Tuesday, April 27, 2010

Supremes Decide Stolt on Class-Action Arbitration

Ct The Supreme Court just released Stolt-Nielsen v. AnimalFeeds.  Hat tip to Ross Runkel for the the blast-out.  Here's the critical part of the Court's syllabus.  I'll have a few thoughts of my own afterward.

(c) Imposing class arbitration here is inconsistent with the FAA.

(1) The FAA imposes rules of fundamental importance, including the basic precept that arbitration “is a matter of consent, not coercion.” Volt v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 479. The FAA requires that a “written provision in any maritime transaction” calling for the arbitration of a controversy arising out of such transaction “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,” 9 U. S. C. §2, and permits a party to an arbitration agreement to petition a federal district court for an order directing that arbitration proceed “in the manner provided for in such agreement,” §4. Thus, this Court has said that the FAA’s central purpose is to ensure that “private agreements to arbitrate are enforced according to their terms.” Volt, 489 U. S., at 479. Whether enforcing an agreement to arbitrate or construing an arbitration clause, courts and arbitrators must “give effect to the [parties’] contractual rights and expectations.” Ibid. The parties’ “intentions control,” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U. S. 614, 626, and the parties are “generally free to structure their arbitration agreements as they see fit,” Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U. S. 52 , 57. They may agree to limit the issues arbitrated and may agree on rules under which an arbitration will proceed. They may also specify with whom they choose to arbitrate their disputes. See EEOC v. Waffle House, Inc., 534 U. S. 279, 289.

(2) It follows that a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. Here, the arbitration panel imposed class arbitration despite the parties’ stipulation that they had reached “no agreement” on that issue. The panel’s conclusion is fundamentally at war with the foundational FAA principle that arbitration is a matter of consent. It may be appropriate to presume that parties to an arbitration agreement implicitly authorize the arbitrator to adopt those procedures necessary to give effect to the parties’ agreement. See Howsam v. Dean Witter Reynolds, Inc., 537 U. S. 79, 84. But an implicit agreement to authorize class action arbitration is not a term that the arbitrator may infer solely from the fact of an agreement to arbitrate. The differences between simple bilateral and complex class action arbitration are too great for such a presumption.

Here are my initial thoughts, based only on the syllabus:

First, I think it's significant that the Supreme Court focuses on the contractualist underpinning of the FAA.  No doubt Steve Ware is smiling.  That's well and good, but what about the Supreme Court's decision two years ago in Hall Street v. Mattel, in which the Court nuked bargained-for standards of judicial review?  That decision struck a decidedly anti-contractualist tone.  Is the Court using contractualism only when it likes the outcome that approach produces?

Second, how will this decision affect consumer arbitration agreements that are silent on the issue of class actions?  I'm thinking particularly of cases involving claims that are small individually but large in the aggregate, such as cell phone contracts.  If these claims cannot proceed as a class action, they cannot proceed at all.  If, as Stolt suggests, contractual silence as to class actions means the case cannot go forward as an arbitral class action, what does that mean?  (a) That consumers' only option is to proceed in individual arbitration hearings -- i.e., that they have no means of redress at all?  Or (b) that the arbitration clause is void because it makes it impossible to enforce a substantive right (an outcome that I like, but that is difficult to square with the last 25 years of Supreme Court precedent)?

Sarah Cole's take on Stolt is here at ADR Prof Blog.

rb

http://lawprofessors.typepad.com/laborprof_blog/2010/04/supremes-decide-stolt-on-classaction-arbitration.html

Arbitration | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0134802e3b3f970c

Listed below are links to weblogs that reference Supremes Decide Stolt on Class-Action Arbitration:

Comments

From my brief skim of the opinions, Justice Ginsburg's dissent suggests that this may not be a wholly contractualist interpretation. She notes that when a claim can be brought in court, it can be brought as an individual action or as a class action. She thus questions whether the use of language reqarding a claim in arbitration (which is only a change of forum) would be interpreted differently. And she raises some of the concerns you have about foreclosing the remedy entirely for small claims.

Posted by: Marcia | Apr 27, 2010 9:31:13 AM

Justice Ginsburg's dissent is a devastating critique of the majority's approach to the agreement and to the FAA. Read it to see that the majority has distorted the statute, the terms of the Charter Party, and the procedural posture of the parties' dispute.

It is fascinating that the Justices who broadly favor arbitration have so often deployed the "forum selection" argument to dismiss claims that arbitration clauses prevent parties from vindicating their substantive legal rights. As Ginsburg points out, that argument points strongly to enforcement on the facts of this case. But the arbitration proponents now invoke a "consent" argument to avoid the logical consequences of their previous line of reasoning.

Despite the majority opinion by Justice Alito, I see the persuasive power of, perhaps, Justice Scalia in the odd mix of textualist and purposive interpretation. It's as though Scalia convinced him of the correct result but he had to fudge the reasoning at several crucial points.

I also suspect that this decision signals the death knell for incipient judicial efforts to rein in class action waivers in arbitration agreements. It's still remotely possible that the California "de facto waiver" doctrine will survive Supreme Court scrutiny. But I think it is only a matter of time before the Court takes a case and holds that the California decisions that directly conflict with Supreme Court interpretations of the FAA must die. Thus Armendariz and Little conflict directly with Green Tree v. Randolph on cost allocation. And Discover Bank now conflicts in principle with Stolt-Nielsen's interpretation of what the FAA implies about class arbitration.

Although I think arbitration can be better than judicial resolution for many employment claims, the Court's current path seems destined to eviscerate the valuable constraints that flow logically from the forum selection argument -- that is, the arbitral forum must be an adequate substitute for the judicial forum. If that happens, then I'll have to join the arbitration critics or advocate that employers should go above and beyond the paltry legal requirements for an enforceable arbitration agreement.

That's my two cents. I'd love to know if others have a more optimistic view of Stolt.

Posted by: Rip Verkerke | Apr 28, 2010 7:00:06 AM

Post a comment