Before the Supreme Court's decision in Green Tree Finan. Corp. v. Bazzle, 123 S.Ct. 2402 (2003), the possibility of having compulsory class or consolidated arbitration was an issue rarely contemplated by practitioners and clients, since class or consolidated arbitration proceedings were almost never compelled absent an express contractual provision permitting class arbitration or the mutual consent of the parties. Although Bazzle addressed only who should decide the permissibility of class arbitration proceedings - in favor of arbitrators rather than the judiciary - the case prompted a maelstrom of activity concerning whether and how the collective interests of a class could be resolved in an arbitral forum.
Recent years have witnessed significant developments in the law on these issues, including: (i) the American Arbitration Association's ("AAA"), and other organizations' promulgation of class arbitration rules; (ii) scores of AAA awards concluding that class proceedings can be pursued under otherwise silent arbitration agreements; and (iii) the successes and failures of arbitration clauses that prohibit class arbitration. Practitioners and clients alike should be attentive to new legal developments in class arbitration, since they may unwittingly find themselves susceptible to class arbitration proceedings.
Part I of this two-part article examines Bazzle's role in changing the class arbitration landscape, the conduct of class proceedings under the AAA's rules, the rise of class arbitration since Bazzle, and its pitfalls. Part II of the article (to be published in the September, 2007 issue of the Metropolitan Corporate Counsel) examines possible means for clients to avoid the pitfalls of class arbitration.
The Effect of Bazzle on the Law Concerning Class Arbitration
Before Bazzle, it was well-established that federal courts were vested with the authority to resolve "gateway" substantive arbitrability questions, including: (i) the scope of the arbitration agreement; (ii) whether the agreement is revocable at law or in equity; and (iii) where there is a federal statutory claim involved, whether Congress has clearly expressed intent that the claim not be arbitrated.1 Questions concerning procedural prerequisites to arbitration, such as time limits, laches, estoppel, notice and other conditions precedent to an obligation to arbitrate, were left for arbitrators to resolve.2
Whether class arbitration proceedings were permissible under a given arbitration clause was viewed by federal courts as a substantive arbitrability decision that they would routinely resolve as a matter of determining the appropriate scope of the arbitration agreement.3 Prior to Bazzle, the Courts of Appeals for the Second,4 Third,5 Fourth,6 Fifth,7 Sixth,8 Seventh,9 Eighth,10 Ninth,11 and Eleventh Circuits,12 had determined that class or consolidated arbitration of claims was improper where the arbitration agreement was silent as to the permissibility of such proceedings.13 Federal courts were generally unwilling to compel class or consolidated arbitration proceedings barring an express provision permitting such proceedings or the parties' mutual consent based upon simple reasoning:14 since courts were obligated to enforce contracts "according to their terms,"15 they lacked the authority to read into otherwise silent agreements terms permitting class or consolidated proceedings.16
Bazzle represented a stark departure from this approach. The issue presented in Bazzle was whether, absent an express provision in an arbitration agreement providing for class arbitration, a state court or arbitrator could compel class arbitration of state law claims. Rather than squarely address the issue, a plurality of the Court held that arbitrators, and not courts, should determine whether class arbitration is permissible under an otherwise silent arbitration clause.17 The plurality determined this was not a question of substantive arbitrability, since it embraced only the "kind of arbitration proceeding."18 Bazzle did not decide the larger issue of whether silence in an arbitration clause may be interpreted to permit class arbitration, evidenced by the Court's decision to vacate the judgment of the South Carolina Supreme Court permitting class arbitration and remand the case so that the question could be resolved in arbitration.
Conduct of Class Arbitration Proceedings
Almost as soon as Bazzle was decided, the AAA - the "nation's largest full-service alternative dispute resolution (ADR) provider"19 - began promulgating rules governing class arbitration.20 The AAA's Supplementary Rules for Class Arbitrations ("Class Rules") provide that the AAA will administer demands for class arbitration where: (i) the arbitration agreement provides for resolution of disputes in accordance with the AAA Rules and a party submits a dispute to arbitration on behalf of or against a class or purported class; (ii) the arbitration agreement is silent with respect to class claims, consolidation or joinder of claims; (iii) a court refers to the AAA a matter pleaded as a class action, or (iv) a party to a pending AAA arbitration asserts new claims on behalf of or against a class or purported class.21 The AAA will not administer "demands for class arbitration where the underlying agreement prohibits class claims, consolidation or joinder, unless an order of a court directs the parties to the underlying dispute to submit any aspect of their dispute involving class claims, consolidation, joinder or the enforceability of such provisions, to an arbitrator or to the Association."22
The Class Rules provide for a staged determination of class-related issues. First, the arbitrator must determine "whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class" (the "Clause Construction Award"). After determining that an arbitration agreement permits class arbitration, the arbitrator must determine "whether an arbitration should proceed as a class arbitration" (the "Class Determination Award").23 Following each interim award, the Class Rules require that the arbitrator(s) stay the proceedings for "at least 30 days to permit any party to move a court of competent jurisdiction to confirm or to vacate" the award.24
The Rise of Class Arbitration
As of June 15, 2007, AAA arbitrators have rendered 51 Clause Construction Awards concerning otherwise silent arbitration agreements, and in all but two of those decisions, the arbitrators have allowed classwide proceedings.25 Three recurring rationales for interpreting an otherwise silent agreement to permit class arbitration appear in these AAA Clause Construction Awards: (i) if the parties intended to prohibit class arbitration, they could have included an express prohibition in their arbitration agreement to this effect;26 (ii) a misapprehension of Bazzle as specifically authorizing class arbitration where the applicable agreement is silent;27 and (iii) that silence regarding the propriety of class proceedings renders the agreement ambiguous, which requires that it be construed against the drafter, consistently resulting in a construction favoring class arbitration.28 In contrast to the 49 AAA Clause Construction Awards construing silence to permit class arbitration, only two such awards have reached the opposite conclusion.29
At bottom, AAA arbitrators have - almost without exception - construed otherwise silent arbitration agreements to permit class proceedings.
