In This Issue:
Supreme Court Rules that Parties Cannot Be Required to Submit to Class Arbitration When Agreement SilentOn April 27, 2010, in a 5-3 ruling, the Supreme Court held that an arbitration agreement that was silent as to whether it provided for class arbitration could not be construed to require the parties to submit to class arbitration.
An Uncommon Victory For Employers In The Field of Collectively Bargained HealthcareOn March 3, 2010, the United States District Court for the Eastern District of Michigan issued a rare victory for Sixth Circuit employers in the area of collectively bargained retiree health care.
By John B. Lewis and Sara L. Witt
On April 27, 2010, in a 5-3 ruling, the Supreme Court held that an arbitration agreement that was silent as to whether it provided for class arbitration could not be construed to require the parties to submit to class arbitration. Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., No. 08-1198 (U.S. Apr. 27, 2010). The Court’s decision in this maritime antitrust case is likely to have significant consequences in a wide variety of arbitration contexts, including employment agreements.
The Supreme Court granted certiorari in Stolt-Nielsen on whether class arbitration may be imposed on parties to an arbitration agreement that is silent on the issue. Stolt-Nielsen at *1. Though this question was previously raised in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), the Court decided Bazzle on the threshold issue of whether the availability of class arbitration should be decided by the courts or by an arbitrator. A plurality of the Bazzle Court held that the arbitrator must decide this question.
In Stolt-Nielsen, the parties had entered into a contract (known in maritime trade as a "charter party") that provided for arbitration of "any dispute arising from the making, performance or termination of [the agreement]." Id. at *2. In 2003, after the Department of Justice determined that Stolt-Nielsen was part of an illegal price-fixing conspiracy, AnimalFeeds and several other Stolt-Nielsen customers sued on civil anti-trust claims. After a series of procedural issues were resolved, AnimalFeeds served Stolt-Nielsen with a demand for class arbitration. Stolt-Nielsen contended that the charter party did not provide for arbitration of class actions.
The parties agreed to submit the class arbitration dispute to a panel of three arbitrators. They stipulated for the purpose of this arbitration that the charter party was silent on whether class arbitration should be permitted. Nonetheless, relying on prior awards in favor of class arbitration and a public policy that purportedly favored such proceedings, the panel of arbitrators held that the silent charter party arbitration clause allowed for class arbitration.
Stolt-Nielsen sought to have the award vacated in the Southern District of New York. The district court vacated the award, finding that the arbitration panel acted in "manifest disregard" of the law by failing to apply maritime law in construing the agreement. The Second Circuit disagreed, finding that the arbitration panel had at least impliedly considered whether maritime law should apply, and that, in any event, maritime law did not recognize an unequivocal rule against class arbitration.
The Supreme Court reversed, emphasizing that all matters concerning arbitration must be governed by the parties’ intent. Beginning its analysis with a discussion of Bazzle, the Court cautioned strongly against overreliance on that opinion given that there was no majority decision in the case.[1] The Court specifically rejected the notion that Bazzle requires the availability of class arbitration to be decided in all instances by the arbitrator rather than the courts, Stolt-Nielsen at *16-17.
Turning to the question of whether a "silent" arbitration agreement can be interpreted to permit class arbitration, the Court explained the consensual nature of arbitration agreements under the FAA. Id. at *18 (quoting Volt v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989)). The Court then proceeded to examine the significant differences between bilateral and class arbitration. For example, though "the commercial stakes of class-action arbitration are comparable to those of class-action litigation … the scope of judicial review is much more limited." Id. at *22-23. Also, the American Arbitration Association’s (AAA) Class Rules provide that the "presumption of privacy and confidentiality" afforded to bilateral arbitrations do not apply to class arbitrations. Id. at *22.[2]
Concluding that the "relative benefits of class-action arbitration are much less assured," id. at *21, the Court held that an arbitrator or court may not infer an agreement to arbitrate on a classwide basis from the mere agreement to arbitrate generally. Rather, the FAA does not permit courts or arbitrators to compel class arbitration unless there is a contractual basis demonstrating that the parties consented to do so. Id. Because the Stolt-Nielsen arbitration panel focused on whether the evidence demonstrated that the parties intended to preclude (rather than permit) class arbitration, the Court held that the award was improper and could not withstand Stolt-Nielsen’s petition to vacate.
Although the Stolt-Nielsen decision involved a maritime antitrust dispute, the majority’s citation to consumer and employment cases suggests that the holding is equally applicable in these areas. As such, where an employer-employee arbitration agreement is silent as to whether class arbitration is permitted, the party advocating for classwide arbitration will likely be required to show a "contractual basis" for concluding that the parties intended for the agreement to permit such proceedings.
Lower courts likely will spend significant time fleshing out what type of contractual basis is necessary to support a finding that the parties "agreed to authorize class-action arbitration." Consequently, employers may wish to consider, subject to state law, the use of class action waivers or language reflecting that the parties did not intend to permit the handling or aggregation of multiple parties’ claims or the assessment of monetary relief for other than the single claimant involved.
