An uninvited guest: Class arbitration and the federal arbitration act's legislative history

Business Lawyer

Volumn 63, Issue 1, 2007, Pages 55-79

  Clancy, David S ^a   Stein, Matthew M K ^a  

^a Meagher and Flom LLP   (United States)

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EID: 38849130657     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (146)

1. American Arbitration Association, Supplementary Rules for Class Arbitrations (Oct. 8, 2003), http://www.adr.org/sp.asp?id-21936; American Arbitration Association, AAA Policy on Class Arbitrations (July 14, 2005), http://www.adr.org/sp.asp?id-25967. ("On October 8, 2003, in response to the ruling of the United States Supreme Court in Green Tree Financial Corp. v. Bazzle, the American Arbitration Association issued its Supplementary Rules for Class Arbitrations to govern proceedings brought as class arbitrations.")
2. See American Arbitration Association, Searchable Class Action Docket, http://www.adr.org/sp.asp?id-25562.
3. See David S. Clancy, Re-evaluating Bazzle: The Supreme Court's Celebrated 2003 Decision Says Much Less About Class Action Arbitration than Many Assume, 7 CLASS ACTION LITIG. REP. (BNA) 649, 649 & n. 1 (2006) (noting that according to data from the AAA web site as of July 10, 2006, the AAA was administering "more than 120 purported class actions").
4. See JAMS, http://www.jamsadr.com/ (last visited Sept. 17, 2007).
5. The litigation associated with this development has generally assumed that class arbitration is proper. Within the context of that assumption, there has been extensive litigation about whether an arbitration clause can legally prohibit class arbitration. See, e.g., Muhammad v. County Bank of Rehoboth Beach, Del., 912 A.2d 88, 103 (N.J. 2006) (invalidating and severing the part of the arbitration agreement prohibiting class arbitration and ruling that "the remainder of the arbitration agreement is enforceable"), cert. denied, 127 S. Ct. 2032 (2007). Now the courts are beginning to see disputes about the issue of so-called "clause construction": essentially, whether an arbitration clause that says nothing about class arbitration should be read to permit it.
6. See, e.g., Stolt-Nielsen SA v. Animalfeeds Int'l Corp., 435 E Supp. 2d 382, 386 (S.D.N.Y. 2006) (reversing arbitrators' decision that an arbitration clause containing no reference to class arbitration nonetheless permitted class arbitration).
7. The Federal Arbitration Act is codified as amended at 9 U.S.C. §§ 1-16 (2000 & Supp. V 2005). As initially enacted, the title of the act was the "United States Arbitration Act." See Act of Feb. 12, 1925, ch. 213, § 14, 43 Stat. 883, 886. When Congress codified the "United States Arbitration Act" as Title 9 of the United States Code in 1947, it did not include the section of the 1925 act that set forth its title. See Act of July 30, 1947, ch. 392, 61 Stat. 669. For decades, the 1925 act has been referred to as the "Federal Arbitration Act."
8. See infra note 11.
9. Act of July 30, 1947, § 3, 61 Stat. at 670 (codified as amended at 9 U.S.C. § 3 (2000)).
10. The recent explosion of class arbitration activity was triggered by the 2003 U.S. Supreme Court decision Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) (plurality). In that case, the parties disputed whether the arbitration clause in their contract, which did not explicitly address class arbitration, permitted class arbitration, and the Supreme Court of South Carolina answered that question in the affirmative.
11. See Bazzle v. Green Tree Fin. Corp., 569 S.E.2d 349, 360-62 (S.C 2002), vacated, 539 U.S. 444 (2003). A U.S. Supreme Court plurality vacated that ruling, deciding that the question should be resolved in the first instance by the arbitrator. Bazzle, 539 U.S. at 454 (plurality). That decision has been widely understood as an implicit endorsement of the practice of class arbitration.
12. See, e.g., Carole J. Buckner, Due Process in Class Arbitration, 58 FLA. L. REV. 185, 187 (2006) (stating that the Court in Bazzle "implicitly permitted class arbitration");
13. Matthew Eisler, Note, Difficult, Duplicative and Wasteful?: The NASD's Prohibition of Class Action Arbitration in the Post-Bazzle Era, 28 CARDOZO L. REV. 1891, 1907 (2007) (stating that the Court in Bazzle held that "class arbitration is permissible under the FAA, even where the agreements are silent" (emphasis added)). That reading of the decision is incorrect, see infra Part IV and generally Clancy, supra note 3, but the decision has nonetheless opened the floodgates to class arbitration, which - prior to Bazzle-was unusual.
14. See, e.g., Jean R. Sternlight, As Mandatory Binding Arbitration Meets the Class Action, Will the Class Action Survive?, 42 WM. & MARY L. REV. 1, 38 (2000) (stating, in part, "[o]nly a few courts in California and Pennsylvania have, at least in reported decisions, ordered or allowed arbitrations to proceed on a classwide basis, and several of these cases settled before classwide arbitration could actually take place. Moreover, this author has uncovered just one instance in which an arbitrator independently ordered a dispute to be resolved as a class action." (footnotes omitted)). Indeed, in Bazzle itself, counsel for the plaintiffs, who advocated for class arbitration, could point to little historical basis for it. When Justice Ginsburg asked, "[i]s there any history.. .of this in South Carolina, or is this the first time? Have there been class proceedings
15. before arbitrators in the past?" plaintiffs' counsel stated, "I'm not aware that there are, Justice Ginsburg. I'm not aware of any reported decisions on that. There have been class arbitrations in [California] for 20 years, and there have been a smattering of class arbitrations in other places ...." Transcript of Oral Argument at 42, Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003) (No. 02-634), 2003 WL 1989562.
