Petitioners Brief — Green Tree Financial Corp.-Ala. v. Randolph

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3 Supreme Court, U.S.

Co) FILED

No. 99-1235

IN THE

Supreme Court of the

GREEN TREE FINANCIAL CORP.—ALABAMA,

AND GREEN TREE FINANCIAL CORPORATION,

Petitioners,

Vv.

LARKETTA RANDOLPH

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Eleventh Circuit

BRIEF OF PETITIONERS

ROBERT A. HUFFAKER CARTER G. PHILLIPS *

WILLIAM H. WEBSTER PAUL J. ZIDLICKY

RUSHTON, STAKELY, JOHNSTON MICHAEL L. POST

& GARRETT, P.A. LAUREL E. SHANKS

184 Commerce Street SIDLEY & AUSTIN

Montgomery, AL 36101-0270 1722 Eye Street, N.W.

(334) 206-3100 Washington, D.C. 20006

(202) 736-8000

Counsel for Petitioners

June 8, 2000 * Counsel of Record

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

QUESTIONS PRESENTED

1. Whether the court of appeals erred in concluding that an

order compelling arbitration and dismissing a lawsuit’s

underlying claims is a “final decision with respect to an

arbitration” appealable under 9 U.S.C. § 16(a)(3).

2. Whether the court of appeals erred in concluding that an

arbitration provision that was “silent” on the issue of costs and

fees was unenforceable under the Federal Arbitration Act

because the risk that plaintiff “might” be required to bear

unknown costs and fees potentially undermined her ability to

vindicate statutory rights.

(i)

STATEMENT REQUIRED BY RULE 29.6

Pursuant to Rule 29.6 of the Rules of this Court, petitioners

state that Green Tree Financial Corp. is now known as Conseco

Finance Corp. Petitioners remain wholly owned subsidiaries of

Conseco, Inc., an Indiana corporation whose stock is publicly

traded. Petitioners further state that no publicly owned company

owns ten percent or more of the stock of Conseco, Inc.

TABLE OF CONTENTS

QUESTIONS PRESENTED..........0ccccssercccosrsovcsscecssossees

STATEMENT REQUIRED BY RULE 29.6.................

TABLE OF AUTHORITIES ................00000+- fiat Ne ey

SE MOREE AY cnceiccscnvneccrvensessavensssorvonscnnossosssvcssvone

I TET sinkcesinhasesneninnonetnencivainasenantenienccsosanseonsshne

RELEVANT STATUTORY PROVISIONS .................

STATEMENT OF THE CASE.................0cccccssssesscessseess

Statutory Back eround......................ccsecsscorsrssesscoseseeess

PURE TOMS OUIIG, ...cisnnnncsirecsnonsncenssscovscosscsvsnsencooseeee

Decision Of The Court Of Appeals...............::ceeseeee

SUMMARY OF ARGUMENT .............:ccccsseceeeenteeeeeees

PETITE TE Scavinivisisnsnctosnassnnsecssagnvnvecsnnsnasnvepsnsconscesscnanes

AN ORDER COMPELLING ARBITRATION

AND DISMISSING AN “EMBEDDED”

PROCEEDING IS NOT A “FINAL DE-

CISION” UNDER 9 U.S.C. SECTION

IIEIED siihtapheasilenbatianiohansiavnanrinthacssseskbonevahsnenvanabe

A. Settled Statutory Construction Principles

Govern The Scope Of Appellate Juris-

diction Under Section 16(a)(3) And They

Preclude An Appeal In This Case................

(iii)

TABLE OF CONTENTS—Continued

B. The Purpose Of The Federal Arbitration

Act, The Structure Of Section 16, And The

Legal Framework Against Which Section

16(a)(3) Was Enacted Confirm That An

Order Compelling Arbitration In An

“Embedded” Proceeding Is Not A “Final

Decision” Under Section 16(a)(3)................

Il. THE ARBITRATION AGREEMENT IS

ENFORCEABLE UNDER THE FEDERAL

PEER CIEE FUG S cient incsniiininsa sania

A. The Federal Arbitration Act Reflects A

Strong Presumption In Favor Of

Arbitration Of Federal Statutory Claims......

B. Under The Federal Arbitration Act, The

Arbitration Agreement Is Enforceable To

Resolve Respondent’s Claims Under The

Truth In Lending Act And Equal Credit

I DOE: se sissnidainiteteriteretsenicanecincivpivesivictin

C. Respondent’s Alternative Argument That

Congress Intended To Preclude Individual

Agreements To Arbitrate Truth In Lending

Act Claims Should Be Rejected...................

ee UIT se chsncesness inter snaohenisisaienpledeteaitmebabiaenseniaa

Page

CASES

TABLE OF AUTHORITIES

Page

AT&T Techs., Inc. v. Communications Workers

of Am., 475 U.S. 643 (1986) ......:cscssesereenserererees 33

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

265 (1995)......cccscsscsccccsscrscerssnrssncssesssssnsesssnsseees 4, 42

Altman Nursing, Inc. v. Clay Capital Corp., 84

F.3d 769 (Sth Cir. 1996) .......::ccesceseeeeersseeseeeeenees 14

American Express Co. v. Koerner, 452 U.S. 233

(1981)......cc.ccsecorcscscsonsorecceececcesessccscsscssesnssosssseres 47

Anderson Bros. Ford v. Valencia, 452 U.S. 205

(1981)........ccecsrccecsccesencccsesecsorsssorssssssesecsnsenssssress 47

Bailey v. United States, 516 U.S. 137 (1995)........ 20

Baltimore Contractors, Inc. v. Bodinger, 348

U.S. 176 (1955), overruled on other grounds,

Gulfstream Areospace Corp. V. Mayacamas

Corp., 485 U.S. 271 (1988)......scscecesceeeereeeeesesees 24

Bennett v. Spear, 520 U.S. 154 (1997) ..------eesesee 20, 30

Brown v. Gardner, 513 U.S. 115 (1994) .....-.--++0++ 20, 21

Catlin v. United States, 324 U.S. 229 (1945) ....23, 25, 26

Cortez Byrd Chips, Inc. v. Bill Harbert Constr.

Co., 120 S. Ct. 1331 (2000) .......cercesceeereeerees 22, 26, 27

Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213

(1985),.....sceccscecccssssesssescessecsrsnceesesssereessnsnsnasessrers 22

Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326

(1980)......c.cscscscssssssesercessrcsssnssesecsessssnsensaserssoesers 45,47

Digital Equip. Corp. v. Desktop Direct, Inc., 511

U.S. 863 (1994)......csccssecssseerseersessesseseneesensenenees 23

Dole v. United Steelworkers of Am., 494 U.S. 26

(1990).......c.cesceccccssssssseccesencsssessccsesesercacnsnsseseoesees 20, 21

Evans v. United States, 504 U.S. 255 (1992).....20, 23, 26

Farr & Co. v. CIA. Intercontinental De

Navegacion de Cuba, S.A., 243 F.2d 342 (2d

Cir. 1957) ......cccccccocsssccccccccccccssssesocccossccsosssenses 24, 25, 26

ne ee ee

TABLE OF AUTHORITIES—Continued

Page

Filanto, S.p.A. v. Chilewich Int’l Corp., 984 F.2d

SE CRE CW. . Fe in ivenaiesinsinsaactiepqeendciaaeane 14, 24

First Options, Inc. v. Kaplan, 514 U.S. 938

(FID ssvnsinsnsiaiavinnasinsisaeneeeantanselanaaiglaaamainaanen 5

Ford Motor Credit Co. v. Cenance, 452 U.S. 155

(SIDE) sacnisiiensassaascdicaniesenncladagaesacmadaaamatedaetaa 47

Ford Motor Credit Co. v. Milhollin, 444 US.

DOF CO icsnctintarniissataenanucnemaanmuaane 47

Gammaro v. Thorp Consumer Discount Co., 15

Pe Fo CRN GA. FED stdeciestnstinbinesicnsiactnss 14

Gilmer v. Interstate/Johnson Lane Corp., 500

RFs. A COG Doinicessoilecisetiomniticiniasisanmnasibiabaalaniin passim

Griggs v. Provident Consumer Discount Co., 459

OF Tie ar 0 NIE hacinckddiiip ninicomaiuimmnainiemeaiaien 47

_ Hartford Fin. Sys., Inc. v. Florida Software

Servs., Inc., 712 F.2d 724 (1st Cir. 1983)......25, 26, 28

Hartford Underwriters Ins. Co. v. Union

Planters Bank, N.A., 68 U.S.L.W. 4441

(FETED cssncssssisseriiiisiiisiataicaanuaaamaaaaadieea 21

James v. Home Constr. Co., 689 F.2d 1357 (11th

CO, FEE) cvisessnscccinsitestssiinincabdciehinminanscaaielantnlonindsibian 47

John Hancock Mut. Life Ins. Co. v. Olick, 151

FE ESS COCR, BR issinicinsnitinisictnaenasints 14

Kelly v. Robinson, 479 U.S. 36 (1986) .............0006 20, 28

Kirchberg v. Feenstra, 450 U.S. 455 (1981)......... 47

Landreth Timber Co. v. Landreth, 471 U.S. 681

(BIRD) snssisnincavesnitisstiniacsassticnaamabiagsniniamad aia aaamieinninibe 19

Liberty Muf. Ins. Co. v. Wetzel, 424 U.S. 737

(RFD nscinsssnanssininsibsscsscgiasansilesdaieaabaniiaaiaaalaainameinelicis: 24, 29

Lummus Co. v. Commonwealth Oil Refining Co.,

Bat Pe Ta CAB CA. TBD i icsinesicccssistiabitinins 26

Marx v. Broom, 632 So. 2d 1315 (Miss. 1994) ..... 46

Vil

TABLE OF AUTHORITIES—Continued

Page

Mastrobuono v. Shearson Lehman Hutton, Inc.,

514 U.S. 52 (1995).....scssscsseereeseesrsereeesneesnenees 32, 37, 39

McCarthy v. Providential Corp., 122 F.3d 1242

(9th Cir. 1997), cert denied, 525 U.S. 921

(1998).....cscesscscssssecossesesecssessesncnsnesernenescneeseneaseoes 14

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985) ..........-vee0s3 passim

Morrissette v. United States, 342 USS. 246

(1952)....cccscscossssssecoseessensssensnecscasasensoonscecarssensones 20, 23

Moses H. Cone Mem’! Hosp. v. Mercury Constr.

Corp., 460 U.S. 1 (1983).....sesceeeseeereeesersensenennees passim

Mourning v. Family Publications Serv., Inc., 411

U.S. 356 (1973)....sesssssressescerserseesecsnenessesncerenesnes 47

Napleton v. General Motors Corp., 138 F.3d

1209 (7th Cir.), cert. denied, 525 U.S. 931

(1998)....c.csccscososcsssccsnenncesesessncosessnsnsensacocsnsnsossoos® 14

National Collegiate Athletic Ass'n Vv. Smith, 525

U.S. 459 (1999).....sccscesesresserseesersesenenensaesersnsnees 43

Perera v. Siegel Trading Co., 951 F.2d 780 (7th

Cir. 1992) .....sc.cscesscsssessecerscsessecersncncsnsessceassnseees 24, 25

Perry v. Thomas, 482 U.S. 483 (1987).......-- sensed 43

In re Pisgah Contractors, Inc., 117 F.3d 133 (4th

Cir, 1997) .....c.csecsscccsssscsrcecsnsecsocecsnenseserssoscnesnens 14

Red Cross Line v. Atlantic Fruit Co., 264 US.

109 (1924)......c-cscsseseserensscscssssnsssnsncncacscsrsrsenensnees 4

Roberts v. Galen, Inc., 525 U.S. 249 (1999) ........ 43

Rodriguez de Quijas Vv. Shearson/Am. Express,

Inc., 490 U.S. 477 (1989).....:sscesesereesesresennnnenens passim

St. Louis, Iron Mountain & S. R.R. v. Southern

Express Co., 108 U.S. 24 (1883) ......eeereeeeeeeeeees 23

Schoenamsgruber Vv. Hamburg Am. Line, 294

U.S. 454 (1935)....essssssssseserseceenessseseennensneseenenenes 23

Vili

TABLE OF AUTHORITIES—Continued

a Page

Seacoast Motors, Inc. v. Chrysler Corp., 143

F.3d 626 (lst Cir.), cert. denied, 525 U.S. 965

I Dc siccsccsinscaininiehcbiekehshiiieatnaninaniatrentemnmansnnen ins 14, 24

Shanferoke Coal & Supply Corp. v. Westchester

Serv. Corp., 293 U.S. 449 (1935) ....ccceeeceeeseeeeees 24

Shearson/Am. Express, Inc. v. McMahon, 482

CFs Bt CRE) ossnvisiencisnsnstsinivtisanninnaabnbnntniasnbontiad passim

Southland Corp. v. Keating, 465 US. 1

CD siosncinctnsnidvensinakakanteaiaceaceiuapenatok 21,224.21, 24 FP

Stedor Enters., Ltd. v. Armtex, Inc., 947 F.2d 727

CR Ee, FD i isesciscreinscscninsciesvaspnnciseneepettnnatnonepiin 24

Sullivan v. Finkelstein, 496 U.S. 617 (1990)......... 24, 29

United Sav. Ass’n v. Timbers of Inwood Forest

Asancs., MBSA U.S. FOS CUPS B) vevscoscsccscrensssescocssess passim

United States v. Wallace & Tiernan Co., 336

SID. FOS CIO) acuststcnsesetivcesduntcavenssonsinnsdlpinsnesenees 29

Vimar Seguros y Reaseguros, S.A. v. M/V Sky

Reefer, 515 U.S. 528 (1995) ........cccesccceserceess 33, 40, 42

Volt Info. Sciences, Inc. v. Board of Trustees of

Leland Stanford Junior Univ., 489 U.S. 468

CPI isinkaisceine tris nianidatnnesineisneneinquansnaniaayietoieiiien 39

FEDERAL STATUTES

DL, BE BOD vnccaveisscsesinerscsassonesosansebstustenesonvense 2

DF cscnsccanbnsssenasnytiiteicnnbtanshemaneneaniionooenandee 4,31

DF Picos cuindeseitessevuceeninhinnihcanianentesetpepeiedadien 4, 13

By iiicsaridchaviibilsnnhdeniibvieenssninigsnaiaonnipntGes 4

OO Dv sscicescnsiesscosdseinsecaohnntnacsusbiensninlinsameneionie 3,29

yaa cic siiniiimsibteterbduicsinndonnunaleniaibalaaieaiasitia 5, 26, 41

8 8 satsdsinicnsacademipetepntiontdtecepbulicumedentanahipaite 5, 41

OP Wiis csicisaeshacsannediancininadtaueanoieniceaimenanaane passim

TABLE OF AUTHORITIES—Continued

Page

15 U.S.C. § 1601 ef S€q...--:escerceereererseereresensnnsenees 2

§ 1601(a) ......eseseseseserseresssseseeseneneseseersnsees 6

§ 1605......c.cscscscsscrerensrsssenescersnsrseserecerscers 6

§ 1607.......ccsccccsseserersrsesesecesecsssserecesersres 7,48

§ 1G 1........eccescereersoceeseceeenesees Eee eneaenre™ 7, 48

§ 1640.........-csscccercscsrcessrsrsecsrsesersnssrcncarees passim

§ 16O1......cscsccsssssesersrecessescecsescncnsnssrersesees 8, 13

S§ 1691-1691 f........ceceseceseeeeserenenereseseeees 2

§ 1691C.....scssecececsreressssersrsnensnesesecensnenees 8

§ 1691E........scececcecerersnsssscerensececsrsersrensnees passim

§ 6601 (D)(3) ...-seseserereeeeeeeesseeesenenereresncens 4,42

28 U.S.C. § 1292(D) ....---eeceeeeee sessecenscnnesnsenscnsennces® 6, 23

QD U.S.C. § 216(D) .....ssecsercsceeseecerereersnenessrserensnsnes 43

FEDERAL REGULATIONS

12 C_E.R. § 226.4(d)(2)...:-rcscercsserserseesreresersensrennenes 6, 11

§ 226.18 m.41 (1996)....-.e-ecserererererseererees 7

§ 226.18.......scccrcrerensecesesssrersnsesecesessensers 6,7

FEDERAL RULE ©

Fed. R. Civ. P. 23......-..ccssecescscscesesersnssrsccsecsesscessors 45

LEGISLATIVE HISTORY

141 Cong. Rec. H4120-21 (daily ed. Apr. 4,

1995) (statement of Rep. Roukema) .........--++++++ 48

141 Cong. Rec. $5614 (daily ed. Apr. 24, 1995)

(statement of sponsor Sen. Mack).........eceeceeeeseee 48

ELR. Rep. No. 68-96 (1924)...-s-ssecsssssrsrresserersessssers 3,4

H.R. Rep. No. 97-542 (1982), reprinted in 1982

U.S.C.C.ALN. 765. ....ssssscescsrcsssccserrssresesserensenes 42

S. Rep. No. 68-536 (1924) -...-sesssessersssrssensessessersers 4

S. Rep. No. 93-278 (1973) ...-sssseseessrserserersersesercnens 48

TABLE OF AUTHORITIES—Continued

OTHER AUTHORITY Page

Regulation Z Commentary, 3 Fed. Reserve Reg.

