Part I: Introduction
By Philip J. Loree Jr.
Introduction
The Loree Reinsurance and Arbitration Law Forum is delighted to guest post once again on Karl Bayer’s and Victoria VanBuren’s wonderful ADR blog, Disputing. Because Victoria and I have both written fairly extensively about Hall Street Assoc. v. Mattel, Inc, 128 S. Ct. 1396 (2008), and about two of the most frequently cited cases construing Hall Street’s dictum on manifest disregard of the law — Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009) and 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) – and because the United States Supreme Court has granted certiorari in Stolt-Nielsen, we thought that our joint-readership might appreciate an analysis of the issues that the Supreme Court will likely address – or at least face — in Stolt-Nielsen. That’s what we have set out to do in this four-part guest post. (Victoria’s posts on Hall Street and manifest disregard of the law are here, here, and here and mine are here, here, and here.)
In Stolt-Nielsen the Second Circuit found that an arbitration panel did not exceed its powers when it construed two standard-form maritime charter-party agreements to permit class arbitration even though the contracts were concededly silent on that point. The Court held that this construction of the contracts was not in manifest disregard of federal maritime law, New York state law or a line of cases holding that the Federal Arbitration Act prohibits courts (and, by necessary implication, arbitrators) from imposing consolidated or class arbitration on parties whose contracts are silent concerning such relief. See, e.g., Glencore, Ltd. v. Schnitzer Steel Products, 189 F.2d 264 (2d Cir. 1999); United Kingdom v. Boeing Co., 998 F.2d 68 (2d Cir. 1993); Champ v. Siegal Trading Co., 55 F.3d 269 (7th Cir. 1995).
On June 15, 2009 the United States Supreme Court granted certiorari in Stolt-Nielsen. Up until that time, Stolt-Nielsen was best known for having ruled that “manifest disregard of the law” remained a viable basis for vacating an award after Hall Street because it was subsumed within the ambit of Federal Arbitration Act Section 10(a)(4), which permits courts to vacate awards where the arbitrators “exceeded their powers. . . .” The question whether the Second Circuit correctly decided that the panel did not manifestly disregard the law — or whether the Second Circuit’s decision was otherwise consistent with the Federal Arbitration Act — received little or no attention.
But the lawyers for Stolt-Nielsen and the other parties opposing class arbitration came up with an interesting and creative twist on the case, and we believe that is what convinced the United States Supreme Court to grant certiorari. They pointed out that six or seven years previously the Court had granted certiorari to decide whether imposing class arbitration on parties whose arbitration clauses are silent on class arbitration was consistent with the Federal Arbitration Act. And while the Court set out to decide that question in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), it was unable to do so because there was a disputed issue of contract interpretation as to whether the parties’ arbitration clauses were, in fact, silent on class arbitration or whether they permitted or precluded class arbitration. A four-Justice plurality reasoned that the arbitrator should be permitted to decide whether the agreements precluded class arbitration, with Justice Stevens concurring in the result and providing the fifth vote necessary for the Court to remand the case to the arbitrator.
The key point, argued the Stolt-Nielsen petitioners, was that in Bazzle the Court never decided the issue that it had set out to decide, and the plurality opinion coupled with Judge Stevens’ concurrence had caused confusion among the lower courts. Here’s how they phrased the “Question Presented” in their petition for certiorari:
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.
(The four sentences you just read should be included among other fine examples of crisp and clear legal prose that all law students should be required to read.)
Now that the Court has granted certiorari in Stolt-Nielsen, the principal focus has shifted from the question whether or not “manifest disregard” is a permissible ground for vacatur under Federal Arbitration Act Section 10(a)(4) to whether the Second Circuit should have vacated the award because the arbitrators imposed class arbitration on the parties when the parties’ contract neither authorized nor prohibited that relief. The Second Circuit’s finding that the panel did not manifestly disregard pre-Bazzle Federal Arbitration Act cases was based on its interpretation of the Court’s plurality opinion in Bazzle, which it read as “abrogating” those cases. The United States Supreme Court will presumably determine, among other things, whether the Second Circuit correctly read the plurality opinion in Bazzle and, if not, whether that error of law requires vacatur of the arbitration panel’s award.
The Supreme Court’s resolution of the question presented in Stolt-Nielsen may have wide-ranging consequences, not only for consumer arbitration, but also for commercial arbitration generally. First, a number of courts, including the Second Circuit, have read Bazzle as authorizing arbitrators to order class action arbitration or consolidated arbitration in cases where the contract is silent on class or consolidated arbitration. The Supreme Court will presumably decide whether this interpretation of Bazzle is correct. Second, there is much controversy over whether class action waivers in arbitration clauses must be enforced under the Federal Arbitration Act in the face of state law defenses such as public policy or unconscionability. The Supreme Court’s decision in Stolt-Nielsen may provide some meaningful guidance as to how this controversy should or might be resolved. Third, we believe that, given the procedural posture of Stolt-Nielsen, the Supreme Court might directly or indirectly provide some guidance on whether “manifest disregard of the law” is a permissible basis for vacatur under Section 10(a)(4) of the Federal Arbitration Act.
