As discussed in Part I of this article (in the August, 2007 issue of the Metropolitan Corporate Counsel),1 the Supreme Court's decision in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003), spurred the implementation of new procedural rules applicable to class arbitrations and led to a surge in the number of class arbitration proceedings initiated before, and administered by, various arbitration organizations. These new developments in class arbitration brought with them a number of pitfalls that practitioners and companies alike may not have anticipated.
Although the notion of compulsory class proceedings would appear to be antithetical to arbitration, since it defeats the intended purpose of having arbitration provisions in agreements in the first place - i.e., to encourage the speedy, inexpensive, informal, and confidential resolution of disputes between contracting parties - it has nevertheless been a recurring reality in more recent years for many companies. This article describes potential means for practitioners and companies to guard against the possibility of undesired, compulsory class arbitration proceedings, from both a preemptive perspective, when drafting agreements to arbitrate, and in a defensive stance, when faced with a potential class arbitration.2
Preemptive Drafting Considerations
Consideration of the following issues when drafting an arbitration agreement may assist a company in avoiding the result of an unwanted class arbitration:
Include a Provision Expressly Prohibiting Class Arbitration or Limiting the Arbitrator's Authority3
The Bazzle plurality suggested that to avoid class arbitration, parties could include a prohibition on class arbitration or a limitation on the scope of the arbitrator's authority in their arbitration clause, such as: "All disputes shall be resolved by an arbitrator selected by us to arbitrate this dispute and no other, even identical, dispute with a third party."4 Where such a provision is included in an arbitration agreement, there appears to be general consensus among various arbitration organizations' policies and court rulings that a court - and not an arbitrator - will determine its enforceability.5 Nevertheless, there exists a risk that such a provision may not be enforceable, depending upon the law of the jurisdiction.
Generally speaking, an express prohibition on class arbitration will be held unenforceable if it is found unconscionable. The "unconscionability norm" reflects the "collective judicial view as to what aspects of an arbitration arrangement are too unfair to merit judicial enforcement,"6 and is comprised of both procedural unconscionability and substantive unconscionability.7 Most jurisdictions require a showing of both procedural and substantive unconscionability in order to render an arbitration agreement unenforceable,8 while others only require a showing of one or the other to invalidate an arbitration agreement.9 The unconscionability of a class arbitration prohibition will largely turn on the following considerations: (i) the nature of the contract;10 (ii) the nature of the dispute;11 and (iii) the other terms of the arbitration provision.12
Courts in Alabama,13 California,14 Florida,15 Illinois,16 Missouri,17 New Jersey,18 Ohio,19 Pennsylvania,20 Washington,21 and West Virginia,22 have found express prohibitions on class arbitration unconscionable, although notably, courts in most of these states have also found such provisions enforceable, depending upon the circumstances.23 Courts in other jurisdictions, such as Colorado,24 Delaware,25 the District of Columbia,26 Georgia,27 Hawaii,28 Louisiana,29 Maine,30 Maryland,31 Michigan,32 Mississippi,33 New Mexico,34 New York,35 North Carolina,36 North Dakota,37 Oklahoma,38 Oregon,39 Rhode Island,40 Tennessee,41 Texas,42 and Utah43 have upheld, and may to continue to uphold, class arbitration prohibitions, depending upon the circumstances.
Include a Separate Non-Severability Provision in the Arbitration Agreement
Assuming that a class arbitration prohibition has been incorporated into an arbitration agreement, the parties may still be susceptible to class arbitration in the event that the prohibition is found unconscionable. In some instances where contracting parties include a class arbitration prohibition, courts will strike arbitration clauses in their entirety;44 in others, however, courts will severe the unenforceable portion of the clause and enforce the remainder of the agreement, which could lead to class arbitration proceedings.45 This is precisely what happened in the First Circuit's recent decision in Kristian.46
In Kristian, the parties' agreement included an express prohibition on class arbitration, which provided: "THERE SHALL BE NO RIGHT OR AUTHORITY FOR ANY CLAIMS TO BE ARBITRATED ON A CLASS ACTION OR CONSOLIDATED BASIS . . . UNLESS YOUR STATE'S LAWS PROVIDE OTHERWISE."47 The First Circuit interpreted the "savings clause" at the end of the class arbitration waiver as "an unmistakable expression . . . that the class arbitration bar is not an indispensable condition of the arbitral forum,"48 and consequently severed the class arbitration prohibition and compelled the plaintiffs' claims to "class or consolidated arbitration."49
To attempt to avoid this result, a separate non-severability provision may be included in the arbitration agreement. The provision should make clear the parties' intent that in the event the class arbitration proscription is found unenforceable, it should not be severed from the remainder of the parties' agreement to arbitrate; instead, the entirety of the parties' arbitration agreement should be excised from the contract, which should insulate the parties from class arbitration proceedings, but could lead to judicial class proceedings.50
Prescribe a More Expansive Standard of Review For the Arbitrator's Class-Related Decisions in the Agreement
As noted in Part I of this article, a district court's authority to review an arbitration award has been said to exist as "among the narrowest known to the law."51 In an effort to obtain meaningful review of an arbitration award (especially a class-related award), the parties may include a provision in their contract requiring a more stringent standard of review. Circuit Courts of Appeals for the First, Third, Fourth, Fifth, and Sixth Circuits have held that contracting parties may modify the standard of review applicable to an arbitral award.52 In contrast, the Ninth and Tenth Circuits do not permit contracting parties to modify the standard of review for an arbitral award,53 and both the Seventh and Eighth Circuits have indicated in dicta that they are inclined to follow this approach.54 Accordingly, the enforceability of a clause prescribing a more expansive standard of review for an arbitral award will vary depending upon the law of the applicable jurisdiction.
