OPINION OF THE COURT
STOLT-NIELSEN S. A. V. ANIMALFEEDS INT'L CORP.
559 U. S. ____ (2010)
SUPREME COURT OF THE UNITED STATES
NO. 08-1198
STOLT-NIELSEN S. A., et al., PETITIONERS
v. ANIMALFEEDS INTERNATIONAL CORP.
on writ of certiorari to the united states court of
appeals for the second circuit
[April 27, 2010]
Justice Alito delivered the
opinion of the Court.
We granted certiorari in this
case to decide 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.
I
A
Petitioners are shipping
companies that serve a large share of the world market for parcel
tankers—seagoing vessels with compartments that are separately
chartered to customers wishing to ship liquids in small quantities.
One of those customers is AnimalFeeds International Corp.
(hereinafter AnimalFeeds), which supplies raw ingredients, such as
fish oil, to animal-feed producers around the world. AnimalFeeds
ships its goods pursuant to a standard contract known in the
maritime trade as a charter party.[Footnote 1] Numerous charter parties are in regular use,
and the charter party that AnimalFeeds uses is known as the
“Vegoilvoy” charter party. Petitioners assert, without
contradiction, that charterers like AnimalFeeds, or their
agents—not the shipowners—typically select the particular charter
party that governs their shipments. Accord, Trowbridge, Admiralty
Law Institute: Symposium on Charter Parties: The History,
Development, and Characteristics of the Charter Concept, 49 Tulane
L. Rev. 743, 753 (1975) (“Voyage charter parties are highly
standardized, with many commodities and charterers having their own
specialized forms”).
Adopted in 1950, the
Vegoilvoy charter party contains the following arbitration
clause:
“Arbitration. Any dispute arising from the
making, performance or termination of this Charter Party shall be
settled in New York, Owner and Charterer each appointing an
arbitrator, who shall be a merchant, broker or individual
experienced in the shipping business; the two thus chosen, if they
cannot agree, shall nominate a third arbitrator who shall be an
Admiralty lawyer. Such arbitration shall be conducted in conformity
with the provisions and procedure of the United States Arbitration
Act [i.e., the FAA], and a judgment of the Court shall be
entered upon any award made by said arbitrator.” App. to Pet. for
Cert. 69a.
In 2003, a Department of Justice
criminal investigation revealed that petitioners were engaging in
an illegal price-fixing conspiracy. When AnimalFeeds learned of
this, it brought a putative class action against petitioners in the
District Court for the Eastern District of Pennsylvania, asserting
antitrust claims for supracompetitive prices that petitioners
allegedly charged their customers over a period of several
years.
Other charterers brought similar suits. In one
of these, the District Court for the District of Connecticut held
that the charterers’ claims were not subject to arbitration under
the applicable arbitration clause, but the Second Circuit reversed.
See
JLM Industries, Inc. v.
Stolt-Nielsen
S. A., 387 F. 3d 163, 183 (2004). While that appeal
was pending, the Judicial Panel on Multidistrict Litigation ordered
the consolidation of then-pending actions against petitioners,
including AnimalFeeds’ action, in the District of Connecticut. See
In re Parcel Tanker Shipping Services Antitrust
Litigation, 296 F. Supp. 2d 1370, 1371, and n. 1
(JPML 2003). The parties agree that as a consequence of these
judgments and orders, AnimalFeeds and petitioners must arbitrate
their antitrust dispute.
B
In 2005, AnimalFeeds served
petitioners with a demand for class arbitration, designating New
York City as the place of arbitration and seeking to represent a
class of “[a]ll direct purchasers of parcel tanker transportation
services globally for bulk liquid chemicals, edible oils, acids,
and other specialty liquids from [petitioners] at any time during
the period from August 1, 1998, to November 30, 2002.” 548
F. 3d 85, 87 (CA2 2008) (internal quotation marks omitted).
The parties entered into a supplemental agreement providing for the
question of class arbitration to be submitted to a panel of three
arbitrators who were to “follow and be bound by Rules 3 through 7
of the American Arbitration Association’s Supplementary Rules for
Class Arbitrations (as effective Oct. 8, 2003).” App. to Pet. for
Cert. 59a. These rules (hereinafter Class Rules) were developed by
the American Arbitration Association (AAA) after our decision in
Green Tree Financial Corp. v.
Bazzle,
539 U. S. 444 (2003),
and Class Rule 3, in accordance with the plurality opinion in that
case, requires an arbitrator, as a threshold matter, to determine
“whether the applicable arbitration clause permits the arbitration
to proceed on behalf of or against a class.” App. 56a.
The parties selected a panel of
arbitrators and stipulated that the arbitration clause was “silent”
with respect to class arbitration. Counsel for AnimalFeeds
explained to the arbitration panel that the term “silent” did not
simply mean that the clause made no express reference to class
arbitration. Rather, he said, “[a]ll the parties agree that when a
contract is silent on an issue there’s been no agreement that has
been reached on that issue.”
Id., at 77a.
After hearing argument and evidence, including
testimony from petitioners’ experts regarding arbitration customs
and usage in the maritime trade, the arbitrators concluded that the
arbitration clause allowed for class arbitration. They found
persuasive the fact that other arbitrators ruling after
Bazzle had construed “a wide variety of clauses in a wide
variety of settings as allowing for class arbitration,” but the
panel acknowledged that none of these decisions was “exactly
comparable” to the present dispute. See App. to Pet. for Cert.
