Amicus Curiae Brief — Green Tree Financial Corp.-Ala. v. Randolph

Supreme Court, U.S.

FILED

/

JUN

No. ©. 6 2000

su: i ea mame CLERK |

IN THE

Supreme Court of the Anited States

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 AMICUS CURIAE OF THE

AMERICAN ARBITRATION ASSOCIATION

JOHN M. TOWNSEND FLORENCE PETERSON

DANIEL WOLF Counsel of Record

HUGHES HUBBARD & General Counsel

REED LLP AMERICAN ARBITRATION

Washington, D.C. ASSOCIATION

335 Madison Avenue

New York, New York 10017-4605

JAMES H. CARTER (212) 716-3923

Chairman,

Arbitration Law Committee

Attorneys for Amicus Curiae

The American Arbitration

June 8, 2000 Association

SSS ET TEE EE a, EN ETO ETE TE TENSE NN LOI! ETS

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

TABLE OF CONTENTS

Page

SPS GOR POLS EUPG MEE TEED ciscevvinscsncasniersivepsedecnnnrenness ili

INTEREST OF AMICUS CURIAE ...........cceeeeseeeees 2

SUMMARY OF ARGUMENT ................ccsccssssscssssseees 5

ET sti shilartiviasiciniesabscntinaicinlimiblinmgacieniilanas 7

I.

THE ELEVENTH CIRCUIT GAVE INSUFFI-

CIENT WEIGHT TO THE NATIONAL POL-

ICY FAVORING THE ENFORCEMENT OF

ARBITRAL AGREEMENTG..................:cseeeeee 7

A. Agreements To Arbitrate Statutory Claims

Fall Within The National Policy Favoring

Pe isa ecnseinicdansiticarsiteieniehiecabniaianiin ce 7

B. There Is No Reason To Depart From The

National Policy Favoring Arbitration When

Disputes Involve Small Claims.................... 8

THE ELEVENTH CIRCUIT CORRECTLY

IDENTIFIED REASONS FOR CONCERN

ABOUT THE ARBITRATION CLAUSE BE-

Ge: SANGER NET acsiiccscisicnepeisinannniavineniianessniies 11

A. Most Of The Shortcomings Of The Arbitra-

tion Clause Do Not Affect Its Enforce-

SU thinks siiesiusletbsideiabtniniapibececeieseioisccnideiniiasiaeii 1]

B. The Concerns Expressed By The Eleventh

Circuit Go To The Purposes Of The Statutes

That Create The Cause Of Action................ 15

| il

TABLE OF CONTENTS—Continued

Page

Ill. THE ELEVENTH CIRCUIT SHOULD HAVE

TREATED THE SILENCE OF THE ARBI-

TRATION CLAUSE ON COSTS AS AN AM-

BIGUITY TO BE CONSTRUED SO AS TO

PRESERVE THE ENFORCEABILITY OF THE

AGREEMENT TO ARBITRATE ............:0000006+ 17

CONCLUSION ..cccrscocensesconssssvevenvscdanpsunavenimaanentertneniin 21

APPENDICES

A. A Due Process Protocol for the Mediation

and Arbitration of Consumer Disputes ........ la

B. AAA Arbitration Rules for the Resolution of

Consumer-Related Disputes................:::0++ 12a

ili

TABLE OF AUTHORITIES

CASES Page

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

A So aie Ler eanes eukasibianip pelbiassiabiieniaies 5, 14

Cole v. Burns International Security Services, 105

Proc BD CEP. CRT, BIZ) iv cccesessccsicncnssesavesecsecs 19, 20

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

ities iste hincs baapa isc leaasislinined exiiiinbabansednonsen 7

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

a ec scetinnnmkaanie passim

Hooters of America, Inc. v. Phillips, 173 F.3d 933

SS I cco onnstiichhedstnndanadnbinearedineenaieinksaneons 11,14

Keymer v. Management Recruiters International,

gac., 169 F.3d SO1 (Sth Cir. 1999) ...:........000000000 14

Mastrobuono v. Shearson Lehman Hutton, Inc.,

Ns Ai GUID Penehacdbsnissniannsinnsasencarcinnsntasnecens 18, 20

McWilliams v. Logicon, Inc., 1997 U.S. Dist.

LEXIS 9822 (D. Kan. June 3, 1997).................. 19

Mitsubishi Motors Corp. v. Soler Chrysler-

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

Moses H. Cone Memorial Hospital v. Mercury

Constr. Corp., 460 U.S. 1 (1983)............cseeeceeees 7, 18

Paladino v. Arnet Computer Technologies, Inc,

134 F.3d 1054 (11th Cir. 1998) woe 20

Prima Paint Corp. v. Flood & Conklin Manufac-

Sete CO,, SES U.S. FID (T9G7) ...revercccsscccsseseees 5

Rodriguez de Quijas v. Shearson/American Ex-

press, Inc., 490 U.S. 477 (1989) ...........ssscccceceees 8,9, 19

Scherk v. Alberto-Culver Co., 417 U.S. 506

TINT cists itis bien Uhidtininssidibind idesicainnsiannirhiacphidbnanessaks 5

Schulze and Burch Biscuit Co. v. Tree Top, Inc.,

ee ae PREP FON GME. BIBT) vacessesecversccicccenrorsene 12

Shearson/American Express, Inc. vy. McMahon, 482

ls ___: SERGE eR one erenene nn emer 5,8

iV

TABLE OF AUTHORITIES—Continued

Page

Silverman v. Eastrich Multiple Investor Fund, L.P.,

Be Te Le A). Cm namENNEn eT ereneen 17

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

UBC Southern Council of Industrial Workers

v. Bruce Hardwood Floors, 522 U.S. 928

CT ick s sishitiiniapaintisdhtceaminnicinehineseniiiacmeaetendadunetienen 5

Volt Information Sciences, Inc. v. Board of Trus-

tees of Leland Stanford Junior University, 489

Se Oe i itindehienipecckbieaiaiiiaincninoennesaustanitniete 7

Wilko v. Swan, 346 U.S. 427 (1953) ............ccceeeeeee 9

Williams v. Public Finance Corp., 598 F.2d 349

Ry Se i iinacdcisstecnnss adenine ceuivdusanmndns 17

STATUTES

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

ees AE han sshicoensrci sane ssaoioennnbdgneaaeeabomtenianains 5

FP aes IP aiAcnasicrdansniceucebasbandiadiniabiowcebarethanbsiontas passim

i tiie a ses eaeaonnedkoniieaedanchasldabieientvnalamemensniae 12

Truth in Lending Act, 15 U.S.C. § 1601 et seq.

Ge RE cn tek I I sesnnicinctsecdconceucagaasbsiittiniainbbenewens 17

Rak Stee Ae PONINIED ccocsktcsipusciesncevenspauticiesesaipensinees 18

Equal Credit Opportunity Act, 15 U.S.C. § 1691

et seq.

ed Sees Se BUR © FUTUR ccs sinseresnsiccevnoseieecntakinens 17, 18

Fe ee Ae BUND sisicesnrineesdittinaeiinbiotalmiehipensinins 16

MISCELLANEOUS

Restatement (Second) of Contracts (1981)............ 20

Samuel Estreicher, Predispute Agreements to Arbi-

trate Statutory Employment Claims, 72 N.Y.U.

his EN, EOI Ds ostansinedsovieiiinoasidadinanssersibanns 13, 14

Vv

TABLE OF AUTHORITIES—Continued

Carol Haas, THE CONSUMER REPORTS LAW BOOK

J. Clark Kelso & Thomas J. Stipanowich, Protect-

ing Consumers in Arbitration, Dispute Resolu-

tion Magazine (Fall 1998).............:ccceeeeeeeseeeeees

Lewis Maltby, Employment Arbitration—Is it

really second class justice ?, Dispute Resolution

NG Ge FIG cnecitttncmniiniavnstiiieniuimnas

Richard E. Speidel, Consumer Arbitration of Statu-

tory Claims: Has Pre-Dispute Mandatory Arbi-

tration Outlived Its Welcome ?, 40 Ariz. L. Rev.

dt | REDON NES SESS OR rate EN ae Ae

Jean R. Sternlight, Drafting A “Bulletproof” Con-

sumer Arbitration Agreement: Is It Possible ?, in

ARBITRATION OF FINANCIAL SERVICES DISPUTES

CFE FIG A canssvesscsesnsinodeamacasidaaaniaaaiagaciauandas

Jean R. Sternlight, Panacea or Corporate Tool?:

Debunking the Supreme Court’s Preference for

Binding Arbitration, 74 Wash. U.L.Q. 637 (Fall

PEMD ssavsenvsicuivlbiutisiiensdiambiniedabepnoadeadmaunamenan

13

13

IN THE

Supreme Court of the United States

No. 99-1235

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 AMICUS CURIAE OF THE

AMERICAN ARBITRATION ASSOCIATION

This brief is respectfully submitted by amicus curiae the

American Arbitration Association (“AAA”), not in support of

either party, but to urge reversal of the decision below on the

second question presented. Amicus curiae AAA takes no posi-

tion on the first question presented. Both Petitioners and Re-

spondent have consented to the filing of this brief.'

