# Opposition Brief — Green Tree Financial Corp. v. Bazzle

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2003
- **Citation:** 539 U.S. 444

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0614%3A03. Public record. Not legal advice.