Respondents Brief — Green Tree Financial Corp. v. Bazzle

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Foe wn Supreme Court, U.S.

wr Fyre D

No. 02-634 MAR 27 2003

IN THE

Supreme Court of the United

GREEN TREE FINANCIAL CorP. A/K/A GREEN TREE

ACCEPTANCE CorpP. A/K/A GREEN TREE FINANCIAL

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

Petitioner,

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 Writ of Certiorari

to the Supreme Court of South Carolina

BRIEF FOR RESPONDENTS

MARY LEIGH ARNOLD CORNELIA T.L. PILLARD

MARY LEIGH ARNOLD, P.A. Counsel of Record

P.O. Box 265 GEORGETOWN UNIVERSITY

Mt. Pleasant, SC 29465 LAW CENTER

600 New Jersey Ave, NW

STEVEN W. HAMM Washington, D.C. 2000]

RICHARDSON, PLOWDEN, (202) 662-939]

CARPENTER & ROBINSON, P.A.

P.O. Drawer 7788

Columbia, SC 29202

Counsel for Respondents

[Additional Counsel Listed On Inside Cover]

ES Eee

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 -— WASHINGTON, D C. 20001

(BEST AVAILABLE COPY

BRADFORD P. SIMPSON

D. MICHAEL KELLY

B. RANDALL DONG

SUGGS & KELLY LAWYERS, P.A.

P.O. Box 8113

Columbia, SC 29202-0008

T. ALEXANDER BEARD

BEARD LAW FIRM

1002 Anna Knapp Blvd

Mt. Pleasant, SC 29464

CHARLES L. DIBBLE

DIBBLE LAW OFFICES

P.O. Drawer 1240

Columbia, SC 29202

CHARLES L.A. TERRENI

P.O. Box 11904

Columbia, SC 29211

DANIEL WEBSTER WILLIAMS

BEDINGFIELD & WILLIAMS

P.O. Box 616

Barnwell, SC 29812

CHARLES RICHARD KELLY

C. RICHARD KELLY, PA

Post Office Box | 1648

Columbia, SC 29211

THOMAS MATTHEW FRYAR

2614 BURNEY Dr.

COLUMBIA, SC 29205

QUESTION PRESENTED

Whether the Federal Arbitration Act, 9 U.S.C. §§ | et seq.,

divests a state court of authority to allow an arbitrator to

decide state-law claims on a class-wide basis in accordance

with the arbitration agreement and state law.

(1)

—— ee

TABLE OF CONTENTS

QUESTION PRESENTED. ......:ccsssssssssssssssssseseesseseeees

TABLE OF AUTHORITIES .........ssssssscssssssccccessesseseee

i accceraeatnncecaeniielnisbeneintaaana

SUMMARY OF ARGUMENT j.....cssossssssssssssssssseeeee

THE SOUTH CAROLINA SUPREME

COURT’S DECISION TO PERMIT

ARBITRATION OF CLASS CLAIMS

FULLY COMPORTS WITH THE FAA. ..........

A. Under the FAA, State Law and Arbitrator

Discretion Supply Rules of Arbitration

Procedure Not Specified in an Agreement

Op ee cnrncnnscsiennncdanncnsieninansinien

B. FAA § 2 Preemption Is Limited to

Ensuring that State Law Does Not

Disfavor Arbitration .................:ccccccceeeeeeees

THE FAA DOES NOT ESTABLISH A

FEDERAL COMMON LAW OF

CONTRACT INTERPRETATION UNDER

WHICH THE ARBITRATION AGREE-

MENT’S REFERENCE TO “THIS

CONTRACT” WOULD FORECLOSE

CEA FCCC UITS cccscenccenssesecersssnseneseesens

A. Under the FAA, General Principles of

State Law Govern Questions of Inter-

pretation of Arbitration Agreements .........

B. The State Court Faithfully Applied State

Law To Hold That The Agreement

Permitted Class Arbitration ......................

(111)

TABLE OF CONTENTS—Continued

1. The State Court’s Decision Is

Strongly Supported By State Law

and the Terms of the Agreement ......

2. There is No Basis for Petitioner’s

Contention That The State Court

“Rewrote” The Parties’ Agreement

in Order To Serve its Own Policy

EPA a ee

lil. THE FAA DOES NOT CREATE A

FEDERAL PRESUMPTION AGAINST

CLASS ARBITRATION THAT WOULD

FORECLOSE CLASS = ARBITRATION

___ REET EP Spurene eee nee eS

A. The FAA Does Not Preempt State Court

Procedures For Multiparty Arbitration ......

B. Congress Acted Reasonably in Not

Blocking Class Arbitration ........................

ee ae ee aE Te Ee ND

Page

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CASES

TABLE OF AUTHORITIES

Page

Allied-Bruce Terminix Cos., Inc., v. Dobson, 5\3

ea all ccnuenineetincasiecenbedneneniniancsseeaniides 24, 28, 43

Amchem Prods. v. Windsor, 521 U.S. 591

IPE ae icesicsmapebnsianeiindunntiisiphdimteenpdpnedieetemiuaaetes 49

American Airlines v. Wolens, 513 U.S. 219

Ie iicicisnninhadnidienmnendeteeS 26-27

American Dredging Co. v. Miller, 510 U.S. 443

ETI cececrssdveinntigetesitiaeiisininmeesinnemeutaniatetetmainenemnaneds 4]

Blue Cross of California v. Superior Court, 78

Cal. Rptr. 2d 779 (Cal. Ct. App. 1998)... 38

Boynton v. Carswell, 233 S.E. 2d 185

(Ga. 1977) overruled on other grounds by

Callaway v. Carswell, 242 S.E.2d 103

Oy SUD careisenseciniieiecnsctliciitascieiaieneierimteientibasnsnmpiniteniibamntan 38

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

2 ER RE esi yee ees 16, 40, 43, 45

Connecticut General Life Ins. Co. v. Sun Life

Assurance Co. v. Canada, 210 F.3d 771 (7th

Deposit Guaranty Nat. Bank v. Roper, 446 U.S.

gE Oa keer OAS NEN esa eo 49

Dickler v. Shearson Lehman Hutton, Inc., 596

ees

Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681

ia al a ahead 24

EEOC v. Waffle House, Inc., 534 U.S. 279

Ee at Pein ene ck enn 48

English v. General Elec. Corp., 496 U.S. 72

SEES RSET RS ne een ween ne eee Sees en ee 23

Episcopal Housing Corp. v. Federal Ins. Co.,

ee Ie NFO ciccncitaticcnsceciieninieliiiitinin

Erie Railroad Co. v. Tompkins, 304 U.S. 64

erated cicuvecveissinesininhiniediadinictibcaiadeddieitabadiulideaiiiiibetuninen

TABLE OF AUTHORITIES—Continued

Evins v. Richland County Historic Preservation

Comm'n, 532 S.E.2d 876 (S.C. 2000)...

Ex Parte Kampis, 826 So. 2d 819 (Ala. 2002).......

First Options of Chicago, Inc. v. Kaplan, 514

OF Bs Fey CII Picenensresesesnnscseresenscomeminene 28-29, 44, 48

Freightliner Corp. v. Myrick, 514 U.S. 280

Gilmer v. Interstate Johnson Lane Corp., 500

ee eee icnrnenesseinepietinnennanicingdntcbiaeanatinas:

Green Tree Financial Corp. of Alabama \v.

Randolph, $31 U.S. 79 (2000) .............cessseeees

Gregory v. Ashcroft, 501 U.S. 482 (1991)...

Hanna v. Plumer, 380 U.S. 460 (1968) .0.00........

Hines v. Davidowitz, 312 U.S. $2 (1941) 0.

Howsam v. Dean Witter Reynolds, Inc., 123 S.Ct

ae ae ee ee er

John Wiley & Sons, Inc. v. Livingston, 376 US.

Pe iithcidsadinagueastngaindunntidpsmmnaiuctentsniiben

Johnson v. Fankell, 520 U.S. QUT (1997)

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

FEE -nvsniasstitettimanieginasinannatitninntsioiainmnpsenenauanintaiiien

Major League Baseball Players Ass'n v. Garvey,

Fe Sas Se Re Pentvcavitcisentivincnesennsetciennens 16, 22,

Marina “ove Condo. Owners’ Assn., 34 P.3d 86

i ee ad IRD en hs Io nt aan

Mastrobuono vy. Shearson Lehman Hutton, Inc,

Fee Gee De COO Picctenssseviansecssnstnmniom 1S, 31, 32, 33,

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

SER PO iicsieesticlicsieniieaiesisiliesishiiaieptncnioaaiititinaiiiaiiis

Mitsubishi Motors Corp. v. Soler Chrvysler-

Plymouth Inc., 473 U.S. 614 (1985S) 0.

Moses H. Cone Mem 'l Hosp. v. Mercury Constr.

I, Sar Gr Ce sccsiininninsnintiacensnctisniiaisitainn

vil

TABLE OF AUTHORITIES—Continued

Page

Myrtle Beach Lumber Co., Inc. v. Willoughby,

PO ie See Ge GOED cerneencenseneseenssermeninsens 15, 30

O'Melveny & Myers v. FDIC, 512 U.S. 79

SIFU UTTscvcnantisictantstintesnanienavenmenautavemmeninnesmusens 28

Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999)... 33

Perry v. Thomas, 482 U.S. 483 (1987)... passim

fhillips Petroleum v. Shutts, 472 U.S. 797

IF GFOIIEDscsslereinicarniscanneinsnciasiimsinesiotenbiaitiaeatanapianntantenes 38, 48, 49

Pittman Mortgage Co. v. Edwards, 488 §.E.2d

Fe is GT Ricccinnteniniiasinneaainnanieenmenaiiaisin 16, 22

Plaza Development Services v. Joe Harden

Builder, Inc., 365 $.E.2d. 231 (S.C. Ct. App.

SIT acshiesivenietiecabalibeasiilaatseieleiniialiicniisisidaiiabinsiehinildduaes 15

Shearson American Express v. McMahon, 482

ek I Eiricnicieniesemeninaiteciiceininasinamineee 25

Southern Atlantic Fin. Services, Inc. _ v.

Middleton, 562 S.E.2d 482, 486 (S.C. Ct. App.

IEITTITTT crsshasheeoreavipuibineastevindesaediesiainaliallalanisdbialtinapianaeaeaits 30

Southland Corp. v. Keating, 465 U.S | (1984)...... passim

State v. Berger, 567 S.E.2d 265 (W.Va. 2002),

cert. denied sub nom Friedman's Inc. v. West

Virginia, 123 S.Ct. 695 (2002)... cceeeeees 40

Textile Workers Union of America v. Lincoln

ee 40

Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2002)....... 40)

Tilley v. Pacesetter Corp., 508 $.E.2d 16 (S.C.

ne ee 6

Volt Info. Sciences Inc., v. Bd. of Trustees, 489

Si Se A icsetcciitceBesmaincinianntssinsvetaniiiahone: passim

Zabinski v. Bright Acres Assocs, 553 §.E.2d 110

Vill

TABLE OF AUTHORITIES—Continued

STATUTES Page

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i iesthiinhaaticatlaataiiagiailidaiaaic halide ica las passim

i arsieniiishaiiniehiaiidaechdnschensisillcaetanantiaadanitinaeaid 42

I i isciepibhinisitiaininpiaieabaeieinieipsibcaatabiitadile 16, 42, 43, 45

iy Weinpiciieihilleitneiapiibiepdd ahi 21

iP Soe essiesiiiiipaiadahiabiabialienideiiaininndiniieaseasaiuaanmetinini 17

B.C. Come Ame. GO 1S-4B- 16 .nn..cccccccccccccccscccecessscoses 21

fe eenaaeree 16-17

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i Sapo cidisisicisteblahituiaibcaiiiiiieaies 48

fe eren 5

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atin UU idlahihiahdinieaiii tia ia ah a 6

RULES

8 «Rf RIE R eer a ee 48

SR eee ee 41,45

es Ns es i 45

SaaS. Aili iaiesiiciainoasbinnseheiippaiidhenuniidnuiesiemamtebiieeoniigis 12,31

OTHER AUTHORITIES

American Arbitration Association website, http://

www.adr.org/index2. | jsp?JSPssid=15739 ........ 25

NASD Code of Arbitration Procedure, Section

STD siadtcicsiiietibesiariennseinoudhassiebiadiiininiihiitieicatac 50

Ralph K. Anderson, Jr., SOUTH CAROLINA ©

REQUESTS TO CHARGE - CIVIL, § 19-7

Contract Rules of Construction (2002).............. 30

Restatement (Second) of Contracts §206 (1981)... 31

Sternlight, Arbitration Meets the Class Action,

42 Wm. & Mary L. Rev. 1, 8 (2000) .........00000... 50

wae ae

IN THE

Supreme Court of the United States

No. 02-634

GREEN TREE FINANCIAL CorpP. A/K/A GREEN TREE

ACCEPTANCE Corp. A/K/A GREEN TREE FINANCIAL

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

Petitioner,

Vv.

