The court's implicit roadmap: Charting the prudent course at the juncture of mandatory arbitration agreements and class action lawsuits

Stanford Law Review

Volumn 57, Issue 5, 2005, Pages 1677-1719

  Lipshutz, Joshua S ^a,b  

^a STANFORD LAW SCHOOL   (United States)

^b UNIVERSITY OF PENNSYLVANIA   (United States)

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EID: 33646058010     PISSN: 00389765     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (218)

1. The Court first announced its policy of "favoring" arbitration in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1983) ("[Q]uestions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration. . . . The [Federal] Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . ."); see also, e.g., Southland Corp. v. Keating, 465 U.S. 1, 10 (1983).
2. See Jean R. Sternlight, Is the U.S. Out on a Limb? Comparing the U.S. Approach to Mandatory Consumer and Employment Arbitration to That of the Rest of the World, 56 U. MIAMI L. REV. 831, 832 (2002) ("The FAA, adopted in 1925, has long required courts to enforce pre-dispute arbitration agreements entered into by companies. . . . For most of the FAA's history, however, pre-dispute arbitration agreements were not applied to transactions between businesses and individuals such as consumers or typical employees.");
3. Katherine Van Wezel Stone, Rustic Justice: Community and Coercion Under the Federal Arbitration Act, 77 N.C. L. REV. 931, 949-54 (1999) (describing the various ways in which the scope of the FAA has been expanded in recent decades).
4. See Stone, supra note 2, at 956 (describing how "arbitration clauses are ubiquitous in consumer transactions today" and listing numerous examples of "contracts in the commercial, corporate, and international trade areas" in which arbitration clauses appear); see also Thomas J. Stipanowich, Punitive Damages and the Consumerization of Arbitration, 92 NW. U. L. REV. 1, 3 (1997) ("[A]rbitration is suddenly everywhere. A veritable surrogate for the public justice system, it touches the lives of many persons who, because of their status as investors, employees, franchisees, consumers of medical care, homeowners, and signatories to standardized contracts, are bound to private processes traditionally employed by commercial parties.");
5. Stephen J. Ware, Paying the Price of Process: Judicial Regulation of Consumer Arbitration Agreements, 2001 J. DISP. RESOL. 89, 89 ("Arbitration clauses now appear in many of the form contracts through which consumers obtain goods, services and credit.");
6. Anne Brafford, Note, Arbitration Clauses in Consumer Contracts of Adhesion: Fair Play or Trap for the Weak and Unwary?, 21 IOWA J. CORP. L. 331, 333 (1996) ("Increasingly, businesses have been taking advantage of arbitration's efficiency.").
7. See Stone, supra note 2, at 935-56 (explaining how "the Supreme Court has expanded the reach of the FAA and has adopted a national policy of promoting the use of arbitration in all relationships that have a contractual element," including consumer transactions).
8. See Richard C. Reuben, Constitutional Gravity: A Unitary Theory of Alternative Dispute Resolution and Public Civil Justice, 47 UCLA L. REV. 949, 966-67 (2000) (noting that contractual arbitration has become common in an "increasingly wide range of consumer settings, such as banking, credit card, financial, health care, insurance, retail purchases, and communication service agreements"); Stone, supra note 2, at 934 ("Once confined to the specialized provinces of international commercial transactions and labor-management relations, arbitration clauses now appear in many day-to-day consumer transactions.").
9. See 9 U.S.C. § 2 (2000) (providing that arbitration agreements in contracts "evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract"). The Supreme Court has interpreted this to mean that agreements to arbitrate should be enforced according to their terms, as would any other contract. See, e.g., First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 947 (1995) ("[T]he basic objective is . . . to ensure that commercial arbitration agreements, like other contracts, are enforced according to their terms . . . .") (internal citations omitted); Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989) ("The FAA was designed . . . to place [arbitration] agreements upon the same footing as other contracts.") (internal citations omitted).
10. See Reuben, supra note 5, at 978-79 (recounting that, in the late 1980s, "the Court ruled that the FAA established a presumption of consent to arbitration agreements, and it extended the act beyond its commercial roots to apply to all statutory claims . . . . In so doing, the Court used a series of cases from the securities industry to repudiate the ouster doctrine, summarily reject generalized concerns over power imbalances, and permit the enforcement of mandatory arbitration provisions in contracts of adhesion (at least under certain circumstances)"); Brafford, supra note 3, at 348 ("Courts have been unwilling to find that the adhesive nature of consumer contracts or the defendant's overwhelming economic power are sufficient to invalidate an arbitration agreement.") (internal citations omitted).
11. See, e.g., Paul D. Carrington & Paul H. Haagen, Contract and Jurisdiction, 1996 SUP. CT. REV. 331, 401 (calling the drafters of mandatory arbitration agreements "birds of prey" who "sup on workers, consumers, shippers, passengers, and franchisees" and concluding that mandatory arbitration agreements are "sometimes a method for stripping people of their rights");
12. David S. Schwartz, Enforcing Small Print to Protect Big Business: Employee and Consumer Rights Claims in an Age of Compelled Arbitration, 1997 WIS. L. REV. 33, 36 (exclaiming that, by approving of predispute arbitration agreements in contracts of adhesion, "[t]he Supreme Court has created a monster").
13. Eric J. Mogilnicki & Kirk D. Jensen, Arbitration and Unconscionability, 19 GA. ST. U. L. REV. 761, 777 (2003) (citing Mitsubishi Motors v. Soler-Chrysler Plymouth, Inc., 473 U.S. 614, 637 (1985), for the proposition that "arbitration is merely a procedural tool for vindicating substantive rights");
14. David S. Schwartz, Understanding Remedy-Stripping Arbitration Clauses: Validity, Arbitrability, and Preclusion Principles, 38 U.S.F. L. REV. 49, 55-56 (2003) (noting that the Court has repeatedly pointed out that arbitration provisions are more like forum-selection clauses and do not force parties to forego any substantive rights).
15. See Mogilnicki & Jensen, supra note 9, at 773 (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30 (1991), for the proposition that, under the FAA, suspicion of arbitration generally can provide no basis for refusing to enforce an arbitration agreement); Brafford, supra note 3, at 334 ("The FAA's legislative history indicates that Congress intended it to reverse the judicial hostility toward arbitration that had been dominant since at least 1609.").
16. Studies comparing arbitration results to litigation results are difficult to come by. Some of the few that exist, however, have arrived at the following conclusions: (1) employees win 63% of cases against their employers in arbitration, compared to 15% in federal court; (2) employees win 18% of the aggregate amount they demand in arbitration, compared to 10.4% of the aggregate amount they demand in court; (3) consumers win 71% of the claims they bring against corporations in front of the National Arbitration Forum, compared with 54.5% in court under original diversity jurisdiction and 30% in court under removal jurisdiction; (4) over 93% of parties believe the National Association of Securities Dealers arbitrators handled their cases fairly. Mogilnicki & Jensen, supra note 9, at 763-64; see also id. at 766 ("Consumer advocates . . . have noted that arbitration provides a fast, fair, and affordable alternative to litigation."). Lewis Maltby, director of the National Task Force on Civil Liberties in the Workplace at the American Civil Liberties Union, cites the same studies as Mogilnicki and Jensen, and also cites another study showing that plaintiffs in 1993-1994 won 68% of their cases in arbitration, compared with only 28% in litigation.
17. See Lewis L. Maltby, Private Justice: Employment Arbitration and Civil Rights, 30 COLUM. HUM. RTS. L. REV. 29, 45-49 (1998). Maltby concludes that "the data furnishes little support for the idea that arbitration shortchanges employees. All of the studies find that employees prevail more often in arbitration than they do in court. And while successful plaintiffs receive less in arbitration than in court, plaintiffs as a whole recover more." Id. at 54.