49a–50a. Petitioners’ expert evidence did not show an “inten[t] to
preclude class arbitration,” the arbitrators reasoned, and
petitioners’ argument would leave “no basis for a class action
absent express agreement among all parties and the putative class
members.”
Id., at 51a.
The arbitrators stayed the proceeding to allow
the parties to seek judicial review, and petitioners filed an
application to vacate the arbitrators’ award in the District Court
for the Southern District of New York. See 9 U. S. C.
§10(a)(4) (authorizing a district court to “make an order vacating
the award upon the application of any party to the arbitration . .
. where the arbitrators exceeded their powers”); Petition to Vacate
Arbitration Award, No. 1:06–CV–00420–JSR (SDNY) in App. in No.
06–3474–cv (CA2), p. A–17, ¶16 (citing §10(a)(4) as a ground for
vacatur of the award); see also
id., at A–15 to A–16, ¶9
(invoking the District Court’s jurisdiction under 9 U. S. C.
§203 and 28 U. S. C. §§1331 and 1333). The District Court
vacated the award, concluding that the arbitrators’ decision was
made in “manifest disregard” of the law insofar as the arbitrators
failed to conduct a choice-of-law analysis. 435 F. Supp. 2d
382, 384–385 (SDNY 2006). See
Wilko v.
Swan,
346 U. S. 427,
436–437 (1953) (“[T]he interpretations of the law by the
arbitrators in contrast to manifest disregard are not subject, in
the federal courts, to judicial review for error in
interpretation”); see also Petition to Vacate Arbitration Award,
supra, at A–17, ¶17 (alleging that the arbitration panel
“manifestly disregarded the law”). Had such an analysis been
conducted, the District Court held, the arbitrators would have
applied the rule of federal maritime law requiring that contracts
be interpreted in light of custom and usage. 435 F. Supp. 2d,
at 385–386.
AnimalFeeds appealed to the Court of Appeals,
which reversed. See 9 U. S. C. §16(a)(1)(E) (“An appeal may be
taken from . . . an order . . . vacating an award”). As an initial
matter, the Court of Appeals held that the “manifest disregard”
standard survived our decision in
Hall Street Associates, L. L.
C. v.
Mattel, Inc.,
552 U. S. 576 (2008), as a “judicial
gloss” on the enumerated grounds for vacatur of arbitration awards
under 9 U. S. C. §10. 548 F. 3d, at 94. Nonetheless, the
Court of Appeals concluded that, because petitioners had cited no
authority applying a federal maritime rule of custom and usage
against class arbitration, the arbitrators’ decision was
not in manifest disregard of federal maritime law.
Id., at
97–98. Nor had the arbitrators manifestly disregarded New York law,
the Court of Appeals continued, since nothing in New York case law
established a rule against class arbitration.
Id., at
98–99.
We granted certiorari. 557 U. S. ___
(2009).[
Footnote 2]
II
A
Petitioners contend that the
decision of the arbitration panel must be vacated, but in order to
obtain that relief, they must clear a high hurdle. It is not enough
for petitioners to show that the panel committed an error—or even a
serious error. See
Eastern Associated Coal Corp. v.
Mine Workers,
531 U. S. 57, 62 (2000);
Paperworkers v.
Misco, Inc.,
484 U. S. 29, 38 (1987).
“It is only when [an] arbitrator strays from interpretation and
application of the agreement and effectively ‘dispense[s] his own
brand of industrial justice’ that his decision may be
unenforceable.”
Major League Baseball Players Assn. v.
Garvey,
532
U. S. 504, 509 (2001)
(per curiam) (quoting
Steelworkers v.
Enterprise Wheel & Car Corp.,
363 U. S. 593,
597 (1960)). In that situation, an arbitration decision may be
vacated under §10(a)(4) of the FAA on the ground that the
arbitrator “exceeded [his] powers,” for the task of an arbitrator
is to interpret and enforce a contract, not to make public policy.
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.[
Footnote 3]
B
1
In its memorandum of law filed in
the arbitration proceedings, AnimalFeeds made three arguments in
support of construing the arbitration clause to permit class
arbitration:
“The parties’ arbitration clause
should be construed to allow class arbitration because (a) the
clause is silent on the issue of class treatment and, without
express prohibition, class arbitration is permitted under
Bazzle;
(b) the clause should be construed to permit
class arbitration as a matter of public policy; and (c) the
clause would be unconscionable and unenforceable if it forbade
class arbitration.” App. in No. 06–3474–cv (CA2), at A–308 to A–309
(emphasis added).
The arbitrators expressly
rejected AnimalFeeds’ first argument, see App. to Pet. for Cert.
49a, and said nothing about the third. Instead, the panel appears
to have rested its decision on AnimalFeeds’ public policy argument.
Because the parties agreed their agreement was “silent” in the
sense that they had not reached any agreement on the issue of class
arbitration, the arbitrators’ proper task was to identify the rule
of law that governs in that situation. Had they engaged in that
undertaking, they presumably would have looked either to the FAA
itself or to one of the two bodies of law that the parties claimed
were governing,
i.e., either federal maritime law or New
York law. But the panel did not consider whether the FAA provides
the rule of decision in such a situation; nor did the panel attempt
to determine what rule would govern under either maritime or New
York law in the case of a “silent” contract. Instead, the panel
based its decision on post-
Bazzle arbitral decisions that
“construed a wide variety of clauses in a wide variety of settings
as allowing for class arbitration.” App. to Pet. for Cert. 49a–50a.
