Opposition Brief — Green Tree Financial Corp. v. Bazzle

No. 02-634 0% 25 Ne

IN THE

Supreme Court of the United States

GREEN TREE FINANCIAL CORP. A/K/A GREEN TREE

ACCEPTANCE CORP. A/K/A GREEN TREE FINANCIAL

SERVICES CORP. N/K/A CONSECO FINANCE CORP.,

Petitioner,

V.

LYNN W. BAZZLE AND BURT A. BAZZLE,

IN A REPRESENTATIVE CAPACITY ON BEHALF OF A CLASS

AND FOR ALL OTHERS SIMILARLY SITUATED;

DANIEL B. LACKEY, GEORGE BUGGS AND FLORINE BUGGS,

IN A REPRESENTATIVE CAPACITY ON BEHALF OF A CLASS

AND FOR ALL OTHERS SIMILARLY SITUATED,

Respondents.

On Petition for a Writ of Certiorari

to the Supreme Court of South Carolina

BRIEF FOR RESPONDENTS IN OPPOSITION

MARY LEIGH ARNOLD DAVID C. FREDERICK

MARY LEIGH ARNOLD, P.A. Counsel of Record

P.O. Box 265 KELLOGG, HUBER, HANSEN,

Mt. Pleasant, SC 29465 TODD & EVANS, P.L.L.C.

(843) 971-6053 1615 M Street, N.W.

Suite 400

Washington, D.C. 20036

(202) 326-7900

Counsel for Respondents

[Additional Counsel Listed On Inside Cover]

November 25, 2002

BRADFORD P. SIMPSON

D. MICHAEL KELLY

B. RANT'ALL DONG

SUGGS & KELLY LAWYERS,

P. A.

P.O. Box 8113

Columbia, SC 29202-0008

(803) 461-2163

T. ALEXANDER BEARD

BEARD LAW FIRM

1002 Anna Knapp Blvd

Mt. Pleasant, SC 29464

(843) 216-0331

CHARLES L. DIBBLE

DIBBLE LAW OFFICES

P.O. Drawer 1240

Columbia, SC 29202

(803) 254-0307

STEVEN W. HAMM

RICHARDSON, PLOWDEN,

CARPENTER & ROBINSON,

P. A.

P. O. Drawer 7788

Columbia, SC 29202

(803) 771-4400

CHARLES L.A. TERRENI

P.O. Box 11904

Columbia, SC 29211

(803) 771-2611

DANIEL WEBSTER WILLIAMS

BEDINGFIELD & WILLIAMS

P.O. Box 616

Barnwell, SC 29812

(803) 259-2759

QUESTION PRESENTED

Whether the Federal Arbitration Act, 9 U.S.C. §§ 1 et seg.

which does not contain a preemption provision and which

expressly saves “grounds as est at law or in equity for the

revocation of any contract,” 9 U.S.C. § 2, divests a state

court from applying state law to allow an arbitrator to order

arbitration to proceed on a class-wide basis where state law

allows class arbitrations and the state substantive law

underlying the claim expressly reserves the right of injured

parties to bring a class action

;

111

TABLE OF CONTENTS

INTRODUCTION

STATEMENT

REASONS FOR DENYING THE PETITION

I. THE STATE SUPREME COURT APPLIED

STATE LAW AS PERMITTED UNDER THE

FAA AND THIS COURT'S DECISIONS

A. The FAA Expressly Reserves A Role For

State Law In The Enforcement Of Arbi-

tration Agreements

B. The South Carolina Supreme Court's Appli-

cation Of State Law Is Not Preempted By

The FAA .

Il. PETITIONER’S ALLEGATION OF A CON-

FLICT” IS ILLUSORY

A. All Of The Federal Cases Cited By Peti-

tioner Rest On An Application Of Federal

Law That Is Absent From This Case

B. Cases Upholding Class Arbitrations Have

Done So On The Basis Of State Law

III. THE ARBITRATOR'S DECISION TO PERMIT

A CLASS ARBITRATION IS ENTITLED TO

SPECIAL DEFERENCE AND IS AN INDE-

PENDENT GROUND FOR AFFIRMANCE

A. An Arbitrator's Construction Is Entitled To

Substantial Deference .................

13

13

14

18

18

to

to

25

iV 7

B. The Fact That The Class Decision Was TABLE OF AUTHORITIES

Made By The Arbitrator Is An Independent Pag

Ground Of Affirmance 27 CASES *

CONCLUSION 9

<5 American Centennial Ins. Co. v. National Cas. Co

951 F.2d 107 (6th Cir. 1991) 22

Baesler v. Continental Grain Co.. 900 F.2d 1193

(8th Cir. 1990) 22

Blue Cross of California v. Superior Court, 67 Cal. App

4th 42 (1998) 22, 23

Boynton v. Carswell, 233 S.E.2d 185 (Ga. 1977) 24

Callaway v. Carswell, 242 S.E.2d 103 (Ga. 1978) 24

Champ v. Siegel Trading Co., 55 F.3d 269 (7th Cir

1995) 10, 17, 19

. Connecticut Gen. Life Ins. Co. v. Sun Life Assur. Co. of

Canada, 210 F.3d 771 (7th Cir. 2000) 17

Del E. Webb Constr. v. Richardson Hosp. Auth

823 F.2d 145 (5th Cir. 1987) 22

Dickler v. Shearson Lehman Hutton, Inc., 596 A.2d 860

(Pa. Super. Ct. 1991) 23

Doctors Assocs., Inc. v. Casarotto. 517 U.S. 681

(1996) 13

Dominium Austin Partners, L.L.C. v. Emerson.

248 F.3d 720 (8th Cir. 2001) | 19, 20

Freightliner Corp. v. Myrick, 514 U.S. 280 (1995) 15

VI

Geier v. American Honda Motor Co., 529 U.S. 861

(2000) 3 15

Gilmer v. Interstate / Johnson Lane Corp., 500 U.S. 20

. 26

Glencore, Ltd. v. Schnitzer Steel Prods. Co. 189 F 3d

264 (2d Cir. 19999 22

Heffner v. Destiny, Inc., 471 S. E. 2d 135 (S.C. 1995) 15

Hines v. Davidowitz, 312 U.S. 52 (1941) 14

Hoteles Condado Beach, La Concha & Convention Ctr.

v. Union de Tronquistas Local 901, 763 F.2d 34

(Ist Cir. 1985) > rr. =

Johnson v. West Suburban Bank, 225 F.3d 366 (3d Cir

2000), cert. denied, 531 U.S. 1145 (2001) 23, 24

Keating v. Superior Court, 645 P.2d 1192 (Cal. 1982),

rev d in part sub nom. Southland Corp. v. Keating,

465 U.S. 1 (1984) , a rere 23

Leonard v. Terminix Int! Co., No. 1010555. 2002 WL

31341084 (Ala. Oct. 18, 2002) .......... .. 20-21

Major League Baseball Players Ass'n v. Garvey,

532 U.S. 504 (2001) ............... 11, 26, 27, 28

Mastrobuono v. Shearson Lehman Hutton, Inc.

514 U.S. 52 (1986) ............ rere

Med Center Cars, Inc. v. Smith, 727 So. 2d 9 (Ala.

I a ee . ——

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

re 26

VII

Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp.