18. See supra note 7; see also Stone, supra note 2, at 940 (noting (1) that "a contract of adhesion will be enforced unless it is unconscionable, involves undue surprise, or contravenes public policy," (2) that arbitration agreements do not contravene public policy because arbitration is a public policy that courts have repeatedly said is favored, and (3) that standard arbitration clauses are unlikely to be deemed unconscionable or surprising). Courts also routinely uphold mandatory arbitration provisions that are incorporated into contracts only by reference, see id. at 962, and that are added after the initial contract was entered into, see id. at 962-63. Some courts have even gone so far as to uphold mandatory arbitration agreements that appear on product information cards enclosed within the product's box. See, e.g., Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir. 1997) ("A contract need not be read to be effective; people who accept take the risk that the unread terms may in retrospect prove unwelcome. Terms inside Gateway's box stand or fall together. If they constitute the parties' contract because the Hills had an opportunity to return the computer after reading them, then all must be enforced.") (internal citations omitted).
19. 9 U.S.C. § 2 (2000).
20. See STEPHEN C. YEAZELL, CIVIL PROCEDURE 791 (6th ed. 2004) (noting that, with the advent of class action lawsuits, "the ability to aggregate large numbers of litigants tends to shift the focus from the client to the lawyer").
21. See Jean R. Sternlight, As Mandatory Binding Arbitration Meets the Class Action, Will the Class Action Survive?, 42 WM. & MARY L. REV. 1, 15-17 (2000) (remarking how little attention the convergence of class actions and arbitration has received, how neither the FAA nor the Uniform Arbitration Act (UAA) addresses it, and how few cases deal with the questions that arise as a result of it).
22. See Sternlight, supra note 2, at 835 (describing the various procedural rights and devices that are routinely waived in arbitration agreements).
23. See Reuben, supra note 5, at 956-57 (discussing the "challenging question of just how to integrate constitutional norms into seemingly private ADR processes without destroying the very virtues that compel their use"); Sternlight, supra note 15, at 53 ("[I]t is extremely difficult to envision arbitrators dealing with objecting class members. Other and equally obvious problems (e.g., fairness of settlement, protection of absent class members, etc.) are no less daunting.");
24. see also Daniel R. Waltcher, Note, Classwide Arbitration and 10b-5 Claims in the Wake of Shearson/American Express, Inc. v. McMahon, 74 CORNELL L. REV. 380, 399 (1989) (comparing due process concerns in class action litigation to classwide arbitration).
25. Sternlight, supra note 15, at 12-13. One flaw with this argument is that, if the availability of class action proceedings creates or enlarges substantive rights of plaintiffs, then FED. R. CIV. P. 23 (the Federal Rule of Civil Procedure under which class actions are certified) would be in violation of the Rules Enabling Act, 28 U.S.C. § 2072 (2000), and would therefore be unconstitutional. Since the courts have never found Rule 23 to be unconstitutional, Rule 23 (and therefore the availability of class action suits generally) must be procedural only. For a more detailed discussion, see infra notes 175-76 and accompanying text.
26. Sternlight, supra note 15, at 66 ("The U.S. Supreme Court has not ruled on whether arbitrations may be handled as class actions . . . .").
27. Andrea Lockridge, Note, The Silent Treatment: Removing the Class Action from the Plaintiffs Toolbox Without Ever Saying a Word, 2003 J. DISP. RESOL. 255, 259;
28. see also Lindsay R. Androski, Comment, A Contested Merger: The Intersection of Class Actions and Mandatory Arbitration Clauses, 2003 U. CHI. LEGAL F. 631, 632 ("Under federal law, the general rule is clear: when a plaintiff has agreed to a mandatory arbitration clause, he has waived his right to bring a class action suit."); infra Part I.B.3.
29. See infra Part I.B.3.
30. See Sternlight, supra note 15, at 84 ("As companies are increasingly perceiving arbitration as a way to avoid class actions, clauses [that expressly preclude class actions] are becoming more common."); Ware, supra note 3, at 94 ("[S]ome businesses use arbitration clauses in the hope that courts will enforce these clauses to preclude class actions."). Some arbitration organizations are even trying to convince companies to use their rules by assuring them they will not have to face class actions. Sternlight, supra note 15, at 72.
31. See infra Part I.B.2.
32. See, e.g., Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003); Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003); Mandel v. Household Bank, 129 Cal. Rptr. 2d 380 (Ct. App. 2003), review granted, original decision depublished by 2003 Cal. LEXIS 2102 (Apr. 9, 2003); Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862 (Ct. App. 2002); Ramirez v. Circuit City Stores, Inc., 90 Cal. Rptr. 2d 916 (Ct. App. 1999).
33. Although many, if not most, mandatory consumer arbitration agreements are contracts of adhesion and are, therefore, imposed on consumers without their active assent (or often their knowledge of the agreement at all), see supra note 12, it is important to recognize that by enforcing contracts of adhesion as they would any other bilateral contract, the Court has effectively accepted the "fiction" that both parties have voluntarily assented to their terms. See Joel Seligman, The Quiet Revolution: Securities Arbitration Confronts the Hard Questions, 33 HOUS. L. REV. 327, 345 (1996) ("Implicit in the Supreme Court jurisprudence permitting mandatory predispute agreements is the legal fiction that this is a voluntary contract."); Stone, supra note 2, at 962 ("[I]n many recent cases, courts have applied attenuated notions of consent, compelling arbitration when consent is thin, if not outright fictitious. For example, courts routinely hold parties to arbitration agreements that appear in a document incorporated into a contract by reference, even when one party had no opportunity to see or no reason to anticipate the incorporated term."). Under current law, then, we must continue under the assumption that the parties to such contracts will be treated as having voluntarily assented, regardless of our personal beliefs about the underlying reality. I address this point again infra, at Part III.B.2.
34. See Schwartz, supra note 9, at 78-79 (noting the "multi-million dollar stakes" at issue in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), but concluding that "Bazzle in the end resolved very little other than the case at hand");
35. Michael Oliver Eckard, Comment, The United States Supreme Court's Indecision in Green Tree Financial Corporation v. Bazzle: A Class Act, 55 S.C. L. REV. 489, 494 (2004) ("[T]he Court failed to fulfill the hopes of those who looked to Green Tree to decide whether the FAA permits class arbitration under an agreement that does not specifically prohibit class arbitration.");
36. The Supreme Court, 2002 Term - Leading Cases: Federal Statutes and Regulations: Federal Arbitration Act, 117 HARV. L. REV. 410, 410 (2003) [hereinafter Leading Cases] (discussing how the Supreme Court "avoided the issue that has attracted the most attention"); see also Petition for Writ of Certiorari, Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003) (No. 02-634) (describing the "Question Presented" as "[w]hether the Federal Arbitration Act, 9 U.S.C. § 1 et seq., prohibits class-action procedures from being superimposed onto an arbitration agreement that does not provide for class-action arbitration," a question that the Court never answered in its opinion).
37. See generally, e.g., Mogilnicki & Jensen, supra note 9 (arguing that classwide arbitration eliminates many of the benefits of arbitration); Sternlight, supra note 15 (arguing that companies should not be allowed to use arbitration clauses to avoid class action suits); Androski, supra note 20 (arguing that classwide arbitration is improper); Lockridge, supra note 20 (arguing that classwide arbitration should proceed where an agreement is silent); Waltcher, supra note 17 (arguing that classwide arbitration is consistent with the FAA).
38. 539 U.S. 444 (2003).
39. See Schwartz, supra note 9, at 80 ("The arbitrator has no legal existence prior to the finding of a valid arbitration agreement.").
40. Id. ("Courts exist prior to and independently of the filing of any particular lawsuit, but arbitrators 'exist' as dispute-resolving entities only if there is a valid contract so empowering them."); see also id. at 65 ("[W]here a party has claims that are not asserted in arbitration because they do not fall within the scope of the arbitration agreement, there can be no preclusion by res judicata of the excluded claims in subsequent litigation.").
41. See infra Part I.A.
42. See Sternlight, supra note 15, at 66-67 (discussing the general confusion over the question of who should decide whether classwide arbitration can proceed, courts or the arbitrator).
43. 9 U.S.C. §§ 1-16 (2000).
44. See Southland Corp. v. Keating, 460 U.S. 1, 12 (1983) (holding that the FAA creates federal substantive law that governs in both state and federal courts); see also Reuben, supra note 5, at 979-80 (describing the Court's extension of the FAA to the states as "remarkable" and explaining how, "[w]ithin a two-year period, the Court . . . held that the act preempts any contrary state law restricting arbitrability . . . ."); cf. Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 460 (2003) (Thomas, J., dissenting) ("I continue to believe that the Federal Arbitration Act does not apply to proceedings in state courts.").