Include a Provision Requiring a Reasoned Award - Including Findings of Fact, Conclusions of Law, & Damages Calculations
Although the AAA requires that arbitrators' class-related decisions (and final merits decisions in class proceedings) be "reasoned,"55 parties can dictate the content and form of the award in their arbitration agreement. Including a provision specifically requiring that the arbitrators provide a reasoned award that (i) applies the facts to the law of the case; (ii) fully sets forth findings of facts from the evidence presented; (iii) fully sets forth conclusions of law based upon the parties' respective legal theories; (iv) indicates which legal theories were followed, which were not and why; and (v) if damages are awarded, specifies the arbitrators' calculations of the types of damages awarded as to each party, could enhance the parties' ability to obtain more meaningful judicial review of class-related arbitral awards.
Include Provisions in the Agreement That Evince an Intent Not to Resolve the Parties' Disputes Through Class Arbitration or That Will Support Enforcement of a Class Arbitration Bar
Other provisions in an arbitration agreement may also be included to evince the parties' intent not to arbitrate classwide claims or to increase the likelihood of enforceability of a class arbitration waiver. For example, venue selection provisions, choice of law clauses,56 or provisions in an arbitration agreement requiring the parties to maintain the confidentiality of any disputes resolved through arbitration may assist in obtaining a ruling that the parties intended only individualized resolution of their disputes.
In addition, it may be beneficial to include a fee-shifting provision or a carve-out for small claims in an agreement containing a class arbitration bar, since courts are more likely to enforce class arbitration waivers where the agreements do not immunize a party from liability for small claims. An offer to pay for a portion of the administrative costs of arbitrating claims, for example, would increase the chances that parties may be able to obtain redress for small claims, which provides a corresponding increase in the likelihood of enforceability.57
Defending Against Class Arbitration Under Otherwise Silent Arbitration Clauses
Under the AAA's Supplementary Class Rules, the arbitrator must issue a clause construction award, in which he or she determines whether the agreement between the parties permits arbitration.58 Under general contract construction principles, this inquiry should turn on the parties' intent, as evidenced by the language of the arbitration agreement, as well as the law at the time of contracting. When defending such an action, practitioners should be mindful of various indicia of an intent to arbitrate disputes only on an individualized basis, including, for example:
Use of singular pronouns - although this view was not endorsed by the Bazzle plurality, the use of singular pronouns in an agreement might provide supporting evidence of an intent to arbitrate individually.
Venue selection clause - the inclusion of a specific venue selection clause evinces an intent to arbitrate only individualized disputes, and has been accepted by at least one AAA arbitrator.59
Confidentiality provision - to the extent the agreement contains provisions intended to maintain the confidentiality of any disputes between the parties, this evinces an intent to arbitrate only their individualized disputes ( i.e., since unlike individual arbitration, class arbitration proceedings are not confidential).
Procedural prerequisites to initiating arbitration - if there is a contractual obligation to engage in some other procedural prerequisite ( e.g., mediation, good faith negotiations, pursuit and exhaustion of administrative remedies) prior to the initiation of arbitration proceedings, this evinces an intent by the parties to arbitrate only their individualized disputes.
In addition, practitioners should be aware of the fairly typical arguments that have been employed to argue in favor of class proceedings under an otherwise silent clause in arbitration, including:
There must be an express prohibition on class arbitration in order to evidence the parties' intent not to permit (or prohibit) class arbitration of disputes under the agreement.
Bazzle either explicitly or implicitly requires that an otherwise silent arbitration clause be construed to permit class arbitration.
Silence on the issue of class arbitration in a contract either renders the contract ambiguous or evidences the parties' intent that class proceedings be permitted.60
Litigation concerning class arbitration will undoubtedly continue, fueled primarily by the Supreme Court's lack of guidance and virtually impenetrable grant of arbitrator authority in Bazzle. The pervasiveness of arbitration agreements that are silent on the issue of class proceedings also ensures that class arbitrations will occur with increased frequency, possibly resulting in large monetary awards or coerced settlement,61 and with little or no opportunities to obtain meaningful judicial or appellate review.62 The widespread availability of class arbitration proceedings has eroded many of the traditional benefits of arbitration,63 making it a potentially time-consuming, expensive, and unpredictable process, and placing the continued popularity of arbitration as the "preferred" method of dispute resolution at a critical and decisive point.64 In light of an anticipated increase in class-related arbitration - at least in the absence of guidance by the Supreme Court or congressional action65 - practitioners and companies should be mindful of the issues implicated by their decision to attempt to litigate or arbitrate, both when drafting arbitration agreements and when defending against class proceedings.1 Part I of this article is available on the MCC website at http://www.metrocorpcounsel.com/current.php?artType=view&EntryNo=6992.
2 These suggestions are proposed based upon our understanding of the current state of the law with respect to class arbitration issues, which remains unsettled, but has been subject to widespread, drastic changes over the past few years and will necessarily continue to undergo further changes in the future. It is, therefore, critical that new arbitral and judicial decisions in this area be closely monitored.