469 U.S. 1 (1983) 24

Munoz v. Green Tree Fin. Corp., 542 S.E.2d 360

(S.C. 2001) ) 9, 15, 20

Myrtle Beach Lumber Co. v. Willoughby, 274 S.E.2d |

423 (S.C. 1981) 9, 10

New England Energy Inc. v. Keystone Shipping Co

855 F.2d 1 (Ist Cir. 1988) 19, 23

Protective Life Ins. Corp. v. Lincoln Nat Life Ins

Corp., 873 F.2d 281 (11th Cir. 1989) 22

Raiford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., we

903 F.2d 1410 (11th Cir. 1990) | 26-27

Southland Corp. v. Keating, 465 U.S. 1 (1984) 14

Stein v. Geonerco, Inc., 17 P.3d 1266 (Wash. Ct. App

2001) j 20

Sunshine Mining Co. v. United Steelworkers, 823 F. 2d :

1289 (9th Cir. 1987) EE San eee | 27

Tilley v. Pacesetter Corp., 508 S. E. 2d 16 (S.C. 1998) . 3, 4

United Steelworkers v. Enterprise Wheel & Car Corp.

363 U.S. 593 (1960) ............ , 5 26

Volt Info. Sciences, Inc. b. Board of Trustees, 489 U.S

eee see passim

Weyerhaeuser Co. v. Western Seas Shipping Co.,

743 F.2d 635 (9th Cir. 1984c4-pͥuz 22

W.R. Grace & Co. v. Local Union 759, 461 U.S. 757

rene ere aa ee ea ees OF 26

STATUTES AND RULES

Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.:

h 13, 15, 18

7 14

asus g . 10, 14, 17

Peer rere ree 11, 28

Truth in Lending Act, 15 U.S.C. §§ 1601 et seg. ..... 23

S.C. Code Ann. § 37-10-102 ...............0- eee. 2

Fed. R. Civ. P.:

D ] ] 20, 2

Rule S1a)( 3) . 19.22

LEGISLATIVE MATERIALS

Le 13

OTHER MATERIALS

Robert L. Stern et al., Supreme Court Practice

r ˙ .... She aS 18

IN THE

Supreme Court of the United States

No. 02-634

GREEN TREE FINANCIAL CORP. A/K/A GREEN TREE

ACCEPTANCE CORP. A/K/A GREEN TREE FINANCIAL

SERVICES CORP. N/K/A CONSECO FINANCE CORP.,

Petitioner,

v.

LYNN W. BAZZLE AND BURT A. BAZZLE,

IN A REPRESENTATIVE CAPACITY ON BEHALF OF A CLASS

AND FOR ALL OTHERS SIMILARLY SITUATED;

DANIEL B. LACKEY, GEORGE BUGGS AND FLORINE BUGGS,

IN A REPRESENTATIVE CAPACITY ON BEHALF OF A CLASS

AND FOR ALL OTHERS SIMILARLY SITUATED,

Respondents.

On Petition for a Writ of Certiorari

to the Supreme Court of South Carolina

BRIEF FOR RESPONDENTS IN OPPOSITION

INTRODUCTION

This case involves Petitioner Green Tree’s pervasive and

knowing violation of the South Carolina Consumer Protec-

tion Code (“Consumer Code”) in more than 3,700 real estate

secured loan transactions made by Green Tree in South

Carolina. As found by the Arbitrator — chosen pursuant to

the process devised by Green Tree itself in adhesion con-

tracts forced upon consumers — Green Tree “has demon-

strated a complete indifference to its legal obligations to

adhere to South Carolina’s statutory requirement.” Pet.

App. 91a. After the Arbitrator certified a class of similarly

situated consumers and then awarded damages for Green

2

Tree’s knowing and repeated violations of South Carolina’s

Code, Green Tree fought enforcement of the arbitral award

in South Carolina’s state courts, which uniformly upheld

the Arbitrator’s decision to proceed on a class-wide basis.

In this Court, Green Tree broadly asserts “conflicts” with

a variety of federal and state courts over whether a class

arbitration may be permitted to proceed. In framing that

issue, Green Tree ignores that the Federal Arbitration Act

(“FAA”) contains no preemption provision and expressly

reserves a role for state law. Moreover, Green Tree mis-

reads the cases as supposedly in conflict. The federal cases

that it cites hold that the Federal Rules of Civil Procedure

do not authorize federal courts to order class arbitrations,

but those cases do not address (or, indeed, expressly

reserve) the situation present here: a state court applying

state law to uphold a state arbitration that construes the

contract between the parties to permit the arbitration to

proceed on a class-wide basis. Although several States have

construed their own state law not to permit class arbitra-

tions, such differences are irrelevant to this Court’s normal

standards for granting certiorari - whether courts are in

conflict on the same law.

STATEMENT

I. a. In 1982, the South Carolina General Assembly

(“General Assembly”) amended the Consumer Code by elim-

inating caps on the interest rates that lenders could charge

for consumer credit and authorizing certain fees for lenders.

To protect consumers against predatory lending practices in

real estate secured transactions, the General Assembly

enacted an additional requirement mandating that lenders

advise consumers of their right to obtain their own attor-

neys and insurance agents and requiring lenders to record

on the first page of the credit application the consumer's

preference for those representatives who would provide

professional services at the closing of real estate transac-

tions. S.C. Code Ann. § 37-10-102 (the “Preference Stat-

ute”). The purpose behind the law was to prevent salesmen

who sell home improvements, mobile homes, and other

3

home appurtenances from locking consumers into usurious

interest rates for such items and securing those loans with

the consumers real estate without the benefit of an attor-

ney and insurance agent to give advice. Under early ver-

sions of the law, if a lender violated the Preference Statute,

consumers could obtain forfeiture by a creditor of the total

amount of the loan finance charge, repayment of double the

amount of interest collected, and costs of the action and

repayment of the balance of the loan without any loan fi-

nance charges. See Tilley v. Pacesetter Corp., 508 S.E.2d 16

(S.C. 1998). The Preference Statute at that time did not

alter in any way the right of consumers to proceed against

violators of the statute on a class-wide basis by filing suit in

state court.

In 1997, the General Assembly amended the Preference

Statute and altered the penalty for violations from a calcu-

lation based upon specific dollar amounts of the transaction

to a penalty range limited to $1,500 to $7,500. Given Green

Tree’s pervasive and repeated violations of the Preference

Statute, the 1997 amendments effectively reduced the dol-

lar value of the penalty that could be assessed against

Green Tree by more than $150 million in the case involving

the Lackey Respondents alone. In addition, the General

Assembly changed the statute of limitations and precluded

future class actions for violations of the Preference Statute.

The same amendment, however, directed that all Prefer-

ence Statute cases filed as class actions prior to May 2,

1997, “may proceed” subject to application of the new pen-

alty range.

In Tilley, the South Carolina Supreme Court held that

the Preference Statute could be enforced through a class

action for violations arising before the 1997 amendment

in a case involving a door-to-door seller of aluminum

windows, awnings, and doors who secured the transactions

with mortgages on the consumers’ residences. The seller-

creditor failed to ascertain the consumers’ preferences of

attorney and insurance agent and failed to use attorneys in

the transactions. The state supreme court emphasized that

4

the Preference Statute must be liberally construed in com-

pliance with provisions of the Consumer Code. 508 S.E.2d

at 19.

b. The two cases at issue here involve two types of trans-

actions: home-improvement transactions secured by real

estate and manufactured-housing transactions secured by

real estate.

The Bazzle transaction is typical of a home-improvement

transaction. A home-improvement contractor offering

financing through Green Tree, a subprime lender, would

solicit customers door-to-door, offering home-improvement

services. The Green Tree dealer would advise the consumer

that home improvements could be financed, and the con-

sumer would complete a credit application to be submitted

to Green Tree. Pet. App. 6la. The terms of the credit were

not disclosed. If the consumer agreed to purchase home

improvements, the Green Tree dealer or one of its employ-

ees would return to the consumer’s home with the transac-

tion documents. All of the transaction documents were

standard preprinted form contracts of adhesion prepared by

Green Tree. All of the terms of financing were set by Green

Tree, including the rate of interest. Id. at 6la-62a. The

documents, if explained at all, were not prepared or re-

viewed by an attorney. The consumers were not given a

Preference Statute disclosure. Id. at 61a. Many consumers

did not understand that they were securing the credit

transaction with a mortgage on their home. Generally, the

consumers would learn later of the mortgage when they

attempted to sell or refinance their home. Only one person

would be available to witness the signing of the mortgage at

the closing. No attorney for the consumer was involved in

the transaction. Id. at 62a.