45. See Mogilnicki & Jensen, supra note 9, at 774 ("Section 2 of the FAA makes both pre-dispute and post-dispute arbitration provisions enforceable. . . . The Supreme Court has confirmed this reading of Section 2, holding that the FAA preempts any state law making pre-dispute arbitration agreements invalid and unenforceable."); supra notes 3-5.
46. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995).
47. Id.
48. See, e.g., id. at 943-44 (reiterating that "a court must defer to an arbitrator's arbitrability decision when the parties submitted that matter to arbitration," but noting that it generally still needs to be clarified "whether the parties have agreed to submit the arbitrability issue to arbitration").
49. See id. at 944-45; see also Bazzle, 539 U.S. at 452 (defining "gateway matters" as including issues such as "whether the parties have a valid arbitration agreement at all" and "whether a concededly binding arbitration clause applies to a certain type of controversy"); Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) ("Linguistically speaking, one might call any potentially dispositive gateway question a 'question of arbitrability,' for its answer will determine whether the underlying controversy will proceed to arbitration on the merits."); Schwartz, supra note 9, at 74 ("[A]rbitrability questions are for the arbitrator to decide only when it has been determined that a valid arbitration agreement exists, and only then when the arbitrability question turns on a contract ambiguity that does not affect the enforceability of the agreement. Questions of the overall validity of the arbitration agreement remain for the court to decide. . . .").
50. Howsam, 537 U.S. at 83-84.
51. See, e.g., Schwartz, supra note 9, at 76.
52. UNIF. ARBITRATION ACT § 6(b), (c), & cmt. 2, 7 U.L.A. 12-13 (2000).
53. Howsam, 537 U.S. at 85. The Court in Howsam defines "procedural arbitrability" to include "procedural questions which grow out of the dispute and bear on its final disposition." Id. at 84.
54. Id. at 84-85.
55. See id. at 84 ("[A] disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court.").
56. See UNIF. ARBITRATION ACT § 6(b) & cmt. 2, 7 U.L.A. 12-13. When arbitration agreements refer parties to specific arbitral organizations, such as the American Arbitration Association, the rules of the organization may reverse this presumption, leaving scope of arbitrability issues to the arbitrator instead of the courts. See id. cmt. 2.
57. See Schwartz, supra note 9, at 68 ("The policy associated with the FAA is not the achievement of more arbitration per se, but enforcement of the parties' intentions as to arbitration.").
58. See Brafford, supra note 3, at 334 ("The FAA is a federal statute mandating that courts enforce arbitration clauses in contracts in the same manner as any other contract provision."); see also RESTATEMENT (SECOND) OF CONTRACTS § 202 (1981) (noting that in interpreting contracts, "if the principal purpose of the parties is ascertainable it is given great weight"); MARVIN A. CHIRELSTEIN, CONCEPTS AND CASE ANALYSIS IN THE LAW OF CONTRACTS 9-10 (2d ed. 2001) (describing how, in the absence of express contract terms or in the case of unforeseen circumstances, courts will try to determine what the intentions of the parties were at the time of the agreement).
59. The Court seems to evaluate the propriety of deviating from the default rule under a clear statement standard. See Howsam, 537 U.S. at 83 (noting that the rules on who should decide arbitrability are default rules, to be used "unless the parties clearly and unmistakably provide otherwise"); id. at 85 (noting that default rules apply "in the absence of an agreement to the contrary").
60. Some of the ways arbitration is claimed to be more cost-efficient than litigation include simpler procedural and evidentiary rules, the absence of a jury, increased confidentiality, less onerous discovery, and finality of the decision. See, e.g., Mogilnicki & Jensen, supra note 9, at 765-66 (noting that "arbitration can provide several benefits to individuals that are unavailable in traditional litigation," including speed and ease of resolution, simpler procedural rules, flexibility, and convenience); Ware, supra note 3, at 90 (discussing several ways in which arbitration allows businesses to save on dispute resolution costs relative to litigation).
61. Ware, supra note 3, at 91 ("Assuming that consumer arbitration agreements lower the dispute-resolution costs of businesses that use them, competition will (over time) force these businesses to pass their cost savings to consumers.").
62. See, e.g., YEAZELL, supra note 14, at 791 (describing the advantages and disadvantages that flow from aggregating many lawsuits into one); see also Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617-18 (1997) (describing how the development of the class action device reflected concern about using court resources efficiently to resolve claims that are "too numerous to secure their 'just, speedy, and inexpensive determination' one by one") (quoting FED. R. CIV. P. 1).
63. Companies, for example, often favor arbitration over litigation, see Ware, supra note 3, at 90 (commenting that the differences between arbitration and litigation "make arbitration attractive to businesses that deal with consumers"), but oppose the availability of class action suits, cf. Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 STAN. L. REV. 497, 499-500 (1991) (arguing that class action suits may force companies to settle regardless of the strength of the merits of the plaintiffs' underlying claims).
64. See, e.g., Ware, supra note 3, at 94 (arguing that courts requiring class action suits to proceed in arbitration are "rais[ing] the cost of arbitration to businesses and, therefore, rais[ing] prices to consumers").
65. See Mogilnicki & Jensen, supra note 9, at 787 (arguing that "we should aim not to make arbitration just like litigation, but to ensure that it continues to be an alternative to litigation that benefits individuals and businesses alike"); Sternlight, supra note 15, at 44-45 ("[S]everal attorneys who have actually participated in classwide arbitrations have found that the procedure, at least as used to date, differs very little from litigation and thus offers few, if any, advantages."); Elizabeth P. Allor, Note, Keating v. Superior Court: Oppressive Arbitration Clauses in Adhesion Contracts, 71 CAL. L. REV. 1239, 1253 (1983) ("[W]hen conducted on a classwide basis, arbitration is unlikely to remain inexpensive and efficient.").
66. These challenges are unlikely to succeed given the current jurisprudence. See supra notes 7, 12, and 35.
67. See Sternlight, supra note 15, at 118 (noting that "classwide arbitration is relatively new and untried").
68. See infra Parts I.B.1-4.
69. See Stipanowich, supra note 3, at 6 ("The touchstone of modern arbitration law is fulfillment of the parties' mutual intent in all particulars.").
70. See, e.g., Androski, supra note 20, at 647 (reviewing the "inherent incompatibility" of class actions and arbitration proceedings, and noting that "class-wide arbitration is untenable in practice").
71. Often, arbitrators are not even lawyers, making it unlikely that they are familiar with the jurisprudence surrounding the Due Process Clause and Rule 23. See Reuben, supra note 5, at 965 ("[A]rbitrators need not - and often do not - have legal training. To the contrary, they are typically selected by the parties for their subject matter expertise or personal gravitas rather than their legal acumen.") (footnote omitted).
72. To the contrary, some state courts have held that class actions can proceed in arbitration. See, e.g., Keating v. Superior Court, 645 P.2d 1192, 1209 (Cal. 1982), rev'd on other grounds sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1983).
73. See Waltcher, supra note 17, at 400-02 (noting the difficulty that California courts have had in trying to fashion a class arbitration procedure that protects the due process rights of absent class members).
74. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12 (1985) ("If the forum State wishes to bind an absent plaintiff . . . it must provide minimal procedural due process protection. The plaintiff must receive notice . . . . The notice must be the best practicable, 'reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.'") (quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314-15 (1950)). In federal class action litigation, the right to notice is protected by FED. R. CIV. P. 23(c)(2).
75. See Shutts, 472 U.S. at 812 ("[T]he Due Process Clause of course requires that the named plaintiff at all times adequately represent the interests of the absent class members."). Adequacy of representation was recognized by the Court as being constitutionally required in representative litigation even before the advent of Rule 23. See Hansberry v. Lee, 311 U.S. 32, 42-43 (1940) ("[M]embers of a class not present as parties to the litigation may be bound by the judgment where they are in fact adequately represented by parties who are present . . . . [S]uch procedure affords a protection to the parties who are represented, though absent, which would satisfy the requirements of due process . . . ."). In federal class action litigation, adequacy of representation is protected by FED. R. CIV. P. 23(a)(4).