The panel did not mention whether any of these decisions were based
on a rule derived from the FAA or on maritime or New York
law.[
Footnote 4]
Rather than inquiring whether the FAA,
maritime law, or New York law contains a “default rule” under which
an arbitration clause is construed as allowing class arbitration in
the absence of express consent, the panel proceeded as if it had
the authority of a common-law court to develop what it viewed as
the best rule to be applied in such a situation. Perceiving a
post-
Bazzle consensus among arbitrators that class
arbitration is beneficial in “a wide variety of settings,” the
panel considered only whether there was any good reason not to
follow that consensus in this case. App. to Pet. for Cert. 49a–50a.
The panel was not persuaded by “court cases denying consolidation
of arbitrations,”[
Footnote 5]
by undisputed evidence that the Vegoilvoy charter party had “never
been the basis of a class action,” or by expert opinion that
“sophisticated, multinational commercial parties of the type that
are sought to be included in the class would never intend that the
arbitration clauses would permit a class arbitration.”[
Footnote 6]
Id., at 50a–51a.
Accordingly, finding no convincing ground for departing from the
post-
Bazzle arbitral consensus, the panel held that class
arbitration was permitted in this case. App. to Pet. for Cert. 52a.
The conclusion is inescapable that the panel simply imposed its own
conception of sound policy.[
Footnote 7]
2
It is true that the panel opinion
makes a few references to intent, but none of these shows that the
panel did anything other than impose its own policy preference. The
opinion states that, under
Bazzle, “arbitrators must look
to the language of the parties’ agreement to ascertain the parties’
intention whether they intended to permit or to preclude class
action,” and the panel added that “[t]his is also consistent with
New York law.” App. to Pet. for Cert. 49a. But the panel had no
occasion to “ascertain the parties’ intention” in the present case
because the parties were in complete agreement regarding their
intent. In the very next sentence after the one quoted above, the
panel acknowledged that the parties in this case agreed that the
Vegoilvoy charter party was “silent on whether [it] permit[ted] or
preclude[d] class arbitration,” but that the charter party was “not
ambiguous so as to call for parol evidence.”
Ibid. This
stipulation left no room for an inquiry regarding the parties’
intent, and any inquiry into that settled question would have been
outside the panel’s assigned task.
The panel also commented on the
breadth of the language in the Vegoilvoy charter party, see
id., at 50a, but since the only task that was left for the
panel, in light of the parties’ stipulation, was to identify the
governing rule applicable in a case in which neither the language
of the contract nor any other evidence established that the parties
had reached any agreement on the question of class arbitration, the
particular wording of the charter party was quite beside the
point.
In sum, instead of identifying and applying a
rule of decision derived from the FAA or either maritime or New
York law, the arbitration panel imposed its own policy choice and
thus exceeded its powers. As a result, under §10(b) of the FAA, we
must either “direct a rehearing by the arbitrators” or decide the
question that was originally referred to the panel. Because we
conclude that there can be only one possible outcome on the facts
before us, we see no need to direct a rehearing by the
arbitrators.
III
A
The arbitration panel thought
that
Bazzle “controlled” the “resolution” of the question
whether the Vegoilvoy charter party “permit[s] this arbitration to
proceed on behalf of a class,” App. to Pet. for Cert. 48a–49a, but
that understanding was incorrect.
Bazzle concerned
contracts between a commercial lender (Green Tree) and its
customers. These contracts con- tained an arbitration clause but
did not expressly mention class arbitration. Nevertheless, an
arbitrator conducted class arbitration proceedings and entered
awards for the customers.
The South Carolina Supreme Court affirmed the
awards.
Bazzle v
. Green Tree Financial Corp., 351
S. C. 244, 569 S. E. 2d 349 (2002). After discussing both
Seventh Circuit precedent holding that a court lacks authority to
order classwide arbitration under §4 of the FAA, see
Champ
v.
Siegel Trading Co., 55 F. 3d 269 (1995), and
conflicting California precedent, see
Keating v.
Superior Court of Alameda Cty., 31 Cal. 3d 584, 645
P. 2d 1192 (1982), the State Supreme Court elected to follow
the California approach, which it characterized as permitting a
trial court to “order class-wide arbitration under adhesive but
enforceable franchise contracts,” 351 S. C., at 259, 266, 569
S. E. 2d, at 357, 360. Under this approach, the South Carolina
court observed, a trial judge must “[b]alanc[e] the potential
inequities and inefficiencies” of requiring each aggrieved party to
proceed on an individual basis against “resulting prejudice to the
drafting party” and should take into account factors such as
“efficiency” and “equity.”
Id., at 260, and n. 15,
569 S. E. 2d, at 357, and n. 15.
Applying these standards to the case before
it, the South Carolina Supreme Court found that the arbitration
clause in the Green Tree contracts was “silent regarding class-wide
arbitration.”
Id., at 263, 569 S. E. 2d, at 359
(emphasis deleted). The Court described its holding as follows:
“[W]e … hold that class-wide arbitration may be
ordered when the arbitration agreement is silent if it would serve
efficiency and equity, and would not result in prejudice. If we
enforced a mandatory, adhesive arbitration clause, but prohibited
class actions in arbitration where the agreement is silent, the
drafting party could effectively prevent class actions against it
without having to say it was doing so in the agreement.”
