Jottings By An Employer's Lawyer

Monday, June 23, 2003

Supreme Court Fizzles on Question of Class Actions In Arbitrations

On a day when all the attention is focused on its decisions on affirmative action, it was a perfect time to issue a very split opinion on the question of whether or not there can be class actions in an arbitration proceedings when it is not covered in the agreement itself. Although not an employment case, the ruling should be applicable to employers who require arbitration as a condition of employment.

In Green Tree v. Bazzle [pdf] a plurality opinion authored by Justice Breyer, becomes the opinion of the Court, only because Justice Stevens joins solely for that purpose. Justice Breyer took the easy out by holding that the determination of the question should have been left to the arbitrator rather than the South Carolina Supreme Court. The SC Court had held that since the arbitration agreement was silent, class action status was permitted.

In the arbitration, applying class action status to those who had not received appropriate documents in connection with consumer finance transactions, the arbitrator had awarded almost $10,000,000 against Green Tree. Today's opinion sets aside the judgment, but if it goes back to the same arbitrator it would seem likely it is only a matter of time before a formal ruling by the arbitrator is made.

Justice Rehnquist, joined by Justices Kennedy and O'Connor, accepted Green Tree's argument, and would have found that the decision was to be made by the courts, not the arbitrator. It would also have found that class actions were not permitted under this particular Agreement. His opinion does note he agrees with one of the parties' contention that class actions are permissible if provided for in the arbitration agreement.

Justice Thomas dissented because of his continued belief that the FAA is not applicable in state courts.

Although it mainly seems as if the Supreme Court punted, it does suggest that an arbitration agreement should clearly state its position on the issue and not remain silent; if it does, then it will be up to the arbitrator to decide. If a decision were made to opt for class action treatment, and right now I am having a hard time thinking of where that would be in the best interests of an employer, it raises questions as to the effect on other claimants, particularly if it proceeded on a non-opt in basis. Hard to believe, for example, that a favorable ruling in an arbitration case that had been certified as a class, will serve as a bar to a large group of claimants who did not actually participate.

Maybe more of those procedural questions will get answered when Green Tree comes back after the arbitrator finds that a class action is appropriate under the Agreement.


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