US Supreme Court Briefs

Supreme Court, U.S. FILED

JUN -8 2000

CLERK




No. 99-1235


IN THE

~upr~me ~fourt of tije ~Rniteb ~'tate~
GREEN TREE FINANCIAL CORP.ALABAMA,
ANI) GREEN TREE FINANCIAL CORPORATION,
Petitioners,
V.

LARKElTA RANDOLPH,
Respondent.


On Writ of Certiorari to the
United States Court of Appeals
for the Eleventh Circuit


BRIEF AMICUS CURIAE OF THE
AMERICAN ARBITRATION ASSOCIATION



JOHN M. TOWNSEND i)ANIEL WOI..F HUGHES 1-IUI3BARD &
REED LLP
Washington. I).C.



JAMES H. CARTER
Chairman.
Arbitration Law Committee


June 8. 2000
FLORENCE PETERSON ~ounse1 of Record
General Counsel
AMERICAN ARBITRATION ASSOCIATION
335 Madison Avenue
New York. New York 10017-4605
(212) 716-3923


Attorneys for Arnicus Curiae The American Arbitration Association


Wt~ SON-EPES PRINTING Co.. INC. ~202) 789-0096 WAS~-4INGTON, D.C. 20001
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES in
INTEREST OF AMICUS CURIAE 2
SUMMARY OF ARGUMENT 5
ARGUMENT 7

I. THE ELEVENTH CIRCUIT GAVE INSUFFI-CIENT WEIGHT TO THE NATIONAL POL-ICY FAVORING THE ENFORCEMENT OF
ARBITRAL AGREEMENTS 7

A. Agreements To Arbitrate Statutory Claims Fall Within The National Policy Favoring
Arbitration 7

B. There Is No Reason To Depart From The National Policy Favoring Arbitration When
Disputes Involve Small Claims 8
II. THE ELEVENTH CIRCUIT CORRECTLY
IDENTIFIED REASONS FOR CONCERN
ABOUT THE ARBITRATION CLAUSE BE--
FORE THE COURT 11

A. Most Of The Shortcomings Of The Arbitra-tion Clause Do Not Affect Its Enforce-
ability 11

B. The Concerns Expressed By The Eleventh Circuit Go To The Purposes Of The Statutes That Create The Cause Of Action
15
ii

TABLE OF CONTENTSContinued
Page
111. THE ELEVENTH CIRCUIT SHOULD HAVE
TREATED THE SILENCE OF THE ARBI-
TRATION CLAUSE ON COSTS AS AN AM-
BIGUITY TO BE CONSTRUED SO AS TO
PRESERVE THE ENFORCEABILITY OF THE
AGREEMENT TO ARBITRATE

CONCLUSION

APPENDICES

A. A Due Process Protocol for the Mediation and Arbitration of Consumer Disputes

B. AAA Arbitration Rules for the Resolution of Consumer-Related Disputes
17

21



la


1 2a
iii

TABLE OF AUTHORITIES
CASES Page

Allied-Bruce Terminix Gos. v. Dobson, 513 U.S.
265 (1995) 5, 14
Cole v. Burns International Security Services, 105 F.3d 1465 (D.C. Cir. 1997) 19, 20
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) 7
Gilmer v. Interstate/Johnson Lone Corp., 500 U.S.
20(1991) passim
Hooters of America, inc. v. Phillips, 173 F.3d 933
(4thCir. 1999) 11,14
Keymer v. Management Recruiters International,
Inc., 169 F.3d 501 (8th Cir. 1999) 14
Mast robuono v. Shea rson Lehman Hutton, Inc.,
514 U.S. 52 (1995) 18,20
McWilliams v. Logicon, Inc., 1997 U.S. Dist.
LEXIS 9822 (D. Kan. June 3, 1997) 19
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) passim
Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1(1983) 7, 18
Paladino v. Amer Computer Technologies, mc,
134 F.3d 1054 (11th Cir. 1998) 20
Prima Paint Corp. v. Flood & Conklin Manufac--
turing Co., 388 U.S. 395 (1967) 5
Rodriguez de Quijas v. Shearson/American Ex-
press, Inc., 490 U.S. 477 (1989) 8.9, 19
Scherk v. Alberto-Culver Co., 417 U.S 506
(1974)
Schulze and Burch Biscuit Co. v. Tree Top, Inc.,
831 F.2d 709 (7th Cir. 1987) 12
Shearson/American Express, Inc. v. McMahon, 482
U.S.220(1987) 5.8


Page
12


9, 13


15



13



13



13
20


13, 14
iv

TABLE OF AUTHOR1TIESContinued
V

TABLE OF AUTHORITIESContinued
Page
Silverman v. Eastrich Multiple lnvestor Fund, LP.,
51 F.3d 28 (3d Cir. 1995) Southland Corp. v. Keating, 465 U.S. 1 (1984) UBC Southern Council of Industrial Workers
v. Bruce Hardwood Floors, 522 U.S. 928 (1997)
Volt lnformation Sciences, Inc. v. Board of Trus-tees of Leland Stanford Junior University, 489 U.S. 468 (1989)
Wilko v. Swan, 346 U.S. 427 (1953) Williams v. Public Finance Corp., 598 F.2d 349 (5th Cir. 1979)
17
7


