Amicus Curiae Brief — Green Tree Financial Corp. v. Bazzle

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Vy r cD

No. 02-634 FEB 24 9003

IN THE

SUPREME COURT OF THE UNIT

GREEN TREE FINANCIAL CORP. a/k/a GREEN TREE

ACCEPTANCE Corp. a/k/a GREEN TREE FINANCIAL SERVICES

Corp. n/k/a CONSECO FINANCE CORP.,

Petitioner,

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 Ciass

And For All Others Similarly Situated,

Respondents.

On Petition for a Writ of Certiorari

to the Supreme Court of South Carolina

BRIEF Of NEW ENGLAND LEGAL FOUNDATION AND

CELLCO PARTNERSHIP d/b/a VERIZON WIRELESS AS

AMICI CURLE IN SUPPORT OF PETITIONER ON THE MERITS

MICHAEL E. MALAMUT CHRISTOPHER M. MASON”

CHRISTINE HUGHES NIXON PEABODY LLP

New ENGLAND LEGAL FOUNDATION 437 Madison Avenue

150 Lincoln Street New York, New York 10022

Boston, Massachusetts 02111-2504 (212) 940-3000

(617) 695-3660

JEROME KARNICK JOHN R. PAGLIARO

180 Washington Valley Road 101 Federal Street

Bedminster, New Jersey 07921 Boston, Massachusetts 02110

(908) 306-7300 (617) 345-1000

Counsel for New England Legal Foundation and Cellco Partnership d/b/a/Verizon Wireless

as Amici Curia

February 24, 2003 “Counsel of Record

QUESTION PRESENTED

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

seq., prohibits class-action procedures from _ being

superimposed onto an arbitration agreement that does not

provide for class-action arbitration.

TABLE OF CONTENTS

Page

een i

FARRER GD BITTER. .cusnsnnnnnnneee iii

STATEMENT OF INTEREST OF AMICI CURIA. ............:c00eseee000e0 1

SUMMARY OF ARGUMENT...............0cccccccccsecsseseeceeserereeeeeseeeeneees 2

PERE cncceentienime 2

I. The South Carolina Supreme Court's

decision conflicts with the federal

policy of the FAA and this Court's

settled arbitration jurisprudence.................:::s:s:+:ssse0+ 5

A. The South Carolina Supreme Court's

decision conflicts with the uniform

federal policy of the FAA that

arbitration agreements be enforced

ACCOTAING their tErMS........ssssererereserseerseessereeseeeeneneers 6

B. The South Carolina Supreme Court's

decision conflicts with this Court's

settled arbitration jurisprudence ..........0.0-0-veseeeseeees 12

II. The South Carolina Supreme Court

incorrectly treated access to class action

procedures as a fundamental right....................0000000 18

0:0 0) EE eee 26

ii

TABLE OF AUTHORITIES

Cases Page

Allied-Bruce Terminix Cos. v. Dobson,

a 14

Amchem Prods., Inc. v. Windsor,

re 19

America Dredging Co. v Miller,

I 22 n. 25

America Online, Inc. v. Booker,

781 So. 2d 423 (Fla. Dist. Ct. App. 2001)........ 20 n. 22

America OnLine, Inc. v. Superior Court,

108 Cal. Rptr. 2d 699 (Ct. App. 2001)............. 20 n. 22

Arkoosh v. Dean Witter & Co.,

415 F. Supp. 535 (D. Neb. 1976).............0+0 23-24 n. 28

AT&T Corp. v lowa Utils. Bd.,

ee 18

Bazzle v. Green Tree Fin. Corp.,

569 S.E.2d 349 (S.C. 2002), cert. granted

sub nom. Green Tree Fin. Corp. v. Bazzle, 123 S. Ct.

817 (2003).......4, 5, 7n. 5, 11, 12 n. 13, 19, 22, 24n. 29

Bernhardt v. Polygraphic Co. of Am., Inc.,

ee Saree nccernsscemmescncsesesesesrecncesesessssecescssssseneees 8

BMW of N. Am. v. Gore,

Be Ss BP OD cccccscscscccsessczsssvevccscesecescsssssces 23 n. 26

ili

Brower v. Gateway 2000, Inc.,

676 N.Y.S.2d 569 (N.Y. App.

Byrd v. Blue Ridge Rural Elec. Coop., Inc.,

I 5-6, 6 n. 3

Carma Developers (Cal.), Inc. v.

Marathon Development Cal., Inc.,

| 15 n. 18

Carnival Cruise Lines v. Shute,

8 20, 21-22 n. 23

Celmins v. America OnLine,

748 So. 2d 1041 (Fla. Dist. Ct. App. 1999)......20 nm. 22

Champ v. Siegel Trading Co.,

35 F.3d 269 (7th Cir. 1995) ........cccccecees 7n.5,12n. 13

Circuit City Stores, Inc. v. Adams,

es Os Oe i cccersecenncenesicenemensecteneenen 14 & n. 16

City of San Jose v. Superior Court

TS 21

Concrete Pipe and Prods. of Cal., Inc. v.

Construction Laborers Pension Trust

for So. Cal., 508 U.S. 602 (1993) ......ccccccceccecssesesesnenenees 18

Cortez Byrd Chips, Inc. v. Bill Harbert

Constr. Co., 529 U.S 193 (2000) ............. 7n. 4,21 n. 24

Cummings v. Missouri,

71 USS. (4 Wall.) 277 (1867) ..........ccccsseseseeseenees 10 n. 10

Davis v. Prudential Secs., Inc.,

59 F.3d 1186 (11th Cir. 1995)... cccccceccceeeeeee 23 n. 26

iv

Dean Witter Reynolds, Inc. v. Byrd,

EF] US. 213 (BOG) .nacncrcccccccscccccscscrceccccecseees 12, 16 n. 19

Deposit Guaranty Nat'l Bank v.

Roper, 445 U.S. 326 (1980) ..........---seveseseeseennennenrensnnees 19

Dillard v. Merrill Lynch, Pierce, Fenner

& Smith, Inc., 961 F.2d 1148

(5th Cir. 1992), cert. denied sub

nom. Dillard v. Security Pac. Corp.,

SOG UL. S. BOF D (IDI arses ececnnscscsnsccvscscecncensosnecscecennsrees 23

Discover Bank v. Superior Court,

129 Cal. Rptr. 2d 393

(Ct. App. 2003) ........--eseeneeneeneenesnesnsnes 15 n. 18, 20 n. 22

Doctor’s Assocs., Inc. v. Casarotto,

SIT US. GB1 (1G DB) nnceccccccscscsccsescesccscccccscsccsses 8-9,9n.7

Eastman v. Burleigh,

2 NB 486 (1822) ..222002000202csccccccecsccecsececsecssesssees 15 n. 17

Equal Employment Opportunity Comm'n

v. Waffle House, Inc., 534 U.S. 279 (2002) .......----v-+e+0 8

Fairbank v. United States,

NT ne nuisasininiin 10 n. 10

First Options of Chicago, Inc. v. Kaplan,

514 US. 938 (1995) ............cccersseseeererersssnenseseseeee 16 n. 19

Forrest v. Verizon Communications, Inc.,

805 A.2d 1007 (D.C. 2002)........cccecceeseeeeeeenennes 20 n. 22

Frank Fiore Enters., Inc. v. Francis,

No. 86 Civ. 7241 (WCC),

1987 US. Dist. LEXIS 2711

(S.D.N.Y. Apr. 8, 1987)........---sessessessessessnssnesnneenseneenees 12

Vv

Frazar v. Gilbert,

300 F.3d 530 (5th Cir. 2002)

Giles v. City of New York,

41 F. Supp. 2d 308 (S.D.N.Y. 1999)................ 16 n. 19

Gilmer v. Interstate/Johnson Lane

Corp., 500 U.S. 20 (1991) ......ccccccccccceeseee 17, 22 n. 26, 25

Government of the U.K. of Gr. Br. &

N. Ir. v. Boeing Co.,

998 F.2d 68 (2d Cir. 1993)

Great Western Mortg. Corp. v.