Serv. 6-1165.2(10) (Nov. 1998)............:sccccceeeees 11

IN THE

Supreme Court of the Anited States

GREEN TREE FINANCIAL CoRP.—ALABAMA,

AND GREEN TREE FINANCIAL CORPORATION,

Petitioners,

LARKETTA RANDOLPH

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Eleventh Circuit

BRIEF OF PETITIONERS

OPINIONS BELOW

The court of appeals’ opinion (Pet. App. la- 19a) is published

at 178 F.3d 1149 (11th Cir. 1999). The court of appeals’ order

denying the petition for rehearing (Pet. App. 55a-56a) is unpub-

lished. The district court’s memorandum opinion and order

(Pet. App. 20a-50a) is published at 991 F. Supp. 1410 (M.D.

Ala. 1997). The district court’s order denying respondent’s mo-

tion for reconsideration (Pet. App. 51a-54a) is published at 991

F. Supp. 1410, 1425-26 (M.D. Ala. 1997).

JURISDICTION

The court of appeals entered judgment on June 22, 1999, and

denied a petition for rehearing on October 28, 1999. The peti-

tion for a writ of certiorari was filed on January 21, 2000, and

was granted on April 3, 2000. The Court has jurisdiction under

28 U.S.C. § 1254(1).

ae RN REPS LINE EL

RELEVANT STATUTORY PROVISIONS

The statutes relevant to this case are the Federal Arbitration

Act (“FAA”), 9 U.S.C. §§ 1-16, the Truth in Lending Act

(“TILA”), 15 U.S.C. § 1601 et seqg., and the Equal Credit Op-

portunity Act (“ECOA”), 15 U.S.C. §§ 1691-1691f. The rele-

vant provisions of these statutes are reproduced in the statutory

addendum attached to this brief.

STATEMENT OF THE CASE

The question of appellate jurisdiction presented is whether an

order compelling arbitration and dismissing a lawsuit’s underly-

ing Claims is a “final decision with respect to an arbitration” and

is therefore immediately appealable under 9 U.S.C. § 16(a)(3).

As demonstrated below, the answer is no. The underlying pur-

pose of the FAA, the structure of Section 16, and the existing

legal framework against which Section 16(a)(3) was enacted

each confirms that an order compelling arbitration in an “em-

bedded” proceeding is not a “final decision” that is appealable

under Section 16(a)(3). The court of appeals’ contrary conclu-

sion was based on snippets from the legislative history that can-

not substitute for or overcome the contrary congressional intent

reflected in the text, structure and purpose of Section 16 and the

FAA. Nor can the district court’s decision to label the order

compelling the parties to arbitrate a “dismissal” “with preju-

dice” rather than a “stay” — a label that has no bearing on the

substance of the district court’s action — make an otherwise in-

terlocutory order a “final decision” under Section 16(a)(3).

Further, assuming this matter is appealable, this case presents

the question of whether the court of appeals erred in concluding

that the arbitration agreement was unenforceable because its “‘si-

lence” on the issue of costs and fees created the risk that re-

spondent “might” be required to bear unknown costs and fees

associated with arbitration that could undermine her ability to

vindicate her statutory rights under TILA and ECOA. As dem-

onstrated below, the court of appeals clearly erred because the

arbitration agreement was not “silent” on the issue of costs and

fees. It provided the arbitrator with “all powers provided by the

law,” and the “law” relevant to respondent's statutory claims

under TILA and ECOA is clear that “the costs of the action” are

a component of damages to which respondent would be entitled

if she prevailed in arbitration. Indeed, even if the agreement

were ambiguous, that ambiguity must be resolved in favor of

arbitration. The court of appeals’ contrary conclusion was based

on an outdated and improper mistrust of the arbitral process that

this Court repeatedly has rejected.

Moreover, respondent also argues that the arbitration agree-

ment is unenforceable as to her TILA claim because it does not

provide class action procedures. Even if respondent’s challenge

were properly presented, this Court previously has addressed

and rejected the same argument. Further, Congress has not ex-

pressed an intent to preclude waiver of judicial remedies under

TILA. Indeed, TILA authorizes parties to waive federal proce-

dures through its grant of concurrent jurisdiction in state court.

Finally, TILA provides a host of incentives to ensure that plain-

tiffs, such as respondent, can bring such actions individually,

and they routinely do bring such lawsuits.

Statutory Background

1. The Federal Arbitration Act. In 1925, Congress enacted

the FAA to reverse centuries of judicial hostility to arbitration

agreements and to allow parties to avoid “the costliness and de-

lays of litigation” through arbitration. H.R. Rep. No. 68-96, at

1-2 (1924); see also Y2K Act, 15 U.S.C. § 6601(b)(3) (arbitra-

tion provides alternative to “costly and time-consuming litiga-

tion”). Prior to enactment of the FAA, “[t}]he federal courts —

like those of the States and of England — ha[d] . . . denied, in

large measure, the aid of their processes to those seeking to en-

force executory agreements to arbitrate disputes” and had re-

fused “to compel specific performance, or to stay proceedings

on the original cause of action.” Red Cross Line v. Atlantic

Fruit Co., 264 U.S. 109, 120-21 (1924) (citations omitted). By

enacting the FAA, Congress endeavored to reverse that judicial _

hostility through a procedure for the enforcement of arbitration

agreements that was “very simple” and that would “reduc{e]

technicality, delay, and expense to a minimum and at the same

time safeguard[] the rights of the parties.” H.R. Rep. No. 68-96,

at 2. As this Court recently explained, “Congress, when enact-

ing [the FAA], had the needs of consumers, as well as others, in

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

280 (1995); see also S. Rep. No. 68-536, at 3 (1924) (the FAA,

by avoiding “the delay and expense of litigation” will appeal “to

big business and little businesses, . . . corporate interests [and]

... individuals’’).

Specifically, Section 2 of the FAA provides that a written ar-

bitration agreement “shall be valid, irrevocable, and enforceable,

save upon such grounds as exist at law or in equity for the revo-

cation of any contract.” 9 U.S.C. § 2. In turn, sections 3 and 4

of the FAA provide a mechanism for enforcing that command

by authorizing a court to “stay the trial of the action until such

arbitration has been had in accordance with the terms of the

agreement,” id. § 3, or to enter an “order directing that [the] ar-

bitration proceed in the manner provided for in such agree-

ment,” id. § 4.

Once arbitration has been ordered, the FAA contemplates fur-

ther court involvement in connection with the ultimate arbitra-

tion award. Under Section 9, a party may file an application

“for an order confirming the award” which the court “must grant

_.. unless the award is vacated, modified, or corrected as pre-

scribed in sections 10 and 11 of [the FAA],” id. § 9. In turn,

Section 10 authorizes a court to “vacat[e]” an arbitral award if

(i) “the award was procured by corruption, fraud, or undue

means,” (ii) “there was evident partiality or corruption in the

arbitrators,” (iii) “the arbitrators were guilty of misconduct” or

(iv) “the arbitrators exceeded their powers.” Id. § 10(a)(1)-(4);

see also First Options, Inc. v. Kaplan, 514 U.S. 938, 942 (1995)

(court may vacate award for “‘manifest disregard’” of law).

Similarly, under Section 11, a court “may make an order modi-

fying or correcting the award.” 9 U.S.C. § 11(a)-(c) (setting

forth reasons for modifying arbitral award). This Court has

ruled that this post-award review ““‘is sufficient to ensure that

arbitrators comply with the requirements of the statute’ at is-

sue.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32

n.4 (1991) (quoting Shearson/Am. Express Inc. v. McMahon,

482 U.S. 220, 232 (1987)).

With respect to appellate review of arbitration orders, in

1988, Congress enacted section 16, which governs appeals of

district court orders and reflects the same pro-arbitration policy

evident in the substantive provisions of the FAA. Under Sec-

tion 16, orders hostile to arbitration, whether interlocutory or

final, are appealable immediately as of right. 9 U.S.C.

§ 16(a)(1), (2). Thus, a party may appeal immediately an order

(i) “refusing to stay an action under section 3,” (ii) “denying a

petition under section 4 . . . to order arbitration to proceed,” or

(iii) “granting, continuing, or modifying an injunction against an

arbitration.” Id. In contrast, a party generally cannot appeal

immediately an interlocutory order that favors arbitration, in-

cluding an order (i) “granting a stay of any action under section

3,” (ii) “directing arbitration to proceed under section 4” or (iii)

“refusing to enjoin an arbitration.” Id. § 16(b). Rather, imme-

diate appeal of such an order is available only in extraordinary

circumstances where the district court certifies the order for ap-

peal and the court of appeals permits the appeal to be taken. /d.;

see 28 U.S.C. § 1292(b). Finally, under section 16(a)(3), an ap-

peal may be taken from “a final decision with respect to an arbi-

tration that is subject to this title.” 9 U.S.C.

§ 16(a)(3). Section 16 does not define the phrase “‘a final deci-

sion with respect to an arbitration.”

2. The Truth in Lending Act. The Truth in Lending Act

(“TILA”) was enacted “to assure a meaningful disclosure of

credit terms so that the consumer will be able to compare more

readily the various credit terms available to him and avoid the

uninformed use of credit ....” 15 U.S.C. § 1601(a). TILA re-

quires disclosure of the “finance charge” imposed “by the credi-

tor as an incident to the extension of credit.” Jd. § 1605(a); see

also 12 C.F.R. 226.18 (setting forth “[cJontent of disclosures”

under TILA). As relevant here, TILA provides that “[c]harges

or premiums for insurance, written in connection with any con-

sumer credit transaction, against loss of or damage to property

or against liability arising out of the ownership or use of prop-

erty, shall be included in the finance charge.” 15 U.S.C.

§ 1605(c). Such premiums, however, may be excluded from the

finance charge if “a clear and specific statement in writing is

furnished by the creditor to the person to whom the credit is ex-

tended, setting forth the cost of the insurance if obtained from or

through the creditor, and stating that the person to whom

the credit is extended may choose the person through which

the insurance is to be obtained.” J/d.; see also 12 C.F.R.

§ 226.4(d)(2) & n.5 (setting forth requirements under which

“[p]remiums” for “single interest insurance” “may be excluded

from the finance charge”). The regulations in effect when re-

spondent first filed suit provided that the “finance charge,” in

transactions such as respondent’s, would “be considered accu-

rate if it [was] . . . not more than $10 above or below the exact

finance charge.” 12 C.F.R. § 226.18 n.41 (1996).'

Congress provided several avenues to vindicate the rights

embodied in TILA. First, TILA provides for administrative en-

forcement by a host of interested federal agencies. 15 U.S.C.

§ 1607(a), (c). Among other things, these federal agencies may

“require the creditor to make an adjustment to the account of the

person to whom credit was extended, to assure that such person

will not be required to pay a finance charge in excess of the fi-

nance charge actually disclosed.” Id. § 1607(e)(1). Moreover,

these agencies “shall require such an adjustment” when the error

resulted from “(A) a clear and consistent pattern or practice of

violations, (B) gross negligence, or (C) a willful violation.” Jd.

§ 1607(e)(2). Further, violators who “willfully and knowingly”

fail to provide disclosures required by TILA or its regulations

face criminal penalties, including a fine of $5,000, imprison-

ment of “not more than one year, or both.” Jd. § i611.

In addition to these administrative and criminal remedies,

TILA authorizes individuals to bring civil actions when ag-

grieved by a “creditor who fails to comply with any requirement

imposed under this part.” Id. § 1640(a). Individuals are offered

the choice of bringing such actions “in any United States district

court, or any other court of competent jurisdiction.” Id.

§ 1640(e). In such a suit, a creditor who “fails to comply with

any requirement imposed [by TILA] . . . with respect to any per-

son is liable to such person [for] . . . any actual damage su-

stained by such person as a result of the failure.” Id.

§ 1640(a)(1). In addition to actual damages, a plaintiff, such as

respondent, if she prevailed, would be entitled to statutory dam-

ages of “not less than $200 or greater than $2,000,” id.

' The current TILA regulations provide that “the disclosed finance charge

... Shall be treated as accurate if [it] . . . (i) is understated by no more than

$100.” 12 C.F.R. § 226.18(d)(1).

ee Te ee

§ 1640(a)(2)(A)(iii), and “the costs of the action, together with a

reasonable attorney’s fee,” id. § 1640(a)(3).

TILA also imposes restrictions on the relief available to indi-

viduals who choose to represent a class of plaintiffs under Fed-

eral Rule of Civil Procedure 23. Id. § 1640(a). Unlike individ-

ual actions, members of a class are not guaranteed a “minimum

recovery” of statutory damages, and, “in any class action or se-

ries of class actions arising out of the same failure,” the maxi-

mum recovery is capped at “the lesser of $500,000 or 1 per cen-

tum of the net worth of the creditor.” Jd. § 1640(a)(2)(B).

TILA provides a series of statutory factors that must be assessed

in determining the proper “award in any class action.” Id.

§ 1640(a). With respect to certain TILA violations, in 1995,

Congress enacted a moratorium during which time “no court

[could] enter any order certifying any class in any action under

[TILA].” Jd. § 1640(i).

3. Equal Credit Opportunity Act. The Equal Credit Opportu-

nity Act (“ECOA”) makes it unlawful for any “creditor to dis-

criminate against any applicant . . . because the applicant has in

good faith exercised any right under [the Consumer Credit Pro-

tection Act].” 15 U.S.C. § 1691. As in TILA, the statutory re-

quirements of ECOA are enforced by responsible federal agen-

cies. Id. § 1691c(a), (c). If the federal agencies are unable to

secure compliance, they “are authorized to refer the matter to the

Attorney General with a recommendation that an appropriate

civil action be instituted.” Jd. § 1691le(g). The Attorney Gen-

eral, in turn, may bring a civil action “for such relief as may be

appropriate, including actual and punitive damages and injunc-

tive relief.” Id. § 1691e(h).

As in TILA, under ECOA, an individual may recover civil

damages by filing suit in “United States district court . . . or in

any other court of competent jurisdiction.” Id.

§ 1691e(f). Under ECOA, an aggrieved party is entitled to re-

cover “any actual damages sustained,” id. § 1691e(a); “punitive

damages in an amount not greater than $ 10,000,” id. § 169 1e(b);

and “the costs of the action, together with a reasonable attor-

ney’s fee,” id. § 1691e(d). If an individual chooses instead to

bring a class action, regardless of the size of the class, punitive

damages are capped at “the lesser of $500,000 or 1 per centum

of the net worth of the creditor.” Id. § 1691e(b).

Factual Background

On January 25, 1994, respondent Larketta Randolph

(“respondent”) purchased a “manufactured” or mobile home

from Better Cents Home Builders Inc. (“Better Cents”). Pet.

App. 2a. Respondent financed the $38,958.00 purchase price

through Petitioner Green Tree Financial Corp. — Alabama, a

wholly owned subsidiary of Green Tree Financial Corporation

(collectively, “petitioners”). Joint Lodging (“J.L.”) 35.

Respondent's retail installment contract (“Contract”) with Better

Cents identifies petitioner Green Tree Financial Corp. as the

assignee and contains the arbitration provision that is at the

center of this dispute. Pet. App. at 2a-3a. The Contract is

reproduced in the Joint Lodging. J.L. 35, 37.

On the front of the Contract, directly below the names of the

parties, is a box entitled “Federal Truth-in-Lending Act

Disclosures,” which includes the annual percentage rate for the

credit, the finance charge, the amount financed, the total of the

payments over the life of the loan and the total sales price. J.L.

35. Directly below that box, is a box entitled “Physical Damage

Insurance,” which informed respondent that “Physical Damage

Insurance is required but [respondent] may obtain it from

anyone [respondent] want(s] that is acceptable to [the seller]. If

[respondent] get[s] the insurance checked below from [the

seller] or through [the seller], [respondent] will pay [the seller]

$545.00 for aterm of 01 years.” Id. The Contract reflects that

the $545.00 premium would purchase “Comprehensive,”

; 10

“Flood,” “Liability,” and ““Vendor’s Single Interest” insurance.

Id.

Directly above the signature line, the Contract provides:

CAUTION - IT IS IMPORTANT THAT YOU

THOROUGHLY READ THE CONTRACT BEFORE

YOU SIGN IT.

J.L. 35 (bold omitted). Above this statement, the Contract

provides in prominent typeface:

NOTICE: SEE OTHER SIDE FOR ADDITIONAL

TERMS AND CONDITIONS OF THIS CONTRACT.

Id. (bold omitted). Respondent signed directly below these

provisions. Joint Appendix (“J.A.”) 35.

The arbitration agreement appears on the other side of the

Contract. J.L. 37. First, it provides that “[a]ll disputes, claims,

or controversies arising from or relating to this Contract or the

relationships that result from this Contract, or the validity of this

arbitration clause or the entire Contract, shall be resolved by

binding arbitration by one arbitrator selected by Assignee with

consent of Buyer(s).” Pet. App. 57a. Further, it explains that,

by entering into the Contract, the parties acknowledged that

“[t]his arbitration Contract is made pursuant to a transaction in

interstate commerce” that is “governed by the Federal

Arbitration Act,” id., and that “[t]he parties agree and

understand that they choose arbitration instead of litigation to

resolve disputes.” Jd. Finally, the arbitration agreement states:

The parties agree and understand that all disputes arising

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

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

will be subject to binding arbitration in accord with this

Contract. The parties agree and understand that the arbi-

trator shall have all powers provided by the ‘law and the

Contract. These powers shall include all legal and equita-

ble remedies, including, but not limited to, money dam-

ages, declaratory relief, and injunctive relief.

Te ene

Id. (emphasis added). The text of the arbitration agreement is

reproduced at Pet. App. 57a-58a.

In January 1996, respondent filed suit in the United States

District Court for the Middle District of Alabama, alleging that

petitioners violated TILA by failing to disclose as a finance

charge the portion of the insurance premium paid by respondent

attributable to Vendor’s Single Interest (“VSI”) insurance. J.A.

