After Stolt-Nielsen v. AnimalFeeds Int’l Corp.: Deciding When Class Arbitration Is Permissible

There may not be much interest among the general readership in today’s opinion in Stolt-Nielsen SA v. AnimalFeeds International Corp., but it’s an important decision for businesses.  The Court held by a 5-3 vote (with Justice Sotomayor recusing herself), along the familiar ideological lines, that the Federal Arbitration Act does not permit imposition of class arbitration on parties who have not agreed to authorize class arbitration.

The case was somewhat unusual in that (1) the parties had stipulated that the maritime charter agreement at issue contained “no agreement” about class arbitration (slip op. 23 & n.10); and (2) the parties had, by supplemental agreement, “expressly assigned” to the arbitrators the decision whether the charter agreement permitted class arbitration “and no party argues that this assignment was impermissible.”  Slip op. 16.

Two observations:

1. The Court explicitly stated it had “no occasion to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration” and emphasized the stipulation of the parties that there “was ‘no agreement’ on the issue of class-action arbitration.'” Slip op. 23. n.10.  But the Court gives some hints about what sorts of things a decisionmaker may look to in determining whether an agreement authorizes class-action arbitration. The Court notes that “[u]nder both New York law and general maritime law, evidence of ‘custom and usage'” (there, discussing evidence “that it is customary in the shipping business for parties to resolve their disputes through bilateral arbitration”) “is relevant to determining the parties’ intent when an express agreement is ambiguous.”  Slip op. 9-10 & n. 6.  Thus, where a contract’s silence is “ambiguous,” the Court hints that evidence of custom and usage may support the conclusion that the parties did (or did not) intend to permit class arbitration. Given the Court’s statements about the hazards of inferring intent to allow class arbitration from a general agreement to arbitrate, I suspect custom and usage evidence will be more relevant to establishing intent to permit class arbitration.

2. So who decides whether a contract permits class arbitration?  Arbitrators, or a court?  Justice Kennedy, a dissenter in Green Tree Financial Corp v. Bazzle, 539 U.S. 456 (2002)indeed, the last Bazzle dissenter still on the Court–joined the majority opinion today. The Bazzle dissent, however, took the position that the decision whether a contract permits class arbitration “is one for the courts, not for the arbitrator.” 539 U.S. at 455 (Rehnquist, J., dissenting).  The Stolt-Nielsen majority avoids that question by noting that only a plurality of the Court in Bazzle “decided that question” (whether “an arbitrator,not a court . . . decide[s] whether a contract permits class arbitration”).  Slip op. 16.  The Stolt-Nielsen majority said, “we need not revisit that question here because the parties’ supplemental agreement expressly assigned this issue to the arbitration panel, and no party argues that this assignment was impermissible.”  Id.  Thus, the issue that the Court was unable to decide in Bazzle–whether the arbitrator or the court decides whether an agreement permits class arbitration–still seems to be unsettled.

And with that, I have become the odds-on favorite for the “dullest post of 2010” award!