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[1] In Bazzle a majority of the court did not adopt a single rationale. A plurality held that the question of whether the contract was "silent" should be remanded for a decision by the arbitrator. Justice Stevens joined in the judgment vacating and remanding, but only because the plurality decision was closest to his own view of the case and without concurrence there would be no controlling judgment. Justice Stevens stated his preferred disposition would be to affirm the judgment of the Supreme Court of South Carolina on the grounds that, as a matter of law, the arbitration agreement provided for class arbitration. [2] The AAA filed an Amicus Curiae Brief in Stolt-Nielsen which reflects its view of the working of its Class Rules. Interestingly, the Brief relates that the initial Clause Construction Award (determining the propriety of class handling) must be made "‘a threshold matter’ at the outset of the arbitration, before the arbitrator determines any questions regarding class certification or the merits of the dispute." AAA Amicus Brief of 9-4-09 at p. 14. (Emphasis added).
By Jeffrey R. Vlasek
On March 3, 2010, the United States District Court for the Eastern District of Michigan issued a rare victory for Sixth Circuit employers in the area of collectively bargained retiree health care. Schreiber v. Philips Display Components Co., 48 EBC (BNA) 2217 (E.D. Mich. 2010). In that case, the plaintiffs consisted of both hourly and salaried employees who had worked for a company that produced cathode ray tubes for televisions and computers. In 2001, the company was sold to a joint venture and the purchaser operated the plant for a short time afterward. The plant was closed within two years, before the pre-sale collective bargaining agreement expired, and hundreds of employees retired in the months that followed. The purchaser continued to provide retiree medical care to the post-sale retirees for many years, but ultimately went bankrupt and ceased paying benefits. Rather than sue the purchaser, the retirees went back against the original employer, contending that it remained liable under the plan documents and collective bargaining agreement to continue to provide the health care.
Like many cases in this arena, the case had a long procedural history. The case originated as an LMRA/ERISA hybrid where essentially separate classes of hourly and salaried workers sought payment of lifetime retiree healthcare benefits. As to the hourly employees, the issue situated at the fulcrum of the case was the question of whether or not the collective bargaining agreement unambiguously provided for retiree health benefits up to the date of the expiration of the agreement. The employer included a "reservation of rights" clause that provided the plan could be amended at any time. The employees, however, contended that once they retired, the original employer was obliged to continue the benefits as they had vested prior to the contract expiring and thus were unaffected by the sale. Both sets of employees also contended that the purchaser was the mere "alter ego" of the seller and that the seller therefore remained liable as if the sale had never occurred.
In early 2007, the parties filed cross-motions for summary judgment. On October 16, 2007, the court granted the employer’s motion and concluded that the hourly employees were not entitled to vested retiree healthcare benefits pursuant to the unambiguous terms of the CBA. The court further concluded that it did not breach ERISA’s fiduciary duties based on the decision to transfer ownership of the facility in the spinoff.
The salaried and hourly plaintiffs appealed the decision to the Sixth Circuit, and on September 2, 2009, the Court of Appeals reversed the district court’s decisions, relying on the seminal case of UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), cert. denied, 465 U.S. 1007 (1984). In Yard-Man, the court created and then applied an "inference" that, in the collective bargaining context, retiree health insurance benefits are intended to vest. The Yard-Man case stands in stark contrast to the law in every other circuit which apply no such inference, and has resulted in a large number of costly and often successful class action claims against unionized employers in the Sixth Circuit.
In the Schreiber case, the Sixth Circuit, applying the Yard-Man inference, concluded that the terms of the CBA were, in fact, ambiguous, and that extrinsic evidence was required to determine whether or not the hourly employees were entitled to vested retiree health insurance benefits. The court also found questions of fact as to whether certain plan obligations might also continue to apply to the salaried employees. The matter was remanded to the district court, which promptly conducted a trial on all of the plaintiffs’ claims.
In holding for the defendants at trial, the district court concluded that the plaintiffs had failed to establish that original and successor companies were alter egos of each other. Management of the new company was not identical, nor was the product line exactly the same. In addition, the court found (through the admission of extrinsic evidence) that the hourly plaintiffs were simply not eligible for the retiree health insurance benefits provided under the CBA. To meet the requirements under the plan, the plaintiffs needed to be employees of the seller—which, following the spin-off, they were not. And in the alternative, there was no evidence of an intent to vest the plaintiffs’ retiree health insurance benefits. The court found, for example, that the seller did not intend to link eligibility for the pension plan to eligibility for retiree health insurance benefits, a factor deemed by the Sixth Circuit to carry significant weight in other Yard-Man cases. Following an examination of the documentation presented as evidence during the trial, including SPDs and CBAs, the court concluded that the seller had intended to reserve the company’s right to charge for coverage, or to amend coverage at any time. Indeed, the court stated that there was no evidence to indicate that it ever informed the plaintiffs that it guaranteed health insurance benefits for life.
While the Schreiber case was a victory for the employer, it still acts as a warning to Sixth Circuit employers to ensure that the language contained in their CBAs relating to retiree health care is unambiguous. In addition, along with being a rare victory in the field of retiree healthcare benefits and collective bargaining agreements in the Sixth Circuit (which is traditionally pro-plaintiff in the wake of Yard-Man and its progeny), the Schreiber decision also stands unique in that it is one of the few, if not the only retiree benefits case to be appealed to the Sixth Circuit following a trial verdict in favor of the defendant. In light of the impending federal mandate restricting the reduction of retiree health care, decisions such as Schreiber will continue to play a significant role for employers in the Sixth Circuit as they continue to wind their way through the courts.
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