26 (Second Amended Compl. { 24). Specifically, respondent

contends that the portion of the $15.00 VSI premium

attributable to insuring “Green Tree’s possible repossession

expenses,” id., should have been disclosed as a finance charge

rather than as an insurance premium, Opp. 2; see also J.L. 35.

Thus, respondent contends that the Contract violated TILA

because the $55,278.00 finance charge disclosed by petitioners

in the Contract, in her view, also should have reflected a $15.00

VSI insurance premium. Opp. 2.2 In addition to actual

damages, respondent seeks “statutory damages,” “costs of suit”

and “attorney’s fees and litigation expenses pursuant to 15

U.S.C. § 1640.” J.A. 26 (Second Amended Compl. { 24).

Respondent also alleges that petitioners violated ECOA

because the Contract includes an “arbitration clause which seeks

to compel the resolution of all statutory causes of action in

arbitration.” J.A. 26 (Second Amended Compl. { 27).

? Even accepting respondent’s theory of liability, her own submissions

demonstrate that her $15.00 estimate is overstated. According to respondent,

the portion of the insurance premium she paid that was attributable to VSI

insurance was $15.00. Opp. 2; J.L. 3. The exhibits to her Complaint make

clear that this $15.00 VSI premium purchased coverage that protected the

lienholder against “{cJollision (including Upset) of the mobile home” and

“{c]onversion, embezzlement and secretion of the mobile home by jrespon-

dent],” id. at27. The governing regulations provide that any portion of that

$15.00 VSI premium allocable to insurance for “normal property damage, -

concealment, confiscation, conversion, embezzlement, and skip” need not be

included in the finance charge. See 12 C.F.R. § 226.4(d)(2) & n.5; Regula-

tion Z Commentary, 3 Fed. Reserve Reg. Serv. 6-1165.2(10) (Nov. 1998).

According to respondent, by including this arbitration agreement

in the Contract, Green Tree “violate[d] 15 U.S.C. § 1691(a)(3)

which prohibits a creditor from requiring a waiver of rights.”

J.A. 26-27 (Second Amended Compl. { 28). In connection with

this claim, respondent seeks “punitive damages,” “actual

damages,” “attorney’s fees and litigation expenses” and “costs

of suit.” Id.

Finally, respondent requested certification of a class action of

all individuals who had entered into similar agreements with

petitioners. She also sought monetary damages, including

attorneys’ fees and recovery of litigation expenses. Pet. App.

22a, 27a.

Petitioners filed a Motion to Stay Action and Compel

Arbitration. J.A. 29-30. In resolving that Motion, the district

court did not address the merits of respondent’s claims, but

instead, focused on whether respondent could be compelled to

arbitrate her claims. Pet. App. 26a n.5. After concluding that

the FAA applied because the Contract satisfied the necessary

interstate commerce nexus, id. at 23a n.4 (citing Allied-Bruce,

513 U.S. 265), the court explained that by enacting the FAA,

Congress “manifested a ‘liberal federal policy favoring

arbitration agreements,” id. at 24a (quoting Gilmer, 500 U.S. at

24-25). As a result, “‘questions of arbitrability must be

addressed with a healthy regard for the federal policy favoring

arbitration.” Jd. (emphasis added) (quoting Moses H. Cone

Mem’! Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).

To resolve whether respondent should be compelled to arbitrate

her statutory claims, the court applied a two-part test asking “[1]

whether the Parties’ agreement to arbitrate reaches the statutory

issues, and . . . [2] whether legal constraints external to the

Parties’ agreement foreclosed the arbitration of those claims.”

Pet. App. 27a.

First, the court explained that the arbitration agreement, by its

terms, applied to claims arising under “‘statutory law,’” and

therefore was “sufficiently broad to encompass [respondent’s]

TILA, ECOA, and other claims.” Jd. at 28a. Second, the court

explained that by agreeing to arbitrate statutory claims “*‘a party

does not forgo the substantive rights afforded by the statute; it

only submits to their resolution in an arbitral, rather than a

judicial, forum.’” Pet App. 29a (quoting Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628

(1985)). As a result, respondent bore the burden of showing

that Congress intended to preclude a waiver of judicial

remedies. Because respondent did “not cite any provision of the

text or legislative history of either the TILA or the ECOA that

expressly preclude[d] waiver of judicial remedies,” the court

focused on whether there was evidence of a “conflict between

arbitration and the statutes’ underlying purpose.” Pet. App. 30a.

The court ruled that “‘the fact that [TILA] provides for the

possibility of bringing a collective action does not mean that

individual attempts at conciliation were intended to be barred.””

Id. at 33a (quoting Gilmer, 500 U.S. at 32). Similarly, the court

rejected as “unpersuasive” respondent’s argument that 15

U.S.C. § 1691(a)(3), which bars a creditor from extending credit

conditioned on the release of potential claims for TILA

violations that arose in the past, rendered the arbitration

provision unenforceable. Id. at 34a-35a.

Accordingly, the court granted petitioners’ motion to compel

respondent to submit her claims “to binding arbitration pursuant

to the arbitration provision in her contract.” Pet. App. 49a.

Acknowledging that it was authorized to stay the proceedings,

see 9 U.S.C. § 3, the court instead dismissed the case “with

prejudice” because all of respondent's claims were to be

submitted to arbitration. Pet. App. 48a. On reconsideration, the

court adhered to its prior ruling, explaining that it would “gladly

modify and/or vacate its [prior] Order,” if warranted by a change

in circumstances. Id. at 54a.

Decision Of The Court Of Appeals

The Eleventh Circuit reversed. Pet. App. 2a. First, the court

of appeals addressed whether the district court’s order was a

“‘final decision with respect to an arbitration that is subject to

[the FAA].’” Id. at 6a (quoting 9 U.S.C. § 16(a)(3)). On that

issue, the court of appeals acknowledged that the majority of

circuits had drawn a distinction between “‘embedded’”

proceedings in “which the arbitration issue arises as part of a

broader action dealing with other issues,” and “‘independent’”

proceedings, in which “the motion to compel arbitration is the

only issue before the court.” Jd. at 7a, 8a (emphasis in original

omitted).? The Eleventh Circuit recognized that these “circuits

have held that orders compelling arbitration which arise in

embedded proceedings must be treated as interlocutory and non-

appealable, not as ‘final decisions’ under § 16(a)(3).” Id. at 7a.

Moreover, it explained that at least five courts of appeals that

had adopted the embedded/independent framework for

analyzing finality under Section 16(a)(3) had held that “a district

court’s order compelling arbitration in an embedded proceeding

is interlocutory and non-appealable, even if the district court

dismisses the remaining claims.” Jd. at 8a-9a (emphasis in

original omitted).

> The court of appeals identified eight circuits in which orders compelling

arbitration in “embedded” proceedings would be considered non-final for

purposes of Section 16(a)(3). Pet. App. 7a-8a (citing John Hancock Mut.

Life Ins. Co. v. Olick, 151 F.3d 132, 135-36 (3d Cir. 1998); Seacoast Motors,

Inc. v. Chrysler Corp., 143 F.3d 626, 628 (Ist Cir.), cert. denied, 525 U.S.

965 (1998); Napleton v. General Motors Corp., 138 F.3d 1209, 1212 (7th

Cir.), cert. denied, 525 U.S. 931 (1998); McCarthy v. Providential Corp.,

122 F.3d 1242, 1244 (9th Cir. 1997), cert denied, 525 U.S. 921 (1998); In re

Pisgah Contractors, Inc., 117 F.3d 133, 136 (4th Cir. 1997); Altman Nurs-

ing, Inc. v. Clay Capital Corp., 84 F.3d 769, 771 (Sth Cir. 1996); Gammaro

v. Thorp Consumer Discount Co., 15 F.3d 93, 95 (8th Cir. 1994); Filanto,

S.p.A. v. Chilewich Int’l Corp., 984 F.2d 58, 60-61 (2d Cir. 1993)).

The Eleventh Circuit “decline[d]” to adopt the majority rule,

stating that the intent of Section 16 was to “clear away the

deadwood” and to “furnish a clear rule for appealability of

orders relating to arbitration proceedings.” Pet. App. 11a, 12a.

(internal quotation marks omitted). Ignoring that the

“embedded/independent” framework provided just such a clear

rule, the court of appeals looked instead to statements in the

legislative history of Section 16 to conclude that an “‘[a]ppeal

can be taken from . . . a final judgment dismissing an action in

deference to arbitration.”” Jd. at 13a (omission in original)

(quoting Arnold v. Arnold Corp., 920 F.2d 1269, 1274-75 (6th

Cir. 1990)). Ultimately, the court of appeals held that the

district court’s “order compelling arbitration was an appealable

‘final decision’ under 9 U.S.C. § 16(a)(3),” id. at 15a.

Second, the Eleventh Circuit considered whether the

arbitration provision was unenforceable. The court paid lip

service to the “strong federal policy favoring arbitration” and

recognized that the “procedural apparatus of an arbitration

should not make an arbitration clause unenforceable.” Pet. App.

15a (internal quotation marks omitted). Nonetheless, the court

of appeals ignored these principles in ruling that the arbitration

provision was unenforceable because it “failf[ed] to provide the

minimum guarantees required to ensure that [respondent’s]}

ability to vindicate her statutory rights will not be undone by

steep filing fees, steep arbitrators’ fees, or other high costs of

arbitration.” Jd. at 18a.

In doing so, the court of appeals did not identify any

provision of TILA that would be frustrated by arbitration of

respondent’s claims. Nor did the court of appeals identify any

record evidence that arbitration of respondent’s statutory claims

would result in the imposition of substantial arbitration costs

that respondent would be required to bear. Indeed, the Eleventh

Circuit ignored that the arbitration agreement provided that the

arbitrator was authorized to award such costs to the prevailing

party based on a provision in the arbitration agreement granting

ee eee

the arbitrator “all powers provided by the law.” Pet. App. 57a.

Instead, it relied upon the absence of any record evidence on

these issues to rule that the arbitration provision “raises serious

concerns with respect to filing fees, arbitrators’ costs and other

arbitration expenses that may curtail or bar a plaintiffs access to

the arbitral forum.” Jd. at 17a.

In the end, the court of appeals acknowledged that the

arbitration agreement did not, by its terms, impose the costs of

the proceeding on respondent and that there was no record

evidence regarding the amount or the apportionment of those

costs. Pet. App. 17a, 18a. Nevertheless, it resolved that failure

of proof against arbitration by speculating that respondent |

“might be required to bear substantial costs of the arbitration

even if she were to prevail.” Jd. at 19a (emphasis added). On

this basis alone, the court of appeals declared the arbitration

agreement unenforceable.

SUMMARY OF ARGUMENT

The common thread between the two holdings of the court of

appeals is the manifest hostility of the panel to arbitration. In

stark contrast to both the language and plain intent of Congress

embodied in the FAA and a consistent line of decisions by this

Court interpreting that statute, the court of appeals’ basic ap-

proach is far out of step with the applicable statutory and judi-

cial norms strongly favoring methods of alternative dispute reso-

lution, primarily including arbitration. Had the court of appeals

faithfully attempted to promote arbitration over litigation, it is

clear that the court of appeals would have concluded that it

lacked jurisdiction to review the district court’s order requiring

the parties’ dispute to be arbitrated immediately and would have

resolved its “concerns” about the costs of arbitration in favor of

enforcement of the parties’ contract. Because the court of ap-

peals instead allowed distrust of arbitration to animate its deci-

sion, it erred in both of its rulings. Accordingly, its judgment

———_——*+

should be reversed and the matter allowed to proceed in accor-

dance with the parties’ agreement to resolve this dispute through

arbitration.

1. The purpose of the FAA, the structure of Section 16, and

the legal framework against which the text of Section 16(a)(3)

was enacted each confirms that the district court’s order compel-

ling respondent to arbitrate the merits of her claims against peti-

tioners is not a “final decision” under Section 16(a)(3). In

enacting Section 16, Congress sought to promote the FAA’s

strong policy in favor of arbitration by limiting the ability of

parties to avoid or delay compliance with their obligations under

arbitration agreements by providing for immediate appeal of or-

ders that disfavor arbitration and generally prohibiting immedi-

ate appeal of interlocutory orders that favor arbitration.

Although Congress specifically modified aspects of the

appellate process that had disfavored arbitration, in Section

16(a)(3), Congress codified the existing legal framework which

distinguished between “embedded” and “independent”

proceedings for purposes of determining whether an order

denying or compelling arbitration constituted a “final decision.”

Under that framework, the district court’s order compelling

arbitration and dismissing the lawsuit, which occurred in an

embedded proceeding, is not a final decision and therefore is not

appealable under Section 16(a)(3).

The district court’s decision to label its order compelling arbi-

tration a “dismissal” “with prejudice” rather than a “stay,” has

no bearing on the substantive effect of the ruling and should

have no bearing on whether that order is appealable under Sec-

tion 16(a)(3). Regardless of the label, respondent will be enti-

tled to present the merits of her claims in arbitration, and, if she

is dissatisfied with the outcome, she would be entitled to chal-

lenge the arbitral award in the same district court that compelled

her to arbitrate. Indeed, this Court has held that distinctions that

have no bearing on the substance of an order should have no

effect on whether it is appealable. Moreover, allowing a district

. 18

court’s choice of label to control whether an otherwise

interlocutory order may be appealed immediately would under-

mine Section 16(b), which requires that such orders can be

appealed only with prior authorization by both the district court

and the court of appeals.

2. Through the FAA, Congress has expressed an emphatic

federal policy in favor of enforcing agreements by private par-

ties to arbitrate their disputes. Accordingly, a party seeking to

avoid an agreed-upon obligation to arbitrate a dispute bears the

heavy burden of proving (1) that the arbitration agreement, by

its terms, does not apply to the dispute, or (2) that arbitration of

the underlying federal statutory right is contrary to the intent of

Congress.

In this case, the court of appeals, reflecting an outdated and

discredited distrust of arbitration, surmised that the arbitration

agreement’s putative “silence” on the issue of costs and fees

created a “risk” that the underlying federal statutory rights

would be compromised in arbitration. That conclusion is flatly

mistaken on two counts. First, the arbitration agreement was

not silent on this issue. It made clear that the arbitrator “shall

have all powers provided by the law” and therefore was author-

ized under TILA and ECOA to award respondent, if she pre-

vailed, “the costs of the action, together with a reasonable attor-

ney’s fee.” 15 U.S.C. § 1640(a)(3) (TILA); accord id.

§ 1691le(d) (ECOA). Second, respondent presented no evidence

to meet her burden of establishing that she would be unable in

arbitration to vindicate effectively her federal statutory rights.

Finally, the Court need not address respondent’s alternative

claim that arbitration creates an “inherent conflict” with TILA

because an individual can “effectively vindicate” her statutory

rights only in class action litigation rather than individual arbi-

tration. In any event, that argument is meritless. This Court

previously has rejected precisely the same argument in the con-

text of a challenge to arbitration under the ADEA. See Gilmer,

uses ad

500 U.S. at 32. Moreover, as explained in Rodriguez de Quijas

v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989), Congress’s

grant of concurrent jurisdiction in state courts under TILA con-

stitutes “explicit authorization” for individuals to waive federal

procedural rights such as federal class action procedures. See

id. at 482. Indeed, the incentive structure reflected in TILA is

designed to ensure that individuals can and will bring individual

actions even if their actual damages may be relatively modest.

Finally, Congress’s decision to limit the damages that otherwise

would be available in class actions under TILA reflects that

Congress did not view class action litigation as the only proce-

dural mechanism through which substantive rights under TILA

could be vindicated.

ARGUMENT

I. ANORDER COMPELLING ARBITRATION AND

DISMISSING AN “EMBEDDED” PROCEEDING

IS NOT A “FINAL DECISION” UNDER 9 U.S.C.

SECTION 16(a)(3).

Settled principles of statutory construction confirm that the

district court’s order compelling the parties to arbitrate their dis-

pute and dismissing the case is not a “final decision” within the

meaning of Section 16(a)(3) of the FAA. That conclusion is

confirmed by the underlying purpose of the FAA, the structure

of Section 16, and the existing legal framework against which

Section 16(a)(3) was enacted.

A. Settled Statutory Construction Principles Govern

The Scope Of Appellate Jurisdiction Under Sec-

tion 16(a)(3) And They Preclude An Appeal In

This Case.

“It is axiomatic that ‘[t]he starting point in every case involv-

ing construction of a statute is the language itself.’” Landreth

Timber Co. v. Landreth, 471 U.S. 681, 685 (1985) (quoting

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756

(1975) (Powell, J., concurring)). “‘[T]he meaning of statutory

language, plain or not, depends on context.” Brown v. Gard-

ner, 513 U.S. 115, 118 (1994) (quoting King v. St. Vincent’s

Hosp., 502 U.S. 215, 221 (1991)). Asa result, the Court “con-

sider[s] not only the bare meaning of the word[s] but also [their]

placement and purpose in the statutory scheme,” Bailey v.

United States, 516 U.S. 137, 145 (1995), as well as “the provi-

sions of the whole law” including “its object and policy,” Dole

v. United Steelworkers of Am., 494 U.S. 26, 35 (1990) (internal

quotation marks omitted). Thus, “[a] provision that may seem

ambiguous in isolation is often clarified by the remainder of the

statutory scheme . . . because only one of the permissible mean-

ings produces a substantive effect that is compatible with the

rest of the law.” United Sav. Ass’n v. Timbers of Inwood Forest

Assocs., 484 U.S. 365, 371 (1988) (citation omitted). Indeed, it

is a “cardinal principle” of statutory construction “‘to give ef-

fect, if possible, to every clause and word of a statute . . . rather 1

than to emasculate an entire section.’”” Bennett v. Spear, 520

U.S. 154, 173 (1997).

