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Court Affirms Arbitrator's Decision to Allow Class Arbitration

In Stolt-Nielsen Tranportation Group Ltd. Et al. v. Animal Feeds International Corp., 06-3474, 2nd Cir. 2008 U.S. App. Lexis 22838), the Second Circuit Court of Appeals doled out a little poetic justice. A business sought to have the Court decide that the arbitrator erred in deciding that the arbitration clause allowed for class arbitration. The Court showed great deference to the arbitration decision, and upheld the finding that the clause, which was silent regarding class arbitration, permitted class resolution. Although the case was between two businesses, it is still an ironic peek at where class arbitration may lead us.

As many know, consumers and employees have long claimed that some arbitration forums fail to follow the law when deciding claims. This has resulted, in some arbitration forums, in decision rates that are decidedly business friendly. This is, by many accounts, most prevalent at the National Arbitration Forum ("NAF").

Unfortunately, consumers and employees have little likelihood of getting an arbitration decision modified or overturned by a state or federal court because significant deference is given to the arbitrator's decision. In fact, many courts require a "manifest disregard" for the law before they will overturn an arbitration award.

However, as more courts are striking class action waivers and sending cases to class arbitration, the tables are turning. Many defendants are quickly deciding they are not as fond of arbitration as they once alleged. Suddenly, although the defendant may have once claimed individual arbitration was efficient and effective, the prospect of an efficient and effective decision on behalf of a class of people is less exciting. The potential for class arbitration seems especially troubling to defendants because the decision as to whether a class arbitration is permissible, whether that class should be certified, and whether or not the defendant should have to pay damages to the class is essentially un- appealable.

This is good news for consumers and employees. At Simon Law, we've seen it in action. Defendants have actually begun to ask courts to strike the defendant's own arbitration clause, rather than enforce all of it except the prohibition of class arbitration. The simple story: Defendants would rather be in court, with appeals and potential delays, rather than in arbitration if there is any chance they might actually have to pay for their alleged wrongdoing.


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