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 Writ of Certiorari

to the Supreme Court of South Carolina

BRIEF FOR RESPONDENTS

STATEMENT

This case concerns whether the Federal Arbitration Act

(“FAA”) requires that an arbitration clause, governed by state

law and interpreted by the state’s highest cor .* to allow class

arbitration, be reinterpreted under a new federal standard of

FAA contract interpretation to foreclose class arbitration.

Green Tree wrote a sweeping arbitration clause in its

standard-form adhesion contract and imposed it on respon-

dents when they obtained mortgage-secured financing from

Green Tree for home improvements or manufactured housing

in South Carolina. That agreement stated that it would be

“governed by the law of the State of South Carolina,” R. App.

2162, which permits class arbitration in the absence of

contract language specifically forbidding it. Employing

standard rules of contract interpretation applicable to all other

contracts, the state high court held that Green Tree’s clause

“does not limit the arbitration to non-class arbitration,” Pet.

App. 19a, and that South Carolina law permits class-wide

arbitration, id. at 2la-22a. Under these circumstances, it is

consistent with the FAA for respondents to pursue their

wholly state-law claims in an arbitration class action.

Years before respondents filed these cases, Green Tree had

been held liable to other individuals for the same violations at

issue here. Rather than correct its unlawful conduct, Green

Tree continued to impose its illegal credit procedure on

thousands of additional borrowers. The arbitrator found that

Green Tree had engaged in “wilful, wanton and egregious”

disregard of state law. Pet. App. 108a. After persisting for

years in wholesale violation of the South Carolina Consumer

Code (“Consumer Code”), undeterred by successive individ-

ual cases, Green Tree opposes class treatment in this case.

When respondents sought redress for Green Tree’s pred-

atory lending practices, they were bound by contract to arbi-

trate before an arbitrator chosen by Green Tree. Respondents

filed their two complaints as class actions, and the arbitrator

decided to proceed on a class-wide basis in both cases. Green

Tree objected to class arbitration, however, asserting that it

was foreclosed by the arbitration clause. Every legal decision

maker to have considered the question—including the arbitra-

tor himself and the state courts up to and including the South

Carolina Supreme Court—has uniformly concluded that the

agreement permitted class arbitration, and that respondents’

claims were appropriately arbitrated on a class-wide basis.

Green Tree now seeks to convert the state-law question of the

scope of the arbitration clause into a federal question under

the FAA. That position is untenable. Green Tree advocates a

dramatic expansion of the reach of the FAA into routine

matters of state law that was never intended by Congress and

cannot be squared with this Court’s cases.

1. The Arbitration Agreement. Petitioner Green Tree

drafted the arbitration agreement at issue in this case and

included it in a standard form consumer Retail Installment

Contract and Security Agreement (“Agreement”). Green

Tree presented the Agreement on a take-it-or-leave-it basis to

each member of the respondent class when the prospective

borrower sought to purchase manufactured housing or home

improvements financed by Green Tree. The underlying claim

common to all the class members is thus governed by the

same arbitration clause in the same standard-form contract

of adhesion.

Green Tree’s Agreement barred the use of juries, but

otherwise said nothing about procedures for arbitration. In-

stead, it generally provided that “this contract will be govern-

ed by the law of the State of South Carolina.” R. App. 2162.

South Carolina law permits class arbitration, and neither the

arbitration provision nor any other document Green Tree used

in the transactions at issue made any reference to waiver of

class actions. The arbitration clause stated only that the par-

ties waived their right to a jury trial, both in arbitration and in

court. Pet. App. 110a.' Not until November 1998, well after

the parties had completed the transactions at issue in this

case, did Green Tree amend its arbitration clause to require

signatories to waive their right to “to participate as a repre-

' Green Tree’s arbitration clause preserved Green Tree’s own right to

elect to go to court when if sought enforcement of any “mortgage, deed or

trust, or other security agreement,” yet provided that any such suit would

not impair Green Tree’s right to compel purchasers to arbitrate their

claims, including any counterclaims to claims Green Tree filed in court.

Pet. App. Illa.

sentative or a member of any class of claimants pertaining to

any claim arising from or relating to this agreement.”

Green Tree’s Agreement provided for mandatory, binding

arbitration of “[a]ll disputes, claims, or controversies arising

from or relating to this contract or the relationships which

result from this contract, or the validity of this arbitration

clause or the entire contract.” The Agreement specifically

granted the arbitrator authority over “all disputes arising

under case law, statutory law, and all other laws, including,

but not limited to, all contract, tort, and property disputes.”

The Agreement did not set forth arbitration procedures, but

instead conferred on the arbitrator “all powers provided by

the law and the contract.” Those powers, the agreement

stated, “shall include all legal and equitable remedies,

including, but not limited to, monetary damages, declaratory

relief, and injunctive relief.” Pet. App. 1 10a.

2. The Underlying Claims. The respondent classes

assert only state-law, non-diversity claims arising under the

Consumer Code. The Bazzle and Lackey cases, consolidated

in the final opinion issued by the South Carolina Supreme

Court, began as two class actions arbitrated separately before

the same arbitrator. Purchasers of mobile homes comprise

the Lackey class, and purchasers of home improvements

comprise the Bazzle class. Both cases involve real-estate

secured transactions, all of which Green Tree structured in the

same way, using the same agreement, and all of which were

affected by the identical violation of state consumer law. As

the arbitrator ultimately found, Green Tree violated the class

members’ rights by systematically ignoring a clear statutory

requirement that creditors in real-estate secured transactions

* See Resp. Reply Brief to Amici Curiae, filed in No. 00-CP-18-443

(Supreme Court of South Carolina), at 6 & Attachment A. The validity of

those agreements is not at issue in this case.

alert consumers of the need to retain their own lawyers and

insurance agents to represent their interests.

a. The South Carolina Attorney Preference law. \n \982,

the South Carolina General Assembly (“General Assembly’’)

amended the Consumer Code to relieve creditors of usury

restrictions, but sought to protect consumers against predatory

lending practices by reinforceing consumers’ right to legal

representation and insurance advice in real-estate secured

transactions. The 1982 Consumer Code amendments elimi-

nated caps on the interest rates that creditors could charge for

consumer credit, and authorized creditors to charge certain

fees. 1982 S.C. Act 385 § 56. To safeguard consumers, the

General Assembly also included a requirement that creditors

advise each consumer of his or her right to retain an attorney

and insurance agent to provide professional services at the

closing of real estate transactions. S.C. CODE ANN. § 37-10-

102 (the “Preference Statute”).” Under the Preference

Statute, the creditor was required to record on the first page of

each credit application the consumer’s chosen representa-

tives. /d. The Preference Statute applies to all consumer

loans secured by real estate without regard to whether the

underlying contract contains an arbitration clause. The Gen-

eral Assembly enacted the Preference Statute to prevent

creditors from locking consumers into usurious interest rates

or other unfair contract terms and securing those loans with

* Section 37-10-102(a) provides, in pertinent part: Whenever the

primary purpose of a loan that is secured in whole or in part by a lien on

real estate is for a personal, family or household purpose—{a) The

creditor must ascertain the preference of the borrower as to the legal

counsel that is employed to represent the debtor in all matters of the

transaction relating to the closing of the transaction and . . . the insurance

agent to furnish required hazard and flood property insurance in

connection with the mortgage and comply with such preference, and the

credit application on the first page thereof must contain information as is

necessary to ascertain these preferences of the borrower.

the consumer’s real estate without the consumer having the

benefit of an attorney and insurance agent to give advice. In

the absence of professional guidance, consumers often fail to

appreciate the terms and the total dollar cost of a “deal.” and

may remain unaware that a loan will be secured by liens on

their real property that can hinder property sale or lead to

forfeiture if payment is not timely made. R. App. 1720, 1722.

In May 1997, after both the Bazzle and Lackey complaints

had been filed, the General Assembly amended the

Preference Statute. The Preference Statute previously placed

no special limits on the right of consumers to proceed against

violators on a class-wide basis. See Tilley v. Pacesetter

Corp., 508 S.E.2d 16, 21 (S.C. 1998). The statute’s pre-1977

penalty provision also provided that violators could be

required to forfeit the total amount of the loan finance charge,

repay to the consumer double the amount of interest collect-

ed, pay costs of the action, and allow the consumer to repay

the balance of the loan without any loan finance charges. See

Tilley, 508 S.E.2d at 36 n.2. The 1997 Preference Statute

amendments foreclosed future class actions for violations of

the Preference Statute and established a fixed penalty range

of $1,500-$7,500. The same amendment, however, expressly

directed that all Preference Statute cases “filed as class

actions, without regard to certification, prior to May 2, 1997,

may proceed.” 1997 S.C. Act 99 § 5. Bazzle and Lackey

were both filed before that date, and the General Assembly

was aware of the pendency of these and other Preference

Statute class actions when it amended the Consumer Code.

See R. App. 75a.

b. The Transactions. As noted above, the two cases at

issue here involve two types of transactions secured by South

Carolina real estate: mobile-home purchase transactions

(Lackey) and home-improvement transactions (Bazz/e).

—

—— a

;

In a typical mobile-home transaction (litigated in Lackey),

the purchaser entered into a preprinted consumer installment

contract and security agreement with Green Tree to buy a

mobile home. Green Tree's dealer had the purchaser fill out a

Green Tree credit application. The credit application did not

include the required Preference Statute disclosure. If Green

Tree elected to extend credit, it set the terms of the credit,

prepared all the necessary documents for closing, and wane-

mitted the documents to its dealer. The documents included a

mortgage prepared by Green Tree. The mortgage, on its face,

directed the local recording office to return tt directly to

Green Tree. No attorney was involved in those transactions,

nor were consumers advised of the need to consult counsel.

Pet. App. 87a-88a.

The Bazzle transaction is typical of a home-improvement

transaction. A home-improvement contractor offering financ-

ing through Green Tree solicited customers Goer-to-<oer,

offering home-improvement services. The contractor, acting

as a dealer for Green Tree, advised the customer that home

improvements could be financed. The customer —

credit application that was then submitted to Green Tree. .

dealer did not disclose the terms of the credit or the

encumbrance placed on the purchaser's existing real estate. .

the customer agreed to purchase home improvements, the

Green Tree dealer returned to the customer’s home with the

transaction documents. Pet. App. 61a-62a.

All of the transaction documents were standard preprinted

form contracts of adhesion prepared by Green Tree. Green

Tree set all of the terms of financing, including the rate of

interest. The documents, if explained at all, were not pre-

pared or reviewed by any attorney or agent for the purchasers.

Green Tree never gave the purchasers the required Preference

Statute disclosures. Pet. App. 6la-62a. Many purchasers did

not understand that they were securing the credit transaction

with a mortgage on their home, and would only discover

Green Tree’s mortgage when they attempted to sell or

refinance their home. R. App. 1720, 1722

3. The Proceedings Below

a. Lackey v. Green Tree. Daniel Lackey filed his class-

action complaint in state court on May 28, 1996. He alleged

that Green Tree systematically violated the Preference Statute

in manufactured-housing and home-improvement transactions

secured by South Carolina real estate. Green Tree answered,

and the Lackey plaintiffs moved for class certification.

R. App. 123-124. Green Tree then moved to stay the

litigation and compel arbitration, and the trial court denied the

motion because it found the arbitration clause unconscion-

able. Pet. App. 6a.

Green Tree appealed, and on March 3, 1998, the South

Carolina Court of Appeals reversed and remanded. Pet. App.

6a. The court of appeals held that the contract was not un-

conscionable, but agreed with the trial court that it was a

contract of adhesion. R. App. 3. The trial court on remand

entered a consent order on July 23, 1998, submitting the case

for arbitration before the Honorable Thomas J. Ervin, a

retired state circuit court judge chosen by Green Tree.

R. App. 75.

On August 19, 1998, the arbitrator held a hearing to

consider whether Green Tree's arbitration agreement prevent-

ed class arbitration. Following briefing and a hearing, the

arbitrator determined that the Agreement did not preclude

class arbitration and scheduled a class certification hearing.

R. App. 73.

On November 23, 1998, the arbitrator held a hearing on

class certification and certified the class. R. App. 71-72.