76. See Mullane, 339 U.S. at 314 ("An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.").
77. See Shutts, 472 U.S. at 811-12 (holding that absent plaintiff class members can be bound by a judgment, but that, in order to satisfy due process concerns, they must be given notice which is the best practicable and is reasonably calculated to provide them an opportunity to be heard, in accordance with the standards adopted by the Court in Mullane); Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 174-75 (1974) (holding that such notice is an inflexible requirement for all classes certified under FED. R. CIV. P. 23(b)(3)).
78. See, e.g., Keating v. Superior Court, 645 P.2d 1192, 1209 (Cal. 1982), rev'd on other grounds sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1983).
79. See Ware, supra note 3, at 90 (citing the confidentiality of an arbitration proceeding as one way in which arbitration, as compared to litigation, reduces the publicity of a dispute).
80. See, e.g., Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997) (holding that, in the context of settlements reached in class action suits, the adequacy of representation requirement requires "undiluted, even heightened, attention" by the court in order to ensure that the interests of absent plaintiffs are aligned with the interests of the named plaintiff agreeing to the settlement on their behalf).
81. See Reuben, supra note 5, at 965 ("[A]rbitrators need not - and often do not - have legal training. To the contrary, they are typically selected by the parties for their subject matter expertise or personal gravitas rather than their legal acumen.") (footnote omitted); Androski, supra note 20, at 645 ("[C]lass certification, notice requirements, and designation of an appropriate class representative involve complicated legal questions on which arbitrators may be more likely than judges to commit error.") (footnotes omitted).
82. See Ware, supra note 3, at 90 (noting the "near absence of appellate review" in arbitration); Androski, supra note 20, at 646 (relaying the Supreme Court's concern that "arbitrators may decide cases without providing thorough legal explanations or complete records of the proceedings," and noting the "extremely high hurdle for vacating an arbitrator's decision"); see also 9 U.S.C. § 10 (Supp. II 2002) (laying out the four conditions under which an arbitral award may be vacated, none of which includes errors of law).
83. The Court, in Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12 (1985), and Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 174-75 (1974), uses language from Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950), when describing the type of notice required for absent class members. However, it is unclear whether the Court is grafting a general Constitution-based due process notice requirement onto class action proceedings or simply interpreting the requirements of FED. R. CIV. P. 23(c)(2), which requires that the "best notice practicable" be given to all class members in a class action maintained under FED. R. CIV. P. 23(b)(3). If the Court has grafted a general Constitution-based notice requirement onto class action proceedings, it is unclear why the requirement would only apply to class actions maintained under Rule 23(b)(3), as the Court held in Eisen, 417 U.S. at 177, and not to class actions maintained under Rules 23(b)(1) or (2).
84. See Sternlight, supra note 15, at 39 (noting that all of the court decisions allowing classwide arbitration "call upon the court to play an extremely active role in resolving the class action issues").
85. See Keating v. Superior Court, 645 P.2d 1192, 1209 (Cal. 1982) ("Without doubt a judicially ordered classwide arbitration would entail a greater degree of judicial involvement than is normally associated with arbitration . . . . The court would have to make initial determinations regarding certification and notice to the class, and if classwide arbitration proceeds it may be called upon to exercise a measure of external supervision in order to safeguard the rights of absent class members to adequate representation and in the event of dismissal or settlement."), rev'd on other grounds sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1983). While this hybrid procedure may sound similar to a court appointing a special master to determine a discrete issue like damages, the difference is that a special master is a component of the judicial process whereas arbitration is supposed to be an alternative to the judicial process.
86. See supra note 22.
87. See supra note 6.
88. See, e.g., Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, at 867-68 (Ct. App. 2002) (declaring a "no class action provision" in an arbitration agreement to be unconscionable, and striking it from the arbitration clause). In fact, the FAA does provide that arbitration agreements should be enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract," 9 U.S.C. § 2 (2000), and the Supreme Court has affirmed that "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2 [of the FAA]," Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). The debate, therefore, centers more around two slightly different questions: whether a provision that would be upheld in a contract unrelated to arbitration can be voided by the courts if found within an arbitration agreement, see id. at 685 ("State law . . . is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. A state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with the text of § 2.") (internal citations omitted), and whether the arbitration clause itself, or a part thereof, can be voided by the courts even though the remainder of the contract is upheld, see id. at 686 ("What states may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause.") (internal citations omitted).
89. See, e.g., Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003); Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003); Lozada v. Dale Baker Oldsmobile, Inc., 91 F. Supp. 2d 1087 (W.D. Mich. 2000); Mandel v. Household Bank, 129 Cal. Rptr. 2d 380 (Ct. App. 2003), review granted, original decision depublished by 2003 Cal. LEXIS 2102 (Apr. 9, 2003); Szetela, 118 Cal. Rptr. 2d 867-68; Ramirez v. Circuit City Stores, Inc., 90 Cal. Rptr. 2d 916 (Ct. App. 1999); Powertel, Inc. v. Bexley, 743 So. 2d 570 (Fla. Dist. Ct. App. 1999).
90. See CHIRELSTEIN, supra note 48, at 80-82 (describing courts' focus on both procedural unconscionability ("an absence of meaningful choice on the buyer's part") and substantive unconscionability ("the presence of contract terms unreasonably favorable to the seller"), but noting that courts are more likely to be concerned with substantive fairness in the end); see also, e.g., Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 690 (Cal. 2000) ("[U]nconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.") (internal citations omitted).
91. See Armendariz, 6 P.3d at 690 ("The prevailing view is that procedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.") (internal citations omitted).
92. See, e.g., Ferguson v. Countywide Credit Indus., Inc., 298 F.3d 778, 784-87 (9th Cir. 2002) (focusing on the one-sided nature of a mandatory arbitration clause and concluding it to be substantively unconscionable).
93. See, e.g., id. at 785 ("Countrywide's arbitration agreement was unfairly one-sided and, therefore, substantively unconscionable because the agreement compels arbitration of the claims employees are most likely to bring against Countrywide but exempts from arbitration the claims Countrywide is most likely to bring against its employees.") (internal citations omitted).
94. See Szetela, 97 118 Cal. Rptr. 2d at 867 ("Although styled as a mutual prohibition on representative or class actions, it is difficult to envision the circumstances under which the provision might negatively impact Discover, because credit card companies typically do not sue their customers in class action lawsuits.").
95. See, e.g., Ferguson, 298 F.3d at 783-84 (focusing on the imposition of the contract as a nonnegotiable condition of employment and concluding it was procedurally unconscionable).
96. See, e.g., id. at 784 ("[W]here a party in a position of unequal bargaining power is presented with an offending clause without the opportunity for meaningful negotiation, oppression and, therefore, procedural unconscionability, are present.").
97. See supra notes 7 and 12; see also Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 689 (Cal. 2000) (explaining that identifying a contract as being one of adhesion is only the beginning of an unconscionability analysis; many other factors must be present before a contract can be deemed unenforceable).
98. See Brafford, supra note 3, at 348-49 (noting the voluntary nature of some contracts of adhesion, despite the inequality of bargaining power); id. at 352 ("By entering into the contract, each party signifies his or her belief that the benefit exceeds the cost of cooperation."). Katherine Stone offers another explanation based on notions of "imputed consent," although she believes that those who rely on this argument "go[] too far." Stone, supra note 2, at 966-67; see also infra note 171.
99. See Ware, supra note 3, at 89 ("[C]ompetition forces businesses to pass their cost-savings on to consumers."); cf. Todd D. Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 HARV. L. REV. 1174, 1230-35 (1983) (recognizing the argument that standardized contracts are more efficient, and that the cost savings may get passed along to consumers, but questioning whether or not consumers' gains are offset by the terms imposed on them by the adhesive contracts).
100. See supra note 87.
101. See supra note 6.
102. See supra note 79.
103. See, e.g., Ting v. AT&T, 319 F.3d 1126, 1148-50 (9th Cir. 2003); Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, 867-68 (Ct. App. 2002).
