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How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

June 18th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Practice and Procedure, United States Supreme Court Comments Off on How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

Part V.A

A.   Introduction

In this Part V.A of our consolidated-reinsurance-arbitration series, we delve into Stolt-Nielsen’s legal implications on consolidated reinsurance-arbitration practice, focusing on how courts are likely to decide the allocation-of-power question:  Who gets to decide whether the parties consented to consolidated arbitration?  In Part V.B we shall examine Stolt-Nielsen’s other specific legal and practical implications, focusing on what a party will likely need to show to obtain consolidated arbitration and how frequently consolidated arbitration is likely to be granted after Stolt-Nielsen.    

B.   Who Gets to Decide Whether the Parties Consented to Consolidated Arbitration?

Readers will recall from Part III (here) that courts interpreted Bazzle  as governing the allocation-of-power issue.  Now that the Court has said Bazzle never commanded a majority on that issue, and that it remains open, courts must reconsider it not only in the class-, but in the consolidated-arbitration context.   

Consolidated arbitrations, like class arbitrations, raise two types of questions:  Common-dispute and party-consent questions.  We think that courts will likely conclude that both are questions of arbitrability for the court to decide in the first instance, unless the parties clearly and unmistakably agree otherwise.   Arbitrators may play a role in resolving contractual ambiguities identified by the court.  

1.      Who Gets to Decide Common-Dispute Questions?

All consolidated-arbitration questions concern whether at least one arbitration agreement encompasses not only disputes concerning one, but all other contracts at issue.  We call this the “common-dispute” question.    

In some consolidated-arbitration disputes the “common dispute” question is the only one presented.  Suppose reinsurer R  enters into two treaties with cedent C, Contracts A and B, each of which incept on the same date and are in force for one year.  Contract A’s limits are $1 million per occurrence excess a $500,000 retention.  Contract B has per occurrence limits of $2 million excess of $1.5 million.  Both contain broad arbitration clauses under which the parties agreed to arbitrate “any dispute arising out of or relating to this contract.” Continue Reading »

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

June 8th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Practice and Procedure, Reinsurance Arbitration, United States Supreme Court Comments Off on How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

Part IV

A.   Introduction

In Part I (here) we explained why the standard for challenging an award based on its outcome is important in reinsurance arbitration practice.  And, after briefly reviewing pre-Stolt-Nielsen law on outcome-based standards of review, we explained how the Court has established for itself and the lower courts a fairly searching standard of review.  Part II (here) explored the legal and practical implications of that standard of review.    

Part III (here) turned to the other key area that will likely change because of Stolt-Nielsen — consolidated reinsurance-arbitration practice — and discussed the state of consolidation law pre-Stolt-Nielsen.  This Part IV discusses Stolt-Nielsen’s rationale for finding that imposing class arbitration on parties whose agreements are silent on that point is inconsistent with the Federal Arbitration Act, and explores how the Court’s ruling may affect consolidated reinsurance-arbitration practice in general. 

B.   The Supreme Court’s Decides that Imposing Class Arbitration on Parties whose Contracts are Silent on that Score is Inconsistent with the Federal Arbitration Act

When we last left Stolt-Nielsen, the Court had determined  that the arbitrators exceeded their authority by issuing an award that was based on their own notions of public policy gleaned from other arbitral decisions imposing class arbitration in the face of silence.  When a court vacates an award it has to decide whether to remand the matter to the arbitrators, for Section 10(b) of the Federal Arbitration Act authorizes a court to “direct a rehearing by the arbitrators.”  The Court decided not to remand, because “there can be only one possible outcome on the facts,” that is, where the parties’ contracts are undisputedly silent on class arbitration, save for the parties’ agreement to a broad arbitration clause.   The Court then set about to explain why that was so.  Continue Reading »

International Institute for Conflict Prevention and Resolution Newsletter Features Philip J. Loree Jr. Cover Story on Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.

June 6th, 2010 Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Grounds for Vacatur, United States Supreme Court Comments Off on International Institute for Conflict Prevention and Resolution Newsletter Features Philip J. Loree Jr. Cover Story on Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.

The June 2010 issue of Alternatives to the High Cost of Litigation, the excellent newsletter of the International Institute for Conflict Prevention and Resolution (”CPR”), featured as its cover story an article I wrote on the United States Supreme Court’s decision in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.  The article is entitled “Stolt-Nielsen Delivers a New FAA Rule – And then Federalizes the Law of Contracts,” 28 Alternatives 124 (June 2010).   

In it I argue that the Stolt-Nielsen decision is both inexplicably broad and inexplicably narrow in scope, and may provide fodder for those who assert that Congress should enact the Fairness in Arbitration Act of 2009.  I also deconstruct the reasoning of the decision and explore some of its other practical and legal implications.   