Green Tree’s manufactured-housing transactions would

proceed in a similar fashion. The consumers would enter

into preprinted consumer installment contracts and secu-

rity agreements with Green Tree to purchase a mobile

home. Id. at 87a-88a. Green Tree’s dealer would obtain a

credit application for Green Tree from the consumer. The

5

credit application did not include the required Preference

Statute disclosure. If Green Tree elected to extend credit,

it would set the terms of the credit, prepare all the neces-

sary documents for closing, and transmit the documents to

its dealer. The documents included a mortgage prepared by

Green Tree. The dealer would have the consumer execute

the documents without explanation. The mortgage, on its

face, directed the local recording office to return it directly

to Green Tree. No attorney was involved in the transaction.

Id. at 88a.

c. The documents used in these transactions are con-

tracts of adhesion prepared by Green Tree. Both cases in-

volved preprinted form consumer Retail Installment Con-

tracts and Security Agreements (“RICSA”) and Mortgages.

The adhesion RICSA drafted by Green Tree provides, in

pertinent part: “You agree this contract will be governed by

the law of the State of South Carolina.” R. App. 2162. The

mortgage prepared by Green Tree provides: “The state and

local laws applicable to this Mortgage shall be the laws of

the jurisdiction in which the Property is located.” Id. at

3045.

The RICSA in both classes contained an arbitration pro-

vision that reads in part as follows:

The parties agree and understand that all disputes

arising under case law, statutory law, and all other

laws including, but not limited to, all contract, tort, and

property disputes, will be subject to binding arbitration

in accord with this contract. The parties agree and

understand that the arbitrator shall have all powers

provided by the law and the contract.

Pet. App. 110a. Neither the arbitration provision nor any

other document prepared by Green Tree makes any refer-

ence to class actions.

2.a. In March 1997, Lynn and Burt Bazzle commenced

an action against Green Tree for violating the Preference

Statute involving home-improvement transactions secured

by real estate. Id. at 56a. Shortly after the case was filed,

Green Tree moved to compel arbitration under the terms of

its adhesion contract. Id. In late 1997, the South Carolina

trial court granted the Bazzles’ motion for class certification

and then granted Green Tree’s motion to compel arbitra-

tion. Id. at 56a-57a. Both the South Carolina court of ap-

peals and supreme court denied Green Tree’s attempts to

obtain appellate review of the trial court’s rulings on the

ground that such an appeal was interlocutory. Id. at 57a-

58a. The case was then referred to the appointed Arbitra-

tor. Id. at 58a. While in arbitration, Green Tree moved to

dismiss or in the alternative to decertify all or a portion of

the class, id. at 29a, placing squarely before the Arbitrator

the issue of class arbitration. The Arbitrator denied the

motion. Id. 7

After conducting a hearing, the Arbitrator — at that time

a sitting retired state circuit court judge — issued his writ-

ten Award. Id. at 55a-8la. The Arbitrator found Green

Tree liable for violating the Preference Statute and awarded

relief on a class-wide basis. The Arbitrator found that

Green Tree submitted virtually no evidence of compliance

with the Preference Statute enacted years earlier. The

Arbitrator noted:

Green Tree offered no evidence of any nature that after

it was sued by [other consumers] in 1994 that it at-

tempted to comply with the preference statute... .

After five suits, including [the Bazzle suit], hav-

ing been brought against Green Tree for failing to

comply with the preference statute, it still continued to

refuse to take any action or to adhere to the statute’s

requirements. Thus, based on the testimony and

the evidence of record, I find that Green Tree simply

chose to totally ignore the law despite learning of the

requirement. As a result of its behavior, Green Tree’s

conduct rises to a shocking level of callous and reckless

indifference to the rights of South Carolina residents.

Id. at 67a-68a.

The Arbitrator also heard evidence about other actions

initiated against Green Tree for violating the Preference

Statute and other legal actions brought against other lend-

ers. That evidence provided a range of the penalties im-

posed in other cases that the Arbitrator used in fashioning

a damages award. In one such case, the Arbitrator drew

attention to the testimony of Green Tree’s in-house coun-

sel who “unequivocally admitted that Green Tree failed to

properly advise borrowers of their state law right to select

their own attorney or insurance agent.” Jd. at 63a. Green

Tree resolved that case by paying the injured party $50,000

and satisfying the original note and mortgage in the

amount of $15,000. R. App. 3173.

The Arbitrator held that one such case clearly established

that, in late 1994, Green Tree had actual notice of the

Preference Statute, and that the case demonstrated Green

Tree’s willful non-compliance with the consumer protection

statute. Pet. App. 63a-64a. The Arbitrator found that,

ſalfter learning of the preference statute, Green Tree did

nothing. It failed to provide the notice. It failed to use

attorneys for the transactions.” Id. at 68a. The Arbitrator

concluded that testimony and other evidence clearly showed

an ongoing pattern and practice that began as a careless

or negligent attitude and graduated into a willful non-

compliance and disregard for South Carolina law. Id. at

69a.

Based on these determinations and consideration of the

available penalty of $1,500 to $7,500, as well as the record

before him, the Arbitrator awarded $5,000 to aggrieved

consumers in 1,323 home-improvement transactions that

occurred prior to the time Green Tree had notice of its non-

compliance. For the remaining 576 home-improvement

transactions that occurred after Green Tree had actual

notice of its obligation under the Preference Statute and

still did nothing to comply, the Arbitrator awarded $7,500

per transaction.

In accordance with applicable state law, the Bazzles filed

a motion to confirm the award in South Carolina trial court,

and Green Tree filed a motion to remand the award for

amendment and clarification. On September 15, 2000, the

lower court denied Green Tree’s motion and confirmed the

award of the Arbitrator, determining that the Arbitrator

acted within his authority to hold Green Tree liable on a

class-wide basis. Green Tree again appealed, and the South

Carolina Supreme Court assumed jurisdiction to hear the

appeal in consolidation with the Lackey case.

b. The Lackey case was filed as a class action in state

court in May 1996. Those Respondents alleged violations of

the Preference Statute by Green Tree in manufactured-

home and home-improvement transactions secured by

South Carolina real estate (with the home-improvement

transactions subsequently being transferred and consoli-

dated with the Bazzle matter). Pet. App. 87a. Green Tree

filed an answer and the Lackey plaintiffs moved for class

certification. Green Tree then moved to stay and compel

arbitration. The lower court denied Green Tree’s motion to

compel and ruled the arbitration clause unconscionable.

Green Tree appealed and the South Carolina court of

appeals reversed, finding that the contract was a contract

of adhesion but not unconscionable and directing that the

case be compelled to arbitration.

The Arbitrator held a hearing on whether the Green Tree

arbitration agreement, ruled to be a contract of adhesion,

prevented class arbitration. After the hearing, in which

Green Tree participated, the Arbitrator determined that the

arbitration clause drafted by Green Tree did not preclude

class arbitration. The Arbitrator then held a second hear-

ing on class certification and granted class certification.

Green Tree filed several actions in state and federal courts

contesting the decision of the Arbitrator. Each court re-

fused to grant the relief sought by Green Tree, ruling that

it had no jurisdiction to intervene in an ongoing arbitration

proceeding.