Id., at 266, 569 S. E. 2d, at 360 (footnote
omitted).
When
Bazzle reached this
Court, no single rationale commanded a majority. The opinions of
the Justices who joined the judgment—that is, the plurality opinion
and Justice Stevens’ opinion—collectively addressed three separate
questions. The first was which decision maker (court or arbitrator)
should decide whether the contracts in question were “silent” on
the issue of class arbitration. The second was what standard the
appropriate decision maker should apply in determining whether a
contract allows class arbitration. (For example, does the FAA
entirely preclude class arbitration? Does the FAA permit class
arbitration only under limited circumstances, such as when the
contract expressly so provides? Or is this question left entirely
to state law?) The final question was whether, under whatever
standard is appropriate, class arbitration had been properly
ordered in the case at hand.
The plurality opinion decided only the first
question, concluding that the arbitrator and not a court should
decide whether the contracts were indeed “silent” on the issue of
class arbitration. The plurality noted that, “[i]n certain limited
circumstances,” involving “gateway matters, such as whether the
parties have a valid arbitration agreement at all or whether a
concededly binding arbitration clause applies to a certain type of
controversy,” it is assumed “that the parties intended courts, not
arbitrators,” to make the decision. 539 U. S., at 452. But the
plurality opined that the question whether a contract with an
arbitration clause forbids class arbitration “does not fall into
this narrow exception.”
Ibid. The plurality therefore
concluded that the decision of the State Supreme Court should be
vacated and that the case should be remanded for a decision by the
arbitrator on the question whether the contracts were indeed
“silent.” The plurality did not decide either the second or the
third question noted above.
Justice Stevens concurred in the judgment
vacating and remanding because otherwise there would have been “no
controlling judgment of the Court,” but he did not endorse the
plurality’s rationale.
Id., at 455 (opinion concurring in
judgment and dissenting in part). He did not take a definitive
position on the first question, stating only that
“[a]rguably the interpretation of the parties’ agreement
should have been made in the first instance by the arbitrator.”
Ibid. (emphasis added). But because he did not believe
that Green Tree had raised the question of the appropriate decision
maker, he preferred not to reach that question and, instead, would
have affirmed the decision of the State Supreme Court on the ground
that “the decision to conduct a class-action arbitration was
correct as a matter of law.”
Ibid. Accordingly, his
analysis bypassed the first question noted above and rested instead
on his resolution of the second and third questions. Thus,
Bazzle did not yield a majority decision on any of the
three questions.
B
Unfortunately, the opinions in
Bazzle appear to have baffled the parties in this case at
the time of the arbitration proceeding. For one thing, the parties
appear to have believed that the judgment in
Bazzle
requires an arbitrator, not a court, to decide whether a contract
permits class arbitration. See App. 89a (transcript of argument
before arbitration panel) (counsel for Stolt-Nielsen states: “What
[Bazzle] says is that the contract interpretation issue is
left up to the arbitrator, that’s the rule in
[Bazzle]”).
In fact, however, only the plurality decided that question. But we
need not revisit that question here because the parties’
supplemental agreement expressly assigned this issue to the
arbitration panel, and no party argues that this assignment was
impermissible.
Unfortunately, however, both the
parties and the arbitration panel seem to have misunderstood
Bazzle in another respect, namely, that it established the
standard to be applied by a decision maker in determining whether a
contract may permissibly be interpreted to allow class arbitration.
The arbitration panel began its discussion by stating that the
parties “differ regarding
the rule of interpretation to be
gleaned from [the
Bazzle] decision.” App. to Pet. for
Cert. 49a (emphasis added). The panel continued:
“Claimants argue that
Bazzle requires
clear language that forbids class arbitration in order to bar a
class action. The Panel, however, agrees with Respondents that the
test is a more general one—arbitrators must look to the language of
the parties’ agreement to ascertain the parties’ intention whether
they intended to permit or to preclude class action.”
Ibid.
As we have explained, however, Bazzle did
not establish the rule to be applied in deciding whether class
arbitration is permitted.[
Footnote
8] The decision in
Bazzle left that question open, and
we turn to it now.
IV
While the interpretation of an
arbitration agreement is generally a matter of state law, see
Arthur Andersen LLP v.
Carlisle, 556 U. S. ___,
___ (2009) (slip op., at 6);
Perry v.
Thomas,
482 U. S. 483,
493, n. 9 (1987), the FAA imposes certain rules of fundamental
importance, including the basic precept that arbitration “is a
matter of consent, not coercion,”
Volt Information Sciences,
Inc. v.
Board of Trustees of Leland Stanford Junior
Univ.,
489 U.
S. 468, 479 (1989).
A
In 1925, Congress enacted the
United States Arbitration Act, as the FAA was formerly known, for
the express purpose of making “valid and enforceable written
provisions or agreements for arbitration of disputes arising out of
contracts, maritime transactions, or commerce among the States or
Territories or with foreign nations.” 43 Stat. 883. Reenacted and
codified in 1947, see 61 Stat. 669,[
Footnote 9] the FAA provides, in pertinent part, that a
“written provision in any maritime transaction” calling for the
arbitration of a controversy arising out of such transaction “shall
be valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract,” 9 U.
