Amicus Curiae Brief — Mehler v. Terminix International Co.

Q)

Court, U.S.

FILED

No. 00-1564 Be:

—WRE-F¥E 200i

In The aa

Supreme Court Of The Uni

October Term, 2000

>

JEFFREY N. MEHLER AND MARY S. RUSSELL,

Petitioners

Vv.

THE TERMINIX INTERNATIONAL COMPANY, L.P.,

Respondent

+

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

——— —@——__—-

BRIEF OF AMICI CURIAE OF THE STATE OF

CONNECTICUT, FOUR STATES AND THE

COMMONWEALTH OF PUERTO RICO

IN SUPPORT OF PETITIONERS

a

RICHARD BLUMENTHAL

Attorney General of Connecticut

GARRY DESJARDINS

Assistant Attorney General

* ELIOT PRESCOTT

Assistant Attorney General

Office of the Attorney General

110 Sherman Street

MacKenzie Hall

Hartford, CT 06105

(860) 808-5400

*Counsel of Record (Additional Counsel on Inside Cover)

Additional Counsel:

KEN SALAZAR

Attorney General of Colorado

JEREMIAH W. (JAY) NIXON

Attorney General of Missouri

FRANKIE SUE DEL PAPA

Attorney General of Nevada

W. A. DREW EDMONDSON

Attorney General of Oklahoma

ANABELLE RODRIGUEZ

Attorney General of Puerto Rico

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Brescia's Printing Services, Inc.

66 Connecticut Boulevard

East Hartford, CT 06108

528-4254

TABLE OF CONTENTS

EAR OT AU PROT ae 6 5 ke ec van cans aeennnss ill

SEATEMEINS CF EN TEOR 65 60s cca en ae sae wenes l

REASONS FOR GRANTING THE PETITION ........ 2

I. THE SECOND CIRCUIT DISREGARDED

PRINCIPLES OF FEDERALISM TO

EFFECT AN UNAUTHORIZED

PREEMPTION OF STATE LAW............. 2

A. Federalism Maintains a Critical

Balance of Power Between Federal

and State Governments............... 2

B. Federal Power is Used to Preempt

Areas of Traditional State Regulation

Only Where Such Congressional

Intent is Unmistakably Clear........... 3

te The Second Circuit Disregarded

Clear and Sp: cific Congressional

Intent to Preserve State Contract

Law in Applying the FAA ............. 3

II. THE ARBITRATION CLAUSE CANNOT

BE ENFORCED TO RESOLVE THIS DISPUTE

UNDER WELL SETTLED PRINCIPLES OF

REE CAMO EM ET LAW ck canst cawecn- 5

A. The Contract Was Not In Effect

at the Time of the Wrongful Conduct

By Terminix and, Therefore, Did Not

Apply to the DMQUNE on ckccccccdencess 5

B. The Arbitration Clause in the Termite

Protection Plan is Unconscionable

Unilor SG GA. CG 5 yee a eae 8&

: Waiver of right to jury trial..... 10

y Access to the forum conditioned

upon payment of an excessive

ere re ae 10

III. | INCASES SUCH AS THIS, WHERE THERE IS

NO MEANINGFUL CONSENT, THE

IMPOSITION OF A MANDATORY

ARBITRATION CLAUSE VIOLATES THE

PUBLIC POLICY OF EERE EAR. oc eceseies 11

A. Federal arbitration policy is based

on the enforcement of arbitration

agreements which are voluntary ....... 11

B. Mandatory binding arbitration lacks

sufficient safeguards to protect the

rights of consumers in the absence of

meaningful consent.............. to.