After conducting a hearing on the merits, at which Green

Tree did not submit any evidence demonstrating compli-

ance with the Preference Statute, the Arbitrator noted that

9

Green Tree admitted “that it did not comply with the at-

torney and insurance agent preference statute: It is not

disputed that in a large number of credit sales contracts

acquired by Green Tree prior to September 1995, the at-

torney and insurance agent preference requirement as im-

pounded in Tilley, was not complied with.” Pet. App. 67a

n.4. In addition, Green Tree did not seek a legal opinion

from counsel regarding all South Carolina statutes applica-

ble to its real estate secured transactions in South Carolina.

Id. at 98a.

The state trial court then denied Green Tree’s mo-

tion to remand and vacate the final order of the Arbitrator,

and confirmed Respondents’ motion to confirm the award.

On appeal by Green Tree, the state supreme court accepted

jurisdiction and consolidated the Bazzle and Lackey cases.

3. The South Carolina Supreme Court unanimously af-

firmed the trial court’s judgment to uphold the Arbitrator’s

determination that the arbitration clause drafted by Green

Tree did not preclude class arbitration and that both the

Bazzle and the Lackey cases could proceed before the Arbi-

trator as class actions. The court explicitly stated that its

decision was consistent with long-standing state and fed-

eral authority requiring the resolution of any doubts con-

cerning the scope of arbitrable issues in favor of arbitration.

Pet. App. 17a.

The court explained that it had already construed Green

Tree’s arbitration clause in a prior case, in which it had

held that “‘general principles of state law apply to arbitra-

tion clauses governed by the FAA. Id. (quoting Munoz v.

Green Tree Fin. Corp., 542 S.E.2d 360, 364 (S.C. 2001)).

The court then examined the specific language of the arbi-

tration provision in Green Tree’s adhesion contract and con-

strued the provision under long-standing state law contract

construction principles, emphasizing that any ambiguity in

the contract “should be construed liberally and interpreted

strongly in favor of the non-drafting party.” Id. (citing

Myrtle Beach Lumber Co. v. Willoughby, 274 S.E.2d 423

(S.C. 1981)). As the court reasoned, lalfter all, the drafting

10

party has the greater opportunity to prevent mistakes in

meaning. It is responsible for any ambiguity and should be

the one to suffer from its shortcomings.” Id.

The court analyzed whether, notwithstanding state law

permitting class arbitrations, federal law compelled the op-

posite result. The court below observed that certain federal

courts had followed Champ v. Siegel Trading Co., 55 F.3d

269 (7th Cir. 1995), which the court described as articulat-

ing the “federal approach,” Pet. App. 12a n.11, to deny class

arbitration in cases brought in federal court under FAA § 4.

The state supreme court reasoned that it was not obliged to

follow Champ because that case rested on an application of

§ 4, which by its plain terms involves a petition to a “United

States district court.” Id. at 20a. For that reason, the court

determined that the application of FAA § 4 to actions

brought to enforce arbitrations in state court was “debat-

able.” Id.; see also id. (citing Volt Info. Sciences, Inc. v.

Board of Trustees, 489 U.S. 468 (1989)).

The court then emphasized that its decision rested on

independent state law grounds:

In any case, this Court can rely on independent state

grounds to permit class-wide arbitration, in the trial

court’s discretion, where the agreement is silent. 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. No case law or statute in South Carolina

prohibits class-wide arbitration. To the contrary, this

Court strongly favors arbitration and has held that a

state court may order consolidation of claims subject

to mandatory arbitration without any contractual or

statutory directive to do so.

Id. at 20a-21a (footnote, internal quotation marks omitted).

11

After setting out those principles of state contract law.

the state supreme court determined as a preliminary mat-

ter that Green Tree's clause was silent regarding class arbi -

tration and that its omission should be construed against it

as the drafting party. Id. The court specifically rejected

Green Tree’s argument that the singular language of the

clause stating claims relating to “this contract” precludes

class arbitration. Jd. at 19a. The court found that the lan-

guage did not limit the arbitration to non-class arbitration

but rather, at best, created an ambiguity, which under state

law should be construed against Green Tree as the drafting

party. Id. at 21a. The court then announced that, under

South Carolina law, “class-wide arbitration may be ordered

when the arbitration agreement is silent if it would serve

efficiency and equity, and would not result in prejudice.”

Id. at 22a.

The court noted that such a rule had particular force

when viewed from the perspective of a court’s review of an

arbitrator's decision. The court read this Court's decision

in Major League Baseball Players Association v. Garvey, 532

U.S. 504 (2001) (per curiam), to announce a highly deferen-

tial rule for the review of an arbitrator's decisions: “If an

arbitrator acted even arguably within the scope of his au-

thority, even a serious error on his part does not warrant

overturning his decision.” Pet. App. 23a. Given the “nar-

row standards of review in both cases,” the court upheld the

Arbitrator’s awards in both the Bazzle and Lackey cases.

Id. at 23a-24a (noting that “Green Tree did not allege any

fraud, corruption, or other misconduct by the arbitrator

that would warrant vacating his decision to certify the class

or his award under the first three justifications listed in

section 10 of the FAA”). The court then noted that the only

other justification in FAA § 10 for overturning an arbitra-

tors award is “manifest disregard of the law,” which Green

Tree had conceded only occurred “when the arbitrator knew

of a governing legal principle yet refused to apply it, and

the law disregarded was well defined, explicit, and clearly

applicable to the case.” Id. at 24a (citing Green Tree brief

trations, “the arbitrator did not act in manifest di d

of the law by permitting the class arbitration] to proceed.

Id.

REASONS FOR DENYING THE PETITION

The state supreme court's decision to uphold an arbitra-

tor’s decision to proceed with a class arbitration is consis-

tent with this Court’s decisions holding that the FAA does

not preempt state law that is not in conflict with a federal

standard. Neither the FAA nor the arbitration agreement

speaks to the question of class arbitrations, so no such con-

flict can exist. Moreover, the assertions by Petitioner of a

“deep and mature” conflict among various federal and state

courts fundamentally misunderstands the legal basis on

which those courts decided whether a class arbitration may

proceed. All of the federal court decisions cited by Peti-

tioner that deny class arbitration or class consolidation do

so as a construction of the Federal Rules of Civil Procedure.

But this Court has expressly held that those rules have no

‘application in state courts, which are free to adopt their

have developed their own state law to allow class arbitra-

tions, and other States have not. Absent an intent by Con-

gress for the FAA to occupy the entire field of arbitration

procedures — which this Court has held Congress had no

intent to do- the different approaches by the several States

are part and parcel of our system of federalism.

13

Because the state supreme court explicitly applied South

Carolina law and because the underlying claim rested on a

state statute that authorized class actions to enforce its

terms, there is no basis for asserting that the decision below

raises any question on which courts disagree or that other-

wise warrants this Court’s review. In addition, an inde-

pendent ground for affirmance is that the Arbitrator made

the decision to proceed on a class-wide basis, and Green

Tree cannot meet its heavy burden under this Court’s deci-

sions to demonstrate why a court should disregard its high-

ly deferential standard of review of an arbitrator’s decision.

I. THESTATESUPREME COURT APPLIED STATE

LAW AS PERMITTED UNDER THE FAA AND

THIS COURT’S DECISIONS

A. The FAA Expressly Reserves A Role For

State Law In The Enforcement Of Arbi-

tration Agreements

The Federal Arbitration Act was enacted to abrogate the

general common law rule against the enforcement of arbi-

tration agreements. See S. Rep. No. 68-536, at 2-3 (1924).

Under the FAA, “an agreement in writing to submit to

arbitration an existing controversy arising out of such a

contract, transaction, or refusal, shall be valid, irrevocable,

and enforceable, save upon such grounds as exist at law or

in equity for the revocation of any contract.” 9 U.S.C. § 2.