' As required by Rule 37.6, amicus curiae AAA states that this brief was

authored on its behalf by the counsel identified on the cover and the signature

page, and that no one other than the AAA and its counsel made a monetary

contribution to the preparation or submission of this brief.

2

INTEREST OF AMICUS CURIAE

Amicus curiae AAA is a not-for-profit, public service organi-

zation, which offers a broad range of dispute resolution services

through more than 35 offices in cities throughout the United

States and cooperative agreements with arbitral institutions in

39 countries around the world. While such services include

providing for mediation and other forms of alternative dispute

resolution, the service most in demand from the AAA is the ad-

ministration of arbitration proceedings. In addition, the AAA

educates the public and potential users about various forms of

dispute resolution and trains neutrals to act as arbitrators and

mediators.”

The AAA is the largest provider of dispute resolution services

in the world. From the time it was founded in 1926, the year

after the enactment of the Federal Arbitration Act, through the

end of 1999, the AAA has administered 1,693,431 cases, most

of them arbitrations. Of those cases, 448,723 were filed in the

last five years alone. These arbitrations ranged from major

commercial disputes involving millions of dollars to uninsured

motorist claims administered under state “no-fault” laws involv-

ing claims of a few hundred dollars. The AAA’s experience in

administering arbitration covers domestic and international

claims, disputes arising out of collective bargaining agreements

and private employment-related matters, disputes arising in in-

surance, construction, and other industries with specialized arbi-

tration rules, and thousands of claims by individuals adminis-

tered by the AAA’s mass claims center. It also includes the ad-

ministration of many disputes involving claims for less than

$10,000 brought by individuals and businesses alike.

> The AAA also promotes ethical standards for dispute resolution. The

AAA was instrumental in establishing the Code of Ethics for Arbitrators in

Commercial Disputes (with the American Bar Association) in 1977, the Code

of Professional Responsibility for Arbitrators of Labor-Management Disputes

in 1985, and the Model Standards of Conduct for Mediators in 1995.

3

Because the AAA is so heavily involved in the administration

of arbitration as well as in education and training, it has a sub-

stantial interest in the Court’s resolution of the second question

presented by the Petition: Whether an arbitration provision that

is silent on how the costs of arbitration are to be paid is unen-

forceable, in spite of the mandate of the Federal Arbitration Act,

because a plaintiff asserting claims under other federal statutes

designed to protect borrowers might be required to bear those

costs.

The issue now before the Court is not new to the AAA. In

1997, in response to the increasing popularity of arbitration as a

means of resolving disputes between businesses and consumers,

the AAA convened a National Consumer Disputes Advisory

Committee to examine concerns that had been expressed about

the arbitration of such disputes and to devise guidelines for han-

dling them that would be acceptable to consumer advocates as

well as to businesses that deal with large numbers of consum-

ers.’ The Advisory Committee included persons affiliated with

consumer groups, such as Consumers Union and the American

Association of Retired Persons, state government consumer-

protection professionals, representatives of businesses that deal

directly with consumers, academics, and dispute resolution pro-

fessionals. The Advisory Committee’s mission was:

“To bring together a broad, diverse, representative national

advisory committee to advise the American Arbitration

Association in the development of standards and proce-

dures for the equitable resolution of consumer disputes.”

(App. A, infra, 8a.)

The result of the work of the Advisory Committee was the

publication on April 17, 1998 of A Due Process Protocol for the

> We use the term “consumer” in this brief to refer to natural persons and

not to business entities that may play the role of consumer in certain of their

transactions.

4

Mediation and Arbitration of Consumer Disputes (the “Con-

sumer Due Process Protocol,” a copy of which is appended to

this brief as Appendix A). The Protocol stresses the importance

of a fundamentally fair process, access to information, inde-

pendence and impartiality of both the arbitrator and the adminis-

tering organization, availability of a full range of remedies, a

reasonable location for the hearing, and reasonable time limits.

Most relevant to the case before the Court, the Protocol’s Prin-

ciple 6 addresses the question of cost, and states:

“Reasonable Cost. Providers of goods and services

should develop ADR programs which entail reasonable

cost to Consumers based on the circumstances of the dis-

pute, including, among other things, the size and nature of

the claim, the nature of goods or services provided, and the

ability of the Consumer to pay. In some cases, this may

require the Provider to subsidize the process.” (Principle

6, App. A, infra, 3a.)

The Protocol also stated that “Consumer ADR Agreements

should make it clear that all parties retain the right to seek relief

in asmall claims court for disputes or claims within the scope of

its jurisdiction.” (Principle 5, App. A, infra, 3a.)

Subsequently, the AAA adopted a set of arbitration rules spe-

cifically tailored to consumer disputes and the principles of the

Consumer Due Process Protocol, which were issued on July 1,

1999 and amended on April 1, 2000 as the AAA’s Arbitration

Rules for the Resolution of Consumer-Related Disputes (the

“Consumer Arbitration Rules,” a copy of which is appended to

this brief as Appendix B). The AAA has decided, as a matter of

internal policy, that all consumer disputes to be administered by

the AAA involving claims for less than $10,000 will be proc-

essed under the Consumer Arbitration Rules, regardless of the

rules, terms and conditions reflected in a pre-dispute clause.

The AAA’s interest in the Court’s resolution of the second

question presented is thus informed by substantial consideration

of and experience with the arbitration of consumer claims and of

5

claims under statutes designed to protect the rights of consum-

ers. The AAA hopes that the views presented on the basis of

that consideration and experience will be of assistance to the

Court. The AAA has previously filed amicus curiae briefs with

the Court in: Prima Paint Corp. v. Flood & Conklin Mfg. Co.,

388 U.S. 395 (1967); Scherk v. Alberto-Culver Co., 417 U.S.

506 (1974); Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985); Shearson/American Ex-

press Inc. v. McMahon, 482 U.S. 220 (1987); Allied-Bruce Ter-

minix Cos. v. Dobson, 513 U.S. 265 (1995); and UBC Southern

Council of Industrial Workers v. Bruce Hardwood Floors, 522

U.S. 928 (1997).

SUMMARY OF ARGUMENT

The decision of the Eleventh Circuit appears to assume that

arbitration is somehow second class justice, or at least that it

imposes substantially greater hardships on litigants than those

they face when they pursue litigation in a judicial forum. It is

the position and experience of the AAA, however, that justice is

not diminished in properly conducted arbitration proceedings.

Rather, arbitration can enhance the fair and expeditious resolu-

tion of disputes.

The Court has emphasized for nearly twenty years that the

Federal Arbitration Act, 9 U.S.C. § 1 et seq. (2000), declares a

national policy favoring the arbitration of disputes. Consistent

with this policy, the Court has enforced agreements to arbitrate a

wide variety of claims, including statutory claims involving in-

dividuals. By arbitrating such 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.”

Mitsubishi Motors Corp., 473 U.S. at 628. While the Eleventh

Circuit recognized the “strong federal policy favoring arbitra-

tion,” (Pet. App. 15a), it nevertheless declined to enforce the

arbitration clause before it out of concern that Respondent

6

would be unable effectively to vindicate her statutory rights un-

der that clause. (Pet. App. 15a-18a.) The court’s concern was

well founded, but its solution was not.

The Eleventh Circuit’s concern centered on the silence of the

arbitration clause on the subject of how the costs of arbitration

were to be paid. The court concluded that the consumer's “abil-

ity to vindicate her statutory rights” could “‘be undone by steep

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

tion.” (Pet. App. 18a.) High filing and arbitrator fees can cer-

tainly present a problem in cases involving relatively small

claims. That is why the AAA’s Consumer Arbitration Rules

require no filing fee from the consumer and limit the con-

sumer’s share of the arbitrator’s fees to $125. But the Eleventh

Circuit’s concerns must be considered in the light of the man-

date of the Federal Arbitration Act that an agreement to arbitrate

must be enforced “save upon such grounds as exist at law or in

equity for the revocation of any contract.” 9 U.S.C. § 2. The

Eleventh Circuit was not required to invalidate the arbitration

clause in order to protect Respondent’s ability to vindicate her

statutory rights.

The preferable course, in view of the federal policy favoring

arbitration, would have been for the Eleventh Circuit to apply

the rule of contract law that a construction that makes an agree-

ment unlawful should be avoided whenever possible in favor of

one that makes it lawful. Following that rule, the Eleventh Cir-

cuit should have treated the clause’s silence as to costs as an

ambiguity. It could then have resolved that ambiguity to allow

Respondent to vindicate her statutory rights through arbitration,

by placing the burden of paying some or all of the arbitrator’s

fees and costs on Petitioners. That construction would have

given the agreement to arbitrate the deference required by the

Federal Arbitration Act.

