Robins, Kaplan, Miller, & Ciresi, L.L.P.

Interpretation of Arbitration Clauses in Putative Class Actions

September 15, 2010

Observation

In Stolt-Nielsen, Plaintiff AnimalFeeds brought a class action antitrust suit against Stolt-Nielsen, a shipping company, alleging price-fixing.  The applicable "charter party" (a standard contract) between AnimalFeeds and Stolt-Nielsen contained an arbitration clause, but the clause said nothing about class actions.  The parties agreed that arbitration was required but when AnimalFeeds demanded a class-wide arbitration, Stolt-Nielsen denied that this was appropriate.  Therefore, the parties agreed to submit the specific question of whether AnimalFeeds could insist upon class-wide arbitration to an arbitration panel.  The panel found that the arbitration clause allowed for class arbitration.  Stolt-Nielsen challenged this finding in court and, ultimately, the Supreme Court agreed with it.  The Supreme Court determined that AnimalFeeds was not entitled to demand class-wide arbitration because the arbitration clause was silent and "a party may not be compelled under the [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so."

Analysis

In answering the question posed by the case, The Supreme Court looked to the principles underlying the Federal Arbitration Act ("FAA").  One of the purposes of the FAA is to ensure that agreements to arbitrate are enforced according to their terms.  Like any other contract, the central inquiry is the parties' intentions.  Among other things, the parties to an arbitration clause are free to specify with whom they will arbitrate disputes.  Applying this principle¾that the parties' intentions trump¾the Court held that AnimalFeeds could not demand class-wide arbitration.  The silence of the arbitration clause, coupled with the sophistication of the parties and the lack of any class-arbitration tradition in the industry indicated that Stolt-Nielsen had not agreed to be subject to class-wide arbitration.  And the Court refused to imply an agreement because class arbitration is fundamentally different from two-party arbitration.

Implication

Many contracts between health care payers and health care providers contain arbitration clauses.  To the extent that these clauses explicitly indicate the parties' intent to either permit or prohibit class-wide arbitrations, courts applying the FAA will enforce that intention absent some countervailing reason.  When an arbitration clause is silent, the Court may look to other indicators of the parties' intent, such as the tradition of the industry or of the parties.  Going forward, arbitration clauses that are silent probably will not be interpreted to permit class arbitration, at least not without other strong indicators that the parties affirmatively intended to permit it.  Perhaps to avoid even a potential dispute about intent, a number of drafters are including clauses that clearly and explicitly prohibit class-wide arbitration.  The Supreme Court has recently agreed to hear a case challenging the enforceability of an arbitration clause that prohibits class actions.  That case is Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009), cert. granted, 130 S. Ct. 3322 (2010). 

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