5


7
9

17
STATUTES

Federal Arbitration Act, 9 U.S.C. I et seq.
9U.S.C.1 5
9U.S.C.2 passim
9U.S.C.*5 12
Truth in Lending Act, 15 U.S.C. 1601 et seq.
15U.S.C. 1601 17
15 U.S.C. 1640(a) 18
Equal Credit Opportunity Act, 15 U.S.C. * 1691 et seq.
15 U.S.C. 1691-1691f 17, 18
28 U.S.C. 1914(a) 16
Carol Haas, THE CONSUMER REPORTS LAW BOOK (1994)
J. Clark Kelso & Thomas J. Stipanowich, Protect-ing Consumers in Arbitration, Dispute Resolu-tion Magazine (Fall 1998)
Lewis Maltby, Employment ArbitrationIs it really second class justice?, Dispute Resolution Magazine (Fall 1999)
Richard E. Speidel, ConsumerArbitration of Statu-tory Claims: Has Pre-Dispute Mandatory Arbitration Outlived Its Welcome?, 40 Ariz. L. Rev. 1069 (1998)
Jean R. Sternhight, Drafting A "Bulletproof" Con-sumer Arbitration Agreement: Is It Possible?, in ARBITRATION OF FINANCIAL SERVICES DISPUTES (PLI 1999)
Jean R. Sternlight, Panacea or Corporate Tool?:
Debunking the Supreme Court's Preference for
Binding Arbitration, 74 Wash. U. L.Q. 637 (Fall
1996)

MISCELLANEOUS

Restatement (Second) of Contracts (1981)
Samuel Estreicher, Predispure Agreements to Arbi-trate Statutory Employment Claims, 72 N.Y.U.
L.Rev. 1344(1997)
IN THE

~upreme Qrourt of the ~niteb ~tate~
No. 99-1235


GREEN TREE FINANCIAL CORP.ALABAMA, AND GREEN TREE FINANCIAL CORPORATION,
Petitioners,
V.

LARKFITA RANDOLPH,

Respondent.


On Writ of Certiorari to the
United States Court of Appeals
for the Eleventh Circuit


BRIEF AMICUS CURIAE OF THE
AMERICAN ARBITRATION ASSOCIATION


This brief is respectfully submitted by amicus curiae the American Arbitration Association ("AAA"), not in support of either party, but to urge reversal of the decision below on the second question presented. Amicus curiae AAA takes no posi-tion on the first question presented. Both Petitioners and Re-spondent have consented to the filing of this brief.'



As required by Rule 37.6, amicus curiae AAA states that this brief was authored on its behalf by the counsel identified on the cover and the signature page. and that no one other than the AAA and its counsel made a monetary contribution to the preparation or submission of this brief.
2

INTEREST OF AMICUS CURIAE

Amicus curiae AAA is a not-for-profit, public service organi-zation, which offers abroad range of dispute resolution services through more than 35 offices in cities throughout the United States and cooperative agreements with arbitral institutions in 39 countries around the world. While such services include providing for mediation and other forms of alternative dispute resolution, the service most in demand from the AAA is the ad-ministration of arbitration proceedings. In addition, the AAA educates the public and potential users about various forms of dispute resolution and trains neutrals to act as arbitrators and mediators.2

The AAA is the largest provider of dispute resolution services in the world. From the time it was founded in 1926, the year after the enactment of the Federal Arbitration Act, through the end of 1999, the AAA has administered 1,693,431 cases, most of them arbitrations. Of those cases, 448,723 were filed in the last five years alone. These arbitrations ranged from major commercial disputes involving millions of dollars to uninsured motorist claims administered under state 'no-fault" laws involv-ing claims of a few hundred dollars. The AAA's experience in administering arbitration covers domestic and international claims, disputes arising out of collective bargaining agreements and private employment-related matters, disputes arising in in-surance, construction, and other industries with specialized arbi-tration rules, and thousands of claims by individuals adminis-tered by the AAA's mass claims center. It also includes the ad-ministration of many disputes involving claims for less than $10,000 brought by individuals and businesses alike.

2 The AAA also promotes ethical standards for dispute resolution. The AAA was instrumental in establishing the Code of Ethics for Arbitrators in Commercial Disputes (with the American Bar Association) in 1977, the Code of Professional Responsibility for Arbitrators of Labor-Management Disputes in 1985, and the Model Standards of Conduct for Mediators in 1995.
3
Because the AAA is so heavily involved in the administration of arbitration as well as in education and training, it has a sub-stantial interest in the Court's resolution of the second question presented by the Petition: Whether an arbitration provision that is silent on how the costs of arbitration are to be paid is unen-forceable, in spite of the mandate of the Federal Arbitration Act, because a plaintiff asserting claims under other federal statutes designed to protect borrowers might be required to bear those costs.

