Introduction
Stolt-Nielsen turns on the allocation of power between courts and arbitrators. No matter how thoroughly and neatly you parse the issues, the question that repeatedly and continuously begs for an answer is: who decides? Answer that question as it relates to one issue and it pops up again in relation to the next.
Up until Bazzle the Supreme Court did an admirable job of delineating the bounds of arbitral versus judicial authority. The lines were blurred in Bazzle, where under the peculiar facts there was a question whether the agreement precluded class arbitration. (See our Disputing guest post here.) The question required interpretation of ambiguous contract language – a task arbitrators have both the authority and the competence to perform – so it was remanded to the arbitrators. The four-Justice plurality said the question was not one of arbitrability, but concerned the “kind” of arbitration to which the parties agreed.
But many of the lower courts — including the United States Court of Appeals for the Second Circuit — read Bazzle to mean that arbitrators have the authority under a broad arbitration agreement to determine whether the parties agreed to class arbitration when their agreements say nothing about class or consolidated arbitration. That is a very different question from whether an arbitration agreement precludes class arbitration, and it is not one that the parties in Stolt-Nielsen clearly and unmistakably submitted to the arbitrators.
Stolt-Nielsen presents the United States Supreme Court with a unique opportunity to draw a sharper and stronger line between the arbitrable and non-arbitrable in cases concerning class or consolidated arbitration. Whether or not the Court will seize it is an open question, because, as explained in Part III, AnimalFeeds has articulated a plausible argument that Stolt-Nielsen has not established the predicate for the Court’s grant of certiorari: that the parties’ agreements were silent on class arbitration. If at least five justices are satisfied with the (we believe, unsatisfactory) status quo concerning class arbitration, or otherwise believe that the best course is to allow class arbitration to continue (and even flourish), then AnimalFeed’s argument may provide an interpretive path for a ruling that the case is not properly before the Court.
Today we explain why accepting AnimaFeeds’ argument would contravene the letter and spirit of the Federal Arbitration Agreement, breed further litigation, and undermine confidence in arbitration as an effective alternative dispute resolution mechanism. More to the point, we discuss why and how the Court can reach the merits of Stolt-Nielsen consistently with how Stolt-Nielsen presented the question.
The United States Supreme Court Should Address the Question Presented In Stolt-Nielsen
If the Supreme Court rules that the predicate for granting certiorari was not established, its decision would effectively endorse a scheme that permits arbitrators to: (a) decide, subject only to deferential review, whether the parties authorized class arbitration in any case having a reasonably broad arbitration clause; and, if the answer is “yes”, (b) rule, subject only to deferential review, that class arbitration is permissible based solely on the parties having agreed to a reasonably broad arbitration clause. That would effectively immunize nearly all arbitral decisions concerning class arbitration from judicial review.
The result would be more litigation. If the Court simply finds that Stolt-Nielsen did not establish the predicate for certiorari, it would presumably not revisit Bazzle and explain that it was expanding the scope of arbitral power delineated by its prior decisions. That would be tantamount to the Court answering the very question for which it would be purporting to find no predicate: whether imposing class arbitration when the parties’ contract is silent on class arbitration is consistent with the Federal Arbitration Act. Since the law would technically remain unchanged, parties would continue to press for judicial decisions concerning the scope of arbitral power to order class arbitration in the face of contractual silence. And, after witnessing Stolt-Nielsen’s fate, parties resisting class arbitration would understandably balk at agreeing to submit the Bazzle contract interpretation issue to arbitration. Eventually yet another group of parties would be before the Court requesting an answer to the question asked but not answered in Bazzle and Stolt-Nielsen.
The negative ramifications of this unfortunate state of affairs might extend beyond class arbitration and into the realm of commercial arbitration generally. The private benefit of arbitration is that it allows parties to construct their own unique mechanism of private dispute resolution and to better manage the risk associated with business conflict. The public quid pro quo is that arbitration shoulders a significant burden that would otherwise be borne by the courts; without it, the courts would likely need significant, additional public funding to continue delivering adjudicative services efficiently and effectively.
When courts freely enforce arbitration agreements in a manner consistent with the parties’ reasonable expectations, they provide certainty not only to the parties, but also to others who might consider using arbitration. When courts do not so enforce arbitration agreements — or effectively cede to arbitrators powers that the parties reasonably expected courts to retain — then participants (current or prospective) may lose confidence in the system and, in all likelihood, be reluctant to use it in the future.
Can the Court Answer the Question Even Though the Arbitrators Said the Contract was not Really Silent on Class Arbitration?
Whether or not the Court can legitimately reach the merits brings into play the third of the four issues identified in Part I of this series: whether the agreements in Stolt-Nielsen are, in fact, silent on class arbitration. And that question cannot be answered unless the Court defines what “silence” means in light of the facts and question presented.
Defining what “silence” means is by no means easy. The word is susceptible to various definitions, a point Stolt-Nielsen zeroed in on at oral argument:
[M]aybe the ambiguity here is the fluidity of the term ‘silence.’ ‘Silence’ can mean there is no express provision. ‘Silence’ could also mean, well, if you look at other words in the text of the contract, you can’t work your way through to conclude that there was in fact an intent. It also may mean — and this is the sense that I am using it in, and I think the sense that the arbitrators have authority to do, is to say: Well, let’s look and see, for example, if there is custom and practice that would inform the backdrop against which the parties negotiate[d].
(Tr. 18) (emphasis added)
The agreements in Stolt-Nielsen were silent if “silence” means there is nothing in the contract that expressly addresses whether the parties permitted or precluded class arbitration. But they are not silent if silence means that the arbitrators cannot work their way through the contract and find intent to permit class arbitration – the arbitrators found such intent inherent in the broad scope of the arbitration agreement.
As Stolt-Nielsen suggested the key lies in the scope of the arbitrators’ interpretative authority: Do arbitrators have the authority to interpret the scope provision of an arbitration clause to determine whether the parties agreed to class arbitration? If not, the arbitrators’ finding concerning the parties’ intent to permit class arbitration was in excess of their powers and cannot be relied upon to establish whether or not the agreements were silent.
Questions concerning the scope of an arbitration agreement itself are ordinarily reserved to the court, including whether “an arbitration clause in a concededly binding contract applies to a particular type of controversy. . . .” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002). When a court decides that type of question, it – not the arbitration panel – applies state law rules of contract interpretation to the scope provision of the arbitration agreement (and sometimes other provisions, as well) to determine what the parties agreed to submit to arbitration. See, generally, Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 58-63 (1995).
But here the arbitrators made the call and the Court need not and should not abide by it. That means that the arbitration agreements are in fact silent on class arbitration, the predicate for establishing certiorari has been satisfied, and the Court should rule on the issue of whether imposing class arbitration was consistent with the Federal Arbitration Act.
In Part V we shall address the fourth issue: what the import of the silence was or should be as respects class arbitration. . . .
Tags: allocation of power, Arbitrability, Class Arbitration, Consolidated Arbitration, Disputing, Federal Arbitration Act, Green Tree Financial Corp. v. Bazzle, Howsam v. Dean Witter Reynolds Inc., Mastrobuono v. Shearson Lehman Hutton Inc., Procedural Arbitrability, Stolt Nielsen S.A. v. Animalfeeds Int'l Corp.
[…] or should be. It assumes the Court reaches the merits; as explained in Parts III and IV (here and here), the United States Supreme Court may take another “pass” on the question presented (the first […]