US - Supreme Court limits ability to pursue class arbitration without specific agreement

In a recent landmark class action case in the US, AnimalFeeds brought a class action antitrust suit against Stolt-Nielson. It did so on behalf of a class of purchasers of parcel tanker transportation services for price fixing, and that suit was consolidated with similar suits brought by other charterers. The parties agreed to submit the question of whether their arbitration agreement allowed for class arbitration to an arbitral tribunal. They stipulated that their arbitration clause was “silent” on the class arbitration issue.

The panel determined that the arbitration clause allowed for class arbitration, but the District Court vacated the award and the Second Circuit reversed. The case was then referred to the Supreme Court who held that imposing class arbitration on parties who have not agreed to authorise class arbitration is inconsistent with the Federal Arbitration Act (FAA).

The Supreme Court shunned the rationale of its earlier decision in Green Tree Financial Corp.v Bazzle (539 U.S. 444 (2003)) (Bazzle). In Bazzle  "any disputes" or "all disputes" was held to be broad enough language to include both disputes brought on behalf of an individual and those brought on behalf of a class. The reasoning given was that most arbitrators did not consider a typical arbitration clause to be silent on the issue of whether class arbitration was included within its scope, but to incorporate it implicitly.

In Stolt Nielson, the Supreme Court concluded that there can be no class action where the parties have stipulated that there is "no agreement" on the matter of class-action arbitration. They pointed out that under the FAA there was a basic precept that arbitration "is a matter of consent not coercion". Here the tribunal imposed arbitration despite the parties' stipulation that they had reached "no agreement" on that issue.  The Supreme Court found that no agreement cannot mean consent. The Supreme Court also said that the differences between bilateral and class-action arbitration were too great for arbitrators to presume that the parties' mere silence on the issue of class-action arbitration constitutes consent to resolve their disputes in class proceedings. This is because class-action arbitration changes the nature of the arbitration in various ways, including the arbitrators' obligation to resolve a dispute sometimes between thousands of parties, the loss of the presumption of privacy and confidentiality, the arbitrator requirement to adjudicate the rights of absent parties, and the increased commercial stakes.

They did not, however, overrule Bazzle. In a case where no specific stipulation is made as to silence on this issue, the Bazzle presumption may still exist.  A party agreeing to a standard arbitration clause could legitimately argue that the agreement was not merely silent but was intended to include class arbitration within its scope. The outcome would then depend on a tribunal's interpretation of the parties' intent.

The consent issues which Stolt Nielson raises are similar to those which English tribunals have traditionally used to reject relation class-action arbitration. It remains to be seen in the US however, whether an "any disputes" clause without more may be construed as sufficiently "silent" to block class-action arbitration.

Stolt Nielsen S.A. v. Animalfeeds International Corp. (U.S. Apr. 27, 2010)