Same As It Ever Was?

In the past few years, the Supreme Court has issued several important decisions limiting the availability of class-wide arbitration. While the impact on class-wide arbitration itself has been explored intensively, the potential impact on other forms of aggregation has received somewhat less attention, even though principles announced in these class arbitration cases could have an impact on the consolidation of commercial arbitration, including insurance coverage disputes. Lower courts, however, largely consider the landscape for consolidation relatively unchanged. Although several important questions remain unanswered by the Supreme Court, present case law suggests that arbitration clauses may permit consolidation even if those clauses do not address the issue overtly, and that arbitrators, rather than courts, make those decisions.

1. Consolidation of Insurance Arbitration: The Existing Regime

Arbitration is an attractive alternative to traditional litigation for many insurance coverage litigants, potentially offering heightened guarantees of confidentiality and the opportunity to draw upon rules providing expedited or more limited discovery. In some circumstances, arbitration can also provide a more cost-effective and a faster means of resolving disputes, though this, of course, varies considerably depending upon the nature of the dispute and the specific procedures involved. The private, contractual nature of arbitration, however, raises challenges for insurance disputes involving numerous related policies, such as commercial liability claims affecting both primary and excess policies. If such disputes were litigated in a judicial forum, the governing procedural rules would typically provide various ways of determining whether the parties should be brought together in one proceeding, such as joinder of parties or consolidation of actions for purposes of trial. Commercial arbitrations, by contrast, may lack well-established procedures on this point, and interested parties often simply move the courts or the arbitrators to order (or to prevent) consolidation of related arbitrations.

Consolidation requests raise competing concerns. Separate arbitrations of overlapping disputes may reduce the advantages of arbitration, slowing the process and increasing the cost, while raising questions about the preclusive effect of early decisions on later arbitrations. At the same time, arbitration generally arises out of a specific contract between two parties, and forcing those parties into a consolidated proceeding might contradict their intent when they signed the contract. Parties may, of course, directly address the possibility of consolidation in an arbitration agreement, but many arbitration agreements do not do so explicitly, and motions to consolidate in those cases raise at least two separate issues: 1) how actual or apparent silence in the agreement should be interpreted; and 2) whether a court or an arbitrator should decide the issue.

A little over 10 years ago, the Supreme Court issued a pair of cases that appeared to provide at least initial guidance to these questions. The first, Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), emphasized that arbitrators should interpret arbitration agreements outside of a narrowly defined category of threshold “arbitrability” questions reserved for the courts, such as whether a valid agreement existed at all and whether it applied to the dispute at hand. Howsam involved an arbitration demand filed against a brokerage firm allegedly providing inaccurate investment advice. The relevant arbitration rules from the National Association of Securities Dealers required that claims be brought within six years, and the brokers argued that, as a result of the long delay, the dispute was no longer eligible for arbitration. The Supreme Court held that application of this six-year limitation was a question for the arbitrators, not the courts. Although the court recognized that “[l]inguistically speaking, one might call any potentially dispositive gateway question a question of arbitrability,” courts should limit the category of issues reserved to the courts to more fundamental questions, such as whether the parties had agreed to arbitrate the dispute at all.

The second case, Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), involved two separate lawsuits brought by borrowers against their lender in South Carolina state court. The state courts compelled arbitration of the disputes, which were also certified as class action arbitrations (in one case directly by the court and in one case by the arbitrator, though only after the first court had ruled that class arbitration was permissible under the arbitration provision). Following awards to the plaintiffs, the lenders challenged those awards in court, arguing that the arbitration agreements did not, in fact, permit class arbitration. The state supreme court held that the arbitration provisions were silent on the issue of class arbitration, rendering class arbitration permissible under state law. A four-member plurality of the Supreme Court held that interpretation of the arbitration provision, including whether it was silent on the issue of class arbitration or whether the arbitrator appointment provisions precluded class treatment, was a question for the arbitrators. Id. at 452-53. The plurality remanded so that the arbitrators, rather than the state court, could make that determination.

