Stolt-Nielsen S.A., et al. v. AnimalFeeds International Corp.

Issue Discussed: Judicial Review/Manifest Disregard

Submitted by Robert W. DiUbaldo

Date Promulgated: April 27, 2010


Stolt-Nielsen S.A., et al. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010)

Court: U.S. Supreme Court

Issues Decided:  Whether an arbitrator can require a party to submit to class arbitration when the operative agreement is silent on the issue and the parties dispute whether class arbitration is permissible?

Petitioners, certain shipping companies, chartered vessels to AnimalFeeds International Corp. (“AnimalFeeds”), which supplies raw ingredients to producers around the world.  The relevant contract between the parties, known as a “charter party”, contained an arbitration clause which provided that any arbitration would “be conducted in conformity with the provisions and procedure of the [FAA]”.

AnimalFeeds brought a putative class action against Petitioners in the U.S. District Court for the Eastern District of Pennsylvania asserting antitrust claims for supracompetitive prices that Petitioners allegedly charged their customers over a period of several years.  Thereafter, AnimalFeeds served Petitioners with a demand for class arbitration, designating New York as the forum of the arbitration.  The parties entered into a supplemental agreement providing for the question of class arbitration to be submitted to a panel of three arbitrators.  The parties also stipulated that the subject arbitration clause was “silent” with respect to class arbitration and asserted that either federal maritime law or New York law governed the dispute.

After hearing argument and evidence, the panel concluded that the arbitration clause allowed for class arbitration.  Petitioners moved to vacate the panel’s ruling under Section 10(a)(4) of the FAA on the grounds that the arbitrators exceeded their powers, and that the ruling was in manifest disregard of federal maritime law.  The District Court vacated the panel’s award based on manifest disregard of the law, but the U.S. Court of Appeals for the Second Circuit reversed.  While the Second Circuit found that the “manifest disregard” doctrine survived the U.S. Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), it held that the panel’s ruling was not in manifest disregard of federal maritime law, as the Petitioners cited no authority on custom and usage against class arbitration under federal maritime law, and New York law did not otherwise establish a rule against class arbitration.  The Supreme Court granted certiorari to hear the dispute, and reversed and remanded the Second Circuit’s decision.

Initially, the Supreme Court found that the FAA governed the issue in dispute, given the Act’s central purpose of ensuring that “private agreements to arbitrate are enforced according to their terms.”  Applying FAA standards and related case law, a majority of the Court held that a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.  Here, because the parties disputed the issue of whether class arbitration was warranted under the operative provision, which was silent on the matter, the majority found that the panel’s ruling contravened the foundational principle that arbitration is a matter of consent.  Moreover, the majority of the Court disagreed with the dissent’s finding that the issue of class arbitration was a “procedural question” left solely for the arbitrators to decide, characterizing the question as whether the parties agreed to authorize class arbitration in the first place.



[1] Rob DiUbaldo is a Partner at Carlton Fields Jorden Burt, whose practice focuses on insurance, reinsurance and commercial litigation and arbitration.