7

ARGUMENT

I. THE ELEVENTH CIRCUIT GAVE INSUFFI-

CIENT WEIGHT TO THE NATIONAL POLICY

FAVORING THE ENFORCEMENT OF ARBI-

TRAL AGREEMENTS

Congress enacted the Federal Arbitration Act in 1925 “to re-

verse the longstanding judicial hostility to arbitration agree-

ments that had existed at English common law and had been

adopted by American courts, and to place arbitration agreements

upon the same footing as other contracts.” Gilmer v. Inter-

state/Johnson Lane Corp., 500 U.S. 20, 24 (1991). See also

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

Junior Univ., 489 U.S. 468, 474 (1989); Dean Witter Reynolds,

Inc. v. Byrd, 470 U.S. 213, 221 (1985); Mitsubishi Motors

Corp., 473 U.S. at 625; Moses H. Cone Memorial Hosp. v. Mer-

cury Constr. Corp., 460 U.S. 1, 24 (1983).

The Federal Arbitration Act “declared a national policy favor-

ing arbitration.” Southland Corp. v. Keaiing, 465 U.S. 1, 10

(1984). The core expression of this policy is Section 2 of the

Act, its “primary substantive provision.” Gilmer, 500 U.S. at 24.

That section provides that a written agreement to arbitrate

“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 decision of the Eleventh Circuit

not to enforce the arbitration clause at issue here gave insuffi-

cient weight both to that national policy and to the mandate of

Section 2 of the Federal Arbitration Act.

A. Agreements To Arbitrate Statutory Claims Fall

Within The National Policy Favoring Arbitration

The federal policy favoring arbitration is now clearly under-

stood to apply to agreements to arbitrate statutory claims. See,

e.g., Gilmer, 500 U.S. at 26; Mitsubishi Motors, 473 U.S. at

8

627. Pursuant to that policy, the Court has enforced agreements

to arbitrate many types of claims by individuals, including

claims arising under the federal securities laws, Shear-

son/American Express Inc. v. McMahon, 482 U.S. 220 (1987);

Rodriguez de Quijas v. Shearson/American Express Inc., 490

U.S. 477 (1989), the Racketeering Influenced and Corrupt Or-

ganizations (RICO) Act, McMahon, 482 U.S. at 220, and the

Age Discrimination in Employment Act. Gilmer, 500 U.S. at

20. To be sure, Congress may choose to write a statute that cre-

ates a cause of action that must be heard in court, but the Court

has placed the burden on the party opposing arbitration to show

that Congress intended to preclude waiver of the judicial forum.

See Gilmer, 500 U.S. at 26; McMahon, 482 U.S. at 227.

The Court has emphasized that arbitration is simply a proce-

dural option that does not take away the substantive rights of the

parties under a statute:

“By 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 judi-

cial, forum. It trades the procedures and opportunity for

review of the courtroom for the simplicity, informality and

expedition of arbitration.” Mitsubishi Motors, 473 U.S. at

628.

Accord Gilmer, 500 U.S. at 26.

B. There Is No Reason To Depart From The Na-

tional Policy Favoring Arbitration When Dis-

putes Involve Small Claims

The federal policy favoring arbitration has had the effect of

encouraging the use of arbitration. The annual case load figures

of the AAA for the last five years reflect the increasing accep-

tance and use of arbitration and other alternative means of dis-

pute resolution:

9

1999 62,423

1999 72,200

1999 78,769

1999 95,143

1999 140,188

These figures bear witness to a dramatic surge in the popularity

of arbitration as a means of resolving disputes in the United

States. Pre-dispute arbitration clauses are now included in tens

of thousands of contracts of all kinds. No single factor appears

to the AAA to account for this trend, but some of the elements

contributing to the popularity of arbitration that the AAA has

identified are:

l.

The consistency of U.S. courts in enforcing the national

policy favoring arbitration, especially since the series of

decisions (culminating in Rodriguez de Quijas, 490 U.S.

at 484) overruling Wilko v. Swan, 346 U.S. 427 (1953),

which has given the process increased predictability and

reliability;

The sheer number of arbitrations, which has given large

numbers of users first-hand experience of the benefits of

a process that is generally faster and less expensive than

litigation, before an unbiased decision maker that they

help to select;

The increasing criminal caseload of the federal courts,

resulting from legislative additions to their jurisdiction,

which has made resolving civil disputes in those courts a

more time-consuming process;

The increase in the number of trained and experienced

arbitrators available, which is in part the result of the

* See J. Clark Kelso & Thomas J. Stipanowich, Protecting Consumers in

Arbitration, Dispute Resolution Magazine at 11 (Fall 1998) (“Among private

conflict resolution mechanisms, binding arbitration enjoys preeminent status

as a result of robust judicial encouragement.”).

10

large number of disputes that have gone to arbitration,

and in part the result of the increased emphasis on pro-

fessional training for arbitrators, which is required by

the AAA; and

5. The globalization of commercial transactions, which has

increased the demand for a neutral forum for resolving

international disputes.

Nor is the demand for arbitration limited to parties involved

in major commercial transactions and collective bargaining

agreements. Over the years, many of the cases administered by

the AAA have involved relatively small claims. Historically,

the AAA has not kept data that would distinguish business

claims from individual claims. But the records of the AAA

show that 2,032 claims for amounts under $10,000 were filed in

1998, and 1,937 claims under $10,000 were filed in 1999. In

addition, of the total of 140,188 arbitrations administered by the

AAA in 1999, 51,622 involved claims arising out of automobile

collisions under state “no-fault” statutes, which were conducted

pursuant to procedures similar to those recommended by the

Consumer Due Process Protocol. Almost 50,000 of the remain-

ing cases in the AAA’s 1999 caseload represent the AAA’s in-

volvement in a process mandated by the negotiated settlement of

a nationwide class action against a major insurance carrier.

Again, many of these cases involved relatively small individual

claims.

The AAA would not have been entrusted with the administra-

tion of 100,000 claims of individual citizens if those involved—

the court overseeing the class action settlement and the state in-

surance Officials responsible for administration of no-fault

laws—had not had confidence that arbitration, at least as admin-

istered by the AAA with safeguards for a fair process, would

provide an appropriate procedure for resolving such claims.

1]

I]. THE ELEVENTH CIRCUIT CORRECTLY IDEN-

TIFIED REASONS FOR CONCERN ABOUT THE

ARBITRATION CLAUSE BEFORE THE COURT

A. Most Of The Shortcomings Of The Arbitration

Clause Do Not Affect Its Enforceability

Agreements to arbitrate are to be enforced, whether they were

entered into before or after the dispute, absent circumstances,

such as fraud, duress, or unconscionability, that would result in

the revocation of any contract.’ Mitsubishi Motors, 473 U.S. at

627; Gilmer, 500 U.S. at 33. And courts have not been reluctant

to police arbitration agreements under that standard. See, e.g.,

Hooters of America, Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir.

1999) (rescinding arbitration agreement where employer “prom-

ulgat[ed] rules so egregiously unfair as to constitute a complete

default of its contractual obligation”). No such circumstances

are alleged here.

This is not to say that some concern about the arbitration

agreement at issue in this case is not well placed.° For example,

* The Court has stated that claims “of unequal bargaining power [are] best

left for resolution in specific cases.” Gilmer, 500 U.S. at 33.

° The clause reads, in pertinent part: “ARBITRATION: All disputes,

claims, or controversies arising from or relating to this Contract or the rela-

tionships which 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). This arbitration

Contract is made pursuant to a transaction in interstate commerce, and shall

be governed by the Federal Arbitration Act at 9 U.S.C. Section 1. J udgment

upon the award rendered may be entered in any court having jurisdiction.

The parties agree and understand that they choose arbitration instead of

litigation to resolve disputes. The parties understand that they have a right or

opportunity to litigate disputes through a court, but that they prefer to resolve

their disputes through arbitration, except as provided herein. THE PARTIES

VOLUNTARILY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL

EITHER PURSUANT TO ARBITRATION UNDER THIS CLAUSE OR

12

the clause fails to specify the rules to be applied, the place of

arbitration, or (failing designation of a set of rules that would do

so) how the expenses of the arbitration are to be paid. It also

allows the “Assignee” to select the arbitrator, albeit with the

consent of the “Buyer.” (Pet. App. 3a.) But these are all defi-

ciencies that may be supplied by subsequent agreement of the

parties or, in the absence of such agreement, by the arbitrator

once appointed or by a supervising court.’ See Schulze & Burch

Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 711, 716 (7th Cir.

