US Supreme Court Limits Class-Action Arbitrations
In Stolt-Neilsen S.A. v. Animalfeeds Int’l Corp., the US Supreme Court held that an arbitration panel may not determine that a class-action arbitration is allowable in the absence of an express provision in that arbitration clause.
The case stems from the global shipping price fixing practices uncovered by the US Department of Justice in 2003. Animalfeeds International ships raw ingredients to animal feed producers around the world. The standard shipping contract in issue, called the Vegoilvoy charter part, first adopted in 1950, has an arbitration clause which is silent as to class actions. And, no class action has ever been conducted based on the particular charter party arbitration provision.
Nonetheless, Animalfeeds sought class action arbitration in New York on behalf of all global shippers affected by the alleged price fixing. An arbitration panel was set up to determine in the first instance whether class-action arbitration was proper in this case. Relying on a public policy interpretation, the arbitration panel determined that it was.
The Supreme Court determined that in the absence of an arbitration provision allowing class action status or a state substantive law in the relevant jurisdiction allowing class action arbitration in the absence of express consent, the arbitration panel’s decision to allow the class-action arbitration exceeded its powers. Parties cannot be put into class-action arbitration unless they agree to it. And, arbitrators have no power to determine cases based on public policy.
This decision fits within recent Supreme Court jurisprudence on arbitrations. Recently, the Court decided that parties who contracted for arbitration could not also contract for judicial review. See Hall Street Assoc, LLC v. Mattel, 522 US 576, 128 S.Ct. 1396 (2008). In Hall Street, the Supreme Court’s decision seemed to say, “if you want arbitration, yet get arbitration. Don’t come complaining to us about the arbitrator.” In this case, the Court seemed to temper that somewhat.
In this case, the parties agreed to arbitration between them. The shipper did not agree to have Animalfeeds as the class representative of all its customers in one mass action against it. Such a class-action arbitration would bind parties who were not part of the arbitration agreement and likely reduce many of the benefits normally accorded to arbitration over litigation (cost vs. speed, finality vs. ability to appeal, etc.).