As this Court has explained, that language reserves a role

for States to play in the enforcement of arbitration agree-

ments. See, e.g., Doctor’s Assocs., Inc. v. Casarotto, 517 U.S.

681, 687 (1996) (“[G]enerally applicable contract defenses,

such as fraud, duress, or unconscionability, may be applied

to invalidate arbitration agreements without contravening

§ 2.”).

The respect for state rules by Congress in its enactment

of the FAA is reflected throughout the Act. Specifically,

Congress provided for enforcement of arbitration under the

FAA in the federal courts, over which it exercises supervi-

sory power, but was completely silent about the procedures

14

that state courts should follow in determining how to en-

force state arbitrations. Section 3 provides that, ſilf any

suit or proceeding be brought in any of the courts of the

United States upon any issue referable to arbitration,” the

court shall “stay the trial of the action until such arbitra-

tion has been had in accordance with the terms of the

agreement.” 9 U.S.C. § 3 (emphasis added). Similarly, Sec-

tion 4 confers a right on “[a] party aggrieved by the alleged

failure, neglect, or refusal of another to arbitrate under a

written agreement for arbitration [to] petition any United

States district court” for appropriate relief. Id. § 4.

The Act imposes no similar procedural requirements on

state courts, and this Court has expressly disavowed hold-

ing that FAA §§ 3 and 4, “which by their terms appear to

apply only to proceedings in federal court, are nonetheless

applicable in state court.” Volt, 489 U.S. at 477 n.6 (cita-

tions omitted); see also Southland Corp. v. Keating, 465

U.S. 1, 16 n.10 (1984) ([Wie do not hold that §§ 3 and 4 of

the [FAA] apply to proceedings in state courts.”). Accord-

ingly, this Court has explained that “[t]here is no federal

policy favoring arbitration under a certain set of procedural

rules.” Volt, 489 U.S. at 476. States are thus free to deter-

mine whether, under state law, arbitrations may proceed on

a class-wide basis.

B. The South Carolina Supreme Court’s Appli-

cation Of State Law Is Not Preempted By

The FAA

1. Well-established preemption doctrine confirms that

Congress had no intent to divest the States of authority to

permit arbitrations to proceed on a class-wide basis. “The

FAA contains no express pre-emptive provision, nor does it

reflect a congressional intent to occupy the entire field of ar-

bitration.” Volt, 489 U.S. at 477. Thus, a court analyzes a

claim of preemption of state law by the FAA under settled

conflict preemption principles — “that is, to the extent that

it ‘stands as an obstacle to the accomplishment and execu-

tion of the full purposes and objectives of Congress. Id.

(quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)). See

15

also Geier v. American Honda Motor Co., 529 U.S. 861, 873

(2000); Freightliner Corp. v. Myrick, 514 U.S. 280, 287

(1995).

Under this standard, there is no conflict with any princi-

ple announced in federal law. The FAA is completely silent

as to whether an arbitrator may order a class arbitration

and whether a state court asked to enforce such an arbitral

award may do so. Notwithstanding Petitioner's hyperbolic

rhetoric about the South Carolina approach being “hostil[e]”

to arbitrations, Pet. 12, in fact the State’s approach facili-

tates the purposes of the FAA by empowering consumers

collectively to resolve their disputes in arbitration, rather

than through litigation, particularly where the likely indi-

vidual recovery is small and the claimant's costs of pursu-

ing a remedy great.

2. The state supreme court fully appreciated and applied

those preemption principles in determining that, where an

arbitration agreement is silent on the subject of class arbi-

trations, a state court may uphold a decision by an arbitra-

tor to conduct a class arbitration under South Carolina law.

The court below rested its decision to allow class arbitra-

tions where the agreement is silent on several important

principles of South Carolina law. As the court stressed, it

“can rely on independent state grounds to permit class-wide

arbitration, in the trial court’s discretion, where the agree-

ment is silent.” Pet. App. 20a.

First, the court noted that South Carolina law “favors ar-

bitration of disputes.” Id. at 17a (citing Heffner v. Destiny,

Inc., 471 S.E.2d 135 (S.C. 1995)). That justification in itself

is completely consistent with the underlying policy of the

FAA to enforce arbitration clauses. See 9 U.S.C. § 2. The

court further explained that its decisions had held that

“‘general principles of state law apply to arbitration clauses

governed by the FAA. Pet. App. 17a (quoting Munoz, 542

S.E.2d at 364). That state law preference led the court to

stress that allowing arbitrations to proceed on a class-wide

basis fully comported with the intent of the drafting party

16

to seek its favored arbitration procedures for resolving any

dispute with the non-drafting parties. Id. at 17a, 22a n.21.

Second, the state supreme court properly invoked state

decisional law to hold that, when a contract contains an

ambiguity, it “should be construed liberally and interpreted

strongly in favor of the non-drafting party.” Id. at 17a

(citing Myrtle Beach Lumber). As the court noted, this state

law principle of contract construction flows from the notion

that “the drafting party has the greater opportunity to pre-

vent mistakes in meaning. It is responsible for any ambigu-

ity and should be the one to suffer from its shortcomings.”

Id. Indeed, that principle is so generally applicable in the

common law of contract that the state supreme court in-

voked this Court’s decision in a closely analogous case for

the same principle. See id. at 18a (citing Mastrobuono v.

Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995), for the

propos tion that the common law of contract required “con-

struing ambiguous language against the drafting party’).

For that reason, it was reasonable for the court below to

interpret ambiguous silence about class arbitrations in the

agreement against Green Tree, which drafted the contract.

Id. at 17a.

Third, the court employed state law to construe other lan-

guage of the arbitration clause drafted by Petitioner in a

way that does not foreclose class arbitrations. Green Tree

had argued that the phrase “disputes, claims, or controver-

sies arising from or relating to this contract, or the relation-

ships which result from this contract” must be construed

to prohibit class arbitration in South Carolina. See id. at

19a. The state supreme court rejected that reading of the

contract, holding that under state law, lalt best, [that

language] creates an ambiguity” that must be “construed

against the drafting party, Green Tree.” Id. As this Court

has stressed, the state supreme court’s “interpretation of

private contracts is ordinarily a question of state law, which

17

this Court does not sit to review.” Mastrobuono, 514 U.S.

at 60 n.4 (quoting Volt, 489 U.S. at 474).

The state supreme court’s treatment of class arbitrations

thus follows this Court’s analysis in Mastrobuono. There,

the Court held that, where an arbitration agreement was

silent on whether an arbitrator could award punitive dam-

ages, the arbitrator could award such damages if permit-

ted under state law. 514 U.S. at 62-63. In holding the

agreement ambiguous, this Court emphasized that “a court

should construe ambiguous language against the interest of

the party that drafted it.” Id. at 62. “The reason for this

rule is to protect the party who did not choose the language

from an unintended or unfair result.” Jd. at 63.

3. The court below also correctly rejected as inapplicable

the analysis of federal court decisions under FAA § 4. First,

the court reasonably questioned whether Section 4 even

applies to state court decisions regarding arbitrations, in

light of this Court’s statements to that same effect. See

Pet. App. 20a (citing Volt). Second, the court noted that the

Champ decision had analogized class arbitration to the con-

solidation of arbitration, holding that the same rule should

apply for both procedures. Id. at 2la. Because federal

cases had held that consolidated arbitrations could not be

permitted under the Federal Rules of Civil Procedure, the

court below reasoned that Champ’s approach did not fore-

close class arbitration in a State that permitted consolida-

tion of arbitration, such as South Carolina. Id. Indeed, a

more recent Seventh Circuit decision recognizes that, where

the arbitration clause is ambiguous, it may be construed

against the drafter to permit consolidated arbitrations. See

Connecticut Gen. Life Ins. Co. v. Sun Life Assur. Co. of

Canada, 210 F.3d 771, 776 (7th Cir. 2000) (noting that

problems with separate arbitrations “are avoided by inter-

. The contract also provides for arbitration of ſalll disputes, claims,

or controversies arising from or relating to this contract or the relation-

ships which result from this contract,” Pet. App. 110a, language that is

sufficiently ambiguous to permit an arbitrator to construe it as conferring

authority to order the arbitration to proceed on a class-wide basis.