Peacock, 110 F.3d 222 (3rd Cir.), cert denied

sub nom. Peacock v. Great Western Mortg.

Corp., 522 U.S. 915 (1997) ..0....cccccccsssseessessneeen 23 n. 28

Groff v. America OnLine, Inc.,

No. PC 97-0331, 1998 R.I. Super. LEXIS

46 (Super. Ct. R.I. May 27, 1998)... 20 n. 22

Hanson v. Denkla,

gg 17 n. 20

Harris v. Shearson Hayden Stone,

441 N.Y.S.2d 70 (N.Y. App. Div.

1981), aff'd on op. below, 435 N. E .2d

1097 (N.Y. 1982)..........cc.cecsceoeee 3n. 2,13 n. 15, 22 n. 25

Howsam v. Dean Witter Reynolds, Inc.,

Se a ee catienirrtererrnnnemseessseemmssmecniniaiimes 10

In re Garcelon,

Ce 15n. 18

Jacob v. New York,

Te , 23

Johnson v. West Suburban Bank,

225 F. 3d 366 (3rd Cir. 2000), cert. denied,

531 U. S. 1145 (2001) ccccsceeseseeeeee eat 24 n. 29

Keating v. Superior Court,

645 P. 2d 1192 (Cal. 1982), rev'd

in part sub nom. Southerland Corp.

v. Keating, 465 U.S. 1 (1984) .........0svessessnssnesnennenrennennes 9

K.M.C. Co. v. Irving Trust Co.,

757 F. 2d 752 (Sth Cir. 1985) .............cccceceeessenerenennens 23

Koch v. America OnLine,

139 F. Supp. 2d. 690 (D. Md. 2000)..........000+++ 20 n. 22

Leasing Serv. Corp. v. Crane,

804 F.2d 828 (4th Cir. 1986) .............ccceeeeereees 23 n. 27

Leddy v. Standard Drywall, Inc.,

875 F.2d 383 (2d Cir. 1989) ...........0-reseveeereeeeees 16 n. 19

Lividas v. Bradshaw,

512 U.S. 107 (1994).........cccsrersesersereneserennsnnnnsnees 19 n. 21

Mastrobuono v. Shearson Lehman

Hutton, Inc., 514 U.S. 52 (1995)... 3, 7,12n.13

McDonald v. City of West Branch,

466 U.S. 284 (1984) .....eccccseseeeserenenennnensnennnnnnnens 16 n. 19

Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc.,

Pe 16-17

Moses H. Cone Mem’! Hosp. v. Mercury

Const. Corp., 460 U.S. 1 (1983) .... 2-3, 8, 9, 13 n. 15, 25

Perry v. Thomas,

482 U.S. 483 (1987)......-c.cececseeeeensesenees 9,10 & n. 10, 11

Precision Etchings & Findings, Inc. v.

LGP Gem, Ltd., 953 F.2d 21

SGI PO csscinstrsieveindesiceeitsnistpnanenmaeneeestamieare 18 n. 20

Prima Paint Corp. v. Flood & Conklin

Mfg. Co., 388 U.S. 395 (1967)....ccccccccccecsssessseesseeees 3n.2

Printing Numerical Registering

Co. v. Sampson, L.R. 19 Eq. 465

ct ee 15 n. 18

Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477 (1989) .....cccccccccccesseeeses 17, 25

Rush Prudential HMO, Inc. v. Moran,

ee Pe iicncitliniciessieiia eee 11 n. 11

Sanders v. Gardner,

7 F. Supp. 2d 151 (E.D.N.Y. 1998).......ccccccssee. 23 n. 26

Sawtelle v. Waddell & Reed, Inc.,

No. 2330, 2003 N.Y. App. Div. LEXIS

| 8 ee 22-23 n. 26

Scherk v. Alberto-Culver Co.,

a 21

Shearson/American Express v. McMahon,

8 RSET 21 n. 24

Sosna v. lowa,

TT 24 n. 28

Southland Corp. v. Keating,

a es 0 i creretnictinecmensmennete 3, 4,7, 8n. 6, 10

Steelworkers v. Warrior & Gulf Nav. Co.,

16 n. 19

Superior Oil Co. v. Transco Energy Co.,

616 F. Supp. 98 (W.D. La. 1985) ........-ssessesneenes 13 n. 15

Telum, Inc. v. E.F. Hutton Credit Corp.,

859 F.2d 835 (10th Cir. 1988), cert. denied,

490 U.S. 1021 (1989).........ccccccceceerererenenersnnenenees 23 n. 27

Ting v. AT&T,

No. 02-15416, 2003 U.S. App. LEXIS 2395

(9th Cir. Feb. 11, 2003).........0s0sesvee 15 n. 18, 22 n. 25

Transaero, Inc. v. Feurza Aearea

Boliviana, 162 F.3d 724 (2d Cir. 1998),

cert. denied, 526 U.S. 1146 (1999) .......ssesessveees 17 n. 20

Universal Am. Barge Corp. v. ]-Chem, Inc.,

946 F.2d 1131 (Sth Cir. 1991) ......cseseeereeeeenees 16 n. 19

Vandenberg v. Superior Court,

982 P.2d 229 (Cal. 1999)......... sesssensnnsennnnssnensecss 16 n. 19

Vernon v. Drexel Burnham & Co.,

125 Cal. Rptr. 147 (Ct. App. 1975)... 15 n. 18, 22 n. 25

Vimar Seguros y Reaseguros, S.A. v.

M/V Sky Reefer, 515 U.S. 528 (1995) ........-..-00 21 n. 24

Volt Information Sciences, Inc. v. Board

of Trustees, 489 U.S. 468 (1989) .......-.-s-ssesreesseseees passim

Washington Mut. Bank v. Superior Court,

15 P.3d 1071 (Cal. 2001) ..........:ccssssesesesrenenensnsnensnnnnenes 21

Weyerhauser Co. v. Western Seas

Shipping Co., 743 F.2d 635 (9th Cir.),

cert. denied, 469 U.S. 1061 (1984) ..........:0ess0e00 21 n. 24

Constitutions, Statutes, and Rules

U.S. Const. art. VI .....ccesssesesesesesessneesnsnensnsnnsnenenenes 4,7n.5

ix

Secondary Sources

I il 23

Geoffrey C. Hazard, Jr. et al.

U.S. Const. ) :

I Ie cissiceansintrcnienitiissiitnsaniaiiiens 22 n. 26 An Historical Analysis of the

9 U.S.C. §§ 1-16 (2000)......ccesccsccscssecsssessesessesescesecsenes passim Binding Effect of Class Suits,

oUSC.§2(0000........... Lkeeens ie 146 U. Pa. L. Rev. 1849 (1998) ..ccccccccssssssccsssssessessseeee 24

DUG. © BS CROOI acsencaceccceeneoconenaaceseeeeee 3,6,8&n.6 a eee gy ited 15n.17

eas Ore I secccessssensninnsncntncnseniaccseneeneens n.

ee icenitininicsinitciiitittiinh asda eas 3, 6-7,8 & n. 6 Iie Holdsworth, A History of

