# 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%3A17

## Record

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

## Text

[Sipe Court, U.S.
FILED

MAR 26 2003
No. 02-634

CLERK
IN THE

Supreme Court Of The Hnited States

GREEN TREE FINANCIAL CorpP. 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. LACKE, 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 OF AMICUS CURIAE TRIAL LAWYERS FOR
PUBLIC JUSTICE IN SUPPORT OF RESPONDENTS

F. Paul Bland, Jr.

(Counsel of Record)

Michael J. Quirk

Trial Lawyers for Public Justice, P.C.
1717 Massachusetts Avenue, NW
Suite 800

Washington, D.C. 20036

(202) 797-8600

Counsel for Amicus Curiae

[BEST AVAILABLE COPY =|

i
QUESTION PRESENTED

Whether the Federal Arbitration Act, 9 U.S.C. §§ 1-16,
preempts generally applicable state contract law and state
procedural rules applied by a state court in determining
whether parties can arbitrate class-wide claims under an
arbitration clause, when the state court found the clause to be
silent on the subject.

i ee

TABLE OF CONTENTS

Page

QUESTION PRESENTED .............00c00ceeeeee i
TABLE OF AUTHORITIES .................005- ae
INTEREST OF AMICUS CURIAE .........2022020+5. l
STATEMENT OF CASE ..........20.c0cceceeeuces 3
SUMMARY OF ARGUMENT ............-..-00005- 6

ARGUMENT

1. THE FAA DOES NOT PREEMPT THE STATE
LAWS APPLIED BY THE COURT BELOW IN
HOLDING THAT THE PARTIES CAN ARBITRATE
SPEED cb cecsecesccccccescceeesces 9

A. The Text of the FAA Permits Application of
State Contract Law and Procedural Rules. . 10

B. There Is No Implied Conflict Preemption Where
No Federal Law Standards Address the Subject
of State Law Regulation. .............. 12

c. The State Laws Applied by the Court Below Do
Not Frustrate the Purposes of the FAA. ... 15

I. THE COURT SHOULD NOT REACH ISSUES
RAISED BY PETITIONER’S AMIC] REGARDING
STATE UNCONSCIONABILITY LAW. ....... 18

DET onecannceseceeccesetcscesosaceens 26

TABLE OF AUTHORITIES
Cases Page
Allied-Bruce Terminix Co.'s, Inc. v. Dobson,
Pe dcccenenumacnaieued 2, 8, 16

America Online, Inc. v. Superior Ct., 108 Cal.
Rptr. 2d 699 (Cal. Ct. App. 2001) ............. 23

California Div. of Labor Standards Enforcement
v. Dillingham Construction, N_A.,

SP I atdnccesccssdéssdoccicées 9
Discover Bank v. Superior Court, 129 Cal. Rptr. 2d

Fe ED cc-cdcccceessocececes 17
Doctor's Associates, Inc. v. Casarotto,

Far nncdcccecececeeeses 8, 16, 22
Ellis v. Taylor, 449 S.E.2d 487 (S.C. 1994) ............ 5
Episcopal Housing Corp. v. Federal Ins. Co.,

Bee Ge Ge BOGE cccccesccccccecvess 5
Equal Employment Opportunity Comm'n v. Waffle

House, Inc., 534 U.S. 279 (2002) ....... 15, 23, 24
Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938) ...... 9

First Options of Chicago, Inc. v. Kaplan,
Fs SE b Sob covnnanceecureneees 7,10

iv

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

PED hc cedcecdueascsssesacoososeses 7, 13-14
Gilmer v. Interstate/Johnson Lane Corp.,

Se EE 6 oseccccccccccesessceecse 15
Green Tree Financial Corp. v. Randolph,

Se es Cc ccccuccoccccscccosccesase 24
Howlett v. Rose, 496 U.S. 356 (1990) ...........-6555. 9
Kentucky v. Stincer, 482 U.S. 730 (1987) ..........-.-. 19
Mastrobuono v. Shearson Lehman Hutton, Inc.,

FO es EE o Shs ctvddeccescccocs 5, 10-11
McGoldrick v. Companie Generale Transatlantique,

FE es GOED wc ccctovceccccccoceseses 19
Moses H. Cone Memorial Hospital v. Mercury

Construction Corp., 460 U.S. 1 (1983) ......... 11
Myrtle Beach Lumber Co., Inc. v. Wiloughby,

Be ee is DEEED oc cccccccceccccocess 5
Perry v. Thomas, 482 U.S. 483 (1987) .......... 7, 10, 16

Plaza Devel. Serv’s v. Joe Harden Builder, Inc.,
365 S.E.2d 231 (S.C. App. 1998) ............ 5-6

Rice v. Santa Fe Elevator Corp., 331 U.S.
PE 6 dd edceucessncccedecccoonscossés 9

Vv

South Central Bell Telephone Co. v. Alabama,
SPs ME a cccnccccccucesentecceee 19

Southland Corp. v. Keating, 465 U.S. 1 (1984) .... 7, 12, 16

Sprietsma v. Mercury Marine, 123 S. Ct. 518
|” RR aie iat nl eI ae 7,14

State ex re. Dunlap v. Berger, 567 S.E.2d 265 (W.Va.),
cert. denied, 123 S. Ct. 695 (2002) ... 21-22, 23, 24

Ting v. AT&T, 319 F.3d 1126 (9 Cir. 2003) ........ 20-21
Ting v. AT&T, 182 F. Supp. 2d 902

EE Se a ae 21, 25
TRW Inc. v. Alexander, 534 U.S. 19 (2001) ............ 19
Volt Info. Sciences, Inc. v. Board of Trustees

of Leland Stanford Junior Univ.,

SP scedecavesnuceseeese passim
Statutes
Federal Arbitration Act, 9 U.S.C. §§ 1-16. ........ passim
DEE Stsnbouk bueed oeeeeedadeeeunsens 7, 10, 12
PE atendkdducdnenasadeuseciedseees 7, 11-12
PGE Steuaneusseadedbnushenessesakeus 6, 7,12

Se DUPED ccccencanescscescoseness 3

SE a ed oe ad

Miscellaneous
Restatement (Second) of Contracts § 206

INTEREST OF AMICUS CURIAE'

Trial Lawyers for Public Justice (“TLPJ”) submits this
brief as amicus curiae in support of Respondents, urging the
Court to hold that the Federal Arbitration Act (“FAA”), 9
U.S.C. §§ 1-16, does not preempt the state contract law and
procedural rules applied by the court below in determining that
the Respondent plaintiffs could arbitrate claims for class-wide
relief against Petitioner Green Tree Financial Corp.
(“Petitioner” or “Green Tree”).

