# Petition for Writ of Certiorari — Discover Bank v. Szetela

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2003
- **Citation:** 537 U.S. 1226

## Text

- Supreme Court, Us.
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O2 829nov 27 2002
No. Orr ice OF JHE CLERK
IN THE

Supreme Court of the Anited States

\

DISCOVER BANK,
. Petitioner,
V.
JOHN SZETELA,
: Respondent.

Petition for a Writ of Certiorari to the
California Court of Appeal,
Fourth Appellate District

PETITION FOR A WRIT OF CERTIORARI

\

JOEL A. FEUER JOHN G. ROBERTS, JR.*
THEODORE J. BOUTROUS, JR. CATHERINE E. STETSON
GIBSON, DUNN & CRUTCHER KEITH J. BENES
Laas HOGAN & HARTSON L.L.P.
333 South Grand Avenue, 555 Thirteenth Street, N.W.
47th Floor Washington, D.C. 20004
Los Angeles, California 90071 (202) 637-5810
(213) 229-7000
*Counsel of Record Counsel for Petitioner

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

£0 pt

QUESTION PRESENTED

Whether the California Court of Appeal properly ruled—in
conflict with the Federal Arbitration Act, this Court’s prece-
dents, and the decisions of all the federal courts of appeal to
have addressed the issue—that parties to an arbitration
agreement can be forced to arbitrate as a class or not at all,
when their arbitration agreement expressly forecloses the use
of class arbitration.

PARTIES TO THE PROCEEDINGS
AND RULE 29.6 STATEMENT

Petitioner Discover Bank (“Discover”) was defendant,
appellee and petitioner below. Respondent John Szetela was
plaintiff, appellant and respondent below.

Pursuant to S. Ct. Rule 29.6, petitioner states that it is
wholly owned by Novus Credit Services, Inc., which is in
turn wholly owned by Morgan Stanley, a publicly traded
company.

TABLE OF CONTENTS

QUESTION PRESENTED .......cscsssssccssssssscesssssecesesen

PARTIES TO THE PROCEEDINGS AND RULE
DATE SUENINTTE seseinvssvicvectucecassenesessvenenecssnecseess

SE FF TREE Do serscinsneseiscsnscosessscccesesonnene
I IIT thsiniessintecshsceverevsnsesascessoccnersisncenes
II nihincuicclecshuiihieuesinibesiesahekiaeiensennvonsiecsevnenes

CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED...........0ssscorsssssssssesseses

SRE EM rirtilee sacccoteniibetsniantnnsisernsenhesseseecaenees
STATEMENT OF THE CASE ...........0cscsesssssssesesesssees

REASONS FOR GRANTING THE WRIT................

I. THIS CASE SQUARELY PRESENTS
THE QUESTION TAKEN UP, BUT LEFT
UNRESOLVED, IN SOUTHLAND CORP.
Wi I earaticisitshittncinnsertnnssestascennssnnseses

Il. THE COURT OF APPEAL’S DECISION
CONFLICTS WITH THE DECISIONS OF
EVERY FEDERAL CIRCUIT TO HAVE
ADDRESSED THE ISSUE ..................cce0000

Ill. THE COURT OF APPEAL’S DECISION
~ CONFLICTS WITH THIS COURT’S

Page

10

13

20

iv
TABLE OF CONTENTS—Continued

IV. THE QUESTION PRESENTED IS RE-
CURRING AND IMPORTANT AND
SHOULD BE DECIDED BY THIS
CAPEIDET sivientecseesipassatibanibegintonmnnentidebesiintanins

ID sicenevistvenininsdtieietninnmnesticenneiniisnntaitiletitaniinn
APPENDICES

APPENDIX A:

Opinion of the California Court of Appeal,
Tk eT EET

APPENDIX B:

Order of the California Court of Appeal deny-
ing rehearing, dated May 16, 2002..................

APPENDIX C:

Order of the California Supreme Court denying
petition for review, dated July 31, 2002..........

APPENDIX D:

Order Entered by Circuit Justice O’Connor ex-
tending time within which to file petition
for certiorari, dated October 21, 2002..............

Page

TABLE OF AUTHORITIES
Page
Cases:
Acorn v. Household Int'l, Inc., 211 F. Supp. 2d
Be ey Se Se aiahccininnteniateneitlinnatnarininitemnnente 19
Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 7
Be lititheiabininensunineitinienmninepsdniteiign 5,22
American Centennial Ins. Co. v. National Cas. Co., |
SSE FE TGF CECA, BSED scceicsssvciestcotenessesucovistone 17,18
Anesthesia Care Assocs. Med. Group, Inc.-v. Blue
Cross of Cal., 2002 WL 484662 (Cal. Super. Ct.
FOE, iy SNE Bneridiielitvindnctoenersntetblnlplitntistasiginbaccnendiqnnsane 11
Arriaga v. Cross Country Bank, 163 F. Supp. 2d
Re Gate IE idicinntiirsinensiciisnigninttoitiatinanses 16
Baesler v. Continental Grain Co., 900 F.2d 1193
CID, Fe vcdshscitiicineincoisnhininievciiniinaietraiditnindinans 17,18
Bazzle v. Green Tree Fin. Corp., 569 S.E.2d 349
(S.C. 2002), petition for cert. filed, 71 U.S.L.W.
3320 (Oct. 23, 2002) (No. 02-364)... ccceseereeeees 19,24,25
Bischoff v. DirectTV, Inc., 180 F. Supp. 2d 1097
Pi-allith GAIL AITITIE andciehticneniinestneehpeieuistobeiabtenianenesiesinpesn 16
Blue Cross of Cal. v. Superior Court, 78 Cal. Rptr.
2d 779 (Cal. Ct. App. 1998), cert. denied, 527
Ss Re iene th chitictaticiaaisicitinncenctmiicactsasenne 11
Burton v. Bush, 614 F.2d 389 (4th Cir. 1980)............. 14
Caudle v. American Arbitration Ass'n, 230 F.3d
Fe Rae stsctecinscdnintabisbinicinnintneinamedapecians 14
Champ v. Siegel Trading Co., 55 F.3d 269 (7th Cir.
POPE Diiiinscidiithcavinsttachiitiaabidsistpinininamenenjaniienmnipincesieenee passim
Clark v. Jeter, 486 U.S. 456 (1988)........cccccssssscseeeeees 12
Comb v. PayPal, Inc., 218 F. Supp. 2d 1165 (N.D.
CO eed eeedintetictnaibcsssscdeksreienieibelansitegnaiishentaihasnves 19
Connecticut General Life Ins. Co. v. Sun Life As-
surance Co. of Canada, 210 F.3d 771 (7th Cir.
Be itictnistincllinvgetineteniuniteasilabiceetdiniaaneaiabiiseniptintelinin 18

vi
TABLE OF AUTHORITIES—Continued

Page
Cases:

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

CRUE is cvrcsncevscessecincagneaitnis pininieanbaeiniianilabemmesnpianenntees 5,14,20
Deiulemar Compagnia de Navigazione S.p.A. v.

M/V Allegra, 198 F.3d 473 (4th Cir. 1999), cert.

denied, 529 U.S. 1109 (2000).............scssesssssssssseeees 15
Del E. Webb Constr. v. Richardson Hosp. Auth.,

SZ3 F.26 145 (SG Cat. 1967) nnccrccccorecccreessecscsovosessoses 17
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681
* EDI scvctineiesssskconnsccuueteiiennsiibiidndibcealivaeieigatensibamseiait 12
Dominium Austin Partners, L.L.C. v. Emerson, 248

FE Fe ees CET riaeksdicersscicegeninmininaiatanannnses 3,14
Friedman's Inc. v. West Virginia, 71 US.L.W. .

3163 (Aug. 27, 2002) (No. 02-315)..........ccsscsseeseeeee 24

ammaro v. Thorp Consumer Discount Co., 828 F.