1987) (holding that arbitration provision which stated only that

“disputes under this transaction shall be arbitrated” was not too

vague to be enforced, because the court was able to supply

“such implementing details as who the arbitrators would be,

where arbitration would take place, and what procedures would

govern”).

Some consumer advocates would also criticize the arbitration

clause before the Court on the grounds that it is a pre-dispute

clause contained in a consumer contract.* Putting aside the

PURSUANT TO A COURT ACTION BY ASSIGNEE (AS PROVIDED

HEREIN). The parties agree and understand that all disputes arising under

case law, statutory law, and all 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 arbitra-

tor shall have all powers provided by the law and the Contract ... [including]

money damages, declaratory relief, and injunctive relief.” (Pet. App. 3a.)

” Any unfairness in the arbitrator selection provision may be cured by a

court, because the clause gives the consumer the right to block the Assignee’s

selection, and Section 5 of the Federal Arbitration Act would then allow ei-

ther party to ask a court to appoint the arbitrator. 9 U.S.C. § 5 (2000).

8 Consumer advocates do not uniformly share this view. See, e.g., Carol

Haas, THE CONSUMER REPORTS LAW BOOK at 304 (1994) (recommending

that consumers “insist on inserting a future-dispute arbitration clause” in con-

tracts, using the standard AAA clause as an example, because such a clause

may enable them “to avoid the high costs of litigation to resolve a contract

dispute”’).

2 13

cases entrusted to the AAA by courts or state agencies, the AAA

estimates that 90 to 95% of the arbitrations brought to the AAA

are submitted to arbitration pursuant to clauses in agreements

(most of which are not with consumers) entered into before the

dispute arises. This is hardly surprising, because arbitration is a

creature of agreement. And the AAA can state with assurance

based on many years of experience that agreement on any sub-

ject is very difficult for parties to reach after a dispute has

arisen.

The National Consumer Disputes Advisory Committee,

which prepared the Consumer Due Process Protocol, was di-

vided on the question of whether pre-dispute agreements to arbi-

trate were suitable for transactions between individuals and

businesses.” Some commentators feel strongly that such agree-

ments are not appropriate, on the basis of such concerns as the

reasonable expectations of consumers and relative bargaining

power.'° Others believe that pre-dispute clauses offer “the

promise of a less expensive, more expeditious, less draining and

divisive process, and yet still effective remedy.”'' While appre-

ciating the sincerity of the policy concerns expressed on both

sides of the question, the AAA submits that the Federal Arbitra-

* Five principles (Principles 11-15, App. A, infra, 4a-6a) were neverthe-

less included in the Consumer Due Process Protocol “specially to protect

consumers in the context of binding arbitration clauses.” Kelso & Sti-

panowich, supra, at 12.

'° E.g., Jean R. Sternlight, Drafting A “Bulletproof” Consumer Arbitra-

tion Agreement: Is It Possible?, in ARBITRATION OF FINANCIAL SERVICES

DISPUTES (PLI 1999); Richard E. Speidel, Consumer Arbitration of Statutory

Claims: Has Pre-Dispute Mandatory Arbitration Outlived Its Welcome? 40

Ariz. L. Rev. 1069 (1998); Jean R. Sternlight, Panacea or Corporate Tool?:

’ Debunking the Supreme Court's Preference for Binding Arbitration, 74

Wash. U. L.Q. 637 (Fall 1996).

'' Samuel Estreicher, Predispute Agreements to Arbitrate Statutory Em-

ployment Claims, 72 N.Y.U. L. Rev. 1344, 1349 (1997).

14

tion Act requires arbitration clauses whether pre- or post-

dispute, to be judged and enforced by the same standards as

limitations of warranty, terms of payment, or any other contrac-

tual provision. See, e.g., Allied-Bruce Terminix Cos., 513 U.S.

265, 281 (1995) (noting that the FAA makes unlawful any at-

tempt by a state to “place arbitration clauses on an unequal

‘footing’” in context of a case involving a pre-dispute arbitration

clause in a consumer contract to provide termite protection);

Hooters, 173 F.3d at 937 (“Predispute agreements to arbitrate

Title VII claims are thus valid and enforceable.”); Keymer v.

Management Recruiters Int’l, Inc., 169 F.3d 501, 504 (8th Cir.

1999) (stating that “we examine arbitration agreements in the ~

same light as any other contractual agreement”).

In supporting enforcement of pre-dispute arbitration clauses,

subject to appropriate procedural safeguards, the AAA is influ-

enced by the success of another protocol that was drafted under

its auspices following the Court’s decision in Gilmer. The Due

Process Protocol for Statutory Disputes Arising out of the Em-

ployment Relationship was adopted in May 1995 on the recom-

mendation of a group composed of employment attorneys, rep-

resentatives of labor and mi nagement, and dispute resolution

professionals.'* The widespread adoption of programs conform-

ing to the safeguards established by that Protocol has made

available to millions of workers a range of dispute resolution

options—from informal processes such as peer review, through

mediation, to binding arbitration—that offer “systematic advan-

tages over lawsuits for both workers and their employers.”

Esireicher, supra, at 1351. Indeed, a recent article by the former

Director of the ACLU’s National Task Force on Civil Liberties

in the Workplace examined the results of AAA employment ar-

bitration decisions for the period 1993-1995, just prior to the

adoption of the Employment Due Process Protocol, and con-

? The text of the Employment Protocol may be found on the AAA’s web-

site, www.adr.org, under Focus Areas - Employment.

15

cluded that “far more employees win in arbitration than in court,

and, overall, employees who take their disputes to arbitration

collect more than those who go to court.” Lewis Maltby, Em-

ployment Arbitration—Is it really second class justice?, Dispute

Resolution Magazine at 24 (Fall 1999).

B. The Concerns Expressed By The Eleventh Cir-

cuit Go To The Purposes Of The Statutes That

Create The Cause Of Action

While noting some of the deficiencies just described, the

Eleventh Circuit focused on shortcomings in the arbitration

clause that seemed to it to implicate the compatibility of that

clause with the purposes of the statutes under which Respon-

dent’s claims were brought. The Eleventh Circuit singled out

one concern, the clause’s silence on who is to pay the costs of

arbitration, as so inconsistent with the purposes of those statutes

that it justified a refusal to enforce the arbitration clause:

“* * * the arbitration clause in this case is unenforceable,

because it fails to provide the minimum guarantees re-

quired to ensure that Randolph'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.)

The Eleventh Circuit contrasted the clause before it to “the rules

of the American Arbitration Association, which provide at least

some guidelines concerning filing fees and arbitration costs.”

(Pet. App. 17a.) As the Eleventh Circuit recognized, however,

the arbitration clause “says nothing about the payment of filing

fees or other apportionment of the costs of arbitration.” (Pet.

App. 17a) (emphasis added). Nor does the clause contain any

provision with respect to financial hardship.

High filing and arbitrator fees present a genuine reason for

concern if consumers are required to pay them. With that con-

cern in mind, the AAA’s Consumer Arbitration Rules require no

16

filing fee; a claimant is asked to pay only $125 as the claimant’ s

share of the fees of the arbitrator, with all other fees and costs

paid by the business party. (3 (App. B, infra, 21a.) In larger

cases, such as those administered by the AAA under its Com-

mercial Arbitration Rules, the claimant pays a filing fee, and

costs are normally shared equally during the life of the proceed-

ing. Fees and costs may then be apportioned by the arbitrator in

the award.'* The AAA’s experience indicates that arbitrators

reallocate the costs of arbitration in a majority of the commer-

cial cases that proceed to award. A claimant with a meritorious

claim thus has a statistically significant likelihood of recovering

at least a portion of any costs he or she is required to advance

under the Commercial Arbitration Rules.

The absence in the arbitration clause of any provision for

waiver of fees and costs on the basis of hardship is also a fair

reason for concern. The AAA, for example, has administrative

procedures that allow deferrals or reductions in the AAA’s ad-

ministrative fees where extreme hardship on the part of a party

makes paying or advancing some or all of such fees inappropri-

ate. The AAA receives one or two requests each week for a

waiver or deferral of administrative fees on the basis of eco-

nomic hardship. When the hardship is substantiated, these re-

quests are liberally granted.

wi filing fee of $150 is required to file a case in federal court. See 28

U.S.C. § 1914(a) (2000).

'4 Rule R-45(c) of the AAA’s Commercial Arbitration Rules permits the

arbitrator to assess in the award (that is, to allocate among the parties) filing

and other administrative fees, expenses, and the arbitrator’s compensation “in

such amounts as the arbitrator determines is appropriate.” Those rules are

available as part of the AAA’s Commercial Dispute Resolution Procedures

on the AAA’s website, www.adr.org.

