Labor & Employment Law

Imposing class arbitration on parties who have not agreed to it violates Federal Arbitration Act (5-3)

The US Supreme Court has decided Stolt-Nielsen v. AnimalFeeds (US Supreme Ct 04/27/2010)

The parties in this case are parties to an international maritime contract that contains an arbitration clause. The contracts are silent as to whether arbitration is permissible on behalf of a class, and the parties submitted that issue to arbitration. A panel of arbitrators decided that the arbitration clause allowed for class arbitration. The District Court vacated the award on the ground that it was made in "manifest disregard" of the law. The 2nd Circuit reversed.

The US Supreme Court held (5-3) that imposing class arbitration on parties who have not agreed to authorize class arbitration is inconsistent with the Federal Arbitration Act (FAA).

(1) The arbitrators exceeded their powers by imposing their own policy choice instead of identifying and applying a rule of decision derived from the FAA or from maritime or New York law. (2) Imposing class arbitration in this case is inconsistent with the FAA. The Court restated the principles that arbitration "is a matter of consent, not coercion," that "private agreements to arbitrate are enforced according to their terms," and that parties are "generally free to structure their arbitration agreements as they see fit." Based on these principles, "parties may specify WITH WHOM they chose to arbitrate." [Emphasis in original] Because the parties stipulated that there was no agreement on class arbitration, the parties cannot be compelled to submit to class arbitration.

The DISSENT argued that the arbitrators' "partial award" was not ripe for judicial review. On the merits, the dissent would have upheld the arbitrators due to the strict limitation the FAA places on judicial review of arbitral awards.

Full post as published by Ross' Employment Law Blog on April 27, 2010 (boomark / email).