CONCLUSION... ..ssktes cede keene ee eee 18

TABLE OF AUTHORITIES

Cases

24 Leggett Street Ltd. Partnership v.

Beacon Industries, 685 A.2d 305, 311

Aetna Casualty and Surety Co. v. Murphy,

538 A.2d 219, 222 (Conn. 1988).............. 9

Advest, Inc.v. McCarthy, 914 F.2d 6 (1st Cir. 1990)... .17

Alexander v. Gardner-Denver Company,

ee eR 14, 15, 16

Allied Bruce Terminix Companies, Inc. v. Dobson,

Pe Wis Mg BOE CPDPOR. goad vcccccccccece 2,4

Atascadero State Hospital v. Scanlon,

eRe Rec Re ee) 3,4

Barrentine v. Arkansas-Best Freight System, inc.,

gS ee Fe, | re 14, 15, 16

BFP v. Resolution Trust Corp.,

OS | 3,4

California v. ARC America Corp.,

oo 3

Cheshire Mortgage Service, Inc. v. Montes,

612 A.2d 1130, 1135 (Conn. 1992)............ 8

iil

Collins v. Sears, Roebuck & Co.,

321 A.2d 444, 448 (Conn. 1973). ............. 6

Dean Witter Reynolds, Inc. v. Byrd,

470 U.S. 213, 219, 220 n. 6 (1985) ........... 12

English v. GE, 496 U.S. 72, 78-79 (1990). ............ 4

Family Financial Services, Inc. v. Spencer,

677 A.2d 479, 484 (Conn. 1996).............. 8

First Options of Chicago, Inc. v. Kaplan,

514 US. 938, 944 (1995)... 0. ccc cee ees 4,13

Flexible Mfg. Systems Pty. Ltd v. Super

Products Corp., 86 F.3d 96 (7th Cir. 1996).... 17

Gregory v. Ashcroft, 501 U.S. 452, 457 (1991). .... 2, 3,4

Hamm vy. Taylor, 429 A.2d 946, 949 (Conn. 1980)...... 8

lamartino v. Avallone, 477 A.2d 124, 128

SG SS os cee whe SACS ORAS So SET 8

L&R Realty v. Connecticut National Bank,

715 A.2d 748, 755 (Conn. 1998)............. 10

Lawson v. Whitey's Frame Shop,

697 A.2d 1137, 1141 (Conn. 1997) ........... 6

Levine v. Massey, 654 A.2d 737, 740 (Conn. 1995)..... 6

Mastrobuono v. Shearson Lehman Hutton, Inc.,

584 ULB. SZ, SO-SO CIGD ov cece sices 11, 12, 13

iv

McDonald v. City of West Branch,

466. U.S. 264. (1964). iin oe VLR 14, 15

Mongillo v. Commissioner of Transportation,

371 A.2d 112, 1135 (Comm. 1996). . 0.6.3 eek 7

Morales v. TWA, 504 U.S. 374, 383 (1992). ........... 4

Myers v. Terminix Int'l Co., 697 N.E.2d 277

(Ohio Ct. Com. P. January 27, 1998).......... 11

Norton v. Commercial Credit Corp.,

No. 98-0578441, 1998 WL 729700

(Conn. Super. Ct. Oct. 6, 1998).............. 10

O.R. Securities, Inc. v. Professional Planning

Assocs., Inc., 857 F.2d 742 (11th Cir. 1988)... .17

Patterson v. ITT Consumer Financial Corp.,

18 Cal. Rptr. 2d 563

(Cit. Ae. Set OE: TST oS 9,11

Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987). ....... 4

Pesino v. Atlantic Bank of New York,

709 A.2d 540, 546 (Conn. 1998).............. 6

Prima Paint Corp. v. Conklin,

Se A FP WN IT vs ok cp he ies hone 14

Saxis Steamship Co. v. Multifacs Intl. Traders, Inc.,

SID met CRO, FOI occ kk on acaba 17

Shankle v. B-G Maintenance Management of

Colorado, Inc., 163 F.3d 1230

Oe St Bs ii eee as 11

Southeastern Conn. Regional Resources Recovery

Authority v. Dept of Public Utility Control,

709 A.2d 549, 555 (Conn. 1998)............ 5,6

Southland Corp. v. Keating,

465 U.S. 1, URS CTO s 6.06 ca vkeceeesaads 12

Streitweiser v. Middlesex Mutual Assurance Co.,

593 A.2d 498, 500 (Conn. 1991)............. 6

U.S. Bulk Carriers v. Arguelles,

4Q0 US. 551, SIPDOO CRP IAD bb vcceenisewns 14

Volt Information Sciences, Inc. v. Board of Trustees

of the Leland Stanford Junior University,

489 U.S. 468, 479 (1989) ............. 10, hay 82

Williams v. Aetna Finance Co.,

700 N.E.2d 859, 867 (Ohio, 1998)......... 9,11

Younger v. Harris, 401 U.S. 37, 44-45 (1971)....... 1,2

Federal Statutes

Federal Arbitration Act, 9 USC § 1, et. seg........... 11

Federal Arbitration Act § 2,9 U.S.C. §2......... 2, 4,5

Federal Arbitration Act § 3,9 USC §3.............. 12

Federal Arbitration Act § 4,9 USC §4.............. 12

Federal Arbitration Act § 10,9 U.S.C.§10.......... 17

vi

Legislative Materials

HR Rep. No. 96, 68th Cong., Ist Sess. 1-2, (1924)..... 12

Hearing on S 4213 and S 4214 before the

Subcommittee of the Senate Committee

on the Judiciary, 67th Cong.,

Ob Bane... Poh ET CIS os b:knescs edaesranans 14

