By S.I. Strong
Although the decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. is being read by some as signaling the end of class arbitration –not just as we know it, but in virtually all possible forms– the opinion actually goes nowhere near that far. Instead, the 5-3 opinion can be largely limited to its facts, leaving significant questions unanswered.
In some regards, the decision authored by Justice Alito is clear. In answering the question of “whether imposing class arbitration parties whose arbitration clauses are ‘silent’ on that issue” is permitted under U.S. federal law, the majority squarely focused on party intent, an approach with which few can argue. Justice Alito even goes so far as to indicate how that intent is to be demonstrated: when the parties have not “reached any agreement on the issue of class arbitration, the arbitrators’ proper task [is] to identify the rule of law that governs in that situation,” which in this case would have required reference “either to the FAA itself or to one of the two bodies of law that the parties claimed were governing, i.e., either federal maritime law or New York law.”
However, the Supreme Court gives little to no guidance about what must be shown in the way of intent. Instead, in footnote ten of the slip opinion, the majority concludes that “[w]e have no occasion to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration.” That statement will generate vast amounts of litigation in the lower courts. According to the majority, mere silence is not enough to support an order of class arbitration. Broadly worded arbitration agreements alone also appear insufficient to result in class proceedings. However, the Court appears to recognize that there are other ways of demonstrating intent, as through reference to state law, arbitral rules, etc. This approach is consistent with interpretive methods used in other jurisdictions (See S.I. Strong, The Sounds of Silence: Are U.S. Arbitrators Creating Internationally Enforceable Awards When Ordering Class Arbitration in Cases of Contractual Silence or Ambiguity? 30 Michigan Journal of International Law 1017, 1055-83 (2009)). Nevertheless, the Court’s failure to provide detailed guidance on this question will prove problematic.
In this dispute, the arbitrators were said to have improperly imposed their own policy choices on the parties, based largely on the fact that the panel considered published arbitral awards that discussed whether class proceedings were proper in other disputes (notably, Justice Ginsburg disputes the majority’s characterization of the panel’s interpretive approach). Because none of these awards were available when the parties had entered into the Vegoilvoy charter party, the Court concluded that the awards were irrelevant, since they could not go to what the parties’ intentions were at the time the transactions were concluded. This particular procedural posture may not arise in future cases, leaving open the question of whether published arbitral awards may also constitute persuasive authority on the question of contractual interpretation, at least in cases (unlike here) where the transaction was concluded post-Bazzle. (Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003)). Again, parties may very well litigate this issue, though it is more likely that arbitrators will simply take care when relying on previously published arbitral awards in their own awards.
Although the central issue of Stolt-Nielsen is whether and in what circumstances class arbitration may be permitted in cases of contractual silence, the case raises several other points that will likely lead to confusion and litigation. First, doubt arises about the broad applicability of this decision. As Justice Ginsburg notes in her dissenting remarks, the majority opinion appears to exclude “contracts of adhesion presented on a take-it-or-leave-it basis,” i.e., consumer contracts. It may be that the majority wished to discourage class arbitration in the consumer or other contexts as much as it did in the realm of commercial and maritime disputes, but there is sufficient room for argument that the case does not go so far.
Second, concerns arise as to whether self-proclaimed partial final awards such as the one at issue here are ripe for vacatur. Justice Ginsburg took the view that the majority did “not persuasively justify judicial intervention so early in the game or convincingly reconcile its adjudication with the firm final-judgment rule prevailing in the federal court system.” In particular, she noted that “[i]t cannot be true . . . that parties or arbitrators can gain instant review by slicing off a preliminary decision or a procedural order and declaring its resolution a ‘partial award,’” citing Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). Again, the majority opened the door to further litigation on this issue by refusing to address the matter on the grounds that the parties in this dispute had waived this particular question. Instead, Justice Alito explicitly states that “[w]e express no view as to whether, in a similar case, a federal court may consider a question of prudential ripeness on its own motion.”
