Tuesday, April 27, 2010
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.