S. C. §2. Under the FAA, a party to an arbitration agreement
may petition a United States district court for an order directing
that “arbitration proceed in the manner provided for in such
agreement.” §4. Consistent with these provisions, we have said on
numerous occasions that the central or “primary” purpose of the FAA
is to ensure that “private agreements to arbitrate are enforced
according to their terms.”
Volt, supra, at 479;
Mastrobuono v.
Shearson Lehman Hutton, Inc.,
514 U. S. 52, 57, 58 (1995); see also
Doctor’s Associates, Inc. v.
Casarotto,
517 U. S. 681, 688
(1996). See generally 9 U. S. C. §4.
Whether enforcing an agreement to
arbitrate or construing an arbitration clause, courts and
arbitrators must “give effect to the contractual rights and
expectations of the parties.”
Volt,
supra, at
479. In this endeavor, “as with any other contract, the parties’
intentions control.”
Mitsubishi Motors Corp. v.
Soler
Chrysler-Plymouth, Inc.,
473 U. S. 614, 626
(1985). This is because an arbitrator derives his or her powers
from the parties’ agreement to forgo the legal process and submit
their disputes to private dispute resolution. See
AT&T
Technologies, Inc. v.
Communications Workers,
475 U. S. 643,
648–649 (1986) (“[A]rbitrators derive their authority to resolve
disputes only because the parties have agreed in advance to submit
such grievances to arbitration”);
Mitsubishi Motors,
supra, at 628 (“By agreeing to arbitrate … , [a
party] trades the procedures and opportunity for review of the
courtroom for the simplicity, informality, and expedition of
arbitration”); see also
Steelworkers v.
Warrior &
Gulf Nav. Co.,
363 U. S. 574, 581
(1960) (an arbitrator “has no general charter to administer justice
for a community which transcends the parties” but rather is “part
of a system of self-government created by and confined to the
parties” (internal quotation marks omitted)).
Underscoring the consensual nature of private
dispute resolution, we have held that parties are “ ‘generally
free to structure their arbitration agreements as they see
fit.’ ”
Mastrobuono,
supra, at 57; see also
AT&T Technologies,
supra, at 648–649. For
example, we have held that parties may agree to limit the issues
they choose to arbitrate, see
Mitsubishi Motors,
supra, at 628, and may agree on rules under which any
arbitration will proceed,
Volt,
supra, at 479.
They may choose who will resolve specific disputes.
E.g.,
App. 30a;
Alexander v.
Gardner-Denver Co.,
415 U. S. 36, 57
(1974);
Burchell v.
Marsh, 17 How. 344, 349
(1855); see also
International Produce, Inc. v.
A/S
Rosshavet, 638 F. 2d 548, 552 (CA2) (“The most
sought-after arbitrators are those who are prominent and
experienced members of the specific business community in which the
dispute to be arbitrated arose”), cert. denied,
451 U. S. 1017
(1981).
We think it is also clear from our precedents
and the contractual nature of arbitration that parties may specify
with whom they choose to arbitrate their disputes. See
EEOC v.
Waffle House, Inc.,
534 U. S. 279, 289
(2002) (“[N]othing in the [FAA] authorizes a court to compel
arbitration of any issues,
or by any parties, that are not
already covered in the agreement” (emphasis added));
Moses H.
Cone Memorial Hospital v.
Mercury Constr. Corp.,
460 U. S. 1, 20
(1983) (“[A]n arbitration agreement must be enforced
notwithstanding the presence of other persons who are parties to
the underlying dispute but not to the arbitration agreement”);
Steelworkers,
supra, at 581 (an arbitrator “has
no general charter to administer justice for a community which
transcends the parties” (internal quotation marks omitted));
accord,
First Options of Chicago, Inc. v.
Kaplan,
514 U. S. 938,
943 (1995) (“[A]rbitration is simply a matter of contract
between the parties; it is a way to resolve those
disputes—but only those disputes—that the
parties have
agreed to submit to arbitration” (emphasis added)). It falls to
courts and arbitrators to give effect to these contractual
limitations, and when doing so, courts and arbitrators must not
lose sight of the purpose of the exercise: to give effect to the
intent of the parties.
Volt, 489 U. S., at 479.
B
From these principles, it follows
that 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. In this case, however, the
arbitration panel imposed class arbitration even though the parties
concurred that they had reached “no agreement” on that issue, see
App. 77a. The critical point, in the view of the arbitration panel,
was that petitioners did not “establish that the parties to the
charter agreements intended to
preclude class
arbitration.” App. to Pet. for Cert. 51a. Even though the parties
are sophisticated business entities, even though there is no
tradition of class arbitration under maritime law, and even though
AnimalFeeds does not dispute that it is customary for the shipper
to choose the charter party that is used for a particular shipment,
the panel regarded the agreement’s silence on the question of class
arbitration as dispositive. The panel’s conclusion is fundamentally
at war with the foundational FAA principle that arbitration is a
matter of consent.
In certain contexts, it is
appropriate to presume that parties that enter into an arbitration
agreement implicitly authorize the arbitrator to adopt such
procedures as are necessary to give effect to the parties’
agreement. Thus, we have said that “ ‘ “procedural”
questions which grow out of the dispute and bear on its final
disposition’ are presumptively not for the judge, but for an
arbitrator, to decide.”
Howsam v.
