We've discussed recently the cases of Life Receiveables v. Goshawk and Jaylene v. Steuer, both of which we interpret to address questions as to whether (or what) the arbitrators can decide relative to arbitrability and/or their own jurisdiction.

The U.S. Supreme Court is facing a similar issue in Stolt-Nielsen v. AnimalFeeds International, which was briefed and went to oral argument last week.

The question presented is:

Whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.

At oral argument, Justice Stevens commented:

"The question was whether that silence should be interpreted as a preclusion or a permission."

Stated differently, we like how Cornell's Legal Information Institute (LII) framed it:

Is reading a contract to allow class arbitration, when the contract does not expressly allow it, consistent with the FAA?

The dispute is amazing simple yet suffering from an equally remarkable number of legal tentacles and policy issues. We'll see if SCOTUS takes it head on or dodges the issue, as was done in Green Tree v. Bazzle. In Bazzle, the court was set to take on the question but ultimately diverted focus to rule that the arbitrator, in the first instance, had to decide whether the agreement was silent or not on the class issue. Since then, there's been hot debate on class actions in arbitration.

Back to Stolt-Nielsen, the dispute arose over whether large international shipping companies were violating anti-trust laws by price fixing. There was an arbitration clause in the contracts however it did not mention class action standing. While the plaintiff filed suit as a class action claim, it was referred to arbitration. The matter was ultimately presented to the AAA, which has rules giving the arbitrator the authority to decide its own jurisdiction.

LII provides a fine case analysis, much longer than we can provide here. In a nutshell, the defendant does not want class action and they, along with their amici, argue that (1) federal law says arbitration agreements are to be enforced "according to their terms" and there is no class action term here, (2) aggregating multiple claims into one arbitration creates an enormous, potentially bankrupting risk (which they further suggest is a weapon by class action lawyers), (3) class action is a uniquely American phenomenon and will impact international trade, and (4) there is a fear of inconsistent rulings.

The plaintiff, here advocating for arbitration for the class, avers that (1) the parties delegated power to the arbitrators and (2) barring class action will burden small claimants.

The challenge to vacate the award was based upon the "exceeded their powers" theory.

At oral argument, there were heady discussions of arbitration theories as well as practical questions as to whether the arbitrators may have made the wrong decision on class certification. Justice Scalia questioned that if a contract doesn't prohibit something whether it then permits it. Justice Ginsberg noted that the plaintiff originally intended a class action claim and, by limiting it in arbitration, there may be a problem. Our friends at Courthouse News Service provide greater detail on oral argument, here.

Comments:
1. Class certification creates some nettlesome issues. Don't rule out that the court issues a narrow decision limited to class action issues.
2. Maritime law can depart from common law. We agree with most commentators that maritime vs. land law should not be a defining issue, but parties hard pressed may later raise that distinction.
3. Note the irony that the defendant is seeking to avoid arbitration while the plaintiff is pressing for it. Has class action become the plaintiff bar's weapon against big business' ubiquitous arbitration clause? If the fear is that arbitrators-give-something-but-never-enough, its not a bad forum for class action lawyers where legal fees often reign supreme -- coupled with the fast movement often found in arbitration.
4. If the provision is silent but the parties agreed to rely on the AAA rules, they may be bound by AAA's rule which allows the arbitrators to determine their own jurisdiction. This would be consistent with the you-made-your-bed, you-lie-in-it approach that courts often take when parties are unhappy with an arbitrator's award.
5. Those who follow the concept and practice of arbitration -- if not the "industry" of arbitration itself -- may want to watch and see if the U.S. Supreme Court slaps down AAA's rule allowing arbitrators to define their own jurisdiction.

Thanks to LawMemo who tipped us off. Also special recommendation to SCOTUSWiki for their helpful materials. LII, cited above, has our continued respect and admiration.