3 The current AAA Commentary on Class Arbitrations specifically provides that the AAA's policy is not to "administer class arbitrations where the underlying arbitration agreement explicitly precludes class procedures [since] the law on the enforceability of class action waivers [i]s unsettled. . . . [and] the courts that have confronted the question have generally concluded that the decision as to whether an agreement that prohibits class actions is enforceable is one for the courts to make, not the arbitrator.'" AAA Policy on Class Arbitrations, available at http://www.adr.org/sp.asp?id=28779. The Commentary further notes that where an agreement "on its face prohibits class actions," the AAA will generally "first seek court guidance as to whether a class arbitration may be brought under such an agreement," since the AAA "takes no position as to whether such clauses are or should be enforceable." Id. In 2004, JAMS initially took the position that class arbitration prohibitions in consumer contracts posed an unfair restriction on the rights of consumers; however, in March 2005, JAMS retracted the policy based on the view that "court decisions on the validity of class action preclusion clauses have varied by jurisdiction." See JAMS Press Release: "JAMS Reaffirms Commitment to Neutrality Through Withdrawal of Class Action Arbitration Waiver Policy," available at http://www.jamsadr.com/press/show_release.asp?id=198. Now, JAMS will administer an arbitration as a class action where the arbitrator determines that the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class. In making that determination, JAMS requires that the arbitrator consider the law applicable to the arbitration proceedings. See id.; JAMS Class Action Procedures (Feb. 2005), available at http://www.jamsadr.com/rules/class_action.asp. The National Arbitration Forum ("NAF") has interpreted Bazzle to require arbitrators to strictly enforce the terms of the agreement, which would seem to militate in favor of upholding the validity of class arbitration waivers. See Sue Reisinger, New JAMS Policy Has Angered GCs, Allowing Class Action Claims Barred In Contracts Feeds Fear Others May Also, 27 NAT'L L.J. 8 (Jan. 24, 2005).
4 Bazzle, 539 U.S. at 450-51; see also Green Tree Fin. Corp. v. Bazzle, Transcript of Oral Argument, 2003 WL 1989562 *55 (Justice Stevens questioning whether the case would have "any future significance, because isn't it fairly clear that all the arbitration agreements in the future will prohibit class actions?").
5 See, e.g., Muhammad v. County Bank of Rehoboth Beach, Delaware, 912 A. 2d 88, 101 (N.J. 2006) ("Here, however, an arbitrator need not interpret the contract's class action waiver clause, because the contract expressly prohibits class arbitration, thereby concerning 'the validity of the arbitration clause,' which the Bazzle plurality indicated could fall under the narrow exception concerning matters 'contracting parties would likely have expected a court' to decide. There is no need for anyone to decide 'whether the contract[ ] forbid[s] class arbitration.' It expressly and unequivocally does. The only issue is whether such a clear prohibition is valid and enforceable."); Pedcor Mgmt. Co. Inc. Welfare Benefit Plan v. Nations Pers. of Texas, Inc., 343 F.3d 355 (5th Cir. 2003); Gipson v. Cross Country Bank, 354 F. Supp. 2d 1278, 1286 (M.D. Ala. 2005); AAA Commentary to Policy on Class Arbitrations (Feb. 18, 2005) (most courts "have generally concluded that the decision as to whether an agreement that prohibits class actions is enforceable is one for the courts to make, not the arbitrator"); see generally Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 492 (1967); Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 174-75 (5th Cir. 2004); but see Hawkins v. Aid Ass'n for Lutherans, 338 F.3d 801, 807 (7th Cir. 2003), cert. denied, 124 S.Ct. 1146 (2004) (enforceability of class arbitration waiver is for arbitrator to decide); Carbajal v. H&R Block Tax Servs., Inc., 372 F.3d 903, 906-07 (7th Cir. 2004).
6 Jeffrey W. Stempel, Arbitration, Unconscionability, and Equilibrium: The Return of Unsconscionability Analysis as a Counterweight to Arbitration Formalism, 19 Ohio St. J. on Disp. Resol. 757, 766 (2004).
7 See, e.g., Harris v. Green Tree Fin. Corp., 183 F.3d 173 (3d Cir. 1999). Procedural unconscionability analysis generally requires examination into the circumstances surrounding the making of the agreement and the form of the agreement. Substantive unconscionability analysis, on the other hand, generally focuses on examination of the terms of the agreement itself.
8 See, e.g., Ting v. AT&T, 319 F.3d 1126, 1148 (9th Cir. 2003), cert. denied, 124 S.Ct. 53 (2004); Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 290 (Cal. 2000) ("The prevailing view is that [both procedural and substantive unconscionability] must be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.").
9 See, e.g., Bank One Acceptance Corp. v. Hill, 367 F.3d 426, 433 n.4 (5th Cir. 2004).
10 This factor turns on whether the agreement is, e.g., a consumer contract of adhesion given on a take-it-or-leave-it basis or a highly negotiated contract between sophisticated parties with equal bargaining power. Arbitration provisions frequently appear in consumer contracts, including financial services contracts (nearly 70% of credit card, banking, investment, and accounting/tax consulting agreements include arbitration provisions), insurance contracts (seventeen out of eighteen consumer contracts for homeowner's insurance, renter's insurance, auto insurance, and health insurance also have arbitration clauses), and many others. See Linda J. Demaine and Deborah R. Hensler, "Volunteering" to Arbitrate Through Predispute Arbitration Clauses: The Average Consumer's Experience, 67 Law & Contemp. Probs. 55, 62 (2004).
11 This factor turns on whether the dispute involves, e.g., a small consumer claim or a complex action with large monetary amounts at stake, since courts appear to be particularly concerned about ensuring that there exists recourse for the pursuit of small claims. See infra.
12 These would include, e.g., whether there is a fee-shifting provision, a carve-out for small claims, remedial limitations, mutuality of obligations, and similar provisions. See infra.