16. See supra note 6.
17. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991). In 1924, the Chairman of the House Judiciary Committee, Representative George Graham of Pennsylvania, elaborated on the nature of the historical "hostility": "[o]riginally, agreements to arbitrate, the English courts refused to enforce, jealous of their own power and because it would oust the jurisdiction of the courts." 65 CONG. REC 1931, 1931 (1924). Exemplar cases showing pre-FAA hostility to arbitration are Hashell v. McClintic-Marshall Co., 289 E 405, 409 (9th Cir. 1923) (refusing to enforce an arbitration provision because "[i]t was a settled rule of the common law that a general agreement to submit to arbitration did not oust the courts of jurisdiction, and that rule has been consistently adhered to by the federal courts") Jane Palmer v. French Republic, 270 E 609, 613 (S.D.N.Y. 1920) (refusing to enforce an arbitration clause in a contract between France and an American shipping company because "the arbitration clause cannot be availed of by or against [France] to oust our courts of jurisdiction"), appeal dismissed sub nom. Fr. & Can. S.S. Co. v. French Republic, 285 F. 290 (2d Cir. 1922), cert, denied sub nom. Fr. & Can. Steamship Corp. v. French Republic, 261 U.S. 615 (1923), and Dickson Manufacturing Co. v. American Locomotive Co., 119 E 488, 490 (CCM.D. Pa. 1902) (refusing to enforce an arbitration agreement after plaintiff revoked its consent to arbitration because "[a]s it is not in the power of parties to a contract to oust the courts of their jurisdiction, the whole clause for constituting the board of arbitrators necessarily fell when the plaintiff revoked the submission [to arbitrate]. In such a case as this even an express covenant not to revoke would not prevent a revocation. In its very nature, such an agreement for arbitration as this is revocable.").
18. 1920 N.Y. Laws 803-07.
19. This 1924 session was officially called the "Joint Hearings Before the Subcommittees of the Committees on the Judiciary," but for ease of reference it is referred to in this Article as the "1924 joint hearing" or the "1924 hearing." See Joint Hearings on S. 1005 and H.R. 646 Before the Subcomms. of the Comms. on the Judiciary, 68th Cong, i (1924) [hereinafter "1924 Joint Hearing"].
20. Hearing on S. 4213 and S. 4214 Before the Subcomm. of the S. Comm. on the Judiciary, 67th Cong. 2-3 (1923) (statement of Charles L. Bernheimer, Chairman, Arbitration Committee of the New York Chamber of Commerce) [hereinafter "1923 Hearing"]. This 1923 hearing was during the 67th Congress, while the FAA was passed by the 68th Congress. However, this 1923 hearing was before a subcommittee whose membership was precisely the same in the 68th Congress. Compare id. at II (listing members of 1923 subcommittee), with 1924 Joint Hearing, supra note 13, at II (listing members of 1924 subcommittee).
21. 1923 Hearing, supra note 14, at 5 (statement of Charles L. Bernheimer).
22. 1924 Joint Hearing, supra note 13, at 6-7 (statement of Charles L. Bernheimer). Bernheimer was not talking about a de minimis reduction of expense. The arbitration he described to Congress was something so much cheaper than litigation that, in Bernheimer's view, its use would reduce the price of consumer goods: "[i]t adds to the cost to the consumer if the merchant has in the calculation of his prices to consider, in his overhead, possible litigation, possible claims." 1923 Hearing, supra note 14, at 7 (statement of Charles L. Bernheimer). Further, Burheimer stated, "if inexpensive but dependable arbitration were possible... the risk would be correspondingly smaller and the price made to conform therewith." Id. at 3.
23. 1923 Hearing, supra note 14, at 2 (statement of Charles L. Bernheimer).
24. 1924 Joint Hearing, supra note 13, at 34 (brief of Julius Henry Cohen, American Bar Association Committee on Commerce, Trade, and Commercial Law, and General Counsel, New York State Chamber of Commerce).
25. Id. at 36.
26. Id. at 27 (statement of Alexander Rose, Arbitration Society of America).
27. 1923 Hearing, supra note 14, at 3 (emphasis added) (statement of Charles L. Bernheimer).
28. Id. at 5.
29. 1924 Joint Hearing, supra note 13, at 29 (statement of Henry Eaton, American Fruit Growers, Inc.).
30. 1923 Hearing, supra note 14, at 6 (question of Sen. Thomas J. Walsh of Montana, Subcomm. of S. Comm. on the Judiciary, to William Piatt, Chairman of the Am. Bar Ass'n Comm. on Commerce, Trade, and Commercial Law).
31. 1924 Joint Hearing, supra note 13, at 14 (statement of Julius Henry Cohen).
