Petitioners (“Stolt-Nielsen”) entered into a contract with respondent AnimalFeeds International Corporation that contained an arbitration clause. After a dispute arose between the parties, AnimalFeeds sought arbitration on behalf of itself and a class of customers who had purchased services from Stolt-Nielsen. The parties agreed that the arbitration clause was silent on whether class arbitration was permissible, and submitted this question to a panel of arbitrators. The panel ruled in AnimalFeeds favor and found that class arbitration was allowed.
Stolt-Nielsen moved vacate the award in the U.S. District Court for the Southern District of New York, which granted its motion on the grounds that the arbitration panel’s award was made in “manifest disregard” of the law because they failed to conduct a choice-of-law analysis in determining whether class arbitration was proper. On appeal, the U.S. Court of Appeals for the Second Circuit reversed the District Court’s decision. The U.S. Supreme Court then granted certiorari.
The Supreme Court reversed the Second Circuit’s ruling, finding that the arbitration panel had exceeded its powers under 10(a)(4) of the Federal Arbitration Act (“FAA”) by failing to conduct any substantive analysis in determining whether class arbitration was proper. To that end, the Court noted that the arbitrators had not based on their decision on any rule derived from the FAA, maritime law (which was relevant to the parties agreement) or New York law (the situs of the arbitration). Thus, the Court found that the arbitration panel did not interpret and enforce the parties agreement, but simply imposed its own view of “sound policy” concerning class arbitration.
Although both the District Court and the Second Circuit addressed manifest disregard of the law in their decisions, the Supreme Court did not decide whether this doctrine survived its decision Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) as an independent basis for vacatur or modification of arbitral awards, or as a judicial gloss on the enumerated grounds set forth in Section 10 of the FAA. However, the Supreme Court noted in a footnote that assuming that the “manifest disregard of the law” standard in the Second Circuit applied, it was satisfied.
Click here to review a copy of the U.S. Supreme Court’s decision, captioned Stolt-Nielsen S.A. et al. v. AnimalFeeds International Corp., No. 08-1198 (Apr. 27, 2010).