Joint Hearings on S 1005 and HR 646 before the

Subcommittees of the Committees

on the Judiciary, 68th Cong.,

ROOT, SP GUE bic cbscbkas rede s 0s 6 ue 14

Treatises/Other

J. Calamari & J. Perillo, Contracts (3d Ed.) § 9-40...... 8

Uniform Commercial Code, Official Comment 1

EE Pee OD rere rT eT ore errr &

vil

STATEMENT OF INTEREST

The amici curiae State of Connecticut and the states

identified on the cover, by and through their attomeys

general, respectfully submit this brief in support of the

Petition for Writ of Certiorari of Jeffrey N. Mehler and

Mary S. Russell.

The States have a strong interest in preserving the

proper balance of power between federal and _ state

governments. Our system of federalism, as explained by

Justice Black,

...lS a system in which there is sensitivity to

the legitimate interests of both State and

National Governments, and in which the

National Government, anxious though it

may be to vindicate and protect federal

rights and federal interests, always

endeavors to do so in ways that will not

unduly interfere with the legitimate

activities of the States.

Younger v. Harris, 40i U.S. 37, 44-45 (1971).

Specifically, the States’ interest is in opposing

unwarranted federal encroachment upon state law

governing the formation and enforceability of contracts, an

area traditionally left to state regulation. The States view

the preservation of state contract law as necessary to the

protection of their citizens from abusive and

unconscionable business practices which result in the

unknowing or coerced surrender of important legal and

constitutional rights, including the right to a jury trial.

Section 2 of the Federal Arbitration Act’ (hereinafter

"FAA") expressly reserves this role for the states as

recognized by this Court. Allied Bruce Terminix

Companies, Inc. v. Dobson, 513 U.S. 265, 281 (1995).

REASONS FOR GRANTING THE PETITION

I. THE SECOND CIRCUIT DISREGARDED

PRINCIPLES OF FEDERALISM TO

EFFECT AN UNAUTHORIZED

PREEMPTION OF STATE LAW

The Second Circuit erroneously applied the federal

presumption of arbitrability in a manner which preempts

state contract law and violates established principles of

federalism.

A. Federalism Maintains a _ Critical

Balance of Power Between Federal and

State Governments

Our system of federalism embodies a dual

sovereignty in which the states possess sovereignty

concurrent with the federal government, subject only to the

limitations imposed by the Supremacy Clause. Gregory v.

Ashcroft, 501 U.S. 452, 457 (1991). It is a system which

strikes a careful balance between the legitimate interests of

both the federal and state governments. Younger, 401 U.S.

at 44-45. This constitutionally mandated balance of power

was adopted by the original framers of the Constitution in

order to preserve our fundamental liberties and as a check

on the abuse of government power. Gregory, 501 U.S. at

V 9 U.S.C. §2

458-459 ("In the tension between federal and state power

lies the promise of liberty."), Atascadero State Hospital v.

Scanlon, 473 U.S. 234, 242 (1985).

B. Federal Power is Used to Preempt

Areas of Traditional State Regulation

Only Where Such Congressional Intent

is Unmistakably Clear

While Congress has the authority, as iong as it is

acting within its defined constitutional powers, to preempt

state law, it does not take this intrusion upon state authority

lightly. Gregory, 501 U.S. at 460. This is true particularly

in areas of traditional state regulation, such as the formation

and enforceability of contracts, where this reluctance to

encroach upon state powers is expressed as a judicial

presumption against preemption. California v. ARC

America Corp., 490 U.S. 93, 101 (1989). Accordingly,

federal legislation will be applied to preempt state law in

such traditional areas of state regulation only if the

Congressional intent to do so is "clear and manifest." BFP

v. Resolution Trust Corp., 511 U.S. 531, 544 (1994),

Gregory, 501 U.S. at 461, Atascadero, 473 U.S. at

242-243.

