The U.S. Supreme Court has agreed to review a case that will decide whether the Federal Arbitration Act bars class arbitration when an arbitration clause is silent on the issue.

Most consumer and employment arbitration provisions – unlike the arbitration provision the Supreme Court agreed to review on June 15, 2009 in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2008) – contain express class action waivers, requiring the parties to arbitrate claims individually and not as part of a class action in court or in arbitration. The federal and state courts are divided on whether class action waivers are valid under state law and the FAA.

If the Supreme Court rules in favor of Stolt-Nielsen and holds that under the FAA a silent arbitration agreement must be read as precluding class-wide arbitration, then a fortiori an arbitration agreement that contains an express class action waiver should also be valid and enforceable under the FAA

The Supreme Court previously granted review to resolve the precise issue faced in Stolt-Nielsen, but was unable to reach it because of threshold issues. See Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 447 (2003) (plurality opinion).  Ballard Spahr was counsel to Green Tree in the Bazzle case.

Stolt-Nielsen arose when arbitrators ruled that an arbitration agreement that is silent on the issue of class-wide arbitration could be interpreted to permit class arbitration. The U.S. District Court for the Southern District of New York vacated that award on the ground that it was made in manifest disregard of the law. 435 F. Supp. 2d 382 (S.D.N.Y. 2006). On appeal, the U.S. Court of Appeals for the Second Circuit reversed, upholding the arbitrators' ruling and rejecting Stolt-Nielsen's argument that the FAA itself does not permit class-wide arbitration absent express provision for such proceedings in the arbitration agreement. 548 F.3d 85, 100-101 (2d Cir. 2008). 

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its skill in defending banks and other consumer financial services providers in class actions filed in state and federal courts throughout the country. The group pioneered the use of pre-dispute arbitration provisions in consumer contracts and has counseled dozens of clients with respect to implementing arbitration agreements and enforcing them in court. For further information, please contact Alan S. Kaplinsky, Chair of the group, 215.864.8544 or kaplinsky@ballardspahr.com; Mark J. Levin, 215.864.8235 or levinm@ballardspahr.com; or Martin C. Bryce, 215.864.8238 or bryce@ballardspahr.com.


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