Please join Disputing in welcoming the new leadership (as of July 1, 2009) of the Alternative Dispute Resolution Section of the State Bar of Texas : John Allen Chalk, Sr., Chair Wendy Trachte-Huber and Stephen Huber, co-editors of the Alternative Resolutions newsletter Susan Schultz, Chair Elect Regina Giovannini, Treasurer Professor Joe Cope, Secretary John K. Boyce, III, Immediate Past Chair Susan Perin, Council Member, Houston Honorable Anne Ashby (retired) Council Member, Dallas Don Philbin, Council Member, San Antonio Raymond Kerr, Council Member, Houston Patty Wenetschlaeger, Council Member, Abilene Ed Reaves, Kerrville, ex officio representative of the Dispute Resolution Center Directors Council

Professor Alan Scott Rau, from The University of Texas School of Law, has made the following comments regarding our recent posts on Stolt-Nielsen (see posts Part I, Part II, and Part III). I ‘m afraid I just can’t understand all this talk about “silence,” and I could use some help here. Contracts very often expressly address a problem—in which case courts have the task of “interpreting” just what they said. But often there will be no express provision—perhaps through oversight, perhaps because the parties preferred to let sleeping dogs lie. But if party intention is nevertheless relevant—if we care about what the parties intended—then whoever is construing the contract will have to tease out what was implicitly intended, even if nothing was actually said. And party intention should be critical on any question of arbitral procedure. It is often hard to tease out intention when the parties give us no guidance. That’s why courts have to devise “default rules,” which are presumptions of probable intent in the absence of some expression to the contrary. The usual “default rule” in consolidation or class arbitration cases, was that no consolidation should be allowed unless the parties expressly provided for it—this is the “UK v. Boeing case.” [In other words, “they said nothing” was equivalent to an intention, “no consolidation.”] Of course, the contrary “default rule” would be perfectly possible—that is, one could presume that consolidation should be permitted unless the parties expressly negated any such procedure.[In other words, “they said nothing” was equivalent to an intention, “sure, consolidation is fine.”] Some state and national laws in fact have such a default rule, and I argued for one in an earlier article, “Tradition and Innovation in International Arbitration Procedure,” 30 Tex. Int’l L.J. 89 (1995). Now the Supreme Court in Bazzle came up with its own, quite different default rule: “leave it to the arbitrators.” That is, if nothing is said one way or another, it is presumed that the arbitrators have the power to decide whether consolidation or classwide proceedings are permitted. If they don’t want the arbitrators to have that power, they have to expressly negate arbitral power. Justice Stevens agreed with that—that the interpretation of the agreement is for the arbitrator—and that is what Bazzle held. And this is Stolt Nielsen. Of course, if the contract contains an explicit provision that says, “no classwide arbitration,” and the arbitrators somehow “construe” this to mean that classwide arbitration is permitted, their “construction” will be challenged—and may be reversed for an “excess of powers” if not “manifest disregard of the contract.” That would be unlikely, given the extraordinary deference given to arbitral awards—but in any event, that is simply not Stolt Nielsen, where the arbitrators’ decision did not run afoul of any express provision. So what is all the kerfuffle about? I’m not being coy here, I’m really puzzled. Alan Scott Rau Burg Family Professor of Law University of Texas at Austin School of Law http://ssrn.com/author=55273 Technorati Tags: arbitration, ADR, law, FAA, Supreme Court, Stolt-Nielsen, class action

