McGuireWoods LLP announced that it has secured a victory before the U.S.
Supreme Court on behalf of firm clients Jo Tankers B.V. and Jo Tankers Inc. In a
5-3 decision in Stolt-Nielsen S.A. et al v. AnimalFeeds International Corp.,
No. 08-1198, 559 U.S. ___ (2010), the court addressed the key question of
whether parties can be compelled to submit to class arbitration where the
arbitration clause is silent on the issue of class treatment. In the decision,
the court held that “a party may not be compelled under the [Federal Arbitration
Act] to submit to class arbitration unless there is a contractual basis for
concluding that the party agreed to do so."
“We are very excited about this important decision, not only for our clients,
but also because we believe the court now has provided clarity to any party
using an arbitration clause in an agreement,” said Amy Manning, a McGuireWoods
partner who worked on the matter.
The clients were represented by a team of McGuireWoods’ attorneys including
Manning and partners Dick Rappaport and Angelo Russo, as well as
counsel Tammy Adkins. Other firms that worked on this matter for the other
defendants in the case included WilmerHale, White & Case, and the law firm
Garvey Schubert and Barer.
Case and Decision Background
The AnimalFeeds case began as a class action lawsuit alleging that
Stolt-Nielsen and other parcel tanker transportation companies violated the
antitrust laws. Pursuant to a written contract between the parties, the case was
submitted to arbitration. There, the parties stipulated that the arbitration
clause at issue was “silent” with respect to class arbitration, which does not
simply mean that the clause made no express reference to class arbitration, but
instead meant that “there’s been no agreement … reached on that issue.” The
arbitrators ultimately concluded that the silent arbitration clause permitted
The parcel tanker companies filed a petition to vacate the arbitrators’ award
with the District Court for the Southern District of New York. The District
Court vacated the award, holding that the arbitrators’ decision was made in
“manifest disregard” of the law insofar as the arbitrators failed to conduct a
choice-of-law analysis, which would have required them to apply maritime law. On
appeal to the Court of Appeals to the 2nd Circuit, the court reversed the lower
court, holding that although the “manifest disregard” standard survived as a
“judicial gloss” on the enumerated grounds for vacating arbitration awards, the
arbitrators’ decision was not in manifest disregard of federal maritime law.
The Supreme Court agreed to hear the case to address the question of whether
imposing class arbitration on parties whose arbitration clauses are silent on
that issue is consistent with the Federal Arbitration Act (FAA). The Supreme
Court held that the AnimalFeeds arbitration could not proceed on a
class basis where the arbitration agreement was silent on the issue.
In reaching this conclusion, the Supreme Court reasoned that imposing class
arbitration on parties who have not agreed to authorize class arbitration is
inconsistent with the FAA and its primary objectives. Arbitrators derive their
authority from the arbitration agreement itself, and therefore, the parties'
intentions control. The arbitration agreement will govern not only what
the parties arbitrate, but also with whom they will do so. The
arbitrators cannot force parties to arbitrate issues they did not agree to
arbitrate, or with parties with whom it did not agree to arbitrate. "A party
cannot 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."
The Supreme Court also found that class arbitration is not merely a
procedural question over which the arbitrators have discretionary authority.
Class arbitration changes the nature of the arbitration, and thus, the
arbitrators cannot infer authority or consent to class arbitration from the
simple fact that the parties agreed to arbitrate bilaterally. The court
declared, "We think that the differences between bilateral and class-action
arbitration are too great for arbitrators to presume, consistent with their
limited powers under the FAA, that the parties' mere silence on the issue of
class-action arbitration constitutes consent to resolve their disputes in class