Moreover, “‘if a word is obviously transplanted from another

legal source, whether the common law or other legislation, it

brings the old soil with it.’”” Evans v. United States, 504 U.S.

255, 260 n.3 (1992) (quoting Frankfurter, Some Reflections on |

the Reading of Statutes, 47 Colum. L. Rev. 527, 537 (1947));

see also Morrissette v. United States, 342 U.S. 246, 263 (1952).

As aresult, “‘{t]he normal rule of statutory construction is that if

Congress intends for legislation to change the interpretation of a

judicially created concept, it makes that intent specific.’” Kelly

v. Robinson, 479 U.S. 36, 47 (1986) (quoting Midlantic Nat'l

Bank v. New Jersey Dep’t of Envtl. Protection, 474 U.S. 494,

501 (1986)). Put another way, a change in the existing legal

framework is not to be presumed “without specific provision in

the text of the statute.” United Sav. Ass’n, 484 U.S. at 380 (em-

phasis added) (rejecting reliance on “legislative history” to sup-

S20, GC

port a “change in the existing rules”); cf. Hartford Underwriters

Ins. Co. v. Union Planters Bank, N.A., 68 U.S.L.W. 4441, 4444

2000) (rejecting presumption where “language” of statute

“leaves no room for clarification by [pre-existing] practice”’).

Application of these principles confirms that the district

court’s order compelling the parties to arbitrate their dispute is

not a “final decision” under Section 16(a)(3).

B. The Purpose Of The Federal Arbitration Act,

The Structure Of Section 16, And The Legal

Framework Against Which Section 16(a)(3) Was

Enacted Confirm That An Order Compelling

Arbitration In An “Embedded” Proceeding Is

Not A “Final Decision” Under Section 16(a)(3).

Section 16(a) provides, in pertinent part, that: “An appeal

may be taken from. . . (3) a final decision with respect to an ar-

bitration that is subject to [the FAA].” 9 U.S.C. § 16(a)(3). Be-

cause Congress did not define “final decision,” its meaning de-

rives from its relevant context, see Brown, 513 U.S. at 118,

which consists of (i) the FAA, whose goals Section 16 was de-

signed to foster, (ii) the structure of Section 16 itself, and (iii)

the pre-existing legal framework defining “final decision” in the

context of arbitration orders.

First, interpretation of the term “final decision” in Section

16(a)(3) must take into account the “object and policy” of the

FAA. Dole, 494 U.S. at 35; see also United Sav. Ass'n, 484

U.S. at 371. The FAA indisputably reflects a “liberal federal

policy favoring arbitration agreements” that “calls for a sum-

mary and speedy disposition of motions . . . to enforce arbitra-

tion clauses.” Moses H. Cone Mem’I Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 24, 29 (1983). Further, the FAA is designed

to permit “parties to an arbitrable dispute [to move] out of court

and into arbitration as quickly and easily as possible.”” South-

land Corp. v. Keating, 465 U.S. 1, 7 (1984) (quoting Moses H.

Cone, 460 U.S. at 22). As a result, agreements to arbitrate are

“not to be avoided by allowing one party to ignore the contract

and resort to the courts” because “[s]uch a course could lead to

prolonged litigation, one of the very risks the parties, by con-

tracting for arbitration, sought to eliminate.” Jd. Indeed,

“fbjelated enforcement of [an] arbitration clause . . . signifi-

cantly disappoints the expectations of the parties and frustrates

the clear purpose of their agreement.” Dean Witter Reynolds

Inc. v. Byrd, 470 U.S. 213, 225 (1985) (White, J., concurring).

Earlier this year, the Court reconfirmed these principles, ex-

plaining that the FAA reflects a “‘statutory policy of rapid and

unobstructed enforcement of arbitration agreements.’” Cortez

Byrd Chips, Inc. v. Bill Harbert Constr. Co., 120 S. Ct. 1331,

1337 (2000) (quoting Moses H. Cone, 460 U.S. at 23).

Second, and more specifically, the term “final decision” in

Section 16(a)(3) also draws meaning from the pro-arbitration

structure of Section 16. See United Sav. Ass’n, 484 U.S. at 371

(provision of statute “often” is clarified by “the remainder of the

statutory scheme”). Under Section 16, an immediate appeal

may be taken from orders, whether final or interlocutory, that

are hostile to arbitration. 9 U.S.C. § 16(a)(1). Thus, a party can

appeal immediately if a district court enters an order (i) “refus-

ing a stay of any action” until arbitration has occurred, id.

§ 16(a)(1)(A), (ii) “denying a petition . . . to order arbitration to

proceed,” id. § 16(a)(1)(B), (iii) “denying confirmation of an

award or partial award,” id. § 16(a)(1)(D), (iv) “modifying, cor-

recting or vacating an award,” id. § 16(a)(1)(E), or (v) “granting,

continuing, or modifying an injunction against an arbitration,”

id. § 16(a)(2).

In contrast, Section 16(b) denies an immediate appeal as of

right from orders that are favorable to arbitration, including in-

terlocutory orders (i) “granting a stay of any action” so that arbi-

tration may proceed, id. § 16(b)(1), (ii) “directing arbitration to

proceed under section 4,” id. § 16(b)(2), or (iii) “refusing to en-

join an arbitration,” id. § 16(b)(4). As to these orders, a disap-

pointed litigant either can await a “final decision” after the arbi-

tration has taken place, id. § 16(a)(3), or may seek to convince

the district court and the court of appeals that an appeal should

be permitted immediately because the order satisfies the discre-

tionary standards of section 1292(b) of title 28, id. § 16(b)."

Thus, Section 16(b) precludes a district court from unilaterally

deciding that an interlocutory order favoring arbitration may be

appealed immediately. In sum, Section 16 reflects a pro-

arbitration structure that provides for immediate appeals from

orders hostile to arbitration and requires, absent grounds for

mandamus or certification, that review of orders favoring arbi-

tration await until after the arbitration has run its course.

Third, and most specifically, the term “final decision” in Sec-

tion 16(a)(3) is a term of art with a well-developed legal mean-

ing both generally and as applied to orders involving arbitration.

See Evans, 504 U.S. at 259-60 & n.3; Morrissette, 342 U.S. at

263. The phrase “final decision” means an order “which ends

the litigation on the merits and leaves nothing for the court to do

but execute the judgment.” Catlin v. United States, 324 U.S.

229, 233 (1945); accord Digital Equip. Corp. v. Desktop Direct,

Inc., 511 U.S. 863, 867 (1994); St. Louis, Iron Mountain & S.

R.R. v. Southern Express Co., 108 U.S. 24, 28-29 (1883). Ap-

plying that understanding of a “final decision,” this Court has

held that orders granting or denying stays of judicial proceed-

ings so that arbitration could go forward are not final decisions.

See Schoenamsgruber v. Hamburg Am. Line, 294 U.S. 454, 456

(1935) (order that required “the parties to proceed to arbitration”

4 Section 1292(b) provides for an appeal from an interlocutory order

when “a district judge . . . shall be of the opinion that such order involves a

controlling question of law as to which there is substantial ground for differ-

ence of opinion and that an immediate appeal from the order may materially

advance the ultimate termination of the litigation” and “[t}he Court of Ap-

peals . . . permit[s] an appeal to be taken from such order.” 28 U.S.C. §

1292(b).

and “stayed trial of the action pending filing of the award”

“definitely” was “not final’’); see also Shanferoke Coal & Supply

Corp. v. Westchester Serv. Corp., 293 U.S. 449, 450-51 (1935)

(order denying a motion to stay an “action, and all the proceed-

ings therein . . . until an arbitration should be had in accordance

with the terms of the contract sued on” “was not a final judg-

ment’’); Baltimore Contractors, Inc. v. Bodinger, 348 U.S. 176,

179 (1955) (“order denying stay could not be called a final deci-

sion under § 1291”). Further, the Court has rejected the “artifi-

ciality of resting appealability on an otherwise substanceless dis-

tinction between stays and dismissal.” Moses H. Cone, 460 U.S.

at 9 n.8.

Similarly, the courts of appeals, building on this meaning of

“final decision,” developed a bright-line framework that distin-

guishes between “independent” and “embedded” proceedings

for purposes of determining whether an arbitration order consti-

tutes a “final decision.” ° For example, in Farr & Co. v. CIA.

Intercontinental De Navegacion de Cuba, S.A., 243 F.2d 342

> See also Sullivan v. Finkelstein, 496 U.S. 617, 628 n.7 (1990) (“The la-

bel used by the District Court of course cannot control the order’s appealabil-

ity in this case, any more than it could when a district court labeled a nonap-

pealable interlocutory order as a ‘final judgment’”’); Liberty Mut. Ins. Co. v.

Wetzel, 424 U.S. 737, 741-42 (1976) (district court’s “recital” that order was

“final judgment” did not make interlocutory order immediately appealable).

° See, e.g., Seacoast, 143 F.3d at 628 (independent/embedded framework

“based on finality principles that were firmly established at the time of sec-

tion 16’s enactment in 1988”); Filanto, 984 F.2d at 60 (in enacting Section

16, “Congress built upon the distinction the courts had previously recognized

between so-called ‘independent’ proceedings and ‘embedded’ proceedings”);

Perera v. Siegal Trading Co., 951 F.2d 780, 784 (7th Cir. 1992) (prior to

enactment of Section 16, “[m]any courts of appeals have concluded that arbi-

tration orders in embedded proceedings constitute interlocutory and not final

decisions”); Stedor Enters., Ltd. v. Armtex, Inc., 947 F.2d 727, 729 (4th Cir.

1991) (“Before the adoption of section 16, whether an order granting or de-

nying a motion to compel arbitration was appealable depended on whether

.... the sole object of the suit was to determine arbitrability.”).

(2d Cir. 1957), the Second Circuit held that an order compelling

arbitration “in an independent proceeding” was a “final and ap-

pealable” order, whereas such an order “made in a pending suit”

would be “viewed as being interlocutory.” Jd. at 345. Similarly,

in Hartford Fin. Sys., Inc. v. Florida Software Servs., Inc., 712

F.2d 724 (1st Cir. 1983) (Breyer, J.), the First Circuit relied

upon the distinction between embedded and independent pro-

ceedings in assessing whether an arbitration order was “final.”

Id. at 728. While noting that some courts differed, the First Cir-

cuit held that an order compelling arbitration in an “embedded”

proceeding was not “final” because such orders merely “pre-

clude further consideration of the merits of the case until arbitra-

tion is concluded,” when “the litigation in court will resume and

the parties can appeal their legal questions after the court has

issued a final decision.” Jd. at 729. In doing so, the Hartford

court explained that a contrary holding “would have led to

piecemeal appeals” and “would have run counter to the congres-

sional policy of encouraging arbitration.’ Jd. at 728.

In addition to providing a clear, easily-administered test, the

embedded/independent framework developed by the courts of

appeals prior to enactment of Section 16 was consistent with the

general definition of “final decision” under this Court’s prece-

dents. Thus, in an “independent” proceeding — which seeks only

an order compelling arbitration — an order compelling or deny-

ing arbitration is a “final decision” because it does, in fact,

“end[] the litigation on the merits and leaves nothing for the

court to do but execute the judgment.” Catlin, 324 U.S. at 233.

In contrast, in an “embedded” proceeding — which seeks relief

on the merits apart from whether the parties must arbitrate the

dispute — an order compelling or denying arbitration is not a “fi-

nal decision” because such a decision does not end “the litiga-

tion on the merits” or “leave[] nothing for the court to do but

execute the judgment.” Jd. Rather, after the arbitration has

concluded, further judicial involvement will be “necessary for

this award to become enforceable.” Perera, 951 F.2d at 784; 9

U.S.C. § 9 (governing enforcement of arbitration awards); id.

§ 10 (governing vacatur of arbitration awards). Such an order is

not a “final decision” because “it remains undeniable that. . .

arbitration cannot produce an enforceable result without further

judicial action.” Lummus Co. v. Commonwealth Oil Refining

Co., 297 F.2d 80, 86 (2d Cir. 1961) (Friendly, J.). Indeed, this

Court has acknowledged that fact, explaining that after a court

has stayed an action so that arbitration may be had, further court

involvement is necessary to “‘to confirm the award or to set it

aside for irregularity, fraud, ultra vires or other defect.’” Cortez

Byrd Chips, Inc., 120 S. Ct. at 1338 (quoting Marine Transit

Corp. v. Dreyfus, 284 U.S. 263, 275-76 (1932)).

Applying these principles, the order compelling arbitration in

the embedded proceeding in this case is not a “final decision”

under Section 16(a)(3), and therefore cannot be appealed imme-

diately as of right. First, because Congress did not define “final

decision,” it is presumed that Congress intended to adopt the

firmly established meaning of that term. See Evans, 504 U.S. at

259-60 & n.3. Prior to enactment of Section 16, the law among

the courts of appeals, though not unanimous, firmly established

that an order requiring the parties to arbitrate their dispute that

was entered in an “embedded” proceeding was not a “final deci-

sion.” See, e.g., Farr & Co., 243 F.2d at 345; Hartford, 712

F.2d at 728-29. More generally, there can be no dispute that an

order compelling arbitration in an embedded proceeding is not a

“final decision” because it does not “end[] the litigation on the

merits.” Catlin, 324 U.S. at 233; see Lummus, 297 F.2d at 86

(“[A]rbitration cannot produce an enforceable result without fur-

ther judicial action.”). As a consequence, a party aggrieved by

an order to arbitrate can, after the arbitration, challenge the arbi-

tration award, and the court that ordered the parties to arbitrate

would have the “‘authority to confirm the award or to set it

aside.”” Cortez Byrd Chips, 1208S. Ct. at 1338 (quoting Marine

Transit Corp., 284 U.S. at 276). A contrary conclusion would

authorize multiple appeals and “piecemeal” appellate review,

——

rather than a single appeal after the arbitration proceeding has

occurred and after the district court has addressed the enforce-

ability of the award under the FAA.

Second, the conclusion that an order compelling arbitration in

an embedded proceeding is not a “final decision” also is war-

ranted because that interpretation “produces a substantive effect

that is compatible with the rest of the [statute].” United Sav.

Ass’n, 484 U.S. at 371. Subsections (a)(1), (a)(2) and (b) of

Section 16 reflect an unabashed pro-arbitration bias. Under

subsections (a)(1) and (a)(2), orders hostile to arbitration,

whether final or interlocutory, are immediately appealable as of

right. 9 U.S.C. § 16(a)(1), (2). Under subsection (b), interlocu-

tory orders that favor arbitration may not be appealed immedi-

ately as a matter of right but instead must await completion of

the arbitration proceeding before they are reviewed. Id. § 16(b).

Given this pro-arbitration structure, Congress also would have

intended to give Section 16(a)(3) a similar pro-arbitration mean-

ing. In this regard, an overly broad defir:.10n of “final decision”

under Section 16(a)(3) would unduly limit the scope of subsec-

tion (b) which prohibits immediate appeals of interlocutory or-

ders that favor arbitration.

Finally, the conclusion that Congress intended that Section

16(a)(3) be given a pro-arbitration construction is confirmed by

the broader federal policy underlying the FAA: to promote the

“‘rapid and unobstructed enforcement of arbitration agree-

ments.’” Cortez Byrd Chips, 120S. Ct. at 1137 (quoting Moses

H. Cone, 460 U.S. at 23). Interpreting section 16(a)(3) to au-

thorize immediate appeals as of right from orders compelling

arbitration in embedded proceedings could, as was done in this

case, “lead to prolonged litigation, one of the very risks the par-

ties, by contracting for arbitration sought, to eliminate.” South-

land, 465 U.S. at 7. Indeed, the FAA was designed to allow par-

ties “‘[to move] out of court and into arbitration as quickly as

possible.”” Id. (quoting Moses H. Cone, 460 U.S. at 22). In

light of this “emphatic” policy in favor of arbitration, Mitsubishi

ia aaa acc

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

631 (1985), the phrase “final decision” should be construed to

exclude orders compelling arbitration in embedded proceedings

and thereby prevent litigants, such as respondent, from improp-

erly delaying enforcement of agreed-to arbitration provisions.

The court of appeals’ contrary conclusion is based upon two

erroneous premises. First, the court of appeals relied on snip-

pets from the legislative history of Section 16 to conclude that

Congress intended to do away with the embedded/independent

framework. Pet. App. 12a. That reliance violates the rule of

construction that “if Congress intends for legislation to change

the interpretation of a judicially created concept, it makes that

intent specific,” Kelly, 479 U.S. at 47, with a “specific provision

in the text of the statute,” United Savings Association, 484 U.S.

at 380. Section 16 illustrates that controlling principle in prac-

tice. By enacting Section 16, Congress intended to do away

with the judicially-created Enelow-Ettelson doctrine which gov-

erned appeals from certain interlocutory orders under 28 U.S.C.

§ 1292(b). Congress did so specifically in the text of Section 16

by dictating that an interlocutory order “granting a stay of any

action” could not be appealed immediately as of right. 9 U.S.C.

