Part II: The Legal Landscape: Green Tree Financial Corp. v. Bazzle
By Philip J. Loree Jr.
As discussed in Part I, Stolt-Nielsen is a do-over of sorts. Back in 2003 the United States Supreme Court set out to decide in Green Tree Financial Corp. v. Bazzle whether imposing class arbitration on parties whose agreement is silent on that point is consistent with the Federal Arbitration Act. But that never happened because it turned out the parties’ agreement in Bazzle was not silent – or at least four Justices thought so.
While Bazzle did not decide the precise issue in Stolt-Nielsen, it resulted in three opinions that provide meaningful insight on how the current Court might decide Stolt-Nielsen case and collectively form the legal landscape (for lack of a better term) against which Stolt-Nielsen will be decided. So today we will pause to briefly review what transpired in Bazzle before we move on in Parts III and IV to discuss and analyze Stolt-Nielsen.
Green Tree Financial Corp. v. Bazzle
Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) was an appeal from a judgment of the South Carolina Supreme Court concerning two, separate consumer class action arbitrations in which Green Tree Financial Corp. (“Green Tree”) was the sole defendant. The South Carolina Supreme Court held that: (1) the arbitration clauses in the materially identical form contracts between each individual consumer class member and Green Tree were silent on whether the arbitration might be heard as a class action; and (2) in the circumstances, South Carolina law interprets the contracts as permitting class arbitration. The Supreme Court granted certiorari to determine whether that holding was consistent with the Federal Arbitration Act.
Based on a plurality opinion written by Justice Breyer, and joined by Justices Souter, Scalia, and Ginsburg, and an opinion by Justice Stevens concurring in the judgment, the Court vacated the South Carolina Supreme Court’s judgment, and remanded the case to the arbitrator to determine whether the arbitrationagreements prohibited class action arbitration or were, as the South Carolina Supreme Court concluded, silent on that point. The Court therefore never reached the issue whether imposing class action arbitration on the parties when the contract was silent was consistent with the Federal Arbitration Act.
The Bazzle arbitration clauses stated, in pertinent part, that:
All disputes, claims or controversies arising from or relating to this contract or the relationships which result from this contract shall be resolved by binding arbitration by one arbitrator selected by us with consent of you. . . . . The parties agree and understand that the arbitrator shall have all powers provided by the law and the contract. These powers shall include all legal and equitable remedies, including, but not limited to, money damages, declaratory relief, and injunctive relief.
The Plurality Opinion: Justices Breyer, Scalia, Souter and Ginsburg
Green Tree argued that the arbitration clauses prohibited class arbitration. The four-Justice plurality said this raised a “preliminary question” that must be dealt with “at the outset, for if [Green Tree] is right, then the South Carolina court’s holding is flawed on its own terms; that court neither said nor implied that it would have authorized class arbitration had the parties’ arbitration agreement forbidden it.” The plurality concluded that whether the contracts prohibited class arbitration was a “disputed issue of contract interpretation.” 539 U.S. at 450:
The class arbitrator was ‘selected by’ Green Tree ‘with consent of’ Green Tree’s customers, the named plaintiffs. And insofar as the other class members agreed to proceed in class arbitration, they consented as well.
Of course, Green Tree did not independently select this arbitrator to arbitrate its disputes with the other class members. But whether the contracts contain this additional requirement is a question that the literal terms of the contracts do not decide. The contracts simply say (I) ‘selected by us [Green Tree].’ And that is literally what occurred. The contracts do not say (II) ‘selected by us [Green Tree] to arbitrate this dispute and no other (even identical) dispute with another customer.’ The question whether (I) in fact implicitly means (II) is the question at issue: Do the contracts forbid class arbitration? Given the broad authority the contracts elsewhere bestow upon the arbitrator. . . (the contracts grant to the arbitrator ‘all powers,’ including certain equitable powers ‘provided by the law and the contract’), the answer to this question is not completely obvious.
539 U.S. at 451 (emphasis in original).
The plurality also decided that this disputed issue of contract interpretation fell within the scope of the parties’ broad arbitration agreement:
The parties agreed to submit to the arbitrator ‘[a]ll disputes, claims or controversies arising from or relating to this contract or the relationships which result from this contract.’ And the dispute about what the arbitration contract in each case means (i.e., whether it forbids the use of class arbitrationprocedures) is a dispute “relating to this contract” and the resulting “relationships.” Hence the parties seem to have agreed that an arbitrator, not a judge would answer the relevant question. And if there is doubt about that matter – about the scope of arbitrable issues – we should resolve that doubt in favor of arbitration.
539 U.S. at 451-52 (citations and quotations omitted).
The plurality also stated that it did not consider the issue to be one of arbitrability, which is for the court to decide unless the parties clearly and unmistakably agree otherwise. Rather, it was one of procedural arbitrability, which is ordinarily for the arbitrators to decide under a broad arbitration agreement. While “courts assume that the parties intended courts, not arbitrators” to decide certain “gateway matters, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy,” the Court found that the issue did not fall into “this narrow exception.” 539 U.S. at 452 (citations omitted). According to the Court, “the relevant question . . . is what kind of arbitration proceeding the parties agreed to:”
That question does not concern a state statute or judicial procedures. It concerns contract interpretation and arbitration procedures. Arbitrators are well situated to answer that question. Given these considerations, along with the arbitration contracts’ sweeping language concerning the scope of the questions committed to arbitration, this matter of contract interpretation should be for the arbitrator, not the courts, to decide.