13 See, e.g., Leonard v. Terminix Int'l Co., 854 So.2d 529 (Ala. 2002) (class arbitration waiver clause in a consumer contract of adhesion unconscionable and unenforceable); but see Gipson v. Cross Country Bank, 354 F. Supp. 2d 1278 (M.D. Ala. 2005) (class arbitration waiver enforceable since the provision did not limit the plaintiff's substantive remedies and there was sufficient economic incentive for the plaintiff to obtain relief via arbitration); Battles v. Sears Nat'l Bank, 365 F. Supp.2d 1205 (M.D. Ala. 2005) (enforcing class arbitration waiver since the provision did not limit the amount of damages, costs, or fees which the plaintiffs could recover in arbitration); Lawrence v. Household Bank, 343 F. Supp. 2d 1101 (M.D. Ala. 2004) (class arbitration waivers enforceable); Pitchford v. AmSouth Bank, 285 F. Supp. 2d 1286 (M.D. Ala. 2003) (class arbitration waiver not unconscionable since plaintiffs would still be able to effectively vindicate their claims in arbitration).
14 See, e.g., Cohen v. DirecTV, Inc., 2006 Cal. App. LEXIS 1434 (Cal. Ct. App. Sept. 18, 2006) (class arbitration waiver unenforceable); Lee v. AT&T Wireless Serv., Inc., 2006 WL 1452936 (Cal. Ct. App. May 26, 2006) (class arbitration waiver unenforceable where it was contained in a contract of adhesion and the dispute involved a small amount in controversy); Janda v. T-Mobile, USA, Inc., 2006 WL 708936 (N.D. Cal. Mar. 17, 2006) (same); but see Gentry v. Superior Court of Los Angeles County, 37 Cal. Rptr. 3d 790 (Cal. Ct. App. 2006) (class arbitration waiver enforceable under Delaware law); Discover Bank v. Superior Court of Los Angeles County, 36 Cal. Rptr. 3d 456 (Cal. Ct. App. 2005) (class arbitration waiver enforceable under Delaware law); Jones v. Citigroup, Inc., 135 Cal. App. 4th 1491 (Cal. Ct. App. Jan. 6, 2006) (class arbitration waiver enforceable since the clause was conspicuously noted and plaintiffs were given the option to opt out); Provencher v. Dell, Inc., F. Supp. 2d 1196 (C.D. Cal. Jan. 3, 2006) (class arbitration waiver enforceable applying Texas law).
15 See, e.g., Rollins, Inc. v. Garrett, 2006 WL 1024166 (11th Cir. Apr. 19, 2006) (unpublished) (upholding arbitral award permitting class arbitration under a silent clause and noting in dicta that Florida law would not require enforcement of class arbitration waivers in consumer contracts); Powertel, Inc. v. Bexley, 743 So. 2d 570 (Fla. Dist. Ct. App. 2001) (arbitration agreement unenforceable due to class action waiver); but see Fonte v. AT&T Wireless Serv., Inc., 903 So. 2d 1019 (Fla. Dist. Ct. App. 2005) (class litigation and arbitration waiver enforceable).
16 See, e.g., Kinkel v. Cingular Wireless, LLC, 857 N.E.2d 250 (Ill. 2006) (class arbitration waiver unenforceable); but see Forness v. Cross Country Bank, Inc., 2006 WL 726233 (S.D. Ill. Mar. 20, 2006) (enforcing class arbitration waiver under Delaware law and noting in dicta that if it had applied Illinois law, the outcome would likely have been the same); Ragan v. AT&T Corp., 355 Ill. App. 3d 1143 (Ill. App. Ct. 2005) (class arbitration waiver enforceable applying New York law); Hubbert v. Dell Corp., 359 Ill. App. 3d 976 (Ill. App. Ct. 2005) (contract of adhesion containing class arbitration prohibition enforceable under Texas law); Rosen v. Saks Inc., 343 Ill. App. 3d 1075 (Ill. App. Ct. 2003) (class arbitration ban does not render clause unenforceable).
17 See, e.g., Whitney v. Alltel Communications, Inc., 173 S.W.3d 300 (Mo. Ct. App. 2005) (class arbitration waiver unenforceable in a consumer contract of adhesion); but see Sprague v. Household Int'l, 2005 LEXIS 11694 (W.D. Mo. June 15, 2005) (enforcing class arbitration waiver due to defendant's willingness to pay all arbitration costs, but suggesting that such clauses may carry a presumption of unconscionability).
18 See, e.g., Muhammad v. County Bank of Rehoboth Beach, Delaware, 912 A. 2d 88, 95 (N.J. 2006) (not enforcing class arbitration waiver in lending dispute involving $180); but see Delta Funding Corp. v. Harris, 912 A.2d 104, 115 (N.J. 2006) (enforcing class arbitration waiver and noting that such provisions are not unconscionable per se); see also Cunningham v. Citigroup, 2005 WL 3454312 (D.N.J. Dec. 16, 2005) (noting that class action prohibitions are not per se unconscionable and enforcing agreement since it exempted suits for small amounts from mandatory arbitration, allowing them to proceed in small claims court).
19 See, e.g., Eagle v. Fred Martin Motor Co., 157 Ohio App. 3d 150 (Ohio Ct. App. 2004) (class waiver unenforceable since prohibiting class proceedings violates Ohio public policy).