In the wake of those two decisions, several courts held that consolidation of insurance coverage arbitration was possible when the arbitration clause explicitly or implicitly permitted it, and that the arbitration panel must make that determination. For example, in Employers Insurance Co. of Wausau v. Century Indemnity Co., 443 F.3d 573 (7th Cir. 2006), Century sought consolidated arbitration with all of its reinsurers who had declined to pay out a sizeable asbestos claim. Wausau agreed that the dispute should be arbitrated but argued that it could not be forced to participate in a consolidated arbitration with another reinsurer or to arbitrate both of its reinsurance contracts in a single proceeding. Wausau therefore sought declaratory judgment that separate arbitrations were required and argued that the question of whether it had to participate in a single, consolidated arbitration was a question of arbitrability for the court to decide. Citing Howsam , the Seventh Circuit rejected this argument, holding that “the question of whether an arbitration agreement forbids consolidated arbitration is a procedural one, which the arbitrator should resolve.” Id. at 577. The court further refused to consider whether forcing Wausau to arbitrate the question of consolidation of both of its reinsurance contracts before a single panel would itself violate the arbitration clauses. Because the arbitration clauses did not specify who should decide the question of consolidation, Wausau was required to make its argument about the appropriate procedures to a single panel, as ordered by the district court. Id. at 581-82.

Similarly, in Certain Underwriters at Lloyd's London v. Westchester Fire Ins. Co., 489 F.3d 580 (3d Cir. 2007), Westchester filed two consolidated arbitration demands against its reinsurers under a series of reinsurance contracts. The reinsurers filed a petition to compel arbitration in federal court, insisting that the separate arbitration clause in each reinsurance contract mandated a separate arbitration. They therefore argued that the court should compel individual arbitrations for each of the reinsurance contracts and force Westchester to submit the consolidation question to those individual panels. The district court noted that it was “not presented with the question of whether a valid arbitration agreement exists[,] but, rather, the question of whether the parties had contractually agreed to 'separate arbitrations,'” and that was a matter for the arbitrators to decide. Id. at 583-84. The court therefore enforced the original consolidated arbitration demand, and the Third Circuit affirmed, relying in part on Howsam and Bazzle. Id. at 586-87.

Under this regime, a party seeking to consolidate an arbitration had to file a demand for arbitration and address the question of consolidation to the panel. A party opposing consolidation was required to make its argument before the same arbitration panel. Thus, in Markel International Insurance Co. v. Westchester Fire Insurance Co., 442 F. Supp. 2d 200 (D.N.J. 2006), after an insurer served a consolidated arbitration demand and its reinsurers filed a motion in district court to compel separate arbitrations, the court granted the insurer's cross-motion to compel a single arbitration and ordered the reinsurers to make its arguments against consolidation before a single arbitration panel. See also In re Allstate Ins. Co., 2006 WL 2289999 (S.D.N.Y. 2006) (ordering the parties to “select one panel to arbitrate the dispute over” a reinsurance certificate and holding that “the question of whether the parties are to consolidate that proceeding with the dispute over [the other certificate] shall be decided by that panel”).

2. Stolt-Nielsen and Potential Changes to Consolidation Procedures

In 2010, the Supreme Court potentially altered this framework in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010), which vacated a decision by an arbitration panel that class arbitration was appropriate. Various customers of trans-oceanic shipping companies had filed class action litigation against their shippers, alleging price fixing and other antitrust claims. After the Second Circuit held that an arbitration clause applied to their claims, the plaintiffs filed a demand for class arbitration. The parties entered into a supplemental agreement submitting the question of potential class arbitration to a panel of three arbitrators under rules developed by the American Arbitration Association in the wake of Bazzle. Id. at 1765. The arbitration panel ruled that the parties' arbitration agreement, which was silent on the question, permitted class arbitration in light of Bazzle and numerous subsequent decisions.

In a 5-3 decision, the Supreme Court vacated the award and held that the panel exceeded its powers by ordering class arbitration when the contract was silent on the issue, rather than inquiring as to the appropriate default rule under the relevant governing law. The Court also noted that Bazzle lacked a majority decision, leaving open the questions of who should decide whether an arbitration contract is silent as well as what interpretive rule should be applied to any silence. Turning to that interpretive question, the Court held that a party may not be compelled under the Federal Arbitration Act (FAA) to submit to class arbitration “unless there is a contractual basis for concluding that the party agreed to do so” and that, in light of the “differences between simple bilateral and complex class action arbitration,” mere silence cannot be construed as consent. Id. 1775-76. In dissent, Justice Ginsburg objected that the majority had improperly reviewed a partial legal determination, rather than a final award, and had disturbed a legitimate decision regarding arbitral procedures, taken after due consideration of the parties' arguments and relevant expert testimony. Id. at 1779-82.