Another interesting point about Stolt-Nielsen is that Second Circuit Judge Sonia Sotomayor, who will replace Justice Souter next Term, may provide an important swing vote in the case. Justice Souter wrote the plurality opinion in Bazzle, and whether or not the soon-to-be Justice Sotomayor agrees with the logic of that opinion might determine the outcome of Stolt-Nielsen. In addition, the votes of Justices Scalia (who joined the plurality in Bazzle) and Justice Thomas (who effectively did not participate in Bazzle because he believes the Federal Arbitration Act does not apply in state court proceedings) will likely prove important to the outcome.
A case as important as Stolt-Nielsen deserves careful attention and, to fully understand the issues the Court is facing, it is necessary to understand what transpired in Bazzle, and, in particular, how the different members of the divided Court viewed the case. Part II of this guest post will discuss the plurality, concurring and dissenting opinions in Bazzle which collectively define the legal landscape against which the Court will decide Stolt-Nielsen. Reviewing how each member of the Court in 2003 viewed the issues presented in Bazzle provides the background needed to get a sense of how each member of the newly-constituted Court may come out next Term on the issues presented by Stolt-Nielsen.
It is likewise necessary to understand the factual differences between Bazzle and Stolt-Nielsen, and the procedural postures of each case. Part III will explore the background and procedural history of Stolt-Nielsen and briefly summarize the issues that are presented by Stolt-Nielsen and how those issues are different from or similar to the ones presented in Bazzle. Parts IVA and IVB) will analyze and discuss these issues and provide our thoughts on how the Supreme Court might resolve them.
So stay tuned for advanced coverage of what may next Term be the subject of a landmark Supreme Court decision. . . .
Philip J. Loree Jr. is a partner in the boutique law firm of Loree & Loree, which focuses its practice on reinsurance dispute resolution and commercial and industry arbitration. Prior to forming Loree & Loree, Mr. Loree was a partner in the Litigation Departments of Cadwalader, Wickersham & Taft LLP and Rosenman & Colin LLP. He was also a Shareholder in Stevens & Lee, P.C.’s Litigation Department.
Mr. Loree is also blogmaster of the Loree Reinsurance and Arbitration Law Forum, where he frequently comments on issues pertinent to reinsurance, and commercial and industry ADR. He is owner and co-founder (with Disputing’s Victoria VanBuren) of LinkedIn’s Commercial and Industry Arbitration and Mediation Group, which provides an open forum for the discussion of commercial, industry and consumer ADR.
Technorati Tags:
arbitration, ADR, law, FAA, Supreme Court, Stolt-Nielsen, class action
Tags: Citigroup Global Markets v. Bacon, class action arbitration, Hall Street, Stolt-Nielsen
[...] The Loree Reinsurance and Arbitration Law Forum is delighted to guest post once again on Karl Bayer’s and Victoria VanBuren’s wonderful ADR blog, Disputing. Because Victoria and I have both written fairly extensively about Hall Street Assoc. v. Mattel, Inc, 128 S. Ct. 1396 (2008), and about two of the most frequently cited cases construing Hall Street’s dictum on manifest disregard of the law — Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009) and 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) – and because the United States Supreme Court has granted certiorari in Stolt-Nielsen, we thought that our joint-readership might appreciate an analysis of the issues that the Supreme Court will likely address – or at least face — in that case. That’s what we have set out to do in a four-part guest post, Part I of which was published today. (Check it out here.) [...]
Phil,
Nice analysis of the impact Supreme Court personnel changes could have on class arbitration. You are right that what appeared to be a manifest disregard case could really be another attempt to clarify the law of class arbitration. If Stolt-Nielsen was a Mattel case, it could have been summarily disposed of like Improv W. Assocs. v. Comedy Club, Inc., 129 S. Ct. 45 (2008) (granting certiorari and summarily remanding to Ninth Circuit for further consideration in light of Mattel).
I look forward to the series. Perhaps the folks at SCOTUS blog will chime in.
Don Philbin
http://www.ADRtoolbox.com
Dear Phil,
Well done!!
I am plaintiffs’ counsel representing groups of automobile dealers against another group of related corporate malefactors in multiple class arbitrations. Virtually all of the numerous arbitrators considering the issue of “silent” clauses have held that class arbitration was permitted. Thus far we have successfully persuaded the USDC and Sixth Circuit that the clause construction issue is purely procedural. Therefore, no jurisdiction exists to review the arbitrators determinations.
Whilst we are happy with those results, it has greatly disconcerted the conglomerate that imposed arbitration in its’ form adhesion contracts. The extra costs and delays of these class arbitrations is astonishing and disconcerting to all of the parties.