20 See, e.g., Thibodeau v. Comcast, 2006 WL 416863 (Pa. Ct. Com. Pl. Jan. 27, 2006) (class action and arbitration waivers unenforceable where provided on a take-it-or-leave-it basis to consumers who have minor claims); see also Lytle v. CitiFinancial Servs. Inc., 810 A.2d 643, 666 (Pa. Super. Ct. 2002); but see D'Ambrosio v. Comcast Corp., 2005 WL 3543794 (E.D. Pa. Dec. 27, 2005) (enforcing class action waiver, since plaintiff failed to show class action waivers were contrary to Pennsylvania public policy).
21 See, e.g., Al-Safin v. Circuit City Stores, Inc., 394 F.3d 1254 (9th Cir. 2005) (refusing to enforce the arbitration clause in the aggregate under Washington law, because of the presence of a class action waiver, remedial limitations, unilateral modification of contract rights, and other objectionable provisions); see also Luna v. Household Fin. Corp. III, 236 F. Supp. 2d 1166 (W.D. Wash. 2002).
22 See, e.g., W. Virginia ex rel. Dunlap v. Berger, 567 S.E.2d 265, 270 (W.Va. 2002) (class action waivers in form contracts of adhesion are unenforceable); but see Schultz v. AT&T Wireless Servs., 376 F. Supp. 2d 685 (N.D. W.Va. 2005) (class action waiver enforceable where the plaintiff is a sophisticated, educated consumer).
23 Federal courts are similarly inconsistent in their enforceability determinations of class arbitration waivers when the actions involve federal statutory claims. See, e.g., Kristian, 446 F.3d 25 (1st Cir. 2006) (class arbitration waiver unenforceable in antitrust case); Walker v. Ryan's Family Steak House, 400 F.3d 370 (6th Cir. 2005) (refusing to enforce arbitration agreements in FLSA case, but suggesting that class arbitration prohibitions may be enforceable); Livingston v. Assoc. Fin., Inc., 339 F.3d 553 (7th Cir. 2003) (upholding class action and arbitration waiver in TILA case); Lloyd v. MBNA Am. Bank, N.A., No. 01-1752, 2002 U.S. App. LEXIS 1027 (3d Cir. Jan. 7, 2002) (enforcing class arbitration waiver in TILA case, since right to class action is "merely procedural" and "may be waived"); In re Currency Conversion Fee Antitrust Litig., 361 F. Supp. 2d 237 (S.D.N.Y. 2005) (class arbitration waiver enforceable in antitrust case); see also Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 638-39 (4th Cir. 2002) (bar on class action enforceable in TILA and RICO case); Johnson v. W. Suburban Bank, 225 F.3d 366, 369 (3d Cir. 2000), cert. denied sub nom., Johnson v. Tele-Cash, Inc., 531 U.S. 1145 (2001) (enforcing arbitration clause "even though they may render class actions to pursue statutory claims under the TILA . . . unavailable"); In re Cotton Yarn Antitrust Litig., 406 F. Supp 2d 585 (M.D. N.C. 2005) (joinder prohibition unenforceable as to antitrust conspiracy claims); Randolph v. Green Tree Fin. Corp., 244 F.3d 814, 819 (11th Cir. 2001) (holding that "a contractual provision to arbitrate TILA claims is enforceable even if it precludes a plaintiff from utilizing class action procedures in vindicating statutory rights under TILA"); Venezie v. MBNA American Bank, 2006 WL 2092567, at *1 (W.D. Pa. July 26, 2006) (class action waiver "does not irreparably impair the plaintiff's right to recourse under TILA"); Rivera v. AT & T Corp., 420 F. Supp. 2d 1312, 1322 (S.D. Fla. 2006) (class action waiver not substantively unconscionable because plaintiffs could bring claims in small claims court, could seek attorneys' fees, could file a complaint with the FCC and could have attorney general enforce claims); Billups v. Bankfirst, 294 F. Supp. 2d 1265, 1272-73 (M.D. Ala. 2003) (finding ban on class actions not unconscionable because of statutory attorneys' fees provision in the Fair Credit Billing Act).
24 See, e.g., Rains v. Found. Health Sys. Life & Health, 23 P.3d 1249, 1252 (Colo. Ct. App. 2001) ("arbitration clauses are not unenforceable simply because they might render a class action unavailable").
25 See, e.g., Edelist v. MBNA Am. Bank, 790 A.2d 1249 (Del. Super. Ct. 2001); Forness, 2006 WL 726233 (S.D. Ill. Mar. 20, 2006) (applying Delaware law); Gentry v. Superior Court of Los Angeles County, 37 Cal. Rptr. 3d 790 (Cal. Ct. App. 2006) (same); Discover Bank v. Superior Court of Los Angeles County, 36 Cal. Rptr. 3d 456 (Cal. Ct. App. 2005) (same).
26 See, e.g., Adams v. Am. Residential Servs., L.L.C., 2003 U.S. Dist. LEXIS 26478 (D.D.C. May 8, 2003) (granting motion to compel arbitration, but concluding that since "the weight of judicial authority - particularly in circuit courts - is that an arbitration clause precluding class actions does not render an arbitration agreement unconscionable" and that "numerous Circuits have held district courts cannot compel classwide arbitration absent an express provision in the arbitration agreement to do so . . . classwide arbitration is not available here").
27 See, e.g., Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359 (11th Cir. 2005) (applying Georgia law); Jenkins v. First Am. Cash Advance of Georgia, 400 F.3d 868 (11th Cir. 2005) (applying Georgia law).
28 See e.g., Brown v. KFC Nat'l Mgmt. Co., 921 P.2d 146, 166 n.23 (Haw. 1996) (rejecting argument that class arbitration waiver was unenforceable).
