The Catholic University of America, Columbus School of Law CUA Law Scholarship Repository Scholarly Articles and Other Contributions Faculty Scholarship 2003 Arbitration and the Supreme Court: A Critique from Plaintiff s Counsel in Green Tree v. Randolph Suzette M. Malveaux The Catholic University of America, Columbus School of Law Follow this and additional works at: http://scholarship.law.edu/scholar Part of the Dispute Resolution and Arbitration Commons Recommended Citation Suzette M. Malveaux, Arbitration and the Supreme Court: A Critique from Plaintiff s Counsel in Green Tree v. Randolph, 25 ADVOCATE 20 (2003). This Article is brought to you for free and open access by the Faculty Scholarship at CUA Law Scholarship Repository. It has been accepted for inclusion in Scholarly Articles and Other Contributions by an authorized administrator of CUA Law Scholarship Repository. For more information, please contact edinger@law.edu.
20 ADVOCATE * WINTER 2003 ARBITRATION AND THE SUPREME COURT: A CRITIQUE FROM PLAINTIFF'S COUNSEL IN GREEN TREE V. RANDOLPH O NE OF THE MOST IMPORTANT ISSUES facing our legal system today is the proliferation of arbitration agreements and the United State's Supreme Court's deference to enforcing those agreements. The explosion of pre-dispute arbitration agreements in employment contracts and commercial transactions is moving us towards an unparalleled privatization of the justice system. This issue is important because the procedural protections established by the court system are critical to the enforcement of certain rights, particularly federal statutory civil rights and consumer protection laws. The Expansion of the Court's Endorsement of Private Arbitration Agreements Arbitration agreements under the Federal Arbitration Act were originally a means of alternative dispute resolution between commercial entities of equal bargaining power, each of whom negotiated provisions from a vantage point of sophistication and business experience. Within this context, the parties agreed to submit any future disputes to arbitration and negotiated terms that preserved their business relationship in the future. However, arbitration agreements are increasingly being used by employers as a condition of employment and by lenders and retailers in non-negotiable contracts of adhesion. Since the Supreme Court's holding in Gilmer v. Interstate/Johnsont Lante Corp., 500 U.S. 20 (1991), employers are conditioning employment on an individual's willingness to waive his or her right to sue their employer in court. Employees, consumers and others with little bargaining power and less knowledge about arbitration, are being compelled to forego their day in court because they signed an arbitration clause which appeared in fine print on the back of a form application or contract which they did not understand, and of which they may not have even been aware. Despite Congress's admonition in enacting the Civil Rights Act of 1991 that "American workers should not be forced to choose between their jobs and their civil rights," H.R. Rep. No. 102-40(I), at 104 (1991), many employees are facing this dilemma. Not only has the Court endorsed BY SUZETTE M. MALVEAUX the availability of arbitration in favor of just about any kind of civil dispute over which a court could have jurisdiction, but it has rejected challenges to arbitration on a plethora of significant grounds. The Impact of the Court's Endorsement of Private Arbitration The Court's recent decisions, and its endorsement of arbitration in the past, have contributed to a burgeoning practice on the part of companies and employers to insert mandatory arbitration clauses in their standardized, non-negotiable contracts, compelling consumers and employees to forego the option of using the courts to vindicate rights they may someday believe were infringed. The proliferation of mandatory, binding arbitration, which began around 1985, has grown dramatically since the early 1990's. Today, it threatens to deny employees, consumers and others lacking the power to bargain over the terms of arbitration, the basic procedural protections that most Americans take for granted. The supporters of arbitration, most of which are big business and employers, tout its speed and flexibility as well as the potential to save litigation expenses as features which commend its broad use. However, they fail to disclose the serious risk that arbitration will ride roughshod over the parties', and particularly the individuals', substantive and procedural rights which the judicial system is designed to protect. The Impact of Green Tree Financial Corp. - Alabama v. Randolph Has the pendulum swung too far in the direction of endorsing pre-dispute arbitration agreements without a sufficient examination of whether the underlying terms of those agreements preclude someone from having to vindicate their statutory rights? Moreover, as a matter of policy, should we permit people to contract away certain procedural rights which may in fact be tantamount to their substantive rights? And are there circumstances where waiver of certain procedures will deprive society of important and meaningful development of the law and articulation of our
