Opinion ID: 1231723
Heading Depth: 2
Heading Rank: 4

Heading: (10) class arbitration.

Text: The trial court, in ordering arbitration, did not expressly rule upon the motions in Keating and Battersby for class certification. Franchisees contend that if arbitration is to proceed the trial court should be instructed to determine the preliminary issues regarding class certification so that it may proceed on a classwide basis. This contention requires us to examine the special problems of unfair advantage which may appear in an adhesion setting when individual arbitration agreements are invoked to block an otherwise appropriate class action. [17] This court has repeatedly emphasized the importance of the class action device for vindicating rights asserted by large groups of persons. We have observed that the class suit `both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress for claims which would otherwise be too small to warrant individual litigation. [Citation.]' ( Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 469 [174 Cal. Rptr. 515, 629 P.2d 23].) Denial of a class action in cases where it is appropriate may have the effect of allowing an unscrupulous wrongdoer to retain[] the benefits of its wrongful conduct. ( Vasquez v. Superior Court (1971) 4 Cal.3d 800, 808 [94 Cal. Rptr. 796, 484 P.2d 964, 53 A.L.R.3d 513].) [18] And, as we noted in La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 877 [97 Cal. Rptr. 849, 489 P.2d 1113]: Controversies involving widely used contracts of adhesion present ideal cases for class adjudication; the contracts are uniform, the same principles of interpretation apply to each contract, and all members of the class will share a common interest in the interpretation of an agreement to which each is a party. If the right to a classwide proceeding could be automatically eliminated in relationships governed by adhesion contracts through the inclusion of a provision for arbitration, the potential for undercutting these class action principles, and for chilling the effective protection of interests common to a group, would be substantial. Arbitration proceedings may well provide certain offsetting advantages through savings of time and expense; but, depending upon the nature of the issues and the evidence to be presented, it is at least doubtful that such advantages could compensate for the unfairness inherent in forcing hundreds or perhaps thousands, of individuals asserting claims involving common issues of fact and law to litigate them in separate proceedings against a party with vastly superior resources. Because the principles of res judicata and collateral estoppel do not apply in arbitration proceedings, any issue resolved against a party such as Southland in one arbitration proceeding would have to be decided anew in a subsequent arbitration, resulting in needless duplication and the potential for inconsistent awards. And while arbitration ideally takes place outside the judicial arena, it would be naive to assume, in such a situation, that courts would not be called upon to determine issues ancillary to the arbitration proceedings. The effect would be to place upon the parties, and upon the courts, many of the burdens which the class action device was designed to avoid. It is common knowledge that arbitration clauses frequently appear in standardized contracts of adhesion. A primary consideration which has led courts to uphold such clauses, despite the adhesive nature of the contract, is the belief that arbitration is not oppressive and does not defeat the reasonable expectations of the parties. ( Madden v. Kaiser Foundation Hospitals, supra, 17 Cal.3d 699, 710, 712.) If, however, an arbitration clause may be used to insulate the drafter of an adhesive contract from any form of class proceeding, effectively foreclosing many individual claims, it may well be oppressive and may defeat the expectations of the nondrafting party. One possible solution to this dilemma would be to hold that arbitration agreements contained in contracts of adhesion may not operate to stay properly maintainable class actions. (See Harris v. Shearson Hayden Stone, Inc. (1981) 82 App.Div.2d 87 [441 N.Y.S.2d 70, 76-79] (dis. opns.); cf. Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1971) 20 Cal. App.3d 668, 672 [97 Cal. Rptr. 811]; Vernon v. Drexel Burnham & Co. (1975) 52 Cal. App.3d 706 [125 Cal. Rptr. 147].) The statutes and public policy supportive of arbitration require, however, that this result be avoided if means are available to give expression to the basic arbitration commitment of the parties. ( Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d 807, 831.) We turn our attention, therefore, to the solution offered by franchisees: that the arbitration itself proceed on a classwide basis. There is, as the parties acknowledge, an absence of direct authority either supporting or rejecting such a procedure. Analogous authority exists, however, with respect to the consolidation of arbitration proceedings involving a dispute which concerns several parties each of whom has an agreement with one or more of the others to arbitrate the dispute. Although the [Federal Arbitration] Act does not specifically provide for consolidated arbitrations, courts have frequently ordered consolidated arbitration proceedings when the `interests of justice' so require, either because the issues in dispute are substantially the same and/or because a substantial right might be prejudiced if separate arbitration proceedings are conducted. ( Matter of Czarnikow-Rionda Co., Inc. (S.D.N.Y. 1981) 512 F. Supp. 1308, 1309.) Indeed, the Second Circuit has opined that the liberal purposes of the Federal Arbitration Act clearly require that this act be interpreted so as to permit and even encourage the consolidation of arbitration proceedings in proper cases. ( Compania Espanola de Pet., S.A. v. Nereus Ship. (2d Cir.1975) 527 F.2d 966, 975, cert. den. (1976) 426 U.S. 936 [49 L.Ed.2d 387, 96 S.Ct. 2450]; see also, Marine Trading Ltd. v. Ore Intern. Corp. (S.D.N.Y. 1977) 432 F. Supp. 683; Robinson v. Warner (D.C.R.I. 1974) 370 F. Supp. 828.) Federal courts, in ordering consolidation of arbitration proceedings in these cases, have relied upon rule 81(a)(3) of the Federal Rules of Civil Procedure, which states that the federal rules apply to certain statutes, including the FAA, only to the extent that matters of procedure are not provided for in those statutes. Thus, rule 42(a), which provides for consolidation of related proceedings, is deemed to apply. Analogous reasoning would support reliance on rule 23, the class action rule, as a basis for ordering classwide arbitrations when the interests of justice so require. A number of state courts also support consolidation of arbitration proceedings, even in the absence of express statutory authority. New York courts take the position that jurisdiction to enforce contracts to arbitrate imports power to regulate the method of enforcement. ( Chariot Textiles Corp. v. Wannalancit Textile Co. (1964) 21 App. Div.2d 762 [250 N.Y.S.2d 493, 495] (dis. opn.), revd. on dis. opn. (1966) 18 N.Y.2d 793 [275 N.Y.S.2d 382, 221 N.E.2d 913]; see also In re Vigo Steamship Corporation (1970) 26 N.Y.2d 157 [309 N.Y.S.2d 165, 257 N.E.2d 624], cert. den. sub nom., Frederick Snare Corp. v. Vigo Steamship Corp. (1970) 400 U.S. 819 [27 L.Ed.2d 46, 91 S.Ct. 36]; accord: Grover-Dimond Assoc. v. American Arbitration Ass'n (1973) 297 Minn. 324 [211 N.W.2d 787, 64 A.L.R.3d 522]; see also, Exber, Inc. v. Sletten Construction Company (1976) 92 Nev. 721 [558 P.2d 517]; James Stewart Polshek, etc. v. Bergen Iron Wks. (1976) 142 N.J. Super. Ct. 516 [362 A.2d 63]; Episcopal Housing Corp. v. Federal Ins. Co. (1979) 273 S.C. 181 [255 S.E.2d 451]; contra: Stop & Shop Companies, Inc. v. Gilbane Building Co. (1973) 364 Mass. 325 [304 N.E.2d 429]; J. Brodie & Son, Inc. v. George A. Fuller Company (1969) 16 Mich. App. 137 [167 N.W.2d 886]; see generally, Annot., Consolidation of Arbitration Proceedings, 64 A.L.R.3d 528, 529.) In California, consolidation in certain cases is expressly authorized by statute. (Code Civ. Proc., § 1281.3.) [19] Consolidated arbitration often involves a tripartite relationship in which the parties in dispute each have a contract with a third party, but not with each other. Each contract may provide a different procedure for arbitration, or a different method of selecting the arbitrator. Federal courts have held that a court can mold the method of selection and the number of arbitrators to implement the consolidated proceedings. ( Matter of Czarnikow-Rionda Co., Inc., supra, 512 F. Supp. at p. 1309.) Similarly, Code of Civil Procedure section 1281.3 provides that consolidated arbitration proceedings may be ordered inter alia, where one party is a party to a separate arbitration agreement or proceeding with a third party, and that if the agreements do not mesh in their description of procedure, a court has authority to appoint an arbitrator, and to resolve [conflicts among the agreements] and determine the rights and duties of the various