In the wake of Stolt-Nielsen, some commentators wondered whether courts would now become more willing to vacate arbitration awards involving consolidated proceedings or to impose additional constraints on the interpretation of provisions that were silent on the consolidation issue. Although consolidation was not at issue in Stolt-Nielsen , the majority stressed that “it is clear from our precedents and the contractual nature of arbitration that parties may specify with whom they choose to arbitrate their disputes.” Id . at 1774. The Court also cited the proposition that an “arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement.” Id. (quoting Moses H. Cone Mem'l Hospital v. Mercury Constr. Corp., 460 U.S. 1, 20, (1983)). Commentators noted that these observations could also apply to consolidation of arbitration proceedings. See, e.g., James F. Butler, “The Supreme Court Decision in Stolt-Nielsen and Consolidation Requests Under the AAA Construction Rules,” 65 Disp. Resolution J. 96 (October 2010). Similarly, commentators wondered whether increased indicia of explicit affirmative consent by the parties would be required in order to permit consolidation. Keith A. Dotseth & Hilary J. Loynes, “Consolidation of Arbitrations After Stolt-Nielsen,” 78 Def. Couns. J. 362, 365 (July 2011) (noting differing views on Stolt-Nielsen).

In the years since Stolt-Nielsen , the Supreme Court has issued several decisions reinforcing an evident skepticism toward class-wide arbitration, but has not yet addressed the implications of its reasoning for other forms of consolidation. In AT&T Mobility LLC v. Concepcion , 131 S.Ct. 1740 (2011), the Court held that a California rule barring enforcement of certain class action waivers was preempted by the FAA. Citing Stolt-Nielsen , the Court again emphasized that class arbitration was different than bilateral arbitration because it was slower and more costly, it required more procedural formality, and it increased the risks to defendants by aggregating claims and thus the impact of errors without the benefit of review. Id. at 1750-52. Two years later, in American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 U.S. (2013), the Court held that an arbitration clause with a class action waiver was enforceable under the FAA despite the potential impact on the plaintiffs' ability to pursue its federal antitrust claims in an economically feasible manner. The Court again noted that, under the FAA, courts must “rigorously enforce” arbitration agreements according to their terms, including terms that “specify with whom [the parties] choose to arbitrate their disputes.” Id. at 2309 (quoting Stolt-Nielsen). Finally, a unanimous Court declined to vacate an arbitral award authorizing class arbitration based on an interpretation of the parties' arbitration agreement, and held that the FAA does not permit vacatur when the arbitrator has “even arguably” construed or applied the agreement. Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2068 (U.S. 2013). The Court, however, noted that the Petitioner had not argued that the availability of class arbitration was a “question of arbitrability” presumptively subject to judicial determination. Id . at 2069 n.2. The Court explained that “this Court has not yet decided whether the availability of class arbitration is a question of arbitrability” but held that the question could not be addressed in Oxford Health Plan s because the Petitioner “had explicitly agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures.” Id.

Each of these decisions leaves open the possibility that courts may play an increasing role in enforcing class arbitration waivers, in preempting impediments to them, and, possibly, in interpreting arbitration clauses with respect to class arbitrations. Each of them also raises the possibility that similar concerns over rigorous enforcement of the parties' choices regarding arbitration partners or revisiting questions of arbitrability could influence procedures regarding other types of consolidation. At the same time, by stressing the gulf between class arbitration and other forms of arbitration, these decisions also raise the possibility that the impact on consolidation writ large will be quite limited. Recent case law suggests that, for now, most lower courts have adopted the latter perspective.

3. Lower Court Decisions After Stolt-Nielsen

Lower courts have largely concluded that Stolt Nielsen did not disturb existing case law regarding consolidation of arbitration outside of the class context. For example, in Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Insurance Co., 671 F.3d 635 (7th Cir. 2011), 12 state-level Blue Cross plans demanded arbitration with their national insurer over its refusal to assume the defense against various Florida class action suits. The plans initiated one consolidated proceeding, and both sides named an arbitrator. When these two arbitrators could not agree upon a third arbitrator, some of the plans asked the court to appoint one. The insurer responded with a petition to compel a de-consolidated arbitration, arguing that Stolt-Nielsen required that parties expressly assent to consolidation and, furthermore, permitted a court to decide whether consolidation was appropriate. The district court denied the petition, and the insurer appealed.

The Seventh Circuit first observed that the appeal was an improper interlocutory appeal, as the arbitration was still pending. Moreover, even if the insurer had refused to appoint an arbitrator, thus forcing the plans to compel arbitration in district court, that court still would have referred the question of consolidation to the arbitration panel. Id. at 638-39. Although Stolt Nielsen held that the arbitrators had exceeded their powers after review of their class arbitration decision, the Blue Cross panel explained that parties are not entitled to anticipatory review of “whether arbitrators would exceed their powers if they reached a particular procedural decision during the course of an arbitration.” Id. at 639. The court noted that the arbitrators may end up agreeing with the party seeking anticipatory review, rendering judicial review unnecessary. Finally, the court observed that consolidation does not change the nature of arbitration in the way class certification could, rendering many of the Stolt-Nielsen concerns inapplicable to consolidation.

