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Supreme Court hears arguments on arbitration act

[JURIST] The US Supreme Court [official website; JURIST news archive] heard oral arguments [day call, PDF; merit briefs] Wednesday in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. [oral arguments transcript, PDF; JURIST report] on whether imposing class arbitration on parties is consistent with the Federal Arbitration Act (FAA) [9 USC § 1-14 text] when that issue is silent in the parties' arbitration clauses. The US Court of Appeals for the Second Circuit ruled [opinion, PDF] that construing the arbitration clause to permit class arbitration "did not manifestly disregard the law" because the parties specifically agreed that the arbitration panel would decide on the scope of the clause and, therefore, the panel did not exceed its authority. Counsel for the petitioners argued:

Unlike courts, arbitrators derive their authority solely from the consent of the parties to a particular agreement.

That agreement determines not only what the parties have agreed to arbitrate, but just as fundamentally, with whom they have agreed to do so. And when the agreement reveals no intent, no meeting of the minds to add participants, but the arbitrators nonetheless extend their reach to hundreds of parties of other contracts, they violate the basic principle reflected in the FAA that their authority is created and circumscribed by an agreement.

Counsel for the respondent argued:

What the arbitrators did here was interpret the contract as the parties asked them to. They did not impose their own policy judgment. And any judicial review is under very deferential FAA standards under Section 10, which is confined to correcting what amount to gross defects in the process.

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