April 27, 2010

Supreme Court Decides Stolt-Nielsen S.A. v. AnimalFeeds International Corp.

On April 27, the Supreme Court decided Stolt-Nielsen S.A. v. AnimalFeeds International Corp., No. 08-1198, holding that parties may not be compelled under the Federal Arbitration Act (FAA) to submit to class arbitration unless there is a contractual basis for concluding that they agreed to do so.

AnimalFeeds, which ships its goods internationally in tankers owned by Stolt-Nielsen and other carriers, filed a class action suit against the carriers for price-fixing in violation of the antitrust laws. AnimalFeeds demanded arbitration under the contracts governing the shipments, not only of its individual claims, but also of claims on behalf of a class of purchasers of tanker transportation services. The parties agreed that the arbitration panel should decide whether class arbitration was permitted under their contract and that the contract was "silent" on this subject. The panel determined that the arbitration clause allowed for class arbitration. The district court vacated the award, holding that the panel had "manifestly disregarded" relevant federal maritime law, but the Second Circuit reversed and reinstated the award.

The Supreme Court reversed. It held, first, that its previous decision in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), did not establish the rule to be applied in deciding whether class arbitration is permitted because the plurality opinion in that case did not reach that issue.

Addressing the rule itself, the Court held that "[w]hile the interpretation of an arbitration agreement is generally a matter of state law, the FAA imposes certain rules of fundamental importance." One such fundamental rule is that arbitration "is a matter of consent, not coercion." The FAA's "central purpose" is to ensure that "private agreements to arbitrate are enforced according to their terms." Parties thus may structure their arbitration agreements as they see fit, limiting the issues to be arbitrated and "specify[ing] with whom they choose to arbitrate their disputes." Under these principles, a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that it agreed to do so. Although an arbitration agreement implicitly authorizes the arbitrator to adopt procedures necessary to give effect to the agreement, the decision to allow a class action falls outside this implicit authority because "it changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator." Silence is not enough. The FAA requires more. There must be some indication that the parties agreed to authorize class arbitration.

Because the FAA requires the parties' agreement to order class arbitration, and because the parties stipulated that there was no such agreement, the arbitration panel exceeded its powers, in violation of section 10(a)(4) of the FAA, by ordering class arbitration.

Justice Alito delivered the opinion of the Court, in which Chief Justice Roberts and Justices Scalia, Kennedy, and Thomas joined. Justice Ginsburg filed a dissenting opinion, in which Justices Stevens and Breyer joined. Justice Sotomayor took no part in consideration or decision of the case.

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