The issue now before the Court is not new to the AAA. In 1997, in response to the increasing popularity of arbitration as a means of resolving disputes between businesses and consumers, the AAA convened a National Consumer Disputes Advisory Committee to examine concerns that had been expressed about the arbitration of such disputes and to devise guidelines for han-dling them that would be acceptable to consumer advocates as well as to businesses that deal with large numbers of consum-ers.3 The Advisory Committee included persons affiliated with consumer groups, such as Consumers Union and the American Association of Retired Persons, state government consumer-protection professionals, representatives of businesses that deal directly with consumers, academics, and dispute resolution professionals. The Advisory Committee's mission was:
"To bring together a broad, diverse, representative national advisory committee to advise the American Arbitration Association in the development of standards and proce-dures for the equitable resolution of consumer disputes." (App. A, infra, Xa.)

The result of the work of the Advisory Committee was the publication on April 17, 1998 of A Due Process Prorocolfor the


We use the term "consumer" in this brief to refer to natural persons and not to business entities that may play the role of consumer in certain of their transactions.

4
Mediation and Arbitration of Consumer Disputes (the "Consumer Due Process Protocol," a copy of which is appended to this brief as Appendix A). The Protocol stresses the importance of a fundamentally fair process, access to information, inde-pendence and impartiality of both the arbitrator and the adminis-tering organization, availability of a full range of remedies, a reasonable location for the hearing, and reasonable time limits. Most relevant to the case before the Court, the Protocol's Prin-ciple 6 addresses the question of cost, and states:

"Reasonable Cost. Providers of goods and services should develop ADR programs which entail reasonable cost to Consumers based on the circumstances of the dis-pute, including, among other things, the size and nature of the claim, the nature of goods or services provided, and the ability of the Consumer to pay. In some cases, this may require the Provider to subsidize the process." (Principle 6, App. A, infra, 3a.)

The Protocol also stated that "Consumer ADR Agreements should make it clear that all parties retain the right to seek relief in a small claims court for disputes or claims within the scope of its jurisdiction." (Principle 5, App. A, infra, 3a.)

Subsequently, the AAA adopted a set of arbitration rules spe-cifically tailored to consumer disputes and the principles of the Consumer Due Process Protocol, which were issued on July 1, 1999 and amended on April 1, 2000 as the AAA's Arbitration Rules for the Resolution of Consumer-Related Disputes (the "Consumer Arbitration Rules," a copy of which is appended to this brief as Appendix B). The AAA has decided, as a matter of internal policy, that all consumer disputes to be administered by the AAA involving claims for less than $10,000 will be proc-essed under the Consumer Arbitration Rules, regardless of the rules, terms and conditions reflected in a pre-dispute clause.

The AAA's interest in the Court's resolution of the second question presented is thus informed by substantial consideration of and experience with the arbitration of consumer claims and of
5
claims under statutes designed to protect the rights of consum-ers. The AAA hopes that the views presented on the basis of that consideration and experience will be of assistance to the Court. The AAA has previously filed amicus curiae briefs with the Court in: Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967); Scherk v. Alberto-Culver Co., 417 U.S.
506 (1974); Mitsubishi Motors Corp. v. Soler GhryslerPlymouth, Inc., 473 U.S. 614 (1985); ShearsonfA men can Ex-press Inc. v. McMahon, 482 U.S. 220(1987); Allied-Bruce Ter-mmix Cos. v. Dobson, 513 U.S. 265 (1995); and UBC Southern Council of Industrial Workers v. Bruce Hardwood Floors, 522 U.S. 928 (1997).


SUMMARY OF ARGUMENT
The decision of the Eleventh Circuit appears to assume that arbitration is somehow second class justice, or at least that it imposes substantially greater hardships on litigants than those they face when they pursue litigation in a judicial forum. It is the position and experience of the AAA, however, that justice is not diminished in properly conducted arbitration proceedings. Rather, arbitration can enhance the fair and expeditious resolu-tion of disputes.

The Court has emphasized for nearly twenty years that the Federal Arbitration Act, 9 U.S.C. I er seq. (2000), declares a national policy favoring the arbitration of disputes. Consistent with this policy, the Court has enforced agreements to arbitrate a wide variety of claims, including statutory claims involving in-dividuals. By arbitrating such claims, "a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." Mitsubishi Motors Corp., 473 U.S. at 628. While the Eleventh Circuit recognized the "strong federal policy favoring arbitra-tion," (Pet. App. ISa), it nevertheless declined to enforce the arbitration clause before it out of concern that Respondent

6 7
would be unable effectively to vindicate her statutory rights un-der that clause. (Pet. App. 15a-18a.) The court's concern was well founded, but its solution was not.

The Eleventh Circuit's concern centered on the silence of the arbitration clause on the subject of how the costs of arbitration were to be paid. The court concluded that the consumer's "abil-ity to vindicate her statutory rights" could "be undone by steep filing fees, steep arbitrators' fees or other high costs of arbitra-lion." (Pet. App. 1 8a.) High filing and arbitrator fees can cer-tainly present a problem in cases involving relatively small claims. That is why the AAA's Consumer Arbitration Rules require no filing fee from the consumer and limit the con-sumer's share of the arbitrator's fees to $125. But the Eleventh Circuit's concerns must be considered in the light of the man-date of the Federal Arbitration Act that an agreement to arbitrate must be enforced "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. 2. The Eleventh Circuit was not required to invalidate the arbitration clause in order to protect Respondent's ability to vindicate her statutory rights.