18

preting the contract to allow [multiple parties] to demand

a single arbitration, provided there is a single dispute’).

Finally, and most importantly, the court below appropri-

ately stressed that “class-wide arbitration may be ordered

when the arbitration agreement is silent if it would serve

efficiency and equity, and would not result in prejudice.”

Pet. App. 22a. In making that final point, the state su-

preme court explained its decision in terms captured by

FAA § 2, the “grounds as exist at law or in equity” for

revocation of a contract. The court made quite clear that

enforcing an adhesion contract in these circumstances

would be unfair — where “parties with nominal individual

claims, but significant collective claims, would be left with

no avenue for relief and the drafting party with no check on

its abuses of the law.” Id.; see also id. at 22a n. 21. That

invocation of state law is perfectly consistent with the FAA

and this Court’s decisions construing it.

II. PETITIONER’S ALLEGATION OF A“CONFLICT”

IS ILLUSORY

A. All Of The Federal Cases Cited By Petitioner

Rest On An Application Of Federal Law That Is

Absent From This Case

In basing its decision solely on South Carolina law, the

state supreme court did not bring itself into conflict with

those federal courts that have construed the Federal Rules

of Civil Procedure to prohibit class arbitration. The fact

that the federal rules do not permit federal courts to compel

class arbitration does not mean that state courts may not

construe state law to permit an arbitrator to proceed with

a class arbitration under a state law that expressly contem-

plates class relief. It is axiomatic that there can be no

conflict warranting this Court’s review unless the courts are

in disagreement about the same rules. See generally Robert

L. Stern et al., Supreme Court Practice 456 (8th ed. 2002).

Here, Green Tree misunderstands the different legal bases

on which federal and state courts have determined whether

a class arbitration may proceed.

19

1. The federal cases cited by Petitioner are readily dis-

tinguishable. In Champ v. Siegel Trading Co., the inter-

venors asserted that Federal Rule of Civil Procedure

81(a)(3) should be read to authorize district courts “to order

these individual arbitration claims to proceed on a class

basis.” 55 F.3d at 274. In rejecting that contention, the

Seventh Circuit squarely based its decision on federal law,

noting at the outset that its holding was limited: “We...

adopt the rationale of several other circuits and hold that

section 4 of the FAA forbids federal judges from ordering

class arbitration where the parties’ arbitration agreement

is silent on the matter.” Jd. at 275 (emphasis added). The

court next emphasized that Rule 81(a)(3) “only applies to

judicial proceedings under the FAA,” id. at 276, and thus

served as no bar to a conclusion by an arbitrator to proceed

on a class- wide basis. The Seventh Circuit then explained

that it was following the lead of other circuits that had

rejected the use of the Federal Rules of Civil Procedure to

authorize federal district courts to order consolidation of

individual arbitrations. Jd. at 274-75. As the court below

noted in distinguishing Champ, South Carolina law is pre-

cisely the opposite of the federal rules: to allow consolida-

tion. Pet. App. 21a.

Finally, while expressing “doubts” about the argument,

the Seventh Circuit itself recognized that a different rule

could apply under a State’s law concerning an arbitration

implicated by the FAA. The court specifically noted that

“(t]he intervenors do not argue that Illinois’ arbitration

law authorizes class arbitration, so we need not determine

whether we would follow the First Circuit’s holding” in New

England Energy Inc. v. Keystone Shipping Co., 855 F.2d 1,

5 (1st Cir. 1988), which applied a state law authorizing con-

solidated arbitration. 55 F.3d at 275 n.2.

Nor is Dominium Austin Partners, L.L.C. v. Emerson, 248

F.3d 720, 728 (8th Cir. 2001), in conflict with the decision

below. In that case, the Eighth Circuit applied circuit

precedent to hold that the federal district court could not

order class arbitration. Jd. at 728-29. That court expressly

20

reserved the question decided by the court below, noting

that “(t]he construction of an agreement to arbitrate is gov-

erned by the FAA unless the agreement expressly provides

that state law should govern.” Id. at 729 n.9 (emphasis

added) (noting that “there is no such express provision in

the arbitration clauses”). As the South Carolina Supreme

Court noted, it had earlier construed the very same arbitra-

tion clause and had applied South Carolina law in doing so.

See Pet. App. 17a (discussing Munoz).

Thus, the only two federal court of appeals decisions that

directly address the applicability of class arbitrations speci-

fically leave open the question decided by the state supreme

court: whether a state law permits a class arbitration to

proceed. That, in turn, was the very basis on which the

court below decided this case. See id. at 22a-23a.

2. For that reason as well, the state cases cited by Green

Tree as supposedly conflicting come to the unremarkable

and ultimately irrelevant conclusion that their own state

law does not permit class arbitrations. In Stein v. Geonerco,

Inc., 17 P.3d 1266 (Wash. Ct. App. 2001), for example, the

Washington Court of Appeals noted that the party seeking

class arbitrations had “failfed] to cite relevant statutory

provisions that conflict with arbitration of his claims.” Id.

at 1270.

Similarly, the Alabama decision cited by Green Tree is

inapposite. In Med Center Cars, Inc. v. Smith, 727 So. 2d 9

(Ala. 1998), the Alabama Supreme Court concluded that

Alabama state procedural law should follow federal deci-

sions construing the Federal Rules of Civil Procedure. See

id. at 20 & n.4 (noting that federal decisions barlring

district courts from applying Rule 42(a), F.R.Civ.P., to

require consolidated arbitration” are “persuasive authority

in our state courts”). A recent decision of the Alabama

Supreme Court decided prior to Green Tree filing its

petition for a writ of certiorari, however — casts substan-

tial doubt on whether Alabama law in fact is as hostile to

class arbitrations as Green Tree suggests. In Leonard

21

v. Terminix International Co., No. 1010555, 2002 WL

31341084 (Ala. Oct. 18, 2002) (per curiam), the Alabama

Supreme Court decided a case much more closely analogous

to the decision below, holding that “the preclusion of eli-

gibility for class-action treatment by inserting a provision

requiring arbitration . leadls] us to conclude that Ter-

minix has extracted unreasonably favorable and patently

unfair terms in its contract of adhesion.” Jd. at 8. Thus,

applying “Alabama law relating to unconscionability,” the

Alabama Supreme Court held that arbitration clauses that

denied class treatment could, in certain circumstances, be

unenforceable. Id.“

Those state decisions rejecting class arbitrations, there-

fore, do so on the basis of their own State’s law and not be-

cause they understand federal law to prohibit or preempt

States from upholding an arbitrator's decision to proceed on

a class-wide basis. Those decisions thus do not conflict in

any way witu the court's ruling below.

3. In an effort to make its assertion of a conflict appear

more substantial, Green Tree cites numerous federal court

of appeals decisions rejecting an argument that the Federal

Rules of Civil Procedure which apply to federal and not to

state judicial proceedings do not empower district courts

to order consolidation of proceedings. In the proceedings

below, Respondents did not make, and the South Carolina

Supreme Court had no occasion to address, that argument

— nor could they. Because this case proceeded entirely in

South Carolina state court, there was no reason for the

state courts to consider whether the Federal Rules of Civil

Procedure condone or condemn consolidations. Accordingly,

the federal decisions cited by Green Tree on consolidation

Green Tree subsequently changed its form contracts to include an

express prohibition on class arbitrations: “Borrower agrees that Borrow-

er shall not have the right to participate as a representative or a member

of any class of claimants pertaining to any claim arising from or relating

to this Agreement.” See Respondents’ Reply Br. to Amici Curiae, Exh. A

(S.C. filed Aug. 28, 2001). Respondents are unaware of any decision yet

construing the legality of that provision.

