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Discussions about forum selection typically focus one way or another on the state-federal forum selection battle between opposing parties. We cannot forget, however, another forum, arbitration, that may trump a plaintiff’s opportunity to litigate in any court, state or federal. Over the last few decades, the U.S. Supreme Court has rather aggressively invoked the Federal Arbitration Act to enforce private agreements to resolve disputes in arbitration rather than in court. The Court enforces such agreements even when doing so would deprive a plaintiff of a federal court forum when seeking to litigate claims arising under federal law. See, e.g., Shearson/American Express Inc. v. McMahon, 482 U.S. 220 (1987) (claims arising under securities statutes and RICO) and Circuit City Stores Inc. v. Adams, 532 U.S. 105 (2001) (claims arising under employment discrimination statutes). In the aftermath of the Supreme Court’s arbitration decisions, more and more claims are being resolved in the arbitral, rather than judicial, forum. This is despite fears that the arbitral forum is stacked against the claimant, particularly outside of the commercial context, and more particularly when federal claims such as employment discrimination or securities fraud are raised. Apart from the question of whether arbitrators enforce the substantive provisions of the federal statute in question as even-handedly as a judge might, a question arises as to whether claimants in the arbitral forum are entitled to use procedural tools to restore the balance. Specifically, may a plaintiff obtain greater leverage in the arbitral forum by seeking to litigate on behalf of a class? Let’s take a look at some typical scenarios: An employee files a class action against an employer in federal court alleging claims of sex discrimination. An insured files a class action against a health maintenance organization in state court claiming fraud and other state-law claims. The defendants in these examples respond by arguing that the plaintiffs are required by contract to resolve any and all claims through binding arbitration. The defendants seek a court order enforcing the arbitration agreement pursuant to the FAA. Assuming that the plaintiffs’ claims are arbitrable, what happens to the class claims? May the federal or state court enforce the arbitration agreement and order classwide arbitration? May the class claims proceed even in the absence of an express agreement in the arbitration clause? The FAA itself is silent on these questions, and so the lower courts, state and federal, have taken divergent approaches to these questions. It is rare for the drafters of arbitration agreements to include a provision that would allow explicitly for classwide arbitration. In the context of the types of examples presented above, the plaintiff is likely to be an individual and the defendant the corporation or other business entity that drafted the arbitration agreement. Generally, the business entity would not be inclined to include provisions for aggregating claims because of the potential for greater exposure. However, because the FAA mandates that arbitration agreements be executed in accordance with the terms of the agreement, terms such as that of permitting classwide arbitration should be enforced. See Mastrobuono v. Shearson Lehman Hutton Inc., 514 U.S. 52 (1995). Arbitration Is Not Permissible State and federal courts have taken divergent approaches to the permissibility of classwide arbitration when the arbitration agreement is silent on the question. The Seventh U.S. Circuit Court of Appeals, in Champ v. Siegel, 55 F.3d 269 (7th Cir. 1995), held that class action arbitration is not permissible. Absent a provision in the parties’ arbitration agreement providing for class treatment of disputes, a district court simply has no authority to certify class arbitration. The Champ court reasoned that there is no federal authority that would allow a district court the power to order such a procedure. The FAA is silent, and Federal Civil Procedure Rule 81(a)(3) provides no authority, because the Federal Rules of Civil Procedure apply only to judicial proceedings under the FAA and not to the actual proceedings before the arbitration panel itself. Thus, district courts may not incorporate Fed. R. Civ. P. 23, through Rule 81(a)(3), to order classwide arbitration. In Champ, the intervenors in the case acknowledged that the arbitration agreement did not expressly provide for class arbitration, but argued that an order compelling class arbitration would not contradict the terms of the agreement. They claimed that such an order would be “in accordance with” those terms and therefore would not be barred by �4 of the FAA. The intervenors argued, “[b]ecause the FAA is silent on the issue of class arbitration . . . the district court had authority under Fed. R. Civ. P. 23, as incorporated through Rule 81(a)(3), to order these individual arbitration claims