The preferable course, in view of the federal policy favoring arbitration, would have been for the Eleventh Circuit to apply the rule of contract law that a construction that makes an agree-ment unlawful should be avoided whenever possible in favor of one that makes it lawful. Following that rule, the Eleventh Cir-cuit should have treated the clause's silence as to costs as an ambiguity. It could then have resolved that ambiguity to allow Respondent to vindicate her statutory rights through arbitration, by placing the burden of paying some or all of the arbitrator's fees and costs on Petitioners. That construction would have given the agreement to arbitrate the deference required by the Federal Arbitration Act.
ARGUMENT

I. THE ELEVENTH CIRCUIT GAVE INSUFFICIENT WEIGHT TO THE NATIONAL POLICY
FAVORING THE ENFORCEMENT OF ARBITRAL AGREEMENTS

Congress enacted the Federal Arbitration Act in 1925 "to re-verse the longstanding judicial hostility to arbitration agree-ments that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts." Gilmer v. Inter-state/Johnson Lone C'orp., 500 U.S. 20, 24 (1991). See also Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468,474(1989); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985); Mitsubishi Motors Corp.. 473 U.S. at 625; Moses H. Cone Memorial Hosp. v. Mer-cury Consir. Corp., 460 U.S. 1, 24 (1983).
The Federal Arbitration Act "declared a national policy favor-ing arbitration." Southland Corp. v. Kearing, 465 U.S. 1, 10 (1984). The core expression of this policy is Section 2 of the Act, its "primary substantive provision." Gilmer, 500 U.S. at 24. That section provides that a written agreement to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. 2. The decision of the Eleventh Circuit not to enforce the arbitration clause at issue here gave insuffi-cient weight both to that national policy and to the mandate of Section 2 of the Federal Arbitration Act.

A. Agreements To Arbitrate Statutory Claims Fall Within The National Policy Favoring Arbitration

The federal policy favoring arbitration is now clearly under-stood to apply to agreements to arbitrate statutory claims. See, e.g., Gilmer, 500 U.S. at 26; Mitsubishi Motors, 473 U.S. at

8

627. Pursuant to that policy, the Court has enforced agreements to arbitrate many types of claims by individuals, including claims arising under the federal securities laws, Shear-son/A men can Express Inc. v. McMahon, 482 U.S. 220 (1987); Rodriguez de Quijas v. Shearson/American Express Inc., 490 U.S. 477 (1989), the Racketeering Influenced and Corrupt Or-ganizations (RICO) Act, McMahon, 482 U.S. at 220, and the Age Discrimination in Employment Act. Gilmer, 500 U.S. at 20. To be sure, Congress may choose to write a statute that cre-ates a cause of action that must be heard in court, but the Court has placed the burden on the party opposing arbitration to show that Congress intended to preclude waiver of the judicial forum. See Gil,ner, 500 U.S. at 26; McMahon, 482 U.S. at 227.

The Court has emphasized that arbitration is simply a proce-dural option that does not take away the substantive rights of the parties under a statute:

"By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than ajudi-cial, forum. It trades the procedures and opportunity for review of the courtroom for the simplicity, informality and expedition of arbitration." Mitsubishi Motors, 473 U.S. at
628.

Accord Gilmer, 500 U.S. at 26.


B. There Is No Reason To Depart From The Na-tional Policy Favoring Arbitration When Dis-putes Involve Small Claims

The federal policy favoring arbitration has had the effect of encouraging the use of arbitration. The annual case load figures of the AAA for the last five years reflect the increasing accep-tance and use of arbitration and other alternative means of dis-pute resolution:
9
1999
1999
1999
1999
1999
62,423
72,200
78,769
95,143
140,188
These figures bear witness to a dramatic surge in the popularity of arbitration as a means of resolving disputes in the United States. Pre-dispute arbitration clauses are now included in tens of thousands of contracts of all kinds. No single factor appears to the AAA to account for this trend, but some of the elements contributing to the popularity of arbitration that the AAA has identified are:

I. The consistency of U.S. courts in enforcing the national policy favoring arbitration, especially since the series of decisions (culminating in Rodriguez de Quijas, 490 U.S. at 484) overruling Wilko v. Swan, 346 U.S. 427 (1953). which has riven the process increased predictability and


2. The sheer number of arbitrations, which has given large numbers of users first-hand experience of the benefits of a process that is generally faster and less expensive than litigation, before an unbiased decision maker that they help to select;

3. The increasing criminal caseload of the federal courts, resulting from legislative additions to their jurisdiction, which has made resolving civil disputes in those courts a more time-consuming process;

4. The increase in the number of trained and experienced arbitrators available, which is in part the result of the


~' See J. Clark Kelso & Thomas J. Stipanowich, Protecting Consumers in
Arbitration, Dispute Resolution Magazine at II (Fall 1998) ("Among private conflict resolution mechanisms, binding arbitration enjoys preeminent status as a result of robust iudicial encouragement.").

10 11
large number of disputes that have gone to arbitration, and in part the result of the increased emphasis on pro-fessional training for arbitrators, which is required by the AAA; and

5. The globalization of commercial transactions, which has increased the demand for a neutral forum for resolving international disputes.