§ 16(b)(U1 hy In contrast, with respect to the embedded/

independent framework that the lower courts had developed to

implement the “final decision” requirement, Congress did not

repudiate that judicially created concept, but instead expressly

adopted the same “final decision” language upon which the em-

bedded/independent framework was predicated. Because the

statutory text of Section 16(a)(3) does not purport to alter this

judicially created approach, snippets from the legislative history

” See Hartford, 712 F.2d at 726 (Breyer, J.) (explaining that the Enelow-

Ettelson doctrine provided an exception to the rule that an order under Sec-

tion 3 of the FAA is not appealable as an “injunction” under 28 U.S.C.

§ 1292(a)(1) “if the suit stayed pending arbitration is legal in nature rather

than equitable”).

cannot provide the “specific intent” necessary to establish that

Congress sought to uproot the existing judicial scheme. See

United Sav. Ass’n, 484 U.S. at 380.

Similarly, the court of appeals improperly gave controiling

weight to the district court’s decision to label its order compel-

ling arbitration a “dismissal” “with prejudice,” rather than a

“stay” of the proceedings. Pet. App. 14a. The district court’s

label, however, had no bearing on any substantive right of re-

spondent. Indeed, the district court expressly declined to re-

solve “the merits of the underlying claims themselves” and in-

stead addressed solely the question whether respondent “may be

compelled to arbitrate her claims.” Pet. App. 26a n.5. As a re-

sult, regardless of the label, respondent will be entitled to chal-

lenge, if necessary, the outcome of the arbitration in the district

court and then appeal, if necessary, the district court’s decision

to the court of appeals. Simply put, the label “dismissal” “with

prejudice” should have no bearing on appealability under Sec-

tion 16 because that label has no bearing on respondent’s sub-

stantive rights. See Liberty Mut. Ins., 424 U.S. at 742 (district

court’s decision to label interlocutory order a “final judgment”

cannot control appealability of order); see also Sullivan, 496

U.S. at 628 n.7 (district court’s “label” cannot control “appeal-

ability”); cf. United States v. Wallace & Tiernan Co., 336 U.S.

793, 794 n.1 (1949) (label attached to dismissal order does not

affect appealability).

In fact, this Court already has rejected, in a similar context,

“the artificiality of resting appealability on an otherwise sub-

stanceiess distinction between stays and dismissals.” Moses H.

Cone, 460 U.S. at 9 n.8. Adoption of such an “artificial” and

“substanceless” distinction is even more inappropriate here be-

cause Congress could not have intended that a district court

could unilaterally transform what is in substance an interlocu-

tory order into a “final decision” merely by labeling that order a

“dismissal” rather than a “stay.” Indeed, such an interpretation

must be rejected because it would allow a district court unilater-

ally to circumvent the requirement that interlocutory orders set

forth in Section 16(b) may be appealed only if the district court

and court of appeals agree that the requirements of 28 U.S.C.

§ 1292(b)(2) have been satisfied. See Bennett, 520 U.S. at 173

(interpretation of statute must give effect “to every clause and

word of a statute . . . rather than to emasculate an entire sec-

tion’’).

Under the FAA, petitioners are entitled to enforce their right

to arbitrate by moving this dispute out of the courts “‘and into

arbitration as quickly and easily as possible.’” Southland, 465

U.S. at 7. Any appeal of the district court’s order compelling

arbitration in this embedded proceeding therefore must await the

completion of the arbitration that the FAA and Section 16 were

designed to foster.

Il. THE ARBITRATION AGREEMENT IS EN-

FORCEABLE UNDER THE FEDERAL ARBI-

TRATION ACT.

Contrary to the decision of the court of appeals, the agree-

ment to arbitrate is enforceable under the FAA because it does

not undermine respondent’s ability to vindicate her federal statu-

tory rights. With respect to the court of appeals’ concern re-

garding the costs associated with arbitration, the arbitration

agreement is not “silent.” It provides that the arbitrator shall

have “all powers provided by the law,” Pet. App. 57a, and the

“law” governing TILA and ECOA claims mandates that a pre-

vailing plaintiff is entitled to recover such costs as part of her

damages. But, even if the arbitration agreement were “silent” or

ambiguous on this point, under the FAA, such ambiguity must

be construed in favor of arbitration. As to the class action issue

raised in respondent’s Brief in Opposition, the Court need not

address it because it is outside the questions presented and be-

cause the court of appeals never addressed it. Nevertheless, as

explained below, there is no inherent conflict between individ-

——— ——S=S

ual arbitration and respondent’s vindication of her statutory

- rights.

A. The Federal Arbitration Act Reflects A Strong

Presumption In Favor Of Arbitration Of Fed-

eral Statutory Claims.

The legal standards governing the enforceability of arbitration

agreements under the FAA are well established. Section 2 of

the FAA provides that arbitration agreements “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. The Court has held that this provision manifests a “liberal

federal policy favoring arbitration agreements.’” Gilmer, 500 é

U.S. at 25 (quoting Moses H. Cone, 460 U.S. at 24). Asa result

of that federal policy, judicial “suspicion of arbitration as a

method of weakening the protections afforded in the substantive

law to would-be complainants” plainly is “far out of step with

[the Court’s] current strong endorsement of the federal statutes

favoring this method of resolving disputes.” Rodriguez de Qui-

jas, 500 U.S. at 481. Indeed, under the FAA, courts employ an

“emphatic policy in favor of arbitral dispute resolution,” Mitsu-

bishi, 473 U.S. at 631, in which “any doubts concerning the

scope of arbitrable issues should be resolved in favor of arbitra-

tion, whether the problem at hand is the construction of the con-

tract language itself or an allegation of waiver, delay, or a like

defense to arbitrability.” Moses H. Cone, 460 U.S. at 24-25.

This duty to “‘rigorously enforce agreements to arbitrate,

Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226

(1987) (quoting Byrd, 470 U.S. at 221), “is not diminished when

a party bound by an agreement raises a claim founded on statu-

tory rights,” id.; accord Mitsubishi, 473 U.S. at 626. With re-

spect to disputes implicating federal statutory law, this Court

has adopted a two-part test to determine whether private parties

may agree to resolve such claims through arbitration. Id. at 628.

999

First, because the “central purpose of the Federal Arbitration

Act” is “to ensure ‘that private agreements to arbitrate are en-

forced according to their terms,’” Mastrobuono v. Shearson

Lehman Hutton, Inc., 514 U.S. 52, 53-54 (1995) (quoting Volt

Information Sciences, Inc. v. Board of Trustees of Leland Stan-

ford Junior University, 489 U.S. 468, 479 (1989)), the court

must determine whether the arbitration agreement encompasses

the federal statutory claims, Mitsubishi, 473 U.S. at 626. In con-

ducting that inquiry, “‘any doubts concerning the scope of arbi-

trable issues should be resolved in favor of arbitration.’” Jd. at

626 (quoting Moses H. Cone, 460 U.S. at 24-25).

Second, the court must determine whether the party’s federal

statutory “claims are nonarbitrable even though it has agreed to

arbitrate them.” Jd. at 628. Put another way, “[h]aving made

the bargain to arbitrate, the party should be held to it unless

Congress itself has evinced an intention to preclude a waiver of

judicial remedies for the statutory rights at issue.” Gilmer, 500

U.S. at 26 (internal quotation marks omitted); see McMahon,

482 U.S. at 227. Congressional intent to preclude arbitration

must be “discoverable in the text of the [federal statute], its leg-

islative history, or an ‘inherent conflict’ between arbitration and

the [federal statute’s] underlying purposes.” Gilmer, 500 U.S. at

26. In particular, “‘[s]o long as the prospective litigant effec-

tively may vindicate [his or her] statutory cause of action in the

arbitral forum, the statute will continue to serve both its reme-

dial and deterrent function.’” Id. (quoting Mitsubishi, 473 U.S.

at 637). The party seeking to avoid arbitration bears the burden

to show plainly that the agreement to arbitrate is contrary to con-

gressional intent. Jd.

Applying these standards, the Court has upheld agreements to

arbitrate disputes arising under the Securities and Exchange Act

of 1934, McMahon, 482 U.S. at 238; the Securities Act of 1933,

Rodriguez de Quijas, 490 U.S. at 483; the Sherman Act, Mitsu-

bishi, 473 U.S. at 629; the Racketeer Influenced and Corrupt

Organizations Act (“RICO”), McMahon, 482 U.S. at 242; the

Age Discrimination in Employment Act (“ADEA”), Gilmer,

500 U.S. at 35; and the Carriage of Goods by Sea Act

(“COGSA”), Vimar Seguros y Reaseguros, S.A. v. M/V Sky

Reefer, 515 U.S. 528, 541 (1995).

B. Under The Federal Arbitration Act, The Arbitra-

tion Agreement Is Enforceable To Resolve Re-

spondent’s Claims Under The Truth In Lending

Act And Equal Credit Opportunity Act.

Application of this two-part test confirms that Congress did

not intend to preclude petitioners and respondent from agreeing

to arbitrate their disputes under TILA and ECOA.

1. The broad language of the arbitration agreement plainly

covers respondent’s federal statutory claims. It provides:

All disputes, claims, or controversies arising from or relat-

ing to this Contract or the relationships which result from

this Contract ... shall be resolved by binding arbitration

Pet. App. 57a. The arbitration agreement further states: “The

parties agree and understand that all disputes arising under case

law, statutory law, and all other laws . . . will be subject to

binding arbitration.” Jd. (emphasis added). Plainly, respon-

dent’s claims under TILA and ECOA relate to the Contract and

qualify as “disputes arising under . . . statutory law.” Id.; cf.

Mitsubishi, 473 U.S. at 625 (holding that parties agreed to arbi-.

trate disputes under the Sherman Act and other federal statutes

even though “the arbitration clause . . . d{id] not mention these

statutes or statutes in general”); AT&T Techs., Inc. v. Communi-

cations Workers of Am., 475 U.S. 643, 648 (1986). Indeed, in

her Complaint, respondent has conceded that the arbitration

agreement “seeks to compel the resolution of all statutory

causes of action in arbitration.” J.A. 26 (Second Amended

Compl. ¥ 27) (emphasis added). But, even if there were some

doubt about the parties’ intent to arbitrate respondent’s claims —

and there is none — under the FAA, the parties’ intentions “are

generously construed as to issues of arbitrability.” Mitsubishi,

473 U.S. at 626. In short, the broad language of the arbitration

agreement encompasses respondent’s statutory claims.

2. Respondent thus bears the burden of establishing that Con-

gress, through a separate statute, “intended to preclude a waiver

of judicial remedies for the statutory rights at issue,” McMahon,

482 U.S. at 227. Respondent cannot satisfy that burden. There

is nothing in the text or legislative history of TILA or ECOA to

support the conclusion that Congress intended to preclude pri-

vate parties from agreeing to arbitrate such claims. See Mitsubi-

shi, 473 U.S. at 628. Furthermore, there is no “inherent con-

flict” between the arbitration agreement and respondent’s vindi-

cation of her statutory rights under TILA or ECOA.

a. Statutory Text. The text of TILA and ECOA reflects that

Congress did not consider federal procedures essential to vindi-

cating substantive rights under these statutory schemes and

therefore authorized private parties to trade the procedures of

federal court for the “simplicity, informality, and expedition of

arbitration.” Jd.

Both TILA and ECOA provide that the substantive federal

rights protected by these statutory schemes may be enforced by

individuals either “in any United States district court, or in any

other court of competent jurisdiction.” 15 U.S.C. § 1640(e)

(TILA) (emphasis. added); accord 15 U.S.C. § 169le(c), (f)

(ECOA). In Rodriguez de Quijas, this Court explained that

where Congress authorizes concurrent jurisdiction over federal

claims in State courts — whose procedures differ from those in

federal courts — Congress thereby expresses its view that federal

procedures are not essential for vindication of the underlying

statutory rights. 490 U.S. at 482. Specifically, the Court ruled

that “the grant of concurrent jurisdiction constitutes explicit au-

thorization for complainants to waive [federal procedural] pro-

tections by filing suit in state court.” Jd. (emphasis added).

Similarly, in Gilmer, the Court noted that “arbitration [was]

consistent with Congress’ grant of concurrent jurisdiction . . . to

state and federal courts, because arbitration agreements, ‘like the

provision for concurrent jurisdiction, serve to advance the objec-

tive of allowing [claimants] a broader right to select the forum

for resolving disputes, whether it be judicial or otherwise.’” 500

U.S. at 29 (quoting Rodriguez de Quijas, 490 U.S. at 483) (cita-

tion omitted).

Here, as in Rodriguez de Quijas and Gilmer, Congress’ grant

of concurrent jurisdiction in State and federal courts to address

claims under TILA and ECOA “constitutes explicit authoriza-

tion” to allow private parties to agree to arbitrate claims arising

under these statutes. Rodriguez de Quijas, 490 U.S. at 482; see

also Gilmer, 500 U.S. at 29. As this Court explained in Mitsu-

bishi, “[b]y agreeing to arbitrate a statutory claim, a party does

not forgo the substantive rights afforded by the statute; it only

submits to their resolution in an arbitral, rather than a judicial,

forum. It trades the procedures and opportunity for review of

the courtroom for the simplicity, informality, and expedition of

arbitration.” 473 U.S. at 628.

b. Legislative History. The legislative histories of TILA and

ECOA do not specifically address whether individuals are pre-

cluded from agreeing to arbitrate these statutory claims. Indeed,

the district court in this case explained that respondent did “not

cite any provision of the text or legislative history of either the

TILA or the ECOA that expressly precludes waiver of judicial

remedies.” Pet. App. 30a. Similarly, in the court of appeals,

respondent acknowledged that “[t}here is no indication that arbi-

tration was ever considered by Congress.” Appellant’s Br. 31;

see Gilmer, 500 U.S. at 26 (adopting party’s concession that

“nothing in the . .. legislative history explicitly precludes arbi-

tration”).

c. “Inherent Conflict.” There is no “inherent conflict” be-

tween the arbitration agreement in this case and respondent’s

vindication of her substantive federal statutory rights under

TILA or ECOA. In reaching the contrary conclusion, the court

of appeals expressed its view that the arbitration agreement was

“silent” on the issue of costs and fees and that this “silence” was

inconsistent with TILA because it “fail[ed] to provide the mini-

mum guarantees required to ensure that [respondent’s] ability to

vindicate her statutory rights will not be undone by steep filing

fees, steep arbitrators’ fees, or other high costs of arbitration.”

Pet. App. 18a. Specifically, the court of appeals stated that

“[b]ecause the clause is silent on the subject of arbitration fees

and costs, [respondent] might be required to bear substantial

costs of the arbitration even if she were to prevail on her TILA

claim.” Pet. App. 19a. That conclusion does not withstand

scrutiny.

First, the court of appeals was wrong in concluding that the

arbitration agreement was “silent” as to whether respondent

would “be required to bear substantial costs of the arbitration.”

Pet. App. 19a. The arbitration agreement provides that the “‘ar-

bitrator shall have all powers provided by the law” and that

those “powers shall include all legal and equitable remedies,

including, but not limited to, money damages, declaratory relief,

and injunctive relief.” Pet. App. 57a (emphasis added). As this

Court explained in Mitsubishi, “[w]here the parties have agreed

that the arbitral body is to decide a defined set of claims which

includes . . . [a federal statutory claim],” the “inten[t] of the par-

ties” also dictates that the arbitral body will be “bound to decide

that dispute in accord with the . . . law giving rise to the claim.”

473 U.S. at 636-37. Because the arbitration agreement plainly

encompasses respondent’s federal statutory claims under TILA

and ECOA, as in Mitsubishi, the arbitrator would be “bound to

decide th[e] dispute in accord with the . . . law giving rise to the

claim.” Jd. at 636-37. Applied here, that legal principle refutes

any concern that respondent’s award might be “undone by steep

filing fees, steep arbitrators’ fees, or other high costs of arbitra-

tion” because the “law giving rise to” respondent’s claims under

TILA and ECOA mandates that respondent, if she prevails, will

be awarded “the costs of the action, together with a reasonable

attorney’s fee.” 15 U.S.C. § 1640(a)(3) (TILA); see id.

§ 1691e(d) (ECOA) (same). In short, the arbitration agreement

makes clear that respondent would be entitled to “the costs of

the action, together with a reasonable attorney’s fee” if she pre-

vailed in arbitration on her TILA and ECOA claims.

Any possible doubt on this issue is resolved by this Court’s

decision in Mastrobuono v. Shearson Lehman Hutton, Inc.,514

U.S. 52 (1995). There, the Court considered whether the terms

of an arbitration agreement authorized the award of punitive

damages. /d. at 54. The arbitration agreement in Mastrobuono

provided that controversies would “‘‘be settled by arbitration in

accordance with the rules . . . of the National Association of Se-

curities Dealers [NASD].’” Id. at 58 n.2. Recognizing that the

NASD Rules referenced in the arbitration agreement did not

provide “clear authorization of punitive damages,” id. at 61, the

Court nevertheless explained that “when a court interprets . . .

an agreement covered by the FAA, ‘due regard must be given to

the federal policy favoring arbitration, and ambiguities as to the

scope of the arbitration clause itself resolved in favor of arbitra-

tion,”” id. at 62 (quoting Volt, 489 U.S. at 476). Applying that

principle, the Court held that any “ambiguity” in the arbitration

agreement must be resolved to allow recovery of punitive dam-

ages. Id. at 64.

To the extent that there is any ambiguity in the arbitration

agreement as to whether the arbitrator has authority to award

respondent “the costs of the action,” 15 U.S.C. § 1640(a)(3), the

Court’s decision in Mastrobuono confirms that any such ambi-

guity must be resolved “‘in favor of arbitration,’” 514 U.S. at 62

(quoting Volt, 489 U.S. at 476); accord Moses H. Cone, 460

U.S. at 24-25. Thus, the court of appeals simply was wrong that

respondent “might be required to bear substantial costs of the

arbitration even if she were to prevail on her TILA claim.” Pet.

