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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0614%3A12

## Record

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

## Text

MOTION FILED 9
FEB 2 4 2005 No. 02-634

IN THE
Supreme Court of the United States

GREEN TREE FINANCIAL CorpP. A/K/A GREEN TREE
ACCEPTANCE CorpP. A/K/A GREEN TREE FINANCIAL SERVICES
CORP. N/K/A CONSECO FINANCE CorpP.

Petitioner,
Vv.

LYNN W. BAZZLE and BurRT 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

MOTION FOR LEAVE TO FILE BRIEF AND
BRIEF OF WASHINGTON LEGAL FOUNDATION
AS AMICUS CURIAE IN SUPPORT OF PETITIONER

Daniel J. Popeo
Richard A. Samp
(Counsel of Record)

Washington Legal Foundation
2009 Massachusetts Ave.. NW
Washington, DC 20036
(202) 588-0302

Date: February 24, 2003

MOTION FOR LEAVE TO FILE BRIEF
OF WASHINGTON LEGAL FOUNDATION
AS AMICUS CURIAE IN SUPPORT OF PETITIONER

Pursuant to Rule 37.2 of the rules of this Court, the
Washington Legal Foundation (WLF) respectfully moves for
leave to file the attached brief as amicus curiae in support of
Petitioner. Petitioner has consented to the filing of this brief;
its letter of consent has been lodged with the Clerk of the
Court. WLF has been unable to obtain the consent of
counsel for Respondents, thereby necessitating the filing of
this motion.

WLEF is a non-profit public interest law and policy
center with supporters in all 50 states. While WLF engages
in litigation and participates in administrative proceedings in
a variety of areas, WLF devotes substantial resources to
promoting civil justice reform and freedom of contract. To
that end, WLF has appeared before this Court as well as
other federal and State courts in cases touching upon the
enforceability and interpretation of arbitration agreements.
See, e.g., PacifiCare Health Systems, Inc. v. Book, No. 02-
215 (dec. pending). WLF has consistently supported the
rights of private parties to enter into binding agreements to
arbitrate any disputes arising between them, as a quicker and
more efficient alternative to litigation.

WLF has also appeared regularly in cases addressing the
proper scope of class action litigation. See, e.g., Dow
Chemical Co. v. Stephenson, No. 02-271 (dec. pending);
Matsushita Electric Industrial Co. v. Epstein, 516 U.S. 367
(1996); Linder v. Thrifty Oil Co., 23 Cal. 4th 429 (2000).
WLF has repeatedly expressed its concern over the
proliferation of class action lawsuits being filed in federal and
state courts and the inhibiting effect that such suits can have
on the development and expansion of businesses.

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WLF is concerned that the decision of the South
Carolina Supreme Court, if allowed to stand, will undermine
the effectiveness of arbitration as an efficient alternative to
litigation, by wedging into the arbitration process all of the
detailed procedures inherent in class action litigation. That
result is particularly problematic when, as here, there is no
indication that the parties ever consented to the adoption of
class action procedures when they entered into an arbitration
agreement. WLEF is concerned that if the decision below
stands, parties will be more reluctant to enter into arbitration
agreements because they will justifiably fear that some court
will later construe the agreements as consent to being
subjected to class-based arbitration, which generally lacks the
procedural protections afforded by courts in class action
litigation.

WLF is filing this brief because of its interest in
promoting the welfare of the business community and the
public at large; it has no direct interest in the outcome of this
case. Because of its lack of direct economic interests, WLF
believes that it can assist the Court by providing a perspective
distinct from that of any party.

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For the foregoing reasons, WLF respectfully requests
that the Court allow it to participate in this case by filing the
attached brief.

Respectfully submitted,

Daniel J. Popeo
Richard A. Samp

(Counsel of Record)
Washington Legal Foundation
2009 Massachusetts Ave., NW
Washington, DC 20036
(202) 588-0302

Date: February 24, 2003

i
QUESTION PRESENTED

Whether the Federal Arbitration Act, 9 U.S.C. § 1 ef
seq., prohibits class-action procedures from _ being
superimposed onto an arbitration agreement that does not
provide for class-action arbitration.

