May 3, 2010

Goldman’s Take on AnimalFeeds

By Art Hinshaw

This past week we’ve been passing along some of the commentary on the Supreme Court’s opinion in the Stolt-Nielsen v. AnimalFeeds case, which came down last week.  Below is a response that Alvin L. Goldman sent out on the list-serv in response to Kirgis’ and Sternlight’s comments.  

Some of the discussion suggests to me overly hasty reading of the Animal Feeds decision and equally hasty conclusions respecting its implications.

Class actions can be a good thing or a bad thing for the small fry in a dispute.  Among other things, it can be the only financially practical means of getting redress, or the only administratively feasible means of getting redress quickly. It also can be a means of assuring that folks or businesses in similar circumstances are treated similarly.  On the other hand, it can be a means by which large claimants (or their lawyers) can overwhelm or trivialize the interests of smaller claimants or the respondent.  The Court did not eliminate the possibility of class action arbitration; it merely imposed a rule of interpretation that creates on those seeking it the burden of presenting some proof that the class members have in some way consented to the procedure.

From these principles, it follows that a party may not 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. In this case, however, the arbitration panel imposed class arbitration even though the parties concurred that they had reached Ono agreement¹ on that issue. . . . Here, where the parties stipulated that there was Ono agreement¹ on this question, it follows that the parties cannot be compelled to submit their dispute to class arbitration.  The majority explained that the normal presumption of arbitrability should not be applied to class action claims because the interests of some parties may be too easily disregarded.  The Court did not specify what type of proof will support a finding of consent to a class claim where the arbitration provision is silent.

 The dissenters did not reject the proposition that consent to arbitrate is a matter for judicial determination.  Rather, they objected to judicial review of this arbitration proceeding prior to allowing the arbitrators to determine the merits. They also objected to the contention that these parties had agreed that there was no agreement on the class action issue.  The dissent noted that the Court¹s assertion was based on a hearing statement by Animal Feeds counsel which, read in its context, did not support the majority’s finding of a stipulation.  Rather, the dissent found controlling that the parties jointly asked the arbitrators to decide, initially, whether the arbitration clause in their shipping contracts permitted class proceedings. The dissenters concluded The parties’ supplemental agreement, referring the class-arbitration issue to an arbitration panel, undoubtedly empowered the arbitrators to render their clause-construction decision.

 Although the substantive ruling in this case turns on the Justices¹ differing reading of the record, the holding does make two important policy choices. The first is the willingness of the majority to allow judicial review prior to a final arbitration award, without, at least, a showing of exceptional hardship.  The second is reflected in the dissent’s final observation: If the Court is right that arbitrators ordinarily are not equipped to manage class proceedings, . . . then the claimant should retain its right to proceed in that format in court.

 Alvin Goldman

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