to proceed on a class basis.” Because neither the court nor the parties involved in the dispute could find a single federal appellate court decision addressing the issue of classwide arbitration, the court turned, by analogy, to case law addressing the issue of consolidated arbitration. It found that most courts of appeals had rejected consolidation absent an express provision in the parties’ arbitration agreement. The Champ court held that the duty to enforce arbitration agreements rigorously “in accordance with the terms thereof” as set forth in �4 of the FAA bars district courts from applying Rule 42(a) to require consolidated arbitration, even when consolidation would promote the expeditious resolution of related claims.” The court then noted that when the parties agree to resolve disputes via arbitration, they relinquish the right to “certain procedural niceties,” which are normally associated with a formal trial. One of these procedural niceties is the possibility of pursuing a class action under Rule 23. Classwide Arbitration Endorsed In contrast to the Seventh Circuit, California appellate courts and other state courts have strongly endorsed classwide arbitration. The seminal case is Keating v. Southland Corp., 31 Cal. 3d 584, 645 P.2d 1192 (Calif. 1982), rev’d on other grounds, Southland Corp. v. Keating, 465 U.S. 1 (1984). In Keating, consolidated cases arising out of a dispute between a franchisor and various franchisees, the California Supreme Court held that the state court had power to order classwide arbitration. First, the court expressed the need for classwide or consolidated treatment of claims arising out of contracts of adhesion, as the plaintiffs claimed the franchise agreements to be: If the right to a classwide proceeding could be automatically eliminated in relationships governed by adhesion contracts through the inclusion of a provision for arbitration, the potential for undercutting these class action principles, and for chilling the effective protection of interests common to a group, would be substantial. In addition, the court looked to California Civil Procedure �1281.3, which expressly gives California state courts the power to order consolidation. Again, the court reasoned by analogy that if consolidation was allowed, so too was class action arbitration. The Keating approach continues to have viability in California as illustrated in the most recent case of Blue Cross of California v. The Superior Court of Los Angeles County, 67 Cal. App. 4th 42 (Calif. Ct. App. 1998). In Blue Cross, the court noted that �2 of the FAA, requiring that written arbitration agreements be enforced, pre-empts any state law that stands as an obstacle to a contractual provision to arbitrate. On the other hand, the court explained that the FAA’s pre-emptive effect is limited and that state courts are not bound by the procedural sections (��3 and 4) of the FAA. (citing Southland Corp. v Keating, 465 U.S. at 16 n. 10). The court noted that states may establish the rules of procedure governing litigation in their own courts, even when the controversy, that is, the question of arbitrability, is governed by substantive federal law. Following the California approach, the Supreme Court of South Carolina has ruled that classwide arbitration is permissible when the class action agreement is silent, and the U.S. Supreme Court has granted certiorari on the issue. Bazzle v. Green Tree Financial Corp., 351 S.C. 244, 569 S.E. 2d 349 (2002), cert. granted, 123 S. Ct. 817 (2003). Like the California courts, the South Carolina Supreme Court rejected the invitation to follow the Seventh Circuit in Champ because it found that whether �4 of the FAA applies in state court is debatable. Moreover, the court � quoting from “As Mandatory Binding Arbitration Meets the Class Action, Will the Class Action Survive?” 42 Wm. & Mary L. Rev. 1, 83 (Oct. 2000) � relied on independent state grounds to permit class-wide arbitration: First, under general principles of contract interpretation, we construe Green Tree’s omission of any reference to class actions against them. ‘As a matter of pure contract interpretation it is striking, and rather odd, that so many courts have interpreted silence in arbitration agreements to foreclose rather than to permit arbitral class actions.’ It also noted that the Seventh Circuit largely grounded its decision on the precedent of other courts prohibiting consolidation absent an explicit right to consolidate in the written agreement. In South Carolina, as in California, applying this precedent results in the opposite outcome. Classwide arbitration is a relatively novel concept. We will soon see what the Supreme Court will do with this important question. The author is a Professor of Law and William M. Rains Fellow at Loyola Law School in Los Angeles. She writes a monthly column on forum selection problems for the National Law Journal , an American Lawyer Media publication.

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