By S.I. Strong Although the decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. is being read by some as signaling the end of class arbitration –not just as we know it, but in virtually all possible forms– the opinion actually goes nowhere near that far. Instead, the 5-3 opinion can be largely limited to its facts, leaving significant questions unanswered. In some regards, the decision authored by Justice Alito is clear. In answering the question of “whether imposing class arbitration parties whose arbitration clauses are ‘silent’ on that issue” is permitted under U.S. federal law, the majority squarely focused on party intent, an approach with which few can argue. Justice Alito even goes so far as to indicate how that intent is to be demonstrated: when the parties have not “reached any agreement on the issue of class arbitration, the arbitrators’ proper task [is] to identify the rule of law that governs in that situation,” which in this case would have required reference “either to the FAA itself or to one of the two bodies of law that the parties claimed were governing, i.e., either federal maritime law or New York law.” However, the Supreme Court gives little to no guidance about what must be shown in the way of intent. Instead, in footnote ten of the slip opinion, the majority concludes that “[w]e have no occasion to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration.” That statement will generate vast amounts of litigation in the lower courts. According to the majority, mere silence is not enough to support an order of class arbitration. Broadly worded arbitration agreements alone also appear insufficient to result in class proceedings. However, the Court appears to recognize that there are other ways of demonstrating intent, as through reference to state law, arbitral rules, etc. This approach is consistent with interpretive methods used in other jurisdictions (See S.I. Strong, The Sounds of Silence: Are U.S. Arbitrators Creating Internationally Enforceable Awards When Ordering Class Arbitration in Cases of Contractual Silence or Ambiguity? 30 Michigan Journal of International Law 1017, 1055-83 (2009)). Nevertheless, the Court’s failure to provide detailed guidance on this question will prove problematic. In this dispute, the arbitrators were said to have improperly imposed their own policy choices on the parties, based largely on the fact that the panel considered published arbitral awards that discussed whether class proceedings were proper in other disputes (notably, Justice Ginsburg disputes the majority’s characterization of the panel’s interpretive approach). Because none of these awards were available when the parties had entered into the Vegoilvoy charter party, the Court concluded that the awards were irrelevant, since they could not go to what the parties’ intentions were at the time the transactions were concluded. This particular procedural posture may not arise in future cases, leaving open the question of whether published arbitral awards may also constitute persuasive authority on the question of contractual interpretation, at least in cases (unlike here) where the transaction was concluded post-Bazzle. (Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003)). Again, parties may very well litigate this issue, though it is more likely that arbitrators will simply take care when relying on previously published arbitral awards in their own awards. Although the central issue of Stolt-Nielsen is whether and in what circumstances class arbitration may be permitted in cases of contractual silence, the case raises several other points that will likely lead to confusion and litigation. First, doubt arises about the broad applicability of this decision. As Justice Ginsburg notes in her dissenting remarks, the majority opinion appears to exclude “contracts of adhesion presented on a take-it-or-leave-it basis,” i.e., consumer contracts. It may be that the majority wished to discourage class arbitration in the consumer or other contexts as much as it did in the realm of commercial and maritime disputes, but there is sufficient room for argument that the case does not go so far. Second, concerns arise as to whether self-proclaimed partial final awards such as the one at issue here are ripe for vacatur. Justice Ginsburg took the view that the majority did “not persuasively justify judicial intervention so early in the game or convincingly reconcile its adjudication with the firm final-judgment rule prevailing in the federal court system.” In particular, she noted that “[i]t cannot be true . . . that parties or arbitrators can gain instant review by slicing off a preliminary decision or a procedural order and declaring its resolution a ‘partial award,’” citing Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). Again, the majority opened the door to further litigation on this issue by refusing to address the matter on the grounds that the parties in this dispute had waived this particular question. Instead, Justice Alito explicitly states that “[w]e express no view as to whether, in a similar case, a federal court may consider a question of prudential ripeness on its own motion.” This leaves a huge opening for claimant groups pressing for class proceedings. If claimants can forestall a motion to vacate these sorts of partial final awards (which are used under both the American Arbitration Association’s Supplementary Rules for Class Arbitrations and the JAMS Class Action Procedures), then defendants will be forced to wait to litigate any procedural decisions until after an award on the merits has been rendered. Interestingly, this approach – which favors speed and finality, two key attributes of arbitration – could result in increased settlement of cases as defendants seek to avoid going through the burden of merits hearings. Although commercial interests may bemoan the increased settlement rate, pointing to the possibility of settling a non-meritorious suit on financial grounds alone (despite the existence of empirical data suggesting that so-called frivolous suits are brought far less often than commonly believed, see, e.g., Elizabeth Chamblee Burch, Securities Class Actions as Pragmatic Ex Post Regulation, 43 Georgia Law Review 63, 85 (2008)), it would appear that the decision to settle in […]