104. See, e.g., Szetela, 118 Cal. Rptr. 2d at 868 (noting that the class action waiver is not only unconscionable, but also violates public policy because it "prohibit[s] any effective means of litigating Discover's business practices" and "grant[s] Discover a 'get out of jail free' card while compromising important consumer rights").
105. Many courts uphold explicit class action waivers, ordering arbitration to proceed on an individual basis. See, e.g., Snowden v. Checkpoint Check Cashing, 290 F.3d 631 (4th Cir. 2002); Goetsch v. Shell Oil Co., 197 F.R.D. 574 (W.D.N.C. 2000); Zawikowski v. Beneficial Nat'l Bank, No. 98 C 2178, 1999 WL 35304 (N.D. III. Jan. 11, 1999); Edelist v. MBNA Am. Bank, 790 A.2d 1249 (Del. Super. Ct. 2001). Some courts have even forced parties to arbitrate on an individual basis where the arbitration agreement merely implied a class action waiver. See, e.g., Randolph v. Green Tree Fin. Corp., 244 F.3d 814 (11th Cir. 2001); Johnson v. W. Suburban Bank, 225 F.3d 366 (3d Cir. 2000); Marsh v. First USA Bank, N.A., 103 F. Supp. 2d 909 (N.D. Tex. 2000); Doctor's Assocs., Inc. v. Hollingsworth, 949 F. Supp. 77, 80 (D. Conn. 1996); Med Ctr. Cars, Inc. v. Smith, 727 So. 2d 9 (Ala. 1998); Stein v. Geonerco, Inc., 17 P.3d 1266 (Wash. Ct. App. 2001). Other courts have held that where an arbitration agreement prohibits class actions, class claims fall outside the scope of the agreement and should proceed as litigation in court. This occurs primarily in the context of securities litigation. See, e.g., Martens v. Smith Barney, Inc., 181 F.R.D. 243 (S.D.N.Y. 1998); In re Regal Communications Corp. Sec. Litig., No. 94-179, 1995 WL 550454 (E.D. Pa. Sept. 14, 1995); Berger v. E*Trade Group, Inc., No. 600721/99, 2000 WL 360092 (N.Y. Sup. Ct. Mar. 28, 2000).
106. See, e.g., Snowden, 290 F.3d at 637, 639 (holding that, since there was no question that the contract containing the arbitration agreement was validly assented to, nor any doubt that the dispute at issue was within the scope of the agreement, arbitration must proceed).
107. 9 U.S.C. § 4 (2000) (stating that district courts should force parties to "proceed to arbitration in accordance with the terms of the agreement"); see Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989) (declaring the "primary purpose" of the FAA to be "ensuring that private agreements to arbitrate are enforced according to their terms"); Champ v. Siegel Trading Co., 55 F.3d 269, 275 (7th Cir. 1995) (stressing that "a district court's chief concern under the FAA is to enforce the parties' arbitration as they wrote it," and noting that "to substitute our own notion of fairness in place of the explicit terms of the parties' agreement would deprive them of the benefit of their bargain just as surely as if we refused to enforce their decision to arbitrate") (internal quotation marks omitted).
108. Cf. Discover Bank v. Superior Court, 129 Cal. Rptr. 2d 393, 404 (Ct. App. 2003), review granted, original decision depublished by 2003 Cal. LEXIS 2105 (2003) ("[U]nder California law . . . there is no blanket prohibition against class action waiver clauses.").
109. Cf. Doctor's Assocs., Inc. v. Cassarotto, 517 U.S. 681, 683 (1996) (holding that a Montana state law declaring arbitration agreements, but not other contracts, unenforceable unless the arbitration provision appears in underlined capital letters on the front page of the agreement conflicts with the FAA and is therefore preempted); see also Perry v. Thomas, 482 U.S. 483, 493 n.9 (1987) ("[Under section 2 of the FAA, a] court may not, . . . in assessing the rights of litigants to enforce an arbitration agreement, construe that agreement in a manner different from that in which it otherwise construes nonarbitration agreements under state law.").
110. 9 U.S.C. § 2 (2000); see also supra note 6.
111. See Doctor's Assocs., 517 U.S. at 685 ("A state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with the text of § 2 [of the FAA].") (citing Perry, 482 U.S. at 493 n.9).
112. See Eckard, supra note 26, at 496 (noting that, even after the Court's recent decisions, it remains uncertain "whether the FAA permits a state court to refuse to enforce an arbitration clause prohibiting class arbitration on the grounds that the state's contract law holds such an agreement to be adhesive and unconscionable"); Leading Cases, supra note 26, at 410 (noting that the Supreme Court has failed to resolve the issue).
113. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 20 (1983).
114. The leading case standing for this proposition is Champ v. Siegel Trading Co., 55 F.3d 269 (7th Cir. 1995), where the court ruled that the FAA requires arbitration agreements to be enforced as written, and thereby precludes classwide arbitration where such a procedure is not explicitly provided for in the agreement. Other federal cases standing for this proposition include Dominium Austin Partners, LLC v. Emerson, 248 F.3d 720 (8th Cir. 2001), Johnson v. West Suburban Bank, 225 F.3d 366 (3d Cir. 2000), Sagal v. First USA Bank, N.A., 69 F. Supp. 2d 627 (D. Del. 1999), and Doctor's Associates, Inc. v. Hollingsworth, 949 F. Supp. 77 (D. Conn. 1996). Federal courts have also generally held that consolidated arbitration cannot proceed absent an express provision in the arbitration agreement allowing for consolidation. See, e.g., United Kingdom v. Boeing Co., 998 F.2d 68 (2d Cir. 1993); Am. Centennial Ins. v. Nat'l Cas. Co., 951 F.2d 107 (6th Cir. 1991); Baesler v. Cont'l Grain Co., 900 F.2d 1193 (8th Cir. 1990); Protective Life Ins. Corp. v. Lincoln Nat'l Life Ins. Corp., 873 F.2d 281 (11th Cir. 1989); Del E. Webb Constr. v. Richardson Hosp. Auth., 823 F.2d 145 (5th Cir. 1987); Weyerhaeuser Co. v. W. Seas Shipping Co., 743 F.2d 635 (9th Cir. 1984).
115. The Supreme Court of Alabama is an example. See Med Ctr. Cars, Inc. v. Smith, 727 So. 2d 9 (Ala. 1998).
116. Champ, 55 F.3d at 276 ("[A]n arbitration hearing is not a court of law. When contracting parties stipulate that disputes will be submitted to arbitration, they relinquish the right to certain procedural niceties which are normally associated with a formal trial.") (citing Burton v. Bush, 614 F.2d 389, 390 (4th Cir. 1980)); see also Sternlight, supra note 2, at 835 (listing various procedural devices that are altered or waived by the terms of most arbitration agreements).
117. Champ, 55 F.3d at 276.
118. In 1992, the SEC unanimously adopted a rule barring classwide arbitration, see Order Approving Proposed Rule Change Relating to the Exclusion of Class Actions from Arbitration Proceedings, 57 Fed. Reg. 52,659, 52,660 (Nov. 4, 1992), in part because arbitral organizations had not developed rules for handling class actions in arbitration. Sternlight, supra note 15, at 46-47. Some arbitral organizations, including the National Arbitration Forum, advertise that their rules do not allow for classwide arbitration. Id. at 72;
119. Nat'l Arbitration Forum, National Arbitration Forum: Code of Procedure, July 1, 2003 at Rule 19(A), available at http://www.arb-forum.com/programs/code/070103.pdf. One arbitral organization, the American Arbitration Association, recently promulgated its first rules for class arbitration proceedings after determining (incorrectly) that the Court's decision in Green Tree Financial Corp. v. Bazzle required them to do so.
120. See Am. Arbitration Ass'n, American Arbitration Association Policy on Class Arbitration (2004) [hereinafter AAA Policy on Class Arbitration], available at http://www.adr.org/index2.1.jsp?JSPssid=16235&JSPsrc=upload/livesite/ Rules_Procedures/Topics_Interest/AAA%20Class%20Action%20 policy.htm. These new rules went into effect on October 8, 2003, and are only to be utilized where the underlying agreement is silent on class arbitration and the arbitrator has decided that class arbitration should proceed.