17

il. THE ELEVENTH CIRCUIT SHOULD HAVE

TREATED THE SILENCE OF THE ARBITRA-

TION CLAUSE ON COSTS AS AN AMBIGUITY

TO BE CONSTRUED SO AS TO PRESERVE THE

ENFORCEABILITY OF THE AGREEMENT TO

ARBITRATE

While the Eleventh Circuit’s concern about the silence of the

arbitration clause regarding the allocation of costs was well

founded, its refusal to enforce the arbitration agreement on that

basis was not. Section 2 of the Federal Arbitration Act requires

that an arbitration agreement be enforced, absent such grounds

“as exist at law or in equity for the revocation of any contract.”

9 U.S.C. § 2. No such grounds were found here. Rather, the

Eleventh Circuit refused to enforce the arbitration agreement

because that clause lacked any provision for shifting the cost of

arbitration from the consumer to the business party. Without

such a provision, the Eleventh Circuit felt, enforcement of the

arbitration clause pursuant to the Federal Arbitration Act would

be inconsistent with the purposes underlying the Truth in Lend-

ing Act, 15 U.S.C.°§ 1601 et seg. (2000) (“TILA”), and the

Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f (2000)

(“Equal Credit Act”). (Pet. App. 18a.)

TILA gives consumers a remedy “designed to compen-

sate borrowers for injuries caused by misleading disclosures and

to deter lenders from making misleading disclosures.” Williams

v. Public Fin. Corp., 598 F.2d 349, 355 (5th Cir. 1979). The

“broad remedial provision” of the Equal Credit Act is intended

to ensure “that creditors not affirmatively benefit from pro-

scribed acts of credit discrimination.” See Silverman v. Eastrich

Multiple Investor Fund, L.P., 51 F.3d 28, 33 (3d Cir. 1995).

Recognizing that the actual out-of-pocket losses likely to be suf-

fered would generally be too small to justify the bringing of a

civil action, TILA permits an aggrieved consumer to recover

18

civil penalties, attorneys fees, and court costs. See 15 U.S.C.

§ 1640(a). The Equal Credit Act similarly allows an aggrieved

credit applicant to recover punitive damages, attorney fees, and

court costs in addition to actual damages. See 15 U.S.C.

§ 169le. But nothing in the text or history of either act cited by

either party in seeking or opposing the grant of a writ of certio-

rari demonstrates an intent on the part of Congress to restrici

the availability of those remedies to cases filed in court.'°

The Eleventh Circuit correctly looked to the purposes of

TILA and the Equal Credit Act in considering the effect of the

arbitration clause before it. But it neglected in doing so to con-

strue that provision in a manner that would preserve the validity

and enforceability of the agreement to arbitrate. As this Court

has made clear:

“{Q]uestions of arbitrability must be addressed with a

healthy regard for the federal policy favoring arbitration

* * *| The Arbitration Act establishes that, as a matter of

federal law, any doubts concerning the scope of arbitrable

issues should be resolved in favor of arbitration, whether

the problem at hand is the construction of contract lan-

guage itself or an allegation of waiver, delay, or a like de-

fense to arbitrability.”. Moses H. Cone, 460 U.S. at 24-25.

Accord Mitsubishi Motors, 473 U.S. at 626 (same). When con-

struing an agreement to arbitrate, “the parties’ intentions con-

trol, but those intentions are generously construed as to issues of

arbitrability.” Mitsubishi Motors, 473 U.S. at 626; accord Mas-

trobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62

(1995).

There is nothing inherent in the nature of arbitration that

would prevent a litigant under TILA or the Equal Credit Act

'S The AAA’s Consumer Arbitration Rules provide that “The arbitrator

may grant any remedy or relief that the parties could have received in court.”

(Rule 13, App. B, infra, 20a.)

19

from effectively “vindicat[ing his or her] statutory cause of ac-

tion in the arbitral forum.” See Mitsubishi Motors, 473 U.S. at

637; Gilmer, 500 U.S. at 28. As the Court suggested in Rodri-

guez de Quijas, general attacks on the adequacy of arbitration

procedures that rest on “suspicion of arbitration as a method of

weakening the protections afforded in the substantive law to

would-be complainants” are “far out of step with our current

strong endorsement of the federal statutes favoring this method

of resolving disputes.” 490 U.S. at 481; accord Gilmer, 500

U.S. at 25. An agreement to arbitrate a statutory claim should

thus be enforced unless something specific in its terms would

prevent a party from effectively vindicating his or her rights un-

der that statute.

The District of Columbia Circuit resolved a similar concern

in favor of arbitration in the context of an agreement to arbitrate

claims under Title VII of the Civil Rights Act. Cole v. Burns

Int’l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997). In that case,

as in this one, it was “unclear * * * whether an arbitrator’s fees

(as distinguished from ‘administrative fees’) are to be paid by

the employee alone, the employer alone, or by the parties to-

gether.” Jd. at 1481. The court found that, under Title VII,

“employees cannot be required to pay for the services of a

‘judge’ in order to pursue their statutory rights.” Jd. at 1468

(emphasis in original). Faced with this proscription of the stat-

ute under which the claim was made, and the ambiguity created

by the silence of the arbitration clause on the subject of paying

for the fees of the arbitrator, the District of Columbia Circuit

decided to “interpret the arbitration agreement * * * as requiring

{the employer] to pay all arbitrators’ fees,” and enforced the ar-

bitration agreement as so interpreted. Jd. at 1486; accord

McWilliams v. Logicon, Inc., 1997 U.S. Dist. LEXIS 9822, at *5

(D. Kan. June 3, 1997) (finding the D.C. Circuit’s “opinion in

Cole both instructive and persuasive” and “adopt[ing] its fee

allocation analysis in full’).

20

The same option was open to the Eleventh Circuit. Rather

than construing the arbitration clause's silence on fees and costs

to conflict with the remedial and deterrent purposes of TILA and

the Equal Credit Act, the Eleventh Circuit should have treated

the silence as an ambiguity. Consistent with the national policy

favoring arbitration and the principle that a construction that

would make an agreement unlawful should be avoided when

possible, the Eleventh Circuit should have resolved that ambigu-

ity in a manner that would have enabled Respondent to vindi-

cate her statutory rights in the agreed forum.'° See, e.g., Cole,

105 F.3d at 1485 (“where a contract is unclear on a point, an

interpretation that makes the contract lawful is preferred to one

that renders it unlawful”); Paladino v. Arnet Computer Tech-

nologies, Inc., 134 F.3d 1054, 1058 (11th Cir. 1998); Restate-

ment (Second) of Contracts § 203(a) (1981). Those rights

would be vindicated by a construction of the arbitration agree-

ment that would shift enough of the burden of paying arbitral

fees and costs to Petitioner to assure that Respondent’s “ability

to vindicate her statutory rights will not be undone by steep fil-

ing fees, steep arbitrators’ fees, or other high costs of arbitra-

tion.” (Pet. App. 18a.)'’ Alternatively, to the extent the Elev-

enth Circuit was concerned that an arbitrator might issue an or-

der imposing costs on Respondent that would be “prohibitive”

in relation to the sum at issue (Pet. App. 18a), it could have di-

rected the district court to condition its order compelling arbitra-

tion on Petitioner’s agreement to bear such costs.

'© Normal rules of construction also permit a court to construe ambiguous

language against the interest of the party that drafted it. See Mastrobuono,

514 U.S. at 64 (construing ambiguous provision in arbitration agreement re-

lating to authority of arbitrator to award punitive damages against the

drafter); Restatement (Second) of Contracts § 206 (1981).

'7 Where the bargain of the parties is “sufficiently defined to be a con-

tract,” but omits “a term which is essential to a determination of their rights

and duties,” a court has the authority to supply “a term which is reasonable in

the circumstances.” Restatement (Second) of Contracts § 204 (1981).

21

In urging this result, the AAA does not want to suggest that

the Court should encourage the lower courts to rewrite arbitra-

tion clauses. Such clauses are contracts, and the Federal Arbi-

tration Act is emphatic that they are to be refused enforcement

only on grounds applicable to contracts in general. See 9 U.S.C.

§ 2. But when an ambiguity (including an omission) in an

agreement to arbitrate is susceptible to one interpretation that

will bring it into conflict with the statute under which a claim is

brought, and to another interpretation that will reconcile the

purpose of that statute with the mandate of the Federal Arbitra-

tion Act, established principles of contract law counsel a court

to construe the agreement so as to make its enforcement lawful.

That is the result that amicus curiae AAA urges the Court to

reach here.

CONCLUSION

WHEREFORE, amicus curiae AAA respectfully urges the

Court to reverse the decision of the Court below on the second

question presented.