Similarly, in Fantastic Sams Franchise Corp. v. FSRO Ass'n, 683 F.3d 18 (1st Cir. 2012), several Fantastic Sams franchisees filed arbitration demand on behalf of all franchisees, charging violation of their license agreements by the franchisor, FSRC. The latter filed suit seeking to stay the collective arbitration and to compel individual arbitrations. The court removed some 25 franchisees from the demand based on the language of their individual agreements, but allowed 10 franchisees to go forward together. The court first rejected FSRC's argument that under Stolt Nielsen “there must be express contractual language evincing the parties' intent to permit class or collective arbitration.” Id. at 22. The court noted that Stolt Nielsen involved a stipulation that the parties had not agreed to class arbitration, foreclosing the possibility of implicit consent. Furthermore, the court held that the associational arbitration did not raise the same issues as the class arbitration in Stolt Nielsen , given that all affected parties were present and that the petitioners only sought relief available under the agreements. Id. at 23-24. Finally, the court held the dispute over whether the arbitration could proceed on an associational basis was not a question of arbitrability and thus should be decided by the panel. Id. at 25.

In many cases district courts have also continued to refer consolidation questions to a single arbitration panel for resolution. See, e.g., Granite State Insurance Co. v. Clearwater Insurance Co., 2013 WL 4482948 (N.D. Cal. 2013) (rejecting a reinsurer's challenge to the propriety of a single consolidated arbitration demand and noting that, “[o]nce selected, the single arbitration panel can resolve the issues of whether petitioners' demand for arbitration was an improper consolidation”); Arrowood Indem. Co. v. Harper Ins. Co., 2012 WL 161667 (W.D.N.C. 2012) (declining to require appointment of neutral to second and third arbitration panels pending decision from already constituted panel as to whether consolidation was appropriate); Allstate Ins. Co. v. Liberty Mut. Ins. Co., 2011 WL 1897395 (D. Mass. 2011) (granting petition to compel Allstate to participate in a single arbitration in order to resolve the question of whether the disputes should be conducted in one arbitration or two).

Even within the class arbitration context, courts have held that Stolt-Nielsen does not require explicit affirmative consent within the arbitration agreement. For example, in Sutter v. Oxford Health Plans LLC, 675 F.3d 215, 222 (3d Cir. 2012), the court held that an arbitrator permissibly inferred implied consent to class arbitration and noted that ” Stolt-Nielsen did not establish a bright line rule that class arbitration is allowed only under an arbitration agreement that incants 'class arbitration' or otherwise expressly provides for aggregate procedures.” The Second Circuit likewise reversed the vacatur of an arbitral decision inferring consent to class arbitration, explaining that ” Stolt-Nielsen does not foreclose the possibility that parties may reach an implicit ' rather than express ' agreement to authorize class-action arbitration.” Jock v. Sterling Jewelers Inc., 646 F.3d 113, 123 (2d Cir.2011). The court stressed that the Stolt-Nielsen majority had relied upon the parties' stipulation that they had not reached any agreement on the issue of class arbitration, while in this case the parties had merely acknowledged the absence of an explicit authorization. Id. In Southern Communications Services, Inc. v. Thomas, 720 F.3d 1352 (11th Cir. 2013), the Eleventh Circuit rejected an argument under Stolt-Nielsen that the arbitrator had exceeded his authority by permitting class arbitration of claims by cell phone customers challenging termination fees. Citing Oxford Health Plans, the court held that the arbitrator plainly “interpreted the parties' contract” under Georgia law and thus acted within his authority. Id. at 1359-60. Thus, given the reluctance to expand Stolt-Nielsen in the class arbitration context, there seems little danger at present of courts applying an expansive reading of the case to consolidation requests on grounds that the parties had not explicitly consented to consolidation.

We conclude this discussion next month with a look at Reed Elsevier, In. v. Crockett.

Jeff Bowen , a member of this newsletter's Board of Editors, is a Commercial Litigation partner at Perkins Coie LLP and a member of the Insurance Recovery practice group. He is also an Adjunct Professor at the University of Wisconsin Law School (LLM Program).

