Wednesday, April 28, 2010

Arbitration – Supreme Court’s Opinion in Stolt-Nielsen

Justice Alito delivered a 5-4 opinion today in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 2010 U.S. LEXIS 3672 (2010) (available here), in which the majority held that imposing class arbitration on parties who have not agreed to authorize class arbitration is inconsistent with the Federal Arbitration Act. Here, sophisticated parties, shipping companies and one of their customers, entered into a standard contract which contained an arbitration clause. The arbitration clause was silent as to whether class claims were cognizable in arbitration under the agreement. Eventually, AnimalFeeds sought arbitration on behalf of a class of purchasers of parcel tanker transportation services. The parties agreed to submit the question whether their arbitration agreement allowed for class arbitration to a panel of arbiters. The panel determined that the arbitration clause permitted class arbitration. A federal district court vacated that holding, and the Second Circuit reversed. And then yesterday, the Supreme Court reversed the Second Circuit, holding that where the agreement to arbitrate does not explicitly authorize class claims, class arbitration may not be imposed upon the parties.

The question not yet addressed by the Court, as it was not presented in this case, is whether under employment anti-discrimination laws and employment standards laws (e.g. FLSA), an arbitration agreement between less sophisticated parties, either by its silence as in this case or explicitly, can preclude class action claims in arbitration. In Pomposi v. GameStop, Inc., 2010 U.S. Dist. LEXIS 1819 (D. Conn. Jan. 11, 2010) (available here), Judge Vanessa Bryant of the District of Connecticut sitting in Hartford, held that an arbitration agreement that precluded collective action FLSA claims was enforceable. In that case, plaintiff had signed a written acknowledgment certifying that he had received a copy of the defendants store mangers’ handbook. Said acknowledgment stated as follows: “I understand that by continuing my employment with GameStop following the effective date of GameStop C.A.R.E.S., I am agreeing that all workplace disputes or claims, regardless of when those disputes or claims arose, will be resolved under the GameStop C.A.R.E.S. program rather than in court. This includes legal and statutory claims, and class or collective action claims in which I might be included.” The defendant’s program referenced in the acknowledgement was set forth in a brochure and a set of rules, one of which stated that no claim “may be initiated or maintained on a class, collective or representative action basis either in court or under these rules, including in arbitration.”

It will be a case like Pomposi , presumably, that will bubble up to the Supreme Court for it to decide whether an employer can not only force employees to arbitrate discrimination and employment standards claims in arbitration, but also preclude employees from pursuing those claims on a collective or class action basis. Of course, the Congress may enact the Arbitration Fairness Act (available here) which would preclude mandatory pre-dispute employment arbitrations, thus presumably mooting this controversy. And, as we will soon discuss in a post, the so-called Franken Amendment may not only be re-enacted for FY2011 for DOD appropriations, it may serve as a template to be included in the appropriations bills for other agencies.

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