Supreme Court Not Likely to Consider Manifest Disregard in Class Arbitration Case

The Supreme Court of the United States today granted certiorari to review a decision of the U. S. Court of Appeals for the Second Circuit, Stolt-Nielsen Transp. Group Ltd. v. Animalfeeds International Corp., 543 F.3d 85 (2d Cir. 2008), in which the Court OF Appeals continued to recognize the existence of “manifest disregard of the law” as a possible basis to set aside an arbitration award, and did so after express consideration of the doubts raised by the Supreme Court’s decision in Hall Street Associates v. Mattel, Inc., 128 S. Ct. 4936.

But the question presented for Supreme Court review in Stolt-Nielsen concerns class arbitration — specifically, whether the Federal Arbitration Act bars class arbitration where the agreement to arbitrate is silent about class arbitration. The Supreme Court once before had granted certiorari to decide this issue, in Green Tree Financial Corp. v. Bazzle, 539 U. S. 444 (2003). But the Court did not reach that issue. Instead, five justices concluded an arbitrator should first decide, as a matter of interpretation, whether the contract indeed was silent about class arbitration.

Thus, the issue not resolved in Bazzle is the one the Court is asked to consider in Stolt-Nielsen — the arbitrator in Stolt-Nielsen having already given a partial award finding that the contract permits class arbitration. Whether the Supreme Court will address the post-Hall Street status of “manifest disregard of the law” is uncertain at this stage. This cannot be ruled out, but it is not the question directly presented for review in the Petition for Writ of Certiorari.

Stolt-Nielsen in its Petition frames the Bazzle issue mainly as one of arbitral power under the FAA. Its argument is that when an arbitrator permits class arbitration under a contract that is silent about class arbitration, the arbitrator does not construe the contract but instead modifies it. If that position is accepted, then clearly the arbitrator exceeds her powers by modifying a contract, and an award providing for such modification should be vacated under FAA Section 10(a)(4).

But what if the Court takes the view that the arbitrators here were construing the agreement? Has Stolt-Nielsen waived the argument that this construction was in “manifest disregard of the law?” Stolt-Nielsen appears to have left the door for such an argument just slightly ajar, stating in its Petition for Certiorari reply brief: “[A]rbitrators who… read contracts that are silent regarding class arbitration to permit class proceedings based on general principles or policies, rather than on express terms or other evidence of the parties’ actual intent, have either manifestly disregarded the limits of their commission … or ‘exceeded their powers’.”

That may not be enough to convince a majority of the Supreme Court justices that the “manifest disregard” issue decided in the Second Circuit is properly before the Court. The manifest disregard issue as framed by Stolt-Nielsen in the Second Circuit was that the arbitrators’ construction of the arbitration clause to allow for class arbitration was in manifest disregard of federal maritime law. The Petition for Certiorari clearly does not seek review of the Second Circuit’s rejection of that argument. Thus it seems relatively unlikely that the Court will take this case as an occasion to shed further light on the status of manifest disregard of the law after Hall Street.