Contrary to petitioner's contentions (Pet. Br. 12), the

arbitrator did not “follow the approach that had been imposed

on him by the trial court in Bazzle.”* Rather, he

independently “determined that a class action should proceed

in arbitration” based on his “careful review of the broadly

drafted arbitration clause prepared by Green Tree.” Pet. App.

84a. The arbitrator “found that the requirements for class

certification were met and that class certification was appro-

priate.” /d. at 86a. The arbitrator approved a notice of class

arbitration to inform unnamed class members of their choice

to opt out, and class counsel mailed it to each class member.

J.A. 17-23. Ten persons opted out of the Lackey class. Pet.

App. 91a. The arbitrator also excluded from the class 36

persons whose transactions were closed outside of South

Carolina, and 73 persons whose contracts with Green JTree

did not include the arbitration clause. Pet. App. 90a- 91a.

The Lackey class was initially defined broadly to include

both manufactured-housing and home-improvement real-

estate-secured transactions. Once both the Bazz/e and Lackey

cases were in arbitration, however, Green Tree requested that

the home-improvement borrowers in the Lackey class be

bifurcated from the Lackey arbitration and consolidated into

the Bazzle class. The arbitrator granted that request, R. App.

* The Bazzle case was filed and class certification order entered while

Green Tree's appeal of the unconscionability decision in Lackey was

pending. At the time of the Lackey class certification hearing, the Bazzle

case had not yet been assigned to the arbitrator and the Bazz/e class

certification order was under challenge in a petition Green Tree filed in

the South Carolina Supreme Court.

* The purchasers excluded from the arbitration classes because they

were not bound by arbitration clauses brought a class action in court.

Green Tree Fin. Corp. v. Flemmings, C/A No: 96-CP-40-4282, Richland

County Court of Common Pleas. The parties in Flemmings stipulated to

the record developed in the Bazzle and Lackey arbitrations. The court

granted summary judgment on liability and awarded damages of $7500

per transaction. The court further found that Green Tree's conduct was

unconscionable, requiring that Green Tree forfeit all remaining interest.

Green Tree did not appeal.

58-59, and the cases thereafter were delineated by type of

transaction. The arbitrator maintained the separation between

Bazzle and Lackey because Green Tree operated distinct

home-improvement and manufactured-housing divisions, and

the facts regarding each division's efforts, if any, to comply

with the Preference Statute potentially raised distinct factual

questions as to each class.

The arbitrator held a trial on the merits on March 6-8,

2000, R. App. 643-994 (trial transcript), and held Green Tree

liable, finding that “Green Tree’s behavior in this matter was

wilful, wanton and egregious,” Pet. App. 108a. In his final

order and award, the arbitrator stated that Green Tree “failed

to provide any evidence or testimony of compliance” with the

Preference Statute, and failed to dispute that “a large number”

of its contracts during the relevant time period were

completed in violation of that law. /d. at 67a & n.4. The

arbitrator awarded $5,000 per transaction to each of the

Lackey class members.

After the arbitrator issued his final order, Green Tree

moved the state court to vacate and remand that order based

in part on assertions that the Agreement barred class

arbitration. The court denied the motion, and granted plain-

tiffs’ motion to confirm the award. Pet. App. 36a-S4a. The

court observed that:

the contract itself states that all disputes, claims or

controversies relating to the contract or the validity of

the arbitration clause or the entire contract shall be

resolved by binding arbitration by the arbitrator. Here,

Green Tree drafted its own arbitration clause making

clear that the parties agreed to arbitrate arbitrability and

the decision by the Arbitrator to arbitrate this matter as a

class is binding on Green Tree.

Pet. App. Sla. The court rejected Green Tree’s argument that

the clause’s reference to “this contract” foreclosed class-wide

arbitration: “Th{e] ‘all powers’ language provided by the

clause is in addition to the contract rights and remedies

and includes the right to determine class arbitration.” Pet.

App. 49a.

Green Tree appealed, and the state supreme court accepted

jurisdiction, consolidating the appeal with a parallel appeal in

Bazzle. Pet. App. 2a.

b. Bazzle v. Green Tree. \n March 1997, Lynn and Burt

Bazzle filed suit against Green Tree for violating the Prefer-

ence Statute in home-improvement transactions secured by

real estate. Pet. App. 56a. The plaintiffs moved for class

certification and Green Tree moved to compel arbitration. In

late 1997, following local practice of ruling on motions tn the

order in which they are filed, the South Carolina tral court

heard argument on and granted the Bazzles’ motion for class

certification, R. App. 1350-1358, and then heard argument on

and granted Green Tree’s motion to compel arbitration, R.

App. 1359-1363. The judge also ordered that all foreclosure

proceedings against plaintiff class members be stayed pend-

ing arbitration. R. App. 1363. Green Tree made no argument

that the trial court lacked power to certify a class pending

arbitration. R. App. 1448-1449.

In support of class certification, the court concluded that

“clearly all the prerequisites of [South Carolina] Rule [of

Civil Procedure] 23 have been met.” Numerosity was readily

met because “Green Tree admits that neither it nor its dealers

have advised consumers that they had a right to select a

closing attorney or insurance agent,” and Green Tree engaged

in “at least 3,600 similar type transactions.” The legal and

factual questions at stake were common, “apply|ing] to all

class members,” and the named plaintiffs’ claims were typical

of those of the class because “the named plaintiffs, as well as

all the members of the putative class, have identical claims

against the defendants.” The adequacy of representation by

the named plaintiffs, who had “no potential for conflicting

interest” with class members, and by their counsel, who had

“experience and past success in matters strikingly similar to

the instant case,” was also clear and not disputed. Finally, the

court found that the South Carolina Rule 23 $100 amount-in-

controversy requirement was met. The court ordered plain-

tiffs to “provide actual notice to the class members in

accordance with Rule 23 of the South Carolina Rules of Civil

Procedure,” and to provide class members the opportunity to

opt out of the class. R. App. 1352-1357, 1348. Twelve

members elected to opt out of the Bazz/e class. Pet. App. 68a.

In January 1998, Green Tree urged the trial court to

reconsider its order certifying the class, arguing that ‘class

arbitration of the plaintiff's claims is not authorized under the

existing agreement of the parties and the law interpreting the

Federal Arbitration Act.” R. App. 1451. The court denied

the motion, noting that the cases that Green Tree cited “imply

that class arbitration is possible given the right set of circum-

stances.” The court also found that Green Tree’s arbitration

clause “is so broad that one can easily infer that both parties

intended to include class arbitration.” R. App. 1347."

On May, 12, 1999, Green Tree moved the trial court to

dismiss or in the alternative to decertify the class in whole or

in part, R. App. 1455, but the court denied the motion for

want of jurisdiction over a matter pending in arbitration, Pet.

App. 29a. Two and a half years after the court granted Green

Tree’s motion to compel arbitration, the Bazz/e case was sent

to arbitration. Although Judge Ervin had by then certified a

class in Lackey, Green Tree chose him to arbitrate Bazzle

as well.

* Both the South Carolina Court of Appeals and Supreme Court denied

Green Tree's attempts to obtain interlocutory appellate review. Pet. App.

57a-58a; see R. App. 1306.

Green Tree then moved the arbitrator to dismiss the action

or, in the alternative, to decertify the class, placing the Bazzle

class certification issue squarely before the arbitrator. Pet.

App. 29: R. App. 1455, 3533-3543. On March 23, 2000, the

arbitrator denied Green Tree's motion to dismiss and request

for decertification, but granted its request that the class claims

be narrowed to include only the Preference-Statute and

unconscionability claims. R. App. 1400-1404. As his action

makes clear, the arbitrator plainly understood that he had

independent authority to decide whether and how to proceed

with class arbitration, notwithstanding the trial court’s order

granting certification before sending the matter to arbitration.

After conducting a hearing on May 31, 2000, R. App.

1819-2023 (trial transcript) the arbitrator issued his written

award. Pet App. 55a-8la. The arbitrator held Green Tree

liable for violating the Preference Statute and awarded relief

on a class-wide basis. He found that Green Tree submitted no

evidence of compliance or attempted compliance with the

Preference Statute enacted years earlier. “Despite Green

Tree’s vast financial resources, it took no affirmative action

to educate itself on the requirements of the South Carolina

attorney preference statute.” /d at 69a. The arbitrator

concluded that the 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:

Green Tree offered no evidence of any nature that after it

was sued by [other consumers] in 1994 that it attempted

to comply with the preference statute... .

... After five suits, including [the Bazz/e suit], having

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 require-

ments. . . . Thus, based on the testimony and the

evidence of record, | 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, 69a.

Based on these determinations, the arbitrator awarded a

$5,000 penalty to aggrieved consumers in 1,323 home-

improvement transactions that occurred prior to the time

Green Tree had actual notice of its non-compliance. For the

remaining 576 home-improvement transactions that occurred

after Green Tree had actual notice of the unlawfulness of its

own practices and still did nothing to comply, the arbitrator

awarded $7,500 per transaction. Pet. App. 7la, 80a. The

arbitrator also awarded reasonable costs and attorneys’ fees.

Id. at 80a-8 1a.’

In accordance with applicable state law, the Bazzles filed a

motion to confirm the award in South Carolina trial court, R.

App. 1457, and Green Tree filed a motion to remand the

award for amendment and clarification, R. App.1538. On

September 15, 2000, the state trial court denied Green Tree’s

motion and confirmed the award of the arbitrator, deter-

mining that the arbitrator acted within his authority to hold

Green Tree liable on a class-wide basis. Pet. App. 27a-35a.

Green Tree appealed, and the South Carolina Supreme Court

assumed jurisdiction to hear the appeal in consolidation with

the Lackey case. Pet. App. 2a.

” Petitioner’s suggestion (Pet. Br. 13) that class counsel's fee award

was excessive is baseless and, since it is a state law question, wholly

gratuitous. See Pet. App. 7la-79a (Arbitrator’s detailed justification for

award). Green Tree’s own clear and wilful law violations and ensuing

litigiousness necessitated substantial work by class counsel, despite the

fact that Green Tree lacked any colorable defense on the merits.

c. The South Carolina Supreme Court decision. The state

high court unanimously affirmed. Stressing that South

Carolina law “favors arbitration of disputes,” and that the

State courts accordingly “resolve any doubts concerning the

scope of arbitrable issues in favor of arbitration,” Pet. App.

17a, the court applied state contract law to hold that Green

Tree’s contract language “does not limit the arbitration to

non-class arbitration.” Pet. App. 19a.

The court emphasized that its decision rested on

“independent state grounds”: “[U]nder general principles of

contract interpretation, we construe Green Tree’s omission of

any reference to class actions against them.” /d. at 20a-2 1a.

The Court found the contract language ambiguous “{a]t best,”

Pet. App. 19a, noting that the requirement that ambiguous

language be construed against the drafter not only was well

settled in South Carolina, Pet. App. 17a (citing Myrtle Beach

Lumber Co., Inc. v. Willoughby, 274 S.E.2d 423 (S.C.1981)),

but also comports with this Court’s FAA jurisprudence, Pet.

App. |8a (citing Mastrobuono v. Shearson Lehman Hutton,

Inc., 514 U.S. 53 (1995)). The court specifically rejected

Green Tree’s argument that the arbitration clause’s reference

to disputes relating to “this contract” precludes class

arbitration. Pet. App. 19a.

The court also emphasized that “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.” Pet. App. 21a (citing Episcopal Housing

Corp. v. Federal. Ins. Co., 255 $.E.2d 451 (S.C. 1979); Plaza

Development. Services. v. Joe Harden Builder, Inc., 365

S.E.2d 231 (S.C. Ct. App. 1988)). The court pointed to South

Carolina precedent allowing consolidated arbitration and

recognized that some jurisdictions foreclosed class arbitra-

| |

tion based on their own state rules against consolidated

arbitration. Pet. App. 21a.

The court described its decision to reject implied waiver of

class arbitration as serving important state interests that are

directly implicated in this case. “If we enforced a mandatory,

adhesive arbitration clause, but prohibited class actions in

arbitration where the agreement is silent, the drafting party

could effectively prevent class actions against it without

having to say it was doing so in the agreement.” Pet. App.

22a. Such a result would thwart South Carolina’s interest in

vindicating its consumer protection laws. Indeed, under

petitioner’s approach, “parties with nominal individual

claims, but with significant collective claims, would be left

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

on its abuses of the law. Further, hearing such claims

(involving identical issues against one defendant) individu-

ally, in court or before an arbitrator, does not serve the

interest of judicial economy.” Pet. App. 22a.

