Opinion ID: 2570216
Heading Depth: 3
Heading Rank: 3

Heading: Green Tree Financial Corp. v. Bazzle

Text: Discover Bank's argues that Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444, 123 S.Ct. 2402, 156 L.Ed.2d 414 ( Bazzle ), issued after the filing of the Court of Appeal opinion, supports the position that a state law rule against class arbitration waivers is preempted by the FAA. We disagree. In Bazzle, several customers sued Green Tree Financial Corp. (Green Tree), alleging that the company failed to provide them with a form informing them of their right to name their own lawyer and insurance agent, contrary to South Carolina law. They sought class certification, and Green Tree sought to compel arbitration pursuant to arbitration agreements with the plaintiffs. The trial court both certified a class action and entered an order compelling arbitration. Two class arbitration proceedings were conducted, and in both instances, the arbitrators awarded the class several million dollars in statutory damages. The trial court confirmed the awards. ( Bazzle, supra, 539 U.S. at pp. 448-449, 123 S.Ct. 2402.) Green Tree challenged on appeal, among other things, the legality of the class arbitration. The South Carolina Supreme Court held that the arbitration agreements were silent with respect to classwide arbitration and that, under South Carolina law, silence would be construed to permit such arbitration. ( Id. at p. 450, 123 S.Ct. 2402.) The Bazzle court addressed a narrow question: Green Tree disputed whether the arbitration clause was silent on classwide arbitration, arguing that the contract language in fact prohibited such arbitrations. As the court's plurality framed the issue: [W]e must deal with that argument at the outset, for if it 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. ( Bazzle, supra, 539 U.S. at p. 450, 123 S.Ct. 2402 (plur. opn. of Breyer, J.).) Even on this narrow issue, Bazzle produced no majority opinion. A plurality of four justices held that the question whether the contract was in fact silent on arbitration was for the arbitrator to decide, and remanded for an arbitral determination. As the plurality stated: In certain limited circumstances, courts assume that the parties intended courts, not arbitrators, to decide a particular arbitration-related matter (in the absence of `clea[r] and unmistakabl[e]' evidence to the contrary). [Citation.] These limited instances typically involve matters of a kind that `contracting parties would likely have expected a court' to decide. [Citation.] They include 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. [Citations.] [¶] The question here whether the contracts forbid class arbitration does not fall into this narrow exception. It concerns neither the validity of the arbitration clause nor its applicability to the underlying dispute between the parties. ( Bazzle, supra, 539 U.S. at p. 452, 123 S.Ct. 2402.) Justice Stevens filed a concurring and dissenting opinion that stated in part: The Supreme Court of South Carolina has held as a matter of state law that class-action arbitrations are permissible if not prohibited by the applicable arbitration agreement, and that the agreement between these parties is silent on the issue. [Citation.] There is nothing in the Federal Arbitration Act that precludes either of these determinations by the Supreme Court of South Carolina. See Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., [ supra, ] 489 U.S. 468, 475-476, 109 S.Ct. 1248, 103 L.Ed.2d 488. Arguably the interpretation of the parties' agreement should have been made in the first instance by the arbitrator, rather than the court. [Citation.] Because 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 decisionmaker, there is no need to remand the case to correct that possible error. [¶] Accordingly, I would simply affirm the judgment of the Supreme Court of South Carolina. Were I to adhere to my preferred disposition of the case, however, there would be no controlling judgment of the Court. In order to avoid that outcome, and because JUSTICE BREYER's opinion expresses a view of the case close to my own, I concur in the judgment. ( Bazzle, supra, 539 U.S. at pp. 455-456, 123 S.Ct. 2402 (conc. & dis. opn. of Stevens, J.).) Chief Justice Rehnquist, writing also for Justices Kennedy and O'Connor, would have held that the question whether the agreement is silent on classwide arbitration is for the court, rather than the arbitrator, to decide. ( Bazzle, supra, 539 U.S. at pp. 457-458, 123 S.Ct. 2402 (dis. opn.).) The dissent viewed the choice of class arbitration as relating to the choice of arbitrator ( Bazzle, supra, 539 U.S. at p. 456, 123 S.Ct. 2402) and concluded that this choice is as important a component of the agreement to arbitrate as is the choice of what is to be submitted [for arbitration]. ( Id. at pp. 456-457, 123 S.Ct. 2402.) On the merits, the Chief Justice would have decided the contract interpretation in Green Tree's favor, i.e., that the contract forbade class action arbitration and that such waiver is fully enforceable. ( Id. at pp. 458-459, 123 S.Ct. 2402.) Justice Thomas adhered to his previous view that the FAA does not apply to state court proceedings. ( Bazzle, supra, 539 U.S. at p. 460, 123 S.Ct. 2402 (dis. opn. of Thomas, J.).) Reading the plurality opinion together with Justice Stevens's opinion, the most that might be derived from Bazzle is a narrow holding: that when the question of whether a class action arbitration is available depends on whether or not the arbitration agreement is silent on the matter or expressly forbids class action arbitration, then it is up to the arbitrator, not the court, to determine whether the arbitration agreement is in fact silent. More