TLPJ is a national public interest law firm that
specializes in precedent-setting and socially significant civil
litigation. In prosecuting cases throughout the federal and state
courts, TLPJ seeks to advance consumers’ and victims’ rights,
environmental protection, civil mghts and civil liberties,
workers’ rights and workplace safety, the protection of the poor
and powerless, and the preservation and improvement of the
civil justice system. Based on these goals, TLPJ has become
concerned over a recent trend wherein many businesses are
attempting to deny consumers access to courts and to limit their
own liability to consumers by imposing mandatory and binding
arbitration clauses as part of routine economic transactions.

Six years ago, TLPJ established a Mandatory Arbitration
Abuse Prevention Project to combat these abuses. While TLPJ
supports alternative dispute resolution that is truly voluntary
between parties and affords consumers a true opportunity to
enforce their legal nghts, our research and investigation have

' Pursuant to Rule 37.6 of the Rules of this Court, amicus states
that no counsel for a party authored this brief in whole or in part, and no
person or entity other than amicus and its counsel made a monetary
contribution to the preparation or submission of the bnef. Pursuant to Rule
37.3(a), letters of consent to file this brief from Petitioners and Respondents
have been filed with the Clerk of the Court.

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convinced us that corporate abuses of the opportunity to compel
arbitration sometimes serve to deny consumers any opportunity
to effectively vindicate their claims. Through its Mandatory
Arbitration Abuse Prevention Project, TLPJ has devoted much
effort to representing consumers in fighting these abuses.

The question presented is whether the FAA preempts
generally applicable state contract law and procedural rules that
a state court applied in holding that a sub-prime mortgage
lender’s mandatory arbitration clause allows consumer
plaintiffs to arbitrate claims for class-wide relief. TLPJ has a
strong interest in the resolution of this question because Green
Tree’s preemption arguments would threaten to eliminate what
this Court has held to be the primary source of protection for
consumers against corporate over-reaching in cases governed by
the FAA: namely, the rules and requirements of state contract
law. See Allied-Bruce Terminix Co’s, Inc. v. Dobson, 513 U.S.
265, 281 (1995). The South Carolina Supreme Court found that
Green Tree’s arbitration clause did not clearly address the
subject of class-wide claims, and proceeded to resolve this
ambiguity in favor of the plaintiffs by applying the general
common law rule for resolving ambiguity against the drafter.
Green Tree’s argument that the FAA preempts this and any
other state law that furthers the goals of “efficiency and equity,”
Pet. Br. at 34, would give corporations license to strip
consumers of important substantive and procedural rights by
stealth through the imposition of mandatory arbitration clauses
that do not even make mention of these rights.

Green Tree’s preemption arguments also run counter to
the FAA’s plain language, to generally recognized federal
preemption principles, and to the Court’s decisions addressing
the types of state laws that the FAA does preempt. TLPJ
therefore respectfully submits this brief urging the Court to

3

affirm the decision below entering judgment on the class-wide
arbitration awards issued in favor of the plaintiffs.

TLPJ has an additional interest in the resolution of this
case pertaining to a question that is not properly before the
Court, but was nevertheless raised by several amici filing briefs
supporting Green Tree. These amici ask the Court to hold that
the FAA preempts applications of the state common law
doctrine of unconscionability that would result in findings that
particular arbitration clauses are unconscionable because they
explicitly purport to ban consumer claims for class-wide relief.
See, e.g., Brief of Amicus Curiae Chamber of Commerce at 5
n. 2; Brief of Amicus Curiae American Bankers Association, ef
al. at 6. Since the Court granted certiorari to resolve disputes
over the manner of enforcement (not the alleged illegality) of
Green Tree’s arbitration clause; since neither party raises
arguments involving South Carolina’s law of unconscionability;
and since no factual record pertaining to the elements of state
law unconscionability is before the Court, TLPJ respe -tfully
urges the Court not to reach out to address this issue.

STATEMENT OF CASE

The plaintiffs are consumers who entered into home
equity and mobile home mortgage loans with Green Tree.
These loans are covered by South Carolina’s Consumer
Protection Code, including its provision replacing the State's
usury limits with the requirement that a I~nder ascertain a
borrower’s choice of legal counsel and insurance agent in
matters relating to the transaction prior to the closing. See S.C.
Cope ANN. § 37-10-102. In 1996 and 1997, plaintiffs filed the
two cases that were consolidated in this appeal as putative class
actions, alleging that Green Tree failed to comply with these
statutory requirements in all of the transactions at issue.

4

Green Tree responded to both suits by moving to
compel! arbitration of all claims pursuant to the arbitration
clauses that it put into its standard-form loan contracts. These
clauses stated in relevant part that: “All disputes, claims, or
controversies arising from or relating to this contract or the
relationships which result from this contract . . . shall be
resolved by binding arbitration by one arbitrator selected by us
with consent of you.” Pet. App. 110a. In the case filed by
plaintiffs Lynn and Burt Bazzle, the state trial court granted the
plaintiffs’ motion for class certification and Green Tree’s
motion to compel arbitration. /d. at 3a. In the case filed by
plaintiff Daniel Lackey, the state appellate court ordered
enforcement of Green Tree’s arbitration clause, and the parties
stipulated to arbitrate before the arbitrator who was presiding
over the Bazzle case. /d. at 6a. After finding the requirements
for class certification to be satisfied, the arbitrator certified a
class of approximately 1,840 plaintiffs in the Lackey case. /d.

