Supreme Court to Decide Whether Class Arbitration Permitted Where Agreement Is Silent on the Issue
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On June 15, 2009, the United States Supreme Court granted certiorari in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 548 F. 3d 85 (2d Cir. 2008), cert. granted, 129 S. Ct. 2793 (2009). The question before the Supreme Court is whether an arbitration agreement that is “silent” on the question whether class arbitrations are permitted can ever be construed to permit such arbitrations.
The Second Circuit Court of Appeals had imposed class-wide arbitration on Stolt-Nielsen despite the silence of the underlying agreement to arbitrate on the question whether class arbitrations were permissible. Stolt-Nielsen asked the High Court to decide whether permitting class arbitration even when an agreement to arbitrate is silent on the issue violates the fundamental principle of the Federal Arbitration Act (9 U.S.C. §1 et seq.) (FAA) that courts must enforce arbitration agreements in accordance with their terms. Basically, Stolt-Nielsen argued, if an agreement is silent on something as significant as requiring a party to submit to a class proceeding and class-wide relief, how could that party ever have contemplated such to be the outcome? Silence, Stolt-Nielsen argued, cannot be construed to authorize something that the parties never agreed to, and indeed the FAA forbids courts from writing substantive terms into agreements that the parties did not themselves include.
If the Supreme Court agrees with Stolt-Nielsen, the implications might be far reaching. For one thing, if under the FAA an agreement that is “silent” on the question of class arbitration may not be interpreted as permitting such arbitration, then would the FAA preempt courts from ruling that express arbitral class waivers are unconscionable or otherwise unenforceable? Even if the Court rules that a silent agreement does not prohibit class arbitration, it may also touch on issues related to the enforceability of express class waivers. For example, if a “silent” agreement is open to interpretation, then an agreement containing an express class waiver may leave nothing to the imagination, and if the FAA requires that such an agreement be enforced as written, decisions refusing to enforce express class waivers may be undermined substantially.
Of course, application of the rules of contract interpretation do not necessarily answer the question of contract validity or enforceability, but if the Supreme Court structures its opinion around the mandates of the FAA, principles of federal preemption may require that express class waivers be enforced, contrary state public policies notwithstanding.
This entry was written by Henry D. Lederman.