TABLE OF CONTENTS

Page
TABLE OF AUTHIORITIES ...... ccc ccccccee ili
INTERESTS OF THE AMICUS CURIAE .......... l
STATEMENT OF THE CASE ................. l
SUMMARY OF ARGUMENT ................. 5
EE ab Geb esbascaceeebasseubsee e's 6

I. CLASS ACTIONS ARE UNWORKABLE IN
THE ARBITRATION CONTEXT BECAUSE
ABSENT CLASS MEMBERS COULD NOT BE
BOUND BY AN ARBITRATION AWARD
WITH WHICH THEY WERE DISSATISFIED . . . 6

Il. WHILE PARTIES ARE FREE TO AGREE TO
CLASS-BASED ARBITRATION, IT IS UNREA-
SONABLE EVER TO ASSUME THEY HAVE
DONE SO GIVEN THE ONE-WAY NATURE
OF CLASS-BASED ARBITRATION AWARDS . 11

lil. THE DECISION TO ALLOW CLASS-WIDE
ARBITRATION WAS MADE BY_ THE
COURTS, NOT THE ARBITRATOR, AND
THUS IS NOT ENTITLED TO ANY SPECIAL
PEED ccc ceceeseceseseseesess 15

EUUUEEEEES wee dccccesceeseeeenemenses 18

TABLE OF AUTHORITIES
Page

Cases:
AT&T Technologies v. Communications Workers,

Gee Gs PED we ee esesteuscheencesewx 17
Gilmer v. Interstate/Johnson Lane Corp.,

Pa PEE oc babeceskcsnesesstene es 6
Hansberry v. Lee,

gk! ers eee ee ee ee 7
Hines v. Davidovitz,

ff Fe Pee VT eT Te Ce Teer 13
Howsam v. Dean Witter Reynolds, Inc.,

4 RR Fe 17
Keating v. Superior Court,

ff ff S00 eee ee eee 10
Martin v. Wilks,

Ss SEP © Goa ebeecrebeeedtoantenses 7
Mastrobuono v. Shearson Lehman Hutton, Inc.,

SPU PEED oe cecneceteeeener 11, 12, 13
Mitsubishi Motors Corp. v. Soler Chrysler

Plymouth, Inc., 473 U.S. 614 (1985) ............ 6
Phillips Petroleum v. Shutts,

3! eee eae 7, 8,9, 10
Shearson/American Express, Inc. v. McMahon,

See Ge I 6 oh o6-0 9:08 4666 Kt 00088 9, 14
Southland Corp. v. Keating,

Se a UD 60h S KAS ORS eb Oe eens eens 16

Volt Information Sciences v. Bd. of Trustees
of Leland Stanford Junior University,
Ge Sele GR GUND ce ccc esecescees 8, 11, 13, 14

iV

Page
Statutes:
Federal Arbitration Act, 9 U.S.C. §§ 1-16 ..... passim
| RPT Trrerrerrerre rc 16
| errr rr sre rere Te eT ECT 4, 16
S.C. Code Ann. §§ 37-10-102(a), -105............. 2
Miscellaneous:
18 C. Wright, A. Miller, & E. Cooper, Federal
Practice and Procedure § 4449 (1981) ......... oo 7

BRIEF OF WASHINGTON LEGAL FOUNDATION
AS AMICUS CURIAE IN SUPPORT OF PETITIONER

INTERESTS OF AMICUS CURIAE

The interests of amicus curiae Washington Legal
Foundation (WLF) are set forth in the motion accompanying
this brief.

STATEMENT OF THE CASE

In the interests of brevity, WLF hereby incorporates by
reference the Statement of the Case contained in the Brief for
Petitioner.

In brief, Petitioner Green Tree Financial Corp. (“Green
Tree”) is challenging under the Federal Arbitration Act
(“FAA”), 9 U.S.C. §§ 1-16, two interrelated class action
awards. Those two awards require Green Tree to pay nearly
$27 million in statutory damages, attorney fees, and costs to
two Classes consisting of more than 3,700 individuals. One
of the arbitration proceedings was initiated by Petitioners
Lynn and Burt Bazzle (the “Bazzle arbitration”). The other
proceeding was initiated by Daniel B. Lackey and George
and Florine Buggs (the “Lackey arbitration”). Although the
arbitration agreements entered into between Green Tree and
those individuals are "silent" on the subject of class-based
arbitrations, the South Carolina courts directed the
arbitrations to proceed as class actions. Green Tree contends
that South Carolina’s decision to subject them to class-based
arbitration is inconsistent with, and therefore is preempted
by, the FAA.

The Bazzle Arbitration. In 1995, the Bazzles entered
into a retail installment contract and security agreement with

2

Green Tree to finance home improvements. The agreement
included an arbitration clause which provided, inter alia, that
all disputes “arising from this contract” were to be resolved
by an arbitration proceeding governed by the FAA.

