High Court Rules Class Arbitration in Price Fixing Case Was Improper

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

International shipping companies should not be forced to defend in class arbitration customers' price fixing claims where their arbitration clause was “silent” on the class arbitration issue, the U.S. Supreme Court ruled today in a five-to-three decision.

Finding that the arbitration panel erred in imposing class arbitration, the Court said: “instead of identifying and applying a rule of decision derived from the [Federal Arbitration Act] or either maritime or New York law, the arbitration panel imposed its own policy choice and thus exceeded its powers.”

Class Arbitration

A putative class action was brought against the shipping companies after a Department of Justice criminal investigation revealed an illegal price fixing conspiracy in 2003. After it was determined that the parties were required to arbitrate their antitrust dispute, the customers sought class arbitration of their claims. The arbitration panel granted the request but stayed the proceeding to allow the parties to seek judicial review.

The federal district court in New York City vacated the arbitration panel's clause-construction award (2006-2 Trade Cases ¶75,353); however, the federal appellate court subsequently reversed the district court and upheld the award. The federal appellate court held that class arbitration was permissible, even though the arbitration clauses in the underlying maritime agreements did not specifically provide for it (2008-2 Trade Cases ¶76,355).

“[P]arties may specify with whom they choose to arbitrate their disputes,” explained Justice Samuel Anthony Alito, writing for the majority, explained, in reversing the appellate court. The High Court cautioned courts and arbitrators “to give effect to the intent of the parties.”

Agreement Required

It followed that a party may not be compelled under the FAA to submit to class arbitration unless there was a contractual basis for concluding that the party had agreed to do so. In this matter, the parties had stipulated that there was “no agreement” on that issue, the Court noted.

Moreover, an agreement to authorize class arbitration could not be inferred based on the parties' “agreement to arbitrate" because class-action arbitration changed the nature of arbitration, according to the Court.

Dissent

The dissenting opinion, authored by Justice Ruth Bader Ginsburg, argued that the majority was improperly addressing an issue not ripe for judicial review. The dissent contended that,
even if the matter was ripe for judicial review, the Court should have rejected it on the merits. The Court should have affirmed the Second Circuit judgment confirming the arbitrators’ clause-construction decision.

Text of the April 27 decision in Stolt-Nielsen S.A. v. Animalfeeds International Corp., 2010-1 Trade Cases ¶76,982, is posted here on the U.S. Supreme Court website.