: illiam Holdsworth, A History o

29 U.S.C. §§ 151 et seq. (2000) .......cccssssssecssssecesense 19 n. 21 | ea 9n.8

A EE SACRE ae 18 Stewart Kyd, A Treatise on the Laws

46 U.S.C. § 183¢ (2002) .....csecccsscssssssecsssssececsseceseesn 21n. 23 Ce T_T 15n. 17

Te en ee aes 18 7h Chatias Alan Wehghe & Actos 8. Sian,

Federal Practice and Procedure

43 Stat. SBS, chr. 213 (1925) ........cocssscsssesssnssessasssevsssscesees 3,8 CS ee 24

96 Pub. L. 364, 94 Stat. 1208...............

I, Wi scernseccnrsccansincnneininsintimnasnais 18 9 Charles Alan Wright & Arthur R. Miller,

PR IE iiciciateitintidiae os pees 5 Federal Practice and Procedure

RN atiiatasteaninidteininsmiiietdactunt 5 piso si rua aemmmmmmmemmumaals a

Legislative History

Hearing on S. 4213 and S. 4214, Subcomm.

of the Senate Comm. on the Judiciary,

67th Cong., 4th Sess., (1923) (statement of

Charles L. Bernheimer)...............ccccccccsssssssescesees 3n. 2

H. R. Rep. No. 96, 68th Cong., 1st Sess. (1924)............+. 9

H. R. 2084, 80th Cong., Ist Sess. (1947)..........cccssssesseseees 8

xi

New England Legal Foundation (“NELF”) and Cellco

Partnership d/b/a Verizon Wireless (“Verizon Wireless”)

submit this brief amici curiz in support of Petitioner Green

Tree Financial Corp. a/k/a Green Tree Acceptance Corp.

a/k/a Green Tree Financial Services Corp. a/k/a Conseco

Finance Corp. (“Green Tree”) and in favor of reversal of the

decision of the South Carolina Supreme Court imposing

class action procedures in arbitrations by parties who did

not agree to any such procedures in their arbitration

agreements.' The decision below ignores the express

language and long-standing federal policy of the Federal

Arbitration Act, 9 U.S.C. §§ 1-16 (2000) (the “FAA”), that

arbitration agreements shall be enforced according to their

terms. It also ignores this Court’s settled arbitration

jurisprudence and improperly seeks to make access to class

action procedures a fundamental right. It does all of this in

an attempt to justify a newly-created judicial rule, based on

individual state court notions of “equity and efficiency”,

that would require class-wide arbitrations without the

agreement of the parties involved.

STATEMENT OF INTEREST OF AMICI CURLE

NELF is a non-profit, public interest law firm. Its more

than 130 members and supporters include a cross-section of

large and small corporations from all parts of New England

and the United States as well as private law firms,

individuals, and others who believe in promoting balanced

' Pursuant to Supreme Court Rule 37.6, NELF and Verizon Wireless

state that this brief was prepared entirely by them and their counsel. No

one other than them and their members made any monetary contribution

toward the preparation or submission of this brief.

economic growth, protecting the free enterprise system, and

defending economic rights. NELF frequently acts as an

amicus curiae in cases raising policy and constitutional

concerns related to these issues. Most of NELF’s members

are engaged in interstate commerce. Many of them regularly

use contracts containing arbitration clauses.

Verizon Wireless is a joint venture indirectly owned by

Verizon Communications, Inc., a domestic

telecommunications holding company, and Vodafone

Group plc, a British telecommunications company. Verizon

Wireless, the largest wireless telecommunications provider

in the United States, has over 30,000,000 customers. It uses

arbitration clauses extensively in its contracts with its

customers and others.

SUMMARY OF ARGUMENT

This Court should reverse the decision below. The

FAA, to ensure a uniform national approach to arbitration

agreements involving interstate commerce, requires that

such agreements be enforced according to their terms.

Indeed, this is its “primary purpose.” Volt Information

Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 479 (1989).

This federal statutory policy therefore supersedes any state

notions of “efficiency and equity” that would supposedly

permit a state court to impose modern class action

procedures taken from its judicial system (and incorrectly

assumed to be somehow a fundamental right) on parties

whose private arbitration agreements contain no such terms.

ARGUMENT

The FAA is intended to “create a body of federal

substantive law of arbitrability, applicable to any arbitration

2

agreement within the coverage of the Act.” Moses H. Cone

Mem'l Hosp. v. Mercury Constr. Co., 460 U.S. 1, 24 (1983); see

also, e.g., Southland Corp. v. Keating, 465 U.S. 1, 12 (1984) (“the

substantive law the Act created” applies in both “state and

federal courts.”).The decision below would improperly

frustrate this goal by using varying, state-by-state

interpretations of “efficiency and equity” to allow state

courts to replace the FAA’s substantive preference for

enforcement of arbitration agreements according to their

terms with a _ preference for class-wide arbitration

procedures instead.

At the time of the FAA’s original enactment (as the

United States Arbitration Act, 43 Stat. 883, ch. 213 (1925)),

federal substantive law certainly did not contemplate the

modern class action, much less class-wide arbitrations.’ That

law did—and still does—however, require that arbitration

agreements, if not revoked on grounds generally applicable

to all contracts, be enforced according to their terms. E.g., 9

U.S.C. §§ 2, 3, 4; Mastrobuono v. Shearson Lehman Hutton, Inc.,

514 U.S. 52, 54 (1995); Volt, 489 U.S. at 479; Southland, 465

U.S. at 16. The court below ignored this unwavering federal

policy with reasoning openly hostile to the arbitration

2 See, e.g., Hearing on S. 4213 and S. 4214, Subcomm. of the Senate

Comm. on the Judiciary, 67th Cong., 4th Sess., 2 (1923) (comments of

Charles L. Bernheimer that the proposed legislation “follows the line of

the New York arbitration law”), cited in Prima Paint Corp. v. Flood &

Conklin Mfg. Co., 388 U.S. 395, 405 n.13 (1967)). Notably, New York state

courts have never adopted any theory of class-wide arbitration for

arbitrations in that state. See, e.g., Brower v. Gateway 2000, Inc., 676

N.Y.S.2d 569, 573 (N.Y. App. Div. 1998); Harris v. Shearson Hayden Stone,

Inc., 441 N.Y.S.2d 70, 76 (N.Y. App. Div. 1981), affd on op. below, 435

N.E.2d 1097 (N.Y. 1982).

clauses in millions of existing form contracts subject to the

FAA:

class-wide arbitration may be ordered when the

arbitration agreement is silent if it would serve efficiency

and equity, and would not result in prejudice. 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. Following the federal

approach risks such a result where arbitration is

mandated through an un-negotiated adhesion contract.

Under those circumstances, parties with nominal

individual claims, but significant collective claims,

would be left with no avenue for relief and the drafting

party with no check on its abuses of the law. Further,

hearing such claims (involving identical issues against

one defendant) individually, in court or before an

arbitrator, does not serve the interest of judicial economy.

Bazzle v. Green Tree Fin. Corp., 569 S.E.2d 349, 360-61 (S.C.

2002) (footnotes omitted) (emphasis added), cert. granted,

123 S. Ct. 817 (2003).

The vague and open-ended standards proposed in this

reasoning will destroy the desired uniformity of federal law

under the FAA while improperly attempting to raise the

mere procedural device of the class action to the level of a

fundamental right greater than that of trial by jury. They

will also—as they did below —produce results inconsistent

with the substantive language of the FAA (and,

consequently, contrary to the Supremacy Clause of the

United States Constitution, U.S. Const. art. VI, § 2) and

4

inconsistent with Court's settled arbitration jurisprudence.

As a result, this Court should reverse the decision below.

I. The South Carolina Supreme Court's decision

conflicts with the federal policy of the FAA and this

Court's settled arbitration jurisprudence.

Class actions are based on court rules developed for

judicial fora. See, e.g., Fed. R. Civ. P. 23; S. C. R. Civ. P. 23.