121. See Am. Arbitration Ass'n, Supplementary Rules for Class Arbitrations (effective date Oct. 8, 2003) [hereinafter AAA Supplementary Rules for Class Arbitrations], available at http://www.adr.org/index2.1.jsp?JSPssid=16235&JSPsrc=upload/livesite/ Rules_Procedures/Topics_Interest/AAAClassaction.htm; see also infra Part III.A.3.
122. States that allow classwide arbitration to go forward when the agreement is silent include California, see, e.g., Keating v. Superior Court, 645 P.2d 1192 (Cal. 1982), rev'd on other grounds sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1983), and Pennsylvania, see, e.g., Dickler v. Shearson Lehman Button, Inc., 596 A.2d 860 (Pa. Super. Ct. 1991).
123. See, e.g., Keating, 645 P.2d at 1208-09 (holding that courts can order classwide arbitration, and explaining how they should divide responsibility between judge and arbitrator).
124. See Robert P. Davis et al., Green Tree Fin. Corp. v. Bazzle: The Uncertain Fate of Class Arbitration, MEALEY'S LITIGATION REPORT: CLASS ACTIONS, July 17, 2003, at 1 (noting that practitioners hoped that the Court would settle the question of whether class arbitration was permissible under the FAA, but were disappointed). Compare Schwartz, supra note 9, at 78 (noting that, as recently as in Bazzle in 2002, parties asked the Supreme Court to resolve the issue of whether an arbitration agreement that does not expressly authorize classwide arbitration implicitly bars class claims under the FAA), with Davis et al., supra, at 79 ("Bazzle in the end resolved very little other than the case at hand.").
125. 539 U.S. 444 (2003).
126. See infra Part I.B.4.
127. Bazzle, 539 U.S. at 447-48.
128. Id. at 450.
129. Id. at 449-50.
130. The plurality included Justices Breyer, Scalia, Souter, and Ginsburg. Id. at 447.
131. Id. ("We are faced at the outset with a problem concerning the contracts' silence. Are the contracts in fact silent, or do they forbid class arbitration as petitioner Green Tree Financial Corp. contends? . . . [This] is a matter for the arbitrator to decide."); id. at 451-53.
132. Id. at 454.
133. Id. at 452-53 ("The question here - whether the contracts forbid class arbitration - . . . concerns neither the validity of the arbitration clause nor its applicability to the underlying dispute between the parties. . . . Rather the relevant question here is what kind of arbitration procedure the parties agreed to . . . . Arbitrators are well situated to answer that question. . . . [T]his matter of contract interpretation should be for the arbitrator, not the courts, to decide."). Justice Stevens agreed with the plurality, stating that "[a]rguably the interpretation of the parties' agreement should have been made in the first instance by the arbitrator, rather than the court." Id. at 455 (Stevens, J., concurring in the judgment and dissenting in part). Justice Stevens felt, however, that the petitioner had not challenged the court's decision to decide that issue, and therefore that no remand was necessary. Id.
134. Id. at 454-55 (Stevens, J., concurring in the judgment and dissenting in
135. Id. at 453.
136. See supra notes 26, 102, and 111.
137. See supra note 117.
138. Bazzle, 539 U.S. at 452-53.
139. Id. at 455 (Stevens, J., concurring in the judgment and dissenting in part).
140. Id.
141. See supra Parts I.B.2-3.
142. In fact, this simplification is not far from reality. See supra Parts I.B.2-3. The only major departure from this framework is that when an arbitration agreement contains an explicit class action waiver, some courts find class actions to be outside the scope of the agreement and therefore force parties to litigate their class actions in court. This primarily occurs in securities litigation cases. See supra note 95.
143. California is one such state. Compare Szetela v. Discover Bank, 118 Cal. Rptr. 2d
144. (Ct. App. 2002) (striking down a class action waiver clause in an arbitration agreement for unconscionability), with Keating v. Superior Court, 645 P.2d 1192 (Cal. 1982) (holding that class arbitration can proceed when an arbitration agreement is silent), rev'd on other grounds sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1983).
145. Assuming the remainder of the arbitration agreement is not found to be unconscionable as well, courts have used the severability doctrine to strike the offending class action waiver clause while enforcing the remainder of the arbitration agreement. See, e.g., Szetela, 118 Cal. Rptr. 2d at 868 (issuing an order to strike the class action waiver provision from the arbitration agreement); cf. Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1180 (9th Cir. 2003) (recognizing that California law allows courts to sever unconscionable provisions from contracts while enforcing the remainder of the contract, but finding the entire arbitration agreement to be unconscionable and therefore invalidating the entire agreement).
146. With the exception of the Ninth Circuit, most federal courts fall into this category. The Northern District of Illinois would be one example. Compare Champ v. Siegel Trading Co., 55 F.3d 269 (7th Cir. 1995) (finding classwide arbitration to be prohibited where not explicitly provided for in the arbitration agreement), with Zawikowski v. Beneficial Nat'l Bank, No. 98 C 2178, 1999 WL 35304 (N.D. Ill. Jan. 11, 1999) (enforcing an arbitration agreement containing a class action waiver).
147. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 53-54 (1995) (noting that the "central purpose" of the FAA is to "ensure that private agreements to arbitrate are enforced according to their terms") (internal quotation omitted); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) (noting that, with arbitration agreements "as with any other contract, the parties' intentions control"); see also supra note 97.
148. See infra Part III.B.3.
149. Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 454-55 (2003) (Stevens, J., concurring in the judgment and dissenting in part).
150. The Court has stated that the FAA "requires piecemeal resolution when necessary to give effect to an arbitration agreement." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 20 (1983). When an arbitration agreement explicitly waives the right to bring a class action, this may mean that courts are forced to order the arbitration to proceed on an individualized basis.
151. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 30 (1991) (commenting that the FAA was passed in order to "reverse the longstanding judicial hostility to arbitration agreements" and that, as a result of the FAA, arbitration is a "favor[ed] . . . method of resolving disputes").
152. See supra notes 104-05 and accompanying text.
153. See supra note 135 and accompanying text.
154. Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989); see also supra note 6.
155. See, e.g., Parker v. Time Warner Entm't Co., 331 F.3d 13 (2d Cir. 2003) (remanding case regarding consumer cable television subscription agreements back to the district court for reconsideration of class certification for Cable Communications Policy Act violations, without discussing the need for explicit contractual authorization of class action litigation); Heaven v. Trust Co. Bank, 118 F.3d 735 (11th Cir. 1997) (affirming, in case regarding consumer automobile lease agreements, the district court's denial of class certification for Consumer Leasing Act violations, but not discussing whether the written terms of the leases themselves envisioned class-based relief).
156. This would be comparable to requiring that arbitration clauses, but not other types of contractual clauses, appear underlined on the first page of a contract in order to be enforceable, a requirement that the Court has held to violate the FAA because it treats arbitration agreements on an unequal footing with other contracts. See Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) ("Courts may not . . . invalidate arbitration agreements under state laws applicable only to arbitration provisions. By enacting [the FAA], . . . Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed upon the same footing as other contracts.") (internal quotation omitted).
157. See, e.g., Nat'l Bank v. Ins. Co., 95 U.S. 673, 679 (1878) (holding that in construing ambiguities in a contract, a drafter's "own words should be construed most strongly against itself");
158. Dumais v. Am. Golf Corp., 299 F.3d 1216, 1219 (10th Cir. 2002) (recognizing "the well-accepted rule that ambiguities in contracts are construed against the drafter"). This common law principle is sometimes referred to as contra proferentem. BLACK'S LAW DICTIONARY 328 (7th ed. 1999) (defining "contra proferentem" as "[t]he doctrine that, in interpreting documents, ambiguities are to be construed unfavorably to the drafter").
159. See Stipanowich, supra note 3, at 3 ("Rarely is conflict resolution a subject for 'dickering' in negotiations; a consumer's first awareness of her election to arbitrate usually comes when a lawyer is consulted in the wake of a conflict."); Stone, supra note 2, at 938-41 (describing the various types of contracts of adhesion that are enforced between companies and consumers, including package-enclosures, after-arriving terms, ticket stubs, etc.).