32. Id. at 26 (statement of Alexander Rose).
33. 65 CONG. REC 1931, 1931 (1924). The Chairman was Representative George S. Graham of Pennsylvania.
34. H.R. REP. NO. 68-96, at 2 (1924) (emphasis added).
35. S. REP. NO. 68-536, at 3 (1924) (quoting 500 Trade Cases Are Arbitrated, N.Y. TIMES, May 11, 1924, at E3). In Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985), the U.S. Supreme Court "reject[ed] the suggestion that the overriding goal of the [FAA] was to promote the expeditious resolution of claims," but this statement can be properly understood only in context. The appellant had argued that the Court should disregard the parties' agreement to arbitrate a claim because another claim was outside the scope of the arbitration agreement and would need to be resolved separately in court, and it would be inefficient to resolve one dispute in two forums. Id. at 216-17. The Supreme Court acknowledged that Congress, when passing the FAA, saw arbitration as an efficient method of dispute resolution, but found that Congress did not view the efficiency of dispute resolution as such an important overarching goal that it would somehow trump a valid agreement to arbitrate. Id. at 220. Stated differently, the Supreme Court held in Dean Witter that, in passing the FAA, Congress did not instruct federal courts confronted with an arbitration agreement to take whatever steps would lead to the most efficient overall result - instead, Congress instructed federal courts to enforce arbitration agreements, in part because Congress was impressed by arbitration's efficiency. That holding is entirely in accord with the observations in this Article.
36. See, e.g., Robert G. Bone, Who Decides?: A Critical Look at Procedural Discretion, 28 CARDOZO L. REV. 1961, 2017(2007).
37. See generally infra Part IV
38. American Arbitration Association, Supplementary Rules for Class Arbitrations (Oct. 8, 2003), http://www.adr.org/sp.asp?id=21936.
39. See W Mark Weidemaier, Arbitration and the Individuation Critique, 49 ARIZ. L. REV. 69, 94 (2007) (noting that the AAA class arbitration rules "largely imitate federal class action practice").
40. See 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, 1299 n.57 (2003).
41. See Weidemaier, supra note 33, at 95.
42. Professor Sternlight in her 2000 article discusses various potential "concerns" about class arbitration-including that it could be "inefficient"-but then states that "several attorney participants in some of the few classwide arbitrations that have taken place to date did not tend to support those concerns." Sternlight, supra note 9, at 50-52. However, the authors own description of those interviews suggests that the interviewees were in fact quite equivocal about class arbitration. See id. at 45 n.168 (describing interviewee Steven G. Nelson as having stated that "he could imagine that arbitral class actions could sometimes be problematic," interviewee Jon A. Schoenberger as having stated that the class arbitration "mechanism 'doesn't make a lot of sense,'" interviewee John F. Wells as "failing to set out efficiency advantages [of class arbitration]," and interviewee Steven G. Zieff as "failing to identify any major efficiency or other savings" in class arbitration).
43. Moreover, the isolated pre-Bazzle arbitrations described in those interviews were not the kinds of arbitration proceedings that, post-Bazzle, are now becoming prevalent. Those isolated pre-Bazzle arbitrations were what Professor Sternlight referred to as "hybrid" class arbitrations, in which "courts [had] retained the responsibility for resolving all of the major class action issues" including class certification, class notice, settlement approval, and sometimes "all discovery issues and motions leading up to the point of trial." Id. at 40-42. The class arbitration that is becoming prevalent now (post-Bazzle) is not "hybrid" class arbitration. In current class arbitrations, there is virtually no court involvement, except upon review of the final award, and-possibly-upon interlocutory review of the clause construction decision and the class certification decision. See, e.g., Thomas Burch, Necessity Never Made a Good Bargain: When Consumer Arbitration Agreements Prohibit Class Relief, 31 FLA. ST. U. L. REV. 1005, 1031 (2004) (noting that AAA rules "place all the procedural responsibilities in the hands of the parties and the arbitrator").
44. Further, some courts have rejected interlocutory appeals as inappropriate, see, e.g., E & M Motels, Inc. v. Super 8 Motels, Inc., Civ. No. 05-234(MJD/RLE), 2006 WL 3610816, at * 1 (D. Minn. Dec. 11, 2006), even though the AAA rules permit them. See American Arbitration Association, Supplementary Rules for Class Arbitrations, Rules 3 & 5(d) (Oct. 8, 2003), http://www.adr.org/sp.asp?id=21936. Consequently, in the novel kind of class arbitration that is the subject of this Article, the entire case, including "all the major class action issues," is most likely decided in the arbitration forum, and in that new and strange situation lies delay and cost.
45. See Burch, supra note 36, at 1033.
46. See id.
47. The AAA's web site contains a "Searchable Class Action Docket" that lists each case "being administered under the American Arbitration Associations Supplementary Rules for Class Arbitration." For each case, the web site contains links to the arbitration demand and subsequent decisions. See American Arbitration Association, Searchable Class Action Docket, http://www.adr.org/sp.asp?id=25562 (last visited Sept. 17, 2007).