App. 19a. The arbitration agreement expressly grants the arbi-

trator “all powers provided by the law” and the “law” upon

which respondent’s claims under TILA or ECOA are based

makes clear that respondent, if she prevails, is entitled to an

award including the “costs of the action, together with a reason-

able attorney’s fee.” 15 U.S.C. § 1640(a)(3); id.

§ 1691e(d). In short, far from creating an “inherent conflict”

with the statutory scheme, the arbitration agreement incorpo-

rates and reinforces TILA and ECOA as they relate to the award

of the “costs of the action.”

Second, the court of appeals ignored these controlling stan-

dards and instead expressed its distrust of arbitration by adopt-

ing a presumption against arbitration. Thus, the court of ap-

peals manufactured “serious concerns with respect to filing fees,

arbitrators’ costs,” Pet. App. 17a, by positing a series of imag-

ined circumstances that found no support in the record, and then

concluding that the arbitration agreement was unenforceable

because it failed expressly to address each of the court’s worst-

case hypotheses. For example, the court of appeals speculated

that the arbitration agreement created unbearable risks because it

did not expressly address (i) whether “filing fees [we]re re-

quired,” (ii) which party bore “initial responsibility for filing

fees” and (iii) whether there was a process for “waiver in cases

of financial hardship.” Pet. App. 17a, 18a. Such an approach

would call into question thousands of arbitration agreements

that do not spell out the precise procedures that an arbitrator will

apply if faced with any of the innumerable issues or combina-

tions of questions regarding the costs associated with arbitration.

Moreover, the distrust of arbitration reflected in such an ap-

proach would not be limited to costs but would extend to each

and every aspect of arbitration. As a result, arbitration agree-

ments would no doubt become unwieldy and more expensive as

drafters sought to cover every possible contingency for fear that

a reviewing court would strike down the agreement because it

was “silent” or “ambiguous” on an issue of concern to that

court. In addition to being bad policy, the court of appeals’ ap-

- se

ce NP

proach to interpretation of arbitration agreements is solidly fore-

closed by binding precedent requiring that “questions of arbi-

trability must be addressed with a healthy regard for the federal

policy favoring arbitration.”” Mitsubishi, 473 U.S. at 626 (quot-

ing Moses H. Cone, 460 U.S. at 24) (emphasis added).®

Similarly, the court of appeals also erred by expressing con-

cern that vindication of federal rights likely would be contingent

on “who conducts the arbitration.” Pet. App. 18a. That “con-

cern” reflects nothing more than an improper mistrust of the ar-

bitral process. The settled rule is that “there is no reason to as-

sume at the outset that arbitrators will not follow the law.”

McMahon, 482 U.S. at 232; see also Gilmer, 500 U.S. at 30;

Mitsubishi, 473 U.S. at 636. Thus, this Court has confirmed

that courts may not “indulge the presumption that the . . . arbi-

tral body conducting a proceeding will be unable or unwilling to

retain competent, conscientious, and impartial arbitrators.” Mit-

subishi, 473 U.S. at 634; see also Gilmer, 500 U.S. at 30 (same).

Such mistrust “rest[s] on suspicion of arbitration as a method of

weakening the protections afforded in the substantive law to

would be complainants,” a view that is “far out of step with our

current strong endorsement of the federal statutes favoring this

method of resolving disputes.” Rodriguez de Quijas, 490 USS.

at 481; see McMahon, 482 U.S. at 231-32 (rejecting “general

8 See also Mastrobuono, 514 U.S. at 62 (“due regard must be given to the

federal policy favoring arbitration”); Gilmer, 500 U.S. at 25 (FAA “mani-

fest[s] a ‘liberal federal policy favoring arbitration agreements’”); Volt Info.

Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 US.

468, 476 (1989) (“due regard must be given to the federal policy favoring

arbitration, and ambiguities as to the scope of the arbitration clause itself

resolved in favor of arbitration”); McMahon, 482 U.S. at 226 (FAA “estab-

lishes a ‘federal policy favoring arbitration’” and “requir[es] that “we rigor-

ously enforce agreements to arbitrate”); Southland, 465 U.S. at 10 (through

the FAA, “Congress declared a national policy favoring arbitration”).

suspicion of the desirability of arbitration and the competence of

arbitral tribunals”).’

In addition, even if the court of appeals’ distrust of the arbi-

tral process could create a “risk” that the arbitrator might refuse

to follow the substantive provisions of the federal statutory

scheme — and it cannot — that possibility alone could not justify

holding the arbitration agreement unenforceable. Indeed, this

Court rejected a similar argument in Vimar Sequros y Reasegu-

ros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995). There, the

Court addressed a challenge to enforcement of a Japanese arbi-

tration clause under the FAA based on speculation that “there

[was] no guarantee foreign arbitrators w[ould] apply [the gov-

erning federal statutory scheme].” Jd. at 539. The Court ex-

plained that such speculation was, at best, “premature” because

“{a]t this interlocutory stage it is not established what law the

arbitrators will apply to petitioner’ s claims or that petitioner will

receive diminished protection as a result.” Id. at 540. Similarly,

in Mitsubishi, the Court declined to “speculate” whether the ar-

bitral panel would apply the correct legal standards because that

issue could be addressed when a court was asked “to enforce an

award.” 473 U.S. at 637 & n.19. Here, as in Vimar and Mitsu-

bishi, speculation regarding the manner in which the arbitrator

will apply the governing legal standards on the issue of costs

and fees cannot justify striking down the arbitration agreement

before the arbitrator has been given the opportunity to address

those issues in the first instance.

9 See also Gilmer, 500 U.S. at 30 (rejecting “generalized attacks on arbi-

tration” which ““‘res[t] on suspicion of arbitration”); McMahon, 482 U.S. at

231-32 (“It is difficult to reconcile Wilko’s mistrust of the arbitral process

with this Court’s subsequent decisions” because “most of the reasons given in

Wilko have been rejected subsequently by the Court . . . .”); Mitsubishi, 473

U.S. at 626-27 (explaining that Court was “well past the time when judicial

suspicion of the desirability of arbitration and of the competence of arbitral

tribunals inhibited the development of arbitration as an alternative means of

dispute resolution”).

Moreover, even if the arbitrator ultimately were to rule in re-

spondent’s favor, but then deny her “the costs of the action,” the

arbitration agreement nevertheless should be enforced because,

under the FAA, respondent still could effectively vindicate her

federal statutory cause of action through post-arbitration review

of the arbitral award. This Court repeatedly has ruled that judi-

cial review of arbitration awards under the FAA is “sufficient to

ensure that arbitrators comply with the requirements of the stat-

ute.” McMahon, 482 U.S. at 232; see also Gilmer, 500 US. at

32 n.4; Mitsubishi, 473 U.S. at 636-37 & n.19. Specifically, the

FAA provides post-arbitration relief so that an aggrieved party

may modify or vacate an arbitral award where the arbitrator dis-

regards the applicable law. See 9 U.S.C. §§ 10, 11. As the

Court explained in both Gilmer and McMahon, “‘although judi-

cial scrutiny of arbitration awards necessarily is limited, such

review is sufficient to ensure that arbitrators comply with the

requirements of the statute.” 500 U.S. at 32 n.4 (quoting

McMahon, 482 U.S. at 232). Thus, if there were some basis for

concern that an arbitrator might manifestly disregard the appli-

cable law and refuse to award a prevailing plaintiff “the costs of

the action, together with a reasonable attorney’s fee,” 15 U.S.C.

§ 1640(a)(3), post-arbitration review would remedy any such

violation of the governing law.

Finally, to the extent that the court of appeals expressed “con-

cerns” that the costs of arbitration would be “steep” or “high,”

that concern was unsupported and contrary to common sense.

Pet App. 17a, 18a. The law is clear that the party seeking to

avoid arbitration bears the burden of proof. Gilmer, 500 U.S. at

26. And, the record is clear that respondent failed to satisfy her

burden on the issue of arbitration costs. Pet. App. 19a (“[WlJe

lack similar information about how claimants fare under Green

Tree’s arbitration clause.”). Absent such record evidence, the

court of appeals’ assumption that such costs might be “steep” or

“high” simply reflects a mistrust of the arbitral process that is

impermissible under this Court’s decisions. See, e.g., Gilmer,

500 U.S. at 30. Moreover, the assumption underlying that mis-

trust —i.e., that arbitration would be more costly than litigation —

is directly contradicted by the findings of Congress and the ex-

perience of this Court. See, eg., Y2K Act, 15 U.S.C.

§ 6601(b)(3) (parties choose arbitration “to avoid costly and

time-consuming litigation”); H.R. Rep. No. 97-542, at 13 (1982)

reprinted in 1982 U.S.C.C.A.N. 765, 777 (arbitration “is usually

cheaper and faster than litigation”); Allied-Bruce, 513 U.S. at

280 (arbitration “often would seem helpful to individuals . . .

who need a less expensive alternative to litigation”).'°

C. Respondent’s Alternative Argument That Con-

gress Intended To Preclude Individual Agree-

ments To Arbitrate Truth In Lending Act Claims

Should Be Rejected.

In her Brief in Opposition, respondent also argued that the

court of appeals’ conclusion that “Green Tree’s arbitration

clause was unenforceable” could be sustained on the alternative

ground that the arbitration agreement precluded respondent from

bringing her TILA claim as a class action. Opp. 19.'' The

Court need not address this argument because it was not ad-

dressed by the court of appeals and is not within the questions

'° Even if respondent could demonstrate that the costs of an arbitration

proceeding would be greater than the costs of litigation in court, that conclu-

sion would not affect respondent’s ability to vindicate her statutory rights

because, if she prevailed, she would be entitled to recover “the costs of the

action.” 15 U.S.C. § 1640(a)(3); id. § 169le(d). Moreover, as in Vimar,

“{i}t would be unwieldy and unsupported by the terms or policy of the statute

to require courts to proceed case by case to tally the costs and burdens to

particular plaintiffs in light of their means, the size of their claims, and the

relative burden on the [plaintiff].” 515 U.S. at 536.

'' Respondent did not make a similar argument with respect to her claim

under ECOA in her Brief in Opposition. See Opp. 19-21.

“ -— -

presented. 2 Tn any event, respondent’s argument regarding the

availability of class action procedures in arbitration previously

has been rejected by this Court and finds no support in TILA.

The arbitration agreement is enforceable because respondent

may effectively vindicate through individual arbitration her

statutory rights under TILA. See Gilmer, 500 U.S. at 28. The

crux of respondent’s argument is that because Congress “con-

templated” that some individual might choose to bring a TILA

claim in the context of a class action, Congress thereby intended

to prohibit individuals from agreeing to arbitrate TILA claims

individually. Opp. 19-21. As this Court explained in Gilmer,

500 U.S. at 32, the fact that a federal statute contemplates that

individuals might bring class actions does not support the con-

clusion that Congress intended to preclude individual arbitra-

tion. Id.

In Gilmer, the petitioner entered into an arbitration agreement

with his employer, id. at 23, but contended that it was unen-

forceable as applied to his age discrimination claim because ar-

bitration created an “inherent conflict” with the purposes of the

ADEA, id. at 32. Specifically, Gilmer argued that an “inherent

conflict” resulted because the ADEA expressly authorized class

actions, whereas class action procedures were unavailable in

arbitration. Id.; see 29 U.S.C. § 216(b) (authorizing class ac-

tions for ADEA claims). This Court rejected that argument,

holding that “‘even if the arbitration could not go forward as a

'? Under similar circumstances, the Court has declined to address issues

outside the questions presented, and may do so here. See Roberts v. Galen,

Inc., 525 U.S. 249, 253-54 (1999) (declining to address “two alternative

grounds for affirmance” that were outside the questions presented and were

“insufficiently developed below . . . to assess them”); National Collegiate

Athletic Ass'n v. Smith, 525 U.S. 459, 470 (1999) (declining to “decide in the

first instance issues not decided below”); see also Perry v. Thomas, 482 U.S.

483, 492 n.9 (1987) (declining to address argument regarding unenforceabil-

ity of arbitration agreement where issue was not addressed below).

class action or class relief could not be granted by the arbitrator,

the fact that the [ADEA] provides for the possibility of bringing

a collective action does not mean that individual attempts at

conciliation were intended to be barred.’” 500 U.S. at 32 (al-

teration in original) (quoting Nicholson v. CPC Int'l Inc., 877

F.2d 221, 241 (3d Cir. 1989) (Becker, J., dissenting)).

That holding is equally applicable here. TILA, unlike ADEA,

does not create any statutory right to bring aclass action. Rather

TILA anticipates that some individuals may seek to bring their

TILA claims as class actions and places a limitation on the total

recovery that would otherwise be available “in any class action

or series of class actions arising out of the same failure to com-

ply by the same creditor.” 15 U.S.C. § 1640(a)(2)(B). Specifi-

cally, Section 1640 caps such statutory damages at the “lesser of

$500,000 or 1 per centum of the net worth of the creditor.” Id.;

see also Amicus Brief of the Chamber of Commerce of the

United States of America at 7-8 (explaining that district court

must consider host of factors when determining proper level of

class relief). Thus, TILA merely recognizes that some plaintiffs

may choose to proceed individually, while others may choose

to proceed through a class action. Compare 15 U.S.C.

§ 1640(a)(2)(A) (setting limits on statutory damages in “an indi-

vidual action”) with id. § 1640(a)(2)(B) (setting limits on recov-

ery “in any class action or series of class actions arising out of

the same failure to comply”). As in Gilmer, the fact that Con-

gress contemplated “the possibility” that individuals might

choose to bring class actions under TILA does not mean that

“that individual attempts at conciliation were intended to be

barred.’” 500 U.S. at 32.

More generally, “[b]y agreeing to arbitrate . . . a party does

not forgo the substantive rights afforded by the statute; it only

submits to their resolution in an arbitral, rather than a judicial,

forum.” Mitsubishi, 473 U.S. at 628; see also Rodriguez de

Quijas, 490 U.S. at 481. Applying that standard, this Court has

held in a wide variety of circumstances that an agreement to

YO ee)

waive the procedural rules available in federal court does not

prevent a party from “‘effectively . . . vindicat[ing] [his or her]

statutory cause of action in the arbitral forum.’” Gilmer, 500

U.S. at 28 (second alteration in original) (quoting Mitsubishi,

473 U.S. at 637).

For example, in McMahon, the Court enforced an arbitration

provision that waived the provision for “exclusive jurisdiction”

in the district courts of the United States for a violation of the

Exchange Act of 1934. 482 U.S. at 227-28. In doing so, the

Court rejected the McMahons’ argument that arbitration would

‘weaken their ability to recover under the [Exchange] Act,” id.

at 231, holding instead that “the streamlined procedures of arbi-

tration d[id] not entail any consequential restriction on substan-

tive rights.” Jd. at 232. Similarly, in Rodriguez de Quijas, the

Court held that the notion that arbitration procedures

“‘weaken[ed] the protections afforded in the substantive law to

would-be complainants” was “far out of step with [the Court’s]

current strong endorsement of the federal statutes favoring this

method of resolving disputes.” 490 U.S. at 481. Finally, in

Gilmer, the Court relied upon the same “‘‘strong endorsement of

the federal statutes favoring’” arbitration to reject a “host of

challenges to the adequacy of arbitration procedures.” 500 U.S.

at 30.

These principles apply equally to respondent’s claim under

TILA. Here, there can be no dispute that the class action

mechanism is procedural. See Fed. R. Civ. P. 23; see also De-

posit Guar. Nat’l Bank v. Roper, 445 U.S. 326, 332 (1980) (“the

right of a litigant to employ Rule 23 is a procedural right only,

ancillary to the litigation of the substantive claims”); Gilmer,

500 U.S. at 33 (characterizing argument regarding absence of

class action mechanism in arbitral forum a “claimed procedural

inadequac[y]”). That fact is dispositive because Congress made

clear that application of federal procedures was not essential to

an individual’s vindication of statutory rights under TILA. Spe-

cifically, TILA provides that an individual may bring a civil ac-

tion in “any United States district court” or “any other court of

competent jurisdiction.” 15 U.S.C. § 1640(e). As discussed

previously, “the grant of concurrent jurisdiction constitutes ex-

plicit authorization for complainants to waive [federal proce-

dural] protections by filing suit in state court.” Rodriguez de

Quijas, 490 U.S. at 482; see also Gilmer, 500 U.S. at 29. Ac-

cordingly, by grantir 2 concurrent jurisdiction in state and fed-

eral courts, Congress provided “explicit authorization” for indi-

viduals to waive federal procedural rights, including class action

procedures, that are available in federal courts, but not in some

state courts. See, e.g., Marx v. Broom, 632 So. 2d 1315, 1322

(Miss. 1994) (“In enacting the Rules of Civil Procedure this

Court intentionally omitted Rule 23, which would have covered

class actions.”).

Moreover, respondent is wrong in suggesting that class action

procedures are somehow essential for respondent to vindicate

her statutory rights under TILA. Opp. 21. In particular, respon-

dent has argued that individual arbitration of such claims would

not be “‘economically feasible,’” id. (quoting Roper, 445 U.S. at

339), in light of the “imposition of potentially prohibitive [arbi-

tration] costs,” and the “the limited financial recoveries likely to

be obtained,” id. That argument ignores that Congress carefully

designed a structure of incentives to ensure that plaintiffs could

and would bring individual suits under TILA.