Supp. 673 (D. Minn. 1993), appeal dismissed, 15

FD Fae Ge Saale CI cendesiianenetisnensscinslioaneninnericense 16,18
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. —

ee iiciediteceneatntnsdtentatndunenpainriidmnseniiinlatanpegatiiniin passim
Government of the United Kingdom v. Boeing Co.,

FOS Fe Se ie Cals Ce svecrniercerssnavesninmnpscenstnnenes 17,18
Gras v. Associates First Cap. Corp., 786 A.2d 886

(N.J. Super. Ct. App. Div. 2001), cert. denied,

TOR A GE veteran 16
Gray v. Conseco, Inc., 2001 WL 1081347 (C.D.

Coa, SRO, Gi, ie eB atanercererntntevenansinnnetibdicsibitdaninarnanes 16
Iowa Grain Co. v. Brown, 171 F.3d 504 (7th Cir.

FOI Picnisezinnseveruiepaetecehieniedibeniiabilaiaiiaiaaaiabaaiatanliphiliamaianes 15
Izzi v. Mesquite Country Club, 231 Cal. Rptr. 315

CEO. i, SRR, TD seseeciinesnissvnenensitiniesiniimeniviatines 11
Johnson v. West Suburban Bank, 225 F.3d 366 (3d

Cir. 2000), cert. denied, 531 U.S. 1145 (2001)......... 3,15,21

Keating v. Superior Court, 645 P.2d 1192 (Cal.

Vii

TABLE OF AUTHORITIES—Continued

Cases:

Leonard v. Terminix Int’! Co., __ So. 2d ___,

2002 WL 31341084 (Ala. Oct. 18, 2002).................

Lewis v. Prudential Bache Sec., Inc., 225 Cal. Rptr.

ee se ee aes

Lloyd v. MBNA Amer. Bank, 2001 WL 194300
(Del. Feb. 3, 2001), aff'd, 27 Fed. Appx. 82 (3d

CRs UU acsnissarehictndtvaresctcepegiossncshinaitinebicensevegeonscece

Lomax v. Woodmen of the World Life Ins. Soc., ___
F. Supp. ___, 2002 WL 31455600 (N.D. Ga.

BR Seis We sataccanianrectchuctaddbiactonephermatncnieseiecsdsxeese

Lozada v. Dale Baker Oldsmobile, Inc., 91 F. Supp.

BE TBST CW aes UNNTE, BOOED) covececesccccsincescesueccesesesseers

Lozano v. AT&T Wireless, 216 F. Supp. 2d 1071

Casey Seid GMI Sivdrdinscestbnsincsnanttiviabansstdstdbnenssennecesones

Luna vy. Household Fin. Corp., __ F. Supp. ___,

2002 WL 31487425 (W.D. Wash. Nov. 4, 2002).....

Mastrobuono v. Shearson Lehman Hutton, Inc.,

Fe is Fe LORE eet Prieerneeintiniereatinnentinneneie

McCarthy v. Providential Corp., 1994 WL 387852
(N.D. Cal. July 19, 1994), appeal dismissed, 122
F.3d 1242 (9th Cir. 1997), cert. denied, 525 U.S.

TE Ge Sa ORGe EC RE need

Med Center Cars, Inc. v. Smith, 727 So. 2d 9 (Ala.

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985) .....ccccecseseseseees

Moses H. Cone Mem. Hosp. v. Mercury Const.

Citra, AODAI TE: LAGU) isisiaatieistcaeetisiccnsnrinns

New England Energy Inc. v. Keystone Shipping
Co., 855 F.2d 1 (ist Cir. 1988), cert. denied, 489

ibe WEF PUES OED vevsiscansitincriiatetentyniciohedenvbetnczeaneacoue

Nicholson v. CPC Int'l, Inc., 877 F.2d 221 (3d Cir.

Page

19

11

23

16
19
16
19

5,21

Vili
TABLE OF AUTHORITIES—Continued

Page
Cases:
Pacificare Health Systems, Inc. v. Book, 123 S. Ct.

Tr I ircicsiailiac iN 24
Perry v. Thomas, 482 U.S. 483 ET 5,12
Pick v. Discover Fin. Servs., 2001 WL 1180278 (D

Deel. Sept. 28, 2001) ......ceccssesessccccssecesevcseZerceoce a 16
Protective Life Ins. Corp. v. Lincoln Nat'l Life Ins.

Corp., 873 F.2d 281 (11th Cir. 1989) ......cccccccccssesese. 17
Pyburn v. Bill Heard Chevrolet, 63 S.W.3d 351

(Tenn. Ct. App.), appeal denied (Nov. 19, 2001)..... 16
Randolph v. Green Tree Fin. Corp.-Alabama, 244

OG SEG C8 UG Cie, BOG N) aceceecececcetdesevonsednoccosesgzezann 3,15,21
Sanders v. Kinko's Inc., 121 Cal. Rptr. 2d 766 (Cal.

2 SE RAEESINP LAER eco ll
Snowden v. Checkpoint Check Cashing, 290 F.3d

631 (4th Cir. 2002), petition for cert. filed, 71

U.S.L.W. 3191 (Sept. 12, 2002) (No. 02-424)......... 3,15,21
Southland Corp. v. Keating, 465 U.S. 1 (1984).......5.. passim
State ex rel. Dunlap v. Berger, 567 S.E.2d 265 (W.

Va. 2002), petition for cert. filed, 71 U.S.L.W.

3163 (Aug. 27, 2002) (No. 02-315) ....ceccccceccssesesese. 19
Stein v. Geonerco, Inc., 17 P.3d 1266 (Wash. Ct.

| TR UR eer eee 16
Ting v. AT&T, 182 F. Supp. 2d 902 (ND. Cal.

tag, ETERS SSN EAR CA 19
Vigil v. Sears Nat. Bank, 205 F. Supp. 2d 566 (E.D.

EARL; UE cosesenonectanenstablithoiapsaain leet fect Ak hs 16

Volt Info. Sciences, Inc. v. Board of Trustees of
Leland Stanford Junior Univ., 489 U.S. 468
CODD sicejichinishasabeostisteitiddhieaiitetiitiahe iii ae ta : 5

corte ea PINE ee Meds ES, AN COMA 17
Zawikowski v. Beneficial Nat'l Bank, 1999 WL
35304 (N.D. Il. Jan. 11, 1999)... cccccccccscccsesessseeeses 16

ix
TABLE OF AUTHORITIES—Continued

Page

Constitution:

nena RTI PR id a ecilahileeins 2,5
Statutes:

Brie SEE II Unitek sidiinctscichcecatunactbupeibiecnésateubatenceiainsss 2,5

i Aailicsa A Tiles casthitissiceesladiencevahsnectbdindannlabesnnisbsscinebtbideennt 2,12

eee aa UE DUTT isaiciaissieshibnDaddaaabbdnsechasebieidavesanbinunicddeesss 2

Cal. Bus. & Prof. Code §§ 17200 ef Sq. .......s.s:ssesesse0 8

en scensatsteniveins 5
Rules:

os esemecsion anata 3

Bh a IE TITIITED itashatincissnonsctisedenteseedshvebtiebbiniiinneatiessuetins 3,20
Other Authorities:

Timothy J. Heinsz, The Revised Uniform Arbitra-
tion Act: Modernizing , Revising, and Clarifying
Arbitration Law, 2001 J. Disp. Resel. 1..............00 24

Alan S. Kaplinsky, Arbitration and Class Actions-A
Contradiction in Terms, 1302 PLY/Corp. 7 (2002)... 24

Carroll E. Neesemann, Should an Arbitration Pro-
vision Trump the Class Action? YES;
PERMITTING COURTS TO STRIKE BAR ON
CLASS ACTIONS IN OTHERWISE CLEAN
: CLAUSE WOULD DISCOURAGE USE OF
ARBITRATION, 8 No. 3 Disp. Resol. Mag. 13

co) | beitiachtabdbesetticaladesipiedabniadinlnchiieediipwsaieneces 24

AW LRN LE EMEP NE CI TES

X
TABLE OF AUTHORITIES—Continued

-

Page
Other Authorities:

Jean R. Sternlight, Should an Arbitration Provision
Trump the Class Action? NO: PERMITTING
COMPANIES TO SKIRT CLASS ACTIONS
THROUGH MANDATORY ARBITRATION
WOULD BE DANGEROUS AND UNWISE, 8
No. 3 Disp. Resol. Mag. 13 (2002).................ccccceeees 24

IN THE

Supreme Court of the Anited States

No. 02-
DISCOVER BANK,
Petitioner,
v.
_ JOHN SZETELA,
Respondent.

