Green Tree Financial Corp. v. Bazzle
539 U.S. 444, 2003 U.S. LEXIS 4798, 156 L. Ed. 2d 414 (2003)
Rule of Law:
Whether an arbitration agreement that is silent on the issue of class-action arbitration permits such proceedings is a question of contract interpretation and arbitration procedure for the arbitrator to decide, not a gateway question of arbitrability for a court.
Facts:
- In 1995, Lynn and Burt Bazzle secured a home improvement loan from petitioner Green Tree Financial Corp.
- The Bazzles and Green Tree entered into a contract, governed by South Carolina law, containing an arbitration clause.
- The clause stated all disputes "shall be resolved by binding arbitration by one arbitrator selected by us [Green Tree] with consent of you."
- The contract also specified that it was made pursuant to the Federal Arbitration Act (FAA).
- Respondents Daniel Lackey and George and Florine Buggs entered into separate but similar loan contracts with Green Tree for mobile homes, containing virtually identical arbitration clauses.
- Green Tree allegedly failed to provide these customers with a legally required form informing them of their right to name their own lawyers and insurance agents.
Procedural Posture:
- The Bazzles and a second group of plaintiffs (Lackey and the Buggses) filed separate class-action lawsuits against Green Tree in South Carolina state trial courts.
- In the Bazzle case, the trial court certified a class and then entered an order compelling the parties to arbitration.
- The arbitrator administered the proceeding as a class arbitration and awarded the class over $10 million in damages, which the trial court confirmed.
- In the Lackey case, the trial court's denial of arbitration was reversed by the state's intermediate appellate court, and an arbitrator subsequently certified a class and awarded over $9 million, which the trial court also confirmed.
- Green Tree appealed both confirmed awards, arguing that class arbitration was legally impermissible under the contracts.
- The South Carolina Supreme Court consolidated the cases and affirmed, holding that under South Carolina law, the arbitration clauses were silent on class arbitration and therefore should be interpreted to permit it.
- The U.S. Supreme Court granted certiorari to review the decision.
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Issue:
Does the question of whether an arbitration agreement, which is silent on the matter, permits class arbitration fall into the category of gateway 'questions of arbitrability' for a court to decide, or is it a procedural matter for the arbitrator to decide?
Opinions:
Majority - Justice Breyer
No. The question of whether an agreement permits class arbitration is a procedural matter for the arbitrator, not a gateway question of arbitrability for the court. The issue here is not the validity of the arbitration clause or its applicability to the dispute, but rather what kind of arbitration proceeding the parties agreed to. This is a question of contract interpretation and arbitration procedure, which arbitrators are well-situated to answer. The contract's broad language committing 'all disputes...arising from or relating to this contract' to arbitration indicates the parties intended for the arbitrator to resolve such interpretive questions. Because the record suggests the state court, not the arbitrator, made the decision to permit class arbitration, the case is vacated and remanded for the arbitrator to decide the issue.
Dissenting - Chief Justice Rehnquist
Yes. This determination is a gateway question of arbitrability for the courts to decide, not the arbitrator. The choice of who serves as the decisionmaker is a fundamental component of an arbitration agreement, just as important as what is to be arbitrated. The contract's specific language that disputes will be resolved by 'one arbitrator selected by us with consent of you' defines a bilateral process between Green Tree and each specific customer. Imposing class arbitration contravenes this express contractual term by forcing Green Tree to resolve thousands of separate disputes before a single arbitrator it did not choose for each individual case. The South Carolina Supreme Court’s decision imposes a procedure contrary to the parties' agreement, which is preempted by the FAA's mandate to enforce arbitration agreements according to their terms.
Concurring-in-part-and-dissenting-in-part - Justice Stevens
The judgment should be affirmed, but I concur in the judgment to vacate and remand to form a majority. The South Carolina Supreme Court correctly held as a matter of state law that the silent agreement permits class-action arbitration, and this holding is not precluded by the Federal Arbitration Act. While the question should have arguably been decided by the arbitrator first, the decision was correct as a matter of law, so there is no need to remand to correct a harmless error. However, to avoid a fractured court with no controlling judgment, I concur with the plurality's disposition.
Dissenting - Justice Thomas
The judgment of the Supreme Court of South Carolina should be left undisturbed. The Federal Arbitration Act (FAA) does not apply to proceedings in state courts. Therefore, the FAA cannot serve as a basis to pre-empt a state court's interpretation of a private arbitration agreement.
Analysis:
This plurality decision was significant for classifying the availability of class arbitration as a procedural question for the arbitrator, rather than a gateway question of arbitrability for the court. This shifted power from courts to arbitrators on a critical issue and created uncertainty due to its fractured nature. In response, contracting parties began including explicit class arbitration waivers in their agreements to avoid leaving the decision to an arbitrator's discretion. The Supreme Court later revisited this issue in cases like Stolt-Nielsen and Lamps Plus, ultimately establishing a rule that silence or ambiguity in an arbitration agreement cannot be construed as consent to class arbitration, effectively superseding the framework from this case.
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