Alternatives to the High Cost of Litigation is a subscription-only publication. Subscription information is available at this page, as well as at the publisher’s, John Wiley & Sons’s,  website here.

I would like once again to take this opportunity to thank CPR, and Russ Bleemer, Editor of Alternatives, for their kind assistance and support in featuring my article.   As I have said before, Russ is a keen,  intelligent and professional editor with whom it is a pleasure to work.

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

June 4th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Reinsurance Arbitration, Uncategorized, United States Supreme Court Comments Off on How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

Part III

A.   Introduction

In Part I (here) we explained why the standard for challenging an award based on its outcome is important in reinsurance arbitration practice.  And, after briefly reviewing pre-Stolt-Nielsen law on outcome-based standards of review, we explained how Stolt-Nielsen has established for the lower courts a fairly searching standard of review.  Part II (here) explored the legal and practical implications of that standard of review.    

This Part III turns to the other key area that will likely change because of Stolt-Nielsen:  Consolidated reinsurance-arbitration practice. 

As most reinsurance practitioners know, there is a brief history relevant to this subject and that will be the focus of this post.  For to fully understand the implications of Stolt-Nielsen on consolidated reinsurance-arbitration practice, it is necessary to understand how the pre-Stolt-Nielsen practice evolved. 

Parts IV (here) and V (here, here and here) will address how Stolt-Nielsen will likely change consolidated reinsurance-arbitration practice, and what the implications of those changes are to the industry.  Continue Reading »

How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

May 25th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Grounds for Vacatur, Practice and Procedure, Reinsurance Arbitration, United States Court of Appeals for the Second Circuit, United States Supreme Court Comments Off on How Will Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp. Change Reinsurance Arbitration Practice?

Part I

A.     Introduction 

Shortly before the United States Supreme Court decided Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., ___ U.S. ___, slip op. (April 27, 2010), we wrote about the implications the case might have on reinsurance arbitration practice.  (See our post here.)  But since then, you have not heard much from us, other than our brief report (here) about the Supreme Court vacating and remanding to the United States Court of Appeals for the Second Circuit the American Express Merchants’ Litigation judgment for further consideration in light of Stolt-Nielsen.   One — but by no means the only — reason is that after Stolt-Nielsen was decided, we wrote a comprehensive article on it, which will be published in a subscription-only publication in June. 

But that article – while comprehensive in scope – is directed at folks interested in the Federal Arbitration Act in general, not necessarily those interested in reinsurance arbitration in particular.  And that’s what we want to cover in this multi-part series:  Stolt-Nielsen’s implications on reinsurance arbitration practice. 

Stolt-Nielsen affects reinsurance arbitration in two very important ways.   First, it has set a fairly liberal standard of review that now applies to commercial arbitration awards in cases where a party asserts that the arbitrators exceeded their powers under Federal Arbitration Act Section 10(a)(4) because of the award’s outcome.  That, as we shall see, has all sorts of implications for persons involved in reinsurance arbitrations.

Second, it has changed the rules applicable to consolidated-reinsurance-arbitration practice – or at least it requires a wholesale reevaluation of those rules.  That, too, has a number of important implications for reinsurance-arbitration practice.   

This Part I of the series explains why the standard for challenging an award based on its outcome is important in reinsurance arbitration practice.  And, after briefly reviewing pre-Stolt-Nielsen law on outcome-based standards of review, it explains how Stolt-Nielsen has established for the lower courts a fairly searching standard of review.  Part II (here) will delve into what the implications of that standard of review will likely be. 

Part III (here) will provide the background necessary to understand how Stolt-Nielsen affects the law applicable to consolidated reinsurance arbitration.  Part IV (here) will delve into the details of how Stolt-Nielsen changes – or at least requires reconsideration of – the legal status quo in this area.  And Part V will discuss the implications of all of this.   

We do not set out to discuss the background of Stolt-Nielsen in any detail or to provide a play-by-play of how the Court decided the case.  If you are a regular reader you probably already know the background in detail, and our upcoming article does a pretty good job of mapping out the Court’s reasoning.  Instead, we focus our attention on the aspects of the decision that are relevant to the two key subjects of discussion. 