In the past few years, the Supreme Court has issued several important decisions limiting the availability of class-wide arbitration. While the impact on class-wide arbitration itself has been explored intensively, the potential impact on other forms of aggregation has received somewhat less attention, even though principles announced in these class arbitration cases could have an impact on the consolidation of commercial arbitration, including insurance coverage disputes. Lower courts, however, largely consider the landscape for consolidation relatively unchanged. Although several important questions remain unanswered by the Supreme Court, present case law suggests that arbitration clauses may permit consolidation even if those clauses do not address the issue overtly, and that arbitrators, rather than courts, make those decisions.

1. Consolidation of Insurance Arbitration: The Existing Regime

Arbitration is an attractive alternative to traditional litigation for many insurance coverage litigants, potentially offering heightened guarantees of confidentiality and the opportunity to draw upon rules providing expedited or more limited discovery. In some circumstances, arbitration can also provide a more cost-effective and a faster means of resolving disputes, though this, of course, varies considerably depending upon the nature of the dispute and the specific procedures involved. The private, contractual nature of arbitration, however, raises challenges for insurance disputes involving numerous related policies, such as commercial liability claims affecting both primary and excess policies. If such disputes were litigated in a judicial forum, the governing procedural rules would typically provide various ways of determining whether the parties should be brought together in one proceeding, such as joinder of parties or consolidation of actions for purposes of trial. Commercial arbitrations, by contrast, may lack well-established procedures on this point, and interested parties often simply move the courts or the arbitrators to order (or to prevent) consolidation of related arbitrations.

Consolidation requests raise competing concerns. Separate arbitrations of overlapping disputes may reduce the advantages of arbitration, slowing the process and increasing the cost, while raising questions about the preclusive effect of early decisions on later arbitrations. At the same time, arbitration generally arises out of a specific contract between two parties, and forcing those parties into a consolidated proceeding might contradict their intent when they signed the contract. Parties may, of course, directly address the possibility of consolidation in an arbitration agreement, but many arbitration agreements do not do so explicitly, and motions to consolidate in those cases raise at least two separate issues: 1) how actual or apparent silence in the agreement should be interpreted; and 2) whether a court or an arbitrator should decide the issue.

A little over 10 years ago, the Supreme Court issued a pair of cases that appeared to provide at least initial guidance to these questions. The first, Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79 (2002), emphasized that arbitrators should interpret arbitration agreements outside of a narrowly defined category of threshold “arbitrability” questions reserved for the courts, such as whether a valid agreement existed at all and whether it applied to the dispute at hand. Howsam involved an arbitration demand filed against a brokerage firm allegedly providing inaccurate investment advice. The relevant arbitration rules from the National Association of Securities Dealers required that claims be brought within six years, and the brokers argued that, as a result of the long delay, the dispute was no longer eligible for arbitration. The Supreme Court held that application of this six-year limitation was a question for the arbitrators, not the courts. Although the court recognized that “[l]inguistically speaking, one might call any potentially dispositive gateway question a question of arbitrability,” courts should limit the category of issues reserved to the courts to more fundamental questions, such as whether the parties had agreed to arbitrate the dispute at all.

The second case, Green Tree Financial Corp. v. Bazzle , 539 U.S. 444 (2003), involved two separate lawsuits brought by borrowers against their lender in South Carolina state court. The state courts compelled arbitration of the disputes, which were also certified as class action arbitrations (in one case directly by the court and in one case by the arbitrator, though only after the first court had ruled that class arbitration was permissible under the arbitration provision). Following awards to the plaintiffs, the lenders challenged those awards in court, arguing that the arbitration agreements did not, in fact, permit class arbitration. The state supreme court held that the arbitration provisions were silent on the issue of class arbitration, rendering class arbitration permissible under state law. A four-member plurality of the Supreme Court held that interpretation of the arbitration provision, including whether it was silent on the issue of class arbitration or whether the arbitrator appointment provisions precluded class treatment, was a question for the arbitrators. Id . at 452-53. The plurality remanded so that the arbitrators, rather than the state court, could make that determination.