After hearing evidence showing that Green Tree hed
notice of the statutory requirements in many of the transactions
at issue but continued to refuse to comply, the arbitrator issued
awards for the plaintiffs in both cases. In the Bazzie case, the
arbitrator awarded between $5,000 and $7,500 in damages to
each of the 1,899 plaintiffs for a total award of $10,395,000.
Id. at 4a. In the Lackey case, the arbitrator awarded $5,000 in
damages to each plaintiff for a total award of $9,200,000. Jd.
at 7a. State trial courts entered judgment on the plaintiffs’
motions to confirm both class-wide arbitration awards. The
South Carolina Supreme Court assumed jurisdiction and
consolidated Green Tree’s appeals from these orders on the
question of whether the trial court in Bazz/e and the arbitrator
in Lackey exceeded their legal or contractual authority by
allowing the plaintiffs to arbitrate class-wide claims. /d. at 8a.

5

The South Carolina Supreme Court applied established
state contract law principles in affirming the decisions below
permitting arbitration of class claims. First, the court found
that, “if the terms of a contract are clear and unambiguous, the
Court must enforce the contract according to its terms
regardless of its wisdom or folly.” /d. at 17a (citing Ellis v.
Taylor, 449 S.E.2d 487 (S.C. 1994)). Next, the court cited the
maxim that “[a]mbiguous language in a contract . . . should be
construed liberally and interpreted strongly in favor of the non-
drafting party.” Jd. (citing Myrtle Beach Lumber Co., Inc. v.
Wiloughby, 274 S.E.2d 423 (S.C. 1981) (case involving non-
arbitration contract)). The court also cited this Court’s
precedent applying the same state law rule to arbitration clauses
covered by the FAA. Jd. at 18a (citing Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995)).

The state court below then made a factual finding that
Green Tree’s arbitration clause was “silent regarding class-wide
arbitration” because the clause nowhere mentions the issue. /d.
at 19a (emphasis in original). The court considered Green
Tree’s arguments against class-wide arbitration based on the
clause’s language pertaining to “disputes . . . arising from or
relating to this contract” and “relationships which result from
this contract,” id. (emphasis in original), but concluded that
“[a]t best, it creates an ambiguity, and should, therefore, be
construed against the drafting party, Green Tree.” /d.

The South Carolina Supreme Court thus held that the
plaintiffs could arbitrate their class claims based on the “general
principles of contract interpretation” that apply to Green Tree’s
arbitration clause, id. at 20a-21a, and based on established state
law allowing consolidation of claims subject to arbitration. /d.
at 18a-19a (citing Episcopal Housing Corp. v. Federal Ins. Co.,
255 S.E.2d 451 (S.C. 1979); Plaza Devel. Serv's v. Joe Harden

6

Builder, Inc., 365 $.E.2d 231 (S.C. App. 1988)). The court
noted a split of authority among federal and state courts on
whether class-wide arbitration was allowed under the FAA
absent express contractual authorization, but noted that federal
court decisions barring such proceedings were based largely on
Section Four of the Act, 9 U.S.C. § 4, which by its terms does
not apply to state courts. /d. at 20a. Finally, the court found
that it would be fundamentally unfair to strip consumers of the
right to seek class-wide relief through non-negotiable, adhesive
contracts that nowhere even make mention of this right:

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.
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.

Id. at 22a.
SUMMARY OF ARGUMENT

The South Carolina Supreme Court correctly applied
ordinary state contract law and state procedural rules in holding
that Green Tree’s arbitration clause allows arbitration of the
plaintiffs’ claims for class-wide relief. Green Tree argues that
the FAA preempts these state laws because the Act prohibits

;

any result that is not explicitly spelled out in the arbitration
clause itself. These arguments fail on several counts.

First, Green Tree’s preemption arguments are contrary
to the text of the FAA , which expressly preserves state contract
law and allows state courts to apply their own procedural rules
when they are asked to enforce arbitration clauses. The FAA’s
savings clause makes arbitration clauses revocable on the same
legal and equitable grounds as apply to any other contract. See
9 U.S.C. § 2. Based on this savings clause, this Court has held
repeatedly that the Act preserves generally applicable state
contract law. See, e.g., First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944 (1995); Perry v. Thomas, 482 U.S.
483, 492 n.9 (1987). Similarly, the FAA’s procedural rules for
enforcing arbitration clauses apply only in “the courts of the
United States” or “any United States District Court.” 9 U.S.C.
§§ 3 and 4. Based on this statutory language, the Court has
rejected any attempt to make these rules apply in state court
cases. See Volt Info. Sciences, Inc. v. Board of Trustees of
Leland Stanford Junior Univ., 489 U.S. 468, 477 n.6 (1989);
Southland Corp. v. Keating, 465 U.S. 1, 16 n.10 (1984).

Second,. Green Tree’s call for a radical expansion of
FAA preemption here does not comport with general principles
of implied conflict preemption. When addressing alleged
conflicts under other federal statutes, this Court has held that
there can be no implied conflict preemption based on frustration
of federal purposes where no federa! law addresses the subject
that state law is regulating. See, e.g., Sprietsma v. Mercury
Marine, 123 S. Ct. 518, 527-28 (2002); Freightliner Corp. v.
Myrick, 514 U.S. 280, 289-90 (1995). The FAA contains no
provisions setting out federal contract interpretation rules or
addressing multiple-party disputes. Volt Info. Sciences, 489
U.S. at 474 and 476 n.5 (1989) (noting absence of federal law

for interpreting contracts and FAA’s silence on multiple-party
issues). Since neither the FAA nor any other federal law speaks
to the parties’ disputes over contract interpretation and the
permissibility of aggregating claims, the court below properly
applied state law to these issues.