Arbitrations are based on private agreements. See 9 U.S.C. §

2. While an arbitration agreement may incorporate the rules

developed for a particular arbitral forum, the court below

identified no arbitral forum that requires class-wide

arbitration, much less class-wide arbitration over the

objection of a party. Nor did the court below identify any

such arbitral forum chosen by the parties here. Instead, to

avoid a “risk” that parties may be treated differently in

arbitration than in court, and to serve an alleged policy of

“efficiency and equity”, it sought to impose a presumption

of class-wide procedures as part of every arbitration

agreement in every arbitral forum. See Bazzle, 569 S.E.2d at

361.

As discussed below, the South Carolina Supreme Court

improperly ignored the uniform federal policy of the FAA

favoring enforcement of arbitration agreements according to

their terms. It also improperly attempted to justify this

failure by inflating the importance of its own judicial policy.

Federal policy on how to decide issues of fact in a federal

court will not yield to state procedural rules merely “in the

interest of furthering the objective that the litigation should

not come out one way in the federal court and another way

in the state court.” Byrd v. Blue Ridge Rural Elec. Coop., Inc.,

356 U.S. 525, 538 (1958). Similarly, a uniform federal policy

on how to enforce arbitration agreements should not yield

to a state court's notions of “efficiency and equity” so as to

avoid a “risk” that a matter would be handled one way in

that state’s courts and another way in arbitration.’

A. The South Carolina Supreme Court's decision conflicts

with the uniform federal policy of the FAA that

arbitration agreements be enforced according their

terms.

In reaching its decision, the court below honored

neither the precise words nor the general intent of the FAA.

The FAA permits a court only to determine whether there is

a valid agreement to arbitrate and, if so, to take actions that

honor the terms of that agreement. Section 2 provides that a

written arbitration clause involving interstate commerce

“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 (emphasis added). Section 3 provides

that if a lawsuit involves an issue covered by such an

arbitration clause, the court “shall upon application of one of

the parties stay the trial of the action until such arbitration

has been had in accordance with the terms of the

agreement ....“ 9 U.S.C. §3 (emphasis added). Section 4

provides that if a court tries the issue of the existence of an

arbitration agreement and finds that one exists, it “shall

make an order directing the parties to proceed to arbitration

* As in Byrd, 356 U.S. at 539-40, any assumption that actual outcomes

would be different because of a particular South Carolina rule (in this case

imposing an obligation to make available class-wide procedures in

contracts containing arbitration clauses) is not supported by any

evidence.

in accordance with the terms of the arbitration agreement.” 9

U.S.C. § 4 (emphasis added).

These sections neither authorize a court to rewrite an

arbitration agreement (as opposed to revoke it) an

arbitration clause nor authorize it to order that an

arbitration proceed in accordance with its individual judicial

views of “efficiency and equity” (as opposed to the terms of

the arbitration clause). Yet these were effectively the steps

taken by the court below —even though this Court has also

long held that “private agreements to arbitrate are enforced

according to their terms.” Volt, 489 U.S. at 479 (emphasis

added); accord, e.g., Mastrobuono, 514 U.S. at 54 (same);

Southland, 465 U.S. at 13 (“the purpose of the” FAA was to

“assure” parties that their “expectations would not be

undermined by . . . state courts or legislatures.”).°

The importance of the policy choice by Congress that

arbitration clauses be enforced as written is clear. First, the

language of the FAA requiring enforcement of arbitration

_ 4 Notably, these Sections use the word “shall”, not “may.” Cf. Cortez

Byrd Chips, Inc. v. Bill Harbert Constr. Co, 529 U.S. 193, 198-99 (2000)

(“may” can, but does not necessarily, imply some degree of discretion as

used in parts of the FAA).

5 As others will undoubtedly point out, federal courts following this

Court's jurisprudence have generally refused as a matter of federal law to

impose class action procedures on private arbitrations that do not provide

for them. See, ¢.g., Champ v. Siegel Trading Co., 55 F. 3d 269, 276 (7th Cir.

1995). The court below did not deny that it was refusing to follow federal

law and these decisions. Its purported justification for this refusal

(without any mention of the Supremacy Clause, U.S. Const. art. VI § 2),

and for its preference instead for California state law, was simply that

“{flollowing the federal approach risks” results it considered unpalatable

as a matter of “equity.” Bazzle, 569 S.E.2d at 361.

7

clauses “in accordance with the terms of the agreement”

(except when subject to “revocation”) has remained

untouched since its enactment in 1925. Compare 43 Stat. 883,

ch. 213 §§ 2, 3, 4 (1925) with H.R. 2084 §§ 2, 3, 4, 80th Cong.,

Ist Sess. (1947) (recodifying the United States Arbitration

Act as the FAA) with 9 U.S.C. §§ 2, 3, 4 (current language);

see also Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198, 201

(1956) (sections 1, 2, and 3 of the FAA “are integral parts of a

whole.”); see also, e.g., Equal Employment Opportunity Comm'n

v. Waffle House, Inc., 534 U.S. 279, 289 (2002) (“nothing in the

[FAA] authorizes a court to compel arbitration of any issues,

or by any parties, that are not already covered in the

agreement).®

Second, the language of the FAA is part of a policy to

maintain a consistent national policy on arbitration—to

“create a body of federal substantive law of arbitrability,

applicable to any arbitration agreement within the coverage

of the Act.” Moses H. Cone, 460 U.S. at 24. The one exception,

not applicable here, is “if [a state] . . . law arose to govern

issues concerning the validity, revocability, and

enforceability of contracts generally”, then that law may

* This Court need not address whether Sections 3 and 4 (or 3 or 4) of

the FAA apply in state courts in order to divine that Congress intended

arbitration clauses to be enforced only according to their terms. Cf, ¢.g.,

Southland, 465 U.S. at 12, 16 n.10 (reserving issues); accord Volt, 489 U.S. at

477 n.6. It is hard to discern how Section 3 could not apply to the states,

however, at least to the extent of requiring that any state procedure for

enforcing an arbitration clause provide for a stay and not diminish the

protections of Section 2 precluding a court from rewriting such clauses.

See Moses H. Cone, 460 U.S. at 26 (“state courts, as much as federal courts,

are obliged to grant stays of litigation under § 3 of the Arbitration Act.”)

(emphasis added); see also id. at 26, nn. 34-35.

apply to invalidate an arbitration agreement. Doctors Assocs.,

Inc. v. Casarotto, 517 U.S. 681, 686-87 (1996) (quoting Perry v.

Thomas, 482 U.S. 483, 493 n.9 (1987) (emphasis in original)).’

Otherwise, Congress wishes the FAA to have the broadest

possible effect. See, e.g, H.R. Rep. No. 96, 68th Cong., Ist

Sess., 1 (1924) (emphasizing that “control over interstate

commerce”, the trigger for application of the FAA, “reaches

not only the actual physical interstate shipment of goods but

also contracts relating to interstate commerce.”).

Third, the language of the FAA also reflects a “statutory

policy of rapid and unobstructed enforcement of arbitration

agreements.” Moses H. Cone, 460 U.S. at 23 (emphasis

added). The decision whether to impose class-wide

arbitration on parties who had not clearly planned for or

agreed to it will undoubtedly involve courts in the details of

more arbitration clauses. That involvement will make

dispute resolution slower, more burdensome, and more

complex. See, e.g., Keating v. Superior Court, 645 P.2d 1192,

1209 (Cal. 1982), rev'd in part on other grounds sub. nom.

Southland Corp. v. Keating, 465 U.S. 1 (1984).* Courts will

”? The South Carolina Supreme Court did not even purport to require

all contracts in South Carolina to contain by implication a consent to class-

wide procedures. It focused only on arbitration agreements. Thus,

contrary to Doctors Associates, its rule “arose” only to govern such

agreements, not contracts generally.