29 See, e.g., Iberia Credit, 379 F.3d 159 (5th Cir. 2004) (enforcing class arbitration waiver, noting "the fact that certain litigation devices may not be available in an arbitration is part and parcel of arbitration's ability to offer simplicity, informality, and expedition") (quotations omitted).
30 See, e.g., Stenzel v. Dell, Inc., 870 A.2d 133 (Me. 2005) (upholding arbitration clause prohibiting class representation under Texas law, and noting that "there does not appear to be any significant differences between the laws of Texas and Maine on this score").
31 See, e.g., Walther v. Sovereign Bank, 872 A.2d 735 (Md. 2005).
32 See, e.g., Copeland v. Katz, 2005 WL 3163296 (E.D. Mich. Nov. 28, 2005); but see Lozade v. Dale Barker Oldsmobile, Inc., 91 F. Supp. 2d 1087 (W.D. Mich. 2000).
33 See, e.g., Equifirst Corp. v. Jackson, 920 So.2d 458 (Miss. 2006); Northwest Fin. Miss., Inc. v. McDonald, 905 So.2d 1187 (Miss. 2005).
34 See Fiser v. Dell Computer Corp., Inc., 2007 WL 2197515 at *12 (N.M. Ct. App. Apr. 30, 2007) ("We are not convinced that New Mexico public policy would render an arbitration clause unconscionable because it precludes class actions.").
35 See, e.g., Hayes v. County Bank, 811 N.Y.S.2d 741 (N.Y. App. Div. 2006) ("the fact that the arbitration agreements effectively preclude [plaintiff] from pursuing a class action does not alone render them substantively unconscionable"); Tsalidas v. Providian Nat'l Bank, 13 A.D.3d 190 (N.Y. App. Div. 2004); see also In re Universal Serv. Fund Tel. Billing Practices Litig., 370 F. Supp. 2d 1107 (D. Kan. 2003) (applying New York law).
36 See, e.g., Tillman v. Commercial Credit Loans, Inc., 629 S.E.2d 865 (N.C. Ct. App. 2006) (class action and arbitration waiver enforceable, since the cost of individual arbitration was not prohibitive); but see Sears Roebuck and Co. v. Avery, 163 N.C. App. 207 (N.C. Ct. App. 2004) (refusing to enforce class action and arbitration waiver under Arizona law).
37 See, e.g., Strand v. U.S. Bank Nat'l Ass'n, 693 N.W.2d 918 (N.D. 2005) (upholding class waiver, even though procedurally unconscionable, since arbitration costs were borne by defendant and the arbitration was to be held in a jurisdiction convenient to the plaintiff).
38 See, e.g., Edwards v. Blockbuster, Inc., 400 F. Supp. 2d 1305 (E.D. Okla. 2005).
39 See, e.g., Horenstein v. Mortg. Mkt., Inc., 2001 WL 502010 (9th Cir. May 10, 2001) (unpublished) (enforcing class arbitration waiver where fee shifting provision was included); Chalk v. T-Mobile USA, Inc., 2006 WL 2599506 at *5 (D. Or. Sept. 7, 2006) (class action waiver not unconscionable under Oregon law).
40 See, e.g., Defontes v. Dell, Inc., 2004 WL 253560 (R.I. Super. Ct. Jan. 29, 2004) (enforcing class arbitration waiver under Texas law and noting that application of Rhode Island law would have similar results).
41 See, e.g., Am. Gen. Equity Serv. Corp. v. Schablik, 2005 WL 3076884 (Tenn. Ct. App. Nov. 17, 2005) (upholding class representation prohibition even if it was a contract of adhesion); see also Chapman v. H & R Block Mortg. Corp., 2005 WL 3159774 (Tenn. Ct. App. Nov. 28, 2005) (noting in dicta that a class arbitration waiver is not per se unconscionable).
42 See, e.g., Provencher v. Dell, Inc., 409 F. Supp. 2d 1196 (C.D. Cal. 2006) (applying Texas law); Carter v. Countrywide Credit Indus., 362 F.3d 294 (5th Cir. 2004); Autonation USA Corp. v. Leroy, 105 S.W.3d 190 (Tex. App. 2003) (upholding class waiver even though plaintiff alleged small damage consumer claims).
43 See, e.g., Spann v. Am. Express Travel Related Servs. Co., Inc., 2006 WL 2516431 (Tenn. Ct. App. Aug. 30, 2006) (applying Utah law, holding that trial court erred in striking class waiver from arbitration provision, but ordering case to be referred to AAA on "potential class action" basis); see also Utah Code Ann. 70C-3-104, 70C-4-105 (2006) (imposing statutory requirements for class action waivers in consumer credit contracts).
44 See, e.g., Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003), cert. denied, 124 S.Ct. 1169 (2004); Perez v. Globe Airport Sec. Servs., 253 F.3d 1280, 1287 (11th Cir. 2001); Shankle v. B-G Maint. Mgmt. of Colo., 163 F.3d 1230, 1235 & n.6 (10th Cir. 1999); Graham Oil Co. v. ARCO Prods. Co., 43 F.3d 1244, 1249-50 (9th Cir. 1994).
45 See, e.g., Kristian, 446 F.3d 25, 60-65 (1st Cir. Apr. 20, 2006); see also Booker v. Robert Half Int'l, Inc., 413 F.3d 77, 85 (D.C. Cir. 2005); Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 675 (6th Cir. 2003); Mandel v. Household Bank (Nevada), Nat'l Ass'n, 105 Cal. App. 4th 75, (Ct. App. 4th Dist. 2003); Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862 (Cal. Ct. App. 2002).