Respectfully submitted,

JOHN M. TOWNSEND FLORENCE PETERSON

DANIEL WOLF Counsel of Record

HUGHES HUBBARD & General Counsel

REED LLP AMERICAN ARBITRATION

Washington, D.C. ASSOCIATION

335 Madison Avenue

New York, New York 10017-4605

JAMES H. CARTER (212) 716-3923 :

Chairman,

Arbitration Law Committee

Attorneys for Amicus Curiae

The American Arbitration

June 8, 2000 Association

APPENDICES

la

APPENDIX A

CONSUMER DUE PROCESS PROTOCOL

Statement of Principles of the

National Consumer Disputes Advisory Committee

PRINCIPLE 1. FUNDAMENTALLY-FAIR PROCESS

All parties are entitled to a fundamentally-fair ADR process. As

embodiments of fundamental fairness, these Principles should

be observed in structuring ADR Programs.

PRINCIPLE 2. ACCESS TO INFORMATION REGARDING

ADR PROGRAM

Providers of goods or services should undertake reasonable

measures to provide Consumers with full and accurate informa-

tion regarding Consumer ADR Programs. At the time the Con-

sumer contracts for goods or services, such measures should

include (1) clear and adequate notice regarding the ADR provi-

sions, including a statement indicating whether participation in

the ADR Program is mandatory or optional, and (? ‘ reasonable

means by which Consumers may obtain additionc *rformation

regarding the ADR Program. After a dispute arises, Consumers

should have access to all information necessary for effective

participation in ADR.

PRINCIPLE 3. INDEPENDENT AND IMPARTIAL NEU-

TRAL; INDEPENDENT ADMINISTRATION

1. Independent and Impartial Neutral. All parties are enti-

tled to a Neutral who is independent and impartial.

2. Independent Administration. If participation in mediation

or arbitration is mandatory, the procedure should be admin-

istered by an Independent ADR Institution. Administrative

services should include the maintenance of a panel of pro-

2a

spective Neutrals, facilitation of Neutral selection, collec-

tion and distribution of Neutral’s fees and expenses, over-

sight and implementation of ADR rules and procedures, and

monitoring of Neutral qualifications, performance, and ad-

herence to pertinent rules, procedures and ethical stan-

dards.

3. Standards for Neutrals. The Independent ADR Institution

should make reasonable efforts to ensure that Neutrals un-

derstand and conform to pertinent ADR rules, procedures

and ethical standards.

4. Selection of Neutrals. The Consumer and Provider should

have an equal voice in the selection of Neutrals in connec-

tion with a specific dispute.

5. Disclosure and Disqualification. Beginning at the time of

appointment, Neutrals should be required to disclose to the

Independent ADR Institution any circumstance likely to af-

fect impartiality, including any bias or financial or personal

interest which might affect the result of the ADR proceeding,

or any past or present relationship or experience with the

parties or their representatives, including past ADR experi-

ences. The Independent ADR Institution should communicate

any such information to the parties and other Neutrals, if

any. Upon objection of a party to continued service of the

Neutral, the Independent ADR Institution should determine

whether the Neutral should be disqualified and should in-

form the parties of its decision. The disclosure obligation of

the Neutral and procedure for disqualification should con-

tinue throughout the period of appointment.

PRINCIPLE 4. QUALITY AND COMPETENCE OF

NEUTRALS

All parties are entitled to competent, qualified Neutrals. Inde-

pendent ADR Institutions are responsible for establishing and

3a

maintaining standards for Neutrals in ADR Programs they ad-

minister.

PRINCIPLE 5. SMALL CLAIMS

Consumer ADR Agreements should make it clear that all parties

retain the right to seek relief in a small claims court for disputes

or claims within the scope of its jurisdiction.

PRINCIPLE 6. REASONABLE COST

I. Reasonable Cost. Providers of goods and services should

develop ADR programs which entail reasonable cost to

Consumers based on the circumstances of the dispute, in-

cluding, among other things, the size and nature of the

claim, the nature of goods or services provided, and the

ability of the Consumer to pay. In some cases, this may re-

quire the Provider to subsidize the process.

2. Handling of Payment. In the interest of ensuring fair and

independent Neutrals, the making of fee arrangements and

the payment of fees should be administered on a rational,

equitable and consistent basis by the Independent ADR In-

Stitution.

PRINCIPLE 7. REASONABLY CONVENIENT LOCATION

In the case of face-to-face proceedings, the proceedings should

be conducted at a location which is reasonably convenient to

both parties with due consideration of their ability to travel and

other pertinent circumstances. If the parties are unable to

agree on a location, the determination should be made by the

Independent ADR Institution or by the Neutral.

PRINCIPLE 8. REASONABLE TIME LIMITS

ADR proceedings should occur within a reasonable time, with-

out undue delay. The rules governing ADR should establish

specific reasonable time periods for each step in the ADR proc-

4a

ess and, where necessary, set forth default procedures in the

event a party fails to participate in the process after reasonable

notice.

PRINCIPLE 9. RIGHT TO REPRESENTATION

All parties participating in processes in ADR Programs have

the right, at their own expense, to be represented by a spokes-

person of their own choosing. The ADR rules and procedures

should so specify.

PRINCIPLE 10. MEDIATION

The use of mediation is strongly encouraged as an informal

means of assisting parties in resolving their own disputes.

PRINCIPLE 11. AGREEMENTS TO ARBITRATE

Consumers should be given:

(a) clear and adequate notice of the arbitration pro-

vision and its consequences, including a state-

ment of its mandatory or optional character;

(b) reasonable access to information regarding the

arbitration process, including basic distinctions

between arbitration and court proceedings, re-

lated costs, and advice as to where they may ob-

tain more complete information regarding arbi-

tration procedures and arbitrator rosters;

(c) notice of the option to make use of applicable

small claims court procedures as an alternative

to binding arbitration in appropriate cases; and,

(d) acclear statement of the means by which the

Consumer may exercise the option (if any) to

submit disputes to arbitration or to court proc-

ess.

Sa

PRINCIPLE 12. ARBITRATION HEARINGS

I. Fundamentally-Fair Hearing. All parties are entitled toa

fundamentally-fair arbitration hearing. This requires ade-

quate notice of hearings and an opportunity to be heard and

to present relevant evidence to impartial decision-makers.

In some cases, such as some small claims, the requirement

of fundamental fairness may be met by hearings conducted

by electronic or telephonic means or by a submission of

documents. However, the Neutral should have discretionary

authority to require a face-to-face hearing upon the request

of a party.

2. Confidentiality in Arbitration. Consistent with general ex-

pectations of privacy in arbitration hearings, the arbitrator

should make reasonable efforts to maintain the privacy of

the hearing to the extent permitted by applicable law. The

arbitrator should also carefully consider claims of privilege

and confidentiality when addressing evidentiary issues.

PRINCIPLE 13. ACCESS TO INFORMATION

No party should ever be denied the right to a fundamentally-fair

process due to an inability to obtain information material to a

dispute. Consumer ADR agreements which provide for binding

arbitration should establish procedures for arbitrator-

supervised exchange of information prior to arbitration, bear-

ing in mind the expedited nature of arbitration.

PRINCIPLE 14. ARBITRAL REMEDIES

The arbitrator should be empowered to grant whatever relief

would be available in court under law or in equity.

PRINCIPLE 15. ARBITRATION AWARDS

I. Final and Binding Award; Limited Scope of Review. If

provided in the agreement to arbitrate, the arbitrator’s

award should be final and binding, but subject to review in

6a

accordance with applicable statutes governing arbitration

awards.

2. Standards to Guide Arbitrator Decision-Making. In mak-

ing the award, the arbitrator should apply any identified,

pertinent contract terms, statutes and legal precedents.

3. Explanation of Award. At the timely request of either party,

the arbitrator should provide a brief written explanation of

the basis for the award. To facilitate such requests, the arbi-

trator should discuss the matter with the parties prior to the

arbitration hearing.

INTRODUCTION: GENESIS OF THE ADVISORY

COMMITTEE

Recent years have seen a pronounced trend toward incorpora-

tion of out-of-court conflict resolution processes in standardized

agreements presented to consumers of goods and services.

Some of these processes (such as mediation and non-binding

evaluation) involve third party intervention in settlement nego-

tiations; others involve adjudication (binding arbitration). Such

processes have the potential to be of significant value in making

dispute resolution quicker, less costly, and more satisfying.’

Yet because consumer contracts often do not involve arm’s

length negotiation of terms, and frequently consist of boilerplate

language presented on a take-it-or-leave it basis by suppliers of

goods or services, there are legitimate concerns regarding the

fairness of consumer conflict resolution mechanisms required by

suppliers. This is particularly true in the realm of binding arbi-

' See, e.g., CPR Institute for Dispute Resolution, ADR Cost Savings &

Benefit Studies (Catherine Cronin-Harris, ed. 1994 )(summarizing some of the

research findings on the relative advantages ADR may offer). See also, e.g.,

Madden v. Kaiser Foundation Hosp., \7 Cal. 3d 699, 711, 552 P.2d 1178,

1186 (1976)(“The speed and economy of arbitration, in contrast to the ex-

pense and delay of a jury trial, could prove helpful to all parties . . . ”)

Ta

tration, where the courts are displaced by private adjudication

systems. In such cases, consumers are often unaware of their

procedural rights and obligations until the realities of out-of-

court arbitration are revealed to them after disputes have arisen.”