* The long history of arbitration from medieval times to the present

has been a constant illustration of the tension between the desire of

private persons for “less formality and expense than is involved in

recourse to the courts” and the persistence of courts in adding to the

complexity of arbitration because they “did not look very favourably on a

practice which tended to diminish their jurisdiction.” 14 William

Holdsworth, A History of English Law at 187 (1964). This case indicates

9

cease to be gatekeepers simply opening the way to the path

of arbitration and involving themselves as little as possible

in its issues, see Howsam v. Dean Witter Reynolds, Inc., 123 S.

Ct. 588, 592 (2002) (timeliness of claim under arbitration

rules a matter for arbitrator to decide). They will instead

have to become travel agents trying to book, on a case by

case basis, a detailed itinerary of stops along that journey —

for there are no settled guidebooks for class-wide

arbitrations, no approved procedures, no clear limitations

on what may or may not be done.’

Fourth, the language of the FAA is not merely

precatory. As this Court held in Southland and Perry, “in

enacting § 2 of the federal Act, Congress . . . withdrew the

power of the states to require a judicial forum for the

resolution of claims which the contracting parties agreed to

resolve by ..bitration.” Perry, 482 U.S. at 489 (quoting

Southland, 465 U.S. at 10); accord, e.g., Volt, 489 U.S. at 478-79.

It is well-settled that “what cannot be done directly cannot

be done indirectly.” Thus, no state should be permitted to

that, despite the FAA, courts still continue to give arbitration and the

choices of private parties less than their due.

* For example, it is hard to predict the mechanisms that might be

invented by various state courts for the “protection” of absent class

members in arbitration, but it is easy to predict that such mechanisms will

make the arbitral process more like litigation and more likely to require

” Cummings v. Missouri, 71 U.S. (4 Wall.) 277, 325 (1867); id. (“The

Constitution deals with substance, not shadows”); accord, e.g., Doctors’

Assocs., 517 U.S. at 687 n.3 (court cannot do what legislature could not do)

(quoting Perry, 482 U.S. at 493 n.9); Fairbank v. United States, 181 U.S. 283,

294, 300 (1901) (“what cannot be done directly . . . cannot be accomplished

indirectly by legislation which accomplishes the same result.” ).

10

circumvent the direct withdrawal of its power to require

private parties to use a judicial forum (and the procedures

such as class actions that are part of that forum) by instead

requiring those parties to use a judicially-created arbitration

forum (and class-wide arbitration procedures that will

undoubtedly involve judicial monitoring) different than

what the parties had provided in their arbitration

agreement."

Finally, the FAA clearly applies to the arbitration

agreements in question here. This is not a case where the

parties chose “to abide by the state rules of arbitration”,

Volt, 489 U.S. at 472. Instead, they specified that the FAA

(not South Carolina law), would govern arbitration issues.

See Bazzle, 569 S.E.2d at 356." Unlike Volt, where it would

have been “inimical to the policies underlying state and

federal arbitration law” to ignore an explicit California

statute that permitted a stay of arbitration, given that the

parties had chosen California law and not the FAA to

govern arbitration issues, 489 U.S. >t 472 (emphasis added),

1! While there may be some situations where arbitration protected

by the FAA is preempted by other substantive federal law, see, ¢.g., Rush

Prudential HMO, Inc. v. Moran, 536 U.S. 55, 397-98, 402 n.17 (2002) (ERISA

may preempt arbitration); id. at 403-04 (Thomas, J., dissenting) (same), no

such federal law exists or was relied upon by the court below to justify its

position.

12 Cf. Volt, 489 U.S. at 484, 491-92 (concern whether FAA could be

circumvented by a state court choosing to construe an arbitration clause

“as having intended to exclude the applicability of federal law”)

(Brennan, J., dissenting).

11

here it would be inimical to federal law to impose a state

policy on parties who did not choose state law."

B. The South Carolina Supreme Court's decision conflicts

with this Court's settled arbit: ati jurisprudence.

The standards of “efficiency and equity” and “judicial

economy” imposed by the court below to attempt to justify

its decision also conflict with settled arbitration

jurisprudence from this Court that has guided and

encouraged drafters of agreements for many years.

Although the FAA “favors arbitration as a speedy,

economical method of dispute resolution”, Frank Fiore

Enters., Inc. v. Francis, No. 86 Civ. 7241 (WCC), 1987 U.S.

Dist. LEXIS 2711, at *11 (S.D.N.Y. Apr. 8, 1987), this Court

has bluntly held that “[w]e . . . reject the suggestion that the

overriding goal of the Arbitration Act was to promote the

expeditious resolution of claims”, Dean Witter Reynolds, Inc.

8 In addition, unlike the California statute chosen by the parties in

Volt, the South Carolina “law” announced below had never before

existed. Cf id. at 476 n.5 (emphasizing the legislative nature of the

California law in question); Champ, 55 F. 3d at 278 (even if silence in

arbitration agreement would permit class-wide arbitration, no such

process permissible “absent some statutory authority to do so”) (emphasis

added) (Rovner, J., concurring). In short, this is not a case in which this

Court must defer to a state court’s construction of an existing state law

chosen by the parties. See, e.g., Mastrobuono, 514 U.S. at 60 n.4. Nor is it a

case where the court below could properly claim that it had “independent

state grounds” for its decision, see Bazzle, 569 S.E. 2d at 360, simply by

choosing to construe contract language so as to ignore the FAA’s

requirements.

12

v. Byrd, 470 U.S. 213, 219 (1985)."* As a result, the FAA

requires arbitrations “even where the result would be the

possibly inefficient maintenance of separate proceedings in

different forums.” Id. at 217.5 Because nothing in the FAA or

this Court’s jurisprudence requires that any particular

arbitration result in fewer judicial proceedings generally,

there is no proper basis for creating a requirement (such as

class-wide arbitration) so that any particular arbitration will

result in fewer arbitrations (or any other supposed

efficiency) generally, either. Put another way, Congress has

already balanced the policies of efficiency, equity, and

judicial economy against the benefits of enforcing

arbitration clauses according to their terms, and has decided

to favor the latter choice. The Supreme Court of South

Carolina had no right to tilt that balance the other way."

4 As noted earlier, the “primary purpose” of the FAA is to “ensure

that private agreements to arbitrate are enforced according to their terms.”

Volt, 489 U.S. at 479 (emphasis added).

8 Accord, e.g., Moses H. Cone, 460 U.S. at 20 (FAA may “require[]

piecemeal resolution when necessary to give effect to an arbitration

agreement” ) (emphasis added); Government of the United Kingdom v. Boeing

Co., 998 F.2d 68, 72 (2d Cir. 1993) (improper to consolidate arbitrations

“despite possible inefficiencies created by such enforcement”); Superior

Oil Co. v. Transco Energy Co., 616 F. Supp. 98, 103 (W.D. La. 1985) (national

policy in favor of arbitration is so strong that it requires “piecemeal

resolution or duplication of effort when necessary to give effect to an

arbitration agreement.” ); Brower, 676 N.Y.S.2d at 573 (despite finding by

trial court that a class action “may” be less costly than arbitration, “which

is generally less costly than litigation”, arbitration still required); Harris,

441 N.Y.S.2d at 76.

1% This Court should, however, consider one efficiency issue: there

are tens, if not hundreds, of millions of existing arbitration agreements in

all fifty states that would be subject to interpretation for “efficiency and

13

Similarly, nothing in this Court’s opinions considering

the application of the FAA to smaller cases (such as may

arise in the consumer and employment arenas), indicates

that the FAA must be reinterpreted depending on the size of

a putative claim. In the 1995 Allied-Bruce Terminix case, for

example, this Court held that “Congress, when enacting this

law [FAA], had the needs of consumers... in mind....