46 See Kristian, 446 F.3d 25.
47 Id. at 60-61.
48 Id. at 61.
49 Id . at 64-65.
50 Janda v. T-Mobile, USA, Inc., 2006 WL 708936 (N.D. Cal. Mar. 17, 2006) (refusing to enforce entire arbitration clause since class waiver was expressly unseverable).
51 ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995); LB & B Assocs., Inc. v. Int'l Brotherhood of Electrical Workers, Local No. 113, 461 F.3d 1195, 1197 (10th Cir. 2006) (quotations omitted); Hollern, 458 F.3d at 1172 (quotations omitted); Kergosien v. Ocean Energy, Inc., 290 F.3d 346, 352 (5th Cir. 2004) ("A district court's review of an arbitration award is extraordinarily narrow.") (quotations omitted).
52 See Puerto Rico Tel. Co., Inc. v. U.S. Phone Mfg. Corp., 427 F.3d 21, 31 (1st Cir. 2005) ("We agree with the other circuits that have concluded that the parties can by contract displace the FAA standard of review, but that displacement can be achieved only by clear contractual language."); Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 293 (3d Cir. 2001); Syncor Int'l Corp. v. McLeland, 1997 WL 452245 at *6 (4th Cir. 1997) (unpublished) ("Because these parties contractually agreed to expand judicial review, their contractual provision supplements the FAA's default standard of review and allows for de novo review of issues of law embodied in the arbitration award."); Gateway Techs., Inc. v. MCI Telecomm. Corp., 64 F.3d 993, 997 n.3 (5th Cir. 1995) ("[T]he FAA does not prohibit parties who voluntarily agree to arbitration from providing contractually for more expansive judicial review of the award."); Jacarda, Ltd. v. Int'l Mktg. Strategies, Inc., 401 F.3d 701, 711-12 (6th Cir. 2005) (noting that a generic choice of law clause is insufficient to modify the standard of review applicable to an arbitral award).
53 See Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 998 (9th Cir. 2003) ( en banc ), cert. dismissed, 124 S. Ct. 980 (2004) (parties cannot contractually alter the standard of appellate review in arbitration cases, since the FAA provides an "extremely limited review of authority . . . that is designed to preserve due process but not to permit unnecessary public intrusion into private arbitration procedures"); Bowen v. Amoco Pipeline Co., 254 F.3d 925, 933-37 (10th Cir. 2001).
54 See Chicago Typographical Union No. 16 v. Chi. Sun-Times, Inc., 935 F.2d 1501, 1504-05 (7th Cir. 1991) (parties "cannot contract for judicial review of [their] award; federal court jurisdiction cannot be created by contract"); UHC Mgmt. Co. v. Computer Scis. Corp., 148 F.3d 992, 997 (8th Cir. 1998). In Hoeft v. MVL Group, Inc., 343 F.3d 57, 65 (2d Cir. 2003), the Second Circuit specifically declined to address whether the parties may raise the level of judicial review applicable to arbitral awards.
55 See AAA Class Rules 3-7. JAMS does not specify whether interim partial awards entered on class-related issues must be "reasoned," but Rule 5 prescribes that the "final award on the merits in a class arbitration, whether or not favorable to the class, shall be reasoned and shall define the class with specificity." Rule 5, JAMS Class Action Procedures, available at http://www.jamsadr.com/rules/class_action.asp. Moreover, JAMS arbitrators are given the discretion to enter partial awards that are subject to immediate court review. See Rules 2 and 3(c), JAMS Class Action Procedures, available at http://www.jamsadr.com/rules/class_action.asp.
56 See, e.g., Discover Bank v. Superior Court (Boehr), 134 Cal. App. 4th 886, 891-92 (2005); Sherr v. Dell, Inc., 2006 WL 2109436 (S.D.N.Y. July 27, 2006); Provencher v. Dell, Inc., 409 F. Supp. 2d 1196 (C.D. Cal. 2006); Stenzel v. Dell, Inc., 870 A.2d 133 (Me. 2005); Hubbert v. Dell Corp., 835 N.E.2d 113 (Ill. App. 2005); Falbe v. Dell Inc., 2004 WL 1588243 (N.D. Ill. 2004); Dell, Inc. v. Muniz, 163 S.W.3d 177 (Tex. App. 2005); DeFontes v. Dell Computer Corp., 2004 WL 253560 (R.I. Super. Jan. 29, 2004); but see Klussman v. Cross Country Bank, 134 Cal. App. 4th 1283, 1300 (2005); Coady v. Cross County Bank, 2007 WL 188993 (Wis. App. Jan. 25, 2007).
57 See, e.g., Hutcherson v. Sears Roebuck & Co., 793 N.E.2d 886 (Ill. App. Ct. 2003); Anders v. Hometown Mortg. Servs., Inc., 346 F.3d 1024 (11th Cir. 2003); Large v. Conseco Fin. Servs. Corp., 292 F.3d 49 (1st Cir. 2002).