The state supreme court also analyzed whether, notwith-

standing state law permitting class arbitrations, federal law

compelled the opposite result. The court observed that some

federal courts had followed Champ v. Siegel Trading Co., 55

F.3d 269 (7th Cir. 1995), to deny class arbitration in cases

brought in federal court under FAA § 4. The court reasoned

that it was not obliged to follow Champ because that case

articulated an exclusively “federal approach” based on an

application of § 4, which by its plain terms governs only a

petition to a “United States district court.” Pet. App. 12a

n.11, 20a. The court noted that the judgment sustaining the

arbitration award had particular force given the limited scope

of judicial review of arbitration decisions under both federal

and South Carolina law. Pet. App. 23a (citing Major League

Baseball Players’ Ass'n v. Garvey, 532 U.S. 504 (2001) (per

curiam); Pittman Mortgage Co. v. Edwards, 488 S.E.2d

335, 337-38 (S.C. 1997) (interpreting S.C. CODE ANN.

§ 15-48-130, the state-law analogue to FAA § 10)). To

overturn an arbitrator's decision, as Green Tree itself

acknowledged, it must show that “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.” Pet. App. 24a (citing Green Tree brief and state

case) (emphasis in opinion). Because “the arbitrator did not

act in manifest disregard of the law by permitting [the class

arbitration} to proceed,” the court upheld the arbitrator’s

awards in both the Bazz/e and Lackey cases. /d.

Green Tree and its amici also asserted that the due process

rights of absent class members were violated by the class-

wide arbitration, but the court held that Green Tree had failed

to preserve that claim, and that, in any event, there was “no

evidence that the rights of the absent class members were not

protected in this case.” Pet. App. 25a. Acknowledging that

“protection of the due process rights of absent class members

is an essential component of all class actions, and one which

may necessitate particular attention in class-wide arbitra-

tions,” the court observed that the class members’ rights in

this case “appear to have been properly protected by the

notice given to all of them,” and the corresponding right to

opt out. /d. at 26a."

SUMMARY OF ARGUMENT

The South Carolina Supreme Court applied ordinary state

contract doctrine to hold that the arbitration clause “does not

limit the arbitration to non-class arbitration,” Pet. App. 19a,

* In December 2002, petitioner filed for relief under the United States

Bankruptcy Code. Substantially all of petitioner's assets are being sold

and petitioner is being liquidated. The judgment of the South Carolina

Supreme Court in this case is secured by bonds, but if that judgment were

reversed and these 3,700 consumers remitted to individual arbitrations,

they likely would have limited, if any, recourse for petitioner’s violation

of law.

and thus permits class-wide arbitration in the arbitrator’s

discretion as authorized by South Carolina law, id. at 21a-

22a. The parties’ agreement did not specify the procedures to

be used in arbitration under it, but did specify that South

Carolina law would govern. Under South Carolina law, class

arbitration is permissible in appropriate circumstances where

the parties’ agreement does not foreclose it.

Petitioner urges reversal, as a matter of federal law, on the

ground that the state high court misread the parties’ contract.

Arguing that the FAA mandates enforcement of arbitration

agreements “in accordance with their written terms,”

petitioner attempts to spin a preemptive federal rule of

arbitration-contract interpretation from snippets of language

taken out of context from this Court’s cases. Under

petitioner’s proposed rule, any party displeased with a state

court’s interpretation of an arbitration agreement would have

a federal claim that the contract was not interpreted “in

accordance with its written terms.” The FAA effected no

such wholesale federalization of matters of state law.

There is no express or field preemption under the FAA.

Conflict preemption under the Act is limited to state law that

discriminates against or disfavors arbitration as such, and the

decision here did neither. This Court’s references to the

enforcement of arbitration agreements “according to their

terms” are simply directives to ensure that courts repudiate

historical practices of voiding arbitration agreements due to a

bias in favor of adjudication, and instead interpret those

agreements neutrally under ordinary principles of state law.

That language was not meant to displace routine state-law

contract interpretation with federal law.

To the contrary, it is well settled that “the interpretation of

private contracts is ordinarily a question of state law” under

the FAA. Volt Info. Sciences Inc. v. Bd. of Trustees, 489

U.S. 468, 474 (1989). The state supreme court faithfully

interpreted the Agreement in accordance with generally

applicable principles of state law to permit the arbitrator to

conduct a class arbitration. The contract contains no prohibi-

tion on class arbitrations, grants the arbitrator all powers

under the law including equitable powers, and authorizes

arbitration of all disputes arising from or related to the

contract or the parties’ relationship. Because the South

Carolina Court’s routine application of ordinary state contract

law principles to this agreement neither discriminated against

nor disfavored arbitration, there is no ground for federal

preemption here.

Nor is there any warrant in the FAA to fashion a special

federal background rule that would prohibit class arbitration

unless the parties’ agreement explicitly authorized it. The

Court in Vo/t recognized that the FAA leaves room for states

to fashion their own procedures to facilitate multiparty

arbitration. Class arbitration meshes even more comfortably

with the FAA than the rule in Vo/t providing for stays of

arbitration pending related litigation. It would distort the

FAA beyond recognition to find in it presumptive mistrust of

arbitrators’ abilities to handle potentially complex procedures

like class arbitration. As petitioner itself acknowledges, the

FAA does not establish any inherent clash between arbitration

and class actions. Pet. Br. 32 (“No one can doubt that the

parties to an arbitration could agree to proceed in such a

fashion.”), id. at 42. The FAA’s complete silence on class

arbitration, together with the compatibility of class treatment

and arbitration as a practical matter, shows the FAA’s lack of

any preemptive effect here.

Petitioner does not argue that the arbitrator misapplied

class action standards. Here, each and every one of the

numerous class members was governed by the same agree-

ment to arbitrate, their identical underlying claims all were

subject to arbitration, the case unquestionably met the State's

standards for class certification, and only those persons who

eee

did not opt out of the class proceeding before the arbitrator

were included. This case was an ideal candidate for class

arbitration, and the arbitrator succéssfully conducted a class

arbitration. Nor is petitioner claiming that the arbitrator erred

in finding it liable with respect to anyone in the respondent

class. The illegality of Green Tree’s challenged conduct has

long been clear.

Petitioner’s objective here is instead to find a way to avoid

having to pay each person whose rights it admittedly violated.

Despite earlier awards against it in individual cases raising

the same claim, Green Tree persisted for years in violating

the Consumer Code in thousands of additional transactions in

South Carolina. Now that it has been held liable to a class, it

argues that the FAA forecloses class arbitration, and that the

agreement to arbitrate silently waived the right to sue on a

class-wide basis. The FAA has no such effect. It does not

displace state law that permits class arbitration. Class arbitra-

tion here, under a contract that did not purport to foreclose it,

served the State’s interest in effective and efficient enforce-

ment of is laws, and did so in a manner fully consistent with

the FAA.

ARGUMENT

I. THE SOUTH CAROLINA SUPREME COURT'S

DECISION TO PERMIT ARBITRATION OF

CLASS CLAIMS FULLY COMPORTS WITH

THE FAA

A. Under the FAA, State Law and Arbitrator

Discretion Supply Rules of Arbitration

Procedure Not Specified in an Agreement to

Arbitrate

The decision of the South Carolina Supreme Court fully

accords with the parties’ Agreement and the text and pur-

poses of the FAA. As that court held, the parties’ Agreement

places no limits on an arbitrator's ability to conduct class

arbitration. See Pet. App. 19a; see also Point Il, infra. The

only matter of arbitration procedure directly addressed by the

agreement in this case is the unavailability of a jury. Pet.

App. 110a. Such lack of any other specification leaves

matters of arbitration procedure to the arbitrator's discretion,

within the parameters set by state law and the FAA. The

arbitrator was thus free to proceed on a class-wide basis in a

fitting case, and he appropriately elected to do so here.

The FAA says nothing about the procedures to arbitrate

state-law claims. Section 7 of the FAA—which gives arbi-

trators power, backed by the federal courts, to summon

witnesses to arbitration—is the only provision of the Act that

addresses arbitration procedures, and even that provision is

directed exclusively to federal cases. 9 U.S.C. § 7 (referring

to “United States district court” and “courts of the United

States”).” The FAA does not speak to whether an arbitrator

may permit plaintiffs to proceed on a class basis, for “there is

no federal law favoring arbitration under a certain set of

procedural rules.” Volt Info. Sciences, Inc. v. Bd. of Trustees,

489 U.S. 468, 476 (1989); Southland Corp. v. Keating, 465

U.S. 1, 11 n.6 (1984) (“The procedures to be used in an

arbitration are not prescribed by the [FAA]”).

Selection of arbitration procedures not specified by an

arbitration agreement or mandated by state law rests within

the arbitrator's discretion. “[{P}rocedural questions which

grow out of the dispute and bear on its final disposition’ are

presumptively mot for the judge, but for an arbitrator, to

decide.” Howsam v. Dean Witter Reynolds, Inc., 123 S.Ct.

588, 592 (2002) (quoting John Wiley & Sons, Inc. v.

Livingston, 376 U.S. 543, 557 (1964)).

* State law provides the analogous procedure for state arbitrations.

S. CAR. Cope ANN. § 15-48-10 (providing subpoena power to state

arbitrators).

Even if there were some doubt that the agreement in this

case left to the arbitrator the choice of arbitration procedures,

including class arbitration, his decision to proceed on a class

basis must be accorded great deference. It is well settled that

“questions of arbitrability must be addressed with a healthy

regard for the federal policy favoring arbitration.” Moses H

Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24

(1983); Zabinski v. Bright Acres Assocs., 553 S.E.2d 110, 118

(S.C. 2001) (“unless the court can say with positive assurance

that the arbitration clause is not susceptible to an

interpretation that covers the dispute, arbitration [of the

disputed question] should be ordered”). Thus, in deciding

whether the parties’ agreement authorized the arbitrator to

certify a class, this Court should resolve any doubts about the

matter in favor of the arbitrator's decision. Matters within an

arbitrator's power, such as the procedures for conducting the

arbitration, are ordinarily subject to only the most limited and

deferential judicial review. Major League Baseball Players’

Assoc. v. Garvey, 532 U.S. 504, 509 (2001) (per curiam)

(judicial review of arbitration decision is “very limited,”

warranted only when the arbitrator “strays from interpretation

and application of the agreement and effectively ‘dispenses

his own brand of . . . justice’”); Pittman Mortgage Co. v.

Edwards, 488 S.E.2d 423, 337-38 (S.C. 1997) (arbitral

awards subject to narrow review under S.C. CODE ANN.

$ 15-48-130(a)).

B. FAA § 2 Preemption Is Limited to Ensuring

that State Law Does Not Disfavor Arbitration

FAA preemption is narrow. “The FAA contains no express

preemption provision, nor does it reflect a congressional

intent to occupy the entire field of arbitration.” Volt Info.

Sciences, Inc., v. Bd. of Trustees, 489 U.S. 468, 477 (1989).

Thus, petitioner must depend on conflict preemption, which

requires a showing that the state rule would “actually conflict

with federal law” by “standing as an obstacle to the accom-

plishment and execution of the full purposes and objectives of

Congress.” id. at 477 (quoting Hines v. Davidowitz, 312 U.S

52, 67 (1941)). The guiding rule is that preemption is

distavored, English v. Gen. Elec. Co., 496 U.S. 72, 90 (1990),

especially where the federal law with which the state decision

assertedly conflicts is completely silent on the matter, see

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

FAA ts on class arbitration.

There is no FAA preemption here The principal

preemptive thrust of the FAA is to displace state laws that

would frustrate the parties’ choice to arbitrate rather than

litigate. To that end, FAA § 2 states that

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. Congress thereby “withdrew the power of the

States to require a judicial forum for the resolution of claims

which the contracting parties agreed to resolve by

arbitration.” Southland Corp. v. Keating, 465 U.S. at 10; see

Green Tree Financial Corp. of Alabama v. Randolph, 53}

U.S. 79, 89 (2000) (emphasizing purpose of FAA “to reverse

the longstanding judicial hostility to arbitration agreements’).

This Court has held that the FAA applies to state-law disputes

such as this one in a very limited fashion, for the specific

purpose of overriding state-law favoritism toward judicial

rather than arbitral resolution.

