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On June 23, in Green Tree Fin. Corp. v. Bazzle, 123 S. Ct. 2402 (2003), the U.S. Supreme Court overturned two multimillion-dollar classwide awards, holding that where a mandatory arbitration agreement is silent as to class claims, it is for the arbitrator, not a court, to decide whether the agreement permits arbitration of class claims. While this decision did not directly address the question whether an arbitration agreement expressly precluding arbitration of class claims is enforceable, it lodges substantial authority with arbitrators, not the courts, to determine the arbitrability of class claims — at least in the absence of a provision expressly waiving the ability to press class claims. Although the agreement at issue in Green Tree was a consumer arbitration agreement, many employers using mandatory arbitration agreements may wish to incorporate an express prohibition on arbitration of class action claims. BACKGROUND The respondents had secured loans from Green Tree, and in connection with those loans, executed mandatory arbitration agreements with Green Tree consenting to the resolution of “all disputes, claims, or controversies arising from or relating to this contract [the loan agreement] or the relationships which result from this contract … by binding arbitration by one arbitrator selected by us with the consent of you.” Green Tree apparently did not provide the respondents with forms required by the South Carolina Consumer Protection Code advising them of their rights to name a lawyer as an insurance agent for the transactions. As a result, the respondents commenced court actions against Green Tree on behalf of themselves and putative class members who were also denied the required forms. In both cases, the plaintiffs asked the court to certify their claims as a class action, and Green Tree responded by seeking a stay of the proceedings and demanding arbitration. In one of the two cases at issue, the South Carolina trial court certified a class but nevertheless entered an order compelling arbitration of the class claims. The Bazzles and Green Tree agreed upon an arbitrator, who held a hearing and ultimately awarded the class members nearly $11 million in statutory damages, as well as attorney fees. In the related case, the court initially declined to compel arbitration but was later reversed by the South Carolina Court of Appeals on an interlocutory appeal. After the parties chose an arbitrator, the arbitrator certified the class and eventually awarded the class members more than $9 million in statutory damages, as well as attorney fees. Green Tree appealed and the state Supreme Court consolidated the two cases to resolve the question of whether an arbitrator has the authority to authorize classwide arbitration when the agreement is silent on that issue. The South Carolina Supreme Court first noted that South Carolina law favors arbitration of disputes, resolves doubts about whether an issue is arbitrable in favor of arbitration, and construes ambiguities in contracts against the drafting party. Bazzle v. Green Tree Fin. Corp., 569 S.E.2d 349, 358 (S.C. 2002). The court then held that “classwide arbitration may be ordered when the arbitration agreement is silent if it would serve efficiency and equity, and would not result in prejudice.” The court reasoned that by enforcing a mandatory, adhesive arbitration clause, and yet prohibiting class actions in arbitration where the agreement is silent, the drafting party could prevent class actions without having to make the prohibition clear in the agreement. The court also expressed a concern that compelling consumers to arbitrate but precluding arbitration of class claims could leave parties with de minimis individual claims, which might be significant collectively, without any practical means for relief. Finally, arbitrations of multiple individual claims for nominal damages (involving identical issues against one defendant), all requiring judicial confirmation proceedings, would not serve the interest of adjudicative economy. On Jan. 10, 2003, the U.S. Supreme Court granted certiorari to decide whether the result of the arbitrations and the related court proceedings, which essentially bound the parties to procedures to which they did not explicitly agree, was inconsistent with the Federal Arbitration Act, which requires arbitration “in accordance with the terms of the agreement.” See 9 U.S.C. � 4. LOOK TO THE ARBITRATOR The Supreme Court’s plurality decision in Bazzle was authored by Justice Stephen Breyer and joined by Justices Antonin Scalia, David Souter and Ruth Bader Ginsburg; Justice John Paul Stevens concurred in the result but authored a separate opinion. While sidestepping the issue on which the Court granted certiorari — whether permitting arbitration of class claims where an arbitration agreement is silent is violative of the FAA — and leaving several unanswered questions, the plurality concluded that the South Carolina Supreme Court had erred in permitting the judiciary to answer the threshold question. Instead, the Court concluded, it was for the arbitrators to decide whether the parties’ agreement was in fact silent on the question of the arbitrability of class claims. Therefore, the Court vacated the state court’s judgment confirming the class awards, and remanded the case presumably for further arbitral proceedings. The plurality observed that arbitrators, not courts, have the authority to decide questions of contract interpretation and arbitration procedures. A court may step in to decide arbitration-related matters only in limited circumstances, including certain “gateway matters,” such as deciding whether parties have a valid arbitration agreement at all or whether the agreement applies to a particular type of dispute. Here, the question whether the parties’ agreement authorized class claims did not concern the overall validity of the agreement or whether the agreement applied to the underlying dispute — the types of questions appropriately addressed to courts. Rather, the Court observed that this question “concerns contract interpretation and arbitration procedures” and that “[a]rbitrators are well situated to answer that question.” Particularly in light of the broad language of the agreement regarding the scope of questions to be submitted to arbitration, the plurality concluded, “this matter of contract interpretation should be for the arbitrator, not the courts, to decide.” Finally, Breyer observed that the agreement at issue included broad language as to the scope of issues arising under the agreement to be decided by the arbitrator, specifically, “all disputes, claims or controversies arising from or relating to this contract or the relationships which result from this contract.” Any