Finally, the state laws at issue here do not conflict with
the FAA or the Act’s underlying purposes. The Court has only
found the FAA to preempt state laws that show hostility
towards arbitration by specifically interfering with the parties’
contractual selection of forum, either by imposing unique
burdens that limit the enforcement of arbitration clauses or by
barring all arbitration of claims. See, e.g, Doctor's Associates,
Inc. v. Casarotto, 517 U.S. 681 (1996); Allied-Bruce Terminix
Co.'s, Inc. v. Dobson, 513 U.S. 265 (1995). The state laws
applied by the court below did not target or even address
questions of forum selection, since all parties agreed that their
claims were subject to arbitration. Instead, the court properly
applied state law to resolve the separate issue of whether the
plaintiffs could obtain class-wide relief, an issue that does not
touch upon the FAA’s preemptive policy goals for protecting
contractual forum selection.

On a completely separate matter, the Court should not
use this case to decide issues raised by Green Tree’s amici
regarding the state common law doctrine of unconscionability
that are not raised in the question on which certiorari was
granted. As the Court has recognized, unconscionability is a
state law ground for revoking coiitracts, including arbitration
agreements. See Casarotto, 517 U.S. at 687. Since all of the
parties here agree that the arbitration clause is enforceable,
albeit based on conflicting understandings of its terms, the
Separate issues of whether this or a differently-worded
arbitration clause would be unconscionable (and therefore

9

unenforceable) under generally applicable state contract law, or
whether the FAA would preempt such state law, were not
briefed by the parties, and therefore are not properly before the
Court. See S. Ct. Rule 14.1(a). The Court should decline the
invitation by several of Petitioner's amici to reach out and

address these separate issues.
ARGUMENT

I. THE FAA DOES NOT PREEMPT THE STATE
LAWS APPLIED BY THE COURT BELOW IN
HOLDING THAT THE PARTIES CAN
ARBITRATE CLASS CLAIMS.

Because preemption constitutes a radical intrusion on a
state’s power, this Court has long recognized a strong
presumption against preemption of state laws. Particularly
where “‘federal law is said to bar state action in flelds of
traditional state regulation, we have worked on the assumption
that the historic police powers of the States were not to be
superseded by the Federal Act unless that was the clear and
manifest purpose of Congress.” California -Div. of Labor
Standards Enforcement v. Dillingham Construction, N.A., Inc.,
519 U.S. 316, 325 (1997) (quoting Rice v. Santa Fe Elevator
Corp., 331 U.S. 218, 230(1947)). The state laws applied by the
court below were a common law rule of contract interpretation
and a procedural rule for administering cases filed in state court,
both areas of traditional and almost exclusive state regulation.
See, e.g., Erie Railroad Co. v. Tompkins, 304 US. 64, 78
(1938) (“Congress has no power to declare substantive rules of
common law applicable in a state. . .”); Howlett v. Rose, 496
U.S. 356, 372 (1990) (“The States thus have great latitude to
establish the structure and jurisdiction of their own courts. ).
Therefore, Green Tree bears the considerable burden of

10

demonstrating that it was the clear and manifest purpose of
Congress in enacting the FAA to displace these state laws. In
light of the FAA’s plain language and this Court’s decisions
regarding implied conflict preemption generally and preemption
under the FAA specifically, Green Tree cannot bear this burden.

A. The Text of the FAA Permits Application of
State Contract Law and Procedural Rules.

The lower court’s application of state contract law
principles and state procedural rules is consistent with, and
indeed is invited by, the express provisions of the FAA. The
Act proclaims that written arbitration agreements “shall be
valid, irrevocable, and unenforceable, save upon such grounds
as exist at law or in equity for the revocation of any contract.”
9 U.S.C. § 2. The Court has construed this savings clause to
preserve the application of generally applicable state contract
law, whether of legislative or judicial origin, to arbitration
clauses. Perry, 482 U.S. at 492 n.9. This includes state laws
governing contract formation and interpretation, as well as
revocation. See, e.g., First Options, 514 U.S. at 944 (“When
deciding whether the parties agreed to arbitrate a certain matter.
. .courts generally apply ordinary state-law principles that
govern the formation of contracts.”); Volt Info. Sciences, 489
U.S. at 474 (“the interpretation of private contracts is ordinarily
a question of state law’’).

By applying the established rule of South Carolina
contract law that ambiguity shall be construed most strongly
against the drafter to the question of whether plaintiffs could
arbitrate class claims, the court below followed the directives
of the FAA and of this Court. In Mastrobuono, this Court was
asked to decide whether two investors could recover punitive
damages in arbitration where their broker’s standard-form

te, A ll AO CL A

1]

contract did not explicitly address the subject, but contained a
choice-of-law clause that arguably prohibited the claims and an
arbitration clause covered by the FAA that arguably allowed
them. Mastrobuono, 514 U.S. at 58-61. After finding that,
“[a}t most, the choice-of-law clause introduces an ambiguity”
into the agreement, the Court allowed arbitration of the claims
because “respondents cannot overcome the common-law rule
of contract interpretation that a court should construe
ambiguous language against the interest of the party that drafted
it.” Jd. at 62 (citing Restatement (Second) of Contracts § 206,
and relevant state and federal court opinions). Thus, the South
Carolina Supreme Court’s reliance on state contract law to
resolve the ambiguity it found in Green Tree’s arbitration clause
over arbitration of class claims is perfectly consistent with this
Court’s teachings regarding the FAA’s savings clause.’