Nor is the demand for arbitration limited to parties involved in major commercial transactions and collective bargaining agreements. Over the years, many of the cases administered by the AAA have involved relatively small claims. Historically, the AAA has not kept data that would distinguish business claims from individual claims. But the records of the AAA show that 2,032 claims for amounts under $10,000 were filed in 1998, and 1,937 claims under $10,000 were filed in 1999. In addition, of the total of 140,188 arbitrations administered by the AAA in 1999,51,622 involved claims arising out of automobile collisions under state "no-fault" statutes, which were conducted pursuant to procedures similar to those recommended by the Consumer Due Process Protocol. Almost 50,000 of the remain-ing cases in the AAA's 1999 caseload represent the AAA's in-volvement in a process mandated by the negotiated settlement of a nationwide class action against a major insurance carrier. Again, many of these cases involved relatively small individual claims.

The AAA would not have been entrusted with the administra-tion of 100,000 claims of individual citizens if those involved the court overseeing the class action settlement and the state in-surance officials responsible for administration of no-fault lawshad not had confidence that arbitration, at least as admin-istered by the AAA with safeguards for a fair process, would provide an appropriate procedure for resolving such claims.
II. THE ELEVENTH CIRCUIT CORRECTLY IDEN-TIFIED REASONS FOR CONCERN ABOUT THE ARBITRATION CLAUSE BEFORE THE COURT

A. Most Of The Shortcomings Of The Arbitration Clause Do Not Affect Its Enforceability

Agreements to arbitrate are to be enforced, whether they were entered into before or after the dispute, absent circumstances, such as fraud, duress, or unconscionability, that would result in the revocation of any contract.5 Mitsubishi Motors, 473 U.S. at 627; Gilmer, 500 U.S. at 33. And courts have not been reluctant to police arbitration agreements under that standard. See, e.g., Hooters of America, Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir. 1999) (rescinding arbitration agreement where employer "prom-ulgat[ed] rules so egregiously unfair as to constitute a complete default of its contractual obligation"). No such circumstances are alleged here.

This is not to say that some concern about the arbitration agreement at issue in this case is not well placed.6 Forexample,

The Court has stated that claims "of unequal bargaining power [arel best left for resolution in specific cases." Gilmer, 500 U.S. at 33.
6 The clause reads, in pertinent part: "ARBITRATION: All disputes, claims, or controversies arising from or relating to this Contract or the rela-tionships which result from this Contract, or the validity of this arbitration clause or the entire Contract, shall be resolved by binding arbitration by one arbitrator selected by Assignee with consent of Buyer(s). This arbitration Contract is made pursuant to a transaction in interstate commerce, and shall be governed by the Federal Arbitration Act at 9 U.S.C. Section 1. Judgment upon the award rendered may be entered in any court having jurisdiction. The parties agree and understand that they choose arbitration instead of litigation to resolve disputes. The parties understand that they have a right or opportunity to litigate disputes through a court, but that they prefer to resolve their disputes through arbitration, except as provided herein. THE PARTIES
VOLUNTARILY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL
EITHER PURSUANT TO ARBITRATION UNDER THIS CLAUSE OR

12 13
the clause fails to specify the rules to be applied, the place of arbitration, or (failing designation of a set of rules that would do so) how the expenses of the arbitration are to be paid. It also allows the "Assignee" to select the arbitrator, albeit with the consent of the "Buyer." (Pet. App. 3a.) But these are all defi-ciencies that may be supplied by subsequent agreement of the parties or, in the absence of such agreement, by the arbitrator once appointed or by a supervising court? See Schulze & Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 711, 716 (7th Cir. 1987) (holding that arbitration provision which stated only that "disputes under this transaction shall be arbitrated" was not too vague to be enforced, because the court was able to supply "such implementing details as who the arbitrators would be, where arbitration would take place, and what procedures would govern").

Some consumer advocates would also criticize the arbitration clause before the Court on the grounds that it is a pre-dispute clause contained in a consumer contract.8 Putting aside the


PURSUANT TO A COURT ACTION BY ASSIGNEE (AS PROVIDED
HEREIN). The parties agree and understand that all disputes arising under case law, statutory law, and all other laws including, but not limited to, all contract, tort, and property disputes will be subject to binding arbitration in accord with this Contract. The parties agree and understand that the arbitra-tor shall have all powers provided by the law and the Contract ... [includingl money damages, declaratory relief, and injunctive relief." (Pet. App. 3a.)
7
Any unfairness in the arbitrator selection provision may be cured by a
court, because the clause gives the consumer the right to block the Assignee's selection, and Section 5 of the Federal Arbitration Act would then allow ei-ther party to ask a court to appoint the arbitrator. 9 U.S.C. 5 (2000).
S Consumer advocates do not uniformly share this view. See, e.g., Carol Haas, TuE CONSUMER REPORTS LAW BooK at 304 (1994) (recommending that consumers "insist on inserting a future-dispute arbitration clause" in con-tracts, using the standard AAA clause as an example, because such a clause may enable them "to avoid the high costs of litigation to resolve a contract dispute").
cases entrusted to the AAA by courts or state agencies, the AAA estimates that 90 to 95% of the arbitrations brought to the AAA are submitted to arbitration pursuant to clauses in agreements (most of which are not with consumers) entered into before the dispute arises. This is hardly surprising, because arbitration is a creature of agreement. And the AAA can state with assurance based on many years of experience that agreement on any sub-ject is very difficult for parties to reach after a dispute has arisen.

