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U.S.
Supreme Court Issues Critical Decision on Arbitration Agreements
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. ___ (2010).
The Supreme Court
of the United States recently held that, under the Federal Arbitration
Act (FAA), it is improper to impose class arbitration on parties who have
not specifically agreed to it.
In this case,
the petitioner shipping companies entered standard contracts, known as
charter parties, with various purchasers of parcel tanker transportation.
The contracts contained an arbitration clause which stated that the FAA
would govern any dispute arising from the making, performance, or
termination of the contracts. After AnimalFeeds served a demand for class
arbitration, the parties entered a supplemental agreement. Based on the
stipulation of the parties that the arbitration clause was silent on the
issue of class arbitration, the supplemental agreement provided a protocol
for determining whether the arbitration clause authorized class
arbitration. On this threshold issue, the arbitration panel concluded
class arbitration was proper because there was no evidence the parties
sought to preclude class arbitration.
The U.S.
Supreme Court vacated the decision of the arbitration panel. Writing for
the majority, Justice Alito’s opinion focused on the express
language of the arbitration clause, which did not address class
arbitration. The Court emphasized that the arbitrator’s role is to
“interpret and enforce a contract, not to make public
policy.” While acknowledging the freedom of parties to structure
arbitration agreements as they wish, the Court described the
panel’s decision as “fundamentally at war with the
foundational principle that arbitration is a matter of consent.”
This
decision is important to anyone who regularly uses contracts containing
arbitration clauses. Typically, the ultimate goal of such clauses is to
efficiently resolve disputes by providing uniformity in applicable law
and avoiding costly lawsuits. However, when the arbitration clause does
not provide a mechanism for addressing unforeseeable disputes, courts
will not extend the scope of a party’s promise to arbitrate beyond
the express contractual language.
In the meantime, Stolt-Nielsen provides an important lesson: While
well-drafted arbitration clauses will likely be tailored to address
anticipated disputes, it is equally important that they provide guidance
on how to resolve unanticipated disputes.
This document is
intended to provide you with general information about arbitration
agreements. The contents of this document are not intended to provide
specific legal advice. If you have questions about the contents of this
alert, please contact Mort Rosen at 310-215-7511 or mrosen@hbblaw.com or Michael Parme at
619-595-1980 or mparme@hbblaw.com
or contact your preferred Haight Brown & Bonesteel, LLP attorney.
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