Similarly, it was appropriate for the state court below to
rely On state procedural rules in deciding whether the parties
could arbitrate class claims in light of the limited scope of the
FAA’s own procedural rules. Although the FAA establishes
procedures for judicial enforcement of arbitration clauses, these
rules only apply to cases filed in the “courts of the United

* While Mastrobuono applied the New York and IIlinois common
law rule for construing contractual ambiguity against the drafter, the Court
also observed the court-made rule under the FAA that “any doubts
conceming the scope of arbitrable issues should be resolved in favor of
arbitration. . .” /d. at 62 n.8 (quoting Moses H. Cone Memorial Hosp. v.
Mercury Construction Corp., 460 U.S. 1, 24-25 (1983)). In Mastrobuono,
the Moses H. Cone rule and the state common law rule both yielded the same
result favoring arbitration of the plaintiffs’ punitive damages claims. If the
Moses H. Cone rule were found to apply here, it should likewise yield the
same result brought about by the state common law rule, namely that
ambiguities in Green Tree's arbitration clause be resolved in favor of
arbitrating the plaintiffs’ class claims.

12

States,” 9 U.S.C. § 3, or in “any United States district court”
having jurisdiction based on the parties’ underlying claims, 9
U.S.C. § 4. Thus, even when finding that state laws were
preempted by Section Two of the Act, this Court has gone out
of its way to emphasize that “we do not hold that §§ 3 and 4 of
the Arbitration Act apply to proceedings in state courts.”
Southland, 465 U.S. at 16 n.10; see also Volt Info. Sciences,
489 U.S. at 477 n.6 (“we have never held that §§ 3 and 4, which
by their terms appear to apply only to proceedings in federal
court, ... are nonetheless applicable in state court.”) (emphasis
added). Since the FAA’s procedural rules do not bind state
courts, the Act should not be held to preempt South Carolina
decisional law allowing consolidation of arbitrable claims.

In short, contrary to Green Tree’s contentions here, the
FAA was written to accommodate, not to preclude, a state
court’s application of ordinary state contract law principles and
state procedural rules in construing and enforcing an arbitration
clause. The court below was therefore correct to apply these
types of state laws in holding that Green Tree’s arbitration
clause allows arbitration of class claims.

B. There Is No Implied Conflict Preemption
Where No Federal Law Standards Address
the Subject of State Law Regulation.

As the Court has recognized, “[t]he FAA contains no
express pre-emptive provision, nor does it reflect a
congressional intent to occupy the entire field of arbitration.”
Volt Info. Sciences, 489 U.S. at 477. Therefore, the FAA can
only displace state law through the doctrine of implied conflict
preemption. /d. at 477-78. In order to establish that the FAA
impliedly preempts the state contract interpretation and
procedural rules applied by the court below, Green Tree must

13

demonstrate that there is an “actual conflict” between federal
and state law, either because it is “impossible for a private party
to comply with both . . . requirements” or because the state laws
“stand[] as an obstacle to the accomplishment and execution of
the full purposes of Congress.” Freightliner Corp.,514 U.S. at
287 (citations omitted). Implied conflict preemption cannot lie
here because the FAA contains no independent rules of federal
law for interpreting contracts or for addressing issues relating

to multiple-party disputes.

| This Court has recognized that the FAA does not set out
independent federal standards for interpreting contracts or for
addressing multiple party disputes. In the case of the former.
the Court explained that “the interpretation of private contracts
is ordinarily a question of state law, which this Court does not
sit to review.” Volt Info. Sciences, 489 U.S. at 474. In the case
of the latter, the Court observed that “the FAA itself contains no
provision designed to deal with the special practical problems
that arse in multiparty contractual disputes when some or all of
the contracts at issue include agreements to arbitrate.” /d. at
476 n.5. Based on this recognition, the Court found that state
laws authorizing courts to consolidate arbitration proceedings
would “foster the federal policy favoring arbitration” under the
FAA. /d. The Court has endorsed the application of state
contract law and procedural rules like those applied by the court
below on the ground that these state laws help to resolve issues
that the express provisions of the FAA do not address.

When addressing preemption arguments under other
federal statutory schemes, the Court similarly has held that there
cannot be implied conflict preemption where there is no federal
law standard addressing the subject of state law regulation. In
Freightliner Corp. , for example, the Court held that a state tort
law standard of care calling for antilock brakes in 18-wheel

\4

tractor-trailers was not preempted by federal law because the
only federal regulation that ever addressed the subject of
antilock brakes on these vehicles had been repealed.
Freightliner Corp., 514 U.S. at 284-85. The Court held that “it
is not impossible . . . to comply with both federal and state law
because there is simply no federal standard for a private party
to comply with.” /d. at 289. Likewise, the Court held that there
could be no frustration of federal purposes because “{a] finding
of liability against petitioners would undermine no objectives
or purposes with respect to ABS devices, since none exist.” /d.
at 289-90; see also Sprietsma, 123 S. Ct. at 527-28 (finding no
implied conflict preemption of common law tort claims in the
absence of governing federal regulation).

The same rule should apply here against Green Tree's
arguments for a radical expansion of FAA preemption to
displace state laws governing contract interpretation and multi-
party disputes, issues that Congress itself has never addressed.
While Congress has not spoken to these matters, state
lawmaking authorities have given these issues their considered
judgment. The court below applied South Carolina's rule for
construing contractual ambiguity against its drafter, a default
rule that also furthers basic fairness concerns by ensuring that
the party who has the “greater opportunity to prevent mistakes
in meaning . . . is responsible for any ambiguity and should be
the one to suffer from its shortcomings.” Pet. App. at 17a; see
also Restatement (Second) of Contracts § 206, Comment (a)
(1979) (principle of “contra preferentem” guards against
situation where party guarding its own interests will “leave
meaning deliberately obscure, intending to decide at a later date
what meaning to assert.”). The court below also applied state
decisional law allowing aggregation of claims subject to
arbitration, recognizing that, in cases like this one involving
“identical issues against one defendant,” the rule serves the

=

15

“interest of judicial economy.” Pet. App. at 22a. These
important state policy goals should not be subverted in the
complete absence of evidence that Congress ever gave any
consideration to these issues. Since the FAA is silent on the
subjects to which the court below applied state law, there is no
basis for a finding that these state laws are preempted based on
any alleged conflict with federal law.’