The National Consumer Disputes Advisory Committee, which prepared the Consumer Due Process Protocol, was divided on the question of whether pre-dispute agreements to arbi-trate were suitable for transactions between individuals and businesses.9 Some commentators feel strongly that such agree-ments are not appropriate, on the basis of such concerns as the reasonable expectations of consumers and relative bargaining power.'0 Others believe that pre-dispute clauses offer "the promise of a less expensive, more expeditious, less draining and divisive process, and yet still effective remedy."" While appre-ciating the sincerity of the policy concerns expressed on both sides of the question, the AAA submits that the Federal Arbitra-


~ Five principles (Principles 11-15, App. A. infra. 4a-6a) were neverthe-less included in the Consumer Due Process Protocol "specially to proteci consumers in the context of binding arbitration clauses." Kelso & Sti-panowich, supra. at 12.

'0E.g.. Jean R. Sternlight, Drafting A "Bulletproof" Consumer Arbitra-tion Agreement: Is It Possible?, in ARBrrRATION OF FINANCIAL SERVICES
DISPUTES (PLI 1999); Richard E. Speidel, Consumer A rbit ration of Statutory
Claims: Has Pre-Dispute Mandatory Arbitration Outlived Its Welcome? 4t)
Arix. L. Rev. 1069 (1998); Jean R. Sternlight, Panacea or Corporate Tool?:
Debunking the Supreme Court's Preference for Binding Arbitration, 74
Wash. U. L.Q. 637 (Fall 1996).

Samuel Estreicher, Predispute Agreements to Arbitrate Statutory Em-ployment Clai,ns, 72 N.Y.U. L. Rev. 1344, 1349(1997).

14 15
tion Act requires arbitration clauses whether pre- or post-dispute, to be judged and enforced by the same standards as limitations of warranty, terms of payment, or any other contrac-tual provision. See, e.g., Allied-Bruce Terminix Cos., 513 U.S. 265, 281(1995) (noting that the FAA makes unlawful any at-tempt by a state to "place arbitration clauses on an unequal 'footing"' in context of a case involving a pre-dispute arbitration clause in a consumer contract to provide termite protection); Hooters, 173 F.3d at 937 ("Predispute agreements to arbitrate Title VH claims are thus valid and enforceable."); Keymer v. Management Recruiters Int'l, Inc., 169 F.3d 501, 504 (8th Cir. 1999) (stating that "we examine arbitration agreements in the same light as any other contractual agreement").

In supporting enforcement of pre-dispute arbitration clauses, subject to appropriate procedural safeguards, the AAA is influ-enced by the success of another protocol that was drafted under its auspices following the Court's decision in Gilmer. The Due Process Protocol for Statutory Disputes Arising out of the Em-ployment Relationship was adopted in May 1995 on the recommendation of a group composed of employment attorneys, rep-resentatives of labor and management, and dispute resolution professionals.'2 The widespread adoption of programs conform-ing to the safeguards established by that Protocol has made available to millions of workers a range of dispute resolution optionsfrom informal processes such as peer review, through mediation, to binding arbitrationthat offer "systematic advan-tages over lawsuits for both workers and their employers." Estreicher, supra, at 1351. Indeed, a recent article by the former Director of the ACLU's National Task Force on Civil Liberties in the Workplace examined the results of AAA employment ar-bitration decisions for the period 1993-1995, just prior to the adoption of the Employment Due Process Protocol, and con-'2The text of the Employment Protocol may be found on the AAA's web-
site. www.adr.org, under Focus Areas - Employment.
cluded that "far more employees win in arbitration than in court, and, overall, employees who take their disputes to arbitration collect more than those who go to court." Lewis Maltby, Em-ployment ArbitrationIs it really second class justice?. Dispute Resolution Magazine at 24 (Fall 1999).

B. The Concerns Expressed By The Eleventh Circuit Go To The Purposes Of The Statutes That Create The Cause Of Action

While noting some of the deficiencies just described, the Eleventh Circuit focused on shortcomings in the arbitration clause that seemed to it to implicate the compatibility of that clause with the purposes of the statutes under which Respon-dent's claims were brought. The Eleventh Circuit singled out one concern, the clause's silence on who is to pay the costs of arbitration, as so inconsistent with the purposes of those statutes that it justified a refusal to enforce the arbitration clause:
***** the arbitration clause in this case is unenforceable, because it fails to provide the minimum guarantees re-quired to ensure that Randolph's ability to vindicate her statutory rights will not be undone by steep filing fees, steep arbitrators' fees, or other high costs of arbitration." (Pet. App. 18a.)

The Eleventh Circuit contrasted the clause before it to "the rules of the American Arbitration Association, which provide at least some guidelines concerning filing fees and arbitration costs." (Pet. App. 17a.) As the Eleventh Circuit recognized, however, the arbitration clause "says nothing about the payment of filing fees or other apportionment of the costs of arbitration." (Pet. App. 17a) (emphasis added). Nor does the clause contain any provision with respect to financial hardship.

