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0 08 US 1198

United States Supreme Court
No. 08-1198
Argued: December 9, 2009 Decided: April 27, 2010

Petitioner shipping companies serve much of the world market for parcel tankers--seagoing vessels with compartments that are separately chartered to customers, such as respondent (AnimalFeeds), who wish to ship liquids in small quantities. AnimalFeeds ships its goods pursuant to a standard contract known in the maritime trade as a charter party. The charter party that AnimalFeeds uses contains an arbitration clause. AnimalFeeds brought a class action antitrust suit against petitioners for price fixing, and that suit was consolidated with similar suits brought by other charterers, including one in which the Second Circuit subsequently reversed a lower court ruling that the charterers claims were not subject to arbitration. As a consequence, the parties in this case agree that they must arbitrate their antitrust dispute. AnimalFeeds sought arbitration on behalf of a class of purchasers of parcel tanker transportation services. The parties agreed to submit the question whether their arbitration agreement allowed for class arbitration to a panel of arbitrators, who would be bound by rules (Class Rules) developed by the American Arbitration Association following Green Tree Financial Corp. v. Bazzle, 539 U. S. 444. One Class Rule requires an arbitrator to determine whether an arbitration clause permits class arbitration. The parties selected an arbitration panel, designated New York City as the arbitration site, and stipulated that their arbitration clause was "silent" on the class arbitration issue. The panel determined that the arbitration clause allowed for class arbitration, but the District Court vacated the award. It concluded that the arbitrators award was made in "manifest disregard" of the law, for had the arbitrators conducted a choice-of-law analysis, they would have applied the rule of federal maritime law requiring contracts to be interpreted in light of custom and usage. The Second Circuit reversed, holding that because petitioners had cited no authority applying a maritime rule of custom and usage against class arbitration, the arbitrators decision was not in manifest disregard of maritime law; and that the arbitrators had not manifestly disregarded New York law, which had not established a rule against class arbitration.

Held: Imposing class arbitration on parties who have not agreed to authorize class arbitration is inconsistent with the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq. Pp. 7-23.

(a) The arbitration panel exceeded its powers by imposing its own policy choice instead of identifying and applying a rule of decision derived from the FAA or from maritime or New York law. Pp. 7-12.

(1) An arbitration decision may be vacated under FAA §10(a)(4) on the ground that the arbitrator exceeded his powers, "only when [an] arbitrator strays from interpretation and application of the agreement and effectively dispense[s] his own brand of industrial justice, " Major League Baseball Players Assn. v. Garvey, 532 U. S. 504, 509 (per curiam), for an arbitrators task is to interpret and enforce a contract, not to make public policy. P. 7.

(2) The arbitration panel appears to have rested its decision on AnimalFeeds public policy argument for permitting class arbitration under the charter partys arbitration clause. However, because the parties agreed that their agreement was "silent" on the class arbitration issue, the arbitrators proper task was to identify the rule of law governing in that situation. Instead, the panel based its decision on post-Bazzle arbitral decisions without mentioning whether they were based on a rule derived from the FAA or on maritime or New York law. Rather than inquiring whether those bodies of law contained a "default rule" permitting an arbitration clause to allow class arbitration absent express consent, the panel proceeded as if it had a common-law courts authority to develop what it viewed as the best rule for such a situation. Finding no reason to depart from its perception of a post-Bazzle consensus among arbitrators that class arbitration was beneficial in numerous settings, the panel simply imposed its own conception of sound policy and permitted class arbitration. The panels few references to intent do not show that the panel did anything other than impose its own policy preference. Thus, under FAA §10(b), this Court must either "direct a rehearing by the arbitrators" or decide the question originally referred to the panel. Because there can be only one possible outcome on the facts here, there is no need to direct a rehearing by the arbitrators. Pp. 7-12.

(b) Bazzle did not control resolution of the question whether the instant charter party permits arbitration to proceed on behalf of this class. Pp. 12-17.

(1) No single rationale commanded a majority in Bazzle, which concerned contracts between a commercial lender and its customers that had an arbitration clause that did not expressly mention class arbitration. The plurality decided only the question whether the court or arbitrator should decide whether the contracts were "silent" on the class arbitration issue, concluding that it was the arbitrator. Justice Stevens opinion bypassed that question, resting instead on his resolution of the questions of what standard the appropriate decisionmaker should apply in determining whether a contract allows class arbitration, and whether, under whatever standard is appropriate, class arbitration had been properly ordered in the case at hand. Pp. 12-15.

(2) The Bazzle opinions appear to have baffled these parties at their arbitration proceeding. For one thing, the parties appear to have believed that Bazzle requires an arbitrator, not a court, to decide whether a contract permits class arbitration, a question addressed only by the plurality. That question need not be revisited here because the parties expressly assigned that issue to the arbitration panel, and no party argues that this assignment was impermissible. Both the parties and the arbitration panel also seem to have misunderstood Bazzle as establishing the standard to be applied in deciding whether class arbitration is permitted. However, Bazzle left that question open. Pp. 15-17.

(c) Imposing class arbitration here is inconsistent with the FAA. Pp. 17-23.

(1) The FAA imposes rules of fundamental importance, including the basic precept that arbitration "is a matter of consent, not coercion." Volt v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 479. The FAA requires 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, and permits a party to an arbitration agreement to petition a federal district court for an order directing that arbitration proceed "in the manner provided for in such agreement," §4. Thus, this Court has said that the FAAs central purpose is to ensu

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