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Arbitration Process Issues

Special Focus: Supreme Court Holds That Class Arbitration Must Be Consensual

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The United States Supreme Court issued a long anticipated opinion last week addressing the circumstances under which parties may be compelled to arbitrate disputes on a class-wide basis. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 2010 WL 1655826 (Apr. 27, 2010). Although we posted a brief item about this case earlier this week, this opinion is important enough that we are posting a longer Special Focus piece today describing the Court’s reasoning in more detail. This post also notes that the Court had the opportunity to address the issue of the continued viability of manifest disregard of law as a basis for vacating arbitral awards in this opinion, but declined to do so. More on that issue next week, as the Eleventh Circuit last week joined the debate on that issue.

This post written by Rollie Goss.

Supreme Court Torpedoes Class Arbitration Where Parties Reached No Agreement on the Issue

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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, according to a recent decision from the United States Supreme Court. The parties in the case stipulated that the arbitration provision was silent on the issue of whether an arbitration could be brought on a class-wide basis, and they had reached “no agreement” on that issue. On this basis, the Court concluded that the parties could not be compelled to submit their dispute to class arbitration. The decision is based on the long-standing principle that arbitration is a matter of consent, not coercion, that private agreements to arbitrate are enforced according to their terms, and that arbitrators must give effect to the contractual rights and expectations of the parties. The Court noted that class arbitration “changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.”

The decision also clarifies the Supreme Court’s decision in Green Tree Financial Corp. v. Bazzle (2003). The Court confirmed that “Bazzle did not yield a majority decision,” and that the parties wrongly believed “the judgment in Bazzle requires an arbitrator, not a court, to decide whether a contract permits class arbitration.” In fact, Bazzle did not establish the rule to be applied in deciding whether class arbitration is permitted. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., No. 08-1198 (U.S. Apr. 27, 2010).

This post written by Brian Perryman.

Continued Employment Suffices as Adequate Consideration for an Arbitration Agreement

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The plaintiff’s employer adopted a dispute resolution program containing language stating that by continuing or accepting employment each employee agreed to submit all covered claims to the dispute resolution program and to accept the resulting arbitration award. The employer later amended the dispute resolution program, clarifying, among other things, that the employer was equally bound to submit all claims to arbitration. When a dispute arose between the parties, the plaintiff filed suit in federal district court, arguing that the amended dispute resolution program was not supported by any consideration and, consequently, was not a valid contract. The court disagreed and found that by continuing his employment the plaintiff’s conduct manifested intent to be bound by, and constituted acceptance of and consideration for, the amended dispute resolution program. The court alternatively found that mutual promises to submit claims to binding arbitration constituted adequate consideration. Rangel v. Hallmark Cards, Inc., Case No. 10-04003 (USDC D. Kan. Mar. 4, 2010).

This post written by Dan Crisp.

Court Rules That Professional Service as a Party-Appointed Arbitrator Does Not Constitute Evident Partiality

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After the federal district court granted a motion for reconsideration by Arrowood Indemnity Co. (“Arrowood”) and remanded three questions to the arbitration panel, Trustmark Insurance Co. (“Trustmark”) moved to stay the remand and for discovery into the Umpire’s relationship with Arrowood and its counsel. Trustmark argued that, since the outset of the present arbitration in 2003, Arrowood had selected the Umpire as its party-appointed arbitrator in at least six unrelated arbitrations and the Umpire is therefore biased. The court noted that the Umpire’s relationship with Arrowood and its counsel was disclosed and grew out of the Umpire’s professional service as an arbitrator, and ruled that, under the Federal Arbitration Act, this sort of relationship does not constitute evident partiality. In addition to denying the motion to stay the remand and for discovery, the court also denied Trustmark’s motion to vacate an order admitting Arrowood’s counsel pro hac vice and an emergency motion to stay the remand. Arrowood Indem. Co. v. Trustmark Ins. Co., Case No. 03-1000 (USDC D. Conn. Feb. 2, 2010).

This post written by Dan Crisp.

MOTION TO COMPEL REINSURANCE ARBITRATION GRANTED, THEN WITHDRAWN

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A federal district granted a motion to compel arbitration between parties to a reinsurance treaty, which motion was subsequently withdrawn by the moving party, Century Indemnity. In its January 8, 2010 motion, Century contended that AXA Belgium was “patently refusing to move forward with the selection of an umpire, with no legitimate basis to do so,” thereby precluding Century “from proceeding with the contractually-agreed method of dispute resolution.” Century asked the court to order arbitration with a panel of the parties’ respective candidates and an umpire selected by the court from a slate of candidates proposed by Century’s candidate. The motion to compel arbitration was granted in a one-page order dated February 2, 2010. On March 11, 2010, however, Century filed a notice of withdrawal of the motion. Century Indemnity Co. v. Royal Belge Incendie Reassurance S.A., No. 10-MC-2 (USDC E.D. Pa. Feb. 2, 2010).

This post written by Brian Perryman.