22

of arbitration under the federal rules simply have no bear-

ing on this case.*

Indeed, those cases either do not address or expressly

reserve the issue in this case: whether, under state law,

a state court may enforce an arbitral award in which the

arbitrator construed the arbitration agreement to permit

class arbitration. See, e.g., Baesler, 900 F.2d at 1195 (not-

ing that party seeking consolidation “makes no contention

that North Dakota law contains such a provision” allowing

consolidation). There is no basis, therefore, for Petitioner's

suggestion that these federal cases support an assertion of

a conflict with the state supreme court below.

B. Cases Upholding Class Arbitrations Have Done

So On The Basis Of State Law

1. Similarly, in those few courts to have considered

whether their State’s law permits class arbitrations, the de-

cisions allowing such arbitrations to proceed have done so

based on state law. In Blue Cross of California v. Superior

Court, 67 Cal. App. 4th 42 (1998), the court stressed that,

— Ss In any event, they expressly rest on interpretations of federal proce-

dural rules that have no in state court actions. See Glencore,

Ltd. o Schnitzer Steel Prods. Co. 189 F.3d 264, 267 (2d Cir. 1999) (hold-

ing that Rules 42(a) and 81(a)(3) do not authorize consolidation or joint

hearings in arbitration); Buesler v. Continental Grain Co. 900 F.2d 1193,

1194-95 (8th Cir. 1990) (rejecting argument that Rules 42(a) and 81(a)(3)

confer “power to order consolidation” on federal district courts); Protective

Life Ins. Corp. v. Lincoln Nat'l Life Ins. Corp., 873 F. 2d 281, 282 n.1 (Lich

Cir. 1989) (per curiam) (“we reject Protective s argument that district

courts have the power to consolidate arbitration proceedings” under

Rules 42(a) and 81(a)(3)); Del E. Webb Constr. v. Richardson Hosp. Auth.

823 F.2d 145, 149-50 (5th Cir. 1987) (following Ninth Circuit in Weyer-

haeuser Co. v. Western Seas Shipping Co., 743 F.2d 635, 637 (9th Cir.

1984), to hold that Federal Rules of Civil Procedure do not empower

district courts to order consolidation); Weyerhaeuser, 743 F.2d at 636-37

(rejecting assertion that federal court “has the power to compel consoli-

dation” under the FAA and Rules 81(a)(3) and 42(a)). In addition, some

decisions make clear that they are simply following those cases in con-

struing federal law, but do so without any analysis of the underlying law.

See, e.g., American Centennial Ins. Co. v. National Cas. Co., 951 F.2d 107,

107-08 (6th Cir. 1991) (following Baesler).

23

lulnder California decisional authority, classwide arbitra-

tion is permissible.” Jd. at 52 (citing cases). The California

courts have construed their own code of civil procedure to

allow consolidated arbitration proceedings, and the Blue

Cross court explained that numerous decisions had upheld

class arbitration under those state procedural rules because

the interests of justice that would be served by ordering

classwide arbitration are likely to be even more substantial

in some cases than the interests that are thought to jus-

tify consolidation. Id. at 54 (quoting Keating v. Superior

— 645 — 1209 (Cal. 1982), rev'd in part on

grounds nom. Southland . v.

U.S. 1 (1984)). W

In similar fashion, the First Circuit upheld a consolida-

tion of arbitration because, like the California code of

procedure, the Massachusetts arbitration consolidation

statute expressly authorized such procedures. New Eng-

land Energy, 855 F. ad at 7.

. Green Tree seeks to pique the Court's interest by assert-

ing an inconsistency in the treatment of this issue by the

Pennsylvania court and the Third Circuit. See Pet. 23, 28.

Those cases, however, simply reflect the different sub-

stantive and procedural laws being applied. In Dickler v.

Shearson Lehman Hutton, Inc., 596 A.2d 860 (Pa. Super. Ct.

1991), the Pennsylvania superior court upheld the right of

a class arbitration to proceed, but did so because the State’s

Board of Arbitration of Claims had “adopted the entire

Pennsylvania Rules of Civil Procedure to govern its own

proceedings.” Id. at 865. Because the claims being sought

by plaintiffs/claimants were equitable in nature, the court

determined that those procedural rules — which specifically

allowed class actions — presented no conflict with the under-

lying substantive law on which the claim was based. By

contrast, in Johnson v. West Suburban Bank, 225 F.3d 366

(3d Cir. 2000), cert. denied, 531 U.S. 1145 (2001), the Third

Circuit considered whether the federal Truth in Lending

Act’s allowance of class actions operated to alter the agree-

ment of the parties to arbitrate their claims by expanding

24

the scope of the arbitration agreement to permit class

arbitrations. Noting that this was “a question of first im-

pression” and that Inlo other federal appellate court has

squarely addressed” it, the Third Circuit denied the author-

ity of the federal district court to order class arbitration in

proceedings brought to vindicate TILA claims. Id. at 370.

The Third Circuit offered no opinion on whether Pennsylva-

nia state substantive law and procedures were preempted

in any way, nor did the Pennsylvania superior court offer

any view on the applicability of federal law to arbitrations

brought to vindicate federal claims. In any event, if this

Court is truly concerned about the different treatment of

class arbitration in cases brought in Pennsylvania's federal

and state courts, the proper course would be to see whether

a Pennsylvania court in the aftermath of Johnson follows or

brings itself into conflict with the Third Circuit.

2. Green Tree cites only three States (Cal'fornia, Penn-

sylvania, and South Carolina), therefore, as permitting

class arbitrations in certain circumstances,” and in those

States the courts have done so relying on state rules that

are inapplicable in federal courts. Green Tree seeks a fed-

eral one-size-fits-all approach that denies those States the

right to use their own state law to vindicate state causes of

action in state arbitrations. But this Court has stressed

emphatically that, “[iJnterpreting a choice-of-law clause to

make applicable state rules governing the conduct of arbi-

tration — rules which are manifestly designed to encourage

resort to the arbitral process — simply does not offend the

rule of liberal construction set forth in Moses H. Cone

[Memorial Hospital v. Mercury Construction Corp., 460 US.

1 (1983)], nor does it offend any other policy embodied in

the FAA.” Volt, 489 U.S. at 476.

5 Georgia also appears to allow class arbitrations for certain chal-

lenges to local taxes. See Boynton v. Carswell, 233 S.E.2d 185, 187 (Ga.

1977) (noting that It here is no legal or practical reason why this class

controversy [involving local tax disputes] could not be settled in a class

arbitration”), overruled on other grounds, Callaway v. Carswell, 242

S.E.2d 103 (Ga. 1978).

—

|

25

III. THE ARBITRATOR’S DECISION TO PERMIT A

CLASS ARBITRATION IS ENTITLED TO SPE-

CIAL DEFERENCE AND IS AN INDEPENDENT

GROUND FOR AFFIRMANCE

Throughout its submission, Green Tree ignores the sub-

stantial effect of one important facet of this case: the

Arbitrator decided that this case should proceed as a class

arbitration. Contrary to its recurrent suggestion, this case

was not a situation of the South Carolina courts imposing

their views on arbitration, but rather the Arbitrator making

the decision to proceed with a class arbitration: “I deter-

mined that a class action should proceed in arbitration

based upon my careful review of the broadly drafted ar-

bitration clause prepared by Green Tree.” Pet. App. 84a.

