Compelling Class Action Relief in Arbitration
The Supreme Court says that an arbitrator, not a court, must determine the permissibility of class action arbitration when an arbitration agreement is silent. The issue arose from consumer financing agreements that Green Tree Financial Corp. signed with individual consumers in South Carolina. Consumers brought two class action lawsuits against Green Tree, claiming that it failed to provide them with attorney and insurance preference disclosure forms required by South Carolina law. In one case, involving home improvement loans, the trial court first granted the class certification motion and then compelled arbitration as to the entire class. In the companion case, involving mobile home financing, the arbitrator certified the class himself without resort to the trial court. The two cases resulted in damage awards against Green Tree in excess of $20 million, plus $6.7 million in attorneys’ fees. Green Tree appealed to the South Carolina Supreme Court, arguing, in accord with the majority of federal circuit courts of appeal, that the Federal Arbitration Act (“FAA”) implicitly prohibits class action arbitrations. South Carolina rejected that argument, interpreting the silent arbitration agreements to allow class actions as a matter of state law. Green Tree appealed to the United States Supreme Court, which granted certiorari.
NELF, working with Nixon Peabody LLP, filed an amicus brief on its own behalf and on behalf of Verizon Wireless, arguing that the decision below ignored the express language and long-standing federal policy of the FAA that arbitration agreements should be enforced according to their terms. The brief also argued that the South Carolina Supreme Court improperly sought to turn class-action procedures into a fundamental right, using state court notions of “equity and efficiency” to require class-wide arbitrations without the agreement of the parties involved. The United States Supreme Court reversed and remanded the case, holding that the threshold question—whether the contracts forbid arbitration—is precisely the sort of question that an arbitrator, not a court, should decide. The Court pointed to the sweeping language of the contract concerning the scope of questions submitted to arbitration and the ability of arbitrators to determine issues of contract interpretation and arbitration procedures. Court interpretation, the Court said, should be reserved for limited “gateway” matters such as the validity of the underlying arbitration agreement or its applicability to a particular dispute. By reversing the South Carolina Supreme Court, the United States Supreme Court implicitly rejected the lower court’s strong support for class action remedies in arbitration.
The Supreme Court says that an arbitrator, not a court, must determine the permissibility of class action arbitration when an arbitration agreement is silent. The issue arose from consumer financing agreements that Green Tree Financial Corp. signed with individual consumers in South Carolina. Consumers brought two class action lawsuits against Green Tree, claiming that it failed to provide them with attorney and insurance preference disclosure forms required by South Carolina law. In one case, involving home improvement loans, the trial court first granted the class certification motion and then compelled arbitration as to the entire class. In the companion case, involving mobile home financing, the arbitrator certified the class himself without resort to the trial court. The two cases resulted in damage awards against Green Tree in excess of $20 million, plus $6.7 million in attorneys’ fees. Green Tree appealed to the South Carolina Supreme Court, arguing, in accord with the majority of federal circuit courts of appeal, that the Federal Arbitration Act (“FAA”) implicitly prohibits class action arbitrations. South Carolina rejected that argument, interpreting the silent arbitration agreements to allow class actions as a matter of state law. Green Tree appealed to the United States Supreme Court, which granted certiorari.
NELF, working with Nixon Peabody LLP, filed an amicus brief on its own behalf and on behalf of Verizon Wireless, arguing that the decision below ignored the express language and long-standing federal policy of the FAA that arbitration agreements should be enforced according to their terms. The brief also argued that the South Carolina Supreme Court improperly sought to turn class-action procedures into a fundamental right, using state court notions of “equity and efficiency” to require class-wide arbitrations without the agreement of the parties involved. The United States Supreme Court reversed and remanded the case, holding that the threshold question—whether the contracts forbid arbitration—is precisely the sort of question that an arbitrator, not a court, should decide. The Court pointed to the sweeping language of the contract concerning the scope of questions submitted to arbitration and the ability of arbitrators to determine issues of contract interpretation and arbitration procedures. Court interpretation, the Court said, should be reserved for limited “gateway” matters such as the validity of the underlying arbitration agreement or its applicability to a particular dispute. By reversing the South Carolina Supreme Court, the United States Supreme Court implicitly rejected the lower court’s strong support for class action remedies in arbitration.
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