It is no secret that ever greater numbers of businesses are increasingly exasperated with and disenchanted by the ridiculous expense and delay of AAA arbitration. My experience has been that the backlash is also greatly influenced by “class arbitration.” Whilst some business clients have used it successfully as claimants, none want to be on the receiving end of a class arbitration. Yet, arbitration without some method of consolidating clearly related cases just exacerbates the inefficiency, expense and delay problems. The RUAA is a nice start, but has not been passed in many states. A clear decision from the Court would be very helpful in deciding if arbitration should continue to be considered legitimate dispute resolution option. Recently, the answer from many business executives I advise has been a flat refusal to even consider arbitration.
I look forward to the remained of the series!
Richard Faulkner
Don,
Many thanks for the kind comment.
I suspect that soon-to-be Justice Sotomayor may cast the deciding vote in the case, or at least play an influential role.
It is an intriguing case that has taken an interesting turn thanks to some creative and effective lawyering on behalf of the Stolt-Nielsen petitioners.
The political climate is, of course, becoming increasingly more critical of the consumer-arbitration status quo in light of recent events. I think that the Federal Arbitration Act strict constructionists have the better argument from a legal perspective — as much as I ordinarily like Justice Breyer’s approach to arbitration issues (e.g., the First Options case), I disagree with much of what his plurality opinion in Bazzle says. I think the issue of whether the parties agreed to arbitrate with persons that are not parties to the contract is a matter for the court to decide and that the resolution of that question rests on whether the parties agreed to arbitrate with non-parties or whether state law applicable to contracts generally provides that the parties have contractual obligations to non-parties.
But if the Supreme Court rules that class arbitration was not authorized in Stolt-Nielsen, then that ruling may effectively do away with class arbitration in consumer arbitration. As a practical matter I believe that the continued future of consumer arbitration depends, in part, on the continued availability of class arbitration procedures. Depending on what happens in Stolt, Congress may have to step in and amend the FAA to allow for class arbitration in the consumer context and perhaps ban class action waivers. That assumes, of course, that Congress doesn’t simply do away with pre-dispute consumer arbitration entirely by enacting some version of the Arbitration Fairness Act, which I believe would be an unfortunate result.
Philip J. Loree Jr.
http://www.LoreeLawFirm.com
[...] discussed in Part I, Stolt-Nielsen is a do-over of sorts. Back in 2003 the United States Supreme Court set out to [...]
Richard,
Thanks for your kind and thoughtful comment. I am glad you enjoyed Part I of the article.
I agree that arbitration in general, not just AAA arbitration, has become an expensive and often unwieldy process. And class arbitration, while a creative idea, is fraught with inefficiencies and inequities for both plaintiffs and defendants. (While drafting this response I started itemizing them, but I know you know what they are, so I’ll save them for the article.)
Your clients have an interesting perspective on the issues because they potentially sit on both sides of the proverbial class arbitration “v.” As automobile dealers, they presumably do want to want to become embroiled in class arbitration with customers, but probably desire the protections and benefits arbitration can offer in transaction-specific disputes. As franchisees, they presumably do not want to bargain away the benefits that judicial class action can provide plaintiffs, and subject themselves to the uncertainties and inefficiencies associated with class arbitration. Above all, they are businesses who need to control their expenses to thrive (or at least survive).
In the circumstances I can appreciate that they (and other savvy business people) are becoming increasingly reluctant to agree to arbitrate. Aside from the added expense, uncertainties abound concerning not only class-arbitration related issues, but a host of others as well. While the court system may not be an ideal alternative, at least meaningful appellate review is available. And with technological advances, some courts have achieved a pretty impressive level of efficiency, making the alternative more attractive (or at least less unattractive).
I also agree that a clear decision by the United States Supreme Court on the class action arbitration issue would be a step in the right direction. We may or may not agree on what the outcome should be, but, as you’ll see, I lean toward the view that arbitration is a matter of private contract and neither courts nor arbitrators should impose class arbitration (or consolidated arbitration) on parties that have not expressly agreed to it.
I acknowledge that this type of a decision would not solve all of the problems and, in fact, will probably spell the end of class arbitration as we have known it since Bazzle. It might, however, provide impetus for Congress to consider class arbitration legislation implementing effective class action procedures for consumer and other types of disputes where some form of class or consolidated arbitration should, in the judgment of our legislators, be available as a matter of fairness and judicial/arbitral economy. While I have some reservations about what such legislation might provide, and how it might be interpreted, the alternative is to leave class action arbitration in the hands of the courts and arbitrators, and that ad hoc approach has already proved unworkable.
Philip J. Loree Jr.
http://www.LoreeLawFirm.com
[...] Corp., 548 F.3d 85 (2d Cir. 2009), petition for cert. granted June 15, 2009 (No. 08-1198) (post here). Today, Disputing published Part II, which discusses Green Tree Financial Corp. v. Bazzle, 539 [...]
[...] of Law has made the following comments regarding our recent posts on Stolt-Nielsen (see posts Part I and Part II). I ‘m afraid I just can’t understand all this talk about “silence,” and I [...]
[...] this Part III (Part I is here and Part II is here) we delve into the background and procedural history of Stolt-Nielsen to: (a) [...]