Class Action

Class Action Arbitration Defense Cases–Stolt-Nielsen v. AnimalFeeds: Supreme Court Holds Federal Arbitration Act (FAA) Requires Agreement To Arbitrate Claims Brought As Class Action

By Michael J. Hassen

Party to Arbitration Clause Governed b y FAA (Federal Arbitration Act) may not be Compelled to Arbitrate Class Action Claims where Arbitration Clause is Silent on Class Action Arbitration Supreme Court Holds

Plaintiff AnimalFeeds is a company that “supplies raw ingredients, such as fish oil, to animal-feed producers around the world”; “AnimalFeeds ships its goods pursuant to a standard contract known in the maritime trade as a charter party.” Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., ___ U.S. ___ (April 27, 2010) [Slip Opn., at 1]. Defendants are various “shipping companies that serve a large share of the world market for parcel tankers—seagoing vessels with compartments that are separately chartered to customers wishing to ship liquids in small quantities.” Id. The charterers – like plaintiff – “typically select the particular charter party that governs their shipments”-- not the shipowners. Id., at 2. And the contracts here at issue contained an arbitration clause that was silent as to the availability of class action relief in any arbitration, id. After a Department of Justice criminal investigation uncovered an illegal price-fixing conspiracy among the defendants, plaintiff filed a class action complaint in federal district court alleging antitrust violations. Id., at 2-3. The Judicial Panel on Multidistrict Litigation eventually consolidated the class action with similar class action lawsuits brought by other charterers. Id., at 3. The parties agreed that plaintiff must arbitrate the antitrust dispute, and plaintiff served defendants with a demand for class action arbitration in New York. Id. Defendants argued that class action relief was unavailable under the arbitration clause because “[a]ll the parties agree that when a contract is silent on an issue there’s been no agreement that has been reached on that issue”; the parties agreed to submit the question of class arbitration to a panel of three arbitrators. Id., at 3-4. The arbitrators disagreed and concluded that class action relief could be had under the arbitration clause. Id., at 4. Defendants moved the district court to vacate the arbitrators’ award; the district court agreed with defendants that the arbitrators’ decision constituted a “manifest disregard” of federal maritime law and accordingly vacated the award. Id., at 4-5. The Second Circuit reversed on the ground that “because [defendants] had cited no authority applying a federal maritime rule of custom and usage against class arbitration, the arbitrators’ decision was not in manifest disregard of federal maritime law.” Id., at 5. The Supreme Court granted certiorari “to decide whether imposing class arbitration on parties whose arbitration clauses are ‘silent’ on that issue is consistent with the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq.” Id., at 1. The High Court reversed.

Full post as published by Class Action Defense Blog on May 10, 2010 (boomark / email).