International Law

New York Federal Court Confirms that Issue of Joinder/Consolidation Is for Arbitrator, Not the Court, Notwithstanding Stolt-Nielsen


By Louis M. Solomon

In Safra Nat'l Bank (SNB) v. Penfold Investment Trading, Ltd., 10 Civ. 8255 (S.D.N.Y. Apr. 2011),  the plaintiff sought an injunction to enjoin a AAA arbitration and sever Penfold's separate claims into separate arbitration proceedings.  Each defendant was allegedly induced to purchase an investment security by the SNB broker.  The arbitration agreement apparently did not provide whether the court or arbitrator would decide the propriety of joinder and/or consolidation.

The District Court granted summary judgment to establish the following ruling of interest to international practice:  The Court phrased the principal issue as whether the decision to consolidate or join arbitrations was up to the Court or the AAA.  Held:  although the threshold question of whether a given dispute is arbitrable is for the Court to decide, "all other disputes concerning the application of the arbitration agreement are referred to the arbitrators".  This included the question of joinder/consolidation.  

The District Court followed what is now fairly settled law that the "question of arbitrability" (that is, the issue for the Court to decide) is given a very limited scope and that other "gateway questions" are for the arbitrator to decide.   These issues include "procedural questions which grow out of the dispute and bear on its final disposition"; these are presumptively for the arbitrator, said the Court, quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), which in turn quoted John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964).  

The District Court also followed the decision by Judge Marrero in Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 462 (S.D.N.Y. 2010), which held that the Supreme Court's post-Howsam decision in Stolt-Nielsen, S.A. v. Animalfeeds Int'l Corp., 130 S.Ct. 1758 (2010) (discussed here) did not dictate a different result.  Stolt-Nielsenheld that silent arbitration agreements could not be construed to require class arbitration.  Both Anwar and now Safra hold that the joinder/consolidation issue remains an issue for the arbitrator.

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