Indeed, arbitration’s advantages often would seem helpful

to individuals, say, complaining about a product... .” Allied-

Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 280 (1995)

(citation omitted) (emphasis added). In the 2001 Circuit City

case, this Court held that “it is true here, just as it was for

the parties to the contract at issue in Allied-Bruce, that there

are real benefits to the enforcement of arbitration provisions.

... Arbitration agreements allow parties to avoid the costs

of litigation, a benefit that may be of particular importance

in employment litigation, which often involves smaller

sums of money than disputes concerning commercial

contracts.” Circuit City Stores, Inc. v. Adams, 532 U. S. 105,

122-123 (2001)."”

equity” in a decision to apply or not apply particular class action

procedures to their terms. To use this Court's reasoning from the Circuit

City decision, “[t]he considerable complexity and uncertainty that the

construction of” the FAA “urged by respondent would introduce into the

enforceability of arbitration agreements” on class-wide bases “would call

into doubt the efficacy of alternative dispute resolution procedures

adopted by many” parties already “in the process undermining the FAA's

proarbitration purposes and ‘breeding litigation from a statute that seeks

to avoid it.’” Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 123 (quoting

Allied-Bruce, 513 U.S. at 275).

17 In Stewart Kyd’s late Eighteenth Century treatise on arbitration

(“the best book on this subject”), among the categories of cases most

14

These principles flow naturally from a core value of our

legal system often expressed by this Court: the value of

upholding private contracts. See, e.g., Volt, 489 U.S. at 472; see

also U.S. Const. art I § 10.'* There is a lack of any “federal

policy favoring arbitration under a certain set of procedural

suited to arbitration were “disputes of a trifling nature.” 12 William

Holdsworth, supra n. 8, at 393 (citing Stewart Kyd, A Treatise on the Law of

Awards at 392-93 (1791)). (Kyd’s treatise was one upon which our own

early courts placed substantial reliance. See, e.g., Eastman v. Burleigh, 2

N.H. 484, 486-88 (1822).)

'§ The few courts that have in recent years sought to impose class

action procedures on arbitration clauses that do not provide for it, or to

reject such clauses because they would preclude class actions, typically

ignore this core value. For example, it is well-settled in California that “‘if

there is one thing which more than another public policy requires, it is

that men of full age and competent understanding shall have the utmost

liberty of contract, and that their contracts when entered into freely and

voluntarily shall be held sacred, and shall be enforced by courts of

justice.’ (In re Garcelon (1894) 104 Cal. 570, 591 [38 P. 414], quoting from

the opinion of Sir G. Jessell, M.R., in Printing Numerical Registering Co. v.

Sampson, L.R. 19 Eq. 465).” Carma Developers (Cal.), Inc. v. Marathon

Development Cal., Inc., 826 P.2d 710, 720-21 (Cal. 1992); accord, e.g., Vernon

v. Drexel Burnham & Co., 125 Cal. Rptr. 147, 153 (Ct. App. 1975) (“there is

perhaps no higher public policy than to uphold and give effect to

contracts validly entered into and legally permissible in subject

matter. ... The sanctity of valid contractual agreements in a free society,

such as ours, is of paramount importance and is rooted in both the United

States and California Constitutions, which predate and outweigh the

body of law on class actions as presently evolving.”). Yet the recent

decision in Ting v. AT&T, No. 02-15416, 2003 U.S. App. LEXIS 2395, at *58

(9th Cir. Feb. 11, 2003), purportedly relying on California law to reject an

arbitration clause because it would preclude class actions, not only

effectively ignored the most recent statement by a California court on that

subject, see Discover Bank v. Superior Court, 129 Cal. Rptr. 2d 393 (Ct. App.

2003), but gave no weight to the sanctity of private contracts.

15

rules” only because federal policy is clearly to “enforce[],

according to their terms, . . . private agreements to

arbitrate” —including whatever procedures are actually

chosen in those agreements. Volt, 489 U.S. at 476; accord, e.g.,

id. at 479 (“By permitting the courts to ‘rigorously

enforce’... [arbitration] agreements according to their

terms, see Byrd, supra, at 221, we give effect to the

contractual rights and expectations of the parties, without

doing violence to the policies behind . . . the FAA.”). To the

extent that the court below ceased to give proper respect to

this core value, its decision conflicts significantly with this

Court's jurisprudence.”

While “as with any other contract, the parties’

intentions control” an arbitration agreement, Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626

1° As another example of the extent of this conflict, an individual

arbitration award simply does not have the same automatic res judicata

and collateral estoppel effects as a litigated judgment. See, e.g., McDonald

v. City of West Branch, 466 U.S. 284, 289-92 (1984); see also, e.g., Universal

Am. Barge Corp v. ]-Chem, Inc., 946 F.2d 1131, 1137 (5th Cir. 1991); Leddy v.

Standard D+ ywall, Inc., 875 F.2d 383, 385 (2d Cir. 1989); Giles v. City of New

York, 41 F. Supp. 2d 308, 313 (S.D.N.Y. 1999); see generally Dean Witter, 470

U.S. at 222-23; of, ¢.g., Vandenberg v. Superior Court, 982 P.2d 229, 234 n.2

(Cal. 1999) (no collateral estoppel effect at all to private arbitration awards

in California). Thus, a party can engage in individual arbitration more

freely, and with less concern about collateral consequences, than in court.

By requiring class-wide arbitration by a party who had not agreed to it,

however, the court below clearly sought to impose those otherwise

collateral consequences. In effect, Green Tree is being forced to resolve

more than “only those issues it specifically ha{d] agreed to submit to

arbitration”, an outcome forbidden by this Court in First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938, 945 (1995), and Steelworkers v. Warrior

& Gulf Nav. Co., 363 U.S. 574, 582 (1960).

16

(1985), the FAA emphasizes that the written terms of such

agreements are paramount. There was certainly no evidence

here that the parties actually contemplated that their

contract included a provision for class-wide arbitration

despite the absence of any reference to such procedures in

the written arbitration clause itself. Nor could the South

Carolina Supreme Court—or any other court—simply

presume so on the theory that because such procedures are

available in many courts, they must be so important to the

enforcement of the parties’ substantive rights that the parties

must have intended to include them. This would be

precisely the kind of “generalized attack[] on arbitration”

that this Court has consistently rejected as “‘rest[ing] on

suspicion of arbitration as a method of weakening the

protections afforded in the substantive law to would-be

complainants .. . ."” Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20, 30 (1991) (quoting Rodriguez de Quijas v.

Shearson/American Express, Inc., 490 U.S. 477, 481 (1989)).”°

»® A limited analogy to concepts of personal jurisdiction may be

helpful. If an arbitration clause selects a particular set of arbitration rules,

the parties may be deemed to have consented to the “jurisdiction” of that

provider or set of rules. Cf. Hanson v. Denkla, 357 U.S. 235, 253 (1958)

(there must “ be some act by which the defendant purposefully avails

itself of the privilege of conducting activities within the forum state, thus

invoking the benefits and protections of its laws.”). The benefits and

protections of that “jurisdiction” should be respected, and the drafter

cannot be deemed to have consented to some other “jurisdiction.”

Accordingly, if a court or arbitrator orders class-wide arbitration that is

not required by the selected rules, any party should be entitled to avoid

any award resulting from such arbitration. See generally 9.U.S.C. § 10; cf.

Transaero, Inc. v. Feurza Aearea Boliviana, 162 F.3d 724, 728 (2d Cir. 1998)

(judgment obtained without personal jurisdiction unenforceable), cert.

17

Il. The South Carolina Supreme Court incorrectly treated

access to class action procedures as a fundamental

right.