This leaves a huge opening for claimant groups pressing for class proceedings. If claimants can forestall a motion to vacate these sorts of partial final awards (which are used under both the American Arbitration Association’s Supplementary Rules for Class Arbitrations and the JAMS Class Action Procedures), then defendants will be forced to wait to litigate any procedural decisions until after an award on the merits has been rendered. Interestingly, this approach – which favors speed and finality, two key attributes of arbitration – could result in increased settlement of cases as defendants seek to avoid going through the burden of merits hearings. Although commercial interests may bemoan the increased settlement rate, pointing to the possibility of settling a non-meritorious suit on financial grounds alone (despite the existence of empirical data suggesting that so-called frivolous suits are brought far less often than commonly believed, see, e.g., Elizabeth Chamblee Burch, Securities Class Actions as Pragmatic Ex Post Regulation, 43 Georgia Law Review 63, 85 (2008)), it would appear that the decision to settle in class arbitration would be based on the same criteria as a decision to settle in class actions, and there is nothing inherently unfair or procedurally problematic about that. Furthermore, as Justice Ginsburg suggested in her reference to the specter of the vanishing class action device, allowing private parties to eliminate an important procedural device that serves a critical public law function in the U.S. legal system is deeply problematic from the perspective of both individual parties (in that access to justice is thwarted) and society as a whole (in that the state’s overall regulatory scheme – which includes public and private elements – is upset).
Third, the majority opinion also fails to address two other questions that have been raised in the field of arbitration recently. For example, the majority states it does “not decide whether ‘manifest disregard’ survives our decision in Hall Street Associates . . . as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. §10.” Similarly, the majority did not confirm whether Bazzle actually stands for the proposition that the arbitrators, rather than the court, are to decide the issue of whether a contract permits class treatment. Although both of these issues are collateral to the question of whether silence in an arbitration agreement can support class treatment, they demonstrate how narrow the opinion in Stolt-Nielsen really is.
At the end of the day, Stolt-Nielsen did little to decide anything other than the case immediately in front of the Supreme Court. Numerous issues remain open and will have to be litigated before any sort of certainty can be ascertained. Claimants will not be dissuaded from bringing class claims in arbitration – particularly when they have no other realistic alternative – and defendants will not be dissuaded from challenging any procedural matter they can to avoid a decision on the merits. Rather than closing the door to class arbitration, the Supreme Court in Stolt-Nielsen has virtually ensured the device’s continued existence as parties attempt to define the proper boundaries of the procedure.
S.I. Strong is currently Associate Professor of Law at the University of Missouri and Senior Fellow at the award-winning Center for the Study of Dispute Resolution, having previously taught law at the University of Cambridge and the University of Oxford in the United Kingdom. Prior to joining the faculty at Missouri, Dr Strong was Counsel specializing in international dispute resolution at Baker & McKenzie LLP and a dual-qualified practitioner (U.S.-England) in the New York and London offices of Weil, Gotshal & Manges LLP. Dr Strong has acted in arbitral proceedings under a wide range of institutional rules and is listed as a neutral on various national and international rosters. Dr Strong is the author of numerous works on international arbitration, including the award-winning article, The Sounds of Silence: Are U.S. Arbitrators Creating Internationally Enforceable Awards When Ordering Class Arbitration in Cases of Contractual Silence or Ambiguity? 30 Michigan Journal of International Law 1017 (2009), as well as the books Research and Practice in International Commercial Arbitration: Sources and Strategies (2009) and Class Arbitration and Collective Arbitration: Mass Claims in the National and International Sphere (forthcoming), both from Oxford University Press. Dr Strong, who is qualified as a lawyer at the New York and Illinois bars and as a solicitor of the Supreme Court of England and Wales, holds a Ph.D. in law from the University of Cambridge, a D.Phil. from the University of Oxford, a J.D. from Duke University, an M.P.W. from the University of Southern California and a B.A. from the University of California.