Under TILA, acomplainant such as respondent who brings an

individual action is entitled to recover (i) “any actual damage

sustained,” 15 U.S.C. § 1640(a)(1), plus, (ii) statutory damages

of “twice the amount of any finance charge” or “not less than

$200 or greater than $2,000,” id. § 1640(a)(2)(A), plus, (iii) “the

costs of the action, together with a reasonable attorney’s fee,” id.

§ 1640(a)(3). Given these incentives, it is no surprise that this

Court has addressed numerous cases involving parties who

brought individual lawsuits to vindicate their rights under

TILA.'* Indeed, respondent relied upon an individual action

brought under TILA to argue that “‘the award of attorney’s

fees’” is the component of TILA necessary “‘to effectuate this

scheme.’”” Opp. 18 (quoting James v. Home Constr. Co., 689

F.2d 1357, 1359 (11th Cir. 1982))."*

Respondent was fully aware of the incentives provided by

TILA for bringing an individual action and incorporated each of

them into her request for “actual damages,” “statutory dam-

ages,” “attorney’s fees and litigation expenses pursuant to 15

U.S.C. § 1640” and “costs of suit.” J.A. 26 (Second Amended

Compl. { 24). Respondent’s argument that, absent a class action

mechanism, she could not effectively vindicate her statutory

rights because individual arbitration would not be “economi-

cally feasible,’” Opp. 21, is particularly weak under the facts of

her case. In addition to her claim under TILA, respondent also

sought “actual damages,” “attorney’s fees and litigation ex-

penses,” “costs of suit,’ and “punitive damages” of up to

$10,000, in connection with her allegations under ECOA. J.A.

27 (Second Amended Compl. { 28); see also 15 U.S.C.

'3 See, e.g., Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 57

(1982); American Express Co. v. Koerner, 452 U.S. 233, 238-39 (1981);

Anderson Bros. Ford v. Valencia, 452 U.S. 205, 208-09 (1981); Ford Motor

Credit Co. v. Cenance, 452 U.S. 155, 156 (1981); Kirchberg v. Feenstra,

450 U.S. 455, 457-58 (1981); Ford Motor Credit Co. v. Milhollin, 444 U.S.

555, 558 (1980); Mourning v. Family Publications Serv., Inc., 411 U.S. 356,

358-59 (1973).

'* For the reasons discussed in Part II.B, supra, the arbitrator also would

be authorized to award as damages “a reasonable attorney’s fee,” 15 U.S.C.

§ 1640(a)(3). As a result, respondent’s reliance on Roper, 445 U.S. at 339, is

misplaced because there, the Court characterized, in dictum, causes of action

as “not economically feasible” when the total damages recovered would be

less than the “costs of litigation, particularly attorney’s fees.” Jd. at 338 n.9.

In contrast, TILA makes clear that a prevailing party is entitled to actual

damages, statutory damages and “the costs of the action, together with a rea-

sonable attorney’s fee.” 15 U.S.C § 1640(a)(1)-(3).

§ 169 1e(a), (b), (d). Given the total relief potentially available

to respondent if she were to prevail in arbitration, there can be

no dispute that respondent’s lawsuit is “economically feasible”

or that she ““‘effectively may vindicate [her] statutory cause of

action in the arbitral forum.’” Gilmer, 500 U.S. at 28 (quoting

Mitsubishi, 473 U.S. at 637)."°

Finally, TILA does not reflect any congressional intent to

permit and promote class actions at all costs, but instead pro-

vides limits on the recovery available under that statute that oth-

erwise would not apply to general class actions brought under

1995, Congress enacted a “[c]lass action moratorium” which

provided that, with respect to certain TILA claims, “no court

may enter any order certifying any class action.” See id.

§ 1640(i). In so doing, members of Congress identified what

they viewed to be the “abuse of the Truth in Lending Act

through class-action suits.” 141 Cong. Rec. $5614 (daily ed.

Apr. 24, 1995) (statement of sponsor Sen. Mack); see also 141

Cong. Rec. H4120-21 (daily ed. Apr. 4, 1995) (statement of

'S Apart from the incentives TILA provides to private parties to ensure

compliance with its requirements, TILA also authorizes federal agencies and

the Attorney General to seek administrative and criminal sanctions for viola-

tions of TILA. 15 U.S.C. §§ 1607, 1611; see also Amicus Brief of the

Chamber of Commerce of the United States of America 18-29 (detailing ad-

ministrative enforcement mechanisms of TILA).

'° The legislative history of the 1974 and 1976 amendments to TILA simi-

larly confirms that Congress intended that the substantive provisions of TILA

could be vindicated through individual or class actions. Congress intended

that its amendments would protect creditors from potentially “enormous pen-

alties” that would be excessive to achieving voluntary compliance with TILA.

S. Rep. No. 93-278, at 14-15 (1973). Moreover, the legislative history makes

clear that the Congress envisioned that “consumers” would continue to

choose to “bring individual or class actions against creditors” and that

amendments were not meant to “preven[t] a series of individual civil ac-

tions.” Jd. at 15, 16.

Rep. Roukema). Congress’ amendments to TILA cannot be

reconciled with respondent’s suggestion that class action litiga-

tion is the only mechanism through which she may “effectively

vindicate [her] statutory rights.”

* * *

The Court’s prior pronouncements on the issue of arbitrability

are equally applicable here: “[T]he streamlined procedures of

arbitration do not entail any consequential restriction on sub-

stantive rights.” McMahon, 482 U.S. at 232; see Gilmer, 500

U.S. at 26; Rodriguez de Quijas, 490 U.S. at 481; Mitsubishi,

473 U.S. at 628. “Having made the bargain to arbitrate,” re-

spondent “should be held to it.” Jd.

CONCLUSION

The judgment of the court of appeals should be reversed.

Respectfully submitted,

ROBERT A. HUFFAKER CARTER G. PHILLIPS *

WILLIAM H. WEBSTER PAUL J. ZIDLICKY

RUSHTON, STAKELY, JOHNSTON MICHAEL L. POST

& GARRETT, P.A. - LAUREL E. SHANKS

184 Commerce Street SIDLEY & AUSTIN

Montgomery, AL 36101-0270 1722 Eye Street, N.W.

(334) 206-3100 Washington, D.C. 20006

(202) 736-8000

Counsel for Petitioners

June 8, 2000 * Counsel of Record

ADDENDUM

RELEVANT FEDERAL STATUTES

9 US.C. § 2

Validity, irrevocability and enforcement of

agreements to arbitrate

A written provision in any maritime transaction or a

contract evidencing a transaction involving commerce to

settle by arbitration a controversy thereafter arising out of

such contract or transaction, or the refusal to perform the

whole or any part thereof, or an agreement in writing to

submit to arbitration an existing controversy arising out of

such a contract, transaction, or refusal, shall be valid,

irrevocable, and enforceable, save upon such grounds as exist

at law or in equity for the revocation of any contract.

(July 30, 1947, c. 392, 61 Stat. 670.)

9 U.S.C. $3

Stay of proceedings where issue therein

referable to arbitration

If any suit or proceeding be brought in any of the courts of

the United States upon any issue referable to arbitration under

an agreement in writing for such arbitration, the court in

which such suit is pending, upon being satisfied that the issue

involved in such suit or proceeding is referable to arbitration

under such an agreement, shall on 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,

providing the applicant for the stay is not in default in

proceeding with such arbitration.

(July 30, 1947, c. 392, 61 Stat. 670.)

9 U.S.C. § 4

Failure to arbitrate under agreement; petition to

United States court having jurisdiction for order to

compel arbitration; notice and service thereof,

hearing and determination

A party aggrieved by the alleged failure, neglect, or refusal

of another to arbitrate under a written agreement for

arbitration may petition any United States district court

which, save for such agreement, would have jurisdiction

under Title 28, in a civil action or in admiralty of the subject

matter of a suit arising out of the controversy between the

parties, for an order directing that such arbitration proceed in

the manner provided for in such agreement. Five days’ notice

in writing of such application shall be served upon the party

in default. Service thereof shall be made in the manner

provided by the Federal Rules of Civil Procedure. The court

shall hear the parties, and upon being satisfied that the

making of the agreement for arbitration or the failure to

comply therewith is not in issue, the court shall make an order

directing the parties to proceed to arbitration in accordance

with the terms of the agreement. The hearing and

proceedings, under such agreement, shall be within the

district in which the petition for an order directing such

arbitration is filed. If the making of the arbitration agreement

or the failure, neglect, or refusal to perform the same be in

issue, the court shall proceed summarily to the trial thereof. If

no jury trial be demanded by the party alleged to be in default,

or if the matter in dispute is within admiralty jurisdiction, the

court shall hear and determine such issue. Where such an

issue is raised, the party alleged to be in default may, except

in cases of admiralty, on or before the return day of the notice

of application, demand a jury trial of such issue, and upon

such demand the court shall make an order referring the issue

or issues to a jury in the manner provided by the Federal

Rules of Civil Procedure, or may specially call a jury for that

purpose. If the jury find that no agreement in writing for

arbitration was made or that there is no default in proceeding

thereunder, the proceeding shall be dismissed. If the jury find

that an agreement for arbitration was made in writing and that

there is a default in proceeding thereunder, the court shall

make an order summarily directing the parties to proceed with

the arbitration in accordance with the terms thereof.

(July 30, 1947, c. 392, 61 Stat. 671; Sept. 3, 1954, c. 1263,

§ 19, 68 Stat. 1233.)

9 U.S.C. § 9

Award of arbitrators; confirmation; jurisdiction; procedure

If the parties in their agreement have agreed that a

judgment of the court shall be entered upon the award made

pursuant to the arbitration, and shall specify the court, then at

any time within one year after the award is made any party to

the arbitration may apply to the court so specified for an order

confirming the award, and thereupon the court must grant

such an order unless the award is vacated, modified, or

corrected as prescribed in sections 10 and 11 of this title. If no

court is specified in the agreement of the parties, then such

application may be made to the United States court in and for

the district within which such award was made. Notice of the

application shall be served upon the adverse party, and

thereupon the court shall have jurisdiction of such party as

though he had appeared generally in the proceeding. If the

adverse party is a resident of the district within which the

award was made, such service shall be made upon the adverse

party or his attorney as prescribed by law for service of notice

of motion in an action in the same court. If the adverse party

shall be a nonresident, then the notice of the application shall

be served by the marshal of any district within which the

adverse party may be found in like manner as other process of

the court.

(July 30, 1947, c. 392, 61 Stat. 672.)

9 U.S.C. § 10

Same; vacation; grounds; rehearing

(a) In any of the following cases the United States court in

(b)

and for the district wherein the award was made may

make an order vacating the award upon the application

of any party to the arbitration—

(1) Where the award was procured by corruption,

fraud, or undue means.

(2) Where there was evident partiality or corruption in

the arbitrators, or either of them.

(3) Where the arbitrators were guilty of misconduct in

refusing to postpone the hearing, upon sufficient cause

shown, or in refusing to hear evidence pertinent and

material to the controversy; or of any other misbehavior

by which the rights of any party have been prejudiced.

(4) Where the arbitrators exceeded their powers, or so

imperfectly executed them that a mutual, final, and

definite award upon the subject matter submitted was not

made.

(5) Where an award is vacated and the time within

which the agreement required the award to be made has

not expired the court may, in its discretion, direct a

rehearing by the arbitrators.

The United States district court for the district wherein

an award was made that was issued pursuant to section

580 of title 5 may make an order vacating the award

upon the application of a person, other than a party to the

arbitration, who is adversely affected or aggrieved by the

award, if the use of arbitration or the award is clearly

inconsistent with the factors set forth in section 572 of

title 5.

Se ne oe ee

a ae

(July 30, 1947, c. 392, 61 Stat. 672; Nov. 15, 1990, Pub. L.

101-552, § 5, 104 Stat. 2745; Aug. 26, 1992, Pub. L. 102-354,

§ 5(b)(4), 106 Stat. 946.)

9.U.S.C. § 11

Same; modification or correction; grounds; order

In either of the following cases the United States court in

and for the district wherein the award was made may make an

order modifying or correcting the award upon the application

of any party to the arbitration—

(a) Where there was an evident material miscalculation of

figures or an evident material mistake in the description

of any person, thing, or property referred to in the award.

(b) Where the arbitrators have awarded upon a matter not

submitted to them, unless it is a matter not affecting the

merits of the decision upon the matter submitted.

affecting the merits of the controversy.

The order may modify and correct the award, so as to effect

the intent thereof and promote justice between the parties.

(July 30, 1947, c. 392, 61 Stat. 673.)

9 U.S.C. § 16

Appeals

(a) An appeal may be taken from—

(1) an order—

(A) refusing a stay of any action under section 3 of

this title,

(B) denying a petition under section 4 of this title

to order arbitration to proceed,

(b)

this title to compel arbitration,

(D) confirming or denying confirmation of an

award or partial award, or

(E) modifying, correcting, or vacating an award;

(2) an interlocutory order granting, continuing, or

modifying an injunction against an arbitration that is

subject to this title; or

(3) a final decision with respect to an arbitration that

is subject to this title.

Except as otherwise provided in section 1292(b) of title

28, an appeal may not be taken from an interlocutory

order—

(1) granting a stay of any action under section 3 of

this title;

(2) directing arbitration to proceed under section 4 of

this title;

(3) compelling arbitration under section 206 of this

title; or

(4) refusing to enjoin an arbitration that is subject to

this title.

(Added Pub. L. 100-702, Title X, § 1019(a), Nov. 19, 1988,

102 Stat. 4671, § 15; renumbered Pub. L. 101-650, Title I,

§ 325(a)(1), Dec. 1, 1990, Stat. 5120.)

(a)

15 U.S.C. § 1601

Congressional findings and declaration of purpose

Informed use of credit

The Congress finds that economic stabilization would be

enhanced and the competition among the various financial

institutions and other firms engaged in the extension of

consumer credit would be strengthened by the informed use

of credit. The informed use of credit results from an

awareness of the cost thereof by consumers. It is the purpose

of this subchapter to assure a meaningful disclosure of credit .

terms so that the consumer will be able to compare more

readily the various credit terms available to him and avoid the

uninformed use of credit, and to protect the consumer against

inaccurate and unfair credit billing and credit card practices.

(b) Terms of personal property leases

The Congress also finds that there has been a recent trend

toward leasing automobiles and other durable goods for

consumer use as an alternative to installment credit sales and

that these leases have been offered without adequate cost

disclosures. It is the purpose of this subchapter to assure a

meaningful disclosure of the terms of leases of personal

property for personal, family, or household purposes so as to

enable the lessee to compare more readily the various lease

terms available to him, limit balloon payments in consumer

leasing, enable comparison of lease terms with credit terms

where appropriate, and to assure meaningful and accurate

disclosures of lease terms in advertisements.

(Pub. L. 90-321, Title I, § 102, May 29, 1968, 82 Stat. 146;

Pub. L. 93-495, Title Ill, § 302, Oct. 28, 1974, 88 Stat. 1511;

Pub. L. 94-240, § 2, Mar. 23, 1976, 90 Stat. 257.)

15 U.S.C. § 1640

Civil liability

(a) Individual or class action for damages; amount of award;

factors determining amount of award

Except as otherwise provided in this section, any creditor

who fails to comply with any requirement imposed under this

part, including any requirement under section 1635 of this

title, or part D or E of this subchapter with respect to any

person is liable to such person in an amount equal to the sum

of—

(1) any actual damage sustained by such person as a

result of the failure;

(2)(A) (i) in the case of an individual action twice the

amount of any finance charge in connection with the

transaction, (ii) in the case of an individual action

relating to a consumer lease under part E of this

subchapter, 25 per centum of the total amount of

monthly payments under the lease, except that the

liability under this subparagraph shall not be less than

$100 nor greater than $1,000, or (iii) in the case of an

individual action relating to a credit transaction not

under an open end credit plan that is secured by real

property or a dwelling, not less than $200 or greater than

$2,000; or ,

(B) in the case of a class action, such amount as the

court may allow, except that as to each member of the

class no minimum recovery shall be applicable, and

the total recovery under this subparagraph in any class

action or series of class actions arising out of the same

failure to comply by the same creditor shall not be

more than the lesser of $500,000 or 1 per centum of

the net worth of the creditor;

(3) in the case of any successful action to enforce the

foregoing liability or in any action in which a person is

determined to have a right of rescission under section

1635 of this title, the costs of the action, together with a

reasonable attorney’s fee as determined by the court; and

(4) in the case of a failure to comply with any

requirement under section 1639 of this title, an amount

equal to the sum of all finance charges and fees paid by

the consumer, unless the creditor demonstrates that the

failure to comply is not material.