In its decision, the court below favored class action

procedures taken from its own judicial system and assumed

that if such procedures are not availabie, society suffers an

irremediable harm. Yet not only has Congress rejected, by

enacting the FAA, the idea that society is harmed by using

arbitration rather than judicial process to resolve civil

disputes; it has actually imposed arbitration in preference to

judicial proceedings in some instances. See generally, ¢.g.,

Concrete Pipe and Prods. of Cal., Inc. v. Construction Laborers

Pension Trust for So. Cal., 508 U.S. 602 (1993) (upholding

mandatory arbitration provisions of the Multiemployer

Pension Plan Amendments Act of 1980, 94 Stat. 1208, codified

at 29 U.S.C. § 1401(a)(1) (2000)). Similarly, where Congress

has decided in very specific instances that states—rather

than private parties—have special competence to control

arbitration mechanisms, it has specifically remitted such

responsibility to the states. See 47 U.S.C. § 252(b)(1) (2000)

(arbitration provisions of Telecommunications Act of 1996,

Pub. L. 104-104, 110 Stat. 56); see generally AT&T Corp. v. lowa

Utils. Bd., 525 U.S. 366 (1999); id. at 402 (Thomas, J.,

concurring in part and dissenting in part).

The court below did not identify any such special

delegation of procedural competence to it by Congress. Nor

does anything in the FAA itself demonstrate any preference

denied, 526 U. S. 1146 (1999); Precision Etchings & Findings, Inc. v. LGP Gem,

Ltd., 953 F.2d 21, 23 (1st Cir. 1992) (same).

18

for procedures taken from state court systems over those

defined by private parties. The court therefore tried to

justify its imposition of class-wide arbitration procedures on

parties who had not expressly chosen such procedures by

inventing a special right to class-based relief: if it did not

affirmatively uphold class-wide arbitrations, then “the

mp red could effectively prevent class actions against

it without having to say it was doing so in the agreement.”

Bazzle, 569 S.E.2d at 360. .

This argument necessarily assumes that private parties

have a fundamental, substantive right to class actions that

may not be waived (if they may be waived at all) unless

done so expressly. Yet there is no such fundamental right.

Class actions are only, in this Court's words, a “procedural

device.” Deposit Guaranty Nat'l Bank v. Roper, 445 U.S. 326,

331 (1980); see also, e.g., Frazar v. Gilbert, 300 F.3d 530, 545

(Sth Cir. 2002) (“A class action is merely a procedural device

. . « «") (citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591,

613 (1997)).” As a result, and contrary to the assumption

below, a party may “effectively prevent class actions against

it without having to say it [is] doing so in [an] agreement.”

Bazzle, 569 S.E.2d at 360. Indeed, a party may effectively and

* This does not mean that all state activity is precluded by the

existence of a private contract containing an arbitration clause. Such

clauses govern relations between those covered, not between those

covered and a state. Cf. Lividas v. Bradshaw, 512 U.S. 107 (1994) (arbitration

policy and National Labor Relations Act, 29 U.S.C. §§ 151 et seq. do not

legally do so even when the method used does not embody

the same strong Congressional policy as does arbitration.

For example, forum selection clauses that effectively

preclude class actions have been upheld even though they

contain no explicit waiver of class action procedures.” This

is consistent with this Court’s general view that businesses

may include forum select! \ clauses in adhesion contracts

because “it stands to reases. that” customers bound by such

contracts “benefit in the form of reduced [prices] .. .

reflecting the savings that the [business] . . . enjoys by

limiting the fora in which it may-be sued.” Carnival Cruise

Lines v. Shute, 499 U.S. 585, 594 (1991). Using a forum

2 E.g., Koch v. America OnLine, 139 F. Supp. 2d. 690, 694-96 (D. Md.

2000) (upholding choice of forum clause requiring all claims to be decided

in Virginia over objection that Virginia does not permit class actions

because dismissal in Maryland would not prevent the plaintiff from

bringing an individual claim in Virginia); Forrest v. Verizon Communications,

Inc., 805 A.2d 1007, 1012 (D.C. 2002) (similar); America Online, Inc. v.

Booker, 781 So. 2d 423, 425 (Fla. Dist. Ct. App. 2001) (similar); see Celmins v.

America OnLine, 748 So. 2d 1041, 1041-42 (Fla. Dist. Ct. App. 1999)

(upholding same forum selection clause); Groff v. America OnLine, Inc., No.

PC 97-0331, 1998 R.I. Super. LEXIS 46, at "16 (Super. Ct. R.I. May 27, 1998)

(same); but see America OnLine, Inc. v. Superior Court, 108 Cal. Rptr. 2d 699,

710 (Ct. App. 2001) (refusing to uphold America OnLine choice of forum

clause); cf. Discover Bank, 129 Cal. Rptr. 2d at 403-04 (rejecting analysis of

America OnLine in the presence of FAA).

2 The Carnival Cruise Lines forum selection clause prescribed Florida

as the forum for all disputes for Washington residents who took a

passenger cruise from California. In the absence of any “evidence that

petitioner obtained respondents’ accession to the forum clause by fraud

or overreaching”, and given that “respondents . . . were given notice of

the forum provision and, therefore, presumably retained the option of

rejecting the contract with impunity”, this Court saw no reason not to

uphold the forum selection clause on the passengers’ tickets. 499 U.S. at

20

selection clause to preclude class actions would certainly

result in savings. There is no good reason to preclude such

savings when they are the result of an arbitration clause

instead, particularly since “[aJn agreement to arbitrate . . . is,

in effect, a specialized kind of forum-selection clause.”

Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (1974).

Courts have long recognized other reasons that parties

may properly seek to avoid class actions, too. As the

California Supreme Court noted in Washington Mut. Bank v.

Superior Court (by rejecting the argument to the contrary),

“businesses dealing with mass groups of consumers should

.. be permitted to rely on choice-of-law clauses as a means

of avoiding involvement in a nationwide class

action. ...‘Class actions are provided only as a means to

enforce substantive law. Altering the substantive law to

accommodate procedure would be to confuse the means

with the ends—to sacrifice the goal for the going.” 15 P.3d

1071, 1079-80 (Cal. 2001) (quoting City of San Jose v. Superior

Court, 525 P.2d 701, 711 (Cal. 1974)).*

595. Congress later prohibited similar forum selection clauses on

passenger cruise line tickets in cases of personal injury arising from

negligence or fault. See 46 U.S.C. App. 183¢ (2002). Congress could

presumably change the FAA with respect to the specific issue in this case,

too.

* Accord, ¢.g., Shearson/American Express v. McMahon, 482 U.S. 220,

256 (1987); Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528,

533 (1995); Weyerhauser Co. v. Western Seas Shipping Co., 743 F.2d 635, 637

(9th Cir.), cert. denied, 469 U. S. 1061 (1984); see also Cortez, 529 U.S. at 201

(the FAA provides a “desired flexibility of parties in choosing a site for

arbitration.”).

® Accord Harris, 441 N.YS.2d at 76 (“the substantive law of

contractual agreement takes precedence over the class action, which is

21

The court below, however, not only asserted in its

decision that the drafter of an arbitration clause cannot

avoid class action procedures “without having to say it was

doing so in the agreement”, but also that such a waiver of

“class-wide or consolidated arbitration in an adhesion

contract, even if explicit, undermines principles favoring

expeditious and equitable case disposition absent

demonstrated prejudice to the drafter of the adhesive

contract.” Bazzle, 569 S.E.2d at 360 & n. 21. Without any

basis, this makes the “right” to class action procedures even

more fundamental than, for example, the right to a jury

trial.”

merely a procedural device for consolidating matters properly before the

Court.”) (citation omitted); Vernon, 125 Cal. Rptr. at 153. In effect, the

court below has applied a kind of local forum non conveniens analysis to

determine that an individual arbitration forum is an inconvenient one.