Petition for a Writ of Certiorari to the
California Court of Appeal,
Fourth Appellate District

PETITION FOR A WRIT OF CERTIORARI

Discover Bank (“Discover”) respectfully petitions for a
writ of certiorari to review the judgment of the California
Court of Appeal, Fourth Appellate District, in this case.

OPINIONS BELOW

The opinion of the California Court of Appeal is reported
at 97 Cal. App. 4th 1094 and reprinted in the appendix hereto
(“App.”) at la. The order of the Supreme Court of California
denying Discover’s petition for review is unreported and
reprinted at App. 12a.

JURISDICTION

The California Court of Appeal issued its decision on April
22, 2002. App. la. Rehearing was denied on May 16, 2002.
App. 10a. The Supreme Court of California denied Dis-

cover’s petition for review on July 31, 2002. App. lla. On
October 21, 2002, Justice O’Connor entered an order extend-
ing the time within which to file this petition to and including
November 28, 2002. App. 12a. The jurisdiction of this
Court is invoked pursuant to 28 U.S.C. § 1257.

CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED

The Supremacy Clause of the United States Constitution
provides in pertinent part:

This Constitution, and the Laws of the United States
which shall be made in Pursuance thereof * * * shall be
the supreme Law of the Land; and the Judges in every
State shall be bound thereby, any Thing in the Constitu-
tion or Laws of any State to the Contrary notwithstand-
ing. [U.S. Const., art. VI, cl. 2.]

Section 2 of the Federal Arbitration Act, 9 U.S.C. § 2,
provides in pertinent part:

A written provision in any * * * contract evidencing a
transaction involving interstate commerce to settle by
arbitration a controversy thereafter arising out of such
contract or transaction * * * shall be valid, irrevocable,
and enforceable, save upon such grounds as exist in law
or equity for the revocation of any contract.

INTRODUCTION

This case presents the question whether under the Federal
Arbitration Act, 9 U.S.C. §§ 1-16, a state court may require
parties to an arbitration agreement to proceed with class
arbitration or forgo arbitration altogether, when the terms of
their agreement to arbitrate expressly preclude a class arbitra-
tion procedure. It is also one of the unusual cases in which
all the customary criteria for certiorari are readily met.

First, the California Court of Appeal’s decision conflicts
with the decisions of the federal circuit courts to have con-

3

sidered the same issue. S. Ct. Rule 10(b). The Seventh
Circuit has held that courts are without authority to order
class-wide arbitration unless the parties have expressly
agreed to that procedure, Champ v. Siegel Trading Co., 55
F.3d 269, 276-277 (7th Cir. 1995), and the Third, Fourth,
Eighth, and Eleventh Circuits—unlike the court below—have
enforced arbitration agreements despite the unavailability of
class action procedures under those agreements. Snowden v.
Checkpoint Check Cashing, 290 F.3d 631, 638-639 (4th Cir.
2002), petition for cert. filed, 71 U.S.L.W. 3191 (Sept. 12,
2002) (No. 02-424); Dominium Austin Partners, L.L.C. v.
Emerson, 248 F.3d 720 (8th Cir. 2001); Randolph v. Green
Tree Fin. Corp., 244 F.3d 814, 817-818 (Llth Cir. 2001);
Johnson v. West Suburban Bank, 225-F.3d 366, 369 (3d Cir.
2000), cert. denied, 531 U.S. 1145 (2001). The decision
below likewise conflicts with the decisions of the Second,
Fifth, Sixth, Eighth, Ninth, and Eleventh Circuits, all of
which have reached the related conclusion that the Arbitra-
tion Act precludes courts from requiring consolidation of
arbitration proceedings unless the parties expressly provided
for such procedures in their arbitration agreements.

Second, the Court of Appeal’s decision squarely conflicts
with the decisions of this Court. S. Ct. Rule 10(c). This
Court has repeatedly emphasized the preemptive power of
the Arbitration Act, and has repeatedly admonished, as the
Act itself makes plain, that arbitration agreements must be
enforced according to their terms—even when enforcement
of the agreement results in piecemeal litigation of the con-
tracting parties’ claims. Indeed, this Court has previously
recognized that an arbitration agreement may be enforced
“even if the arbitration could not go forward as a class
action.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.
20, 32 (1991) (quotation omitted).

Third, the conflict in this case concerns a matter of overrid-
ing national importance. S. Ct. Rule 10(c). The Court of
Appeal’s decision in this case contravenes the central pur-

4

pose of the Arbitration Act: enforcing arbitration agreements
according to their terms. And the conflict between Califor-
nia’s approach and that of the rest of the country plainly has
nationwide implications. Tens of thousands of standard
commercial and consumer contracts contain arbitration
provisions. In California and the smattering of other jurisdic-
tions adopting California’s minority view, the parties to an
arbitration agreement expressly precluding a class arbitration
procedure—or an agreement that is silent as to class arbitra-
tion—can nonetheless be forced either to arbitrate their
claims as a class, or not to arbitrate at all. In the rest of the
country, courts enforce arbitration agreements as written,
declining to rewrite them to include a class procedure for
which the contracting parties did uot provide. Thus, parties
to standard contracts containing standard arbitration provi-
sions face the prospect of starkly different proceedings -
arising from those contracts—all depending on whether they
sue or are sued in California, or somewhere else.

In Southland Corp. v. Keating, 465 U.S. 1 (1984), this
Court noted probable jurisdiction to determine whether the
-California Supreme Court’s ruling imposing a class action
structure on an-arbitration conflicted with the Federal Arbi-
tration Act. But after briefing and oral argument, this Court
concluded that it could not exercise jurisdiction over that
question because it had not been adequately raised below. Jd.
at 9. The question left open in Southland is squarely pre-
sented by this case, and the conflict between the California
Supreme Court’s approach and that of the overwhelming
majority of federal and state courts of appeal has only
deepened in the intervening years—as is evidenced by the
recent proliferation of petitions for certiorari on this and
related issues. Certiorari should be granted to resolve, at last,
‘this important question.

5

STATEMENT OF THE CASE

1. The Federal Arbitration Act, 9 U.S.C. §§ 1-16, “de-
clared a national policy favoring arbitration and withdrew the
power of the state to require a judicial forum for the resolu-
tion of claims which the contracting parties agreed to resolve
by arbitration.” Southland, 465 U.S. at 10. “[MlJotivated,
first and foremost, by a congressional desire to enforce
agreements into which parties had entered,” the Act was
passed to “ensure judicial enforcement of privately made
agreements to arbitrate,” placing arbitration agreements
“upon the same footing as other contracts.” Dean Witter
Reynolds Inc. v. Byrd, 470 U.S. 213, 219, 220 (1985); see
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52,
53-54 (1995) (Arbitration Act’s “central purpose” is “to
ensure ‘that private agreements are enforced according to
their terms’ ”’) (quoting Volt Info. Sciences, Inc. v. Board of
-. Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479
(1989)).