This Court has identified only two categories of state law

that are subject to conflict preemption under Section 2,

neither of which is applicable here: First, the FAA displaces

State-law principles that target arbitration agreements for

a a 2

EOSS’N:CSO OOOO EO

special or different treatment from other contracts, on the

ground that such arbitration-specific law “would place arbi-

tration clauses on an unequal ‘footing,’ directly contrary to

the [FAA’s] language and Congress's intent.” Doctor's

Assocs., Inc. v. Casarotto, 517 U.S. 681, 686 (1996) (quoting

Allied-Bruce Terminix Cos., Inc., v. Dobson, 513 U.S. 265,

281 (1995)). “Congress precluded states from singling out

arbitration provisions for suspect status.” Casarotto, 517

U.S. at 687. The Court in Casarotto accordingly held that

FAA § 2 preempts Montana law that imposed special notice

requirements only on contracts “subject to arbitration.” /d. at

683. In Allied-Bruce, the Court applied the anti-targeting

principle to hold that FAA § 2 preempts Alabama law

categorically invalidating written, pre-dispute arbitration

agreements. Allied-Bruce, 513 U.S. 265. Second, the FAA

preempts state law that would exempt certain categories of

cases from arbitration, because such state law evinces the

very mistrust of arbitration that the FAA serves to counteract.

See Perry v. Thomas, 482 U.S. 483 (1987) (FAA § 2

preempts California law exempting wage claims from

arbitration); Southland Corp, 465 U.S. | (FAA § 2 preempts

provision of California Franchise Investment Law that state

courts had interpreted to exempt from arbitration claims

arising under that law).

Neither of those categories of preemption ousts South

Carolina law permitting class arbitration under contracts that

allow for it. Aggregation of like claims subject to the same

arbitration agreement does not “place arbitration clauses on

an unequal ‘footing’” with other contracts in violation of the

Casarotto anti-discrimination principle. Given that claims

relating to the same contract could be pursued in court on a

class-wide basis, the mere presence of an arbitration clause

should not, under Casarotto, make class proceedings

unavailable.'” Nor does the state court’s decision evince the

mistrust of or hostility toward arbitration condemned in

Perry. To the contrary, allowing arbitrators to manage

important cases with procedural sophistication shows equal

respect for, rather than skepticism of, the arbitral forum. ''

” Indeed, the very claim at issue in this case proceeded to judgment in

a class action in state court brought by those purchasers whose contracts

with Green Tree did not contain arbitration clauses, and whom the

arbitrator therefore excluded from the arbitration classes. See Flemmings

v. Green Tree Fin. Corp., note 5, supra, at 9

' Petitioner and its amici intimate that permitting class arbitration is

somehow anti-arbitration because it raises the prospect that some

arbitrations could come to resemble litigation, to the point where certain

parties might no longer find arbitration so attractive. Pet. Br. 39-41; eg

Brief of Washington Legal Foundation as Amicus Curiae, at 13 (“The real

danger here is that by imposing class-based arbitration procedures in the

face of a silent arbitration clause, the South Carolina courts are

discouraging parties from agreeing to arbitration in future cases.”); Brief

for American Bankers’ Assn. ef al., as Amici Curiae, at 18. Although

arbitration, even on a class basis, may often be simpler and faster than a

trial, the FAA simply does not promise any particular level of simplicity

or relative economy; “potential complexity should not suffice to ward off

arbitration.” Mitsubishi Motors Corp v. Soler Chrysler-Plymouth, Inc.

473 U.S. 614, 633 (1985); see Shearson American Express v. McMahon,

482 U.S. 220, 232 (1987) (rejecting arguments that Securities and RICO

claims are non-arbitrable due to their complexity). This Court's

endorsement in Mitsubishi Motors of arbitration of antitrust violations,

which “can affect hundreds of thousands —perhaps millions —of people

and inflict staggering economic damage,” 473 U.S. 614, 655 (Stevens, J,

dissenting), belies any assertion that complex matters cannot be arbitrated.

The same “adaptability and access to expertise,” id at 633-634, that make

antitrust, securities and RICO claims not inherently unsuited to arbitra-

tion support confidence in arbitrators’ ability to conduct class proceedings.

See generally American’ Arbitration Association website,

http://www.adr.org/index2.|.jsp?JSPssid=15739 (“Over the last several

decades, the American Arbitration Association has administered over

100,000 mass claims cases for a wide range of class action and mass

claims involving insurance, bankruptcy and discrimination matters.” )

DE aS...

il. THE FAA DOES NOT ESTABLISH A FEDERAL

COMMON LAW OF CONTRACT INTERPRE-

TATION UNDER WHICH THE ARBITRATION

AGREEMENT’S REFERENCE TO “THIS

CONTRACT” WOULD FORECLOSE CLASS

ARBITRATION

Petitioner does not challenge the South Carolina Supreme

Court's reading of the Agreement, under South Carolina law,

as allowing class arbitration—indeed, this Court has no

authority to review that determination of state law. Nor does

petitioner maintain that the FAA expressly or implicitly

precludes all class arbitration. To the contrary, it expressly

concedes that parties may choose to proceed on a class-wide

basis in arbitrations governed by the FAA. Pet. Br. 32, 42.

Petitioner is thus reduced to arguing that an asserted FAA

requirement that contracts to arbitrate be “enforced according

to their written terms” establishes a body of federal contract

law for interpretation of arbitration agreements that would

authorize federal courts to second-guess state law. But there

is nothing in the FAA to suggest that Congress authorized the

federal courts to create a common law of arbitration contracts.

Because it cannot point to any general FAA prohibition of

class actions, petitioner is left with the case-specific conten-

tion that the contract language in this case precludes class

arbitration.

If this Court were to accept petitioner’s position, it would

invite any party unhappy with the results of a state court’s or

an arbitrator’s interpretation of an arbitration agreement to

seek review of routine questions of contract interpretation in

federal court by casting its complaint as one of misin-

terpretation—or in petitioner's terms, “rewriting’—of the

contract rather than enforcement “according to its written

terms.” The FAA establishes no such federal rule, but trusts

the state courts neutrally to apply their own contract law to

determine the meaning of arbitration clauses. Cf American

Airlines v. Wolens, 513 U.S. 219, 232 (1995) (finding

nonpreemption where it was implausible that Congress

intended to channel into federal court large body of routine

common-law contract claims).

The arbitrator and the state courts here faithfully applied

well-established South Carolina law of contract inter-

pretation, pursuant to a contract that expressly called for the

application of South Carolina law. Neither the arbitrator, nor

any of the numerous judges that Green Tree entreated to halt

the class arbitration in this case, agreed with Green Tree’s

interpretation of the Agreement.'" The FAA reserves

interpretation of state arbitration agreements to the state

courts, and the South Carolina Supreme Court's judgment

accords with the FAA and is not subject to second-guessing

by this Court.

A. Under the FAA, General Principles of State

Law Govern Questions of Interpretation of

Arbitration Agreements

Petitioner pins its case on assertions that the Agreement

must be read according to its written terms, see e.g. Pet. Br. at

18-22, and that those terms “foreclose” class arbitration. Pet.

Br. 42; see also id. at 17 (‘the parties’ intent is expressly to

the contrary” of the state rule permitting class arbitration); id

at 37 (asserting that “express limitations” of the contract

'? The state courts, as well as the arbitrator, time and again rejected

Green Tree's interpretation of the Agreement as foreclosing class

arbitration. See, e.g., Pet. App. 19a (unanimous opinion of South Carolina

Supreme Court); R. App. 1346-1347 (opinion of Dorchester County

Circuit Judge Patrick R. Watts in Bazzle denying defendant's motion for

reconsideration of class certification), R. App. 49a-50a (opinion of

Barnwell County Chief Circuit Judge Rodney A. Peeples in Lackey

denying defendant's motion to vacate arbitral award); R. App. 63-64

(opinion of Barnwell County Circuit Judge Gary E. Clary dismissing

Green Tree’s collateral action to stay class arbitration).

foreclose class arbitration). Under the FAA, however, the

state’s high court is the ultimate arbiter of the meaning of the

contract terms. The question whether the Agreement in this

case permitted the arbitrator to conduct class arbitration is a

matter of state law, which the arbitrator and state courts

resolved in respondents’ favor.

The FAA preserves a substantial role for state law in the

interpretation and enforcement of agreements to arbitrate. As

this Court has repeatedly made clear, “States may regulate

contracts, including arbitration clauses, under general contract

law principles.” Allied-Bruce, 513 U.S. at 281. Notwith-

standing the FAA, “the interpretation of private contracts is

ordinarily a question of state law, which this Court does not

sit to review.” Volt, 489 U.S. at 474. See also Perry, 482

U.S. at 492 n. 9 (state legislative and judicial law is

applicable to arbitration contracts if it deals with “contracts

generally” and does not construe arbitration agreements “in a

manner different from that in which it otherwise construes

nonarbitration agreements under state law”). As Allied-

Bruce, Perry, and Volt make clear, the general contract law

that applies in a case such as this is state, not federal, law.

Indeed, there is no general federal common law of contract

interpretation, see O'Melveny & Myers v. FDIC, 512 U.S. 79,

83 (1994), and the FAA is not a mandate to create one, cf.

Textile Workers Union v. Lincoln Mills, 353 U.S. 448 (1957).

Green Tree attempts to characterize language from this

Court’s cases as supporting special federal review to ensure

that arbitration agreements are enforced “according to their

written terms.” That is exactly what the South Carolina

Supreme Court did in this case. The Court refers to

enforcement of arbitration agreements “in accordance with

their terms” simply to mean that arbitration agreements

should be interpreted in the same manner as any other

contract. For example, the Court stated in First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) that

“commercial arbitration agreements, /ike other contracts, are

enforced according to their terms and according to the

intentions of the parties.” 514 U.S. 938, 947 (1995)

(emphasis added). Similarly, in Volt the Court explained that

the FAA “simply requires courts to enforce privately

negotiated agreements to arbitrate, like other contracts, in

accordance with their terms.” 489 U.S. at 478 (emphasis

added). The point of the reference to enforcement of

arbitration agreements “in accordance with their terms” is not

to impose a layer of routine federal oversight of questions of

arbitration agreement interpretation, but simply to place

interpretation of those agreements on the same footing as

other contracts, that is, precisely to ensure that they are

governed by generally applicable principles of state contract

law. None of the cases in which this Court has referred to

enforcement of arbitration agreements “in accordance with

their terms” had anything to do with the supposed tension

between class actions and arbitration that petitioner urges,

nor, indeed, with any presumption against particular

procedures on the ground that they might be ill-suited to

arbitration. There is absolutely no evidence that Congress in

enacting the FAA sought to federalize routine matters of state

court contract interpretation, as petitioner’s argument

necessarily implies.

Petitioner’s argument not only mischaracterizes the

precedent, but also fails in its own terms. Where, as here, an

agreement does not purport to bar class arbitration, it is

difficult to see how class proceedings could have been other

than “in accordance with the terms” of the Agreement. Volt

acknowledges the latitude parties enjoy “to choose the terms

under which they will arbitrate,” 489 U.S. at 472, but there is

no requirement that the parties must specifically address in

advance all procedural issues that might arise in an

arbitration. If this Court’s reference to arbitration “in

accordance with the terms” of the agreement carried the

restrictive force that petitioner ascribes to those words,

arbitrations would grind to a halt. For example, Green Tree’s

Agreement in this case made no provision for discovery

within the arbitration, the order of motions and proof to be

submitted to the arbitrator, or other procedural matters that

the arbitrator addressed. Under petitioner’s approach of

exclusive reliance on authority spelled out in the contract,

even an individual plaintiffs claim could not have been

arbitrated under this Agreement. Because the state court’s

interpretation of the Agreement did not discriminate against

arbitration and was not hostile to arbitration, its resolution of

state law is not preempted by the FAA.

B. The State Court Faithfully Applied State Law

To Hold That The Agreement Permitted Class

Arbitration

Even if the FAA were construed to authorize federal court

review of state court contract interpretation, there would be

no basis for overturning the decision below. The South

Carolina Supreme Court, applying arbitration-neutral rules of

contract interpretation, concluded that the Agreement was “at

best” ambiguous with respect to class arbitration. Pet. App.

19a. In interpreting the Agreement, the court applied the

entirely unexceptional, generally applicable state-law rule

that an ambiguity in contract terms “should be construed

against the drafter.” Pet. App. 19a. That principle is well

settled in South Carolina, 3 as well as many other

'? See, e.g., Myrtle Beach Lumber Co., Inc. v. Willoughby, 274 S.E.2d

423, 426 (S.C. 1981) (cited in opinion below, Pet. App. 17a); Southern

Atlantic Fin. Services., Inc., v. Middleton, 562 S.E.2d 482, 486 (S.C. Ct.