Part II: The Legal Landscape: Green Tree Financial Corp. v. Bazzle By Philip J. Loree Jr. Introduction As discussed in Part I, Stolt-Nielsen is a do-over of sorts. Back in 2003 the United States Supreme Court set out to decide in Green Tree Financial Corp. v. Bazzle whether imposing class arbitration on parties whose agreement is silent on that point is consistent with the Federal Arbitration Act. But that never happened because it turned out the parties’ agreement in Bazzle was not silent – or at least four Justices thought so. While Bazzle did not decide the precise issue in Stolt-Nielsen, it resulted in three opinions that provide meaningful insight on how the current Court might decide Stolt-Nielsen case and collectively form the legal landscape (for lack of a better term) against which Stolt-Nielsen will be decided. So today we will pause to briefly review what transpired in Bazzle before we move on in Parts III and IV to discuss and analyze Stolt-Nielsen. Green Tree Financial Corp. v. Bazzle Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) was an appeal from a judgment of the South Carolina Supreme Court concerning two, separate consumer class action arbitrations in which Green Tree Financial Corp. (“Green Tree”) was the sole defendant. The South Carolina Supreme Court held that: (1) the arbitration clauses in the materially identical form contracts between each individual consumer class member and Green Tree were silent on whether the arbitration might be heard as a class action; and (2) in the circumstances, South Carolina law interprets the contracts as permitting class arbitration. The Supreme Court granted certiorari to determine whether that holding was consistent with the Federal Arbitration Act. Based on a plurality opinion written by Justice Breyer, and joined by Justices Souter, Scalia, and Ginsburg, and an opinion by Justice Stevens concurring in the judgment, the Court vacated the South Carolina Supreme Court’s judgment, and remanded the case to the arbitrator to determine whether the arbitration agreements prohibited class action arbitration or were, as the South Carolina Supreme Court concluded, silent on that point. The Court therefore never reached the issue whether imposing class action arbitration on the parties when the contract was silent was consistent with the Federal Arbitration Act. The Bazzle arbitration clauses stated, in pertinent part, that: All disputes, claims or controversies arising from or relating to this contract or the relationships which result from this contract shall be resolved by binding arbitration by one arbitrator selected by us with consent of you. . . . . The parties agree and understand that the arbitrator shall have all powers provided by the law and the contract. These powers shall include all legal and equitable remedies, including, but not limited to, money damages, declaratory relief, and injunctive relief. The Plurality Opinion: Justices Breyer, Scalia, Souter and Ginsburg Green Tree argued that the arbitration clauses prohibited class arbitration. The four-Justice plurality said this raised a “preliminary question” that must be dealt with “at the outset, for if [Green Tree] is right, then the South Carolina court’s holding is flawed on its own terms; that court neither said nor implied that it would have authorized class arbitration had the parties’ arbitration agreement forbidden it.” The plurality concluded that whether the contracts prohibited class arbitration was a “disputed issue of contract interpretation.” 539 U.S. at 450: The class arbitrator was ‘selected by’ Green Tree ‘with consent of’ Green Tree’s customers, the named plaintiffs. And insofar as the other class members agreed to proceed in class arbitration, they consented as well. Of course, Green Tree did not independently select this arbitrator to arbitrate its disputes with the other class members. But whether the contracts contain this additional requirement is a question that the literal terms of the contracts do not decide. The contracts simply say (I) ‘selected by us [Green Tree].’ And that is literally what occurred. The contracts do not say (II) ‘selected by us [Green Tree] to arbitrate this dispute and no other (even identical) dispute with another customer.’ The question whether (I) in fact implicitly means (II) is the question at issue: Do the contracts forbid class arbitration? Given the broad authority the contracts elsewhere bestow upon the arbitrator. . . (the contracts grant to the arbitrator ‘all powers,’ including certain equitable powers ‘provided by the law and the contract’), the answer to this question is not completely obvious. 539 U.S. at 451 (emphasis in original). The plurality also decided that this disputed issue of contract interpretation fell within the scope of the parties’ broad arbitration agreement: The parties agreed to submit to the arbitrator ‘[a]ll disputes, claims or controversies arising from or relating to this contract or the relationships which result from this contract.’ And the dispute about what the arbitration contract in each case means (i.e., whether it forbids the use of class arbitration procedures) is a dispute “relating to this contract” and the resulting “relationships.” Hence the parties seem to have agreed that an arbitrator, not a judge would answer the relevant question. And if there is doubt about that matter – about the scope of arbitrable issues – we should resolve that doubt in favor of arbitration. 539 U.S. at 451-52 (citations and quotations omitted). The plurality also stated that it did not consider the issue to be one of arbitrability, which is for the court to decide unless the parties clearly and unmistakably agree otherwise. Rather, it was one of procedural arbitrability, which is ordinarily for the arbitrators to decide under a broad arbitration agreement. While “courts assume that the parties intended courts, not arbitrators” to decide certain “gateway matters, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy,” the Court found that the issue did not fall into “this narrow exception.” 539 U.S. at 452 (citations omitted). According to the Court, “the relevant question . . . is what kind of arbitration proceeding […]

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 […]