significant than Bazzle's holding, for purposes of the present case, is what it did not decide. The court did not address whether a state court can, consistent with the FAA, hold a class action waiver appearing in a contract of adhesion for arbitration unconscionable or contrary to public policy, as part of an arbitration-neutral law that finds all such waivers unenforceable. As noted, the plurality in framing the issue stated that the [South Carolina Supreme Court] neither said nor implied that it would have authorized class arbitration had the parties' arbitration agreement forbidden it. ( Bazzle, supra, 539 U.S. at p. 450, 123 S.Ct. 2402 (plur. opn. of Breyer, J.).) Under California law, as discussed, class arbitration may be authorized, even when a contract of adhesion forbids it, because a class arbitration waiver may be unconscionable. Bazzle does not call into question the principle that state courts may enforce general contract rules regarding unconscionability and public policy that preclude class action waivers. Nor did the court address the question whether that determination of unconscionability should be made by a court or an arbitrator. The court was in general agreement that courts should be left to decide certain gateway matters ( Bazzle, supra, 539 U.S. at p. 452, 123 S.Ct. 2402 (plur. opn. of Breyer, J.)) or fundamental matters such as the validity and scope of the arbitration agreement ( id. at pp. 456-457, 123 S.Ct. 2402 (dis. opn. of Rehnquist, C. J.)). Under California law, the question whether grounds exist for the revocation of the [arbitration] agreement (Code Civ. Proc. § 1281.2) based on grounds as exist for the revocation of any contract ( id., § 1281) is for the courts to decide, not an arbitrator. See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 973, 64 Cal.Rptr.2d 843, 938 P.2d 903.) This includes the determination of whether arbitration agreements or portions thereof are deemed to be unconscionable or contrary to public policy. (See, e.g., Little, supra, 29 Cal.4th at p. 1076, 130 Cal. Rptr.2d 892, 63 P.3d 979; Balandran v. Labor Ready, Inc. (2004) 124 Cal.App.4th 1522, 1530, 22 Cal.Rptr.3d 441 [question of unconscionability of arbitration agreement a gateway issue to be resolved by the court]; Miller v. Drexel Burnham Lambert, Inc. (11th Cir.1986) 791 F.2d 850, 854; American General Finance, Inc. v. Branch (Ala.2000) 793 So.2d 738, 743; In re Arbitration Between Teleserve Systems, Inc. & MCI Telecommunications Corp. (N.Y.App.Div.1997) 230 A.D.2d 585, 594, 659 N.Y.S.2d 659.) Nothing in Bazzle is to the contrary. Amicus curiae United States Chamber of Commerce argues that the imposition of classwide arbitration undermines the purpose of the FAA by drastically altering the rules by which the parties agreed to arbitrate, transforming arbitration into a less efficient and less desirable mechanism of dispute resolution. Bazzle lends no support to that position. On the contrary, although Bazzle could have been disposed of easily if a majority had decided that arbitrations and class actions were inherently incompatible, and that class action arbitration therefore could not be instituted without an express agreement, the court did not take that route. The fact that a majority of the court looked to state law rules to determine whether class arbitration is authorized indicates its view that there is no such incompatibility. The only justice to comment directly on this issue, Justice Stevens, concluded that nothing in the FAA prohibits state courts from authorizing classwide arbitration in agreements silent on the matter. ( Bazzle, supra, 539 U.S. at pp. 454-455, 123 S.Ct. 2402 (conc. opn. of Stevens, J.).) Nor are we directed to anything concrete that would cause us to reconsider Keating's holding over 20 years ago that classwide arbitrations are workable and appropriate in some cases. (See Sternlight, As Mandatory Binding Arbitration Meets the Class Action, Will the Class-action Survive? (2000) 42 Wm. & Mary L.Rev. 1, 38-44 & fns. 148-151 [reporting, based on surveys of court decisions and discussions with attorneys, that class action arbitration is rare but viable, with trial courts acting to resolve class issues and other collateral matters]; see also Bazzle v. Green Tree Financial Corp. (2002) 351 S.C. 244, 569 S.E.2d 349, 360-361 & fn. 22 [adopting the California approach to classwide arbitration and affirming its workability]; Dickler v. Shearson Lehman Hutton, Inc. (1991) 408 Pa.Super. 286, 596 A.2d 860, 862-863 [adopting classwide arbitration]; American Arb. Assn., Supplementary Rules for Class Arbitrations (Oct. 8, 2003). [as of June 27, 2005] [supplemental rules for classwide arbitration]; JAMS, Class Arbitration Procedures (Feb.2005) [as of June 27, 2005] [same].) We reiterate what this court said over 20 years ago in Keating: Classwide arbitration, as Sir Winston Churchill said of democracy, must be evaluated, not in relation to some ideal but in relation to its alternatives. ( Keating, 31 Cal.3d at p. 613, 183 Cal.Rptr. 360, 645 P.2d 1192.) We continue to believe that the alternatives either not enforcing arbitration agreements and requiring class action litigation, or allowing arbitration agreements to be used as a means of completely inoculating parties against class liabilityare unacceptable. Nothing in the FAA nor in Bazzle requires us to reconsider that assessment. [7] It may be the case that arbitration becomes a less desirable forum from Discover Bank's viewpoint if the arbitration must be conducted in a classwide manner. But the fact that a court's refusal to enforce an unconscionable term of an arbitration agreement makes that agreement less desirable to the party imposing the term does not argue in favor of its enforcement. [8]