While the results may be entirely satisfactory, they may also fall

short of consumers’ reasonable expectations of fairness> and

have a significant impact on consumers’ substantive rights and

remedies.*

* The arbitration agreement may be included in the “fine print” in a bro-

chure of terms and conditions inside a box of goods. See, e.g.,

Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997)(customers agreed

to computer company’s contract terms, including arbitration agreement, by

failing to return merchandise within 30 days). See also David S. Schwartz,

Enforcing Small Print to Protect Big Business: Employee and Consumer

Rights Claims in an Age of Compelled Arbitration, 1997 Wis. L. REV.33, 40-

53 (offering a “cautionary tale” regarding employment arbitration agree-

ment).

* See Mark E. Budnitz, Arbitration of Disputes Between Consumers and

Financial Institutions: A Serious Threat to Consumer Protection, 10 OHIO

ST. J.ON Disp. RES. 267 (1995)(discussing procedural limitations of arbitra-

tion in treating consumer disputes with banks and lenders); Schwartz, supra

note 2 (discussing issues relating to adhesion contracts involving employees

and consumers); Jean R. Sternlight, Rethinking the Constitutionality of the

Supreme Court’s Preference for Binding Arbitration: A Fresh Assessment of

Jury Trial, Separation of Powers, and Due Process Concerns, 72 TULANE L.

REV.1 (1997)(discussing due process concerns with binding arbitration under

employment and consumer contracts). See, e.g., Engalla v. Permanente Med.

Grp., 938 P.2d 903 (Cal. 1997)(medical group may not compel arbitration

where it administers own arbitration program, fraudulently misrepresents

speed of arbitrator selection process, and then forces delays); Broemmer v.

Abortion Serv. of Phoenix, 840 P.2d 1013 (Az. 1992)(refusing to enforce

agreement in “adhesion contract” where drafter inserted potentially self-

serving term requiring sole arbitrator of medical malpractice claims to be a

licensed medical doctor).

* See Schwartz, supra note 2, at 60-61 (discussing perceptions regarding

relative damages awards in court and in arbitration), 64-66 (summarizing

some Statistics on arbitration awards). See also William W. Park, When and

Why Arbitration Matters, in THE COMMERCIAL WAY TO JUSTICE 73, 75

8a

The use of mediation and other forms of alternative dispute

resolution (ADR) by various state and federal courts has also

raised concerns regarding quality, effectiveness and fairness.

The response has been a number of national, state and local ini-

tiatives to establish standards for the guidance and information

of courts. Until now. however, there has been no comparable

national effort in the private consumer sphere.

In the spring of 1997, the American Arbitration Association

(AAA) announced the establishment of a National Consumer

Disputes Advisory Committee. The stated mission of the Advi-

sory Committee is:

To bring together a broad, diverse, representative national

advisory committee to advise the American Arbitration As-

sociation in the development of standards and procedures

for the equitable resolution of consumer disputes.

In light of its stated mission, the Advisory Committee’s rec-

ommendations are likely to have a direct impact on the devel-

opment of rules, procedures and policies for the resolution of

consumer disputes under the auspices of the AAA.

The Advisory Committee’s recommendations may also

have a significant impact in the broader realm of consumer

ADR. A Statement of Principles which is perceived as a

broadly-based consensus regarding minimum requirements for

mediation and arbitration programs for consumers of goods and

services may influence the evolution of consumer rules gener-

ally and the development of state and federal laws governing

consumer arbitration agreements. The standards may affect the

drafting of statutes and influence judicial opinions addressing

(G.M. Beresford Hartwell ed., 1997)(““Who interprets an . . . agreement will

frequently be more significant than what the applicable law says about the

agreement .. .”).

9a

the enforceability of arbitration agreements pursuant to existing

state or federal law.”

[Pages 9-46 of the Consumer Due Process Protocol, con-

taining a detailed discussion of each principle, have been

omitted from this Appendix but may be found on the AAA’s

website at www.adr.org]

A DUE PROCESS PROTOCOL FOR MEDIATION

AND ARBITRATION OF CONSUMER DISPUTES

SIGNATORIES

Dated: April 17, 1998

Some of the signatories to this Protocol were designated by their

respective organizations, but the Protocol reflects their personal

views and should not be construed as representing the policy of

the designating organizations.

The Honorable Winslow Christian

Co-chair

Justice (Retired)

California Court of Appeal

William N. Miller

Co-chair

Director of the ADR Unit

Office of Consumer Affairs

Virginia Division of Consumer Protection

Designated by National Association of Consumer Agency

Administrators

> See, e.g., Cole v. Burns International Security Services, 105 F.3d 1465

(D.C. Cir. 1997)(citing Due Process Protocol for Employment Disputes).

The consensus-based approach of this broadly constituted group reflects the

“public interest” model espoused by Professor Speidel. See Richard E. Spei-

del, Contract Theory and Securities Arbitration: Whither Consent?, 62

BROOK. L. REV. 1335 (1996)

10a

David B. Adcock

Office of the University Counsel

Duke University

Steven G. Gallagher

Senior Vice President

American Arbitration Association

Michael F. Hoellering

General Counsel

American Arbitration Association

J. Clark Kelso

Director

Institute for Legislative Practice

University of the Pacific

McGeorge School of Law

Elaine Kolish

Associate Director

Division of Enforcement

Bureau of Consumer Protection

Federal Trade Commission

Robert Marotta

Wolcott, Rivers, Wheary, Basnight & Kelly, P.C.

Formerly Office of the General Counsel

General Motors Corporation

Robert E. Meade

Senior Vice President

American Arbitration Association

Ken McEldowney

Executive Director

Consumer Action

Michelle Meier

Former Counsel for Government Affairs

Consumers Union

lla

Anita B. Metzen

Executive Director

American Council on Consumer Interests

James A. Newell

Associate General Counsel

Freddie Mac

Shirley F. Sarna

Assistant Attorney General-In-Charge

Consumer Frauds and Protection Bureau

Office of the Attorney General

State of New York

Designated by National Association

of Attorneys General

Daniel C. Smith

Vice President and Deputy General Counsel

Fannie Mae

Terry L. Trantina

Member

Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C.

Formerly General Attorney

AT&T Corp.

Deborah M. Zuckerman

Staff Attorney

Litigation Unit

American Association of Retired Persons

Thomas Stipanowich

Academic Reporter

W.L. Matthews Professor of Law

University of Kentucky College of Law

12a

APPENDIX B

ARBITRATION RULES FOR THE RESOLUTION OF

CONSUMER-RELATED DISPUTES

INTRODUCTION

Millions of consumer transactions take place each year.

Occasionally there are disagreements between consumers and

businesses. These disagreements can be resolved by

arbitration promptly and economically.

About the AAA

The American Arbitration Association (AAA), a not-for-

profit, public service organization, offers a broad range of

dispute resolution services to business executives, attorneys,

individuals, trade associations, unions, management, con-

sumers, and government. In addition, the AAA serves as a

center for education and training, issues specialized

publications, and conducts research on all forms of out-of-

court dispute settlement.

The AAA's Consumer ADR Rules

The AAA developed Arbitration Rules for the Resolution of

Consumer-Related Disputes for consumers and businesses

who want to have their disagreements resolved by arbitrators,

and avoid the costs and delays of litigation. Services are

available through the Association's Dallas Case Management

Center.

To use the Rules, a request for arbitration must be (1) filed by

the consumer and (2) involve a claim under $10,000.

Mediation

Mediation is also available to assist parties to resolve their

disputes. If the parties want to use mediation, they may do so

under the Association's Commercial Mediation Rules.

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Administrative Fees

The Association charges a fee for the administration of a

consumer arbitration under these rules. To begin the process,

consumers must accompany their request for arbitration with

$125 as their portion of the arbitrator's fee. The AAA will

send notice to the business that the AAA has received a

consumer case under these rules. An administrative fee of

$500 is then due from the business, together with $125 as

their portion of the arbitrator's fee.

GLOSSARY OF TERMS

Consumer

Consumer refers to an individual who purchases or leases

goods or services, or contracts to purchase or lease goods or

services, intended primarily for personal, family or household

use.

Business

Business refers to a seller or lessor of goods or services to

consumers for personal, family or household use.

ADR Process

An ADR (Alternative Dispute Resolution) Process is a

method for out-of-court resolution of conflict through the

intervention of third parties. Mediation and arbitration are the

most widely used ADR processes.

Mediation

Mediation refers to a process in which an impartial person

helps parties to a dispute to communicate and to make

voluntary, informed choices in an effort to resolve their

dispute. A mediator, unlike an arbitrator, does not issue a

decision regarding the merits of the dispute, but instead

l4a

facilitates communication between the parties to help them

arrive at a mutually agreeable settlement.