But before we delve into what Stolt-Nielsen has to say about the standard of review, we pause briefly to address why the standard of review applicable to an outcome-based challenge is so important in reinsurance and other forms of commercial arbitration.  Continue Reading »

United States Supreme Court Vacates Judgment in American Express Merchants’ Litigation

May 12th, 2010 Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, United States Court of Appeals for the Second Circuit, United States Supreme Court Comments Off on United States Supreme Court Vacates Judgment in American Express Merchants’ Litigation

The Supreme Court has issued a summary order in the American Express Merchants’ Litigation that suggests that it believes that Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. ___ , slip op. (2010)  renders class arbitration waivers enforceable despite public policy and other challenges.  Readers may recall that on May 29, 2009 American Express filed a petition for a writ of certiorari in the American Express Merchants’ Litigation, in which the United States Court of Appeals for the Second Circuit held that a provision in an arbitration agreement forbidding class action arbitration was invalid and unenforceable under federal public policy grounds in the circumstances presented by the case.  See Re American Express Merchants’ Litigation, 554 F.3d 300 (2d Cir. 2009), vacated and remanded sub. nom., American Express Co. v. Italian Colors Restaurant, No. 08-1473 (May 3, 2010). 

On May 3, 2010 the United States Supreme Court issued a summary order in American Express Co. v. Italian Colors Restaurant, No. 08-1473 granting certiorari, summarily vacating the judgment of the United States Court of Appeals for the Second Circuit, and remanding it “for further consideration in light of” Stolt-Nielsen.   Justice Sonia M. Sotomayor “took no part in the consideration or decision” of the petition.   Italian Colors, No. 08-1473 (May 3, 2010) (summary disposition). 

It will be interesting to see what the Second Circuit does with the case on remand.

The United States Supreme Court Decides Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.!

April 27th, 2010 Arbitrability, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Grounds for Vacatur, United States Supreme Court Comments Off on The United States Supreme Court Decides Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.!

As we predicted in prior posts, the United States Supreme Court reversed the judgment of the United States Court of Appeals for the Second Circuit in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., holding (5-3) that it was inconsistent with the Federal Arbitration Act to impose class arbitration on parties whose agreements were concededly silent on that point.  We are in the process of analyzing the decision (copy here), and intend to post a comprehensive, critical analysis soon.

Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.: What are the Implications for Reinsurance Arbitration?

April 18th, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Consolidation of Arbitration Proceedings, Reinsurance Arbitration, United States Supreme Court Comments Off on Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.: What are the Implications for Reinsurance Arbitration?

We have written extensively on Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., No. 08-1198, a case pending before the United States Supreme Court in which a decision is expected in the not too distant future.  Stolt-Nielsen presents the question whether a court or arbitration panel may, consistent with the Federal Arbitration Act, impose class arbitration on a party whose arbitration agreements are silent on that subject.  The answer to that question will likely answer a related question that is of special concern to those involved in reinsurance arbitration:  Can a panel or court impose consolidated arbitration on a party whose arbitration agreements are silent on that subject?  You can read our prior posts on Stolt-Nielsen here,  here, here, here, here, here, here, here,  here, here, here, here, here and here.  (Certain of these posts contain links to articles on Stolt-Nielsen we wrote for Karl Bayer’s Disputing blog.)   

But those posts principally concern the legal issues raised by the case, discuss various ways it might be decided, and argue that the correct answer to the question is that a court or arbitration panel cannot, consistent with the Federal Arbitration Act, impose class or consolidated arbitration in the face of silence.  To date we have not discussed in any detail the practical implications that the case may have on reinsurance arbitration, if any.  So today let’s look at what those implications may be.  Continue Reading »

Stolt-Nielsen Oral Argument Analysis, Part V: Should Class or Consolidated Arbitration be Imposed if the Contract is Silent?

February 16th, 2010 Arbitrability, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Practice and Procedure, United States Supreme Court Comments Off on Stolt-Nielsen Oral Argument Analysis, Part V: Should Class or Consolidated Arbitration be Imposed if the Contract is Silent?

I.   Introduction

This is the final installment of our five-part series on the Stolt-Nielsen oral argument.  It addresses the fourth issue identified in Part I (here):  what the import of the agreements’ silence is 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 pass was taken in Bazzle), and hold that the predicate for granting certiorari was not established because the arbitrators ruled that the agreement was not silent on class arbitration.  

Part I identified two loose “coalitions” of Justices – the “Breyer Coalition”  consisting of Associate Justices John Paul Stevens, Stephen G. Breyer, and Ruth Bader Ginsburg, and the “Roberts Coalition,” consisting of Chief Justice John G. Roberts and Associate Justices Antonin G. Scalia and Samuel A.  Alito, Jr.  The Breyer Coalition appears to be leaning toward either taking a pass or affirming the decision of the United States Court of Appeals for the Second Circuit, which upheld the arbitrators’ award imposing class arbitration, while the Roberts Coalition appears to be leaning toward reversal.   We explore the import of the charter-party agreements’ silence on class arbitration from the standpoint of both coalitions.  Continue Reading »

Stolt-Nielsen Oral Argument Analysis: Part IV

January 6th, 2010 Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Practice and Procedure, United States Supreme Court 1 Comment »

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.     Continue Reading »

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