In determining the amount of award in any class action, the

court shall consider, among other relevant factors, the amount

of any actual damages awarded, the frequency and persistence

of failures of compliance by the creditor, the resources of the

creditor, the number of persons adversely affected, and the

extent to which the creditor's failure of compliance was

intentional. In connection with the disclosures referred to in

subsections (a) and (b) of section 1637 of this title, a creditor

shall have a liability determined under paragraph (2) only for

failing to comply with the requirements of section 1635 of

this title, section 1637(a) of this title, or of paragraph (4), (5),

(6), (7), (8), (9), or (10) of section 1637(b) of this title or for

failing to comply with disclosure requirements under State

law for any term or item which the Board has determined to

be substantially the same in meaning under section 1610(a)(2)

of this title as any of the terms or items referred to in section

1637(a) of this title or any of those paragraphs of section

1637(b) of this title. In connection with the disclosures

referred to in subsection (c) or (d) of section 1637 of this title,

a card issuer shall have a liability under this section only to a

cardholder who pays a _ fee described in_ section

1637(c)(1)(A)(ii)(D or section 1637(c)(4)(A)() of this title or

who uses the credit card or charge card. In connection with

the disclosures referred to in section 1638 of this title, a

creditor shall have a liability determined under paragraph (2)

only for failing to comply with the requirements of section

1635 of this title or of paragraph (2) (insofar as it requires a

disclosure of the “amount financed”), (3), (4), (5), (6), or (9)

of section 1638(a) of this title, or for failing to comply with

disclosure requirements under State law for any term which

the Board has determined to be substantially the same in

meaning under section 1610(a)(2) of this title as any of the

terms referred to in any of those paragraphs of section 1638(a)

of this title. With respect to any failure to make disclosures

required under this part or part D or E of this subchapter,

liability shall be imposed only upon the creditor required to

10a

make disclosure, except as provided in section 1641 of this

title.

(b) Correction of errors

A creditor or assignee has no liability under this section or

section 1607 of this title or section 1611 of this title for any

failure to comply with any requirement imposed under this

part or part E of this subchapter, if within sixty days after

discovering an error, whether pursuant to a final written

examination report or notice issued under section 1607(e)(1)

of this title or through the creditor’s or assignee’s own

procedures, and prior to the institution of an action under this

section or the receipt of written notice of the error from the

obligor, the creditor or assignee notifies the person concerned

of the error and makes whatever adjustments in the

appropriate account are necessary to assure that the person

will not be required to pay an amount in excess of the charge

actually disclosed, or the dollar equivalent of the annual

percentage rate actually disclosed, whichever is lower.

A creditor or assignee may not be held liable in any action

brought under this section or section 1635 of this title for a

violation of this subchapter if the creditor or assignee shows

by a preponderance of evidence that the violation was not

intentional and resulted from a bona fide error not-

withstanding the maintenance of procedures reasonably

adapted to avoid any such error. Examples of a bona fide

error include, but are not limited to, clerical, calculation,

computer malfunction and programing, and printing errors,

except that an error of legal judgment with respect to a

person's obligations under this subchapter is not a bona fide

error.

— ore

lla

(d) Liability in transaction or lease involving multiple

obligors

When there are multiple obligors in a consumer credit

transaction or consumer lease, there shall be no more than one

recovery of damages under subsection (a)(2) of this section

for a violation of this subchapter.

(e) Jurisdiction of courts; limitations cn actions; State

attorney general enforcement

Any action under this section may be brought in any United

States district court, or in any other court of competent

jurisdiction, within one year from the date of the occurrence

of the violation. This subsection does not bar a person from

asserting a violation of this subchapter in an action to collect

the debt which was brought more than one year from the date

of the occurrence of the violation as a matter of defense by

recoupment or set-off in such action, except as otherwise

provided by State law. An action to enforce a violation of

section 1639 of this title may also be brought by the

appropriate State attorney general in any appropriate United

States district court, or any other court of competent

jurisdiction, not later than 3 years after 1 « date on which the

violation occurs. The State attorney general shall provide

prior written notice of any such civil action to the Federal

agency responsible for enforcement under section 1607 of this

title and shall provide the agency with a copy of the

complaint. If prior notice is not feasible, the State attorney

general shall provide notice to such agency immediately upon

instituting the action. The Federal agency may—

(1) intervene in the action;

(2) upon intervening-

(A) remove the action to the appropriate United

States district court, if it was not originally brought

there; and

12a

(B) be heard on all matters arising in the action;

and

(3) file a petition for appeal.

(f) Good faith compliance with rule, regulation, or

interpretation of Board or with interpretation or approval

of duly authorized official or employee of Federal

Reserve System

No provision of this section, section 1607(b) of this title,

section 1607(c) of this title, section 1607(e) of this title, or

section 1611 of this title imposing any liability shall apply to

any act done or omitted in good faith in conformity with any

rule, regulation, or interpretation thereof by the Board or in

conformity with any interpretation or approval by an official

or employee of the Federal Reserve System duly authorized

by the Board to issue such interpretations or approvals under

such procedures as the Board may prescribe therefor,

notwithstanding that after such act or omission has occurred,

such rule, regulation, interpretation, or approval is amended,

rescinded, or determined by judicial or other authority to be

invalid for any reason.

(g) Recovery for multiple failures to disclose

The multiple failure to disclose to any person any

information required under this part or part D or E of this

subchapter to be disclosed in connection with a single account

under an open end consumer credit plan, other single

consumer credit sale, consumer loan, consumer lease, or other

extension of consumer credit, shall entitle the person to a

single recovery under this section but continued failure to

disclose after a recovery has been granted shall give rise to

rights to additional recoveries. This subsection does not bar

any remedy permitted by section 1635 of this title.

13a

(h) Offset from amount owed to creditor or assignee; rights of

defaulting consumer

A person may not take any action to offset any amount for

which a creditor or assignee is potentially liable to such

person under subsection (a)(2) of this section against any

amount owed by such person, unless the amount of the

creditor’s or assignee’s liability under this subchapter has

been determined by judgment of a court of competent

jurisdiction in an action of which such person was a party.

This subsection does not bar a consumer then in default on

the obligation from asserting a violation of this subchapter as

an original action, or as a defense or counterclaim to an action

to collect amounts owed by the consumer brought by a person

liable under this subchapter.

(i) Class action moratorium

(1) In general

During the period beginning on May 18, 1995, and ending

on October i, 1995, no court may enter any order certifying

any class in any action under this subchapter—

(A) which is brought in connection with any credit

transaction not under an open end credit plan which is

secured by a first lien on real property or a dwelling

and constitutes a refinancing or consolidation of an

existing extension of credit; and

(B) which is based on the alleged failure of a

creditor—

(i) to include a charge actually incurred (in

connection with the transaction) in the finance

charge disclosed pursuant to section 1638 of this

title;

14a

(ii) to properly make any other disclosure

required under section 1638 of this title as a

result of the failure described in clause (i); or

(iii) to provide proper notice of rescission

rights under section 1635(a) of this title due to

the selection by the creditor of the incorrect form

from among the model forms prescribed by the

Board or from among forms based on such model

forms.

(2) Exceptions for certain alleged violations

Paragraph (1) shall not apply with respect to any action—

(A) described in clause (i) or (ii) of paragraph

(1)(B), if the amount disclosed as the finance charge

results in an annual percentage rate that exceeds the

tolerance provided in section 1606(c) of this title; or

(B) described in paragraph (1)(B)(iii), if—

(i) no notice relating to rescission rights under

section 1635(a) of this title was provided in any

form; or

(ii) proper notice was not provided for any

reason other than the reason described in such

paragraph.

(Pub. L. 90-321, Title I, § 130, May 29, 1968, 82 Stat. 157;

Pub. L. 93-495, Title IV, §§ 406, 407, 408(a) to (d), Oct 28,

1974, 88 Stat. 1518; Pub. L. 94-222, § 3(b), Feb. 27, 1976,

90 Stat. 197; Pub. L. 94-240, § 4, Mar. 23, 1976, 90 Stat.

260: Pub. L. 96-221, Title VI, § 615, Mar. 31, 1980, 94 Stat.

180; Pub. L. 100-583, § 3, Nov. 3, 1988, 102 Stat. 2966; Pub.

L. 103-325, Title I, § 153(a), (b), Sept. 23, 1994, 108 Stat.

2195: Pub. L. 104-12, § 2, May 18, 1995, 109 Stat. 161; Pub.

L. 104-29, § 6, Sept. 30, 1995, 109 Stat. 274.)

15a

15 U.S.C. § 1691

Scope of prohibition

(a) Activities constituting discrimination

It shall be unlawful for any creditor to discriminate against

any applicant, with respect to any aspect of a credit

transaction—

(1) on the basis of race, color, religion, national

origin, sex or marital status, or age (provided the

applicant has the capacity to contract);

(2) because all or part of the applicant’s income

derives from any public assistance program; or

(3) because the applicant has in good faith exercised

any right under this chapter.

(b) Activities not constituting discrimination

It shall not constitute discrimination for purposes of this

subchapter for a creditor—

(1) to make an inquiry of marital status if such inquiry

is for the purpose of ascertaining the creditor’s rights and

remedies applicable to the particular extension of credit

and not to discriminate in a determination of credit-

worthiness;

(2) to make an inquiry of the applicant’s age or of

whether the applicant’s income derives from any public

assistance program if such inquiry is for the purpose of

determining the amount and probable continuance of

income levels, credit history, or other pertinent element

of credit-worthiness as provided in regulations of the

Board;

(3) to use any empirically derived credit system which

considers age if such system is demonstrably and

statistically sound in accordance with regulations of the

(c)

l6a

Board, except that in the operation of such system the

age of an elderly applicant may not be assigned a

negative factor or value; or

(4) to make an inquiry or to consider the age of an

elderly applicant when the age of such applicant is to be

used by the creditor in the extension of credit in favor of

such applicant.

Additional activities not constituting discrimination

It is not a violation of this section for a creditor to refuse to

extend credit offered pursuant to—

(d)

(1) any credit assistance program expressly

authorized by law for an economically disadvantaged

class of persons;

(2) any credit assistance program administered by a

nonprofit organization for its members or an eco-

nomically disadvantaged class of persons; or

(3) any special purpose credit program offered by a

profit-making organization to meet special social needs

which meets standards prescribed in regulations by the

Board;

if such refusal is required by or made pursuant to such

program.

Reason for adverse action; procedure applicable;

“adverse action” defined

(1) Within thirty days (or such longer reasonable time

as specified in regulations of the Board for any class of

credit transaction) after receipt of a completed

application for credit, a creditor shall notify the applicant

of its action on the application.

(2) Each applicant against whom adverse action is

taken shall be entitled to a statement of reasons for such

‘17a

action from the creditor. A creditor satisfies this

obligation by—

(A) providing statements of reasons in writing as a

matter of course to applicants against whom adverse

action is taken; or

(B) giving written notification of adverse action

which discloses (i) the applicant’s right to a statement

of reasons within thirty days after receipt by the

creditor of a request made within sixty days after such

notification, and (ii) the identity of the person or office

from which such statement may be obtained. Such

statement may be given orally if the written

notification advises the applicant of his right to have

the statement of reasons confirmed in writing on

written request.

(3) A statement of reasons meets the requirements of

this section only if it contains the specific reasons for the

adverse action taken.

(4) Where a creditor has been requested by a third party to

make a specific extension of credit directly or indirectly to an

applicant, the notification and statement of reasons required

by this subsection may be made directly by such creditor, or

indirectly through the third party, provided in either case that

the identity of the creditor is disclosed.

(5) The requirements of paragraph (2), (3), or (4) may be

satisfied by verbal statements or notifications in the case of

any creditor who did not act on more than one hundred and

fifty applications during the calendar year preceding the

calendar year in which the adverse action is taken, as

determined under regulations of the Board.

(6) For purposes of this subsection, the term “adverse

action” means a denial or revocation of credit, a change in the

terms of an existing credit arrangement, or a refusal (o grant

—————_™”---—~—s§=—S

18a

credit in substantially the amount or on substantially the terms

requested. Such term does not include a refusal to extend

additional credit under an existing credit arrangement where

the applicant is delinquent or otherwise in default, or where

such additional credit would exceed a previously established

credit limit.

(e) Appraisals; copies of reports to applicants; costs

Each creditor shall promptly furnish an applicant, upon

written request by the applicant made within a reasonable

period of time of the application, a copy of the appraisal

report used in connection with the applicant’s application for

a loan that is or would have been secured by a lien on

residential real property. The creditor may require the

applicant to reimburse the creditor for the cost of the

appraisal.

(Pub. L. 90-321, Title VII, § 701, as added Pub. L. 93-495,

Title V, § 503, Oct. 28, 1974, 88 Stat. 1521, and amended

Pub. L. 94-239, § 2, Mar. 23, 1976, 90 Stat. 251; Pub. L. 102-

242, Title Il, § 223(d), Dec. 19, 1991, 105 Stat. 2306.)

15 U.S.C. § 1691e

Civil liability

(a) Individual or class action for actual damages

Any creditor who fails to comply with any requirement

imposed under this subchapter shall be liable to the aggrieved

applicant for any actual damages sustained by such applicant

acting either in an individual capacity or as a member of a

class.

(b) Recovery of punitive damages in individual and class

actions for actual damages; exemptions; maximum

amount of punitive damages in individual actions;

limitation on total recovery in class actions; factors

determining amount of award

19a

Any creditor, other than a government or governmental

subdivision or agency, who fails to comply with any

requirement imposed under this subchapter shall be liable to

the aggrieved applicant for punitive damages in an amount

not greater than $10,000, in addition to any actual damages

provided in subsection (a) of this section, except that in the

case of a class action the total recovery under this subsection

shall not exceed the lesser of $500,000 or 1 per centum of the

net worth of the creditor. In determining the amount of such

damages in any action, the court shall consider, among other

relevant factors, the amount of any actual damages awarded,

the frequency and persistence of failures of compliance by the

creditor, the resources of the creditor, the number of persons

adversely affected, and the extent to which the creditor’s

failure of compliance was intentional.

Upon application by an aggrieved applicant, the appropriate

United States district court or any other court of competent

jurisdiction may grant such equitable and declaratory relief as

is necessary to enforce the requirements imposed under this

subchapter.

(d) Recovery of costs and attorney fees

In the case of any successful action under subsection (a),

(b), or (c) of this section, the costs of the action, together with

a reasonable attorney’s fee as determined by the court, shall

be added to any damages awarded by the court under such

subsection.

(e) Good faith compliance with rule, regulation, or

interpretation of Board or interpretation or approval by

an official or employee of Federal Reserve System duly

authorized by Board

No provision of this subchapter imposing liability shall

apply to any act done or omitted in good faith in conformity

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with any official rule, regulation, or interpretation thereof by

the Board or in conformity with any interpretation or approval

by an official or employee of the Federal Reserve System duly

authorized by the Board to issue such interpretations or

approvals under such procedures as the Board may prescribe

therefor, notwithstanding that after such act or omission has

occurred, such rule, regulation, interpretation, or approval is

amended, rescinded, or determined by judicial or other

authority to be invalid for any reason.

(f) Jurisdiction of courts; time for maintenance of action;

exceptions

Any action under this section may be brought in the

appropriate United States district court without regard to the

amount in controversy, or in any other court of competent

jurisdiction. No such action shall be brought later than two

years from the date of the occurrence of the violation, except

that—

(1) whenever any agency having responsibility for

administrative enforcement under section 1691c of this

title commences an enforcement proceeding within two

years from the date of the occurrence of the violation,

(2) whenever the Attorney General commences a civil

action under this section within two years from the date

of the occurrence of the violation,

then any applicant who has been a victim of the

discrimination which is the subject of such proceeding or civil

action may bring an action under this section not later than

one year after the commencement of that proceeding or

action.

(g) Request by responsible enforcement agency to Attorney

General for civil action

The agencies having responsibility for administrative en-

forcement under section 1691c of this title, if unable to obtain

2la

compliance with section 1691 of this title, are authorized to

refer the matter to the Attorney General with a recom-

mendation that an appropriate civil action be instituted. Each

agency referred to in paragraphs (1), (2), and (3) of section

1691c(a) of this title shall refer the matter to the Attorney

General whenever the agency has reason to believe that 1 or

more creditors has engaged in a pattern or practice of

discouraging or denying applications for credit in violation of

section 1691(a) of this title. Each such agency may refer the

matter to the Attorney General whenever the agency has

reason to believe that 1 or more creditors has violated section

1691(a) of this title.

(h) Authority for Attorney General to bring civil action;

jurisdiction |

When a matter is referred to the Attorney General pursuant

to subsection (g) of this section, or whenever he has reason to

believe that one or more creditors are engaged in a pattern or

practice in violation of this subchapter, the Attorney General

may bring a civil action in any appropriate United States

district court for such relief as may be appropriate, including

actual and punitive damages and injunctive relief.

(i) Recovery under both subchapter and fair housing

enforcement provisions prohibited for violation based on

same transaction

No person aggrieved by a violation of this subchapter and

by a violation of section 3605 of Title 42 shall recover under

this subchapter and section 3612 of Title 42, if such violation

is based on the same transaction.

(j) Discovery of creditor’s granting standards

Nothing in this subchapter shall be construed to prohibit

the discovery of a creditor’s credit granting standards under

appropriate discovery procedures in the court or agency in

which an action or proceeding is brought.

22a

(k) Notice to HUD of violations

Whenever an agency referred to in paragraph (1), (2), or (3)

of section 1691c(a) of this title—

(1) has reason to believe, as a result of receiving a

consumer complaint, conducting a consumer compliance

examination, or otherwise, that a violation of this

subchapter has occurred;

(2) has reason to believe that the alleged violation

would be a violation of the Fair Housing Act; and

(3) does not refer the matter to the Attorney General

pursuant to subsection (g) of this section,

the agency shall notify the Secretary of Housing and Urban

Development of the violation, and shall notify the applicant

that the Secretary of Housing and Urban Development has

been notified of the alleged violation and that remedies for the

violation may be available under the Fair Housing Act.

(Pub. L. 90-321, Title VII, § 706, as added Pub. L. 93-495,

Title V, § 503, Oct. 28, 1974, 88 Stat. 1524, and amended

Pub. L. 94-239, § 6, Mar. 23, 1976, 90 Stat. 253; Pub. L. 102-

242, Title II, § 223(a) to (c), Dec. 19, 1991, 105 Stat. 2306.)

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.