The Bazzles later claimed that Green Tree, when it
entered into the loan agreement, violated the attorney and
insurance-agent notice preference provisions of South
Carolina law. See S.C. Code Ann. §§ 37-10-102(a), -105.
Their suit in South Carolina state court was later certified as
a class action (over Green Tree’s objections both that
certification was unwarranted and that any action by the court
should be stayed pending arbitration) on behalf of other South
Carolinian who had entered into home improvement loan
agreements with Green Tree. The court then ordered that the
class action proceed before an arbitrator appointed by the
court. On July 24, 2000, the arbitrator ruled in favor of a
plaintiff class of 1,899 individuals. Pet. App. 55a-8la. The
arbitrator found that Green Tree had violated South Carolina
law in connection with the loan agreements entered into with
each class member. Although the plaintiffs did not attempt
to show that they had suffered any damages as a result of the
violations, the arbitrator imposed a class-wide penalty of
between $5,000 and $7,500 per transaction -- for a total
award of $10,935,000. /d.. 69a-71a. He also awarded the
plaintiffs $3,645,500 in attorney fees. Jd. 7la-8la. On
September 15, 2000, the South Carolina Court of Common
Pleas confirmed the award. /d. 27a-3Sa.

The Lackey Arbitration. Daniel Lackey and his fellow
class members entered into consumer installment contracts
and security agreements with Green Tree for the purchase of
manufactured homes. The agreements contained arbitration

3

clauses that were essentially identical to the arbitration clause
at issue in the Bazzle arbitration.

Daniel Lackey and George and Florine Boggs in 1996
filed a putative class action against Green Tree in South
Carolina state court, alleging violations of the attorney and
insurance-agent notice preference provisions of South
Carolina law. In 1998, the South Carolina Court of Appeals
ordered (over the plaintiffs’ objection) that the arbitration
clause be enforced. Thereafter, the individual who was
already presiding over the Bazzle arbitration was appointed
as arbitrator. He later granted the plaintiffs’ motion to certify
the arbitration as a class action on behalf of South Carolinians
who had entered into manufactured home loans with Green
Tree, agreeing with the plaintiffs that certification was
warranted for the reasons expressed by the trial court in the
Bazzle proceedings.

On July 24, 2000 (the same day he ruled in the Bazzle
arbitration), the arbitrator ruled in favor of a plaintiff class of
1,840 individuals. /d. 82a-109a. Although the plaintiffs did
not attempt to show that they had suffered any damages as a
result of the violations of South Carolina law, the arbitrator
imposed a class-wide penalty of $5,000 per transaction -- for
a total award of $9,200,000. Jd. at 96a-98a. He also
awarded the plaintiffs $3,084,918 in attorney fees and costs.
Id. 98a-106a. On December 19, 2000, the South Carolina
Court of Common Pleas confirmed the award. /d. 36a-54a.

Green Tree appealed both actions, which eventually
were consolidated in the South Carolina Supreme Court. On
August 26, 2002, that court affirmed both awards, rejecting
Green Tree’s contention that the arbitrations should not have
been permitted to proceed on a class-wide basis. /d. la-26a.

4

Initially, the court examined the arbitration clauses and
determined that they were “silent” regarding class-wide
arbitration. /d. 19a. The court stated that the language
relied on by Green Tree was ambiguous and “should,
therefore, be construed against the drafting party, Green
Tree.” /d. Although acknowledging that (as specified by the
parties) the arbitrations were governed by the FAA, id. 11a,
the court distinguished several federal cases -- which held
that class-wide arbitration is impermissible unless explicitly
agreed to by the parties -- on the ground that those cases were
based on § 4 of the FAA, which the court held inapplicable
to state-court proceedings. /d. 19a-20a.

The court went on to identify an “independent state
ground” for affirmance: as a matter of South Carolina law,
trial courts have “discretion” to permit class-wide arbitration
when the arbitration clause is silent regarding that issue. /d.
20a. The court held that granting such discretion was
consistent with South Carolina’s policy of “strongly
favor[ing] arbitration” and that class-wide arbitration may be
ordered “when the arbitration agreement is silent if it would
serve efficiency and equity and would not result in
prejudice.” Jd. 2la-22a. The court worried that if such
discretion were not granted, “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.” Jd. 22a. The court also held that
arbitral decisions are subject to limited review; the court
upheld the arbitral awards in the absence of evidence that
they were issued “in manifest disregard of the law” -- a level
of error that could only be reached by showing that “the
arbitrator knew of a governing legal principle yet refused to
apply it, and the law disregarded was well defined, explicit,

5

and clearly applicable to the case.” Jd. 24a (emphasis in
original).