‘. The Second Circuit Disregarded Clear

and Specific Congressional Intent to

Preserve State Contract Law in

Applying the FAA

A court cannot construe a federal statute to impinge

on legitimate state interests without considering the effect

of such a ruling on our federalist system. BFP, 511 U.S. at

544. It also is incumbent upon the federal courts to be

3

certain of Congressional intent before determining that

federal law overrides the existing balance of federal and

state powers. Gregory, 501 U.S. at 460, Atascadero, 473

U.S. at 243. If there is any doubt about Congressional

intent, principles of federalism require that the federal

courts defer to traditional state regulation. BFP, 511 U:S.

at 546.

In determining the intent of Congress, the courts

must look to the express language of the statute "and the

assumption that the ordinary meaning of that language

accurately expresses the legislative purpose." Morales v.

TWA, 504 US. 374, 383 (1992). "Preemption

fundamentally is a question of congressional intent, and

when Congress has made its intent known through explicit

statutory language, the court's task is an easy one." English

v. GE, 496 U.S. 72, 78-79 (1990).

Congressional intent in enacting § 2 of the FAA is

unmistakably clear. This provision specifically preserves

"such grounds as exist at law or in equity for the revocation

of any contract" as a basis for invalidating arbitration

clauses. Through this express language, Congress sought

to limit its intrusion upon state authority and to carefully

protect general principles of state contract law, an area

historically regulated by the states. Accordingly, this Court

has held that state contract law must be applied in

determining whether there is a valid agreement to arbitrate

the subject of a disnute. First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938, 944 (1995), Allied Bruce, 513 U.S.

at 281, Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987).

4

The Second Circuit erroneously determined that the

parties should have been required to submit their dispute to

arbitration based on the FAA's presumption in favor of

arbitrability, "irrespective" of the construction of the

parties' contract pursuant to state law. Petitioners’

Appendix 13. The Second Circuit's view that this principle

of federal law preempts the application of traditional state

contract law is contrary to the Congressional intent set forth

in the express language of § 2 of the FAA and contrary to

the well established principles of federalism.

Il. THE ARBITRATION CLAUSE CANNOT

BE ENFORCED TO RESOLVE THIS

DISPUTE UNDER WELL SETTLED

PRINCIPLES OF STATE CONTRACT

LAW

A. The Contract Was Not In Effect at

the Time of the Wrongful Conduct

By Terminix and, Therefore, Did

Not Apply to the Dispute

The construction of the Terminix Termite

Protection Plan (Petitioners' App. 42-47) which contains

the disputed arbitration clause is governed by well

established principles of state contract law. A contract

must be construed to effectuate the intent of the parties

which, in turn, must be determined from a fair and

reasonable reading of the written words contained in the

document. Where the language of the contract is clear and

unambiguous, the contract must be given effect according

to its terms. Southeastern Conn. Regional Resources

Recovery Authority v. Dept of Public Utility Control, 709

A.2d 549, 555 (Conn. 1998), Lawson v. Whitey's Frame

Shop, 697 A.2d 1137, 1141 (Conn. 1997), 24 Leggett

Street Lid. Partnership v. Beacon Industries, 685 A.2d 305,

311 (Conn. 1996). Where the plain meaning and intent of

the language is clear there is no room for construction.”

Levine v. Massey, 654 A.2d 737, 740 (Conn. 1995), Collins

v. Sears, Roebuck & Co., 321 A.2d 444, 448 (Conn. 1973).

A court cannot disregard the words of the parties or read

into a contract by interpretation, a provision which is

contrary to the express terms of the agreement itself.

Pesino v. Atlantic Bank of New York, 709 A.2d 540, 546

(Conn. 1998), Levine, 654 A.2d at 740-741, Collins, 321

A.2d at 448.

