The Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010) significantly narrows the circumstances in which plaintiffs may proceed in arbitration as a class, holding that courts may not impose class arbitration on parties whose arbitration clauses are silent on the issue. The impact of the Supreme Court’s decision essentially leaves class arbitration appropriate only when the parties’ agreements explicitly permit it.
In Stolt-Nielsen, plaintiff brought a putative class action against defendants for their alleged involvement in an illegal price-fixing conspiracy related to the shipping of plaintiffs’ goods. The parties’ shipping contract contained an arbitration clause that made no mention of class arbitration, but plaintiff nevertheless served a demand on defendants to proceed with arbitration as a class. After the arbitrator concluded that the parties’ agreement allowed class arbitration, defendants filed an application for judicial review. When the appeals reached the Supreme Court, the Court vacated the arbitrator’s decision.
The Supreme Court found that the arbitrator had exceeded his powers by straying from the interpretation and application of the parties’ contract and imposing his own public policy views with regard to class arbitration. The arbitrator had impermissibly declined to determine whether any laws applicable to the parties’ dispute permitted the imposition of class arbitration absent express consent, and instead applied what the arbitrator viewed to be the best approach. This, the Supreme Court held, justified vacating the arbitrator’s decision.
Recognizing that none of its prior decisions, including its decision in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), had decided whether class arbitration may be imposed on parties whose contracts are silent on the issue, the Supreme Court addressed the novel question in Stolt-Nielsen head-on. The Court held that defendants could not be compelled to submit to class arbitration absent defendants’ explicit agreement to do so. Because class action arbitration differs significantly from bilateral arbitration, the Court reasoned that defendants could not be forced to participate, absent consent, in the more expensive and less efficient class arbitration process. Mere silence on the issue of class arbitration, the Court held, is not implied consent to resolve arbitration through class action procedures.