Dean Witter
Reynolds, Inc.,
537 U. S. 79, 84 (2002)
(quoting
John Wiley & Sons, Inc. v.
Livingston,
376 U. S. 543, 557
(1964)). This recognition is grounded in the background principle
that “[w]hen the parties to a bargain sufficiently defined to be a
contract have not agreed with respect to a term which is essential
to a determination of their rights and duties, a term which is
reasonable in the circumstances is supplied by the court.”
Restatement (Second) of Contracts §204 (1979).
An implicit agreement to authorize
class-action arbitration, however, is not a term that the
arbitrator may infer solely from the fact of the parties’ agreement
to arbitrate. This is so because 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. In bilateral arbitration, parties
forgo the procedural rigor and appellate review of the courts in
order to realize the benefits of private dispute resolution: lower
costs, greater efficiency and speed, and the ability to choose
expert adjudicators to resolve specialized disputes. See
Gilmer v.
Interstate/Johnson Lane Corp.,
500 U. S. 20, 31 (1991);
Mitsubishi Motors, 473 U. S., at 628; see also
14 Penn
Plaza LLC v.
Pyett, 556 U. S. ___, ___ (2009) (slip.
op., at 7–8) (“Parties generally favor arbitration precisely
because of the economics of dispute resolution” (citing
Circuit
City Stores, Inc. v.
Adams,
532 U. S. 105, 123
(2001));
Gardner-Denver,
supra, at 57 (“Parties
usually choose an arbitrator because they trust his knowledge and
judgment concerning the demands and norms of industrial
relations”). But the relative benefits of class-action arbitration
are much less assured, giving reason to doubt the parties’ mutual
consent to resolve disputes through class-wide arbitration. Cf.
First Options,
supra, at 945 (noting that “one
can understand why courts might hesitate to interpret silence or
ambiguity on the ‘who should decide arbitrability’ point as giving
the arbitrators that power, for doing so might too often force
unwilling parties to arbitrate” contrary to their
expectations).
Consider just some of the fundamental changes
brought about by the shift from bilateral arbitration to
class-action arbitration. An arbitrator chosen according to an
agreed-upon procedure, see,
e.g.,
supra, at 2, no
longer resolves a single dispute between the parties to a single
agreement, but instead resolves many disputes between hundreds or
perhaps even thousands of parties. See App. 86a (“[W]e believe
domestic class members could be in the hundreds” and that “[t]here
could be class members that ship to and from the U. S. who are not
domestic who we think would be covered”); see also,
e.g.,
Bazzle, 351 S. C., at 251, 569 S. E. 2d, at
352–353 (involving a class of 1,899 individuals that was awarded
damages, fees, and costs of more than $14 million by a single
arbitrator). Under the Class Rules, “the presumption of privacy and
confidentiality” that applies in many bilateral arbitrations “shall
not apply in class arbitrations,” see Addendum to Brief for
American Arbitration Association as
Amicus Curiae 10a
(Class Rule 9(a)), thus potentially frustrating the parties’
assumptions when they agreed to arbitrate. The arbitrator’s award
no longer purports to bind just the parties to a single arbitration
agreement, but adjudicates the rights of absent parties as well.
Cf.
Ortiz v.
Fibreboard Corp.,
527 U. S. 815, 846
(1999) (noting that “the burden of justification rests on the
exception” to the general rule that “one is not bound by a judgment
in personam in a litigation in which he is not designated
as a party or to which he has not been made a party by service of
process” (internal quotation marks omitted)). And the commercial
stakes of class-action arbitration are comparable to those of
class-action litigation, cf. App. in No. 06–3474–cv (CA2), at A–77,
A–79, ¶¶30, 31, 40, even though the scope of judicial review is
much more limited, see
Hall Street, 552 U. S., at 588. We
think that the differences between bilateral and class-action
arbitration are too great for arbitrators to presume, consistent
with their limited powers under the FAA, that the parties’ mere
silence on the issue of class-action arbitration constitutes
consent to resolve their disputes in class proceedings.[
Footnote 10]
The dissent minimizes these crucial
differences by characterizing the question before the arbitrators
as being merely what “procedural mode” was available to present
AnimalFeeds’ claims.
Post, at 9. If the question were that
simple, there would be no need to consider the parties’ intent with
respect to class arbitration. See
Howsam,
supra,
at 84 (committing “procedural questions” presumptively to the
arbitrator’s discretion (internal quotation marks omitted)). But
the FAA requires more. Contrary to the dissent, but consistent with
our precedents emphasizing the consensual basis of arbitration, we
see the question as being whether the parties
agreed to
authorize class arbitration. Here, where the parties
stipulated that there was “no agreement” on this question, it
follows that the parties cannot be compelled to submit their
dispute to class arbitration.
V
For these reasons, the judgment
of the Court of Appeals is reversed, and the case is remanded for
further proceedings consistent with this opinion.
It is so ordered.
Justice Sotomayor took no part in
the consideration or decision of this case.
Footnote 1
“[C]harter parties are commonly drafted using
highly standardized forms specific to the particular trades and
business needs of the parties.” Comment, A Comparative Analysis of
Charter Party Agreements “
Subject to” Respective American
and British Laws and Decisions … It’s All in the Details, 26 Tulane
Mar. L. J. 291, 294 (2001–2002); see also 2 T. Schoenbaum,
Admiralty and Maritime Law §11–1, p. 200 (3d ed. 2001).
