Opinion ID: 1280542
Heading Depth: 2
Heading Rank: 4

Heading: Application to Bazzle and Lackey

Text: As a preliminary matter, we find Green Tree's arbitration clause was silent regarding class-wide arbitration. Certainly, the clause does not mention class-wide arbitration, but Green Tree argues that the language limits arbitration to claims by individuals. Green Tree relies on the portion of the clause providing for arbitration of disputes, claims, or controversies arising from or relating to this contract, or the relationships which result from this contract. [18] In our opinion, this language does not limit the arbitration to non-class arbitration. At best, it creates an ambiguity, and should, therefore, be construed against the drafting party, Green Tree. Still, Green Tree contends this Court must follow the federal precedent established by the Seventh Circuit in Champ. Green Tree argues that this Court is obligated to follow Champ, as a matter of federal substantive law, mandated by section 4 of the FAA. We disagree. The United States Supreme Court has not addressed this issue and the precedent set by the federal circuit courts is not binding on this Court. Although Green Tree asserts that the Fourth Circuit recognizes that the FAA requires non-class arbitration, we believe Green Tree is incorrect. The Fourth Circuit has not addressed the issue directly; the Fourth Circuit has cited Champ, but only in dicta, and the question of class-wide arbitration resolved in Champ has not been before the Fourth Circuit. See Deiulemar Compagnia Di Navigazione S.p.A. v. M/VAllegro, 198 F.3d 473 (4th Cir.1999). [19] Moreover, whether section 4 of the FAA applies in state court is debatable. Section 4 provides, [a] party aggrieved by the alleged failure . . . of another to arbitrate under a written agreement for arbitration may petition a United States district court . . . . 9 U.S.C. § 4. As noted by the California Court of Appeal in Blue Cross, this language contemplates enforcement in the federal district court, not state court, and the United States Supreme Court has not held that section 4 applies in state courts to counter the plain meaning of the statute. See Volt, 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (stating that the Court has never held that sections 3 and 4 of the FAA applied to state courts). In any case, this Court can rely on independent state grounds to permit class-wide arbitration, in the trial court's discretion, where the agreement is silent. First, under general principles of contract interpretation, we construe Green Tree's omission of any reference to class actions against them. As a matter of pure contract interpretation it is striking, and rather odd, that so many courts have interpreted silence in arbitration agreements to foreclose rather than to permit arbitral class actions. [20] No case law or statute in South Carolina prohibits class-wide arbitration. To the contrary, this Court strongly favors arbitration and has held that a state court may order consolidation of claims subject to mandatory arbitration without any contractual or statutory directive to do so. Episcopal Housing Corp. v. Federal Insurance Co.; Plaza Development Services v. Joe Harden Builder (holding that a court has authority to order consolidation when it would serve to expedite the parties contracted-for right of arbitration and the parties have not demonstrated prejudice would result). The rationale employed by Champ that Green Tree urges this Court to adopt is based on an analogy between ordering consolidation and class-wide arbitration where the agreement is silent. Champ grounds its decision to prohibit class-wide arbitration almost entirely on the precedent of other courts prohibiting consolidation of arbitration absent an explicit right to consolidate within the written agreement. Applying this precedent in South Carolina results in the opposite outcome. Since this Court permits consolidation of appropriate claims where the arbitration agreement is silent, it follows that this Court would permit class-wide arbitration, as ordering classwide arbitration calls for considerably less intrusion upon the contractual aspects of the relationship. 42 Wm & Mary L.Rev. 1, 86-87. As the California Court noted in Keating, the members of a class would be parties to an agreement with the defendant, as opposed to consolidated parties, who each have a contract with a third party but not with each other. Id.; Keating. Today, we adopt the approach taken by the California courts in Keating and Blue Cross, and hold that class-wide arbitration may be ordered when the arbitration agreement is silent if it would serve efficiency and equity, and would not result in prejudice. [21] If we enforced a mandatory, adhesive arbitration clause, but prohibited class actions in arbitration where the agreement is silent, the drafting party could effectively prevent class actions against it without having to say it was doing so in the agreement. Following the federal approach risks such a result where arbitration is mandated through an un-negotiated adhesion contract. Under those circumstances, parties with nominal individual claims, but significant collective claims, would be left with no avenue for relief and the drafting party with no check on its abuses of the law. [22] Further, hearing such claims (involving identical issues against one defendant) individually, in court or before an arbitrator, does not serve the interest of judicial economy. In South Carolina, a trial court's ruling on whether an action is properly maintainable as a class action is within the court's discretion. Tilley v. Pacesetter Corp., 333 S.C. 33, 508 S.E.2d 16 (1998). Therefore, a court's decision whether or not to certify a class is reviewed under an abuse of discretion standard. Id. Neither the trial court nor the reviewing court may look to the merits when determining whether to certify a class. Id. (citing Curley v. Cumberland Farms Dairy, 728 F.Supp. 1123 (D.N.J.1990)). The permissible scope of review of arbitral decisions is far more limited. Section 10 of the FAA provides extremely limited grounds for vacating an arbitrator's award. Only where (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators; (3) the arbitrators were guilty of misconduct in refusing to postpone a hearing, or in refusing to hear pertinent evidence, or any other misconduct by which parties' rights have been prejudiced; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10. If an arbitrator acted even arguably within the scope of his authority, even a serious error on his part does not warrant overturning his decision. Major League Baseball Players Assoc. v. Garvey, 532 U.S. 1015, 121 S.Ct. 1724, 149 L.Ed.2d 740 (2001). South Carolina courts have interpreted this standard narrowly. Factual and legal errors by arbitrators do not constitute an abuse of their powers. . . . A party may not attempt to relitigate the merits of the arbitrators' resolution of the arbitrable issues under the guise of questioning the arbitrators' power. Pittman Mortgage Co. v. Edwards, 327 S.C. 72, 76-77, 488 S.E.2d 335, 338 (1997) (citations omitted). The Fourth Circuit has interpreted the fourth justification in section 10 of the FAA (that the arbitrator exceeded his power) to mean that an arbitrator must act in manifest disregard of the law for his decision to be overturned. See Gallus Investments, L.P. v. Pudgie's Famous Chicken, Ltd., 134 F.3d 231 (4th Cir.1998). In light of the narrow standards of review in both cases, we uphold the arbitrator's awards in Bazzle and Lackey. Green Tree did not allege any fraud, corruption, or other misconduct by the arbitrator that would warrant vacating his decision to certify the class or his award under the first three justifications listed in section 10 of the FAA. 9 U.S.C. § 10. That leaves manifest disregard of the law as the only possible justification for overturning the arbitrator's awards. In our opinion, the arbitrator did not act in manifest disregard of the law. As Green Tree noted in its brief, manifest disregard of the law occurs when the arbitrator knew of a governing legal principle yet refused to apply it, and the law disregarded was well defined, explicit, and clearly applicable to the case. (App. Br. p. 12) (citing Trident Technical College v. Lucas Stubbs, Ltd., 286 S.C. 98, 333 S.E.2d 781 (1985), cert. denied 474 U.S. 1060, 106 S.Ct. 803, 88 L.Ed.2d 779 (1986)). As discussed, the issue of whether class-wide arbitration is permissible when the agreement is silent was not settled in this state at the time of the Bazzle and Lackey arbitrations. Therefore, the arbitrator did not act in manifest disregard of the law by permitting it to proceed. [23] Accordingly, we uphold the arbitrator's awards.