High filing and arbitrator fees present a genuine reason for concern if consumers are required to pay them. With that con-cern in mind, the AAA's Consumer Arbitration Rules require no

16

filing fee; a claimant is asked to pay only $125 as the claimant's share of the fees of the arbitrator, with all other fees and costs paid by the business party. '~ (App. B, infra, 2 Ia.) In larger cases, such as those administered by the AAA under its Com-mercial Arbitration Rules, the claimant pays a filing fee, and costs are normally shared equally during the life of the proceed-ing. Fees and costs may then be apportioned by the arbitrator in the award.'4 The AAA's experience indicates that arbitrators reallocate the costs of arbitration in a majority of the commer-cial cases that proceed to award. A claimant with a meritorious claim thus has a statistically significant likelihood of recovering at least a portion of any costs he or she is required to advance under the Commercial Arbitration Rules.

The absence in the arbitration clause of any provision for waiver of fees and costs on the basis of hardship is also a fair reason for concern. The AAA, for example, has administrative procedures that allow deferrals or reductions in the AAA's ad-ministrative fees where extreme hardship on the part of a party makes paying or advancing some or all of such fees inappropri-ate. The AAA receives one or two requests each week for a waiver or deferral of administrative fees on the basis of eco-nomic hardship. When the hardship is substantiated, these re-quests are liberally granted.





"A filing fee of $150 is required to file a case in federal court. See 28
U.S.C. 19 14(a) (2000).
Rule R-45(c) of the AAA's Commercial Arbitration Rules permits the arbitrator to assess in the award (that is, to allocate among the parties) filing and other administrative fees, expenses, and the arbitrator's compensation "in such amounts as the arbitrator determines is appropriate." Those rules are available as part of the AAA's Commercial Dispute Resolution Procedures on the AAA's website, www.adr.org.
17

III. THE ELEVENTH CIRCUIT SHOULD HAVE
TREATED THE SILENCE OF THE ARBITRATION CLAUSE ON COSTS AS AN AMBIGUITY
TO BE CONSTRUED SO AS TO PRESERVE THE

ENFORCEABILITY OF THE AGREEMENT TO

ARBITRATE

While the Eleventh Circuit's concern about the silence of the arbitration clause regarding the allocation of costs was well founded, its refusal to enforce the arbitration agreement on that basis was not. Section 2 of the Federal Arbitration Act requires that an arbitration agreement be enforced, absent such grounds "as exist at law or in equity for the revocation of any contract." 9 U.S.C. 2. No such grounds were found here. Rather, the Eleventh Circuit refused to enforce the arbitration agreement because that clause lacked any provision for shifting the cost of arbitration from the consumer to the business party. Without such a provision, the Eleventh Circuit felt, enforcement of the arbitration clause pursuant to the Federal Arbitration Act would be inconsistent with the purposes underlying the Truth in Lending Act, 15 U.S.C. 1601 et seq. (2000) ("TWA"), and the Equal Credit Opportunity Act, 15 U.S.C. 1691-1691f (2000) ("Equal Credit Act"). (Pet. App. 18a.)

TWA gives consumers a remedy "designed to compensate borrowers for injuries caused by misleading disclosures and to deter lenders from making misleading disclosures." Williams v. Public Fin. Corp., 598 F.2d 349, 355 (5th Cir. 1979). The "broad remedial provision" of the Equal Credit Act is intended to ensure "that creditors not affirmatively benefit from pro-scribed acts of credit discrimination." See Silverman v. Eastrich Multiple Investor Fund, L.P., 51 F.3d 28, 33 (3d Cir. 1995). Recognizing that the actual out-of-pocket losses likely to be suf-fered would generally be too small to justify the bringing of a civil action, TWA permits an aggrieved consumer to recover

18 19
civil penalties, attorneys fees, and court costs. See 15 U.S.C. 1640(a). The Equal Credit Act similarly allows an aggrieved credit applicant to recover punitive damages, attorney fees, and court costs in addition to actual damages. See 15 U.S.C. 169 le. But nothing in the text or history of either act cited by either party in seeking or opposing the grant of a writ of certio-ran demonstrates an intent on the part of Congress to restrict the availability of those remedies to cases filed in court.'3

The Eleventh Circuit correctly looked to the purposes of TWA and the Equal Credit Act in considering the effect of the arbitration clause before it. But it neglected in doing so to con-strue that provision in a manner that would preserve the validity and enforceability of the agreement to arbitrate. As this Court has made clear:

"IQ]uestions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration
*** The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of contract lan-guage itself or an allegation of waiver, delay, or a like de-fense to arbitrability." Moses H. Cone, 460 U.S. at 24-25.

Accord Mitsubishi Motors, 473 U.S. at 626 (same). When con-struing an agreement to arbitrate, "the parties' intentions con-trol, but those intentions are generously construed as to issues of arbitrability." Mitsubishi Motors, 473 U.S. at 626; accord Mas-trobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52. 62 (1995).