Footnote 2
Invoking an argument not pressed in or
considered by the courts below, the dissent concludes that the
question presented is not ripe for our review. See
post,
at 1, 3–6 (opinion of Ginsburg, J.). In so doing, the dissent
offers no clear justification for now embracing an argument “we
necessarily considered and rejected” in granting certiorari.
United States v.
Williams,
504 U. S. 36, 40 (1992).
Ripeness reflects constitutional considerations that implicate
“Article III limitations on judicial power,” as well as “prudential
reasons for refusing to exercise jurisdiction.”
Reno v.
Catholic Social Services, Inc.,
509 U. S. 43, 57, n. 18
(1993). In evaluating a claim to determine whether it is ripe for
judicial review, we consider both “the fitness of the issues for
judicial decision” and “the hardship of withholding court
consideration.”
National Park Hospitality Assn. v.
Department of Interior,
538 U. S. 803, 808
(2003). To the extent the dissent believes that the question on
which we granted certiorari is constitutionally unripe for review,
we disagree. The arbitration panel’s award means that petitioners
must now submit to class determination proceedings before
arbitrators who, if petitioners are correct, have no authority to
require class arbitration absent the parties’ agreement to resolve
their disputes on that basis. See Class Rule 4(a) (cited in App.
57a); Brief for American Arbitration Association as
Amicus
Curiae 17. Should petitioners refuse to proceed with what
they maintain is essentially an ultra vires proceeding, they would
almost certainly be subject to a petition to compel arbitration
under 9 U. S. C. §4. Cf.
Regional Rail Reorganization Act
Cases,
419 U.
S. 102, 143 (1974) (“Where the inevitability of the operation
of a statute against certain individuals is patent, it is
irrelevant to the existence of a justiciable controversy that there
will be a time delay before the disputed provisions will come into
effect”). We think it is clear on these facts that petitioners have
demonstrated sufficient hardship, and that their question is fit
for our review at this time. To the extent the dissent believes
that the question is prudentially unripe, we reject that argument
as waived,
Sprietsma v.
Mercury Marine,
537 U. S. 51, 56,
n. 4 (2002), and we see no reason to disregard the waiver. We
express no view as to whether, in a similar case, a federal court
may consider a question of prudential ripeness on its own motion.
See
National Park Hospitality Assn.,
supra, at
808 (“[E]ven in a case raising only prudential concerns, the
question of ripeness may be considered on a court’s own
motion”).
Footnote 3
We do not decide whether “ ‘manifest
disregard’ ” survives our decision in
Hall Street
Associates, L. L. C. v.
Mattel, Inc.,
552 U. S. 576, 585 (2008), as an
independent ground for review or as a judicial gloss on the
enumerated grounds for vacatur set forth at 9 U. S. C. §10.
AnimalFeeds characterizes that standard as requiring a showing that
the arbitrators “knew of the relevant [legal] principle,
appreciated that this principle controlled the outcome of the
disputed issue, and nonetheless willfully flouted the governing law
by refusing to apply it.” Brief for Respondent 25 (internal
quotation marks omitted). Assuming,
arguendo, that such a
standard applies, we find it satisfied for the reasons that
follow.
Footnote 4
The panel’s reliance on these arbitral awards
confirms that the panel’s decision was not based on a determination
regarding the parties’ intent. All of the arbitral awards were made
under the AAA’s Class Rules, which were adopted in 2003, and thus
none was available when the parties here entered into the Vegoilvoy
charter party during the class period ranging from 1998 to 2002.
See 548 F. 3d 85, 87 (CA2 2008) (defining the class period).
Indeed, at the hearing before the panel, counsel for AnimalFeeds
conceded that “[w]hen you talk about expectations, virtually every
one of the arbitration clauses that were the subject of the 25 AAA
decisions were drafted before
[Bazzle]. So therefore, if
you are going to talk about the parties’ intentions,
pre
-[Bazzle] class arbitrations were not common, post
[Bazzle] they are common.” App. 87a. Moreover, in its
award, the panel appeared to acknowledge that none of the cited
arbitration awards involved a contract between sophisticated
business entities. See App. to Pet. for Cert. 50a.
Footnote 5
See
Government of United Kingdom v.
Boeing Co., 998 F. 2d 68, 71, 74 (CA2 1993); see also
Glencore, Ltd. v.
Schnitzer Steel Prods. Co., 189
F. 3d 264, 268 (CA2 1999);
Champ v.
Siegel
Trading Co., 55 F. 3d 269, 275 (CA7 1995). Unlike the
subsequent arbitration awards that the arbitrators cited, these
decisions were available to the parties when they entered into
their contracts.
Footnote 6
Petitioners produced expert evidence from
experienced maritime arbitrators demonstrating that it is customary
in the shipping business for parties to resolve their disputes
through bilateral arbitration. See,
e.g., App. 126a
(expert declaration of John Kimball) (“In the 30 years I have been
practicing as a maritime lawyer, I have never encountered an
arbitration clause in a charter party that could be construed as
allowing class action arbitration”);
id., at 139a (expert
declaration of Bruce Harris) (“I have been working as a maritime
arbitrator for thirty years and this matter is the first I have
ever encountered where the issue of a class action arbitration has
even been raised”). These experts amplified their written
statements in their live testimony, as well. See,
e.g.,
App. 112a, 113a (Mr. Kimball) (opining that the prospect of a class
action in a maritime arbitration would be “quite foreign” to
overseas shipping executives and charterers);
id., at
111a–112a (Mr. Harris) (opining that in the view of the London
Corps of International Arbitration, class arbitration is
“inconceivable”).