App. 2002) (“It is well settled that ambiguities arising within a contract

must be construed against the drafter. This rule applies with particular

force in cases involving a contract of adhesion.”); Ralph K. Anderson, Jr.,

South Carolina Requests to Charge—Civil § 19-7, Contract—Rules of

Construction (2002) (standard jury instruction stating that “ambiguities

must be construed against the party who prepared the contract .. . . Where

jurisdictions.'* This Court has itself, in reviewing a federal-

court FAA case, approved of the precise rule the South

Carolina court used here: “the common-law rule of contract

interpretation that a court should construe ambiguous

language against the interests of the party that drafted it.”

Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, 62

(1995).

Il. The State Court’s Decision Is Strongly

Supported By State Law and the Terms of

the Agreement

The language in Green Tree’s Agreement creates an

implication in respondents’ favor considerably stronger than

the one this Court credited in Mastrobuono. While the

agreement does not use the words “class-wide arbitration” or

“class action,”"> it can be read affirmatively to authorize such

a procedure, and certainly provides no more than the most

strained support for petitioner’s contrary reading.

First, the Agreement’s own choice-of-law clause

authorized the application of South Carolina law to the

arbitration in this case, and South Carolina law permits class

actions in arbitration as well as litigation. See S.C. R. Civ. P.

23 (authorizing class actions); Pet. App. 21a (“no case law or

statute in South Carolina prohibits class-wide arbitration’)

(citing Episcopal Housing Corp. v. Federal Ins. Co., 255

a contract is entered into upon a form prepared by a party, the language of

the contract will be strictly construed against that party.”)

'* See Restatement (Second) of Contracts § 206 (1981) (“In choosing

among the reasonable meanings of a promise or agreement or a term

thereof, that meaning is generally preferred which operates against the

party who supplies the words or from whom a writing otherwise

proceeds.”).

'° Compare Green Tree's revised standard form contract containing an

express waiver of buyers’ rights to bring participate in class actions, supra

at 3-4.

S.E.2d 451 (S.C.1979) (authorizing consolidated arbitration

in appropriate circumstances)). Green Tree’s contract ex-

pressly states that “this contract will be governed by the

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

Agreement fails to specify any other set of procedural rules to

govern the arbitration, making state law a natural source to

fill that gap. Under South Carolina law, “state procedural

rules that do not undermine the enforceability of an otherwise

valid contract to arbitrate may be deemed to have been

incorporated into a contract through choice of law

previsions.” Zabinski v. Bright Acres Assocs., 553 S.E.2d

110, 118 (S.C. 2001). Green Tree’s own choice-of-law

provision thus incorporates the South Carolina default rule

permitting class arbitration.'°

Second, the Agreement expressly grants to the arbitrator

“all powers provided by the law and the contract,” which are

fairly understood to include the authority to certify a class.

The power to certify a class is a power provided by South

Carolina law, even if it is not otherwise expressly provided by

a contract. See R. App. 62-63 (trial court refusing to enjoin

class arbitration because contract’s “all powers provided by

the law” clause authorizes it).

Third, the Agreement gives the arbitrator power over “all

disputes” arising under any source of law whatsoever. Just as

'© Mastrobuono’s treatment of the New York choice-of-law provision

is not to the contrary. There was language in the Mastrobuono contract

that contradicted application of the choice-of-law clause to the disputed

damages question, 514 U.S. 58-59, and such contradictory language is

lacking here. Moreover, as the Court noted in Mastrobuono, it was

reviewing “a federal court's interpretation of [a] contract,” which was not

entitled to any special deference. The precedent more relevant to a state

case like this one is Volt, in which the contractual choice of state law

supported application of state multiparty arbitration rules. This case, like

Volt, 489 U.S. 486, is governed by the rule of “defer[ence] to the [state]

court's construction of its own State's law.” Mastrobuono, 514 U.S. at 60

n. 4 (distinguishing Volt on that ground).

the reference to “any controversy” in the agreement at issue

in Mastrobuono supported the arbitrator’s authority to award

punitive damages, so, too, the broad reference to “all

disputes” in the Green Tree agreement permits the arbitrator

to decide whether the arbitration should proceed on a class-

wide basis. See also Conn. Gen. Life Ins. Co. v. Sun Life

Assurance Co. of Canada, 210 F.3d 771, 774, (7th Cir. 2000)

(Posner, J.) (applying “usual methods of contract interpre-

tation” to hold that agreement to arbitrate “any dispute arising

out of the interpretation, performance or breach of this

Agreement “authorized consolidation of arbitration because

“the word ‘dispute’ . . . does not exclude a dispute involving

multiple parties”).

Fourth, the Agreement specifies that the arbitrator’s

authority is not limited to simple contract remedies, but

includes “equitable” powers. That reference can reasonably

be read to encompass authority to certify a class. “[T]he class

action was an invention of equity to enable it to proceed to a

decree in suits where the number of those interested in the

litigation was too great to permit joinder.” Phillips Petroleum

v. Shutts, 472 U.S. 797, 808 (1985) (emphasis added); see

Ortiz v. Fibreboard Corp., 527 U.S. 815, 832-837 (1999);

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

1991) (holding that authority to conduct class arbitration is an

equitable power of the arbitrator).

Fifth, the contract’s express waiver of the right to a jury

implies that other questions of arbitration procedure were left

to background principles of law and the arbitrator’s discre-

tion. South Carolina courts recognize as a general matter of

contract interpretation that “expressio unius est exclusio

alterius,” i.e., the expression of one thing implies the exclu-

sion of another. Evins v. Richland County Historic Preser-

vation Comm'n, 532 S.E.2d 876 (S.C. 2000). That principle

suggests that the Agreement, which expressly required buyers

to waive their jury trial rights, did not effect a waiver of any

other specific procedures.

Petitioner’s principal argument is that the Agreement’s

reference to disputes arising from or relating to “this con-

tract” precludes class arbitration. But the clause in which that

phrase appears refers to the underlying substantive claims and

defenses that must be arbitrated, and not to the procedures

that the arbitrator should use in conducting the arbitration.

It states:

All disputes, claims or controversies arising from or

relating to this contract or the relationships which result

from this contract, or the validity of this arbitration

clause or the entire contract, shall be resolved by binding

arbitration ....

Pet. App. 110a. That clause does not address multiparty

issues at all, but only makes clear that the agreement to

arbitrate encompasses not only contract claims as such, but

related tort or statutory claims, as well as gateway issues such

as the validity of the Agreement. As Petitioner itself charac-

terizes it, that clause “identifies the matters that will be

subject to arbitration.” Pet. Br. 8. There is no question that

the underlying claims of all the class members “relate[d]” to

the identical contracts they entered with Green Tree. Given

that the law in South Carolina does not prevent an individual

party to a bilateral contract to act as a class representative in

order to pursue claims relating to that contract in a class

action, there is no reason to think that the arbitrator would

lack the power to authorize a plaintiff to play a similar

representative role in an appropriate case pending in arbitra-

tion. If the Agreement contained the same sentence, but with

the word “litigation” in place of “binding arbitration,” nobody

would contend that the terms operated sub silentio to

foreclose class actions.

Even assuming the reference to “this contract” could some-

how be read to be relevant to procedures rather than to the

substantive matters to be arbitrated, it would not foreclose

class arbitration. It provides for arbitration, not just of claims

“arising from” the contract, but of any “disputes . . . relating

to this contract or the relationships which result from this

contract.” The dispute over whether class arbitration is

permissible “relates to” the contract and the relationships that

derive therefrom. It is a dispute about whether the named

plaintiffs may, in the context of their suit against the defend-

ant, play a role as representatives of other persons similarly

situated with respect to the defendant. The dispute also

“relates to” the substantive “claims” because it turns on the

typicality and commonality of the named plaintiffs’ claims

vis-a-vis those of the unnamed class members. The sentence

is devoid of limiting language that would support the notion

that the arbitrator could consider only procedural issues

relating exclusively to the two parties and not to identical

claims presented by similarly situated others under the same

contract language.

Green Tree’s reliance on the clause referring to “arbitration

by one arbitrator selected by us with consent of you” fares no

better. That clause sets forth the parties’ respective roles in

the selection of an arbitrator. It plainly was not designed to

limit the scope of any arbitral dispute to one that is

necessarily “bilateral.” Pet. Br. 39. Nor does the clause

guarantee Green Tree the right “to select, in the first instance,

the individual who would have authority to resolve the

disputes arising from or relating to each specific contract.”

Id. at 43.

Indeed, that argument is wholly circular: If the Agreement

is otherwise consistent with class arbitration, as we have

argued and the state high court held, then Green Tree's

selection of an arbitrator for any given plaintiff's claim was

subject to the possibility that the case might go forward under

that arbitrator on a class-wide basis. That argument is also

particularly weak in this case because plaintiffs filed class

complaints in both Bazzle and Lackey, putting Green Tree on

actual notice in both cases that its selection of an arbitrator

for each case would (unless one of its other anti-class-

arbitration arguments prevailed) amount to selection for

purposes of the class action."

Green Tree’s contention that the Agreement precludes

class arbitration is utterly implausible. As we have shown,

the Agreement’s terms, viewed evenhandedly under South

Carolina contract law, squarely refute Green Tree’s objection

that class arbitration is contractually “foreclosed.” Pet. Br.

42. The Agreement does not specifically mention class

proceedings, just as the contract in Mastrobuono did not

mention “punitive damages,” but the Agreement here, as

there, “strongly implies” the disputed coverage. 514 U.S. at

60. Green Tree is responsible for any ambiguity in its

Agreement, and thus “cannot now claim the benefit of the

doubt.” Mastrobuono, 514 U.S. at 63.

2. There is No Basis for Petitioner's

Contention That The State Court “Rewrote”

The Parties’ Agreement in Order To Serve

its Own Policy Preferences

Only in the most exceptional cases, in which a state court

has somehow distorted its law in a manner that discriminates

against or is hostile to arbitration rights, are questions of state

law subject to preemption under the FAA. See Point |. B.,

supra. Petitioner can show no such discrimination or hos-

'’ The unnamed class members’ right under the Agreement to withhold

their consent to Green Tree's selected arbitrator was preserved by the

right to opt out of the plaintiff classes—a right which several class

members elected to exercise. Moreover, in the context of a class action,

the reference to “you” may be read as plural. See Conn. Gen. Life Ins.

Co., 210 F.3d at 775 (Posner, J.) (reading reference to “each party” in

context of arbitrator selection provision to refer to each “side” in the

dispute).

8 ar ss A wir Mab enter >.

tility, and accordingly resorts to inflated rhetoric, asserting

repeatedly that the state court “modified,” “rewrote,” “re-

formed,” “distorted” or “attempted to improve upon” the

written terms of the parties’ contract, “disregarding” or

“ignoring” Green Tree’s chosen language in order to “im-

pose,” “intrude” or “superimpose” on it the court’s own pol-

icy preferences. See, e.g., Pet. Br. 3, 4, 5, 15, 18, 22, 23, 24,

25, 28, 30, 31, 32. Shom of the rhetoric, however,

petitioner’s argument amounts to nothing more than a quibble

with the arbitrator’s and the state court’s uniform interpre-

tation of the contract. All of Green Tree’s expressions of

outrage do not change the fact that, even if the state court

erred in applying its own law, which it plainly did not, there

is no federal issue in this case.

For example, petitioner decries what it characterizes as the

State “impos|ing] on the parties its own notions of ‘efficiency

and equity.” Pet. Br. 32; id. at 3. The court did no such

thing. Rather, as explained above, the court applied ordinary,

arbitration-neutral principles of contract interpretation and

found that the Agreement was at best ambiguous regarding

class arbitration and that, under state law, class arbitration

procedures were therefore available in appropriate cases.

Petitioner wholly miscasts the role of the “efficiency and

equity” inquiry to which the state court referred. Far from

signaling any free-ranging power to rewrite contracts to suit

the court’s own notions of fairness, the terms refer to

considerations relevant to an arbitrator’s decision whether to

certify a class where class procedures are an available option

under the contract.

iil. THE FAA DOES NOT CREATE A FEDERAL

PRESUMPTION AGAINST CLASS ARBITRA-

TION THAT WOULD FORECLOSE CLASS

ARBITRATION HERE

Where, as here, an agreement to arbitrate does not

expressly provide for or prohibit class arbitration, the South

Carolina background rule permits it. Although another state

might apply 4 different default rule,'* there is no preemptive

FAA background rule against class arbitration that foreclosed

South Carolina state law from permitting it here. Indeed,

petitioner’s concession (Pet. Br. 32) that parties are free to

agree to class-wide arbitration without running afoul of the

FAA makes any suggestion of an inherent conflict untenable.