SUMMARY OF ARGUMENT

Under well-established due process and FAA
principles, absent class members are not bound by judgments
entered in arbitration proceedings that proceed on a class-
wide basis. By their very nature, arbitrations are informal
proceedings in which it is virtually impossible to gauge the
adequacy of the class representative’s representation of
absent class members. The inability of reviewing courts to
ensure adequate representation throughout the proceedings -
combined with the fact that the arbitration process is
premised on the voluntary participation of all parties -
precludes any effort to bind absent class members.

Accordingly, there can be no justification for
interpreting an arbitration provision as permitting class-wide
arbitration, in the absence of a clause explicitly authorizing
such arbitration. Interpreting arbitration provisions in this
manner in the absence of explicit authorization greatly
complicates arbitration proceedings, thereby depriving parties
of the simple, informal, and quick procedure promised them
under the FAA when they agreed to arbitrate their disputes.
Yet, because absent class members cannot be bound by such
class-wide arbitration, there are no corresponding benefits to
offset those costs.

The great danger from the decision below is that it will
discourage parties from agreeing to arbitrate future cases. In
light of the decision below, contracting parties could well
conclude that no amount of disclaimers can insulate them
from a judicial finding that they are subject to class-wide

6

arbitration. If so, they are unlikely to agree to arbitrate
future disputes, a result inimical to the purposes served by
the FAA. Because the decision below “stands as an obstacle
to the accomplishment of the full purposes and objectives of
Congress” as expressed by the FAA, it is preempted by the
FAA.

ARGUMENT

I. CLASS ACTIONS ARE UNWORKABLE IN THE
ARBITRATION CONTEXT BECAUSE ABSENT
CLASS MEMBERS COULD NOT BE BOUND BY
AN ARBITRATION AWARD WITH WHICH
THEY WERE DISSATISFIED

Consideration of whether class-wide arbitration is
consistent with the FAA must begin with an examination of
the practicability of class-wide arbitration as a means of
resolving large numbers of disputes involving common
questions of law or fact. Unless class-wide arbitration can
predictably resolve disputes, there can be no justification for
complicating arbitration proceedings (by, as here for
example, increasing the number of claims more than a
thousand fold, from three to 3,700) and thereby depriving
parties of the “simplicity, informality, and expedition”
promised them under the FAA when they agreed to arbitrate
their disputes. Gilmer v. Interstate/Johnson Lane Corp., 500
U.S. 21, 30 (1991) (quoting Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).

The clear answer is that class-wide arbitration cannot
resolve disputes within any degree of finality. That is
because, under well established due process principles, absent
class members cannot be bound by arbitrations conducted as

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PR om at - ee As noted previously, in those cases in which potential recoveries
are too small to make arbitration of individual claims an effective
means of vindicating substantive rights, courts should be directed to
declare the arbitration provision unenforceable and permit the parties
to seek judicial remedies, rather than to permit class-wide arbitration.
Shearson/American Express, 482 U.S. at 229-30.

~~.

15

lll. THE DECISION TO ALLOW CLASS-WIDE
ARBITRATION WAS MADE BY THE COURTS,
NOT THE ARBITRATOR, AND THUS IS NOT
ENTITLED TO ANY SPECIAL DEFERENCE

In their opposition to the petition for certiorari,
Respondents insisted that the decision to impose class-wide
arbitration was made by the arbitrator, not the South Carolina
state courts. Opp. Br. 25-28. Respondents argue that the
Court should defer to_the arbitrator's decision in this regard
because "by agreeing to submit the construction of their
contract to an arbitrator, the parties bargained for the
procedures he devised." /d. 26.

Respondents’ arguments can be squared with neither the
decision of the South Carolina Supreme Court nor the orders
of the trial courts. The South Carolina Court of Common
Pleas in the Bazzle proceeding unambiguously directed the
arbitration to proceed on a class-wide basis. Pet. App. 3a-4a.
In his subsequent decision, the arbitrator gave no hint that he
felt at liberty to reverse that decision. /d.. 82a-109a.

The impetus for class-wide arbitration in the Lackey
proceeding is less clear. On the one hand, unlike in the
Bazzle proceeding, the trial court never entered an order
requiring class-wide arbitration. On the other hand, the
arbitrator in the Lackey proceeding was the same arbitrator
as in the Bazzle proceeding, the Lackey Respondents argued
that the reasoning of the district court order in the Bazzle
proceeding also required class-wide arbitration of the Lackey
proceeding, and the arbitrator accepted that argument.

