The opinion of the court was delivered by: Jed S. Rakoff, U.S.D.J.
Animalfeeds International Corp. and KP Chemical Corp. filed federal suits alleging that Stolt-Nielsen SA et al. (collectively "Stolt") violated the antitrust laws in ways that caused respondents to overpay for the shipment of various items in parcel tankers owned or operated by Stolt and others. Their suits, along with certain similar actions brought by other plaintiffs, were consolidated for pretrial proceedings and transferred to the District of Connecticut. Stolt then moved to compel arbitration of the plaintiffs' claims pursuant to the arbitration clauses in the plaintiffs' respective shipping agreements with Stolt. The Court of Appeals held that all claims were arbitrable, and referred the matter to arbitration. JLM Industries, Inc. v. Stolt-Nielsen S.A., 387 F.3d 163 (2d Cir. 2004).
Animalfeeds International Corp. and KP Chemical Corp. then filed a Consolidated Demand for Class Arbitration on May 19, 2005, asserting claims on behalf of themselves and a class consisting of "[a]ll direct purchasers of parcel tanker transportation services globally for bulk liquid chemicals, edible oils, acids, and other specialty liquids from [Stolt] and their co-conspirators (the "Class"), at any time during the period from August 1, 1998 to November 30, 2002 (the "Class Period")." Stolt objected, arguing that they never consented to class arbitration.
Each contract here in issue contains one of two standard maritime arbitration clauses, neither of which expressly permits class arbitration.*fn1 See Animalfeeds Int'l Corp. et al. v. Stolt-Nielsen SA et al. Partial Final Clause Construction Award (Dec. 20, 2005) (the "Award"), at 5. The arbitrators - a distinguished panel comprised of Gerald Aksen (Chair), Kenneth R. Feinberg, and William R. Jentes (the "Panel") - nonetheless held that the clauses, though silent, permit class arbitration. Id. at 7-8.
Stolt now moves to vacate the Award, arguing that the Panel's decision was made in manifest disregard of the law. See Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383 (2d Cir. 2003). Given the very broad latitude accorded arbitration awards, the doctrine of "manifest disregard" is to be invoked in exceptional circumstances only. Id. at 389. Specifically, to vacate an arbitration award for manifest disregard of the law, the Court must find "both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case." Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 202 (2d Cir. 1998). Here, regretfully, the Court is forced to conclude that both these elements have been established.
The Panel begins its discussion in the Award by asserting that "resolution of the foregoing issue [of whether the clauses permit class arbitration] is controlled by the Supreme Court's decision in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003)." Award at 4. But, even if, as the Panel also suggests, "the parties agree" that Bazzle governs the issue, id., that underlying assertion is plainly wrong, and no "agreement" can make it right: for Bazzle decided only that the issue was for the arbitrator in the first instance and remanded for that purpose. Id. at 454.
As for the related questions that Bazzle failed to resolve - whether the Federal Arbitration Act (which provides for federal enforcement of arbitration provisions in contracts involving commerce, as in Bazzle, or in maritime contracts, as here, see 9 U.S.C. § 2) precludes class actions and preempts state law - the Panel here did not reach them; and since they involve unsettled law they are not before this Court on a claim of "manifest disregard." But what the Court cannot ignore is that the Panel, proceeding on the mis-assumption that Bazzle "controlled" the issue of whether the clauses here permitted class actions, see Award at 4, failed to make any meaningful choice-of-law analysis but simply made vague and passing reference to its belief that its analysis of Bazzle is "consistent with New York law as articulated by the Court of Appeals in Evans v. Famous Music Corp., 1 N.Y.3d 452 (2004) and with federal maritime law." Award at 4.
In actuality, the choice of law rules in this situation are well established and clear cut. Because the arbitration clauses here in issue are part of maritime contracts, they are controlled in the first instance by federal maritime law. As Stolt correctly argued to the Panel, "because these are federal maritime contracts, federal maritime law should govern." Stolt's Arb. Opp. at 7 n.13. See I/S Stavborg v. National Metal Converters, Inc., 500 F.2d 424 (2d Cir. 1974); In re Finagrain Compagnie Commerciale Agricole et Financiere S.A., 1980 U.S. Dist. LEXIS 9347 (S.D.N.Y. 1980).*fn2 That law provides that a court sitting in admiralty applies state law unless there is an established federal maritime rule governing the issue in dispute or the court wishes to fashion such a rule. See Wilburn Boat Co. v. Firman's Fund Ins. Co., 348 U.S. 310, 316-17 (1954).
Here, Stolt forcefully brought to the attention of the Panel that there was such a rule. As the Panel states:
Respondents [Stolt] point out, and Claimants [the respondents here] do not dispute, that the two arbitration clauses are part of a long tradition of maritime arbitration peculiar to the international shipping industry. Among other things, the clauses are part of standard contract forms developed by charterers and widely used by them and their brokers for 30 years. According to Respondents, the vast majority of these charter agreements have been entered into by foreign entities, pertaining to shipments between two foreign ports and requiring arbitration to be held outside the U.S. Respondents further assert, again without dispute from Claimants, that these arbitration clauses have never been the basis of a class action. Moreover, Respondents presented declarations and testimony from two experts in international maritime arbitrations to the effect 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.
The Panel, however, although acknowledging "the forcefulness with which [Stolt] presented this argument," id. at 7, found it unpersuasive when weighed against the contract interpretation the Panel believed was mandated by Bazzle. Id. But if, instead, the Panel had made the choice-of-law analysis that it was mandated to make but chose to ignore, it would have had to recognize that what Stolt presented was tantamount to an established rule of maritime law. For in the maritime area, more than perhaps any other, the interpretation of contracts - and especially charter party agreements - is very much dictated by custom and usage. See, e.g., Orvig's Dampskibselskab Aktieselskab v. Munson S. S. Line, 16 F.2d 957, 958 (2d Cir. 1927); Schoonmaker-Conners Co. v. Lambert Transp. Co., 269 F. 583, 585 (2d Cir. 1920); Samsun Corp. v. Khozestan Mashine Kar Co., 926 F. Supp. 436, 439 (S.D.N.Y. 1996). Indeed, it could hardly be otherwise, for the international and transient nature of maritime commerce renders the development of binding rules of custom absolutely necessary if the business is not to devolve into chaos.
The Court finds, therefore, that the arbitrators manifestly disregarded a well defined rule of governing maritime law that precluded class arbitration under the clauses here in issue and that their decision to the contrary must therefore be reversed.
It remains to add, moreover, that the result would be the same even if there was no established maritime rule and state law then governed. For, as the parties here agree, the governing law would then be the law of New York. Perhaps implicitly recognizing as much, the Panel noted, as quoted above, that their approach, while in their view dictated by Bazzle, "is also consistent with New York law as articulated by the Court of Appeals in Evans v. Famous Music Corp., 1 N.Y.3d 452, 775 N.Y.S.2d 757 (2004)...." Award at 4. But the Panel offered no "jump ...