A. The FAA Does Not Preempt State Court

Procedures For Multiparty Arbitration

Conflict preemption requires a showing that state law

actually conflicts with federal law. Yet the FAA is wholly

agnostic as to class arbitration. Petitioner consequently

cannot point to any actual conflict here.

This Court in Volt recognized that state procedures for

multiparty arbitration are compatible with the FAA. The

Court ruled that the FAA did not preempt a state-law

procedural rule that authorized arbitration of state-law claims

to be stayed pending litigation of related claims among

parties not subject to arbitration. 489 U.S. 468. As the Court

noted, “the FAA itself contains no provision designed to deal

with the special practical problems that arise in multiparty

contractual disputes when some or all of the contracts at issue

include contracts to arbitrate.” /d. at 476 n. 5. California

'* Compare Med Center Cars, Inc. v. Smith, 727 So.2d 9, 19-20 (Ala.

1998) (denying class arbitration where agreement did not specifically

provide for it) with Dickler v. Shearson Lehman Hutton, Inc., 596 A.2d

860 (Pa. 1991) (allowing class arbitration as within arbitrator's equitable

powers); Keating v. Superior Court, 645 P.2d 1192 (Cal. 1982), rev ad in

part on other grounds sub nom Southland Corp. v. Keating, 465 U.S. |

(allowing class arbitration where agreement does not foreclose it); Blue

Cross of California v. Superior Court, 78 Cal. Rptr. 2d 779 (Cal. Ct. App.

1998) (finding state rule permitting class arbitration not preempted by

FAA); Boynton v. Carswell, 233 S.E. 2d 185 (Ga. 1977) (allowing class

arbitration in challenges to local taxes), overruled on other grounds by

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

“ha[d} taken the lead in fashioning a legislative response to

this problem, by giving courts authority to consolidate or stay

arbitration proceedings in these situations in order to

minimize the potential for contradictory judgments.” /d.

Application of the California rule was arguably hostile to

arbitration because it allowed the state court to stay arbitra-

tion pending the resolution of related litigation, the result of

which might then control the arbitration. The Court in Volt

nonetheless found no actual conflict with the FAA’s “healthy

regard for the federal policy favoring arbitration,” id. at 475,

and thus no preemption.

Under Volt, South Carolina’s approval here of class

arbitration is a fortiori not preempted by the FAA. Like the

agreement in Vo/t, Green Tree’s Agreement included a clause

specifying that state law would govern. R. App. 2162. South

Carolina, like California in Volt, has expressed its own state

policy with respect to a question of multiparty arbitration.

Here, the state has chosen not to foreclose a class proceeding

where an agreement allows it and the arbitrator has elected to

permit it. Because it facilitates arbitration, South Carolina’s

rule is even more compatible with the FAA than the

California rule at issue in Volt.

The arbitrator did in fact conduct class arbitration here, and

South Carolina’s allowance of it eased rather than obstructed

arbitration of the parties’ disputes. Respondents here do not

assert an entitlement to bring a class action that would divert

the case from arbitration into court. Unlike the plaintiff in

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991),

they do not rely on class-action rights as a ground for relief

from an agreement to arbitrate. /d. at 32 (rejecting contention

that potential unavailability of class arbitration of ADEA

claim renders it unfit for arbitration). Rather, respondents

joined together as a class in order more efficiently to resolve

their claims within arbitration. Nothing in this Court’s FAA

preemption jurisprudence suggests that application to arbitra-

tion agreements of arbitration-neutral state law which

facilitates arbitration is at odds with the FAA."

Petitioner identifies only one lower-court case, Champ v.

Siegel Trading Co., 55 F.3d 269 (7th Cir. 1995), to support its

contention that the FAA mandates a presumption against

class arbitration. Champ does not apply here, however, be-

cause it rests on FAA § 4, which is inapplicable in state court.

By their own terms, each of the FAA procedural provisions

that addresses trial-court procedures at the threshold of

arbitration applies only to federal courts and does not address

the role of state courts. See 9 U.S.C. § 4 (regarding procedure

to be used in “any United States district court” to initiate

arbitration in cases presenting federal claims); id. § 3 (regard-

ing procedure for obtaining a stay of litigation “brought in

any of the courts of the United States” pending completion of

arbitration); Southland, 465 U.S. at 16 n.10. Such a “federal

procedural right . . . simply does not apply in a nonfederal

forum.” Johnson v. Fankell, 520 U.S. 911, 921 (1997).

Even if the FAA’s procedural provisions supported a

presumption against class arbitration in federal court, those

provisions in no way bar states from authorizing their trial

courts to make class certification decisions before sending

cases to arbitration. See Volt, 489 U.S. at 476-477; Southland,

465 U.S. at 31 (O’Connor, J., dissenting) (state courts should

be allowed to fashion their own procedures for enforcing the

substantive federal rights, if any, that the FAA creates).

There is no more cause for petitioner’s concern (Pet. Br. 28)

about potentially different state and federal threshold pro-

cedures for arbitration than there is about the routine use of

'° This case does not present the question whether the FAA preempts

state law that abrogates express waivers of rights to proceed on a class

basis, such as by rendering unconscionable contracts that waive the right

to proceed as a class. See, e.g, Ting v. AT&T, 319 F.3d 1126 (9th Cir.

2002); State v. Berger, 567 S.E.2d 265 (W. Va. 2002), cert. denied sub

nom Friedman's Inc. v. West Virginia, 123 S.Ct. 695 (2002).

LE Leary as

different procedures in state and federal courts under Erie

Railroad Co. v. Tompkins, 304 U.S. 64 (1938). See American

Dredging Co. v. Miller, 510 U.S. 443, 451-452 (1994)

(despite potential disuniformity, Jones Act does not preempt

state law on forum non conveniens for cases brought in state

court under the Act).”°

In light of the sovereign autonomy of the states to structure

their own court procedures as they see fit, it is doubtful

whether Congress could, consistent with constitutional princi-

ples of federalism, preempt state-court procedures for certi-

fying a class at the threshold of arbitration. At a minimum, a

plain statement of Congress’s intent to do so should be re-

quired before state courts’ procedural rules are ousted. Cf.

Gregory v. Ashcroft, 501 U.S. 452, 460 (1991). Yet the FAA

says nothing whatsoever about state procedures, much less

class arbitrations, apart from the general nondiscrimination

principle it embodies. The states ordinarily “have great

latitude to establish the structure and jurisdiction of their own

courts,” and a “neutral state rule regarding the administration

of the state courts” should not lightly be preempted. Fankell,

520 U.S. at 919 (citing, inter alia, Southland, 465 U.S. at

33 (O’Connor, J., dissenting)); Southland, 465 U.S. at 19

(Stevens, J., concurring in part and dissenting in part) (“we

must be cautious in construing the act lest we excessively

encroach on the powers which Congressional policy, if not

the Constitution, would reserve to the States”). Any reading

*° Whether to certify a class is plainly a procedural question. Indeed, if

it were otherwise, Federal Rule of Civil Procedure 23 would run afoul of

the Rules Enabling Act, 28 U.S.C. § 2072. Both federal and state class-

action rules comfortably qualify as rules that regulate only procedure

because they address the “process for enforcing rights and duties

recognized by substantive law and for justly administering remedy and

redress for disregard or infraction of them.” Hanna v. Plumer, 380 U.S.

460, 464 (1965) (emphasis added). In the arbitration context, the nature

of the question whether to proceed on a class-wide basis is no different.

of the FAA to control state-court procedures for referral of

cases to class arbitration raises constitutional doubts and

should be avoided.

Petitioner seeks to sidestep the fact that FAA §§ 3 and 4

expressly apply only to federal courts by asserting that the

parties nonetheless agreed that these sections would govern

any arbitration under the contract, even one that never made it

to federal court. Pet. Br. 16, 28-30. The Agreement supports

no such interpretation. The sole sentence upon which

petitioner relies states that “[t]his arbitration contract is made

pursuant to a transaction in interstate commerce, and shall be

governed by the Federal Arbitration Act at 9 U.S.C. section

1.” Pet. App. 110a. It refers only to FAA § 1, not § 3 or § 4,

and its reference to § |, defining “commerce” under the Act,

establishes only that the parties thought that the contract

affected interstate commerce within the meaning of the FAA.

In the case of purely intra-state contracts, the FAA lacks even

the limited preemptive force of its § 2 non-discrimination

principle, and states are free to favor or disfavor arbitration

relative to other forms of dispute resolution as they see fit.”'

In this case, even though the Agreement governs real property

transactions occurring within the State of South Carolina and

thus is arguably at the outer edge of Congress’s regulatory

power, the contract’s reference to the FAA suggests that the

parties contemplated that their agreement involved interstate

*" See, e.g., Ex Parte Kampis, 826 So. 2d 819 (Ala. 2002) (owner's

claim against in-state home construction company did not involve inter-

state commerce triggering FAA application); Marina Cove Condo.

Owners’ Ass'n, 34 P.3d 86 (2001) (dispute between Washington condo-

minium owner and in-state condo owners’ association regarding alleged

construction defects did not involve interstate commerce for purposes

of FAA).

commerce.” That limited reference lends no support to

petitioner’s contention that FAA § 4 language or case law

governs this contract.

Champ is also inapposite because it addresses only the

authority of a federal district court to order class arbitration,

and not the authority of an arbitrator to proceed on a class

basis if he so chooses, as Judge Ervin did here. Under the

logic of Champ, a district court not only lacks power to order

class arbitration, but equally lacks the power to enjoin it, thus

leaving the matter to the arbitrator. In this case, the

arbitrator’s own decision to proceed on a class-wide basis

moots any question here regarding whether the FAA would

preempt a state trial court’s order directing class arbitration.

Petitioner argues that the trial court’s certification of a

class in Bazzle before sending the case to arbitration “infected

the arbitrations.” Pet. Br. 34-35. That is not the case. The

arbitrator exercised his authority to proceed with class

arbitration in both the Bazzle and Lackey cases. In Lackey,

the arbitrator decided the class certification question and the

trial court subsequently affirmed the decision, whereas in

Bazzle, the court made an initial class certification order

before the case was referred to the arbitrator. After Bazzle

was shifted to the arbitral forum, however, and Green Tree

moved to decertify the class, the arbitrator made a de novo

determination that “a class action should proceed in arbitra-

tion” based on his own “careful review of the broadly drafted

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

He independently “found that the requirements for class

certification were met and that class certification was appro-

priate,” id. at 86a, and did not even cite the state trial court’s

class certification decision. Further, he exercised his discre-

*? The parties’ contemplation was, until recently, potentially relevant to

the question whether even Section 2 of the FAA was applicable to any

particular state-court case. See Allied-Bruce, 513 U.S. at 269.

tion to reconfigure the Bazzle and Lackey classes so that each

class dealt with only one type of transaction, and he excluded

out-of-state transactions and opt-outs from the classes.”°

In both cases, the Arbitrator’s decision to proceed on a

class-wide basis was just the kind of discretionary, procedural

decision that, in the absence of contrary state-law or

contractual directive, rests in an arbitrators’ sole discretion.

There is no reason in either Bazzle or Lackey to conclude that

the arbitrator failed to appreciate that the decision was his to

make. The fact that the arbitrator and the court agreed on the

appropriateness of class certification is wholly unsurprising,

given that the case was such an obvious candidate for class

treatment. In any event, Green Tree’s objection has never

been that the wrong decision maker approved class arbitration

here, but rather that its Agreement foreclosed class arbitration

altogether. After all, if the error were that the court made a

decision that-should have been for the arbitrator, the remedy

for resulting prejudice (had there been any) would have been

to vacate and remand to the arbitrator, see Garvey, 532 U.S.

at 510, a remedy that petitioner never sought here, could not

> When respondents urged the trial court to affirm the arbitrator's

award to the class in Lackey, they did emphasize that the court had itself

earlier approved class certification in identical circumstances in Bazzle.

Petitioner contends (Pet. Br. 37) that respondents are thereby estopped

from now claiming that the arbitrator's decision in Lackey was

independent of the judge’s certification decision in Bazzle. Respondents

never argued, however, that the arbitrator was bound by the trial court’s

order. The arbitrator's own opinion, which thoroughly considers the

relevant Rule 23 factors and does not mention Bazz/e, speaks for itself.

Moreover, the Bazz/e court’s certification of the class (like the court’s

approval of the class certification in Lackey) is a strength, not a weakness,

in respondents’ case. Even were this court to view the class certification

question as one for the court and not the arbitrator, see generally First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), that conclusion

would not affect the outcome in this case because both decision makers

were in agreement on the matter.