58 See Rule 3, AAA Supplementary Class Rules. Under Rule 2 of the JAMS Class Arbitration Procedures, the arbitrator is given discretion concerning whether to issue a partial award on clause construction. See Rule 2, JAMS Class Action Procedures, available at http://www.jamsadr.com/rules/class_action.asp ("The Arbitrator may set forth his or her determination in a partial final award subject to immediate court review.") (emphasis added). Notably, there is no indication in either set of rules as to who bears the burden for this determination; however, under general legal principles, it seems logical that the party attempting to pursue class arbitration proceedings would bear the burden of demonstrating that the agreement permits class arbitration. See, e.g., U.S. v. R. Enters., Inc., 498 U.S. 292, 305 (1991) ("[T]he general rule [is] that the burden of proof lies on the party asserting the affirmative of a proposition.") (Stevens, J., concurring). Moreover, while the inquiry under both the AAA and JAMS rules is framed as whether the agreement "permits" arbitration, this stands in stark contrast with the issue as framed by the Supreme Court in Bazzle, where the Court stated: "The question here [is] whether the contracts forbid class arbitration . . . ." Bazzle, 444 U.S. 452 (emphasis added). Nevertheless, since Bazzle 's holding is that arbitrators are vested with the authority to make such a decision, see id., consistent with that mandate, the organizations that administer arbitration proceedings have promulgated rules that govern the analytical framework for this determination.
59 See Paul Veliz v. Cintas Corp., AAA Case No. 11 160 01323 04. The Paul Veliz parties have sought confirmation and vacatur of the arbitrator's clause construction award in the United States District Court for the Northern District of California. See Veliz v. Cintas Corp., 4:03-cv-01180-SBA (N.D. Cal.). The district court held a hearing on the parties' motions on July 31, 2007, but as of August 21, 2007, it had not yet issued an order thereupon.
60 As noted in Part I of this article, however, when faced with an otherwise silent arbitration agreement, AAA arbitrators have - almost without exception - construed otherwise silent arbitration agreements to permit class proceedings.
61 "Clearly, the stakes are high. . . .Whereas courtroom litigation offers the protection of searching review on appeal, review of arbitration awards is exceedingly limited and narrow. Thus, the threat of classwide arbitration is even more likely than judicial class actions to create 'intense pressure to settle' and 'blackmail settlements.'" Jeffrey W. Sarles, California Decision Upholding Class Action Arbitrations Under the FAA Threatens to Undermine Benefits of Arbitration (quoting In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1298 (7th Cir. 1995)), available at http://www.appellate.net/articles/California.asp; see also, e.g., Arbitrating Complex Litigation: The Impact of AAA and JAMS Class Action Arbitration Rules, New Jersey Law J., Vol. CLXXXVII, No. 8, Index 582, Feb. 19, 2007 ("Certification of a class has been said to 'turn a $20,000 case into a $200 million dispute' and leave the fate of an entire industry in the hands of a single jury. Indeed, numerous courts and commentators have noted that such proceedings can be tantamount to judicial blackmail - forcing huge settlements of highly questionable claims."); Henry J. Friendly, Federal Jurisdiction: A General View 120 (1973) (citing Castano v. Am. Tobacco Co., 84 F.3d 734, 746 (5th Cir. 1996)) (pressure emanating from certifications of big classes amounts to "judicial blackmail"). During the oral argument in Bazzle, Justice Stevens acknowledged that Green Tree's desire "not . . . to put your company's entire future in the hands of one arbitrator with no right to judicial review" "ma[de] some sense." Green Tree Fin. Corp. v. Bazzle, Transcript of Oral Argument, 2003 WL 1989562 at *29.
62 See Part I of "Gaming the Rigged Class Arbitration Game: How We Got Here and Where We Go Now" (in the August, 2007 issue of the Metropolitan Corporate Counsel), available at http://www.metrocorpcounsel.com/current.php?artType=view&EntryNo=6992.
63 "The loss or reduction of all of these benefits would reduce parties' incentives to agree to arbitrate disputes in the first place. If companies are subject to class actions whether they litigate or arbitrate, many will choose to litigate to obtain the greater procedural protections available in court, including effective appellate review. Selecting the reduced formalities of arbitration would be too hard to justify with tens of millions of dollars worth of claims subject to resolution at one fell swoop." Application of the Chamber of Commerce for Permission to File Amicus Curiae Brief and Amicus Curiae Brief in Support of Defendant-Petitioner, Discover Bank v. Super. Ct. of Los Angeles County (Boehr, Real Party in Interest), review granted, 65 P.3d 1285 (Cal. 2003) (No. S113725), available at 2003 WL 23270290, at *32.
64 See, e.g., Application of the Chamber of Commerce for Permission to File Amicus Curiae Brief and Amicus Curiae Brief in Support of Defendant-Petitioner, Discover Bank v. Super. Ct. of Los Angeles County (Boehr, Real Party in Interest), review granted, 65 P.3d 1285 (Cal. 2003) (No. S113725), available at 2003 WL 23270290, at *29 ("The streamlined procedures traditionally associated with arbitration would not be tolerated if defendants faced liability on thousands or even millions of claims in one proceeding. Far from reflecting a general "hostility to arbitration," . . . with so much at stake, arbitration would either change dramatically or fall into disfavor.").
65 On July 12, 2007, the Arbitration Fairness Act of 2007 was introduced in the United States House of Representatives. See Arbitration Fairness Act of 2007, H.R. 3010, 110th Cong. (2007). If enacted, the Arbitration Fairness Act would amend the Federal Arbitration Act such that:
No predispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment, consumer or franchise dispute; or a dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of equal barganing power.
Arbitration Fairness Act of 2007. H.R. 3010, 110th Cong. 2(b)(2007).
P. Christine Deruelle and Robert Clayton Roesch are Associates in the litigation department of Weil, Gotshal & Manges LLP's Miami office. Their respective practices focus on complex commercial litigation, including class action defense. Ms. Deruelle can be reached at (305) 577-3277 and Mr. Roesch can be reached at (305) 577-3252.