The U.S. Supreme Court issued today its widely anticipated decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp, finding, 5-3, that the Federal Arbitration Act does not allow class arbitrations when the contract is silent on that issue.

Not only does the decision foreclose courts from stripping provisions banning class arbitration from arbitration agreements, it fatally weakens claims that agreements can be invalidated because they contain provisions of this type. 

Although three dissenting justices would not have reached the merits of the case, the five justices who addressed the merits held that, under the FAA, the parties to an arbitration agreement must individually arbitrate a dispute when the agreement is silent on the question. Under this same reasoning, the parties must individually arbitrate a dispute when the arbitration agreement expressly provides for individual arbitration.

This decision constitutes another ringing endorsement by the Supreme Court of "the central or 'primary' purpose of the FAA … to ensure that 'private agreements to arbitrate are enforced according to their terms.'" It recognizes that, while "the interpretation of an arbitration agreement is generally a matter of state law, the FAA imposes certain rules of fundamental importance, including the basic precept that arbitration 'is a matter of consent, not coercion.'"

Moreover, the decision adopts a central argument of companies seeking to enforce arbitration agreements with bans on class action arbitration. According to the court, "class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator." Of course, companies entering into arbitration agreements with consumers should continue to make arbitration as consumer-friendly as possible.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs); its guidance in the structuring and documentation of new consumer financial services products; and its experience with the full range of federal and state consumer credit laws throughout the country. For more information, please contact Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; Martin C. Bryce, Jr., 215.864.8238 or bryce@ballardspahr.com; or  Mark J. Levin, 215.864.8235 or levinm@ballardspahr.com.


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