Originally from American Review of International Arbitration - ARIA

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INTRODUCTION

On November 4, 2008, the Second Circuit, in Stolt-Nielsen SA v. AnimalFeeds International Corp., reversed a district court decision that had vacated, for manifest disregard of the law, the award of an arbitral tribunal sitting in New York to the effect that an agreement that contained an arbitration clause that was silent on the issue authorized class action arbitration.   The Second Circuit reversed on the ground that the arbitral tribunal had not manifestly disregarded the applicable law.  The U.S. Supreme Court has granted certiorari.   This article argues that both the district court and the Second Circuit erred in basing their decision on the doctrine of manifest disregard of the law, since that doctrine does not provide a proper basis for vacating an award.  It further argues that, under well-established rules and customs, the arbitral tribunal had primary competence to decide whether the applicable arbitration law and rules authorized a class action.  And it finally argues that if the tribunal could have ordered class action arbitration, it could have ordered only an opt-in form.  The latter issues neither the arbitral tribunal nor the two federal courts addressed.  

The relation between the courts and arbitral tribunals in the realm of class actions has created problems from the time it became an issue.  Courts have been understandably reluctant to let non-judicial officers determine when and how class actions could be pursued in arbitration.  In Green Tree v. Bazzle,  the Supreme Court decided, in conformity with what I had argued,  that it was for the arbitrators and not the courts to decide whether the parties had intended the arbitral tribunal to conduct class actions.  That decision created problems of its own, because arbitration agreements typically do not address this issue.  The American Arbitration Association subsequently adopted rules for adjudicating class actions in arbitration, but these rules apply only after the arbitral tribunal has ruled that the applicable arbitration clause authorizes class-action arbitration.   When that clause is silent on the issue, the arbitral tribunal is given no explicit directions on how to reach its decision.  It must construe the arbitration clause in accordance with applicable provisions of law relating to interpretation of the contractual provision at issue and applicable arbitration rules.