ADVOCATE WINTER 2003 21 public values? These are the kinds of questions we as legal scholars, practitioners and judges need to ask ourselves as the courts divert cases from an overloaded federal judiciary to private forums. These are the kinds of questions I have asked myself since representing the plaintiff, Ms. Randolph, in Greeni Tree Fin. Corp. -Alabama v. Ranidolph, 531 U.S. 79 (2000) ("Green Tree I"). In Greeni Tree I, Ms. Randolph, a mortgage holder, sued Green Tree Financial Corporation and its wholly owned subsidiary for failing to disclose a $15 insurance premium, in violation of the Truth in Lending Act and the Equal Credit Opportunity Act. Green Tree sought to enforce a compulsory pre-dispute arbitration agreement, leading the district court to dismiss the case and compel arbitration. The Eleventh Circuit reversed, concluding that the arbitration agreement was unenforceable because it failed to provide the minimum guarantees that Ms. Randolph could vindicate her statutory rights. Specifically, it concluded that because the agreement was silent as to arbitration costs and their allocation, the agreement posed a risk that Ms. Randolph would not be able to vindicate hcr statutory rights because of steep arbitration costs. While holding the arbitration agreement enforceable 5-4, the Supreme Court recognized that an agreement which imposes large costs on a consumer may render the agreement unenforceable. Having explained in prior decisions that arbitration agreements which cause a party to forego substantive rights provided by the underlying statute should not be enforced, the Court's ruling in Greeni Tree I strongly signals that evidence of high arbitration costs could leave an agreement void. However, in Greeni Tree I, the plaintiff had failed to make such a record and the Court offered no guidance as to the quantum of evidence required. Therefore, the agreement was enforceable. In response to Greeni Tree I, the lower courts have held that the party seeking to invalidate an arbitration agreement on the grounds that arbitration is prohibitively expensive bears the burden of demonstrating that compulsory arbitration will effectively deprive him from vindicating his statutory rights. For example, the Third Circuit has interpreted Greeni Tree I to require that the claimant produce evidence of what the actual arbitration fees would be in the particular case and "The explosion of pre-dispute arbitration agreements in employment contracts and commercial transactions is moving us towards an unparalleled privatization of the Justice system." evidence verifying that she could not afford such fees. See Blair v. Scott Specialty Gases, 88 Fair Empl. Prac. Cas. 464 (3d Cir. 2002). In Blair the district court and the Third Circuit rejected the claimant's affidavit that she was insolvent as self-serving and insufficient, thereby forcing her to prove her insolvency in a full-blown inquiry upon remand. Given the courts' disinclination to determine the issue of fees, the parties themselves will most likely bear the burden of sorting through this issue with the arbitrator. More importantly and ideally, one would hope that the drafters of arbitration agreements would make clear up front what the arbitration expenses are and how they are to be allocated amongst the parties. Certain ADR neutrals are promulgating rules that are explicit and are in fact, shifting the costs from the consumer to the defendant company. While Greent Tree I recognized that exorbitant costs could make an arbitration agreement unenforceable, it did not go far enough. The arbitration agreement in Green Tree I failed to insure that the cost of access to the arbitral forum would be no greater than the cost of access to the judicial forum. Because Ms. Randolph was contracted out of one forum and barred financially from another, she was foreclosed from pursuing her claim at all. The Supreme Court's analysis in Green Tree I was flawed in its failure to consider the deterrent effect that such an arbitration agreement might have on others. Given the agreement's silence as to the cost and cost allocation, consumers with grievances would have no way of knowing if they could afford to challenge Green Tree's disclosure practices, and therefore might not pursue arbitration out of fear they would be saddled with exorbitant costs. Unfortunately, that risk remains today. The Impact of Green Tree Fin. Corp. v. Bazzle The question that the Supreme Court declined to address in Green Tree I-the enforceability of an arbitration agreement that was silent about the availability of class actions-was resolved just recently in Green Tree Fin. Corp. v. Bazzle, 123 S. Ct. 2402 (2003) (Green Tree II). In Green Tree II, the Supreme Court held that where a commercial lending contract's arbitration clause was silent about the availability of the class action device it did not clearly preclude class arbitration. The FAA did not foreclose class arbitration, but it was an
22 ADVOCATE * WINTER 2003 issue of contract interpretation under state law. While the South Carolina Supreme Court held that under certain circumstances class-wide arbitration could be ordered on the absence of arbitration clause's language to the contrary, the United States Supreme Court vacated this ruling, concluding that the arbitrator and not the court should make this determination. Rather than establishing class arbitration under the FAA, Greeni Tree II has left individual arbitrators to determine the propriety of class arbitration-thereby leaving similar agreements open to various interpretations by a different arbitrator. While Greeni Tree II has opened the door to class arbitration, it has also created unpredictability and uncertainty in its wake. The next question before the Court is likely to be whether arbitration clauses that explicitly prohibit class actions are permissible. Many neutral ADR organizations have promulgated rules that outright forbid the consolidation