Cc. The State Laws Applied by the Court Below
Do Not Frustrate the Purposes of the FAA.

Even without the FAA’s savings clause preserving state
contract law, there would be no basis for finding that the Act
preempts the state laws that the court below applied in
construing and enforcing Green Tree's arbitration clause. Since
neither express nor field preemption is at issue, the FAA only
preempts those state laws whose application would conflict
with the Act’s underlying purposes and objectives. Volt Info.
Sciences, 489 U.S. at 477-78. The Court has often stated that
Congress enacted Section Two of the FAA with the primary
goals of “revers[ing] the longstanding judicial hostility to
arbitration agreements that had existed at English common law
and had been adopted by American courts” and of “plac{ing,]
arbitration agreements upon the same footing as other
contracts.” Equal Employment Opportunity Comm'n v. Wafile
House, Inc., 534 U.S. 279, 289 (2002) (quoting Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 23 (1991)).

> Since neither the FAA nor any applicable federal regulations

address these issues, Green Tree's preemption arguments would require this
Court to devise federal common law rules of contract interpretation from the
ground up and would make every dispute over any term in an arbitration
clause a federal question giving rise to the Court's jurisdiction.

16

Based on these goals, the Court has found that the FAA
preempts two types of state laws that show hostility towards
arbitration by aiming to restrict enforcement of the parties’
contractual selection of the private forum. The first are state
laws that single out arbitration clauses for disfavored treatment
by imposing unique obstacles to their enforcement, thereby
placing them on a “different footing” from other contracts. See
Casarotto, 517 U.S. at 687 (FAA preempts state statute that
“conditions the enforceability of arbitration agreements on
compliance with a special notice requirement not applicable to
contracts generally”); Allied-Bruce Terminix, 513 U.S. at 269-
70 (FAA preempts state statute that makes all pre-dispute
arbitration agreements invalid and unenforceable). The second
are state laws that “take[] [their] meaning precisely from the
fact that a contract to arbitrate is at issue,” Perry, 482 U.S. at
492 n.9, such as statutory anti-waiver rules that are construed to
bar enforcement of a// arbitration clauses in cases involving
specific types of claims. Southland, 465 U.S. at 10.*

In light of these decisions, the FAA should not be found
to preempt the state laws applied by the court below for the
simple reason that they did not address disputes over forum
selection. All parties have agreed that the plaintiffs’ claims are
subject to arbitration under Green Tree’s arbitration clause.
Given this agreement regarding forum, the parties’ separate
dispute over whether the clause allows individual and/or class

* To the extent that the Southland preemption scenario is relevant
here, it is worth emphasizing that the only party seeking to bar arbitration of
an entire category of claims, namely all claims for class-wide relief, is Green
Tree itself. Given the parallels between Green Tree’s arguments and the
statute that was preempted in Southland, Green Tree is in a curious position
to be putting all of its eggs in the FAA preemption basket.

AE IO eT Oe EMOE™

17

claims does not implicate the FAA’s policy goals, and therefore
was properly decided through the application of state law.

Although it should be clear that the parties’ disputes are
over matters decided by state law, it should also be clear that
Green Tree is the only party whose arguments in this case show
an overt “hostility towards arbitration” that could even arguably
be found to threaten the FAA’s underlying goals. In support of
its position that the FAA enacts a presumptive ban on
arbitration of class claims, Green Tree argues that “forced class
arbitration creates a bizarre and dangerous hybrid that imposes
the expense and delay of court litigation without the necessary
due-process safeguards of court involvement and review,” that
“class arbitrations /ack the essential protections mandated in
the courts,” and that class arbitration “raises difficult legal and
practical questions. . .” Brief at 41, 42 (emphases added); see
also Brief of Appellant Conseco Finance Serv. Corp., f/k/a
Green Tree Finance Serv Corp. in Eastman v. Conseco Finance
Serv. Corp., Wis. Sup. Ct. No. 01-1743, bankruptcy stay
entered (2003) at 8 (“Imposition of class arbitration would
likely cause a party to abandon arbitration altogether ...”) A
court that recently agreed with Green Tree’s position voiced a
similarly generalized hostility towards arbitration by basing its
holding on a completely hypothesized “multi-million dollar
class arbitration award entered on nothing more than a whim
[that] cannot be corrected. . .” See Discover Bank v. Superior
Court, 129 Cal. Rptr. 2d 393, 410 (Cal. Ct. App. 2003)
(emphasis added).

Regardless of the merit of Green Tree’s attitude towards
arbitration, the parties’ dispute here does not implicate the
FAA's goals for protecting contractual forum selection. All
parties agree that their claims are subject to arbitration under
Green Tree’s arbitration clause. The FAA does not answer or

18

even address the parties’ separate disagreement over how to
resolve ambiguity in the terms of that clause regarding the

aggregation of arbitrable claims. The FAA therefore does not
preempt the state contract law and procedural rules applied by
the court below to resolve this disagreement in favor of
allowing the parties to arbitrate class claims.

Il. THE COURT SHOULD NOT REACH ISSUES
RAISED BY PETITIONER’S AMICI REGARDING
STATE UNCONSCIONABILITY LAW.

Green Tree argues that this is a case where the Court
must interpret contract terms. Br. at 18-45. Several amici
supporting Green Tree ask the Court to go beyond questions of
contract interpretation, however, and to opine upon the FAA's
impact on state law relating to a contract defense not raised by
either party. These amici ask the Court to declare that the FAA
preempts application of state laws regarding unconscionability
to contractual bans on class actions that are included in some
arbitration clauses.© The Court should refuse to decide this
question, which is not presented here and was not addressed by
the state court below, on the basis of the highly selective and
often erroneous arguments offered by Green Tree’s amici.

First, the issue of unconscionability law is not presented
in the Petition, which poses the question of whether the FAA

> See, e.g., Brief of the Chamber of Commerce at 5, n. 2 (this case
is an opportunity to “dispatch [the] shibboleth” that contract bans on class
actions are unconscionable); Brief of Directv, Inc. at 4-5 (attacking
unconscionability cases); Brief for American Bankers Association, ef ai., at
6 (case holding that a contractual ban on class actions was unconscionable
failed to recognize that the FAA requires enforcement of all arbitration
clauses according to their terms).