160. See supra note 53.
161. For example, in Keating v. Superior Court, 645 P.2d 1192, 1195 (Cal. 1982), the arbitration agreement in question provided that "any controversy or claim arising out of or relating to the Agreement or the breach thereof shall be settled by arbitration in accordance with the Rules of the American Arbitration Association."
162. See supra notes 74-75 and accompanying text.
163. See AAA Policy on Class Arbitration, supra note 108. The new procedures specify that "the American Arbitration Association will administer demands for class arbitration" only if "(1) the underlying agreement specifies that disputes arising out of the parties' agreement shall be resolved by arbitration in accordance with any of the Association's rules, and (2) the agreement is silent with respect to class claims, consolidation or joinder of claims." Id.
164. The AAA declares that it has adopted its new class arbitration procedures because, "[i]n its June 23, 2003 decision in Green Tree Financial Corp. v. Bazzle, the United States Supreme Court held that where an arbitration agreement was silent regarding the availability of classwide relief, an arbitrator, and not a court, must decide whether class relief is permitted." AAA Policy on Class Arbitration, supra note 108. However, as discussed supra Parts I.B.3-4, this was not the Supreme Court's holding.
165. See supra notes 47-49 and accompanying text.
166. See supra note 22;
167. cf. Alan S. Kaplinsky & Mark J. Levin, The Gold Rush of 2002: California Courts Lure Plaintiffs' Lawyers (but Undermine Federal Arbitration Act) by Refusing to Enforce "No-Class Action" Clauses in Consumer Arbitration Agreements, 58 BUS. LAW. 1289, 1289 (2003) (discussing the various California decisions that have led plaintiffs' lawyers to forum shop in hopes of invalidating class action waiver clauses in arbitration agreements).
168. See supra notes 54-55.
169. Of course, corporations would likely lobby Congress to uphold class action waivers, arguing that arbitration and class-based remedies are inherently incompatible.
170. Maltby describes this as "repeat player syndrome," the concern that arbitrators are more likely to favor the corporations that repeatedly select which arbitrators to hire, as opposed to individual plaintiffs who are unlikely to have another opportunity to select an arbitrator. See Maltby, supra note 11, at 33. In the context of employment arbitration, at least one study has shown that the repeat players - employers - do fare significantly better than the one-timers - employees.
171. See Lisa Bingham, Employment Arbitration: The Repeat Player Effect, 1 EMPLOYEE RTS. & EMP. POL'Y J. 189, 209-10 (1997). In the context of consumer arbitration, however, there is not enough data to know whether the repeat player syndrome hurts "one-shot consumers" or not.
172. See Carrie Menkel-Meadow, Do the "Haves" Come out Ahead in Alternative Judicial Systems?: Repeat Players in ADR, 15 OHIO ST. J. ON DISP. RESOL. 19, 53 (1999).
173. See Ware, supra note 3, at 90 ("[A]rbitration can reduce the amount of discovery available to consumer-plaintiffs, thus reducing the amount of time and money businesses must spend on the discovery process and also making it harder for consumers to prove their claims.").
174. See Reuben, supra note 5, at 963 ("The claimed advantages of ADR are generally cast in terms of efficiency and process. The efficiency argument supporting ADR is that it is a faster and therefore less expensive process than traditional litigation - although this claim has proven difficult to document. Process rationales suggest that ADR methods are more satisfying and more private, produce better outcomes, and contribute to a more civil society through less contentious methods of dispute resolution.") (footnote omitted).
175. See Stone, supra note 2, at 957 ("People situated both inside and outside the legal system see arbitration as a way to relieve the systemic problems with the civil justice system. Arbitration is seen as quick, easy, fair, and user-friendly, in contrast to the expensive, oppressive, ponderous, time-consuming, and overly technical prospect of litigation in courts.").
176. Deborah Hensler points to "puzzling inconsistencies in the ADR data" and questions whether arbitration actually achieves its goals of efficiency and party satisfaction. See Deborah Hensler, The Mysteries of ADR, Address at Stanford Law School, Stanford Center on Conflict and Negotiation (Feb. 11, 1997) (excerpt on file with author). An empirical study conducted jointly by the RAND Institute for Civil Justice and the Federal Judicial Center also found no significant evidence of efficiency gains through the use of ADR, although arbitration was not the type of ADR on which the study focused.
177. See JAMES S. KAKALIK ET AL., AN EVALUATION OF MEDIATION AND EARLY NEUTRAL EVALUATION UNDER THE CIVIL JUSTICE REFORM ACT 48-53 (1996).
178. See Mogilnicki & Jensen, supra note 9, at 766 (comparing NASD arbitrations to the median turnaround time for civil cases in federal district courts); see also Maltby, supra note 11, at 55 (citing a study by the Federal Judicial Center on employment civil rights cases, which concluded that litigation in federal district court takes almost two years to complete, whereas arbitration results are reached, on average, in less than nine months).
179. See John C. Coffee, Jr., Commentary on Seligman, 33 HOUS. L. REV. 376, 377 (1996) (arguing that arbitration reduces the transaction costs of litigation, and that, "[a]s transaction costs are reduced, firms in a competitive industry . . . will reduce their charges to customers"); Ware, supra note 3, at 89 ("If arbitration does, in fact, lower these costs then arbitration lowers the prices (and interest rates) consumers pay because competition forces businesses to pass their cost-savings on to consumers."). Whether the prices of consumer goods are truly lower as a result of companies' lower litigation costs is difficult to determine empirically.
180. See supra note 11. Maltby reaches this same conclusion even after discussing the possibility of the "repeat player syndrome." See Maltby, supra note 11, at 33-34.
181. See Reuben, supra note 5, at 957 ("While ADR empirical research is still nascent in its scope and conclusions, researchers generally agree that parties who participate in such processes tend to approve of them."); see also John Lande, Getting the Faith: Why Business Lawyers and Executives Believe in Mediation, 5 HARV. NEGOT. L. REV. 137, 176-77 (2000) (reporting on a study conducted of business lawyers and executives, and concluding that "[a]pproximately three-quarters of respondents who had some personal experience with ADR were satisfied with both the process (76%) and results (73%)").
182. See Mogilnicki & Jensen, supra note 9, at 785-86 ("[One] explanation for the proliferation of arbitration agreements [is] the abuse of the class action device. It is no secret that litigation - particularly class action litigation - is subject to abuse by plaintiffs and their attorneys.").
183. Id. ("The certification of a class, even where claims are weak or frivolous, creates tremendous pressure on businesses to settle to avoid a potential verdict that, although unlikely, might threaten the company's very existence."); see also Alexander, supra note 53, at 499-500 (describing how companies may be forced to settle class action suits regardless of the merits of plaintiffs' underlying claims).
184. See infra Part III.B.4.
185. See, e.g., Keating v. Superior Court, 645 P.2d 1192, 1209 (Cal. 1982) (noting the various ways in which courts must remain involved in classwide arbitration proceedings), rev'd on other grounds sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1983).
186. See Sternlight, supra note 15, at 44-45 ("[S]everal attorneys who have actually participated in classwide arbitrations have found that the procedure, at least as used to date, differs very little from litigation and thus offers few, if any, advantages."); id. at 118 (describing "[a]ttorneys' experiences with classwide arbitration" and concluding, after interviewing five attorneys, that "none of the attorneys interviewed found that classwide arbitration held significant efficiency advantages over classwide litigation"); Androski, supra note 20, at 649 ("A hybrid solution is . . . improper because it subjects arbitration to the very judicial burden that the contracting parties sought to avoid through arbitration.").
187. See infra notes 169-72 and accompanying text.
188. See Schwartz, supra note 9, at 80 ("The arbitrator has no legal existence prior to the finding of a valid arbitration agreement. . . . Courts exist prior to and independently of the filing of any particular lawsuit, but arbitrators 'exist' as dispute-resolving entities only if there is a valid contract so empowering them."); Androski, supra note 20, at 654 ("At its root, a mandatory arbitration clause is a contractual matter.").