or joinder of unrelated actions, and preclude class actions. Ironically, as a result of Green Tree II, more companies are rewriting their arbitration agreements to expressly prohibit class actions. However, some neutrals, such as the American Arbitration Association, whose rules are silent on the subject, are in the process of creating rules that address class arbitration and administering such cases. The availability of class actions is critical in safeguarding the civil rights of employees, consumers and other individuals. The class action device is critical to the enforcement of such laws because plaintiffs are able to successfully aggregate small claims and benefit from the economies of scale the class action device provides. The mere potential of a class action is often enough to encourage voluntary compliance, but the arbitral forum is increasingly being abused. Some lenders, employers and other corporate entities are using arbitration to shield themselves from liability by not allowing for class actions. This procedural tactic, for all intents and purposes, immunizes them from the requirements of some consumer protection laws and civil rights statutes. The Court's Continued Endorsement of Private Arbitration Agreements Notwithstanding the Court's receptivity to considering costs on the enforceability of arbitration agreements (Greeni Tree I), and the Court's willingness to let arbitrators determine the propriety of class arbitration, it is plain that the Court's propensity to enforce arbitration agreements has not waned and that arbitration agreements are here to stay. In Circuit City Stores, Inc. v. Adams, 121 S.Ct. 1302 (2001), the final case of a trilogy considered in the same term as Green Tree Financial Corporation - Alabama v. Randolph, the Supreme Court reaffirmed its approval of the private resolution of disputes. In Circuit City, the Court narrowly construed an exception to the Federal Arbitration Act to ensure that persons with EEO claims in non-unionized workplaces stion before ion the woud o be covered by the Act and by its presumption Court Is likel) y t :o be whether favoring enforcement of arbitralauses that Ic explicitly proh ilbit class actions as part of an employment appli- Issible."cation form and later brought ml tion agreements. An employee signed an arbitration agreement suit against his employer, Circuit City, pursuant to California's anti-discrimination statute and other common law state tort claims. Circuit City sought to force him to arbitrate his claims, but the Ninth Circuit disagreed, concluding that the FAA did not apply to employment contracts which did not fall within a narrow scope of transportation workers. The Supreme Court's recent ruling overturned this, confirming that the FAA covers disputes arising out of employment relationships and continuing a trend of rejecting challenges to the arbitrability of federal statutory claims under the FAA. In doing so, the Court demonstrated its long-standing reluctance to exclude any discrete category of claims from coverage by the FAA. To the extent that insight may be gleaned from the Court's decision in Eastern Associated Coal Corp. v. United Mine Workers, 531 U.S. 57 (2000), a case involving arbitration in the context of collective bargaining, it looks as if the traditional deference to an arbitration award will continue. In United Mine Workers, the Court held that it was not a violation of public policy for an arbitrator to reinstate an employee in a safety sensitive position who had twice tested positive for marijuana use. In reaching this conclusion, the Court endorsed its broad deference to the award of an arbitrator, even where the employer claimed it would jeopardize the health and safety of others. While arising from a unionized workplace, the deference to arbitrator awards may find equal support from this Court in awards under the FAA. The Court's decision in EEOC v. Waffle House, 534 U.S. 279
ADVOCATE WINTER 2003 23 (2002), has not signaled a change in the Court's propensity to favor enforcement of arbitration agreements. In Waffle House, it simply held that the EEOC was not a party to the arbitration agreement and therefore was free to pursue victim-specific relief on behalf of an employee who signed an arbitration agreement with his employer. Thus, Waffle House did little to change the pro-arbitration path the Court has taken. Conclusion Given the Court's endorsement of arbitration, the primary action today is found in the lower courts which will continue to face challenges to arbitration on the basis of the unique features of pre-dispute arbitration agreements that have proliferated amongst the business and employment communities. Given that pre-dispute compulsory arbitration is here to stay, the battle has turned to due process procedures within the arbitration. Legal scholars, the courts, the parties and arbitrators themselves continue to debate what constitutes a fair and affordable arbitration process. Given the steady erosion of the court system in favor of privatized dispute resolution, we must continue to protect what is ultimately at stake-justice itself. Suzette Malveaux is assistant professor of law at the Uiversity of Alabama School of Law. As an associate at Cohen, Milstein, Hausfeld and Toll, Ms. Malveaux represented Ms. Randolph before the United States Supreme Court in the October 2000 term. This article expands on themes initially presented at the Georgetown Uiversity Law Center CLE at the 191h Annual GULC/CLE Employment Law and Litigation Institute with Joseph M. Sellers, in May, 2001. *