In a 5-3 decision, the U.S. Supreme Court recently reversed an arbitration panel decision that would have allowed antitrust claims to proceed to arbitration on a class action basis, Stolt-Nielsen S.A. et al. v. Animal Feeds International Corp. The Court reversed the Second Circuit Court of Appeals that had upheld the arbitrators’ decision. The parties argreed that the arbitration agreement in this case was silent about whether class arbitration was permissible. The arbitrators and the Second Circuit reasoned that since it did not prohibit class arbitration, the arbitrators had discretion to allow it. The Supreme Court disagreed, holding that the arbitrators manifestly disregarded the law. Basing its decision on the Federal Arbitration Act, the Court decided that “the differences between bilateral and class-action arbitration are too great for arbitrators to presume, consistent with their limited powers under the FAA, that the parties’ mere silence on the issue of class-action arbitration constitutes consent to resolve their disputes in class proceedings.”
In most antitrust actions, the alleged violator reaps large monopoly profits by first undercutting competitors’ prices, and then raising prices after those competitors are driven out of business. Consumers are benefitted at first by the price-cutting competition, but ultimately they lose when competition ceases and prices rise. However, prices rarely rise enough to justify any one consumer in pursuing an antitrust case by himself. Most such cases have to proceed as a class action or not at all. Therefore, the Court’s decision in this case effectively allows monopolists to insulate themselves from antitrust lawsuits by incorporating arbitration clauses in their contracts. Under the Court’s decision, the only way consumers could proceed with an antitrust suit would be to negotiate an arbitration clause that specifically allows class arbitration, or else to exclude such actions from arbitration and allow them to proceed in court. I wonder how many consumers are so savvy and such good negotiators?