189. See supra notes 7 and 12.
190. See supra note 25. There is, however, an argument to be made that, despite the fact that the terms of such agreements may not be explicitly "dicker[ed]" over by consumers, see Stipanowich, supra note 3, at 3, enforcing such agreements makes for favorable public policy because it lowers the cost of products and services for consumers overall. See Coffee, supra note 160, at 377. Katherine Stone suggests that the enforcement of such contracts might be justified, not on the basis of actual consent, but on the basis of "imputed consent." In other words, the price of the product or service the consumer bought was already discounted to reflect the bargain that the consumer would have made had he been given an explicit choice in the matter, namely to accept an arbitration agreement in exchange for lower prices. See Stone, supra note 2, at 966. Stone, however, believes this argument "goes too far." Id. at 967.
191. Of course, it is possible to argue that from a purely normative perspective, the Court is wrong to treat contracts of adhesion as equally valid contracts and, therefore, that such holdings should be overruled. Such an argument, which is beyond the scope of this Note, would lead to one of two conclusions: either contracts of adhesion should not be binding contracts at all, or they should be treated somehow as lesser contracts with a special body of applicable rules to reflect the lack of true consent by one of the parties. The purpose of this Part of the Note, however, is to evaluate the outcomes required by Bazzle in light of existing background law. Therefore, I will proceed under the Court's assumption that the arbitration agreement reflects the parties' intentions.
192. Under FED. R. CIV. P. 23(c)(2)(B), members of a class action certified under Rule 23(b)(3) must affirmatively request exclusion from the class. Classes certified under Rule 23(b)(1) or (b)(2) are mandatory, and class members do not have the option of opting either in or out.
193. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) (noting that, with arbitration agreements "[a]s with any other contract, the parties' intentions control"); see also CHIRELSTEIN, supra note 48, at 9-10 (noting that, when interpreting contracts, courts try to determine the parties' intentions at the time of drafting).
194. But see Schwartz, supra note 9, at 99 (arguing that, while the availability of class actions may seem procedural, it actually creates substantive rights because it allows plaintiffs to bring suits they would otherwise not be able to afford to bring).
195. The Rules Enabling Act, 28 U.S.C. § 2072 (2000), states: "(a) The Supreme Court shall have the power to prescribe general rules of practice and procedure and rules of evidence for cases in the United States district courts . . . and courts of appeals," provided that "(b) [s]uch rules shall not abridge, enlarge or modify any substantive right." The Federal Rules of Civil Procedure were enacted pursuant to this Act. See Hanna v. Plumer, 380 U.S. 460, 463-64 (1965) (holding that the Federal Rules must be procedural in order to "neither exceed[] the congressional mandate embodied in the Rules Enabling Act nor transgress[] constitutional bounds").
196. See Reuben, supra note 5, at 965 ("Unlike trial judges, . . . arbitrators are generally not bound by the constraints of substantive law in . . . the procedures by which they conduct their hearings . . . ."); Sternlight, supra note 2, at 835 (describing the various procedural devices that are routinely waived when parties sign arbitration agreements, including jury trials, a presiding judge, certain discovery proceedings, certain evidentiary rules, and certain abilities to appeal a decision); cf. Stone, supra note 2, at 956-57 ("It has become common sport to rail against the civil justice system for failing to provide prompt and accessible justice. The near-universal disdain for civil litigation has fueled the modern ADR movement.").
197. See Reuben, supra note 5, at 965 ("Discovery may be available [in arbitration], but to a much lesser extent than in traditional litigation.").
198. Id. at 965-66 ("In contractual arbitration . . . . [c]ourts may modify [arbitrators'] awards for scrivener's errors and other technical imperfections but may only vacate them upon proof of bias, fraud, misconduct, or abuse of discretion by the arbitrator."); see also supra note 72.
199. See Ware, supra note 3, at 90 (describing the confidentiality of arbitration proceedings); see also Reuben, supra note 5, at 963-64 (discussing the perceived disadvantages of arbitration, including the belief that arbitration "takes place in an environment of secrecy, in which closed doors can mask a world of mischief").
200. John Lande notes that, already, "ADR practice is becoming increasingly formal and legalized," and fears that "[i]f ADR becomes sufficiently integrated into litigation or substantially incorporates features of litigation, many people are likely to believe that ADR no longer provides distinctive advantages." John Lande, Failing Faith in Litigation? A Survey of Business Lawyers' and Executives' Opinions, 3 HARV. NEGOT. L. REV. 1, 62, 64 (1998).
201. See YEAZELL, supra note 14, at 791 (noting that the class action device has an impact on substantive law because it allows claims to be brought that could not be brought individually, and pointing out one class action proponent's description of class action suits as "one of the most socially useful remedies in history") (citation omitted); Schwartz, supra note 9, at 100 (analogizing class action waivers to an immunization against liability for companies, and describing the class action device as substantive because it provides a way for plaintiffs to act as private attorneys general implementing public policy).
202. See, e.g., Sleeper Farms v. Agway, Inc., 211 F. Supp. 2d 197, 203 (D. Me. 2002) (noting that the arbitration filing fee was waived by the arbitrator as part of a discussion holding that a mandatory arbitration clause was not unconscionable and that a consumer could still vindicate his rights).
203. The Truth in Lending Act (TILA), 15 U.S.C. §§ 1601-1677f (2000), is one example of a statute that allows plaintiffs to recover attorneys fees if they are successful in arbitration. See Johnson v. West Suburban Bank, 225 F.3d 366, 374 (3d Cir. 2001) ("Attorneys' fees are recoverable under the TILA . . . in arbitration . . . ."). In fact, in Snowden v. Checkpoint Check Cashing, 290 F.3d 631, 638 (4th Cir. 2002), the Fourth Circuit, in holding a class action waiver in an arbitration agreement to be enforceable, specifically noted that the suit was brought under the TILA, which awards attorneys' fees to prevailing plaintiffs. Therefore, the plaintiff would still be able to maintain her legal representation despite the small size of her claim. Id. Additionally, under New York Stock Exchange rules, it is standard for employers to pay arbitration fees associated with claims brought by their employees. See Androski, supra note 20, at 657-58; NYSE Rule 600 (2002), available at http://rules.nyse.com/nysetools/Exchangeviewer.asp?SelectedNode=chp_1_1& manual=/nyse/nyse_rules/nyse-rules/.
204. See, e.g., Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997); Phillips Petroleum v. Shutts, 472 U.S. 797 (1985); Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974).
205. See FED. R. CIV. P. 23(a)(4), (c)(2), (c)(3), (e), (g).
206. See, e.g., Amchem Prods., 521 U.S. at 625-28 (describing adequacy of representation requirements in the context of class action settlement agreements); Shutts, 472 U.S. at 811-12 (describing notice requirements for absent class members in class action suits).
207. Cf. Shutts, 472 U.S. at 810 ("Unlike a defendant in a normal civil suit, an absent class-action plaintiff is not required to do anything. He may sit back and allow the litigation to run its course, content in knowing that there are safeguards provided for his protection."). The Supreme Court has not yet ruled on whether these measures are required by the Due Process Clause or merely by Rule 23. See supra note 73.
208. See FED. R. CIV. P. 23(a)(4), (c)(2), (c)(3), (e), (g).
209. See Sternlight, supra note 15, at 15-16 (noting that classwide arbitration has not received the attention of Congress, and that Congress did not address the issue in the FAA); Sternlight, supra note 2, at 840 (noting that congressional bills restricting or prohibiting the use of mandatory consumer arbitration have not made it out of committee).
210. The new AAA rules on class arbitration went into effect on October 8, 2003. See AAA Supplementary Rules for Class Arbitrations, supra note 108.
211. See, e.g., Keating v. Superior Court, 645 P.2d 1192, 1209 (1982) (noting that the court would have to remain involved with certifying the class, providing for notice to class members, continually ensuring adequacy of representation throughout the proceedings, and overseeing any dismissal or settlement agreement reached), rev'd on other grounds sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1983).
212. See supra note 180.
213. See supra notes 70-71 and accompanying text. The fact that the AAA seems to have misinterpreted the Court's decision in Bazzle does not inspire confidence. See supra note 149 and accompanying text.
214. See supra note 72.
215. See supra Part III.B.2.
216. See supra notes 1 and 137.
217. See supra note 97.
218. Judith Resnik, Failing Faith: Adjudicatory Procedure in Decline, 53 U. CHI. L. REV. 494, 554 (1986).