Desk Arbitration

Arbitration is a process in which parties submit disputes to a

neutral third person for a decision on the merits. Each party

has an opportunity to present evidence to the arbitrator in

writing. Arbitrators are not required to follow the Rules of

Evidence used in court. Arbitrators decide cases by written

decisions or “awards.” An award is usually binding on the

parties, depending on the agreement to arbitrate. If necessary,

a “binding” arbitration award may be enforced as a court

judgment, but judicial review of arbitration awards is limited.

Neutral

A Neutral is a mediator, arbitrator, or other independent,

impartial third person selected to serve in a dispute.

ADR Agreement

An ADR Agreement is an agreement between a business and

a consumer to submit disputes to mediation, arbitration, or

other ADR Processes. As used in this statement, the term

includes provisions in standard contracts furnished by

providers which signify the assent of the consumer and

provider to such processes (although the assent may only be

the “generalized assent” typically given by consumers to

standard terms).

ADR Program

An ADR Program is any program or service established by or

used by a provider of goods and services for out-of-court

resolution of disputes.

15a

Independent ADR Institution

An Independent ADR Institution is an organization that

provides independent and impartial administration of ADR

programs for consumers and businesses.

ARBITRATION RULES FOR THE RESOLUTION OF

CONSUMER-RELATED. DISPUTES

1. Agreement of Parties and Applicability

Parties have agreed to arbitration by the American Arbitration

Association (AAA) under these rules whenever the AAA or

its rules are reficred to in an agreement between a consumer

and a business. The AAA will apply the rules that are in

effect at the time the request is filed. The authority and duties

of the AAA are defined by the parties in their agreement and

in these rules.

These procedures will only apply in cases where the claim is

under $10,000, exclusive of interest, arbitration fees, and

costs. These rules may not be used where there is no stated

claim. Consumers are not prohibited from seeking relief in a

small claims court for disputes or claims within the scope of

its jurisdiction.

2. Initiation Under an Arbitration Agreement

Where an agreement to arbitrate exists, arbitration may be

initiated as follows:

(a) The consumer must notify the business, in writing,

that it wants to arbitrate a dispute. This notification

is referred to as the “request” for arbitration. The

request should:

briefly explain the dispute,

list the names and addresses of the consumer

and the business,

specify the amount of money involved and,

indicate the solution sought.

16a

The consumer must also send two copies of the request to the

AAA, at the time it sends the request to the business. When

sending the request to the AAA, the consumer must attach a

copy of the arbitration agreement together with $125 for its

share of the arbitrator's compensation.

(b) The business may answer the consumer's request.

The answer must be sent to the AAA within 10

calendar days after the AAA acknowledges receipt of

claimant's request. The answer must also:

e _ be in writing,

e be sent, in duplicate, to the AAA,

e be simultaneously sent to the consumer.

If an answer is not sent on time, it will be assumed that the

business disagrees with the consumer's claim. The arbitration

will go forward, even if the business does not file an answer.

3. Initiation Under a Submission

Where no agreement to arbitrate exists, the consumer and the

business may agree to arbitrate an existing dispute. To begin

an arbitration under these rules, the parties must jointly send

the AAA a submission agreement. The submission agreement

must:

be in writing,

briefly explain the dispute,

list the names and addresses of the consumer and

the business,

specify the amount of money involved (if any), and,

indicate the solution sought.

The parties should send two copies of the submission to the

AAA. When sending the submissions to the AAA, the

consumer must include $125 for its share of the arbitrator's

compensation and the business must include $500 for the

17a

administrative fee, in addition to $125 for its share of the

arbitrator's compensation.

4. The Arbitrator

(a) Appointment

When the AAA receives the request or submission, the

AAA will appoint an arbitrator to serve. The parties will

have seven calendar days from the time the AAA notifies

them of the arbitrator to submit any factual objections to

that person.

(b) Disclosure and Challenge Procedure

(i) The arbitrator must disclose to the AAA any

circumstance that is likely to affect his or her

impartiality. This includes any bias, any financial or

personal interest in the result of the arbitration, or

any past or present relationship with the parties or

their representatives. If the AAA receives disclosed

information, it will share the information with the

parties and ask for their comments.

(ii) If either party objects to the arbitrator con-

tinuing to serve on the case, the AAA will decide

whether to remove the arbitrator. The AAA will

inform the parties of its decision.

5. Proceedings on Documents

Disputes under these rules are resolved by reviewing

documents submitted by the parties. Documents must be sent

to the AAA for forwarding to the arbitrator.

6. Optional Hearing by Telephone

A party may request in writing that the arbitrator hold one

hearing by telephone. The telephonic hearing may occur even

if the other party refuses to participate. An additional $100

18a

must accompany a request for a telephonic hearing. If a party

wants to have an in-person hearing, instead of a telephonic

hearing, the dispute must be administered under the AAA's

Commercial Arbitration Rules. The party who requests an in-

person hearing must pay all the administrative fees, expenses,

and compensation costs in the Commercial Arbitration Rules.

7. Representation

Parties may be represented by counsel, if they choose.

8. Evidence

(a) The parties may offer evidence about the dispute. The

arbitrator has the authority to determine which

evidence is relevant and material. Parties are

expected to produce whatever evidence is requested

by the arbitrator. The parties do not have to follow

legal rules of evidence.

(b) An arbitrator, or other person authorized by law to

subpoena documents, may do so upon the request of

any party or independently.

9. Closing of Hearing

(a) The hearing will be closed on the date the AAA

sends the final documents to the arbitrator.

(b) The arbitrator may reopen the hearing to accept

additional evidence at any time before the award is

written and signed.

10 Waiver of Rules

A party's right to object will be considered waived if the party

proceeds with the arbitration knowing that the other party has

no! followed a provision or requirement of these rules, and

fais to timely object in writing.

19a

11. Extensions of Time

The AAA or the arbitrator may give each party one seven-day

extension of any deadline in these rules.

12. Serving of Documents

(a)

(b)

(c)

The AAA may notify the parties by telephone. The

AAA, the arbitrator, and the parties may also use

overnight delivery or electronic facsimile

transmission (fax), to give the notices required by

these rules. Notices may be transmitted by electronic

mail (E-mail), where all parties and the arbitrator

agree.

All documents pertaining to the arbitration, or

related court action, or the entry of judgment on any

award, may be served on a party by mail addressed

to the party, or its representative, at its last known

address. Notices may also be made by personal

service, in or Outside the state where the arbitration

is to be administered, provided that reasonable

opportunity to be heard with regard to the dispute

has been given to the party.

When sending documents to the AAA, a party must

also send copies to the other party at the same time.

13. The Award

(a) unless the parties agree otherwise, the arbitrator must

(b)

make his or her award within 14 calendar days after

the AAA transmits the final statements and proofs to

the arbitrator.

Awards shall be in writing and shall be executed as

required by law.

(c) In the award, the arbitrator should apply any

identified, pertinent contract terms, statutes, and

20a

legal precedents. The arbitrator may grant any

remedy or relief that the parties could have received

in court. The award shall be final and binding, but

subject to review in accordance with applicable

Statutes governing arbitration awards.

14. Release of Documents for Judicial Proceedings

Upon the written request of a party, the AAA will send the

party certified copies of any papers in the AAA's possession

that may be required in judicial proceedings relating to the

arbitration. The requesting party will be charged the cost of

this service.

15. Applications to Court and Exclusion of Liability

(a) Neither the AAA nor any arbitrator in a proceeding

under these rules is a necessary party in judicial

proceedings relating to the arbitration.

(b) Parties to an arbitration under these rules shall be

deemed to have consented that judgment upon the

arbitration award may be entered in any federal or

State court having jurisdiction thereof.

(c) Neither the AAA nor any arbitrator shall be liable to

any party for any act or omission in connection with

any arbitration conducted under these rules.

16. Arbitrator's Compensation

Arbitrators serving under these rules receive a fee of $250,

paid equally by the parties, for considering the parties’

evidence and writing an award.

17. Interpretation and Application of Rules

The arbitrator shall interpret and apply these rules as they

relate to the arbitrator's powers and duties. All other

procedures shall be interpreted and applied by the AAA.

2la

ADMINISTRATIVE FEES

When filing a request for arbitration, the consumer must

include $125 for its share of the arbitrator's compensation.

When the AAA acknowledges notice of the request for

arbitration, it will bill the business for the $500 administrative

fee, and $125 for its share of the arbitrator's compensation.

If the business fails to pay its fees and share of arbitrator

compensation, the consumer may advance such funds, which

shall subsequently be allocated to the business in the

arbitrator's award.

Any party requesting a telephonic hearing must remit an

additional $100.

All fees are non-refundable.