Academic journal article The Review of Litigation

Class Actions in Arbitration

Academic journal article The Review of Litigation

Class Actions in Arbitration

Article excerpt


In recent years, arbitration has become increasingly favored by courts. Arbitration has been described as "sweeping across the American legal landscape . .. fundamentally reshaping the manner in which disputes are resolved in our legal system."1 Arbitrators are authorized to resolve disputes by the terms of the contractual arbitration agreements between or among the parties to a dispute, and in many cases, the only other boundaries to their authority are the applicable federal and/or state arbitration statutes. In enforcing arbitration agreements, courts have usually given deference to the terms of the arbitration agreements, granting arbitrators authority that is coextensive with, and sometimes greater than, that of comparable judicial bodies. Consequently, one might assume that all types of cases, including class actions, would be permitted in arbitration. However, courts have grappled with whether contractual arbitration provisions permit class arbitrations under the various state and federal arbitration statutes.

Certainly, when arbitration provisions expressly grant the right to proceed as a class arbitration, courts, in keeping with the state and federal precedent favoring enforcement of arbitration provisions, honor the express right to class arbitration. When arbitration clauses are silent on the issue of class arbitrationcontaining neither an express authorization nor an express prohibition-courts have historically been less uniform in their approaches. On the one hand, courts encourage arbitrators to exercise any procedural tool available to courts;2 on the other, arbitration as a forum has emerged as a tool of business in which consumer remedies are discouraged through prohibitive costs and administrative obstacles.3 Given these conflicting pressures, courts addressing the propriety of class arbitrations in the context of arbitration clauses that are silent on the issue of class arbitration have issued opinions ranging from outright prohibition to wholesale acceptance.4 In Green Tree Financial Corp. v. Bazzle,5 the United States Supreme Court laid the issue to rest as far as the Federal Arbitration Act (FAA) was concerned, accepting "the quite remarkable proposition that class arbitration was not merely permissible but should be largely conducted without judicial supervision."6

This article provides a historical and legal overview of the history of class arbitration, examines some of the questions raised in the wake of Green Tree, and offers pragmatic guidance for the practitioner seeking to make use of this new procedural tool in arbitration agreements that are silent as to class arbitrations.7


A. Courts Were Split on the Permissibility of Class Arbitrations with "Silent" Arbitration Clauses

Prior to Green Tree, there was no clear consensus among state and federal courts on whether class arbitrations were permissible where the arbitration clause was silent on the issue of class arbitration. Some courts rejected class arbitrations,8 some courts rejected allowing arbitrators to certify classes but would allow arbitrators to administer classes certified by courts,9 and still others allowed courts to certify arbitrations.10

1. The Naysayers

In Champ v. Siegel Trading Co., the Seventh Circuit prohibited class arbitration in the absence of an express grant of authority to conduct class arbitrations in the arbitration clause.11 The Champ court held that "Section 4 of the FAA forbids federal judges from ordering class arbitration where the parties' arbitration agreement is silent on the matter."12 Similarly, the Alabama Supreme Court held that class arbitration was improper in Med Center Cars, Inc. v. Smith, stating:

Although there are benefits to class-wide arbitration, such as efficient resolution of common claims and judicial economy, no persuasive authority permitting class-wide arbitration exists at this time. …

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