We got this interesting case from Jeffrey A. Ford, from the Dallas firm of Ford Nassen & Baldwin P.C.: For those who care about Texas jurisprudence dealing with arbitrations, here you will find an opinion issued April 29, 2010, by the 5th District Court of Appeals in Texas. Of interest is the Court’s ruling that the incorporation of AAA Rules in the Contract satisfied the requirement that there be clear and unmistakable evidence of intent to allow the arbitrator to decide issues of substantive arbitrability. While certainly not a new argument, the state courts in Texas (as exemplified by the trial court in this case) have generally been very, very reluctant to give up the gatekeeper role on substantive arbitrability issues. The deadline to file a petition for review of this decision in the Texas Supreme Court is June 14, 2010. Ford Nassen & Baldwin PC represented the prevailing party in this decision. Jeffrey A. Ford Ford Nassen & Baldwin P.C. 8080 N. Central Expressway Suite 1600 LB 65 Dallas, Texas 75206 Phone: 214.523.5120 Fax: 214.521.4601 jaford@fordnassen.com Technorati Tags: law, ADR, arbitration

[UPDATE:] The U.S. Supreme Court decided Rent-A-Center, West v. Jackson on June 21. Find our commentary here: Rent-A-Center, West, Inc. v. Jackson and the Ongoing Assault on Party Autonomy Professor Alan Scott Rau Comments on Rent-A-Center, West Inc. v. Jackson As readers may already know, last week, the U.S. Supreme Court heard arguments on Rent-A-Center, West v. Jackson. The transcript is available here. Question Presented: Is the district court required in all cases to determine claims that an arbitration agreement subject to the Federal Arbitration Act (”FAA”) is unconscionable, even when the parties to the contract have clearly and unmistakably assigned this “gateway” issue to the arbitrator for decision? We thought you would like to read some interesting posts about the case: “Formation is a very basic existential analysis”: Thoughts on the Rent-a-Center Oral Argument, Matt Bodie, PrawfsBlawg (April 28, 2010) Oral Argument in Jackson v. Rent-a-Center West, Sarah Cole, ADR Prof Blog (April 27, 2010) Supreme Court Justices Consider Courts’ Role in Arbitration, Tory Mauro, The National Law Journal (April 27, 2010) Rent-An-Arbitrator, Deepak Gupta, Consumer Law & Policy Blog (April 27, 2010) Arbitrating arbitration: who reviews the enforceability of an agreement to arbitrate? Caroline Jackson, SCOTUS Blog (April 27, 2010) Commentary on Rent-A-Center West v. Jackson and Arbitration Unconscionability, Disputing (April 26, 2010) Determining the fairness of forced arbitration provisions, Aaron Tang, SCOTUS Blog (April 25, 2010) U.S. Supreme Court to Hear Arguments in Arbitration Unconscionability Case: Rent-A-Center West v. Jackson, Disputing, with links to all briefs (April 22, 1010) The Mandatory Core of Section 4 of the Federal Arbitration Act, David Horton, Virginia Law Review (April 2, 2010) Should A Company’s Hand-Picked Arbitrator Get to Decide Whether It’s Fair for the Company to Hand Pick the Arbitrator? Deepak Gupta, Consumer Law & Policy Blog (April 1, 2010) Recent Developments in Arbitration Unconscionability, Disputing (March 30, 2010) Contracts Prof Blog Roundup: (in reversed order) Rent-A-Center West v. Jackson II: Respondent’s Brief (April 12, 2010) Introducing Karen Halverson Cross and the Arbitration Roundtable (April 13, 2020) Karen Halverson Cross: Guest Post on Rent-A-Center v Jackson (April 15, 2010) Guest Post by Christopher Drahozal on Rent-A-Center (April 15, 2010) Reply Brief in Rent-A-Center West v. Jackson (April 19, 2010) Guest Post by Karen Halverson Cross on the Rent-A-Center Reply Brief (April 19, 2010) The Next Phase in Challenges to Arbitration Provisions: David Horton in the UCLA Law Review (April 20, 2010) Embarrassment of Riches: Guest Post by David Horton (April 21, 2010) Synopsis of the Rent-A-Center Oral Arguments (April 27, 1020) Choice Quotations from the Rent-A-Center Arguments (April 27, 2010) Karen Halverson Cross: Impressions/comments on Rent-A-Center v Jackson Oral Argument (April 28, 2010) Technorati Tags: law, ADR, arbitration

The ABA Section of Dispute Resolution is sponsoring the Teleconference: Class Action Arbitration After Stolt-Nielsen on Friday, May 14, 2010 at 12:00 – 1:15 PM Eastern Time. The speakers are: Nina Pillard, Georgetown University Law Center (argued the case in the Supreme Court) Chris Curran, White & Case (wrote the brief) Eric Tuchman, General Counsel, American Arbitration Association For more details, click here. To register, click here. Technorati Tags: law, ADR, arbitration