To carry out the Act’s central purpose, state and federal
courts are instructed to “rigorously enforce agreements to
arbitrate, even if the result is ‘piecemeal’ litigation.” Dean
Witter Reynolds, 470 U.S. at 221 (quoting Moses H. Cone
Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 20
(1983)); Perry v. Thomas, 482 U.S. 483, 489 (1987).' And
under the Supremacy Clause, state laws in conflict with the
Act’s strong policy in favor of arbitration must give way.
See, e.g., Perry, 482 U.S. at 484 (finding preempted a
California law allowing certain actions to be maintained in
court “ ‘without regard to the existence of any private agree-
ment to arbitrate’) (quoting Cal. Lab. Code Ann. § 229);

! The “liberal federal “policy favoring arbitration agreements”
embodied in Section 2 of the Act, Moses H. Cone Mem. Hosp.,
460 U.S. at 24, applies to state and federal courts alike. Southland,
465 U.S. at 11-12; Allied-Bruce Terminix Cos. v. Dobson, 513
US. 265, 272 (1995).

6

Southland, 465 U.S. at 11-12 (finding preempted a California
law interpreted by state courts to require judicial considera-
tion of claims). .

2. When respondent John Szetela opened a credit card
account with Discover in 1993, he entered into a Cardmem-
ber agreement with Discover governing the terms of their
relationship. In 1999, Discover sent Szetela a proposed
amendment to the Cardmember agreement, which provided
in pertinent part:

ARBITRATION OF DISPUTES. In the event of any
past, present or future claim or dispute (whether based
upon contract, tort, statute, common law or equity) be-
tween you and us arising from or relating to your Ac-
count, any prior account you have had with us, your ap-
plication, the relationships which result from your Ac-
count or the enforceability or scope of this arbitration
provision, of the Agreement or of any prior agreement,
you or we may elect to resolve the claim or dispute by
binding arbitration.

IF EITHER YOU OR WE ELECT ARBITRATION,
NEITHER YOU NOR WE SHALL HAVE THE RIGHT
TO LITIGATE THAT CLAIM IN COURT OR TO
HAVE A JURY TRIAL ON THAT CLAIM.
PRE-HEARING DISCOVERY RIGHTS AND
POST-HEARING APPEAL RIGHTS WILL BE
LIMITED. NEITHER YOU NOR WE SHALL BE
ENTITLED TO JOIN OR CONSOLIDATE CLAIMS IN
ARBITRATION BY OR AGAINST OTHER
CARDMEMBERS WITH RESPECT TO OTHER
ACCOUNTS, OR ARBITRATE ANY CLAIMS AS A
REPRESENTATIVE OR MEMBER OF A CLASS OR
IN A PRIVATE ATTORNEY GENERAL CAPACITY.

[App. 2a.]

The agreement entitled Szetela to arbitrate any claims
against Discover in the judicial district in which he resides

7

and to select between two nationally-known arbitration
providers. The agreement did not limit the remedies Szetela
could obtain in arbitration, and it required Discover, upon
Szetela’s request, to advance arbitration fees to Szetela. The
agreement also capped Szetela’s liability for arbitration fees,
so that his arbitration expenses would be no greater than if he
had brought his claims in court.

Szetela could have rejected the arbitration provision by
notifying Discover of his objection and canceling his Dis-
cover Card. He did neither. Nor did Szetela object to the
arbitration agreement in late 1999, when Discover upgraded
his Card to a Platinum Card and sent him a new Cardmember
agreement containing an identical arbitration provision.

3. In 2000, a New Jersey resident filed a putative class
action against Discover in California state court, raising
various tort and contract claims. The complaint was subse-
quently amended to add Szetela, a California resident, as an
additional named plaintiff. Invoking the arbitration agree-
ment, Discover moved to compel arbitration of Szetela’s
claim. The trial court granted the motion and compelled
Szetela to arbitrate his claims against Discover.

Szetela prevailed at arbitration. He also appealed the trial
court’s order compelling arbitration to the California Court of
Appeal, arguing that the arbitration agreement’s preclusion of
class-wide arbitration should have been stricken. Discover
responded, among other things, that the Federal Arbitration
Act required courts to enforce agreements according to their
terms, even if the result was to preclude parties from bringing
or participating in class actions. Resp. Br. 8, 13-15 & n.8,
30.

4. The California Court of Appeal treated Szetela’s appeal
as a petition for a writ of mandate. App. la. Invoking
California law, the court considered whether the Cardmem-
ber agreement’s arbitration provision was procedurally and
substantively unconscionable. /d. at 6a-9a. Despite evidence

8

that there were hundreds of credit card issuers in California
from whom Szetela could have obtained a credit card—many
of whom offered credit cards without arbitration provi-
sions—the Court of Appeal found the arbitration agreement
to be procedurally unconscionable because it was presented
to Szetela on a “take it or leave it” basis. Jd. at 7a.

The court next concluded that the arbitration agreement’s
class action prohibition was substantively unconscionable,
because it “contradict[ed] the California Legislature’s stated
policy of discouraging unfair and unlawful business prac-
tices, and of creating a mechanism for a representative to
seek relief on behalf of the general public as a private attor-
ney general.” Jd. at 8a (citing Cal. Bus. & Prof. Code
§§ 17200 et seq.). Taking “exception” to the unavailability
of the class action procedure, the court opined that the no-
class-action provision “was meant to prevent customers, such
as Szetela and those he seeks to represent, from seeking
redress for relatively small amounts of money.” App. 7a-8a._
Without a class action procedure available in arbitration, the
court went on, “relatively few, if any, customers will seek
legal remedies, and * * * any remedies obtained will only
pertain to that single customer without collateral estoppel
effect.” Jd. at 8a. The Court of Appeal also concluded that
the arbitration agreement’s no-class-action provision violated
the public policy underlying class actions—“to promote
judicial economy and streamline the litigation proc-
ess”—because it “allow[ed] litigants to contract away the
court’s ability to use a procedural mechanism that benefits
the court system as a whole.” Jd. at 9a.

Because the Court of Appeal did not address Discover’s
argument that compelling class arbitration contrary to the
terms of the parties’ arbitration agreement would violate the
Federal Arbitration Act, Discover petitioned for rehearing,
again arguing that compelling class arbitration in these
circumstances would violate the Act. Rehearing was denied.
App. 10a.

9

5. Discover then filed a Petition for Review with the Su-
preme Court of California, arguing-that the Court of Appeal’s
decision violated the Federal Arbitration Act. Discover
argued, as it had below, that by requiring parties to arbitrate
on a Class-wide basis, regardless of the terms of the arbitra-
tion agreement, the Court of Appeal had created a rule that
conflicted with, and was preempted by, the Arbitration Act’s
admonition that agreements be enforced according to their
terms. Pet. for Rev. 2, 20-28.

The Supreme Court of California denied Discover’s peti-
tion for review on July 31, 2002. App. lla. Rather than be
forced to conduct a complicated “class arbitration” on terms
to which it had not agreed, Discover proceeded with class
litigation in trial court.*

2 It is difficult to conceive how “class arbitration” could be
accomplished without the extensive involvement of a trial judge.
A judge must, among other things, define the class, rule on the best
form of notice to the class, allow the class to opt out, and monitor
the proceedings to ensure that the class is adequately represented
and that the issues in play are common to the class. See Keating v.
Superior Court, 645 P.2d 1192, 1209 (Cal. 1982) (acknowledging
that court, and not arbitrators, would conduct “arbitral class”
certification procedures, monitor representation, approve proposed
settlements, and the like), rev'd in part, Southland Corp. v.
Keating, 465 U.S. 1 (1984). Because the benefits of arbitra-
tion—speed, informality, and efficiency—do not attach when
“class arbitration” has been ordered, Discover—rather than
straddle arbitral and judicial fora to resolve the claims of the
plaintiff class—opted to defend against the class claims in just one
forum: state court. E

10 "

REASONS FOR GRANTING THE WRIT

I. THIS CASE SQUARELY PRESENTS THE
QUESTION TAKEN UP, BUT LEFT
UNRESOLVED, IN SOUTHLAND CORP. v.
KEATING.

1. In Keating v. Superior Court, 645 P.2d 1192, 1195 (Cal.
1982), the plaintiff franchisees brought a class action against
their franchisor alleging numerous state law claims. The trial
court granted Southland’s motion to compel arbitration of the
plaintiffs’ claims and ordered that the arbitration proceed as a
“class arbiwration”—even though the parties’ agreement did
not specify that a class procedure was available in arbitration.
The California Supreme Court granted review of the question
whether the trial court could impose class action procedures
on the parties. Advancing the same policy rationales the
Court of Appeal identified in this case, the California Su-
preme Court concluded that the arbitration could go forward
as a class proceeding, if the trial court concluded on remand
that “gross unfairness” would otherwise result. Jd. at 1209.
Three justices dissented, observing that “[aJrbitration is a
matter of agreement,” and that the parties’ arbitration con-
tracts “do not provide for class arbitration, nor have the
parties subsequently agreed thereto.” Jd. at 1214.