The subject of the parties' dispute is the damage

caused by Terminix during the application of termiticide to

the Petitioners’ residence on July 19th and July 24th, 1996.

The Termite Protection Plan (Petitioners'’ App. 42) was

signed by the parties on July 19th while the initial treatment

work had yet to be performed. By its terms the Termite

Protection Plan is a conditional service contract and

guarantee which provides for future inspections and

treatments for termite infestation and guarantees against

future damage from such infestations. It contains a notice

Even if the contract language were deemed

ambiguous, it also is well established that,

particularly in the case of form contracts, any such

ambiguity must be construed against the interests of

the drafting party, in this case, Terminix.

Streitweiser v. Middlesex Mutual Assurance Co.,

593 A.2d 498, 500 (Conn. 1991).

=

atteintmetii ee

that the agreement is contingent upon approval of the

Terminix manager and that confirmation of the effective

date will be forwarded after completion of the work and

payment has been received.

Subsequent to the completion of the termite

treatment work a written confirmation (Petitioners' App.

47) was issued by Terminix which identified the contract

by number and stated that it began on August 1, 1996.

These documents must be read together in determining the

intent of the parties. Mongillo v. Commissioner of

Transportation, 571 A.2d 112, 115 (Conn. 1990).

Since the damage which 5s the subject of the parties'

dispute occurred during the application of the treatment in

July and the contract expressly states that the contract does

not begin until August 1, 1996, the contract does not apply

to the dispute. Contrary to this explicit language, the

Second Circuit reads into the contract a provision which

makes the contract effective on July 19th. The Second

Circuit's reading also renders superfluous the express

contract language which creates certain conditions

precedent. The completion of the treatment work, receipt

of payment and managerial approval all had to be fulfilled

before the contract could become effective and none had

occurred on July 19th. The Second Circuit's tortured

reading of the contract to import a new effective date is

contrary to the express terms of the agreement and violates

the fundamental state law pprinciples of contract

construction previously discussed.

B. The Arbitration Clause in the

Termite Protection Plan _ is

Unconscionable Under State Law

Connecticut courts have established that

unconscionability, as a defense to the enforceability of a

contract, 1s determined as a question of law, based on all of

the relevant facts and circumstances of the case. Cheshire

Mortgage Service, Inc. v. Montes, 612 A.2d 1130, 1135

(Conn. 1992); Jamartino v. Avallone, 477 A.2d 124, 128

(Conn. 1984). The purpose of the doctrine is to prevent

oppression and unfair surprise. Family Financial Services,

Inc. v. Spencer, 677 A.2d 479, 484 (Conn. 1996) (citing J.

Calamari & J. Perillo, Contracts (3d Ed.) § 9-40). In

determining whether’ contractual provisions are

unconscionable, the courts have been guided by the

principles set forth in Official Comment | to § 2-302 of the

Uniform Commercial Code.

The basic test is whether, in light of the

general commercial background and the

commercial needs of the particular trade or

case, the clauses involved are so one-sided

as to be unconscionable under the

circumstances existing at the time of the

making of the contract.

Hamm v. Taylor, 429 A.2d 946, 949 (Conn. 1980).

In this case, the plaintiffs are ordinary consumers,

trying to maintain and preserve their home, with no

particular expertise regarding the application of termiticide

or termite service plans. The Termite Protection Plan is a

preprinted form. While the front of the form contains the

signatures of the parties, the arbitration clause is located on

the back of the form near the bottom of the page.

(Petitioners' App. 43). Terminix would not have agreed to

apply the termiticide if Mr. Mehler had not signed the

Termite Protection Plan. The Terminix Inspection Graph

(Petitioners' App. 44) showed that there was an ongoing

termite infestation which had already caused damage to the

residence. No other company contacted by Mr. Mehler

would perform the necessary work. It is clear that Mr.

Mehler had no meaningful opportunity to negotiate the

terms of the standardized arbitration clause and had no

choice but to sign the agreement. This is a typical contract

of adhesion. See, Aetna Casualty and Surety Co. v.

Murphy, 538 A.2d 219, 222 (Conn. 1988).*

The terms of the arbitration clause are oppressive

and unfairly surprise consumers. The clause does not set

forth any of the arbitration procedures to be followed when

a dispute arises, but merely incorporates by reference, the

Rules of Commercial Arbitration of the American

Arbitration Association. The significance of this reference

may be understood by business persons who regularly enter

into such contracts, but not by ordinary consumers.