48. See American Arbitration Association, Supplementary Rules for Class Arbitrations, Rule 3 (Oct. 8, 2003), http://www.adr.org/sp.asp?id=21936 ("The arbitrator shall stay all proceedings following the issuance of the Clause Construction Award for a period of at least 30 days to permit any party to move a court of competent jurisdiction to confirm or to vacate the Clause Construction Award."). Of course, obtaining a court ruling on the correctness of a "clause construction" decision will take more than thirty days. For example, the federal district court in Stolt-Nielsen vacated the arbitrators' clause construction decision more than six months after it was issued. Stolt-Nielsen SA v. Animalfeeds Int'l Corp., 435 F. Supp. 2d 382, 384 (S.D.N.Y. 2006).
49. See Weidemaier, supra note 33, at 101.
50. This is based on one of the authors review of 51 curricula vitae which were provided by the AAA to the parties in the case.
51. See Buckner, supra note 9, at 196.
52. See id. at 199.
53. See Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (amending 28 U.S.C. by (1) adding a new Chapter 114-Class Actions, consisting of §§ 1711-15; (2) adding a new subsection (d) to § 1332; and (3) adding a new § 1453, Removal of Class Actions, to Chapter 89). The Act was enacted in part because of Congresss concern that in modern class actions "the lawyers who bring the lawsuits effectively control the litigation," that "their clients - the injured class members - typically are not consulted about what they wish to achieve in the litigation and how they wish it to proceed,"
54. and that ultimately "the clients are marginally relevant at best." See S. REP. NO. 109-14, at 4 (2005), reprinted in 2005 U.S.C.CA.N. 3, 5.
55. See also Alon Klement, Who Should Guard the Guardians? A New Approach for Monitoring Class Action Lawyers, 21 REV. LITIG. 25, 26 (2002).
56. As of June 9, 2007, there were fifty-five clause construction decisions available on the AAA Searchable Class Action Docket. (This excludes clause construction awards where the outcome was stipulated or court-mandated.) Fifty-three of those fifty-five decisions involved arbitration agreements that either did not reference class arbitration or expressly prohibited it. And in fifty-one of those fiftythree decisions, the arbitrator nonetheless determined that class arbitration was contractually permissible, often on the theory that the agreements "silence" as to class arbitration was an "ambiguity" that should be construed "against" the drafter, or on a strained reading of the agreement's terms (e.g., that a reference to arbitration of "any" dispute meant the parties had "agreed" to class arbitration). See American Arbitration Association, Searchable Class Action Docket, http://www.adr.org/sp.asp?id=5562. As the arbitrator in one of those decisions bluntly stated, "[i]f the person drafting the revised arbitration agreement form wanted to exclude class or representative arbitrations, he or she could have and should have said so, plainly." Harris v. Teletech Holdings, Inc., Clause Construction Order, AAA No. 11 160 02701 04, at 7 (Gary H. Barnes Dec. 16, 2005), http://www.adr.org/si.asp?id- 3823. That analysis is flawed: an arbitration contract that says nothing about class arbitration should be deemed an agreement to the kind of arbitration that has prevailed since the FAAs enactment, i.e., an individual, non-class arbitration-not an agreement to a new and unusual form of arbitration that the parties almost certainly did not contemplate. During the Bazzle Supreme Court oral argument, Justice Scalia agreed: "to pluck out a right to a class action for no other reason than it is against the interests of the person who drafted the contract. Its weird." Transcript of Oral Argument, supra note 9, at 32.
57. See, e.g., Cooper v. QC Fin. Servs., Inc., No. CV 06-010-TUC-FRZ, 2007 WL 974100, at *20-21 (D. Ariz. Mar, 30, 2007) (invalidating a clause in an arbitration agreement prohibiting class arbitration, compelling arbitration, and "direct [ing] the parties to submit to the arbitrator the question whether Plaintiff satisfies the requisite criteria necessary for class arbitration"); Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250, 255, 276-78 (Ill. 2006) (affirming intermediate appellate court decision invalidating and severing a clause in an arbitration agreement prohibiting class arbitration, the effect of which "[was] to stay Plaintiff's lawsuit while her class claim proceeded to arbitration"); Muhammad v. County Bank of Rehoboth Beach, Del., 912 A.2d 88, 103 (N.J. 2006) (invalidating and severing the portion of the arbitration agreement prohibiting class arbitration and otherwise enforcing the arbitration agreement), cert, denied, 127 S. Ct. 2032 (2007); Indep. Ass'n of Mailbox Ctr. Owners, Inc. v. Super. Ct., 34 Cal. Rptr. 3d 659, 669-71 (Ct. App. 2005) (invalidating a clause in an arbitration agreement prohibiting class arbitration and stating that trial court "should have accepted [plaintiffs'] showing" that "group arbitration would be a preferred means of dispute resolution"). But see, e.g., Dale v. Comcast Corp., - F.3d -, No. 06-15516, 2007 WL 2471222, at *7 (11th Cir. Sept. 4, 2007) (holding a contract clause that prohibits class arbitration unconscionable and finding the entire arbitration clause unenforceable because the class action waiver could not be severed from the arbitration clause).
58. Press Release, JAMS, JAMS Takes Steps To Ensure Fairness in Consumer Arbitrations (Nov. 12, 2004), http://web.archive.org/web/20041209010914/www. jamsadr.com/press/show_release.
