Arbitration Ruling Handed Down From the U.S. Supreme Court and California Law
An arbitration ruling has recently been handed down from the U.S. Supreme Court in a case entitled Stolt-Nielsen v. Animal Feeds Int’l Corp.
Arbitrators, over the past several years, have followed U.S. and California Supreme Court rulings which have consistently held that if an arbitration agreement does not allow for class action treatment, then such class action treatment must be allowed.
In stark contradiction, the recent U.S. Supreme Court decision in Stolt-Nielsen v. Animal Feeds case, states “[A] party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” This essentially means that unless the arbitration agreement specifically permits class wide arbitration, none shall be allowed.
This holding is in direct contradiction to the California Supreme Court case entitled Gentry v. Superior Court which held that any arbitration agreement that does not permit class certification is an unenforceable and voidable “exculpatory clause.”
Without a doubt many defense firms in California will attempt to use the recent decision to reshape California law, however this will likely not be successful since Gentry v. Superior Court does not conflict with the Federal Arbitration Act (“FAA”) since it applies to all class waiver “exculpatory clauses” whether or not they happen to appear in arbitration agreements.
In addition, the Stolt-Nielsen decision simply holds that, without specifically an express agreement by the parties, class arbitrations cannot be ordered “under the FAA.” The decision does not state, however, that the FAA preempts Californiacourts from compelling class-wide arbitration under state law, such as the California Arbitration Act or the anti-exculpatory rule discussed in the Gentry case.
It is likely that California courts will still be bound by the Gentry decision and judges are likely to reject any attempt to enforce an exculpatory class-waiver clause since such would conflict with Gentry.
The likely outcome is that defense firms and their clients will not be able to avoid class actions altogether but rather will need to choose between class wide litigation or class wide arbitration.
Photo Credit: Zolnierek