On April 27, 2010, the Supreme Court issued an opinion on the meaning of silence.  In a landmark decision in Stolt-Nielsen, S.A., v. AnimalFeeds International Corp., No. 08-1198, the Court held that an arbitration agreement that was silent with respect to class arbitration could not be construed to allow arbitration by a class of plaintiffs.

Stolt-Nielsen and AnimalFeeds are both large international shipping companies that conducted business under the terms of a standard contract known in the maritime industry as a “charter party,” which required that all disputes be resolved through arbitration pursuant to the terms of the Federal Arbitration Act (“FAA”).  When AnimalFeeds demanded class arbitration of antitrust claims on behalf of a class of direct purchasers of tanker transportation services, it became apparent that the charter party was silent as to whether class arbitration was permitted.  After an arbitration panel concluded that the charter party permitted class arbitration, Stolt-Nielsen petitioned the United States District Court for the Southern District of New York to vacate the arbitration ruling, claiming that the arbitrators acted in “manifest disregard” of the law in allowing class arbitration.  The district court agreed, vacating the arbitrators’ decision.  The United States Court of Appeals for the Second Circuit then reversed, interpreting the Supreme Court’s plurality opinion in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), as allowing class arbitration where the arbitration agreement is silent on the issue. On June 15, 2009, the United States Supreme Court granted certiorari.

DRI filed an amicus brief on the merits in support of Stolt-Nielsen.  Based on its members’ extensive practical experience, DRI was uniquely well suited to explain to the Court why class arbitration is a fundamentally different, more complex, and expensive process than individual arbitration and why the Second Circuit’s opinion, which effectively equated contractual silence with consent to class arbitration, would have subjected numerous defendants to the very financial risks and burdens they sought to contain by contracting for arbitration.
The Supreme Court reversed the Second Circuit in a 5-3 decision.  In a majority opinion for the Court, Justice Alito explained that the charter party’s silence must be construed as forbidding, rather than permitting, class arbitration.  As the Court held, “Even though the parties are sophisticated business entities, even though there is no tradition of class arbitration under maritime law, and even though AnimalFeeds does not dispute that it is customary for the shipper to choose the charter party that is used for a particular shipment, the panel regarded the agreement’s silence on the question of class arbitration as dispositive.  The panel’s conclusion is fundamentally at war with the foundational FAA principle that arbitration is a matter of consent.”  (Emphasis added). 

The successful DRI amicus was filed by Jerrold J. Ganzfried, a partner in the Washington, D.C., office of Howrey LLP, and Jennifer Bagosy, a senior associate in the firm’s Irvine, California, office.

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Categories: Arbitration | Class Actions

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