7 In the case of consumer adhesion contracts, the

presumption of arbitrability should not be routinely

applied since there is doubt that a true agreement to

submit issues to arbitration ever existed. Such

arbitration clauses should be more closely

scrutinized by the courts. Williams v. Aetna

Finance Co., 700 N.E.2d 859, 867 (Ohio, 1998);

Patterson v. ITT Consumer Financial Corp., 18 Cal.

Rptr. 2d 563 (Cal. App. Ist Dist. 1993).

9

1. Waiver of right to jury trial

The arbitration clause is unconscionable because it

results in the unknowing waiver of the Mehlers' right to a

jury trial. In L&R Realty v. Connecticut National Bank,

715 A.2d 748, 755 (Conn. 1998), the court held that a jury

trial waiver entered into in advance of litigation was

enforceable only when there is clear evidence of an intent

to waive that right.

The holding in L&R Realty did not specifically

involve an arbitration clause, but rather, sets forth a

principle of general applicability to any contracts which

purport to waive this fundamental constitutional right.

These factors were applied in Norton v. Commercial Credit

Corp., No. 98-0578441, 1998 WL 729700 (Conn. Super.

Ct. Oct. 6, 1998) to invalidate an arbitration agreement

which made no reference to the waiver of access to the

courts or the right to a jury trial. The arbitration clause in

the Terminix service plan, by failing to provide any notice

whatsoever that consumers are waiving their right to a jury

trial, unfairly surprised the Mehlers and is oppressive.

2. Access to the forum

conditioned upon payment of

an excessive filing fee

The Petitioners had no prior notice that the

submission of a dispute to arbitration was conditioned upon

the prepayment of a substantial fee. In this case, the fee to

file the Mehlers' claim would be $7,000.00, exclusive of

the AAA administrative fee and the arbitrator's daily fee.

10

Letter of November 26, 1997 from Martha Dean to Laura

McNaughton, AAA Administrator (Petitioners' App. 80).

Such a financial burden, especially without effective

prior notice, may deprive 2 party of access to the arbitral

forum. In essence, the arbitration clause, by its terms,

prohibits consumers from seeking redress through the

judicial system, and then renders the arbitral forum

inaccessible. In Myers v. Terminix Int'l Co., 697 N.E.2d

277 (Ohio Ct. Com. P. January 27, 1998), the court struck

down as unconscionable, a Terminix arbitration clause

which is essentially the same as that found in the Mehlers’

service plan. A similar clause was held to be unenforceable

by the courts in both the Patterson and Williams cases, and

in Shankle v. B-G Maintenance Management of Colorado,

Inc., 163 F.3d 1230 (10th Cir. 1999).

lil. IN CASES SUCH AS THIS, WHERE

THERE IS NO MEANINGFUL

CONSENT, THE IMPOSITION OF A

MANDATORY ARBITRATION CLAUSE

VIOLATES THE PUBLIC POLICY OF

THE FAA

A. Federal arbitration policy is based

on the enforcement of arbitration

agreements which are voluntary

The central purpose of the Federal Arbitration Act,

9 USC § 1, et. seq., is to ensure that "private agreements to

arbitrate are enforced according to their terms."

Mastrobuono v. Shearson Lehman Hutton, Inc., 514 US.

52, 53-54 (1995) (quoting Volt Information Sciences, Inc. v.

1]

Board of Trustees of the Leland Stanford Junior University,

489 U.S. 468, 479 (1989)). It was specifically enacted to

overcome judicial hostility to private agreements to

arbitrate and the long standing rule in equity which refused

to enforce such agreements. Dean Witter Reynolds, Inc. v.

Byrd, 470 U.S. 213, 219, 220 n. 6 (1985) (quoting HR Rep.

No. 96, 68th Cong., Ist Sess. 1-2, (1924)); Southland Corp.

v. Keating, 465 U.S. 1, 12-14 (1984). Congressional intent

was to place arbitration agreements on the same footing as

other contracts. Volt, 489 U.S. at 474; Byrd, 470 U.S. at

219.