This Court noted probable jurisdiction over the question
“whether arbitration under the federal Act is impaired when a
class-action structure is imposed on the process by the state
courts.” Southland, 465 U.S. at 3.3 But after briefing and
argument, this Court dismissed that question for lack of

3 The Court reversed the California Supreme Court on the sec-
ond of the two questions over which the Court had noted probable
jurisdiction: whether California’s Franchise Investment Law
precluded parties from arbitrating claims arising under the law.
The California Supreme Court had held in Keating that it did;
invoking again the preemptive force of the Act’s animating
purpose, this Court held in Southland that it did not.

11

jurisdiction, finding that the class arbitration procedure had
been challenged below on state law grounds only. /d. at9. -

In the intervening two decades, California courts have built
on the California Supreme Court’s decision in Keating,
regularly imposing classwide arbitration without regard to
the terms of the parties’ arbitration agreements.* The federal
courts of appeal—along with the great majority of federal
district courts and state appellate courts—have in the mean-
time taken a different path. See infra at 13-20.

2. This case raises the same question left unanswered in
Southland—with an even more compelling twist. The
parties’ arbitration agreement in Southland was silent as to
whether class action procedures were available in arbitration.
Discover’s arbitration agreement with Szetela expressly
precluded class action procedures. - The California Court of
Appeal therefore did not just import new procedural terms
into the agreement, as in Keating; it struck and rewrote the
terms that were already there. Thus, under California’s
Keating rule as expanded by Szetela, class arbitration is
available in California whenever the parties agree to arbitrate,
whatever their agreement actually says about arbitral proce-
dures. California accordingly requires parties to an arbitra-
tion agreement to submit to class-wide or representative
arbitration, regardless of what their contract says—or forgo
arbitration altogether.

4 See, e.g., Sanders v. Kinko's Inc., 121 Cal. Rptr. 2d 766 (Cal.
Ct. App. 2002); Blue Cross of Cal. v. Superior Court, 78 Cal. Rptr.
2d 779 (Cal. Ct. App. 1998), cert. denied, 527 U.S. 1003 (1999);
Izzi v. Mesquite Country Club, 231 Cal. Rptr. 315 (Cal. Ct. App.
1986); Lewis v. Prudential Bache Secs., Inc., 225 Cal. Rptr. 69
(Cal. Ct. App. 1986); Anesthesia Care Assocs. Med. Group, Inc. v.
Blue Cross of Cal., 2002 WL 484662 (Cal. Super. Ct. Feb. 25,
2002). |

12

This case does not suffer from the jurisdictional impedi-
ments to review that surfaced in Southland. The question
whether the Federal Arbitration Act precluded the state court
from engrafting class procedures onto the parties’ arbitration
agreement was raised below. The trial court concluded that
federal law supported its ruling compelling arbitration. See
Trial Tr. 15, lines 14-17 (May 1, 2001). On Szetela’s appeal,
Discover explained in its responsive brief that the Act
preempted the court from rewriting the parties’ arbitral
bargain. Resp. Br. 8, 13-15 & n.8, 30. When the Court of
Appeal ignored the issue in its opinion, Discover sought
rehearing on the federal question. Pet. for Reh. 3-16. When
the Court of Appeal denied rehearing, Discover filed a
petition for review with the California Supreme Court,
arguing, among other things, that the federal Act required the
state court to enforce the parties’ agreement according to its
' terms. Pet. for Rev. 2, 20-28. The issue was amply pre-
served for review. See Clark v. Jeter, 486 U.S. 456, 459-460
(1988). |

Nor does the Court of Appeal’s couching its ruling on
“unconscionability” grounds blunt the Arbitration Act’s
preemptive force. Section 2 of the Act provides that an
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; see
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-687
(1996). But while the Arbitration Act permits parties to
resist enforcement of their arbitration agreements based upon
generally-applicable state-law contract defenses—including
unconscionability—it does not grant a state court license to
invalidate an agreement simply by declaring it to be in
tension with an otherwise-preempted state policy, and thus
“unconscionable.” Further, as the Court explained in Perry,
482 U.S. at 493 n.9, a court “may not * * * in assessing the
rights of litigants to enforce an arbitration agreement,
* * * rely on the uniqueness of an agreement to arbitrate as a

13

basis for a state-law holding that enforcement would be
unconscionable.” That is exactly what the California Court
of Appeal did here; it assessed the arbitration agreement’s
special procedures and the nonpreclusive effect of arbitral
rulings, and declared the agreement’s no-class-action provi-
sion “unconscionable” as against California policy. Section
2’s limited contract-law safe harbor does not apply here.

Il. THE COURT OF APPEAL’S DECISION
CONFLICTS WITH THE DECISIONS OF
EVERY FEDERAL CIRCUIT TO HAVE
ADDRESSED THE ISSUE.

The rule created by the California Court of Appeal—which
forces parties to an arbitration agreement, no matter what the
terms of the agreement, to arbitrate as a class or not at
all—squarely conflicts with the decisions of all the federal
courts of appeal to have considered the issue. Those deci-
sions uniformly have stated that courts may not impose class
arbitration unless the parties’ arbitration agreement expressly
provided for that procedure, and uniformly have enforced
arbitration agreements containing no-class-action provisions.

1. In Champ v. Siegel Trading Company, 55 F.3d at 271,
the Seventh Circuit held that “absent _a provision in the
parties’ arbitration agreement providing for class treatment of
disputes, a district court has no authority to certify class
arbitration.” Analogizing to multiple circuit court decisions
holding that a court may not order consolidated arbitration
where the parties’ arbitration agreement did not provide for
that procedure, see infra at 17-18, the court of appeals
concluded that it would not “order[] class arbitration where
the parties’ arbitration agreement is silent on the matter.” Jd.
at 275.

As the Champ court explained, parties to an arbitration
agreement “ ‘relinquish certain procedural niceties which are
normally associated with a formal trial.’ ” /d. at 276 (quoting
Burton v. Bush, 614 F.2d 389, 390 (4th Cir. 1980)). “One of

14

those ‘procedural niceties’ is the possibility of pursuing a
class action.” Champ, 55 F.3d at 276-277.5 The court of
appeals acknowledged the plaintiffs’ “complain{t] that
various inefficiencies and inequities will result from denying
them the opportunity to pursue arbitration on a class basis.”
Id. But it held that “[w]hile that may or may not be the
case, * * * the Supreme Court has repeatedly emphasized
that we must rigorously enforce the parties’ agreement as
they wrote it, ‘even if the result is piece-meal litigation.’ ”
Id. (quoting Dean Witter Reynolds, 470 U.S. at 221). Ac-
cordingly, the Seventh Circuit “enforce[d] the type of arbitra-
tion to which these parties agreed, which does not include
arbitration on a class basis.” Champ, 55 F.3d at 277.

