Today the U.S. Supreme Court broke 5-3 in favor of a rule against class arbitration.
The majority held that an arbitration panel exceeds its authority under the federal Arbitration Act when it construes an agreement to arbitrate as allowing class treatment of a dispute unless the agreement shows the parties intended to permit such a thing. Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., No. 08-1198 (U.S. Apr. 27, 2010).
The decision means that arbitrators will have no choice but to deny almost all class certification requests.
Blawgletter suspects that few, if any, commercial contracts say arbitrators may proceed on a class basis and that even fewer consumer contract do.
Some contracts do call for application of standard rules, such as those of the American Arbitration Association, but the AAA's rules also turn whether the parties' contract "permits" class arbitration. That takes you back to the question Stolt-Nielsen answers.
But you'll need to look at your arbitration clause to see how much power it gives the arbitrator. Some that we've seen grant authority to do anything a judge can under a certain jurisdiction's rules of procedure. And most jurisdictions include a procedural rule allowing class certification.
The ruling strikes us as in tension with court rulings that in recent years have tended towards deeming contractual bans on class arbitrations unconscionable, frustrating statutory rights, and otherwise against public policy. We'll have to see how that plays out.
Post from when the Court granted review here.
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