This emphasizes the weakness of its decision, because the doctrine of

forum non conveniens is merely a procedural venue theory. E.g., American

Dredging Co. v. Miller, 510 U.S. 443, 453-45 (1994). Courts that have

focused on the availability or denial of class action procedures to defeat

the substantive law of arbitration clauses, see, ¢.g., Ting, No. 02-15416, 2003

U.S. App. LEXIS 2395 at "65-6, have generally fallen prey to this same

confusion of means and ends, procedure and substance.

* No “right” to class action procedures appears in any federal

statute applicable to this case. Even if a federal statute expressly permits

class actions, that right will not supersede the right to an individual

arbitration pursuant to an arbitration clause that does not mention class

procedures. See Gilmer, 500 U.S. at 32. Nor can there be any “right” to

class action procedures in arbitration by operation of the due process

clause of the United States Constitution, U.S. Const. amend. XIV, cl. 1. As

one court recently noted, “there is ample authority for the proposition

that a private arbitration does not implicate due process concerns since . .

. there is no state action involved ... .” Sawtelle v. Waddell & Reed, Inc., No.

2330, 2003 N.Y. App. Div. LEXIS 1243, at “14 (Feb. 11, 2003) (overturning

22

The right to a jury trial is both an ancient part of our

nation’s legal system and a right explicitly preserved in the

Constitution. E.g., U.S. Const. amend. VII; 9 Charles Alan

Wright & Arthur R. Miller, Federal Practice and Procedure

§ 2301 (2d ed. 1995). As this Court once observed, “[a] right

so fundamental and sacred to the citizen, whether

guaranteed by the Constitution or provided by statute,

should be jealously guarded by the courts.” Jacob v. New

York, 315 U.S. 752, 752-53 (1942). Yet “[i]t is clear that the

parties to a contract may by prior written agreement waive

the right to jury trial.” K.M.C. Co. v. Irving Trust Co., 757 F.2d

752, 755 (5th Cir. 1985).”” Furthermore, this waiver need not

be explicit when it is the result of the enforcement of an

arbitration clause protected by the FAA. E.g., Dillard v.

Merrill Lynch, Pierce, Fenner & Smith, Inc., 961 F.2d 1148, 1155

n.12 (5th Cir. 1992) (“the Seventh Amendment does not

preclude ‘waiver of the right to jury trial through the

signing of a valid arbitration agreement.”), cert. denied sub

nom. Dillard v. Security Pac. Corp., 506 U.S. 1079 (1993).

arbitration award not as violative of due process, but as “irrational”, by

analogy to BMW of N. Am. v. Gore, 517 U.S. 559 (1996)), citing, e.g., Davis v.

Prudential Secs., Inc., 59 F.3d 1186, 1191 (11th Cir. 1995); Sanders v. Gardner,

7 F. Supp. 2d 151, 174-75 (E.D.N.Y. 1998).

. ” Accord, ¢.g., Telum, Inc. v. E.F. Hutton Credit Corp., 859 F.2d 835, 837

(10th Cir. 1988) (“ Agreements waiving the right to trial by jury are neither

illegal nor contrary to public policy.”), cert. denied, 490 U. S. 1021 (1989);

Leasing Serv. Corp. v. Crane, 804 F.2d 828, 832 (4th Cir. 1986) (right to jury

trial, although fundamental, may be waived by contract).

% Accord, e.g., Great Western Mortg. Corp. v. Peacock, 110 F.3d 222 (3rd

Cir.) (upholding plaintiff's implied waiver of right to jury trial through

arbitration agreement), cert denied sub nom. Peacock v. Great Western Mortg.

Corp., 522 U. S. 915 (1997); see also, ¢.g., Arkoosh v. Dean Witter & Co., 415 F.

23

Class actions, particularly the modern class action with

procedures of the kind imposed by the court below, lack the

historical importance of the right to a jury trial. See generally,

e.g., Geoffrey C. Hazard, Jr., et al., An Historical Analysis of the

Binding Effect of Class Suits, 146 U. Pa. L. Rev. 1849 (1998); 7A

Charles Alan Wright & Arthur R. Miller, Federal Practice and

Procedure, §1751 (2d ed. 1986). Class actions (derived

primarily from modern court rules) are not enshrined in our

Constitution, either. In short, access to class action

procedures must be far less a fundamental right than access

to jury trials—and jury trials can be waived both explicitly

and (at least through the operation of an arbitration clause)

implicitly. The assumption of the court below that access to

class action procedures is such a fundamental right that it

either must be expressly waived in an arbitration clause —or

perhaps cannot be waived at all?”—is simply unsupportable.

Supp. 535, 544 (D. Neb. 1976). In addition, the FAA “does [not]... .

prevent parties who do agree to arbitrate from excluding certain claims

from the scope of their arbitration agreement”, Volt, 489 U.S. at 478, so it is

clear that, at worst, parties could agree to exclude any class-wide claims

from an arbitration agreement, yet require the arbitration of an

individual's claim to proceed first. If the individual lost, he or she would

probably not be an adequate class representative for others. See generally

Sosna v. lowa, 419 U.S. 393, 402 (1975). Furthermore, he or she could, if he

or she won an arbitration, act as a class representative only for others

without an arbitration clause or who had also won individual

arbitrations. There is little practical difference, therefore, between what is

already expressly permitted by Volt under the FAA and what Petitioner

seeks from this Court.

* See Bazzle, 569 S.E.2d at 360 n. 21; but see Johnson v. West Suburban

Bank, 225 F.3d 366 (3d Cir. 2000) (explicit class-action exemption in

arbitration clause enforceable), cert. denied, 531 U.S. 1145 (2001).

24

As noted earlier, this Court has consistently rejected

efforts to modify the effects of the FAA because of

“suspicion of arbitration as a method of weakening the

protections afforded in the substantive law . . . .” Rodriguez,

490 US. at 481; accord, e.g., Gilmer, 500 U.S. at 30. The

decision below simply represents another such effort, albeit

one not even based on a direct concern about substantive

law, but on the absence from most arbitrations of a

procedural device of recent vintage and less than

Constitutional importance. See also, e.g., Moses H. Cone, 460

USS. at 24 (“Section 2 is a congressional declaration of a

liberal federal policy favoring arbitration agreements,

notwithstanding any state substantive or procedural policies

to the contrary.”) (emphasis added). If allowed to stand, the

decision below would encourage the courts of fifty different

states to reach innumerable different conclusions, based on

a vague standard of “equity and efficiency”, as to whether

to impose unexpected and unknown class action procedures

on existing arbitration agreements otherwise free of such

complications. This would not only be a rejection of the FAA

policy of enforcing arbitration agreements according to their

terms; it would destroy the uniform application of federal

arbitration law contemplated in the FAA and necessary to

the continued widespread use of arbitration in our national

economy. This Court should not permit such a result.

aa"

7

CONCLUSION

For the reasons stated above, the decision below should mB, | er

be reversed. & pe Aye

Respectfully submitted,

MICHAEL E. MALAMUT CHRISTOPHER M. MASON* ae y:

CHRISTINE HUGHES NIXON PEABODY LLP co. iota te Fe

NEW ENGLAND LEGAL FOUNDATION 437 Madison Avenue

150 Lincoln Street New York, New York

Boston, Massachusetts 02111-2504 10022

(617) 695-3660 (212) 940-3000

J. VANN VOGEL DAVID H. GIBBS ik

JEROME KARNICK JOHN R. PAGLIARO ea eter: ape ha

VERIZON WIRELESS NIXON PEABODY LLP ae . sa WO ) mean tt"

180 Washington Valley Road 101 Federal Street a ee | MS oo)

Bedminster, New Jersey 07921 Boston, Massachusetts ic Ve | ee

(908) 306-7300 02110 as ey ik Rea Nae

(617) 345-1000 a : ae pene ae

Counsel for New England Legal Foundation and Cellco Partnership d/b/a } a . | igure ae

February 24, 2003 *Counsel of Record Bs no AME. fc