2. The federal courts of appeal that have subsequently
spoken on the class arbitration issue all have followed
Champ’s lead. In Dominium Austin Partners, LLC v. Emer-
son, 248 F.3d at 728, for example, the court of appeals
affirmed a district court ruling compelling individual arbitra-
tion of the plaintiffs’ claims. Citing the same precedents on
which the Champ court relied, the Eighth Circuit acknowl-
edged that its ruling might not “effect the most expeditious
resolution of claims,” but it properly elevated the contracting
parties’ intent over its own notions of economy: where “the
partnership agreements make no provision for arbitration as a
class, the district court did not err by compelling appellants
to submit their claims to arbitration as individuals.” Jd. at
728-729.

5 Even the Court of Appeal in this case acknowledged that the
class action is a “procedural mechanism.” App. 9a. See also
Caudle v. American Arbitration Ass'n, 230 F.3d 920, 921 (7th Cir.
2000) (“A procedural device aggregating multiple persons’ claims
in litigation does not entitle anyone to be in litigation; a contract
promising to arbitrate the dispute removes the person from those
eligible to represent a class of litigants.”) (emphasis in original).

SAB RIES RO NEORNS Fey BONE HE

PGES ETL SERS

15

Similarly, in Johnson v. West Suburban Bank, 225 F.3d at
377 n.4, a case involving claims brought under the federal
Truth In Lending Act (TILA), the Third Circuit cited Champ
in observing that “it appears impossible [to pursue class
arbitration} unless the arbitration agreement contemplates
such a procedure.” Despite the presumed unavailability of
class procedures in arbitration, the court of appeals enforced
the parties’ arbitration agreement, reversing the contrary
decision of the district court. As the Third Circuit noted,
echoing Champ, “the right to proceed as a class * * * is
merely a procedural one * * * that may be waived by agree-
ing to an arbitration clause.” Jd. at 369.

Agreeing with the Third Circuit’s decision in Johnson, the
Eleventh Circuit in another TILA case, Randolph v. Green
Tree Financial Corp., 244 F.3d at 819, held that a “contrac-
tual provision to arbitrate TILA claims is enforceable even if
it precludes a plaintiff from utilizing class action proce-
dures.” See also Snowden v. Checkpoint Check Cashing,
Inc., 290 F.3d at 638-639 (citing Johnson, rejecting public
policy arguments against no-class-action provision in arbitra-
tion agreement, and finding provision not unconscionable);
Deiulemar Compagnia de Navigazione S.p.A. v. M/V Alle-
gra, 198 F.3d 473 (4th Cir. 1999) (finding that where the
parties’ agreement did not provide for class arbitration, “ ‘the
FAA has already provided the type of procedure to be
followed in this case, namely, nonclass arbitration’ ”) (quot-
ing Champ, 55 F.3d at 276), cert. denied, 529 U.S. 1109

~ (2000); Iowa Grain Co. v. Brown, 171 F.3d 504, 509 (7th

Cir. 1999) (citing Champ, and noting that “[b]ecause arbitra-
tion is based fundamentally on an agreement between the
parties, [a Rule 23 class action] is normally unavailable in
arbitration”).

16

Numerous federal district courts® and state courts of ap-
peal’ likewise have held, contrary to the California Court of
Appeal, that courts may not compel class arbitration where

6 See, eg., Gray v. Conseco, Inc., 2001 WL 1081347, at *3
(C.D. Cal. Sept. 6, 2001); Zawikowski v. Beneficial Nat'l Bank,
1999 WL 35304, at *2 (N.D. Ill. Jan. 11, 1999); McCarthy v.
Providential Corp., 1994 WL 387852, at *9 (N.D. Cal. July 19,
1994), appeal dismissed, 122 F.3d 1242 (9th Cir. 1997), cert.
denied, 525 U.S. 921 (1998); Gammaro v. Thorp Consumer
Discount Co., 828 F. Supp. 673, 674 (D. Minn. 1993), appeal
dismissed, 15 F.3d 93 (8th Cir. 1994).

The great majority of district courts have also rejected the notion
that a no-class-action provision renders an arbitration agreement
“unconscionable.” See, e.g., Lomax v. Woodmen of the World Life
Ins. Soc., __ F. Supp. ___, 2002 WL 31455600, at *3 (N.D. Ga.
July 16, 2002) (“Generally, prohibiting class-wide arbitration does
not render an otherwise valid arbitration clause unconscionable”)
(citing Gilmer, 500 U.S. at 32); Lozano v. AT&T Wireless, 216 F.
Supp. 2d 1071, 1076 (C.D. Cal. 2002); Bischoff v. DirectTV, Inc.,
180 F. Supp. 2d 1097, 1107-09 (C.D. Cal. 2002); Vigil v. Sears
Nat. Bank, 205 F. Supp. 2d 566, 573 (E.D. La. 2002); Arriaga v.
Cross Country Bank, 163 F. Supp. 2d 1189, 1194-95 (S.D. Cal.
2001); Pick v. Discover Fin. Servs., 2001 WL 1180278, at *5 (D.
Del. Sept. 28, 2001) (“it is generally accepted that arbitration
clauses are not unconscionable because they preclude class
actions”) (citing Gilmer, 500 U.S. at 32).

7 See, e.g., Gras v. Associates First Cap. Corp., 786 A.2d 886
(N.J. Super. Ct. App. Div. 2001) (enforcing “no class action”
provision in arbitration agreement), cert. denied, 794 A.2d 184
(N.J. 2002); Pyburn v. Bill Heard Chevrolet, 63 S.W.3d 351, 365
(Tenn. Ct. App.) (FAA preempts state law favoring class), appeal
denied (Nov. 19, 2001); Stein v. Geonerco, Inc., 17 P.3d 1266,
1271 (Wash. Ct. App. 2001)(relying on Champ and refusing to
compel class arbitration where parties’ agreement was silent); Med
Center Cars, Inc. v. Smith, 727 So. 2d 9, 20 (Ala. 1998) (“to

require class-wide arbitration would alter the agreements of the —

parties, whose arbitration agreements do not provide for class-wide
arbitration”).

PRES NI RC Patan iM ml GARR Re Sa rt darts H Guidccat Phi ile DORON ANS wate

17

the parties’ arbitration agreement did not provide for that
procedure.

3. The California Court of Appeal’s decision also conflicts
with the decisions of six circuits to have addressed the related
question whether arbitration proceedings can be consolidated
absent an express agreement to do so. The Second, Fifth,
Sixth, Eighth, Ninth, and Eleventh Circuits have held that a
court may not order consolidation of arbitration claims unless
the contract expressly permits that procedure.® Those

8 Government of the United Kingdom v. Boeing Co., 998 F.2d
68, 74 (2d Cir. 1993) (court cannot consolidate arbitration
proceedings ‘.bsent the parties’ agreement to allow such
consolidation”) American Centennial Ins. Co. v. National Cas.
Co., 951 F.2d 107, 108 (6th Cir. 1991) (“a district court is without
power to consolidate arbitration proceedings * * * when the
agreement is silent regarding consolidation”); Baesler v.
Continental Grain Co., 900 F.2d 1193, 1195 (8th Cir. 1990)
(“absent a provision in an arbitration agreement authorizing
consolidation, a_district-court is without power to consolidate
arbitration proceedings”); Protective Life Ins. Corp. v. Lincoln
Nat’l Life Ins. Corp., 873 F.2d 281, 282 (11th Cir. 1989) (“Parties
may negotiate for and include provisions for consolidation of
arbitration proceedings in their arbitration agreements, but if such
provisions are absent, federal courts may not read them in.”); see
also Del E. Webb Constr. v. Richardson Hosp. Auth., 823 F.2d
145, 150 (Sth Cir. 1987) (“under § 4 of the [FAA] the sole
question for the district court is whether there is a written
agreement among the parties providing for consolidated
arbitration”); Weyerhaeuser Co. v. Western Seas Shipping Co., 743
F.2d 635, 637 (9th Cir.) (noting that “the only issue properly
before this Court is whether [the parties] are parties to a written
agreement providing for consolidated arbitration,” and holding
consolidation is not allowed absent such agreement), cert. denied,
469 U.S. 1061 (1984). But cf Connecticut General Life Ins. Co. v.
Sun Life Assurance Co. of Canada, 210 F.3d 771, 776 (7th Cir.
2000) (authorizing consolidated arbitration based on “practical and
textual” considerations); New England Energy Inc. v. Keystone
Shipping Co., 855 F.2d 1, 6 (Ist Cir. 1988) (holding that arbitra-
tions may be consolidated when the agreement is silent on the