59. asp?id-187("JAMS unequivocally takes the position that it is inappropriate for a company to restrict the right of a consumer to be a member of a class action arbitration or to initiate a class action arbitration. The implementation of this policy means that JAMS will not enforce these clauses in class action arbitrations and will require that they be waived in individual cases.").
60. After a controversy, JAMS withdrew the policy on March 10, 2005 and "reaffirm[ed] that JAMS and its arbitrators will always apply the law on a case by case basis in each jurisdiction," Press Release, JAMS, JAMS Reaffirms Commitment to Neutrality Through Withdrawal of Class Action Arbitration Waiver Policy (Mar. 10, 2005), http://www.jamsadr.com/press/ show_release.asp?id=198.
61. Gipson v. Cross Country Bank, Order Respecting Issue Preclusion and Scheduling Order No. 3, J.A.M.S. No. 062104A, at 6-7 (E Carlton King, Jr. Oct. 5, 2004).
62. Gipson v. Cross Country Bank, 354 E Supp. 2d 1278,1289 (M.D. Ala. 2005).
63. The Federal Rules of Civil Procedure themselves did not become effective until September 1938. See 4 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1004 (3d ed. 2002);
64. see also FED. R. CIV. R 86(a) ("Effective Date of Original Rules").
65. FLEMING JAMES, JR. & GEOFFREY L. HAZARD, CIVIL PROCEDURE 26 (3d ed. 1985).
66. Equity Rule 38 was enacted in 1912. Thomas O. Main, Traditional Equity and Contemporary Procedure, 78 WASH. L. REV. 429, 485 (2003). It replaced Equity Rule 48, which had been in place since 1842. Id. at 484-85. Equity Rule 48 stated explicitly that class judgments were not binding on absent class members. See id. Equity Rule 38 dropped that statement, but the rule proceeded to say nothing on whether class judgments were binding on absent class members one way or the other-a silence that led to years of uncertainty on that issue. Compare Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356, 367 (1921) ("If the decree is to be effective and conflicting Judgments are to be avoided, all of the class must be concluded by the decree."), with Christopher v. Brusselback, 302 U.S. 500, 505 (1938) (finding class judgment not binding on members of class of defendants, and dismissing Equity Rule 38 as applicable to a narrow situation in which a court is "render[ing] a decree binding upon absent defendants affecting their interest in property within the jurisdiction of the court"). As Professors Wright and Miller put it, "the confusion over the binding effect of class actions in the federal courts continued even after the [1938] adoption of the federal rules because the drafters of the original rules chose not to deal with the question in the text of Rule 23. It was not until the 1966 amendment that some direct guidance was offered in [Rule 23] itself...." 7A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 1751 (3d ed. 2005). The pre-1966 version of Rule 23 was a "substantial restatement" of the already-confusing Equity Rules. FED. R. CIV. P. 23 (Advisory Committee Notes, 1937 Adoption).
67. See supra note 51.
68. 1923 Hearing, supra note 14, at 3 (statement of Charles L. Bernheimer, Chairman, Arbitration Committee of the New York Chamber of Commerce).
69. H.R. REP. NO. 68-96, at 2 (1924).
70. S. REP. NO. 68-569, at 3 (1924).
71. See, e.g., Buckner, supra note 9, at 187 (stating that the Court in Bazzle "implicitly permitted class arbitration"); Eisler, supra note 9, at 1907 (stating that the Court in Bazzle held that "class arbitration is permissible under the FAA, even where the agreements are silent").
72. 539 U.S. 444, 449 (2003) (plurality). In both actions plaintiffs alleged violation of the South Carolina Consumer Protection Code in connection with Green Trees alleged failure to provide a form notifying customers of their right to be represented by their own attorneys and/or insurance agents. Id. at 448.
73. In one action, the trial court simultaneously certified a class and compelled arbitration. Bazzle, 539 U.S. at 449. In the other action, the trial court compelled arbitration (after being instructed to do so by an appellate court) and the arbitrator certified a class. Id.
74. Id. The same arbitrator decided both actions. Id.
75. Bazzle v. Green Tree Fin. Corp., 569 S.E.2d 349, 359-60 (S.C. 2002), vacated, 539 U.S. 444 (2003).
76. Bazzle, 539 U.S. at 454 (plurality).
77. Id.
78. Transcript of Oral Argument, supra note 9, at 12-13 (question from Justice Ginsburg, to which Green Trees counsel answered, "[y]es, although, Justice Ginsburg, there is not a single example I could identify of any parties ever agreeing to go into a class action through arbitration").
79. As to Bazzle, see also Jonathan R. Bunch, Note, To Be Announced: Silence from the United States Supreme Court and Disagreement Among Lower Courts Suggest an Uncertain Future for Class-Wide Arbitration, 2004 J. DISP. RESOL. 259, 266 (Bazzle "left unanswered... whether class-wide arbitration should be permissible at all"), and Clancy, supra note 3, at 652-54 (addressing the widespread misinterpretation of Bazzle).
80. 500 U.S, 20, 32 (1991).
