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Stolt-Nielsen S. A. v. AnimalFeeds Int'l Corp. - 559 U.S. 662, 130 S. Ct. 1758 (2010)

Rule:

In order to obtain relief vacating the decision of an arbitration panel, petitioners must clear a high hurdle. It is not enough for the petitioners to show that the panel committed an error--or even a serious error. It is only when an arbitrator strays from interpretation and application of the agreement at issue and effectively dispenses his own brand of industrial justice that his decision may be unenforceable. In that situation, an arbitration decision may be vacated under 9 U.S.C.S. § 10(a)(4) of the Federal Arbitration Act on the ground that the arbitrator exceeded his powers, for the task of an arbitrator is to interpret and enforce a contract, not to make public policy. 

Facts:

Petitioner shipping companies serve much of the world market for parcel tankers--seagoing vessels with compartments that are separately chartered to customers, such as respondent (AnimalFeeds), who wish to ship liquids in small quantities. AnimalFeeds ships its goods pursuant to a standard contract known in the maritime trade as a charter party. The charter party that AnimalFeeds uses contains an arbitration clause. AnimalFeeds brought a class action antitrust suit against petitioners for price fixing, and that suit was consolidated with similar suits brought by other charterers, including one in which the Court of Appeals for the Second Circuit subsequently reversed a federal district court ruling that the charterers’ claims were not subject to arbitration. As a consequence, the parties in this case agree that they must arbitrate their antitrust dispute.

AnimalFeeds sought arbitration on behalf of a class of purchasers of parcel tanker transportation services. The parties agreed to submit the question whether their arbitration agreement allowed for class arbitration to a panel of arbitrators, who would be bound by rules (Class Rules) developed by the American Arbitration Association following Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S. Ct. 2402, 156 L. Ed. 2d 414. One Class Rule requires an arbitrator to determine whether an arbitration clause permits class arbitration. The parties selected an arbitration panel, designated New York City as the arbitration site, and stipulated that their arbitration clause was “silent” on the class arbitration issue. The panel determined that the arbitration clause allowed for class arbitration, but the district Court vacated the award, after it concluded that the arbitrators’ award was made in “manifest disregard” of the law; according to the district court, had the arbitrators conducted a choice-of-law analysis, they would have applied the rule of federal maritime law requiring contracts to be interpreted in light of custom and usage. The Second Circuit reversed, holding that because petitioners had cited no authority applying a maritime rule of custom and usage against class arbitration, the arbitrators’ decision was not in manifest disregard of maritime law; and that the arbitrators had not manifestly disregarded New York law, which had not established a rule against class arbitration. The United States Supreme Court granted certiorari review.

Issue:

Did the arbitration panel exceed its powers by concluding that the arbitration clause allowed for class arbitration?

Answer:

Yes

Conclusion:

The Court held that the arbitration panel exceeded its powers by concluding that the arbitration clause allowed for class arbitration. The panel did not consider whether the FAA, maritime law, or New York law allowed class arbitration in the absence of express consent, but instead impermissibly imposed its own view of sound policy regarding class arbitration. A party could not be compelled under the FAA to submit to class arbitration absent a contractual basis for concluding that the party had agreed to do so. The differences between bilateral and class arbitration were too great to allow the arbitrators to presume that the parties' silence on the issue of class arbitration constituted consent. Because the question was whether the parties had agreed to authorize class arbitration, and the parties had stipulated that there was no agreement on that question, the parties could not be compelled to submit to class arbitration.

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