18

decisions uniformly recognize—just as the Champ line
does—that “‘a court is not permitted to interfere with private
arbitration arrangements in order to impose its own view of
speed and economy. This is the case even where the result
would be the possibly inefficient maintenance of separate
proceedings.” American Centennial Ins., 951 F.2d at 108;
see United Kingdom, 998 F.2d at 73 (same); Baesler, 900
F.2d at 1195. And as to the arguments that swayed the Court
of Appeal—that multiple arbitrations may result in inconsis-
tent determinations or cause other procedural prob-
lems—those decisions have responded that “[a]lthough these
concerns may be valid concerns of the [parties], they do not
provide us with the authority to reform the private contracts
which underlie this dispute.” United Kingdom, 998 F.2d at
74; American Centennial Ins., 951 F.2d at 108. The Seventh ~
Circuit relied on these authorities to reach its holding in
Champ, observing that there is no meaningful basis for
“distinguish[ing] between the failure [of an arbitration
agreement] to provide for consolidated arbitration and class
arbitration.” 55 F.3d at 275. See also Gammaro, 828 F.
Supp. at 674 (analogizing consolidated arbitration to class-
wide arbitration); McCarthy, 1994 WL 387852, at *9 (same).

issue and state law specifically provides for consolidation, over
dissenting Judge Selya’s objection that “[b]y fashioning an arbitral
clause which omits reference to consolidation, the parties have
made a choice. By imposing consolidation ab extra, the majority
trumps that choice.”), cert. denied, 489 U.S. 1077 (1989).

19

4. On the other side of the ledger, a few district courts? and
some state courts of appeal!® have adopted the California
view, imposing class action procedures on arbitration agree-
ments that are either silent as to such procedures or that
expressly preclude them. That minority approach reflects a
sharply divergent view of the policy behind and preemptive
force of the Arbitration Act. Under the view of Champ and
the many cases adopting its approach, the Arbitration Act’s
policy requiring enforcement of arbitration agreements
according to their terms precludes class-wide procedures
unless the parties expressly agree to them. Under the minor-
ity view, classwide arbitration procedures are always avail-
able—no matter what the parties’ contract says. The major-
ity approach furthers the Arbitration Act by enforcing the
parties’ choice of arbitral procedures; the minority approach

9 See Comb v. PayPal, Inc., 218 F. Supp. 2d 1165, 1175-76
(N.D. Cal. 2002) (citing Szetela); Acorn v. Household Int'l, Inc.,
211 F. Supp. 2d 1160, 1171 (N.D. Cal. 2002) (citing Szetela);
Luna v. Household Fin. Corp., __ F. Supp. 2d __, 2002 WL
31487425, at *8 (W.D. Wash. Nov. 4, 2002) (citing Szetela);
Lozada v. Dale Baker Oldsmobile, Inc., 91 F. Supp. 2d 1087,
1104-05 (W.D. Mich. 2000) (relying on district court decision in
Johnson, later reversed by the Third Circuit); cf. Ting v. AT&T,
182 F. Supp. 2d 902 (N.D. Cal. 2002) (finding no-class-action
provision unconscionable in case not implicating the Arbitration
Act).

10 See, e.g., Leonard v. Terminix Int'l Co.,__ So. 2d __, 2002
WL 31341084, at *5-6 (Ala. Oct. 18, 2002) (finding no-class-
action provision unconscionable and unenforceable, and citing
Keating), Bazzle v. Green Tree Fin. Corp., 569 S.E.2d 349, 360
(S.C. 2002) (“adoptfing] the approach taken by the California
courts” and approving class-wide arbitration), petition for cert.
filed, 71 U.S.L.W. 3320 (Oct. 23, 2002) (No. 02-364); State ex rel.
Dunlap vy. Berger, 567 S.E.2d 265, 280 (W. Va. 2002) (finding
“unconscionable” arbitration agreement’s prohibition on punitive
damages and class action relief), petition for cert. filed, 71
U.S.L.W. 3163 (Aug. 27, 2002) (No. 02-315).

20

undermines the animating intent of the Act by empowering
courts to impose arbitral procedures contrary to the will of
the contracting parties.

Ill. THE COURT OF APPEAL’S DECISION CON-
FLICTS WITH THIS COURT’S PRECEDENTS.

The need for plenary review of the Court of Appeal’s deci-
sion is heightened further by the fact that it conflicts with this
Court’s own decisions. See S. Ct. Rule 10(c). This Court
repeatedly has ruled in favor of enforcing agreements to
arbitrate—even when the result is “piecemeal” litigation.
Dean Witter Reynolds, 470 U.S. at 221 (quoting Moses H.
Cone Mem. Hosp., 460 U.S. at 20). In Dean Witter Rey-
nolds, this Court in plain terms “reject[ed] the suggestion that
the overriding goal of the Arbitration Act was to promote the
expeditious resolution of claims.” 470 U.S. at 219. The Act
mandates the enforcement of contracts to arbitrate, no more
and no less, and this Court has strongly cautioned more than
once that courts must not “allow the fortuitous impact of the
Act on efficient dispute resolution to overshadow” that
central purpose of the legislation. Jd. at 220. As the Court
put it in Moses H. Cone Memorial Hospital, “the relevant
federal law requires piecemeal resolution when necessary to
give effect to an arbitration agreement.” 460 U.S. at 20
(emphasis in original).

In keening with its repeated admonition that the intent of
the parties to an arbitration agreement trumps alleged notions
of procedural efficiency, this Court has strongly signaled its
preference for enforcing agreements to arbitrate, even if
enforcement results in the preclusion of a class action.
Gilmer, 500 U.S. at 32. The Gilmer Court addressed whether
claims arising under the Age Discrimination in Employment
Act (ADEA) could be arbitrated, and found that they could.
One of Gilmer’s arguments against arbitration of his ADEA
claims was that “arbitration procedures cannot adequately
further the purposes of the ADEA because they do not

21

provide for* ** class actions.” Jd. at 32. This Court
rejected that argument, observing that “ ‘even if the arbitra-
tion could not go forward as a class action or class relief
_ could not be granted by the arbitrator, the fact that the
[ADEA] provides for the possibility of bringing a collective
action does not mean that individual attempts at conciliation
were intended to be barred.’ ” Jd. (quoting Nicholson v. CPC
Int'l, Inc., 877 F.2d 221, 241 (3d Cir. 1989) (Becker, J.,
dissenting)). The lower courts since Gilmer that have
adopted the Champ majority view—declining to impose class
procedures on an arbitration where the parties’ agreement
provided for no such thing—repeatedly have invoked this
passage as additional support for their holding. See, e.g.,
Randolph, 244 F.3d at 816-817; Johnson, 225 F.3d at 377;
see also Snowden, 290 F.3d at 639.

The California Court of Appeal’s decision thus stands in
conflict not just with the raft of court of appeals cases to have
_ addressed class arbitration and consolidation issues, but also
with Gilmer and with each of this Court’s cases emphasizing
the Act’s “central purpose” of enforcing arbitration agree-
ments “according to their terms.” Mastrobuono, 514 U.S.
53-54 (internal quotation omitted). .