But whatever doubt there may have been about the
source of class-wide arbitration in the Lackey proceeding was

16

erased by the decision of the South Carolina Supreme Court.
At no point in its decision did the court indicate that its
affirmance of class-wide arbitration was based on a decision
to grant deference to an arbitrators’ reasonable interpretation
of a arbitration clause. Rather, the court engaged in its own
de novo analysis of the Green Tree arbitration clause. /d.
19a. The court held, alternatively, that the class-wide
arbitration could be affirmed based on ¢ria!l courts’
"discretion" to permit class-wide arbitration when the
arbitration clause is silent on the issue. Jd. 20a. The court
held that trial courts should exercise that discretion based on
whether class-wide arbitration "would serve efficiency and
equity and would not result in prejudice." /d. 2la-22a. By
so holding, the South Carolina Supreme Court made clear its
view that the availability of class-wide arbitration was an
issue for the courts to decide. Thus, contrary to
Respondents’ argument, the decision to permit class-wide
arbitration cannot be defended as one based on the

* The court distinguished several federal decisions -- which held
that class-wide arbitration is impermissib’e unless explicitly agreed to
by the parties -- on the ground that those cases were based on § 4 of the
FAA, which the court held inapplicable to state-court proceedings. /d.
19a-20a. The federal decisions cannot be distinguished on that basis;
they were not based solely on an interpretation of § 4. While the
applicability of FAA § 4 to state court proceedings is an open question,
it is settled law that FAA § 2 is applicable in both federal and state
courts. Southland Corp. v. Keating, 465 U.S. 1, 12 (1984). Section
2 provides that arbitration agreements covered by the FAA “shall be
valid, irrevocable, and enforceable, save upen such grounds as exist at
law or in equity for the revocation of any contract." As noted above,
the South Carolina Supreme Court's interpretation of the Green Tree
arbitration clause in a manner that will actively discourage use of
arbitration agreements violates both Section 2 and the pro-arbitration
policy underlying the FAA.

17

arbitrator's reasonable interpretation of an ambiguous
contract provision.

Respondents’ argument does, however, serve to point
out another basic flaw in the South Carolina Supreme Court's
analysis. The question whether a dispute is subject to
arbitration at all -- the “question of arbitrability” -- “is ‘an
issue for judicial determination [u]nless the parties clearly
and unmistakably provide otherwise.’” Howsam v. Dean
Witter Reynolds, Inc., 123 S. Ct. 588, 591 (2002) (quoting
AT&T Technologies, Inc. v. Communications Workers, 475
U.S. 643, 649 (1986)). But the Court has made clear that the
phrase “question of arbitrability” has a rather limited scope,
and once that question has been answered in the affirmative,
it is up to the arbitrator to decide procedural questions,
regardless how important those procedural questions may be
in the ultimate disposition of the arbitration. /d. at 592. The
issue whether the parties intended to permit arbitration on a
class-wide basis would seem to be the type of procedural
issue that Howsam assigns to the arbitrator for initial
determination. Thus, the South Carolina Supreme Court
erred in assigning that issue to the courts for decision, and in
upholding the court of common pleas's discretionary decision
that class-wide arbitration was appropriate. Accordingly, at
the very least the Court should reverse the judgment below,
with directions that the arbitrators hearing these proceedings
on remand should decide the class-wide arbitrability issue
without regard to any of the orders issued to date by the
South Carolina courts.

But because the issues raised by this case are highly
important and likely to recur frequently, WLF respectfully
suggests that the Court use this opportunity to express its
views on the propriety of class-wide arbitration orders in the

18

face of arbitration agreement; that are "silent" on the issue.
For all the foregoing reasons, WLF respectfully requests that
the Court hold that orders directing ciass-wide arbitration --
in the absence of a provision in the arbitration clause
expressly authorizing such arbitration -- stand as an obstacle
to the accomplishment and execution of Congress's purposes
in adopting the FAA and are therefore preempted.

CONCLUSION

Amicus curiae Washington Legal Foundation respect-
fully requests that the decision of the South Carolina Supreme
Court be reversed.

Respectfully submitted,

Daniel J. Popeo
Richard A. Samp

(Counsel of Record)
Washington Legal Foundation
2009 Massachusetts Ave., NW
Washington, DC 20036
(202) 588-0302

Dated: February 24, 2003

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0614%3A12. Public record. Not legal advice.