Under both New York law and general maritime law, evidence of
“custom and usage” is relevant to determining the parties’ intent
when an express agreement is ambiguous. See
Excess Ins.
Co. v.
Factory Mut. Ins. Co., 3 N. Y. 3d 577,
590–591, 822 N. E. 2d 768, 777 (2004) (“Our precedent
establishes that where there is ambiguity in a reinsurance
certificate, the surrounding circumstances, including industry
custom and practice, should be taken into consideration”);
Lopez v.
Consolidated Edison Co. of N. Y.,
40 N. Y. 2d 605, 609, 357 N. E. 2d 951, 954–955 (1976)
(where contract terms were ambiguous, parol evidence of custom and
practice was properly admitted to show parties’ intent);
407
East 61st Garage, Inc. v.
Savoy Fifth Avenue Corp.,
23 N. Y. 2d 275, 281, 244 N. E. 2d 37, 41 (1968)
(contract was “not so free from ambiguity to preclude extrinsic
evidence” of industry “custom and usage” that would “establish the
correct interpretation or understanding of the agreement as to its
term”). See also
Great Circle Lines, Ltd. v.
Matheson
& Co., 681 F. 2d 121, 125 (CA2 1982) (“Certain
long-standing customs of the shipping industry are crucial factors
to be considered when deciding whether there has been a meeting of
the minds on a maritime contract”);
Samsun Corp. v.
Khozestan Mashine Kar Co., 926 F. Supp. 436, 439
(SDNY 1996) (“[W]here as here the contract is one of charter party,
established practices and customs of the shipping industry inform
the court’s analysis of what the parties agreed to”); Hough,
Admiralty Jurisdiction—Of Late Years, 37 Harv. L. Rev. 529,
536 (1924) (noting that “maritime law is a body of sea customs” and
the “custom of the sea … includes a customary interpretation of
contract language”).
Footnote 7
The dissent calls this conclusion “hardly
fair,” noting that the word “ ‘policy’ is not so much as
mentioned in the arbitrators’ award.”
Post, at 8. But just
as merely saying something is so does not make it so, cf.
United States v.
Morrison,
529 U. S. 598, 614
(2000), the arbitrators need not have said they were relying on
policy to make it so. At the hearing before the arbitration panel,
one of the arbitrators recognized that the body of
post-
Bazzle arbitration awards on which AnimalFeeds relied
involved “essentially consumer non-value cases.” App. 82a. In
response, counsel for AnimalFeeds defended the applicability of
those awards by asserting that the “vast majority” of the claimants
against petitioners “have negative value claims . . . meaning it
costs more to litigate than you would get if you won.”
Id., at 82a–83a. The panel credited this body of awards in
concluding that petitioners had not demonstrated the parties’
intent to preclude class arbitration, and further observed that if
petitioners’ anticonsolidation precedents controlled, then “there
would appear to be no basis for a class action absent express
agreement among all parties and the putative class members.” App.
to Pet. for Cert. 50a, 51a.
Footnote 8
AnimalFeeds invokes the parties’ supplemental
agreement as evidence that petitioners “waived” any claim that the
arbitrators could not construe the arbitration agreement to permit
class arbitration. Brief for Respondent 15. The dissent concludes,
likewise, that the existence of the parties’ supplemental agreement
renders petitioners’ argument under §10(a)(4) “scarcely debatable.”
Post, at 7. These arguments are easily answered by the
clear terms of the supplemental agreement itself. The parties
expressly provided that their supplemental agreement “
does not
alter the scope of the Parties’ arbitration agreements in any
Charter Party Agreement,” and that “[n]either the fact of this
Agreement nor any of its terms may be used to support or oppose
any argument in favor of a class action arbitration … and
may not be relied upon by the Parties, any arbitration panel,
any court, or any other tribunal for such purposes.” App.
to Pet. for Cert. 62a–63a (emphasis added). As with any agreement
to arbitrate, we are obliged to enforce the parties’ supplemental
agreement “according to its terms.”
Mastrobuono v.
Shearson Lehman Hutton, Inc.,
514 U. S. 52, 58 (1995). The question
that the arbitration panel was charged with deciding was whether
the arbitration clause in the Vegoilvoy charter party allowed for
class arbitration, and nothing in the supplemental agreement
conferred authority on the arbitrators to exceed the terms of the
charter party itself. Thus, contrary to AnimalFeeds’ argument,
these statements show that petitioners did
not waive their
argument that
Bazzle did not establish the standard for
the decision maker to apply when construing an arbitration
clause.
Footnote 9
See generally Sturges & Murphy, Some
Confusing Matters Relating to Arbitration Under the United States
Arbitration Act, 17 Law & Contemp. Prob. 580, 580–581,
n. 1 (1952) (recounting the history of the United States
Arbitration Act and its 1947 reenactment and codification).
Footnote 10
We have no occasion to decide what
contractual basis may support a finding that the parties agreed to
authorize class-action arbitration. Here, as noted, the parties
stipulated that there was “no agreement” on the issue of
class-action arbitration. App. 77a.
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