The Franchise Memorandum

The United States Supreme Court likely ignited an intense battle in state and federal courts around the country with its decision last week that a class action arbitration may not be imposed on a party who has not agreed to it.  In Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (U.S. April 27, 2010), a 5-3 majority reversed the Second Circuit’s decision that had upheld an arbitration panel decision to allow a price-fixing case to proceed on a class basis in arbitration.  (Justice Sotomayor, a former judge on the Second Circuit, did not participate)  The specific issue addressed by the court was “whether imposing class arbitration on parties whose arbitration clauses are ‘silent’ on that issue is consistent with the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq.”  “In this case, we must conclude that what the arbitration panel did was simply to impose its own view of sound policy regarding class arbitration,” Justice Alito wrote for the majority.  Justice Ginsburg dissented, joined by Justices Stevens and Breyer.

There are predictions that defendants in more than 100 class action arbitration cases will seek supplemental briefing to argue that the Supreme Court’s ruling preempts all state laws that have been used to allow class arbitrations.