81. See id.
82. Id. For this proposition, the Supreme Court cited NYSE rule 612(d). Gilmer, 500 U.S. at 32. In 1991 - as is the case now-NYSE rule 612(d) did not provide for a "representative" claimant to seek relief on behalf of absent claimants; it instead provided for "joining" or "consolidation" of "directly related" arbitration claims. In 1992, the New York Stock Exchange removed any doubt about the availability of class arbitration with NYSE rule 600(d): "A claim submitted as a class action shall not be eligible for arbitration ...." See Order Approving Proposed Rule Change Relating to Amendments to Rules 600 (Arbitration), 607 (Designation of Number of Arbitrators), 621 (Interpretation of the Provisions of the Code and Enforecement of Arbitrator(s) Rulings) and 636 (Requirements When Using Pre-Dispute Arbitration Agreements with Customers), Exchange Act Release No. 31907, 52 SEC Docket 1160 (Aug. 26, 1992).
83. Gilmer, 500 U.S. at 32 (second alteration in original) (internal citation and quotation marks omitted).
84. 465 U.S. 1 (1984).
85. Maureen A. Weston, Universes Colliding: The Constitutional Implications of Arbitral Class Actions, 47 WM. & MARY L. REV. 1711, 1733 n.77 (2006).
86. 465 U.S. at 4-5.
87. Keating v. Super. Ct., 645 P.2d 1192, 1198, 1210(Cal. 1982), rev'd in part, dismissed in part sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1984).
88. Southland Corp., 465 U.S. at 15-16.
89. Id. at 3-5.
90. Id. at 9.
91. Id. at 15-17.
92. See Class Action Fairness Act of 2005, supra note 45, § 2, 119 Stat, at 4-5 (setting forth purposes of the act which include "providing for Federal court consideration of interstate cases of national importance").
93. COMMITTEE ON CAPITAL MARKETS REGULATION, INTERIM REPORT OF THE COMMITTEE ON CAPITAL MARKETS REGULATION 18 (Nov. 30, 2006), available at http://www.capmktsreg.org/pdfs/11. 30Committee_Interim_ReportREV2.pdf. "The Committee on Capital Markets Regulation is an independent, bipartisan committee composed of 22 corporate and financial leaders from the investor community, business, finance, law, accounting, and academia." Id. at vii. Its members include former Secretary of Commerce Donald Evans and Glenn Hubbard, the Dean of the Columbia Business School. Id. at i. For further discussion of the limited review of arbitral decisions,
94. see Imre S. Szalai, The New ADR: Aggregate Dispute Resolution and Green Tree Financial Corp. v. Bazzle, 41 CAL. W L. REV. 1, 95-96 & n.542 (2004) (noting that the review of arbitrator decisions "has been described as among the 'narrowest known to the law'").
95. Courts are reviewing arbitrators' class certification awards under the same extremely deferential standard of review traditionally used in reviewing other arbitration awards. It is unsurprising, then, that through September 28, 2007, no court has reversed an arbitrators decision to certify a class. See, e.g., Sutter v. Oxford Health Plans LLC, 227 E App'x 135, 137 (3d Cir. 2007) (affirming the district courts finding that an arbitrators decision to certify a class was not made in "manifest disregard of the law" and rejecting appellants argument for a standard of review less deferential to the arbitrator in the class certification context); Long John Silver's Rests., Inc. v. Cole, 409 E Supp. 2d 682, 684 (D.S.C. 2006) (finding that an arbitrators class certification decision was not made in "manifest disregard of the law," stating that "review of an arbitration award is among the narrowest known to the law," and, as in Sutter, refusing to apply a less deferential standard of review to a class certification decision (internal quotation marks and citation omitted)).
96. Edward K.M. Bilich, Consumer Arbitration: A Class Action Panacea, 7 CLASS ACTION LITIG. REP. (BNA) 768, 770 (2006).
97. Id. at 771.
98. Id.
99. Kaplinsky & Levin, supra note 34, at 1289-91.
100. Id. at 1299.
101. Id.
102. Gary W. Jackson, Prosecuting Class Actions in Arbitration, 2006 ATLA ANN. CONVENTION REFERENCE MATERIALS 829.
103. See Stephen H. Kupperman & George C Freeman III, Selected Topics in Securities Arbitration: Rule 15c2-2, Fraud, Duress, Unconscionability, Waiver, Class Arbitration, Punitive Damages, Rights of Review, and Attorneys' Fees and Costs, 65 TUL. L. REV, 1547, 1592 (1991).
104. See Weston, supra note 71, at 1744.
105. This has happened time and time again in AAA proceedings. See supra note 46.
106. See supra note 47.
107. In Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 E3d 159, 174 (5th Cir. 2005) (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991)), the U.S. Court of Appeals for the Fifth Circuit stated:
108. As the Supreme Court has explained, the fact that certain litigation devices may not be available in arbitration is part and parcel of arbitrations ability to offer "simplicity, informality, and expedition," characteristics that generally make arbitration an attractive vehicle for the resolution of low-value claims.
109. "Parties, particularly businesses, may be willing to forego the safeguards litigation provides in favor of the speed and lower expense of arbitration when the stakes are not overwhelming, but decide that litigation in court is worth the expense and delay when millions of dollars and perhaps the Companys future is at risk. If the risk is limited to a single customers contract, arbitration is an attractive alternative. When the customer seeks to champion the cause of hundreds or thousands of others as well and to recover millions of dollars in damages or restitution, the consequences of an unreviewable arbitral error are so great that arbitration is no longer a viable option." Kaplinsky & Levin, supra note 34, at 1299 (citing, inter alia, In re Rhone-Poulenc Rorer Inc., 51 E3d 1293, 1299 (7th Cir. 1995) (noting that class certification may require defendants to "stake their companies on the outcome of a single jury trial")).
