Tuesday, March 29, 2011
We referred our readers to other sources on the Supreme Court's decision in Stolt-Nielsen v. Animalfeeds Int'l Corp. last term. This time, we are going to bear our share of the burden by reporting on the limited consequences flowing from that case in the Second Circuit case, In re: American Express Merchants' Litig.,although we freely admit that Jill Gross of the ADR Prof blog has beaten us to the punch here.
The issue in American Express is the enforceability of a "class action waiver" provision within a mandatory arbitration agreement. The Second Circuit originally ruled on the issue in 2009, finding the provision unenforceable because enforcement "would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs." The Supreme Court vacated that decision and remanded for reconsideration in light of Stolt-Nielsen. Although the parties filed supplemental briefs on the impact of that decision, the Second Circuit found that its original analysis was unaffected by Stolt-Nielsen and thus affirmed its original decision without oral argument.
The District Court had originally dismissed the action, finding that the issue of the enforceability of the challenged provision was for the arbitrator to decide. The Second Circuit found otherwise in 2009 and the parties did not challenge that ruling.
The Second Circuit's reasoning in the 2009 opinion was as follows: 1) The Supreme Court's 2000 decision in Green Tree Financial Corp-Alabama v. Randolph was controlling and imposed on plaintiffs the burden of establishing that the challenged provision rendered arbitration prohibitively expensive; 2) plaintiffs had met that burden; and therefore 3) to enforce the class action waiver would be to grant American Express de facto immunity from antitrust liability. However, in Stolt-Nielsen, the Supreme Court that "a party may not be compelled . . . to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." American Express interpreted this ruling to mean that courts must simply enforce the parties' agreements, not construe them. In this case, the consequence of Stolt-Nielsen, according to American Express, is that coruts "may not impose class arbitration on unwilling parties."
The Second Circuit was unmoved. There was no confusion about what the parties agreed to. The question was whether such an agreement could be enforced, and on that topic, the Second Circuit concluded, Green Tree still controls. While Stolt-Nielsen prohibits the use of public policy as a means of divining the parties intent, the Second Circuit does not bar a court from using public policy to find contractual language void. The case is now remanded to the District Court for further proceedings.