19

“prohibits class-action procedures from being superimposed
onto an arbitration agreement that does not provide for class
action arbitration.” Pet. at i. This is a question of contract
enforcement and interpretation as to what meaning should be
given toa contract's terms. The amici ’'s question regarding the
intersection of the FAA and state laws of unconscionability,
however, does not focus on the contract's language or how it
should be enforced. The unconscionability question involves
application of an entirely different set of state laws relating to
defenses seeking the revocation of a contract.

. The Court should refuse to address this new question.
This Court does not, in all but the most “exceptional cases,”
address questions raised after certiorari is granted. Kentucky v
Stincer, 482 U.S. 730, 747 n.22 (1987). That rule applies with
“peculiar force” in “cases coming here from state courts.”
McGoldrick v. Companie Generale Transatlantique, 309 U.S.
430, 434 (1940). Here, there is nothing “exceptional” about the
issues raised by amici. Cf TRW Inc. v. Alexander, 534 U.S. 19.
34 (2001) (refusing to decide new issue first raised by
respondent in its brief on the merits); South Central Bell
Telephone Co. v. Alabama, 526 U.S. 160, 171 (1999) (“We
would normally expect notice of an intent to make so far-
reaching an argument in the respondent’s opposition to a
petition for certiorari, cf. this Court’s Rule 15.2, thereby
assuring adequate preparation time for those likely affected and
wishing to participate.”).

Amici argue that the issues of contract interpretation and
contract defenses are inextricably linked, suggesting that their
Proposition that the FAA creates a presumptive prohibition
against class arbitration when a contract is silent on the subject
necessarily implies that arbitration clauses are exempt from
generally applicable contract defenses. This is a non sequitur

20

— these are separate sets of laws that serve different purposes.
Whether or not the FAA requires particular contract language
to allow arbitration of class claims does not answer the question
of whether generally applicable state contract law can be used
to strike down clauses that expressly ban these procedures.

Another reason for the Court not to address the issue
raised by Green Tree’s amici is that the issue was not raised
before or actually decided by the South Carolina Supreme
Court.® The failure of the state court to decide this issue is
crucial here because it is unclear on this record how that issue
might have been decided, and therefore it is unclear exactly
what type of state law amici are trying to preempt. First, there
is no indication as to the South Carolina law requirements for
a finding of procedural unconscionability in contract formation.
While the court below noted that the arbitration clause was
promulgated as a contract of adhesion, that does not always
equate to a finding of procedural unconscionability. In many
states, procedural unconscionability requires a showing of some
additional element, such as “surprise.” There are no facts in the
record on whether the contract at issue was promulgated in such
a manner as to constitute a “surprise” for the consumer
plaintiffs, as that concept might be interpreted by the South
Carolina Supreme Court.’

® The only time that the state court below mentioned issues
regarding the legality and equity of explicit class action bans in adhesion
contracts, the court concluded that “this present case dose not raise this
question ....” Pet App. at 22an.21.

? Several of Green Tree’s amici excoriate the case of Ting v.
AT&T, 319 F.3d 1126 (9" Cir. 2003), and ask this Court to say something
that would reverse the decision in Ting and various other cases like it.
Among the many facts developed in that case not mentioned by these amici
is an enormous body of evidence establishing that AT&T communicated to

ent ED TEL re

21

The law of South Carolina is also unclear on some of
the central legal questions underlying any claim that a
contractual ban on class actions is substantively
unconscionable. In the states that have held these bans to be
unconscionable in some circumstances, those holdings have
often been based on general state laws relating to exculpatory
clauses. Typical of these cases is State ex rel. Dunlap v. Berger,
567 S.E.2d 265 (W.Va.), cert. denied, 123 S. Ct. 695 (2002),
where the court reviewed a number of longstanding state cases
relating to exculpatory clauses (none of which involved
arbitration clauses) and concluded that:

Based on all of the foregoing and in fidelity to
the approach that we have long taken in this
area, we recognize and hold that exculpatory
provisions in a contract of adhesion that if
applied would prohibit or substantially limit a
person from enforcing and vindicating rights
and protections or from seeking and obtaining
Statutory or common law relief and remedies
that are afforded by or arise under state law that
exists for the benefit of the public are
unconscionable; unless the court determines that
exceptional circumstances exist that make the
provisions conscionable.

its Customers about its arbitration clause in a manner that company officials
knew would ensure that very few customers would inceentiieaianen After
a full trial on the merits, the district court there held that the terms of the
arbitration clause (including its ban on class actions) would be a surprise to
the class there, citing to a wealth of documents and testimony. Ting v.
AT&T, 182 F. Supp. 2d 902, 911-13, 929-30 (N.D. Cal. 2002). Conseco’s
amici would like this Court to pass on the unconscionability of contractual
bans on class actions without actually hearing a case containing such a
factual record on questions like surprise.

22

Id. at 275-76. After reviewing the facts before it, the Dunlap
court found that a contract provision barring class actions
would effectively act as an exculpatory clause in that case, and
thus held it to be unconscionable. Here, however, there is no
statement of South Carolina law on exculpatory clauses, much
less on how such law would apply to this setting.