In the wake of those two decisions, several courts held that consolidation of insurance coverage arbitration was possible when the arbitration clause explicitly or implicitly permitted it, and that the arbitration panel must make that determination. For example, in Employers Insurance Co. of Wausau v. Century Indemnity Co. , 443 F.3d 573 (7th Cir. 2006), Century sought consolidated arbitration with all of its reinsurers who had declined to pay out a sizeable asbestos claim. Wausau agreed that the dispute should be arbitrated but argued that it could not be forced to participate in a consolidated arbitration with another reinsurer or to arbitrate both of its reinsurance contracts in a single proceeding. Wausau therefore sought declaratory judgment that separate arbitrations were required and argued that the question of whether it had to participate in a single, consolidated arbitration was a question of arbitrability for the court to decide. Citing Howsam , the Seventh Circuit rejected this argument, holding that “the question of whether an arbitration agreement forbids consolidated arbitration is a procedural one, which the arbitrator should resolve.” Id . at 577. The court further refused to consider whether forcing Wausau to arbitrate the question of consolidation of both of its reinsurance contracts before a single panel would itself violate the arbitration clauses. Because the arbitration clauses did not specify who should decide the question of consolidation, Wausau was required to make its argument about the appropriate procedures to a single panel, as ordered by the district court. Id . at 581-82.

Similarly, in Certain Underwriters at Lloyd's London v. Westchester Fire Ins. Co. , 489 F.3d 580 (3d Cir. 2007), Westchester filed two consolidated arbitration demands against its reinsurers under a series of reinsurance contracts. The reinsurers filed a petition to compel arbitration in federal court, insisting that the separate arbitration clause in each reinsurance contract mandated a separate arbitration. They therefore argued that the court should compel individual arbitrations for each of the reinsurance contracts and force Westchester to submit the consolidation question to those individual panels. The district court noted that it was “not presented with the question of whether a valid arbitration agreement exists[,] but, rather, the question of whether the parties had contractually agreed to 'separate arbitrations,'” and that was a matter for the arbitrators to decide. Id . at 583-84. The court therefore enforced the original consolidated arbitration demand, and the Third Circuit affirmed, relying in part on Howsam and Bazzle. Id . at 586-87.

Under this regime, a party seeking to consolidate an arbitration had to file a demand for arbitration and address the question of consolidation to the panel. A party opposing consolidation was required to make its argument before the same arbitration panel. Thus, in Markel International Insurance Co. v. Westchester Fire Insurance Co. , 442 F. Supp. 2d 200 (D.N.J. 2006), after an insurer served a consolidated arbitration demand and its reinsurers filed a motion in district court to compel separate arbitrations, the court granted the insurer's cross-motion to compel a single arbitration and ordered the reinsurers to make its arguments against consolidation before a single arbitration panel. See also In re Allstate Ins. Co., 2006 WL 2289999 (S.D.N.Y. 2006) (ordering the parties to “select one panel to arbitrate the dispute over” a reinsurance certificate and holding that “the question of whether the parties are to consolidate that proceeding with the dispute over [the other certificate] shall be decided by that panel”).

2. Stolt-Nielsen and Potential Changes to Consolidation Procedures

In 2010, the Supreme Court potentially altered this framework in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. , 130 S.Ct. 1758 (2010), which vacated a decision by an arbitration panel that class arbitration was appropriate. Various customers of trans-oceanic shipping companies had filed class action litigation against their shippers, alleging price fixing and other antitrust claims. After the Second Circuit held that an arbitration clause applied to their claims, the plaintiffs filed a demand for class arbitration. The parties entered into a supplemental agreement submitting the question of potential class arbitration to a panel of three arbitrators under rules developed by the American Arbitration Association in the wake of Bazzle. Id . at 1765. The arbitration panel ruled that the parties' arbitration agreement, which was silent on the question, permitted class arbitration in light of Bazzle and numerous subsequent decisions.

In a 5-3 decision, the Supreme Court vacated the award and held that the panel exceeded its powers by ordering class arbitration when the contract was silent on the issue, rather than inquiring as to the appropriate default rule under the relevant governing law. The Court also noted that Bazzle lacked a majority decision, leaving open the questions of who should decide whether an arbitration contract is silent as well as what interpretive rule should be applied to any silence. Turning to that interpretive question, the Court held that a party may not be compelled under the Federal Arbitration Act (FAA) to submit to class arbitration “unless there is a contractual basis for concluding that the party agreed to do so” and that, in light of the “differences between simple bilateral and complex class action arbitration,” mere silence cannot be construed as consent. Id . 1775-76. In dissent, Justice Ginsburg objected that the majority had improperly reviewed a partial legal determination, rather than a final award, and had disturbed a legitimate decision regarding arbitral procedures, taken after due consideration of the parties' arguments and relevant expert testimony. Id . at 1779-82.