There is nothing inherent in the nature of arbitration that would prevent a litigant under TWA or the Equal Credit Act


'~ The AAA's Consumer Arbitration Rules provide that "The arbitrator may grant any remedy or relief that the parties could have received in court." (Rule 13, App. B, infra, 20a.)
from effectively "vindicat[ing his or hen statutory cause of ac-tion in the arbitral forum." See Mitsubishi Motors, 473 U.S. at 637; Gilmer, 500 U.S. at 28. As the Court suggested in Rodri-guez de Quijas, general attacks on the adequacy of arbitration procedures that rest on "suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants" are "far out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes." 490 U.S. at 481; accord Gilmer, 50() U.S. at 25. An agreement to arbitrate a statutory claim should thus be enforced unless something specific in its terms would prevent a party from effectively vindicating his or her rights un-der that statute.

The District of Columbia Circuit resolved a similar concern in favor of arbitration in the context of an agreement to arbitrate claims under Title VII of the Civil Rights Act. Cole v. Burns Int'l Sec. Servs.. 105 F.3d 1465 (D.C. Cir. 1997). In that case, as in this one, it was "unclear *** whether an arbitrator's fees (as distinguished from 'administrative fees') are to be paid by the employee alone, the employer alone, or by the parties to-gether." id. at 1481. The court found that, under Title VII, "employees cannot be required to pay for the services of a 'judge' in order to pursue their statutory rights." Id. at 1468 (emphasis in original). Faced with this proscription of the stat-ute under which the claim was made, and the ambiguity created by the silence of the arbitration clause on the subject of paying for the fees of the arbitrator, the District of Columbia Circuit decided to "interpret the arbitration agreement *** as requiring Ithe employerl to pay all arbitrators' fees," and enforced the ar-bitration agreement as so interpreted. Id. at 1486; accord Mc Williams v. Logicon, Inc., 1997 U.S. Dist. LEXIS 9822, at *5 (D. Kan. June 3, 1997) (finding the D.C. Circuit's "opinion in Cole both instructive and persuasive" and "adopt[ingj its fee allocation analysis in full").

20 21
The same option was open to the Eleventh Circuit. Rather than construing the arbitration clause's silence on fees and costs to conflict with the remedial and deterrent purposes of TILA and the Equal Credit Act, the Eleventh Circuit should have treated the silence as an ambiguity. Consistent with the national policy favoring arbitration and the principle that a construction that would make an agreement unlawful should be avoided when possible, the Eleventh Circuit should have resolved that ambigu-ity in a manner that would have enabled Respondent to vindi-16
cate her statutory rights in the agreed forum. See, e.g., Cole,
105 F.3d at 1485 ("where a contract is unclear on a point, an interpretation that makes the contract lawful is preferred to one that renders it unlawful"); Paladino v. Arnet Computer Tech-nologies, Inc., 134 F.3d 1054, 1058 (11th Cir. 1998); Restate-ment (Second) of Contracts 203(a) (1981). Those rights would be vindicated by a construction of the arbitration agree-ment that would shift enough of the burden of paying arbitral fees and costs to Petitioner to assure that Respondent's "ability to vindicate her statutory rights will not be undone by steep fil-ing fees, steep arbitrators' fees, or other high costs of arbitra-tion." (Pet. App. 18a.)'7 Alternatively, to the extent the Elev-enth Circuit was concerned that an arbitrator might issue an or-der imposing costs on Respondent that would be "prohibitive" in relation to the sum at issue (Pet. App. 18a). it could have directed the district court to condition its order compelling arbitra-tion on Petitioner's agreement to bear such costs.


'6Normal rules of construction also permit a court to construe ambiguous

language against the interest of the party that drafted it. See Mastrobuono, 514 U.S. at 64 (construing ambiguous provision in arbitration agreement re-lating to authority of arbitrator to award punitive damages against the drafter); Restatement (Second) of Contracts 206 (1981).
'7
Where the bargain of the parties is "sufficiently defined to be a con-tract," but omits "a term which is essential to a determination of their rights and duties." a court has the authority to supply "a term which is reasonable in the circumstances." Restatement (Second) of Contracts 204 (1981).
In urging this result, the AAA does not want to suggest that the Court should encourage the lower courts to rewrite arbitra-tion clauses. Such clauses are contracts, and the Federal Arbi-tration Act is emphatic that they are to be refused enforcement only on grounds applicable to contracts in general. See 9 U.S.C. 2. But when an ambiguity (including an omission) in an agreement to arbitrate is susceptible to one interpretation that will bring it into conflict with the statute under which a claim is brought, and to another interpretation that will reconcile the purpose of that statute with the mandate of the Federal Arbitra-tion Act, established principles of contract law counsel a court to construe the agreement so as to make its enforcement lawful. That is the result that amicus curiae AAA urges the Court to reach here.


CONCLUSION
WHEREFORE, amicus curiae AAA respectfully urges the Court to reverse the decision of the Court below on the second question presented.

Respectfully submitted,
JOHN M. TOWNSEND
DANIEL WOLF
HUGHES HUBBARD & REED LLP
Washington. D.C.



JAMES H. CARTER
Chairman,
Arbitration Law Committee



June 8, 2000
FLORENCE PETERSON
C'ounsel of Record
General Counsel
AMERICAN ARBITRATION ASSOCIATION
335 Madison Avenue
New York, New York 10017-4605
(212) 716-3923


Attorneys for Arnicus Curiae The American Arbitration Association

FindLaw Career Center


      Post a Job  |  View More Jobs

    View More