parties to achieve substantial justice under all the circumstances. Thus, a party may be forced into a coordinated arbitration proceeding in a dispute with a party with whom he has no agreement, before an arbitrator he had no voice in selecting and by a procedure he did not agree to. In these respects, an order for classwide arbitration in an adhesion context would call for considerably less intrusion upon the contractual aspects of the relationship. The members of a class subject to classwide arbitration would all be parties to an agreement with the party against whom their claim is asserted; each of those agreements would contain substantially the same arbitration provision; and if any of the members of the class were dissatisfied with the class representative, or with the choice of arbitrator, or for any other reason would prefer to arbitrate on their own, they would be free to opt out and do so. Moreover, the interests of justice that would be served by ordering classwide arbitration are likely to be even more substantial in some cases than the interests that are thought to justify consolidation. It is unlikely that the state Legislature in adopting the amendment to the Arbitration Act authorizing consolidation of arbitration proceedings, intended to preclude a court from ordering classwide arbitration in an appropriate case. We conclude that a court is not without authority to do so. Without doubt a judicially ordered classwide arbitration would entail a greater degree of judicial involvement than is normally associated with arbitration, ideally `a complete proceeding, without resort to court facilities.' ( East San Bernardino County Water Dist. v. City of San Bernardino (1973) 33 Cal. App.3d 942, 950 [109 Cal. Rptr. 510].) The court would have to make initial determinations regarding certification and notice to the class, and if classwide arbitration proceeds it may be called upon to exercise a measure of external supervision in order to safeguard the rights of absent class members to adequate representation and in the event of dismissal or settlement. A good deal of care, and ingenuity, would be required to avoid judicial intrusion upon the merits of the dispute, or upon the conduct of the proceedings themselves and to minimize complexity, costs, or delay. (See Note, Classwide Arbitration: Efficient Adjudication or Procedural Quagmire ? (1981) 67 Va. L.Rev. 787, 789.) An adhesion contract is not a normal arbitration setting, however, and what is at stake is not some abstract institutional interest but the interests of the affected parties. Classwide arbitration, as Sir Winston Churchill said of democracy, must be evaluated, not in relation to some ideal but in relation to its alternatives. If the alternative in a case of this sort is to force hundreds of individual franchisees each to litigate its cause with Southland in a separate arbitral forum, then the prospect of classwide arbitration, for all its difficulties, may offer a better, more efficient, and fairer solution. Where that is so, and gross unfairness would result from the denial of opportunity to proceed on a classwide basis, then an order structuring arbitration on that basis would be justified. Whether such an order would be justified in a case of this sort is a question appropriately left to the discretion of the trial court. In making that determination, the trial court would be called upon to consider, not only the factors normally relevant to class certification, but the special characteristics of arbitration as well, including the impact upon an arbitration proceeding of whatever court supervision might be required, and the availability of consolidation as an alternative means of assuring fairness. Whether classwide proceedings would prejudice the legitimate interests of the party which drafted the adhesion agreement must also be considered, and that party should be given the option of remaining in court rather than submitting to classwide arbitration. In this case, the trial court did not consider the franchisees' request for classwide arbitration at all, and a fortiori did not consider the factors which we have found to be relevant. Since we are unable to make the determination on this record as a matter of law, the case will be remanded to the trial court on this issue. The order of the trial court is reversed and the cause is remanded for further proceedings consistent with the opinion herein. In light of our opinion, the petition for writ of prohibition or mandate is denied. Each party to bear their own costs.