In the wake of Stolt-Nielsen, some commentators wondered whether courts would now become more willing to vacate arbitration awards involving consolidated proceedings or to impose additional constraints on the interpretation of provisions that were silent on the consolidation issue. Although consolidation was not at issue in Stolt-Nielsen , the majority stressed that “it is clear from our precedents and the contractual nature of arbitration that parties may specify with whom they choose to arbitrate their disputes.” Id . at 1774. The Court also cited the proposition that an “arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement.” Id . (quoting Moses H. Cone Mem'l Hospital v. Mercury Constr. Corp. , 460 U.S. 1, 20, (1983)). Commentators noted that these observations could also apply to consolidation of arbitration proceedings. See, e.g., James F. Butler, “The Supreme Court Decision in Stolt-Nielsen and Consolidation Requests Under the AAA Construction Rules,” 65 Disp. Resolution J. 96 (October 2010). Similarly, commentators wondered whether increased indicia of explicit affirmative consent by the parties would be required in order to permit consolidation. Keith A. Dotseth & Hilary J. Loynes, “Consolidation of Arbitrations After Stolt-Nielsen,” 78 Def. Couns. J. 362, 365 (July 2011) (noting differing views on Stolt-Nielsen).

In the years since Stolt-Nielsen , the Supreme Court has issued several decisions reinforcing an evident skepticism toward class-wide arbitration, but has not yet addressed the implications of its reasoning for other forms of consolidation. In AT&T Mobility LLC v. Concepcion , 131 S.Ct. 1740 (2011), the Court held that a California rule barring enforcement of certain class action waivers was preempted by the FAA. Citing Stolt-Nielsen , the Court again emphasized that class arbitration was different than bilateral arbitration because it was slower and more costly, it required more procedural formality, and it increased the risks to defendants by aggregating claims and thus the impact of errors without the benefit of review. Id . at 1750-52. Two years later, in American Express Co. v. Italian Colors Restaurant , 133 S.Ct. 2304 U.S. (2013), the Court held that an arbitration clause with a class action waiver was enforceable under the FAA despite the potential impact on the plaintiffs' ability to pursue its federal antitrust claims in an economically feasible manner. The Court again noted that, under the FAA, courts must “rigorously enforce” arbitration agreements according to their terms, including terms that “specify with whom [the parties] choose to arbitrate their disputes.” Id . at 2309 (quoting Stolt-Nielsen). Finally, a unanimous Court declined to vacate an arbitral award authorizing class arbitration based on an interpretation of the parties' arbitration agreement, and held that the FAA does not permit vacatur when the arbitrator has “even arguably” construed or applied the agreement. Oxford Health Plans LLC v. Sutter , 133 S.Ct. 2064, 2068 (U.S. 2013). The Court, however, noted that the Petitioner had not argued that the availability of class arbitration was a “question of arbitrability” presumptively subject to judicial determination. Id . at 2069 n.2. The Court explained that “this Court has not yet decided whether the availability of class arbitration is a question of arbitrability” but held that the question could not be addressed in Oxford Health Plan s because the Petitioner “had explicitly agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures.” Id .

Each of these decisions leaves open the possibility that courts may play an increasing role in enforcing class arbitration waivers, in preempting impediments to them, and, possibly, in interpreting arbitration clauses with respect to class arbitrations. Each of them also raises the possibility that similar concerns over rigorous enforcement of the parties' choices regarding arbitration partners or revisiting questions of arbitrability could influence procedures regarding other types of consolidation. At the same time, by stressing the gulf between class arbitration and other forms of arbitration, these decisions also raise the possibility that the impact on consolidation writ large will be quite limited. Recent case law suggests that, for now, most lower courts have adopted the latter perspective.

3. Lower Court Decisions After Stolt-Nielsen

Lower courts have largely concluded that Stolt Nielsen did not disturb existing case law regarding consolidation of arbitration outside of the class context. For example, in Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Insurance Co. , 671 F.3d 635 (7th Cir. 2011), 12 state-level Blue Cross plans demanded arbitration with their national insurer over its refusal to assume the defense against various Florida class action suits. The plans initiated one consolidated proceeding, and both sides named an arbitrator. When these two arbitrators could not agree upon a third arbitrator, some of the plans asked the court to appoint one. The insurer responded with a petition to compel a de-consolidated arbitration, arguing that Stolt-Nielsen required that parties expressly assent to consolidation and, furthermore, permitted a court to decide whether consolidation was appropriate. The district court denied the petition, and the insurer appealed.

