The FAA requires that a
written provision in any maritime transaction calling for the arbitration of a
controversy arising out of such transaction “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract,” and permits a party to an arbitration agreement to
petition a federal district court for an order directing that arbitration
proceed “in the manner provided for in such agreement.” Accordingly, the FAA's central purpose is to
ensure that “private agreements to arbitrate are enforced according to
their terms.” Whether enforcing an
agreement to arbitrate or construing an arbitration clause, courts and arbitrators
must “give effect to the [parties'] contractual rights and expectations.”
The Court recognized that the parties’
intentions control, and the parties are “generally free to structure their
arbitration agreements as they see fit.”
They may agree to limit the issues arbitrated and may agree on rules
under which an arbitration will proceed.
The Court held that in this action the arbitration panel imposed class arbitration
despite the parties’ stipulation that they had reached no agreement on that
issue. The panel’s conclusion is contrary to the foundational FAA principle
that arbitration is a matter of consent. An implicit agreement to authorize class
action arbitration is not a term that the arbitrator may infer solely from the
fact of an agreement to arbitrate. The
differences between simple bilateral and complex class action arbitration are
too great for such a presumption.
A copy of the decision can be found here
Bryan Richmond and Jeffrey L. Kingsley
https://www.goldbergsegalla.com/attorneys/Kingsley.html
https://www.goldbergsegalla.com/attorneys/Richmond.html