New Reasons Stolt-Nielsen was Wrong (supplied by Professor Rau)

I actually enjoyed Professor Rau’s article a great deal, because I feel like he took the ideas that we’ve been bouncing around in class (especially regarding our negative feelings towards Stolt-Neilsen, Concepcion, and Rent-A-Center) and restated them in a more academic way, with more supporting documentation. It’s nice to know that the academic community at large agrees that the Supreme Court has dug itself into a confusing hole (or maybe found itself trapped in a maze) regarding arbitration precedent.

I think the most interesting argument that Professor Rau made was about the holding regarding “silence” in Stolt-Neilsen. I had never considered this decision from the perspective of general contract interpretation—and now that the article stated such an argument, I now feel even more strongly that this decision was a mistake. The argument is this: in contract disputes, judges often have to make determinations about contract construction in order to fill the “gaps” in the contract that led to the disagreement in the first place. In determining what the intentions of the parties were, or in trying to fill the gaps, however, the judges often end up interpreting the contract. And this is OK, because that’s how our system has always operated. The Court in Stolt-Neilsen, on the other hand, decided that an arbitration panel can only decide questions of construction, not interpretation, because to do the latter is to “impose its own conception of sound policy”. Professor Rau argues that this was an unnatural limit to place on arbitral power, because no contract reader only makes decisions on construction without any interpretation.

I know we’re supposed to be critical of this article, but I couldn’t find something that I really disagreed with (feel free to comment if you found something particularly terrible that I totally missed). I almost wish that we had read this article earlier in the semester, actually, because I think that it gave me a new way to look at cases that conceptually fits with what I’ve learned in other classes (coincidentally, that includes Contracts with Professor Rau). Professor Bayer told us to never forget that arbitration is a contractual agreement, but I definitely needed this article to remind me that basic contract principles apply to arbitration agreements, too.

The Supreme Court's Kind of a Control Freak

I thought the (barely) majority opinion in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. was really strange, and I wonder how it’s supposed to fit in with past judicial precedent on arbitration. The reason for my confusion is this: I can’t see how the generally pro-arbitration policy that the Supreme Court has adopted fits with the idea that “remaining silent” on the issue of contractually authorizing class arbitration means no agreement to arbitrate. I was surprised because I found that the dissenting opinion fit more within what I saw was the prevailing precedent of the Court. The four dissenting Justices pointed out that the issue at hand was whether the arbitrators “exceeded their powers”, and considering that both parties agreed to have the threshold issue examined by an arbitration panel, it seemed to me like the “correct” decision would have been for the Court to agree with the arbitrators, or at least remand the case back to the arbitration panel, as the dissent suggests.

            I think that there are two issues that underlie the Supreme Court’s surprising decision here. The first is that the majority seemed disturbed by the arbitrator’s reliance on the policy arguments advanced by AnimalFeeds. The Court said that, by doing this, “what the arbitration panel did was simply to impose its own view of sound policy regarding class arbitration” (1767). I don’t necessarily see anything wrong with that—since the arbitrators are experts in the subject matter of this dispute and since arbitration decisions can’t necessarily be used to form precedent of any kind. Perhaps the Justices feel that only the judiciary should be allowed to make decisions based on interests of public policy. Or, and maybe more importantly, the Justices feel that only the judiciary should be able to define what public policy in a certain subject area is.

            This leads to the second issue that I feel really swayed the Court to make this unusual decision: the problem of “class arbitration”. The lack of a majority decision in Green Tree Financial Corp. v. Bazzle has obviously left the Court scrambling to decide what to do with class arbitrations. And I think that the Court would like to create some firm guidelines through current cases—but it’s having some issues squaring class arbitration with its past decisions on the FAA. But it’s not like class arbitrations have stopped while the Supreme Court scrambles to clarify the “rules of engagement” for that process. I think that what the Court really didn’t want in this case was for the arbitrators to be the guiding voice on the public policy concerning class arbitration. The Court obviously wants to set the rules and interpretive guidelines for class arbitrations, just like they did in the earlier cases we’ve read (First Options, Prima Paint, etc.). Unfortunately, they’re a bit behind the curve at this moment, and this decision isn’t helping them make much progress.

            In conclusion, no matter what the actual issue in this case was, the Court was never going to uphold the arbitration panel’s decision. The Court wants to be the authors of public policy relating to class arbitrations, and they’re not going to let random arbitrators beat them to the punch.