Stolt-Nielsen SA v. AnimalFeeds International Corp.
2008 A.M.C. 2722, 548 F.3d 85, 2008 U.S. App. LEXIS 22838 (2008)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An arbitration award may only be vacated for 'manifest disregard of the law' if a party demonstrates that the arbitrator knew of a clear, explicit, and applicable legal principle but deliberately chose to ignore it. Mere error in legal interpretation or misapplication of rules of contract construction, such as the weight given to industry custom, does not meet this exceedingly high standard.
Facts:
- AnimalFeeds International Corp. ('AnimalFeeds') and Stolt-Nielsen SA ('Stolt-Nielsen') were parties to international maritime shipping contracts, known as charter parties.
- These contracts contained broadly worded clauses requiring arbitration for any disputes but were silent on whether class arbitration was permitted.
- AnimalFeeds alleged that Stolt-Nielsen and others engaged in a global price-fixing conspiracy in violation of federal antitrust laws.
- AnimalFeeds sought to pursue its claims on behalf of a class of all direct purchasers of Stolt-Nielsen's shipping services during a specific period.
- After being compelled to arbitrate, the parties agreed to have an arbitration panel decide the threshold question of whether their contracts permitted class arbitration.
- Before the panel, Stolt-Nielsen argued that silence on class arbitration in a maritime contract, given industry custom and usage, meant it was precluded.
- AnimalFeeds argued that the silent, broad arbitration clauses should be construed to permit class proceedings, citing other arbitration awards and public policy.
Procedural Posture:
- AnimalFeeds filed a class action lawsuit against Stolt-Nielsen in the U.S. District Court for the Eastern District of Pennsylvania.
- The Judicial Panel on Multidistrict Litigation transferred the case to the District of Connecticut.
- In the District of Connecticut, Stolt-Nielsen's motion to compel arbitration was denied by the trial court.
- Stolt-Nielsen appealed to the U.S. Court of Appeals for the Second Circuit, which reversed the district court and compelled the parties to arbitrate.
- The parties submitted the dispute to an arbitration panel, which issued a 'Clause Construction Award' finding that the arbitration agreements permitted class arbitration.
- Stolt-Nielsen filed a petition in the U.S. District Court for the Southern District of New York to vacate the arbitration award.
- The district court granted Stolt-Nielsen's petition, vacating the award on the grounds that the arbitrators acted in manifest disregard of the law.
- AnimalFeeds, the respondent in the district court, appealed the vacatur to the U.S. Court of Appeals for the Second Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an arbitration panel act in 'manifest disregard of the law' by interpreting a maritime contract's silent arbitration clause to permit class arbitration, when the parties stipulated that the panel would decide the issue and there was no clear legal principle precluding such an interpretation?
Opinions:
Majority - Sack, Circuit Judge
No, the arbitration panel did not act in manifest disregard of the law. To vacate an award on these grounds, a court must find the arbitrator willfully flouted a clear and governing legal principle, and an arbitrator's interpretation of a contract, even if a court disagrees with it, does not meet this standard. The court reasoned that judicial review of arbitration awards is severely limited to maintain arbitration's efficiency and finality. The court reaffirmed that the 'manifest disregard' doctrine survives the Supreme Court's decision in Hall Street as a judicial gloss on the Federal Arbitration Act's provision allowing vacatur when arbitrators 'exceed their powers.' Applying the three-part test for manifest disregard, the panel's decision stood because: (1) there was no clear, governing legal principle under federal maritime or New York law that prohibited class arbitration where a contract is silent; (2) Stolt-Nielsen had conceded to the panel that the choice of law was immaterial, so the panel did not disregard the law by not performing a detailed choice-of-law analysis; and (3) the panel's decision not to be persuaded by Stolt-Nielsen's 'custom and usage' argument was, at most, a misapplication of a rule of contract interpretation, not a conscious disregard of controlling law.
Analysis:
This decision strongly reinforces the principle of extreme judicial deference to arbitrators' decisions, especially in matters of contract interpretation. It clarifies that the 'manifest disregard of the law' standard is exceptionally difficult to meet, requiring more than just a showing of legal or factual error. The opinion also provided an important early interpretation of the Supreme Court's decision in Hall Street, concluding that 'manifest disregard' survives as a valid, albeit narrow, ground for vacatur, reconceptualizing it as a form of arbitrators exceeding their powers under FAA § 10(a)(4). This holding solidifies arbitration as a forum of near-final dispute resolution, insulating arbitrators' awards from substantive judicial second-guessing.
