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SCOTUS Decides Stolt-Neilsen: No Class Arbitration Where Clause is "Silent"

The opinions are here. The vote is 5-3. Justice Alito delivered the opinion of the Court, joined by Justices Roberts, Scalia, Kennedy, and Thomas.  Justice Ginsburg filed a dissenting opinion, joined by Justices Stevens and Breyer. Justice Sotomayor was recused.

The Court today holds that imposing class arbitration on parties who have not agreed to authorize class arbitration is inconsistent with the Federal Arbitration Act. The arbitration panel, in the Court's view, "exceeded its powers" under Section 10(a)(4) of the Act by imposing its own "policy choice" allowing a class action instead of identifying and applying a rule of decision derived from the FAA or from maritime or New York law.

U.S.<br />
Supreme Court building, Washington D.C.The Court relies heavily on the basic principle that, under the FAA, arbitration “is a matter of consent, not coercion,” and that arbitration agreements must be "enforced according to their terms." (quoting the Volt case). It follows, the Court holds, that a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. An implicit agreement to authorize class action arbitration is not a term that the arbitrator may infer solely from the fact of an agreement to arbitrate. The differences between simple bilateral and complex class action arbitration are too great for such a presumption. 

All of this, supposedly, is based on the FAA and is what Congress intended when it passed the Act in 1924. If you like, you can think of it as a special clear-statement rule of federal common law -- a rule that elevates hostility to class actions above ordinary principles of contract interpretation, not to mention statutory limits on judicial review.

We had filed a brief arguing that this case was not ripe for judicial review, both as a prudential matter and as a matter of the Federal Arbitration Act, which limits judicial review of arbitral decisions to final "awards."  The arbitral panel had decided only a preliminary issue of clause construction, had not even certified a class, and issued no "award." Justice Ginsburg's dissent echoes those arguments. She would have dismissed the case as improvidently granted.

Even if Stolt-Nielsen had a plea ripe for judicial review, Justice Ginsburg goes on to say, the Court should have rejected it on the merits. She stresses that the parties jointly "asked the arbitrators to decide whether the arbitration clause in their shipping contracts permitted class proceedings. The panel did just what it was commissioned to do. It construed the broad arbitration clause and ruled,expressly and only, that the clause permitted class arbitration. The Court acts without warrant in allowing Stolt-Nielsen essentially to repudiate its submission of the contract-construction issue to the arbitration panel, and togain, in place of the arbitrators’ judgment, this Court’s de novo determination."

Stolt's implications for the larger debate over forced arbitration in consumer and employment cases are troubling -- especially for the ongoing fight over class-action bans. But the impact of the decision is unclear at this point, and will have to be worked out by the lower courts.

Although today's decision will undoubtedly affect consumers and workers, the Stolt case itself involved claims brought by a group of large businesses, who alleged that a handful of shipping companies had engaged in a global price-fixing conspiracy. One major question that will have to be addressed is how the decision will apply in cases where consumers' claims are especially small and a class action is the only realistic means of redress. The decision also does not address the fairness defenses that are available to consumers under general state contract law and the savings clause of FAA section 2.

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About Deepak Gupta

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Deepak Gupta is a staff attorney at Public Citizen Litigation Group in Washington, DC, where his practice focuses on consumer and constitutional litigation.