Under well-settled law, the Arbitrator’s decision is entitled

to special deference. Accordingly, this case presents the

wrong vehicle for determining whether courts can impose

on arbitrators a class action mechanism here, the Arbi-

trator made his own independent judgment to construe the

contract in that way.

A. An Abitrator’s Construction Is Entitled To Sub-

stantial Deference

Two Terms ago, this Court made manifestly clear that

courts are not to disturb the findings of an arbitrator absent

The state supreme court 's opinion might be read to leave the im-

pression that the state circuit court's certification of the class in the

Bazzle case preceded referral to arbitration and therefore compelled the

Arbitrator to proceed on that basis. See Pet. App. 8a. The Arbitrator,

however, was an experienced state judge who made clear in his opinion

that he proceeded in arbitration based on a second amended complaint

that contained class allegations, see id. at 59a, and that Green Tree had

ample opportunity to object to inclusion of class members, id. at 68a, but

chose not to do so. Moreover, the same arbitrator decided both cases,

which had identical arbitration clauses, and he had opined on the class

issue under the arbitration clause in the Lackey case on August 19, 1998

(see id. at 84a), long before the Bazzle case proceeded to final resolution

in arbitration (see id. at 58a-59a). Finally at the specific request of Green

Tree, all home-improvement transactions contained in the Lackey matter

were consolidated with the Bazzie action. See id. at 29a.

26

extraordinary circumstances. Reiterating its long-standing

rule limiting judicial review of arbitral awards, the Court

stated that, “if an ‘arbitrator is even arguably construing or

applying the contract and acting within the scope of his

authority,’ the fact that ‘a court is convinced he committed

serious error does not suffice to overturn his decision.’”

Garvey, 532 U.S. at 509 (internal quotation marks omitted).

For that reason, even if the court is convinced that the

arbitrator committed “serious error,” that “does not justify

overturning his decision, where, as here, he is construing a

contract and acting within the scope of his authority.” Id.

at 510.

That deference flows from basic contract principles: by

agreeing to submit the construction of their contract to

an arbitrator, the parties bargained for the procedures he

_evised. See Gilmer v. Interstate/Johnson Lane Corp., 500

U.S. 20, 31 (1991) (“Although those procedures might not

be as extensive as in the federal courts, by agreeing to

arbitrate, a party ‘trades the procedures and opportunity

for review of the courtroom for the simplicity, informality,

and expedition of arbitration.’”) (quoting Mitsubishi Motor

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628

(1985)). Green Tree made this trade — indeed, it affirma-

tively sought to avoid the court’s decision-making process

though adhesion contracts. Thus, if this Court were to undo

the Arbitrator’s procedural and substantive disposition of

the dispute, such a decision would unravel the very require-

ment to arbitrate that Green Tree imposed on Respondents.

See W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 764

(1983) (“When the parties include an arbitration clause in

their agreement, they choose to have disputes concern-

ing constructions of the contract resolved by an arbitra-

tor.”); United Steelworkers v. Enterprise Wheel & Car Corp.,

363 U.S. 593, 599 (1960) (“It is the arbitrator's construction

which was bargained for; and so far as the arbitrator's deci-

sion concerns construction of the contract, the courts have

no business overruling him because their interpretation

of the contract is different from his.”); Raiford v. Merrill

27

Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 1410, 1413

(11th Cir. 1990) (“When the parties agreed to submit to

arbitration, they also agreed to accept whatever reasonable

uncertainties might arise from the process).

B. The Fact That The Class Decision Was Made By

The Arbitrator Is An Independent Ground Of

Affirmance

Green Tree has made no effort to demonstrate that the

special deference afforded to an arbitrator's decision can be

overcome or that a conflict exists over how the state su-

preme court applied Garvey to uphold the arbitral award.

Thus, to even reach the question that Green Tree has

presented, this Court would first have to ignore its long-

standing precedent affording deference to an arbitrator's

construction of a contract, hold that the contract must be

construed to prohibit class arbitrations, and then determine

that the South Carolina courts lacked authority to uphold

the arbitral award under state law because the FAA pre-

empts the State’s authority to do so.

But there is no basis for this attack: as is well-

established, “[a]n arbitrator enjoys wide latitude in conduct-

ing an arbitration hearing,” and lalrbitration proceedings

are not constrained by formal rules of procedure or evi-

dence.” Hoteles Condado Beach, La Concha & Convention

Ctr. uv. Union de Tronquistas Local 901, 763 F.2d 34, 38 (Ist

Cir. 1985); Sunshine Mining Co. v. United Steelworkers,

823 F.2d 1289, 1293 (9th Cir. 1987) (“The scope of review of

an arbitrator’s decision is extremely narrow.”). Moreover,

“[t)he arbitrator has great latitude in construing ambiguous

language in the contract, and a court must not vacate

an arbitration award simply because the court disagrees

Moreover, this particular arbitration agreement conferred author-

ity on the Arbitrator to exercise “all powers provided by the law and the

contract. These powers shall include all legal and equitable remedies,

including, but not limited to, money damages, declaratory relief, and

injunctive relief.” Pet. App. 110a. Reasonably construed, such broad

powers encompass the authority to order arbitrations to proceed on a

class-wide basis.

28

with the arbitrator's construction of the contract.” Hoteles

Condado Beach, 763 F.2d at 41.

Here, consistent with that latitude, the Arbitrator read

the contract and observed th there was no express provi-

sion prohibiting class-wide treatment. He accordingly con-

strued the contract’s ambiguity on the issue of class certi-

fication against Green Tree, which drafted the contract.

Green Tree cannot plausibly show a violation of FAA § 10

to the effect that the result was induced by fraud, corrup-

tion, bias, or disregard of the law. See 9 U.S.C. § 10; Pet.

App. 24a (noting that unresolved issue of state law meant

that “arbitrator did not act in manifest disregard of the law

by permitting [the class arbitration] to proceed”). Nor can

Green Tree show that the Arbitrator refused to hear perti-

nent evidence or otherwise engaged in misconduct. See Pet.

App. 23a-24a. Absent such misconduct, there is no basis

warranting the extreme remedy of overturning the Arbitra-

tor’s decision. See Garvey, 532 U.S. at 509.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

MARY LEIGH ARNOLD

MARY LEIGH ARNOLD, P.A.

P.O. Box 265

Mt. Pleasant, SC 29465

(843) 971-6053

BRADFORD P. SIMPSON

D. MICHAEL KELLY

B. RANDALL DONG

SuGGS & KELLY LAWYERS,

P.A.

P.O. Box 8113

Columbia, SC 29202-0008

(803) 461-2163

DAVID C. FREDERICK

Counsel of Record

KELLOGG, HUBER, HANSEN,

TODD & EVANS, P.L.L.C.

1615 M Street, N.W.

Suite 400

Washington, D.C. 20036

(202) 326-7900

STEVEN W. HAMM

RICHARDSON, PLOWDEN,

CARPENTER & ROBINSON,

P. A.

P. O. Drawer 7788

Columbia, SC 29202

(803) 771-4400

29

T. ALEXANDER BEARD CHARLES L.A. TERRENI

BEARD LAW FIRM P.O. Box 11904

1002 Anna Knapp Blvd Columbia, SC 29211

Mt. Pleasant, SC 29464 (803) 771-2611

(843) 216-0331

DANIEL WEBSTER WILLIAMS

CHARLES L. DIBBLE BEDINGFIELD & WILLIAMS

DIBBLE LAW OFFICES P.O. Box 616

P.O. Drawer 1240 Barnwell, SC 29812

Columbia, SC 29202 (803) 259-2759

(803) 254-0307

Counsel for Respondents

November 25, 2002