539 U.S. at 452-53 (citations omitted).
Justice Stevens’ Concurring Opinion
In a concurring opinion, Justice Stevens said he believed that “the decision to conduct a class-action arbitration was correct as a matter of law, and because petitioner has merely challenged the merits of that decision without claiming that it was made by the wrong decision maker, there is no need to remand the case to correct that possible error.” He would have simply affirmed the judgment of the South Carolina Supreme Court but recognized that were he to “adhere to [his]. . . preferred disposition of the case, . . . there would be no controlling judgment of the Court. To “avoid that outcome, and because” the plurality opinion “expresse[d] a view of the case close to . . . [his] own,” he concurred in the judgment. 539 U.S. at 455 (citations omitted).
Chief Justice Rehnquist’s Dissenting Opinion: Chief Justice Rehnquist and Justices O’Connor and Kennedy
The dissent argued that: (a) the question of whether the agreement permitted or prohibited class arbitration was a question of arbitrability, which the Court must decide where, as here, the parties did not clearly and unmistakably submit the question to the arbitrators; and (b) by its terms, the parties’ arbitrationagreement did not permit class arbitration. 539 U.S. at 455.
Acknowledging that the “decision of the arbitrator on matters agreed to be submitted to him is given considerable deference by the courts,” the dissent stressed that “the decision of what to submit to the arbitrator is a matter of contractual agreement by the parties, and the interpretation of that contract is for the court, not the arbitrator.” 539 U.S. at 456 (emphasis in original; citations omitted). And, according to the dissent, “[j]ust as fundamental to the agreement of the parties as what is submitted to the arbitrator is to whom it is submitted.” To the dissent, “the parties’ agreement as to how the arbitrator should be selected is much more akin to the agreement as to what shall be arbitrated, a question for the Courts to decide. . . , than it is to ‘allegations of waiver, delay, or like defenses to arbitrability,’ which are for the arbitrator. . . .” 539 U.S. at 457 (citations omitted; emphasis in original).
The dissent believed that the South Carolina Supreme Court’s decision contravened the language of the arbitration clause pertaining to the selection of an arbitrator and that the arbitration clause therefore did not permit class arbitration:
Under the FAA, ‘parties are generally free to structure their arbitration agreements as they see fit.’ Here, the parties saw fit to agree that any disputes arising out of the contracts ‘shall be resolved by binding arbitration by one arbitrator selected by us with consent of you.’ Each contract expressly defines ‘us’ as petitioner, and ‘you’ as the respondent or respondents named in that specific contract. . . . Each contract also specifies that it governs all ‘disputes. . . arising from . . . this contract or the relationships which result from this contract.’ These provisions, which the plurality simply ignores. . . make quite clear that petitioner must select, and each buyer must agree to, a particular arbitrator for disputes between petitioner and that specific buyer.
. . . .
To be sure, the arbitrator that administered the proceedings was ‘selected by [petitioner] with consent of’. . . [the respondents]. But petitioner had the contractual right to choose an arbitrator for each dispute with the other 3,734 individual class members, and this right was denied when the same arbitrator was foisted upon petitioner to resolve those claims as well. Petitioner may well have chosen different arbitrators for some or all of these other disputes; indeed, it would have been reasonable for petitioner to do so, in order to avoid concentrating all of the risk of substantial damages awards in the hands of a single arbitrator.
539 U.S. at 458-59 (emphasis in original; citations omitted).
Justice Thomas’ Dissent
Justice Thomas dissented on the ground that he does not believe that the Federal Arbitration Act applies in state court. Accordingly, he would have “left undisturbed the judgment of the Supreme Court of North Carolina.” 539 U.S. at 460.
Familiar as we now are with the somewhat rocky and treacherous legal landscape against which the Court will decide Stolt-Nielsen, in Part III we shall turn to the background and procedural history of – and issues presented by – that case. Stay tuned….
Philip J. Loree Jr. is a partner in the boutique law firm of Loree & Loree, which focuses its practice on reinsurance dispute resolution and commercial and industry arbitration. Prior to forming Loree & Loree, Mr. Loree was a partner in the Litigation Departments of Cadwalader, Wickersham & Taft LLP and Rosenman & Colin LLP. He was also a Shareholder in Stevens & Lee, P.C.’s Litigation Department.
Mr. Loree is also blogmaster of the Loree Reinsurance and Arbitration Law Forum, where he frequently comments on issues pertinent to reinsurance, and commercial and industry ADR. He is owner and co-founder (with Disputing’s Victoria VanBuren) of LinkedIn’s Commercial and Industry Arbitration and Mediation Group, which provides an open forum for the discussion of commercial, industry and consumer ADR.