110. Kaplinsky & Levin, supra note 34, at 1299 n.57.
111. See, e.g., Weidemaier, supra note 33, at 101 (stating that "current AAA rules do little to make [class arbitration] efficient or cost effective");
112. Debra S. Neveu, An Informational Note on Aggregation Devices In Arbitration, 10 WORLD ARB. & MEDIATION REP. 224, 229 (1999) (stating that an argument against class arbitration is "the creation of more delay and costs, rather than enhanced efficiencies, in trying to superimpose a complex, rule-based class action procedure, designed to involve rigorous and extensive court supervision, over an out-of-court process specifically designed to avoid lengthy and invasive court procedures").
113. Jackson, supra note 87. For further discussion of Jacksons comments, see the text accompanying note 87.
114. Interestingly, in its class action rules themselves, the AAA may have made at least one potentially prejudicial concession to cost. Under the AAAs class action rules, class actions are resolved by one arbitrator, absent an agreement to the contrary by the parties or a case-specific determination by the AAA that more than one arbitrator is warranted. See American Arbitration Association, Supplementary Rules for Class Arbitrations, Rule 2(b) (Oct. 8, 2003), http://www.adr.org/sp.asp?id=21936. A one-arbitrator default for class action cases is odd, particularly given that the AAAs securities arbitration rules provide for three arbitrators in cases in which the claim "exceeds $100,000," American Arbitration Association, Securities Arbitration Supplementary Procedures, Rule 4, http://www.adr.org/sp.asp?id=22009, and that the AAAs complex commercial disputes rules provide for three arbitrators in cases in which the claim "involves at least $1,000,000," American Arbitration Association, Large, Complex Commercial Disputes Procedures, Rule L-2, http://www.adr.org/sp.asp?id=22114. Even though the AAA has
115. Hobby v. Snap-on Tools Co. LLC, Preliminary Award on Hobby's Request To Allow Class Action (Clause Construction Award), AAA No. 11 114 01884 04, at 12 n.5 (Joseph M. Matthews June 8, 2005), http://www.adr.org/si.asp?id=3695.
116. See Burch, supra note 36, at 1034 (recognizing that "[a]rbitrators may have a financial incentive to certify a class because the longer the arbitrator spends on the case the more money the arbitrator receives," but stating that "arbitration institutions, and arbitrators as well, have incredibly strong financial incentives to avoid any appearance of bias"). See also Bruce Meyerson & John M. Townsend, Revised Code of Ethics for Commercial Arbitrators Explained, DISP. RESOL. J., Feb.-Apr. 2004, at 1.
117. See Burch, supra note 36, at 1034.
118. See supra notes 94-100 and accompanying text.
119. 151 F.3d 297 (5th Cir. 1998).
120. See id. at 320-21.
121. Id. at 300. See also, e.g., Eisen v. Carlisle & Jacquelin, 479 F.2d 1005, 1018 n.23 (2d Cir. 1973) (finding that a nationwide class was improperly certified in part because the damages of each class member would need to be individually determined and "[t]he administrative problems posed by this action [would] frustrate any effort to provide the individual class members with compensation for the alleged injuries"), vacated on other grounds, 417 U.S. 156 (1974).
122. See infra notes 110-21 and accompanying text.
123. Buckner, supra note 9, at 238.
124. Id. at 238 n.361 (citing Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 485 (1989);
125. Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 238, 242 (1987);
126. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 640 (1985)).
127. Rodriguez de Quijas, 490 U.S. at 479-84, 485-86 (affirming Fifth Circuit ruling that claims under § 12(2) of the Securities Act of 1933 are arbitrable; no discussion of classwide claims; the Fifth Circuits decision itself, Rodriquez de Quijas v. Shearson/Lehman Brothers, Inc., 845 E2d 1296, 1296-97 (5th Cir. 1988), shows that the context was "consolidated cases" brought by several "individual investors"); McMahon, 482 U.S. at 238, 242 (rejecting argument of a husband and wife that their section 10(b) and RICO claims against Shearson were nonarbitrable); Mitsubishi Motors, 473 U.S. at 628-40 (rejecting automobile distributors argument that its Sherman Act antitrust counterclaim against Mitsubishi was not arbitrable).
128. Professor Buckner also cites a "study finding that courts do not 'give adequacy of representation the attention that it requires.'" Buckner, supra note 9, at 238 n.358. Here too, this is merely criticism of the attention courts give to class actions, which, right or wrong, does not amount to proof that class actions will be accorded greater attention and resources by arbitrators. For example, the study cited by Professor Buckner collects written class certification decisions, and then criticizes them for being "conclusory" on Rule 23's adequacy-of-representation requirement. See Robert H. Klonoff, The Judiciary's Flawed Application of Rule 23's "Adequacy of Representation" Requirement, 2004 MICH. ST. L. REV. 671, 673-74. Professor Buckner seems to assume that adequacy of representation will be addressed in a more substantial way in arbitration, but there is no basis for that assumption. Indeed, under JAMS's class action rules, an arbitrator may make a class certification ruling without any written decision at all.
