On December 9, 2009 the United States Supreme Court heard oral argument in the one Federal Arbitration Act case it has agreed to review this Term: Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2009), petition for cert. granted June 15, 2009 (No. 08-1198) (oral argument transcript here). Stolt-Nielsen concerns whether class or consolidated arbitration may be imposed on parties whose contracts are silent on that point, and we have written extensively about the case, including a series of guest-post articles for the Disputing blog. (Posts available here, here, here, here, here, here, here, here and here.)
The precise question on which the Supreme Court granted certiorari – as phrased by the Stolt-Nielsen entities – is:
In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), this Court granted certiorari to decide a question that had divided the lower courts: whether the Federal Arbitration Act permits the imposition of class arbitration when the parties’ agreement is silent regarding class arbitration. The Court was unable to reach that question, however, because a plurality concluded that the arbitrator first needed to address whether the agreement there was in fact “silent.” That threshold obstacle is not present in this case, and the question presented here–which continues to divide the lower courts–is the same one presented in Bazzle:
Whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.
At oral argument the Court’s questions centered on four interrelated – and sometimes overlapping — issues:
- The scope of the submission and the corresponding scope of the arbitrators’ authority;
- What the arbitrators decided;
- Whether the parties’ arbitration agreements were in fact silent on class arbitration; and
- Assuming the agreements were silent, what the import of the silence was or should be as respects class arbitration.
Part II of this post shall discuss what transpired at oral argument, with a particular focus on each of these key issues. For now, we offer a general observation.
While it is generally very difficult to predict the outcome of a case (particularly a Supreme Court appeal) based on oral argument, certain members of the Court appear to have joined one of two coalitions. One (the “Breyer Coalition”) consists of Justices John Paul Stevens, Stephen G. Breyer, and Ruth Bader Ginsburg, and appears to be leaning toward finding either: (a) the arbitrators acted within the scope of their authority in permitting class arbitration; or (b) the agreements were not, in fact, silent on class arbitration, in which case the predicate upon which certiorari was granted has not been established. (The latter result is effectively what occurred in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003).)
The other apparent coalition (the “Roberts Coalition”) consists of Chief Justice John G. Roberts, Jr., Justice Antonin Scalia, and Justice Samuel A. Alito, Jr. and appears to favor a finding that the arbitrators exceeded their authority in ruling that the parties’ agreements permitted class arbitration. Interestingly enough, Justice Scalia was a member of the Bazzle plurality, which concluded: (a) on the facts presented there was a question whether the contracts permitted or precluded class arbitration; and (b) that question was for the arbitrators.
Justice Anthony M. Kennedy asked a few questions, but it is difficult to predict in which direction he may be leaning, if any. Neither Justice Clarence Thomas nor Justice Sonia Sotomayor asked any questions, so it is not possible to get a meaningful sense of where they may be leaning, if anywhere.
Federal Arbitration Act cases frequently blur ideological lines on the Court because a ruling in favor of arbitration may require not only an acknowledgement of broad congressional regulatory power vis-a-vis the states – something that may attract the support of more liberal Justices – but also recognition of a broad degree of freedom on the part of parties to a business transaction to structure their dispute resolution mechanism as they see fit – something that may attract the support of more conservative Justices. So opinions in FAA cases can bring together some strange bedfellows.
But we believe that Stolt-Nielsen may be decided more closely along ideological lines than have certain other arbitration cases. First, the case does not raise federalism concerns — it arose in federal court and there is no legitimate dispute that the FAA applies to the international transactions at issue. Second, and more importantly, although the case ostensibly involves only sophisticated, maritime entities, what is really at stake is the continued viability of class arbitration in consumer disputes. Under the Bazzle regime lower courts have generally relegated to the arbitrators the question whether class or consolidated arbitration is appropriate. The result has been a marked increase in class arbitration in the United States. But if, for example, the Court rules that: (a) courts get to decide whether or not silence permits or precludes class arbitration; and (b) there must be some affirmative manifestation of assent under the FAA to demonstrate an agreement to permit class arbitration, then there will likely be far less consumer class arbitration than there has been as of late. That result would presumably not be favored by more liberal Justices, but might be endorsed by more conservative Justices.
And while we admit that predicting how any Justice might ultimately come out on any issue is risky business — and largely speculation — we suspect that Justice Thomas will join the Roberts Coalition (assuming he has not already) and Justice Sotomayor will join the Breyer Coalition (assuming she has not already). That would leave the deciding vote to Justice Kennedy, who has frequently acted as the swing vote in cases divided on ideological lines, particularly since Justice Sandra Day O’Connor’s retirement. While he has provided little indication of where he might be coming out on the issue, he joined Chief Justice William H. Rehnquist’s dissenting opinion in Bazzle, which argued: (a) the court should decide whether an agreement permits or precludes class arbitration; and (b) the agreements before the Court did not permit class arbitration to proceed. That may be — but is not necessarily — an indication that Justice Kennedy may cast his vote with the Roberts Coalition.
For the details, stay tuned for Part II…