Skip to content No Class Arbitration Without Parties' Express Agreement: The U.S. Supreme Court's Decision in Stolt-Nielsen


Search Publications

April 2010

No Class Arbitration Without Parties' Express Agreement: The U.S. Supreme Court's Decision in Stolt-Nielsen

Stolt-Nielsen v. AnimalFeeds Int'l Corp., Case No. 08-1198

In Stolt-Nielsen, the Supreme Court had to decide "whether imposing class arbitration on parties whose arbitration clauses are 'silent' on that issue is consistent with the Federal Arbitration Act ("FAA")." Stolt-Nielsen v. AnimalFeeds Int'l Corp., Case No. 08-1198, at 1. On April 27, 2010, the Supreme Court answered that question and held (by a 5-3 vote, with Justice Sotomayor not participating) that "a party may not be compelled under the [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." Id. at 20 (emphasis added in the original decision).

Petitioners are shipping companies and AnimalFeeds International Corp. ("AnimalFeeds") is one of their customers supplying "raw ingredients, such as fish oil, to animal-feed producers around the world." Id. at 1. AnimalFeeds uses a charter party, which is a standard contract under maritime law, to ship its goods. AnimalFeeds used what is called a "Vegoilvoy" charter party, which included an arbitration provision with respect to bilateral arbitrations, however it was silent as to class arbitrations. In 2003, the Department of Justice found petitioners "were engaging in an illegal price-fixing conspiracy." Id. In 2005, AnimalFeeds served petitioners with a demand for class arbitration to take place in New York City and sought to represent a class of "[a]ll direct purchasers of parcel tanker transportation services globally for bulk liquid chemicals, edible oils, acid, and other specialty liquids from [petitioners]" during the period the alleged price fixing occurred. Id. at 3.

The parties disagreed on whether class arbitration could be imposed in this instance, so they submitted that question to a panel of three arbitrators and stipulated that the arbitration clause was "silent" with respect to class arbitration. The panel of arbitrators concluded that the intent of the parties was to allow for class arbitrations. Id. at 4. The Southern District of New York, relying on Section 10(a)(4) of the FAA (authorizing a district court to vacate an arbitration award where the arbitrators exceed their powers), disagreed and held that the arbitrators exceeded their powers under the FAA and their decision was made in "manifest disregard" of the law insofar as the arbitrators failed to consider federal maritime law or New York case law. Id. at 5. On appeal, the Court of Appeals upheld the arbitrators' award "because the parties specifically agreed that the arbitration panel would decide whether the arbitration clause permitted class arbitration." 548 F.3d 85, 101 (2008). As Justice Ginsburg indicates in her dissent, the Second Circuit "reasoned the arbitration panel did not exceed its authority in deciding that issue – irrespective of whether it decided the issue correctly." However, the Supreme Court disagreed with the Second Circuit's reasoning and concluded that the arbitration panel based its decision on "its own view of sound policy regarding class arbitration," rather than considering two bodies of well-established law, such as federal maritime law and New York state law or the FAA. Id. at 7.

The Supreme Court based its decision on the main purpose of the FAA, which is the basic concept that arbitration "is a matter of consent, not coercion." Id. at 17. The Supreme Court continued, "Whether enforcing an agreement to arbitrate or constructing an arbitration clause, courts and arbitrators must 'give effect to the contractual rights and expectations of the parties'." Id. at 18, citing Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, at 479 (1989). Here, the Supreme Court was concerned that, although the parties have stipulated that they did not reach an agreement as to class arbitration, the arbitrators imposed it, which "conclusion is fundamentally at war with the foundational FAA principle that arbitration is a matter of consent." Id. at 20. The Supreme Court also emphasized the crucial difference between bilateral arbitration and class arbitration. While bilateral arbitrations have a presumption of privacy and confidentiality, class actions do not because of the multiple parties involved. Because of this main concern for privacy and confidentiality, arbitrators should not presume "that the parties' mere silence on the issue of class-action arbitration constitutes consent to resolve their disputes in class proceedings." Id. at 23.

In light of this decision, parties should carefully consider how to structure their future arbitration clauses and remember that if they want to pursue class action arbitrations, that desire should be expressly stated in their arbitration clause. Otherwise, the default position, post-Stolt-Nielsen, is that silence is construed against imposition of class arbitrations.

Class Action

Barry G. Flynn

Class Action
Commercial Litigation