129. See JAMS, JAMS Class Action Procedures, Rule 3(c) (February 2005), http://www.jamsadr.com/rules/class_action.asp. ("In the discretion of the Arbitrator, his or her determinations with respect to the matter of Class Certification may be set forth in a partial final award ...." (emphasis added)), The AAAs class action rules do require a written class certification decision, see American Arbitration Association, Supplementary Rules for Class Arbitrations, Rule 5(a) (Oct. 8, 2003), http://www.adr.org/sp.asp?id=21936, ("The arbitrator's determination concerning whether an arbitration should proceed as a class arbitration shall be set forth in a reasoned, partial final award...."), but there is no reason to believe that the quality of those decisions will generally be superior to the quality of the class-certification decisions issued by courts-particularly given that arbitrators are used to deciding issues without any written opinion at all, that they operate without law clerks, magistrates, and special masters, and that they know that their decisions are effectively unreviewable.
130. For example, in Todd Shipyards Corp. v. Cunard Line, Ltd., 943 E2d 1056, 1063-64 (9th Cir. 1991), Cunard challenged an arbitrators $1,000,000 punitive damages award, arguing that it violated due process because, inter alia, "the absence of rules of evidence [in arbitration] create [s] a substantial likelihood of an erroneous award." Id. at 1063. The court sharply rejected that argument: Cunards assertion that arbitrators are not bound by rules of evidence, procedure or substantive law, applies to all arbitrator decisions. Because of the lack of formality, parties enter into arbitration by contract, rather than through a statutory scheme imposed involuntarily... Having taken advantage of this process, into which it entered voluntarily, Cunard cannot now argue that its due process was denied.
131. Id. at 1063-64.
132. See supra note 92 and accompanying text. Note that in Todd Shipyards, the courts rejection of Cunards due process challenge to the arbitration proceeding was based heavily on the voluntariness of that proceeding: "[h]aving taken advantage of this process, into which it entered voluntarily, Cunard cannot now argue that its due process was denied"; "parties enter into arbitration by contract, rather than through a statutory scheme imposed involuntarily." id. at 1063-64 (emphasis added).
133. The law has never been clear on whether due process protections apply in a traditional arbitration. There is uncertainty about whether an arbitration proceeding implicates "state action," thereby triggering application of the requirements of constitutional due process, or is instead "an entirely private action" involving "no constitutional protections." Weston, supra note 71, at 1744-45. Consequently, it is possible that arbitrators and parties will take the extreme-and disturbing-position that a defendant may not only be called upon to defend a class action in the unwanted forum of arbitration, but may be required to do so without the protections of due process. That argument seems intuitively wrong, and, fortunately, even the most prominent pro-class arbitration court decisions find that, in a class arbitration, due process protections do apply. See Keating v. Super. Ct., 645 R2d 1192,1198,1210(Cal. 1982) (holding that in class arbitration the court must protect the due process rights of all members of the class), rev'd in part, dismissed In part sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1984); Bazzle v. Green Tree Fin. Corp., 569 S.E.2d 349, 362 (S.C. 2002) ("[P]rotection of the due process rights of absent class members is an essential component in all class actions and one which may necessitate particular attention in class-wide arbitrations ...."), vacated, 539 U.S. 444 (2003). Professor Maureen Weston agrees. Weston, supra note 71, at 1763-67.
134. Weidemaier, supra note 33, at 97-99.
135. Id. at 97-98.
136. Id. at 96-97.
137. Id.
138. Weston, supra note 71, at 1725.
139. Id. at 1778.
140. Sternlight, supra note 9, at 126. Of course, that is definitively not what has actually happened-in the class arbitration now becoming prevalent, courts are almost entirely uninvolved. See supra note 36.
141. Sternlight, supra note 9, at 126.
142. Id. 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 (1989). In that note, Daniel Waltcher observed that because Rule 10b-5 cases had become arbitrable (under the 1987 McMahon decision), and because Rule 10b-5 was "an area traditionally popular for class actions," "the classwide arbitration device... likely [would be a] topic of judicial attention in the near future." Id. at 380. That turned out not to be true because the National Association of Securities Dealers and the New York Stock Exchange banned class arbitration of securities claims in the early 1990s, substantially delaying "judicial attention" to class arbitration. See supra note 68; Order Approving Proposed Rule Change Relating to the Exclusion of Class Actions from Arbitration Proceedings, Exchange Act Release No. 31371, 52 SEC Docket 2189 (Oct. 28, 1992). However, now that class arbitration is spreading, Waltcher's observations about class arbitration remain relevant. Waltcher stated, among other things, that "due process issues connected with class action aspects of classwide arbitration are simply too important to be relegated to arbitrators," and concluded that if class arbitration were to be permitted, a court would need to decide the issue of class certification itself "at the filing of the action," and there would need to be "a freer appeals process at the close of the arbitration." Id. at 404-05.
143. See supra note 45.
144. S. REP. NO. 109-14, at 5-6 (2005), as reprinted in 2005 U.S.C.C.A.N. 3, 6-7.
145. Id.
146. Id. at 14.