—

now seek, and in any event does not want. What petitioner

urges is that no decision maker could have ordered class

arbitration here.

Finally, even if it applied here, Champ’s reasoning is no

more persuasive than petitioner’s erroneous contract-

language argument. The court in Champ found in § 4's

requirement that district courts order arbitration “in accor-

dance with the terms of the agreement” a negative implication

that, where the parties “did not include in their agreement an

express term providing for class arbitration,” the district court

could not order such proceedings. 55 F.3d at 276. That logic

is flawed for the same reason that petitioner’s contention that

its agreement, which did not mention class arbitration,

thereby prohibited it. See Point II, infra. The reference in § 4

to enforcement of the agreement “in accordance with [its]

terms,” like the similar language in this Court’s § 2 cases,

refers to enforcement of arbitration agreements on the same

terms as other contracts, not a special rule requiring that all

arbitrators’ authorities be spelled out.”

In sum, the FAA, which says nothing whatsoever about

class actions in state proceedings, simply does not speak to

the threshold procedures through which state courts refer

cases to arbitration, let alone the procedures that arbitrators

in state cases should use once cases are referred to them.

This Court in Southland let stand a California Supreme Court

4 Champ also considered whether the FAA's silence on class pro-

ceedings permits federal courts to rely on Fed. R. Civ. P. 23 to certify

classes for arbitration. 55 F.3d at 276. Federal Rule of Civil Procedure

81(aX(3) expressly makes the Federal Rules applicable to FAA

proceedings “to the extent that matters of procedure are not provided for”

in the FAA. Champ found no authority in Rule 81(a)(3) for a district

court to certify a class for arbitration, however, because that rule “only

applies to judicial proceedings under the FAA, 55 F.3d at 276, whereas

class certification affects the ensuing arbitration. That reasoning, too,

rests on procedural provisions applicable only in federal court.

decision to permit class-wide arbitration because Southland

had not raised and the state courts had not passed on the

question whether the state law was preempted by the FAA.

465 U.S. at 8-9. Petitioner here purports to assert the federal

ground that was lacking in Southland. We have shown that

there is no such preemptive force to the FAA.”°

B. Congress Acted Reasonably in Not Blocking

Class Arbitration

Seeking to erect a conflict where there is none on the face

of the statute, petitioner characterizes class arbitration as “‘a

bizarre and dangerous hybrid,” and suggests that the FAA

°° Strong concerns about whether Southland was correctly decided

counsel, at a minimum, against any expansion here of the FAA's

preemptive scope. In Southland, Justices O'Connor and Rehnquist would

have held that FAA § 2 does not apply in state court. 465 U.S. at 24

(O'Connor, J., joined by Rehnquist, J., dissenting). Justice Stevens in

Southland would have found no preemption of the state law excluding

wage claims from arbitration, 465 U.S. at 17-21 (concurring in part and

dissenting in part), and in his dissent in Perry, he characterized Southland

as having “rewritten the statute to give it a pre-emptive scope that

Congress certainly did not intend,” 482 U.S. at 493 (Stevens, J.,

dissenting). See, id. at 494-495 (O'Connor, J. dissenting). In Allied-

Bruce, Justices Scalia and Thomas would have held that the FAA does not

apply in state courts, 513 U.S. at 284 (Scalia, J., dissenting); id. at 285-97

(Thomas, J., joined by Scalia, J., dissenting), whereas Justice O’Connor

acquiesced on stare decisis grounds in the majority's decision to uphold

Southland even while she thought is was “wrong” and “continue[d] to

believe that Congress never intended the Federal Arbitration Act to apply

in state courts,” 513 U.S. at 283 (O'Connor, J., concurring). See generally

Brief of Law Professors as Amici Curiae in Support of Respondents

(setting forth arguments in favor of overruling Southland).

Because the judgment in this case is clearly correct even under

Southland, we do not believe that the Court need decide here whether to

overrule that decision, but if there were any conflict between Southland

and the decision of the South Carolina Supreme Court, Southland should

yield. See Brief of Law Professors as Amici Curiae in Support of

Respondents.

thus should be construed to have preempted states from

allowing such procedures absent express authorization in the

arbitration agreement. Pet. Br. 41. In particular, petitioner

and its amici raise the specter of due process concerns related

to class arbitration. Those issues are not before this Court,

where the question presented is limited to the statutory

preemption issue. There is no basis in the record for any

claim of due process violation, petitioner waived any such

claim, Pet. App. 25a, and it is not at all clear, given Green

Tree’s bankruptcy, that petitioner would have standing to

invoke the due process rights of class members.

Unnamed class members’ due process rights were carefully

preserved in these cases by the arbitrator’s adherence to the

best class action procedural protocols, including careful

definition of the classes and the first-class mailing to each

individual class member of a fully informative notice of opt-

out rights.°° See Shutts, 472 U.S. at 811 (describing

*° The arbitrator approved the notice of the class arbitration that class

counsel mailed to each class member. J.A. 17-23. The notice specified

that the case was in arbitration, and was signed by the arbitrator. It stated

in capital letters at the outset: “PLEASE READ THIS NOTICE

CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS WILL BE

AFFECTED BY PROCEEDINGS IN THIS LITIGATION.” J.A. 17. The

notice described the claims, the contours of the class, and the status of the

case. It outlined class members’ options and their consequences,

including that persons opting out would “not be entitled to share in the

benefits of any settlement or judgment if it is favorable to the Class,” and

would “not be bound by the settlement or judgment if it is adverse to the

class.” J.A. 19-20. Correspondingly, the notice specified that “[a]ny class

member who does not request to be excluded will automatically be

included in the Action as members of the Class represented by the Named

Plaintiffs,” and be “bound by the orders entered and notices hereafter

given in this Action.” J.A. 20 (emphasis in original). The Notice alerted

class members of their right to enter an appearance through an attorney of

their choice, and stated that if they chose not to do so they would be

represented by class counsel, whose names and addresses were listed.

constitutionally adequate notice). Even if this Court found

such concerns relevant to the FAA preemption question

presented, there is no reason to think that states and state

arbitrators cannot design workable procedures for facilitating

arbitration consistent with due process requirements. Indeed,

the process followed in this case refutes such a suggestion. In

any event, such matters can and should be litigated on a case-

by-case basis, and speculation about due process issues does

not warrant reading into the FAA a preemptive rule that

Congress did not adopt.

Petitioner relatedly contends that class arbitration should

be barred because it “cannot bind the non-representative class

members.” Pet. Br. 45. That is not the case. The unnamed

class members here, each of whom signed the same

arbitration agreement as the class representatives, and each of

whom elected not to opt out of the class, are validly subject to

the decision by the arbitrator. These facts distinguish this

case from EEOC v. Waffle House, 534 U.S. 279 (2002), on

which petitioner principally relies. There, the Court correctly

noted that agreements to arbitrate cannot bind parties, such as

the EEOC in that case, who never agreed to arbitrate at all.

Id. at 294. See also First Options 514 U.S. at 946. Here,

however, all the unnamed class members did agree to final

and binding arbitration on the same terms as did the class

representatives, and acquiesced to arbitration before Judge

Ervin. There is no reason to believe the final award here has

less binding effect on the unnamed class members than any

arbitral award has on parties to an arbitration. See, e.g.,

Waffle House, 534 U.S. at 297 (noting that “ordinary

principles of . . . res judicata . . . may apply” to prevent the

EEOC from obtaining victim-specific relief for an employee

who already obtained relief through arbitration); S.C. Code.

J.A. 21. It listed class counsel's toll-free number and directed class

members to call if they had any questions. J.A. 22.

Ann. § 15-48-150 (1976 Supp. 2001) (arbitration awards shall

be “enforced as any other judgment or decree”); cf FED. R.

Civ. P. &(c) (specifying “arbitration and award” as an

affirmative defense for pleading purposes). No member of

the respondent class has sought relief in any further

proceeding beyond what was obtained in this case, and there

is no basis to believe that any South Carolina court would

honor any such request.

Petitioner’s real concern in opposing class arbitration is not

to protect unnamed class members’ procedural rights, but to

benefit from their lack of knowledge about their rights and

the difficulty of securing counsel in light of the modest sums

at issue. Far fewer claimants will ever sue individually in the

absence of the ability to proceed as part of a class. It is the

potential radically to reduce legal exposure that appeals to

petitioner and its amici. Class action rules at the state as well

at the federal level, however, serve the entirely valid

objective of overcoming obstacles posed by lack of informa-

tion or modest claim size in the interests of fuller and more

efficient law enforcement.’’ From the perspective of absent

class members, class arbitration is not more “complex,

expensive and time-consuming” (Pet. Br. 40) than individual

arbitration, but, on the contrary, captures efficiencies that

” This Court emphasized that very purpose in Shutts when it held that

the Due Process Clause did not require “opt-in” rather than “opt-out” class

procedures under the Kansas class action rule. Recognizing that a typical

class member might not “file suit individually, nor would he affirmatively

request inclusion in the class if such a request were required by the

Constitution,” the Court rejected the defendant's argument that due

process forecloses “opt-out” classes. 472 U.S. at 813; see Amchem Prods.

v. Windsor, 521 U.S. 591, 617 (1997) (“The policy at the very core of the

class action mechanism is to overcome the problem that small recoveries

do not provide the incentive for any individual to bring a solo action

prosecuting his or her rights.”); Deposit Guaranty Nat. Bank v. Roper, 446

U.S. 947 (1980).

often make the difference for them between some relief

and none.

Petitioner does not oppose class arbitration because it

believes that there should have been 3,700 individual

proceedings instead of one class arbitration. Green Tree and

its amici, like other parties with potential exposure to large

groups of people, oppose class arbitration in the knowledge

that, “because many claims are not viable if brought

individually, plaintiffs will often drop or fail to initiate claims

once it is clear that class relief is unavailable.” Sternlight,

Arbitration Meets the Class Action, 42 Wm. & Mary L. Rev.

1, 8 (2000). Nor is petitioner insisting, as does federal

securities regulation, that rights to pursue class-wide relief in

court must be preserved notwithstanding agreements to

arbitrate.* Instead, petitioner and its amici “hope they have

found a surreptitious way to defeat the feared class action,”

id. at 5, by establishing a rule that standard-form arbitration

contracts that do not expressly provide for class treatment

implicitly waive any right to bring class claims. To that end,

petitioner urges this Court to displace South Carolina law

with a federal rule that would presumptively disfavor

arbitration of class claims. It is petitioner’s proposal, not the

decision below, that is hostile to arbitration. Petitioner has

pointed to no evidence that Congress even sought to regulate

state law on arbitral procedures, much less that it sought to

bar class actions where state law permits them on a non-

discriminatory basis in litigation and arbitration.

CONCLUSION

The judgment of the South Carolina Supreme Court should

be affirmed.

** See NASD Code of Arbitration Procedure, § 10301(d)(3), (pro-

hibiting arbitration of class claims even where putatively covered by

arbitration agreement in favor of litigation all such claims).

———— el Al Ai i a, — a.

MARY LEIGH ARNOLD

MARY LEIGH ARNOLD, P.A.

P.O. Box 265

Mt. Pleasant, SC 29465

STEVEN W. HAMM

RICHARDSON, PLOWDEN,

CARPENTER & ROBINSON, P.A.

P.O. Drawer 7788

Columbia, SC 29202

BRADFORD P. SIMPSON

D. MICHAEL KELLY

B. RANDALL DONG

SUGGS & KELLY LAWYERS, P.A.

P.O. Box 8113

COLUMBIA, SC 29202-0008

T. ALEXANDER BEARD

BEARD LAW FIRM

1002 ANNA KNAPP BLVD

Respectfully submitted,

CORNELIA T.L. PILLARD

Counsel of Record

GEORGETOWN UNIVERSITY

LAW CENTER

600 New Jersey Ave, NW

Washington, D.C. 20001

(202) 662-9391

CHARLES L.A. TERRENI

P.O. Box 11904

COLUMBIA, SC 29211

DANIEL WEBSTER WILLIAMS

BEDINGFIELD & WILLIAMS

P.O. Box 616

BARNWELL, SC 29812

CHARLES RICHARD KELLY

C. RICHARD KELLY, PA

POsT OFFICE BOX 11648

MT. PLEASANT, SC 29464 COLUMBIA, SC 29211

CHARLES L. DIBBLE peo —— FRYAR

DipBLe LAW OFFICES wo arms

P.O. DRAWER 1240 COLUMBIA,

COLUMBIA, SC 29202

Counsel for Respondents

March 27, 2003

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