While federal policy recognizes that arbitration can

be an expeditious means of dispute resolution, "this policy

does not operate without regard to the wishes of the

contracting parties." Mastrobuono, 514 U.S. at 57. The

consent of the parties has always been the cornerstone of

the FAA. It does not mandate the arbitration of all claims

but merely the enforcement of privately negotiated

arbitration agreements.” Volt, 489 U.S. at 474, 475; Byrd,

470 U.S. at 219-221 (the expeditious resolution of claims

° See 9 USC § 3 (on application of a party to an

arbitration agreement court may stay federal court

proceeding “upon being satisfied that the issue

involved in such suit or proceeding is referable to

arbitration under such agreement" (emphasis

added)); 9 USC § 4 (on application of a party to

enforce an arbitration agreement court may issue an

order "directing that such arbitration proceed in the

manner provided for in such agreement" (emphasis

added)).

12

was deemed to be secondary to the Act's purpose of

protecting the contractual rights of the parties).

After all, the basic objective in this area is

not to resolve disputes in the quickest

manner possible, no matter what the parties’

wishes, ....but to ensure that commercial

arbitration agreements, like other contracts,

are enforced according to their terms ....and

according to the intentions of the parties

...." [citations omitted].

First Options of Chicago, Inc., 514 U.S. at 947.

"Arbitration under the Act is a matter of consent, not

coercion." Mastrobuono, 514 U.S. at 57, (quoting Volt,

489 US. at 479).

The element of consent was considered so crucial to

the FAA that adhesion contracts, in which the voluntariness

of the weaker party might be called into question, were

thought to be entirely exempt from the coverage of the Act.

Justice Black described the view expressed by certain

members of Congress at that time:

On several occasions they expressed

opposition to a law which would enforce

even a valid arbitration provision contained

in a contract between parties of unequal

bargaining power. Senator Walsh cited

insurance, employment, construction, and

shipping contracts as routinely containing

arbitration clauses and being offered on a

take-it-or-leave-it basis to captive customers

or employees. He noted that such contracts

"are really not voluntarily [sic] things at all"

because "there is nothing for the man to do

except to sign it; and then he surrenders his

right to have his case tried by the court ...."

He was emphatically assured by the

13

supporters of the bill that it was not their

intention to cover such cases.

Prima Paint Corp. v. Conklin, 388 U.S. 395, 414 (1967)

(Dissenting opinion, citing to Hearing on S 4213 and

S 4214 before the Subcommittee of the Senate Committee

on the Judiciary, 67th Cong., 4th Sess., 9-11 (1923) and to

Joint Hearings on S 1005 and HR 646 before the

Subcommittees of the Committees on the Judiciary, 68th

Cong., Ist Sess., 15 (1924)).

B. Mandatory binding arbitration

lacks sufficient safeguards to

protect the rights of consumers in

the absence of meaningful consent

As this Court has previously observed, "the choice

of forums inevitably affects the scope of the substantive

right to be vindicated." Alexander v. Gardner-Denver

Company, 415 U.S. 36, 56 (1974) (quoting U.S. Bulk

Carriers v. Arguelles, 400 U.S. 351, 359-360

(1971)(Harlan, J., concurring)). In certain instances, this

Court has found that the arbitral forum, because it is less

protective of individual statutory rights, cannot provide an

adequate substitute for the judicial process. McDonald v.

City of West Branch, 466 U.S. 284 (1984) (§ 1983 actions),

Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S.

728 (1981) (Fair Labor Standards Act claim), Alexander v.

Gardner-Denver Company, 415 U.S. 36 (1974) (Title VII

action).

An arbitrator may have expertise in the operation of

a particular business or in a specific commercial subject

14

area but that does not guarantee the level of expertise

required to resolve the complex legal issues that may arise

in certain statutory actions. McDonald, 466 U.S. at 290,

Gardner-Denver, 415 U.S. at 57. Some statutory questions

can only be resolved upon review and consideration of

volumes of legislative history and decades of administrative

and legal rulings. Barrentine, 450 U.S. at 743. Even if the

arbitrator has the knowledge to analyze complicated

statutory legal claims, in most instances, he does not have

the authority to do so sitice his authority is limited by the

contract itself. If the arbitrator were to base his decision

upon the requirements of the law rather than solely on the

provisions of the contract, he would have exceeded the

scope of his authority and the award would not be enforced.

