By Thomas J. Stipanowich
The thrust of the majority opinion authored by Justice Alito was to shun the rationale of the plurality in the Court’s earlier decision in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003)), which characterized the question of whether class arbitration as a matter of “procedure” growing out of the dispute. Instead, the majority founded its decision on Supreme Court “precedents [under the FAA] 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 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.” The contractual foundation of arbitration facilitates party choices-including “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 no basis upon which to authorize class arbitration:
“[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” 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 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 multi-party 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 decision 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 in an appropriate case that the “consensual dictates” of the FAA 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, 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, for the first time in a 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 principle of labor arbitration must heretofore be regarded as a part of the law surrounding FAA Section 10(a)(4).
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. While Bazzle was hardly a model of clarity, one wonders whether Alito and company regard post-Bazzle establishment of procedures to facilitate class action arbitration as a great deal of sound and fury signifying nothing.
Thomas J. Stipanowich is William H. Webster Chair in Dispute Resolution and Professor of Law at Pepperdine University, as well as Academic Director of the Straus Institute for Dispute Resolution. The Straus Institute was ranked number one among academic dispute resolution programs each of the last five years by U.S. NEWS & WORLD REPORT. He was co-author, with Ian Macneil and Richard Speidel, of the groundbreaking five-volume treatise FEDERAL ARBITRATION LAW: AGREEMENTS, AWARDS & REMEDIES UNDER THE FEDERAL ARBITRATION ACT, cited by the Supreme Court and many other federal and state courts, which was named Best New Legal Book by the Association of American Publishers. He also co-authored RESOLVING DISPUTES: THEORY, LAW AND PRACTICE, a law school course book supplemented by many practical exercises and illustrations on video; the second edition was just published. He is the author of many other much-cited publications on arbitration and dispute resolution, and has twice won the CPR Institute’s First Prize for Professional Articles (1987 and 2009)-most recently for Arbitration: The “New Litigation.” In 2008, he was given the D’Alemberte/Raven Award, the ABA Dispute Resolution Section’s highest honor, for contributions to the field.