The Court should also refuse to decide or comment on
the issue of whether contractual bans on class actions included
in arbitration clauses may ever be found unconscionable
because the issue has not been fully or fairly briefed. The
importance of such briefing is clear from the fact that amici
make a number of dubious or incorrect statements of law in
support of their effort to have the Court decide this issue. The
New England Legal Foundation asserts, for example, that any
state law striking down a contractual ban on class actions would
violate the FAA because it fails to recognize the “sanctity of
contract.” Brief at 15, n.18. The American Bankers
Association, similarly, insists that cases holding that contractual
bans on arbitration are unconscionable ignores a requirement in
the FAA that all contracts be enforced “according to their
terms.” Brief at 6. These arguments ignore the fact, discussed
above, that the FAA contains a savings clause providing that
particular arbitration clauses will not be enforced if there are
grounds under state contract law for their invalidation. The
Court has thus recognized that the defense of unconscionability
is available to parties challenging arbitration agreements.
Casarotto, 517 U.S. at 687. Accordingly, to the extent that
state contract law recognizes a defense of unconscionability,
there is an important and well-recognized exception to the
amici's blanket assertion that any conceivable contract term
imposed by a drafter is sacred and must always be enforced.

23

Similarly, Green Tree’s amici incorrectly assert that
state laws applying the doctrine of unconscionability to bans on
class actions in arbitration are necessarily rooted in a hostility
to arbitration. See, e.g , American Bankers Association Brief at
7. This argument overlooks the fact that many states sharply
limit the use of exculpatory clauses in a// conwacts, whether or
not they contain arbitration clauses. See, e.g. Dunlap, 567
S.E.2d at 275-76. For example, before any of the California
cases cited by amici were decided, the rule that contractual class
action bans can be unconscionable based on their exculpatory
effects was applied in a case that had nothing to do with
arbitration. See American Online, Inc. v. Superior Court, 108
Cal. Rptr. 2d 699 (Cal. Ct. App. 2001) (striking down retailer’s
out-of-state forum selection clause based in part on prohibition
of consumer class actions).

Although amici claim that various cases not before the
Court improperly single out arbitration clauses for suspect
treatment, these amici advocate an approach that itse/f singles
out arbitration clauses for different treatment from that given to
any other contract. The amici's analysis is as follows: even if
a state's general law of unconscionability would strike down
class action bans as illegal exculpatory clauses in contracts that
do not require arbitration, that state law is overridden by the
FAA any time these provisions are included in a section of a
contract that does require arbitration. This notion contradicts
the Court's instruction that the FAA’s main purpose is to
“place arbitration agreements upon the same footing as other
contracts.’ Waffle House, 534 U.S. at 289 (emphasis added)
(citation omitted). Nothing in the Act permits parties to launder
otherwise illegal contract terms and make them legal merely by
inserting them under the heading “arbitration.” As one state
court recognized, the FAA does not allow for this kind of
escape from liability “merely because the prohibiting or limiting

re

24

provisions are part of or tied to provisions in the contract
relating to arbitration.” Dunlap, 567 S.E.2d at 280."

Similarly, amici suggest that the Court can hold that
class action bans are never unconscionable because the class
action is merely a procedural device, and arbitration clauses
may enact any procedures imaginable without being
unconscionable.’ This theory is plainly incorrect, however,
under this Court’s own teachings. Rules regarding filing fees
and other forum costs of arbitration are clearly procedural, not
substantive, in nature. Under these amici 's theory, therefore, an
arbitration clause could impose enormous fees against a
consumer and be immune from any state laws relating to
unconscionability. This Court has recognized, however, that
“the existence of large arbitration costs may well preclude a
litigant . . . from effectively vindicating [its] mghts.” Green
Tree Financial Corp. v. Randolph, 531 U.S. 79, 81 (2000).
Notwithstanding the false dichotomy suggested by Green Tree's
amici, if a procedural device (such as a contractual class action
ban) would in some cases “effectively” bar individuals from
vindicating their substantive nghts, and thus would have the
same impact as a more direct exculpatory clause, the procedural
quality of this contract provision does not save it from violating
state laws relating to unconscionable contracts. If every
contract term labeled “procedural” were beyond the reach of
state law, the drafters of adhesive contracts could easily evade

* These decisions involving state law anti-exculpatory principles
also comply with this Court's instruction that arbitration clauses are only
enforceable under the FAA if they allow parties to effectively enforce their
statutory rights. See, e.g, Waffle House, 534 U.S. at 295 0.10.

* See, e.g, Brief of New England Foundation at 21 n. 25; Brief of
Equal Employment Advisory Council at 12.

25

limits on exculpatory clauses by requiring persons with small
claims to travel to a completely inaccessible forum (perhaps the
outback of New Zealand) to arbitrate claims.

| As further proof of the dangers of resolving amici 's new
issue, the American Bankers Association suggests that
contractual class action bans would never bar persons from
vindicating their rights, citing several law review articles, as
well as snippets of legislative history and a few cases that do
not even involve class actions. Brief at 8. The practical effect
of a class action ban is a factual issue, one that the Court should
not address in the vacuum presented by the amici. In a case
where there was a significant record developed at trial, that
record demonstrated that a number of successful cases brought
on a class action basis against a corporate defendant could
never have been brought on an individual basis, whether in
court or in arbitration. Jing, 182 F. Supp. 2d at 918. At the
conclusion of that trial, the federal district court held that “the
prohibition on class actions will prevent class members from
effectively vindicating their rights in certain categories of
claims .. . .” Jd at 931. This Court should therefore reject the
suggestion, based largely on a few law review articles, that this
case presents a vehicle for resolving fact-intensive questions
that neither the court below nor the parties have addressed.

The state court below was correct to apply state law in
holding that the ambiguous terms of Green Tree’s arbitration
clause allowed the plaintiffs to arbitrate their class claims. In
light of the state court’s decision enforcing the arbitration
clause, this Court should not address questions about whether
or not different arbitration clause terms would be unenforceable
as a matter of state or federal law.

26
CONCLUSION

The judgment of the South Carolina Supreme Court
should be affirmed.

Respectfully submitted,

F. Paul Bland, Jr.

(Counsel of Record)

Michael J. Quirk

Trial Lawyers for Public Justice, P.C.
1717 Massachusetts Avenue, NW,
Suite 800

Washington, D.C. 20036

(202) 797-8600

Counsel for Amicus Curiae

Date: March 26, 2003

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0614%3A17. Public record. Not legal advice.