When there is a conflict between the rights guaranteed by

statute and the provisions of the contract, the arbitrator

must enforce the contract. McDonald, 466 U.S. at 290-291,

Barrentine, 450 U.S. at 744, Gardner-Denver, 415 U.S. at

57.

Moreover, the fact finding process in

arbitration usually is not equivalent to

judicial fact finding. The record of the

arbitration proceedings is not as complete;

the usual rules of evidence do not apply; and

rights and procedures common to civil trials,

such as discovery, compulsory process,

cross-examination, and testimony under

oath, are often severely limited or

unavailable ....and arbitrators have no

obligation to the court to give their reasons

for an award.

Gardner-Denver, 415 U.S. at 57-58.

15

Lastly, arbitrators are often powerless to grant a

broad range of relief, once again because their authority is

limited by the terms of the contract. This may likely result

in the exclusion of certain categories of damages, costs and

attorneys fees’. Barrentine, 450 U.S. at 744.\

In Gardner-Denver and its progeny this Court has

refused to impute a consensual waiver of access to the

judicial process where important statutory rights are

involved, merely by submission of a dispute to arbitration.

This is due at least in part to the inadequacy of arbitration

procedures under the FAA to protect those rights. It is also

clear that in such arbitration proceedings, the contract

controls the scope of the issues and the power of the

arbitrator. Whoever controls the contract controls the

arbitration proceeding.

These reasons illustrate the dangers of arbitration

clauses contained within preprinted form contracts of

adhesion in consumer transactions such as the Petitioners’.

Arbitrators familiar with the legal principles of commercial

arbitration may have no familiarity with specific consumer

protection statutes. Some consumer protection statutes,

such as state unfair trade practices acts, are purposefully

broad and cannot be interpreted or applied without

reference to decisions of the Federal Trade Commission

and an extensive body of administrative and judicial

decisional law. The application of these remedial statutes,

5

The Terminix arbitration clause in this case

excludes "indirect, special or consequential

damages or loss of anticipated profits." Petitioners’

App. 43.

16

often designed to level the marketplace between parties of

unequal bargaining power, may be severely limited or even

avoided by a well drafted arbitration clause, precisely

because of the superior bargaining power of the business

drafting the form contract.

To the extent that contract clauses purportedly

waive statutory claims and remedies the arbitrator must

give effect to the contract over the appli¢ation of the

consumers’ statutory rights. If a contract does allow for the

application of law by the arbitrator, and he misinterprets or

incorrectly applies the law, there is no remedy for the

disadvantaged party. Judicial review is extremely limited

by the itemized grounds set forth in 9 U.S.C. § 10. It is

well settled that errors of law are not a basis for vacating an

arbitration award under the FAA.“ In fact, since the

arbitrator is under no obligation to state the reasons for the

award, meaningful judicial review of whether the arbitrator

incorrectly applied the law, or ignored it altogether, is

virtually impossible.

Lastly, since the arbitrator is limited to awarding the

remedies in the contract, the business drafting a form

° See, e.g., Flexible Mfg. Systems Pty. Ltd v. Super

Products Corp., 86 F.3d 96 (7th Cir. 1996)

(arbitrator's mistake in rejecting valid legal defense

insufficient to vacate award), Advest, Inc.v.

McCarthy, 914 F.2d 6 (lst Cir. 1990), OR.

Securities, Inc. v. Professional Planning Associates,

Inc., 857 F.2d 742 (11th Cir. 1988), Saxis

Steamship Co. v. Multifacs Intl. Traders, Inc., 375

F.2d 577 (2d Cir. 1967).

17

contract may preclude consumers fron; obtaining the full

range of remedies otherwise available under the law.

CONCLUSION

For all of the foregoing reasons the State of

Connecticut and the States named herein respectfully

request that the Court grant the Petitioners’ Request for a

Writ of Certiorari.

Respectfully submitted,

RICHARD BLUMENTHAL

Attorney General of Connecticut

GARRY DESJARDINS

Assistant Attorney General

*ELIOT PRESCOTT

Assistant Attorney General

110 Sherman Street

MacKenzie Hall

Hartford, CT 06105

Tel. No. (860) 808-5400

*Counsel of Record