IV. THE QUESTION PRESENTED IS RECURRING
AND IMPORTANT AND SHOULD’ BE
DECIDED BY THIS COURT.

1. When it took up in Southland the question whether the
California Supreme Court had erred in precluding resolution
in arbitration of certain state statutory claims, this Court
observed that the state court’s decision, if allowed to stand
without immediate review, would “seriously erode federal
policy” favoring arbitration agreements: “Plainly the effect
of the judgment of the California court is to nullify a valid
contract made by private parties under which they agreed to
submit all contract disputes to final, binding arbitration.”
465 U.S. at 7 (internal quotation omitted). So too here. The

22

parties to the arbitration agreement in this case agreed to
arbitrate their claims. They did not agree to class arbitration
procedures; indeed, their agreement specifically disallowed
such procedures. The California court’s decision, which
deletes a term of the parties’ contract, strikes directly at the
core purpose of the Arbitration Act: to enforce arbitration
agreements according to their terms. The question presented
here is plainly of national importance.

2. The California Court of Appeal’s decision also substan-
tially undermines the other ancillary benefits of the Arbitra-
tion Act. When a party agrees to arbitrate a dispute, it waives
a wide range of procedural rights and protections that it
would otherwise be entitled to claim in a judicial proceeding.
Most notable among them is the most basic: a party who
agrees to arbitrate waives the right to bring his claim in a
judicial forum. Smaller waivers, too, are so common as to be
presumed: one who agrees to arbitrate waives certain
discovery proceedings, agrees to relaxed or otherwise altered
rules of evidence, and accepts limited grounds for appeal.
See Gilmer, 500 U.S. at 31-32. Thus, when a party agrees to
arbitrate, he “trades the procedures and opportunity for
review of the courtroom for the simplicity, informality, and
expedition of arbitration.” Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985). See also
Allied-Bruce Terminix, 513 U.S. at 280 (noting, among “(t]he
advantages of arbitration,” that “it is usually cheaper and
faster than litigation [and] can have simpler procedural and
evidentiary rules”).

Yet California’s rule—that classwide arbitration may be
imposed when the parties agree to arbitrate, even if the
parties expressly preclude classwide arbitration in their
contract—creates a non-waivable right to a class procedure,
utterly flouting the commonly accepted view that such
procedural rights are readily waivable. See Champ, 55 F.3d
at 276. And in the same vein, the California rule substan-
tially undermines arbitration’s “simplicity, informality and

23

expedition.” Mitsubishi, 473 U.S. at 628. Indeed, it is
difficult to imagine an alteration to an arbitration proceeding
more fundamentally at odds with arbitration’s strengths than
engrafting a messy class action procedure onto it. But after
the Court of Appeal’s decision, parties to arbitration agree-
ments in California are faced with the prospect of entangle-
ment with the very thing they bargained to avoid—and which
the Arbitration Act allows them to avoid—costly and com-
plicated litigation in a judicial, or semi-judicial, forum. See
supra n.2. That is inimical to the purpose of arbitration.

3. The split among the courts also may lead to markedly
different arbitral proceedings arising from a single standard
arbitration agreement—all depending on where the parties
sue or are sued. In California or another jurisdiction that
follows the minority rule, a party to a standard commercial
arbitration contract that precludes, or is silent on, class
arbitration, may nonetheless force its opponent to arbitrate or
litigate claims against a class. A plaintiff seeking arbitration
under that same agreement in one of the majority jurisdic-
tions, however, will be held to the terms of its agreement and
be required to arbitrate individually. Those conflicting
results will inexorably lead to forum-shopping on a massive
scale—to the extent they have not already. See supra at 7
(noting that the original plaintiff in this case, hailing from
New Jersey, sued Discover in California court).!!

4. Finally, the question whether and to what extent parties

to an arbitration agreement may curtail their arbitral rights
and remedies is presently a particularly active front of

1! The nationwide class ultimately certified by the trial court
includes many cardholders who do not live in California, and
whose home states would presumably enforce the Delaware
choice-of-law provision in the parties’ arbitration agreement.
Delaware courts have upheld no-class-action provisions. See
Lloyd v. MBNA Amer. Bank, 2001 WL 194300, *3-4 (D. Del. Feb.
3, 2001), aff'd, 27 Fed. Appx. 82 (3d Cir. 2002).

24

litigation. On October 15, this Court granted certiorari to
consider whether a court may refuse to compel arbitration of
claims brought under the Racketeer Influenced and Corrupt
Organizations Act (RICO), where the parties’ arbitration
agreement waived any right to punitive damages. Pacificare
Health Sys., Inc. v. Book, 123 S.-Ct. 409 (2002). Where the
Pacificare case presents the question whether parties to an
arbitration may waive certain remedies, this case asks
whether parties to an arbitration may agree to forgo certain
arbitral procedures.

That question equally warrants review by this Court—as
other recent filings testify.'2 A pending petition for certiorari
to the West Virginia Supreme Court asks whether the Federal
Arbitration Act permits a state court to refuse to enforce an
arbitration agreement that precluded punitive damages (the
question in Pacificare) as well as class-action arbitrations
(the question here). Friedman's Inc. v. West Virginia, 71
U.S.L.W. 3163 (Aug. 27, 2002) (No. 02-315). And on
October 23, 2002, a petition for certiorari was filed in Green
Tree Financial Corp. v. Bazzle, No. 02-634, presenting a

12 Commentators, too, have noted the sharp divergence in views
regarding the propriety of imposing class proceedings on arbitrat-
ing parties. See Carroll E. Neesemann, Should an Arbitration
Provision Trump the Class Action? YES: PERMITTING COURTS
TO STRIKE BAR ON CLASS ACTIONS IN OTHERWISE CLEAN
CLAUSE WOULD DISCOURAGE USE OF ARBITRATION, 8 No.
3 Disp. Resol. Mag. 13, 17 (2002); Jean R. Sternlight, Should an
Arbitration Provision Trump the Class Action? NO: PERMITTING
COMPANIES TO SKIRT CLASS ACTIONS THROUGH
MANDATORY ARBITRATION WOULD BE DANGEROUS AND
UNWISE, 8 No. 3 Disp. Resol. Mag. 13, 21 (2002); Alan S.
Kaplinsky, Arbitration and Class Actions—A Contradiction in
Terms, 1302 PLI/Corp 7 (2002); Timothy J. Heinsz, The Revised
Uniform Arbitration Act: Modernizing, Revising, And Clarifying
Arbitration Law, 2001 J. Disp. Resol. 1, 15 (noting “the hotly
debated issue of class-action arbitrations”).

25

question substantially similar to this one: “Whether the

Federal Arbitration Act prohibits class-action procedures

from being superimposed onto an arbitration agreement that

does not provide for class-action arbitration.” 71 U.S.L.W.
3320.

These issues have percolated in the lower courts for twenty
years, ever since the California Supreme Court’s decision in
Keating. To this day California’s minority view persists; and
it is still, more than ever, in the minority. Certiorari should
be granted in this case and the decision of the California
Court of Appeal reversed. :

CONCLUSION

For the foregoing reasons, the petition for a writ of certio-
rari should be granted.

Respectfully submitted,

JOEL A. FEUER JOHN G. ROBERTS, JR.*
THEODORE J. BOUTROUS, JR. CATHERINE E. STETSON
GIBSON, DUNN & CRUTCHER KEITH J. BENES

Redkelts HOGAN & HARTSON L.L.P.
333 South Grand Avenue, 555 Thirteenth Street, N.W.

47th Floor Washington, D.C. 20004
Los Angeles, California 90071 (202) 637-5810

(213) 229-7000

*Counsel of Record. Counsel for Petitioner

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_0801%3A1. Public record. Not legal advice.