The Seventh Circuit first observed that the appeal was an improper interlocutory appeal, as the arbitration was still pending. Moreover, even if the insurer had refused to appoint an arbitrator, thus forcing the plans to compel arbitration in district court, that court still would have referred the question of consolidation to the arbitration panel. Id . at 638-39. Although Stolt Nielsen held that the arbitrators had exceeded their powers after review of their class arbitration decision, the Blue Cross panel explained that parties are not entitled to anticipatory review of “whether arbitrators would exceed their powers if they reached a particular procedural decision during the course of an arbitration.” Id . at 639. The court noted that the arbitrators may end up agreeing with the party seeking anticipatory review, rendering judicial review unnecessary. Finally, the court observed that consolidation does not change the nature of arbitration in the way class certification could, rendering many of the Stolt-Nielsen concerns inapplicable to consolidation.

Similarly, in Fantastic Sams Franchise Corp. v. FSRO Ass'n , 683 F.3d 18 (1st Cir. 2012), several Fantastic Sams franchisees filed arbitration demand on behalf of all franchisees, charging violation of their license agreements by the franchisor, FSRC. The latter filed suit seeking to stay the collective arbitration and to compel individual arbitrations. The court removed some 25 franchisees from the demand based on the language of their individual agreements, but allowed 10 franchisees to go forward together. The court first rejected FSRC's argument that under Stolt Nielsen “there must be express contractual language evincing the parties' intent to permit class or collective arbitration.” Id . at 22. The court noted that Stolt Nielsen involved a stipulation that the parties had not agreed to class arbitration, foreclosing the possibility of implicit consent. Furthermore, the court held that the associational arbitration did not raise the same issues as the class arbitration in Stolt Nielsen , given that all affected parties were present and that the petitioners only sought relief available under the agreements. Id . at 23-24. Finally, the court held the dispute over whether the arbitration could proceed on an associational basis was not a question of arbitrability and thus should be decided by the panel. Id . at 25.

In many cases district courts have also continued to refer consolidation questions to a single arbitration panel for resolution. See, e.g., Granite State Insurance Co. v. Clearwater Insurance Co., 2013 WL 4482948 (N.D. Cal. 2013) (rejecting a reinsurer's challenge to the propriety of a single consolidated arbitration demand and noting that, “[o]nce selected, the single arbitration panel can resolve the issues of whether petitioners' demand for arbitration was an improper consolidation”); Arrowood Indem. Co. v. Harper Ins. Co., 2012 WL 161667 (W.D.N.C. 2012) (declining to require appointment of neutral to second and third arbitration panels pending decision from already constituted panel as to whether consolidation was appropriate); Allstate Ins. Co. v. Liberty Mut. Ins. Co., 2011 WL 1897395 (D. Mass. 2011) (granting petition to compel Allstate to participate in a single arbitration in order to resolve the question of whether the disputes should be conducted in one arbitration or two).

Even within the class arbitration context, courts have held that Stolt-Nielsen does not require explicit affirmative consent within the arbitration agreement. For example, in Sutter v. Oxford Health Plans LLC , 675 F.3d 215, 222 (3d Cir. 2012), the court held that an arbitrator permissibly inferred implied consent to class arbitration and noted that ” Stolt-Nielsen did not establish a bright line rule that class arbitration is allowed only under an arbitration agreement that incants 'class arbitration' or otherwise expressly provides for aggregate procedures.” The Second Circuit likewise reversed the vacatur of an arbitral decision inferring consent to class arbitration, explaining that ” Stolt-Nielsen does not foreclose the possibility that parties may reach an implicit ' rather than express ' agreement to authorize class-action arbitration.” Jock v. Sterling Jewelers Inc. , 646 F.3d 113, 123 (2d Cir.2011). The court stressed that the Stolt-Nielsen majority had relied upon the parties' stipulation that they had not reached any agreement on the issue of class arbitration, while in this case the parties had merely acknowledged the absence of an explicit authorization. Id . In Southern Communications Services, Inc. v. Thomas , 720 F.3d 1352 (11th Cir. 2013), the Eleventh Circuit rejected an argument under Stolt-Nielsen that the arbitrator had exceeded his authority by permitting class arbitration of claims by cell phone customers challenging termination fees. Citing Oxford Health Plans, the court held that the arbitrator plainly “interpreted the parties' contract” under Georgia law and thus acted within his authority. Id . at 1359-60. Thus, given the reluctance to expand Stolt-Nielsen in the class arbitration context, there seems little danger at present of courts applying an expansive reading of the case to consolidation requests on grounds that the parties had not explicitly consented to consolidation.

We conclude this discussion next month with a look at Reed Elsevier, In. v. Crockett.

Jeff Bowen , a member of this newsletter's Board of Editors, is a Commercial Litigation partner at Perkins Coie LLP and a member of the Insurance Recovery practice group. He is also an Adjunct Professor at the University of Wisconsin Law School (LLM Program).