dispute about the meaning of the arbitration agreement itself — that is, whether it forbids the arbitration of class claims — is a dispute “arising from or relating to” the agreement. Yet, the parties had been deprived of a decision by the arbitrator in the first instance regarding the arbitrability of class claims under the terms of the agreement. In the plurality’s view, there was a “strong likelihood” that the arbitrators in this instance did not independently conclude that the parties’ agreement contemplated arbitration of class claims. Rather, the arbitrators found themselves without discretion because of the trial court’s ruling certifying a class and compelling arbitration. Chief Justice William Rehnquist, joined by Justices Sandra Day O’Connor and Anthony Kennedy, dissented, maintaining that the agreement at issue included a clear prohibition of class claims. Specifically, the language of the agreement spoke in terms of the selection of “one arbitrator” selected by “us,” defined as Green Tree, with the consent of “you,” defined as the particular consumer signing the agreement. The agreement further specified that it governed “all disputes … arising out of this contract.” Therefore, the dissent concluded, it is clear “that petitioner [Green Tree] must select, and each buyer must agree to, a particular arbitrator for disputes between petitioner [Green Tree] and that specific buyer.” Accordingly, arbitration of classwide claims under this agreement contravenes the express terms of the agreement — as neither Green Tree nor the unnamed class members could exercise their contractual right to choose a different arbitrator for the arbitration of each claim. Rehnquist observed that Green Tree, if given the chance, likely would have chosen different arbitrators for the various claims “to avoid concentrating all of the risk of substantial damages awards in the hands of a single arbitrator.” Therefore, the dissent concluded, classwide arbitration under this agreement contravenes the requirement of the FAA that arbitration agreements must be enforced according to their terms. PARTIES ARE FREE TO AGREE This is not the first time the Supreme Court has noted the tension between class claims and arbitration. In 2000, in Green Tree Fin. Corp. v. Randolph, 531 U.S. 79 (2000), the Court rejected the respondent’s argument that a mandatory arbitration agreement’s silence regarding costs and fees made the agreement unenforceable due to the risk it might impose prohibitively expensive fees and costs upon a consumer. The Court also acknowledged, but declined to rule on, the respondent’s additional argument that the agreement at issue was unenforceable because, by requiring the submission of all claims to arbitration, it purported to prevent her from bringing a class action. Accordingly, the Court expressly left open the possibility that it might later rule that a blanket prohibition on class claims in an arbitration agreement could render the agreement unenforceable. In Bazzle, the plurality does not directly approve of class action arbitrations, but it implicitly endorses its use when classwide arbitration is not precluded under the terms of a particular agreement — and an arbitrator finds the agreement authorizes class claims. Bazzle also impliedly suggests an answer to the question left open in Randolph: Can the parties waive any right to pursue classwide statutory claims? The premise of all of the opinions in Bazzle would seem to be that the parties to an arbitration agreement have broad discretion to include whatever terms they desire, including possibly an express prohibition on arbitration of class claims. It is worth noting that Breyer’s opinion characterizes the case before the Court as involving “what kind of arbitration proceedings the parties agreed to,” which suggests that the parties were free to agree to whatever procedures they wanted, even if it precluded the class-action mechanism in arbitration. PRACTICAL IMPLICATIONS In light of Bazzle, parties drafting mandatory arbitration agreements should carefully consider whether to include an express prohibition on arbitration of class claims, although admittedly, the Supreme Court has yet to decide whether a blanket prohibition on arbitration of class claims is enforceable. Enforceability of such a prohibition remains an open question. At least two cases are pending before California’s highest court on the issue whether a blanket prohibition on the arbitrability of class claims renders an arbitration agreement unconscionable under state law: Discover Bank v. Los Angeles County Superior Court, 129 Cal. Rptr.2d 393 (Cal. Ct. App. 2003); and Mandel v. Household Bank, 129 Cal. Rptr.2d 380 (Cal. Ct. App. 2003). The questions presented in these cases relate to the application of ordinary state contract principles to invalidate a mandatory arbitration agreement. Although state laws hostile to arbitration agreements are pre-empted by the FAA, � 2 of the FAA provides that an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Thus, “generally applicable contract defenses, such as fraud, duress or unconscionability, may be applied to invalidate arbitration agreements without contravening Section 2 [of the FAA].” Doctor’s Assocs. Inc. v. Casarotto, 517 U.S. 681, 686 (1986). Perhaps not surprisingly, the 9th U.S. Circuit Court of Appeals has leapt into the breach, finding several mandatory arbitration agreements to be unconscionable under state law and therefore unenforceable. 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); and Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir. 2002). Until the Supreme Court resolves the open question regarding the general validity of prohibitions on class claims in arbitration, employers are faced with a difficult choice: Should they (1) keep the language silent on the issue of class claims, and thereby risk a decision by an arbitrator, with limited judicial review, that class claims are encompassed by the agreement; or (2) specifically prohibit class claims in the agreement, and thereby open up the agreement to attack as unconscionable on state law grounds and subject to revocation. Resolution of this dilemma will require careful attention to the scope of state contract law defenses, particularly unconscionability, in the state(s) where the agreement will be operative. Rene M. Johnson is a partner at Morgan, Lewis & Bockius (www.morganlewis.com) of Princeton, N.J. Samuel Estreicher, labor and employment law counsel to the firm, is professor of law and director of the Center for Labor and Employment Law at the New York University School of Law . Michael Puma, an associate at the firm, assisted in the preparation of this article. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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