The Pitfalls of Class Arbitration
While most clients choose to include arbitration clauses in their agreements in order to, e.g., promote resolution of disputes with less expense, increased efficiencies, and greater confidentiality protection, many of these traditional advantages may be lost in class, as opposed to individual, arbitration proceedings. Indeed, class arbitration may also create a host of unintended adverse consequences (e.g., loss of due process rights). Recent developments in class arbitration law have left "defendants with the worst of all worlds - the threat of a class action in a forum without the procedural, evidentiary and appellate protections available through the judicial process."30
First, the scope of review available for an arbitrator's ruling is significantly limited.31 This point cannot be understated, given the exceedingly deferential standard of review applicable to arbitration awards, where errors in an arbitrator's findings of fact or interpretation of the law are insufficient to justify vacatur.32 Indeed, a district court's authority to review an arbitration award has been said to exist as "among the narrowest known to the law."33 While applies with equal force to individual arbitrations, it takes on heightened importance in class proceedings.
The FAA 9 "expresses a presumption that arbitration awards will be confirmed,"34 and 10 of the FAA prescribes only four limited statutory bases for vacatur of an arbitral award (e.g., arbitrator fraud, corruption, partiality, misconduct, and exceeding his powers).35 Whether additional non-statutory bases for vacating an arbitral award exist depends upon the law of the jurisdiction. The most common bases cited by Circuit Courts of Appeals include an arbitrator exhibiting "manifest disregard of the law," and awards that are arbitrary and capricious, contrary to public policy, completely irrational, rendered without a fundamentally fair hearing, or that fail to draw their essence from the parties' agreement.36 Regardless of the applicable standard of review, federal courts apply an extremely high threshold for review of arbitral awards, essentially foreclosing the possibility for any meaningful judicial review. Accordingly, there may be diminished appellate rights and less opportunity to correct potential errors of law in class arbitration proceedings.
Second, the conventional time and cost-savings of arbitration may be lost in class proceedings, since each of the interim phases related to class- and merits- arbitral awards will carry with them potential burdens relating to discovery, briefing, hearings, and time, money and effort spent in obtaining judicial review at each of the various phases, which will not necessarily be present in individual arbitrations.37
The potential loss of cost-savings in arbitration also raises a related point concerning the inherent financial conflict of interest arbitrators may have in the length of an arbitration, which can clearly be seen in arbitrators' class-related decisions. Simply put, arbitrators necessarily have a "financial interest" in prolonging an arbitration, and especially a class arbitration, since the more time they devote to a case, the more money they will make.38 Of course, given the current track record of AAA arbitrators' Clause Construction Awards, concerns about the existence and depth of such a conflict appear to be well-founded.39
Third, the parties' arbitrator selection process will likely be guided by different factors in a class arbitration proceeding than in an individual arbitration, since the fate of all of the class claims will be decided by a single arbitrator or panel.40 The parties may choose, for example, an arbitrator with a class action background, instead of an arbitrator familiar with the substantive law governing the dispute, in a class arbitration proceeding.
The issue of arbitrator selection also implicates the due process concern of binding absent class members to the decisions of an arbitrator that the absent class members did not select. On the flip side of the coin, respondents' due process rights are also imperiled by the lack of procedural rules available for class discovery, including absent class member discovery, which might otherwise be available in court proceedings.41
Fourth, the specter of class arbitration disposes of the presumption of privacy and confidentiality in arbitration.42 Even if an arbitrator ultimately construes an arbitration agreement not to permit class proceedings or refuses to certify a class, the hearings are open to the public, and both the arbitration demand and the arbitrators' awards are published on the AAA website.43
Part II of this two-part article will address potential means for companies and practitioners to attempt to avoid these and other pitfalls of class arbitration.1 See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45 (1995); AT&T Techs., Inc. v. Comm'ns Workers of Am., 475 U.S. 643, 649 (1986).
2 See, e.g., Howsam v. Dean Witter, 537 U.S. 588, 592 (2002).
3 See Volt Info. Scis., Inc. v. Board of Trustees, 489 U.S. 468, 478 (1989).
4 Glencore, Ltd. v. Schnitzer Steel Products Co., 189 F.3d 264, 268 (2d Cir. 1999); Gov't of United Kingdom v. Boeing Co., 998 F.2d 68, 69 (2d Cir. 1993).
5 Sagal v. First USA Bank, N.A., 69 F. Supp. 2d 627, 632 (D. Del. 1999), aff'd 254 F.3d 1078 (3d Cir. 2001); Johnson v. West Suburban Bank, 225 F.3d 366, 369, 377-78 (3d Cir. 2000).
6 Deiulemar Compagnia di Navigazione S.p.A. v. M/V Allegra, 198 F. 3d 473, 482 (4th Cir. 1999).
7 Herrington v. Union Planters Bank, N.A., 113 F. Supp. 2d 1026, 1035 (S.D. Miss. 2000), aff'd 265 F.3d 1059 (5th Cir. 2001).
8 Am. Centennial Ins. Co. v. Nat'l Casualty Co., 951 F.2d 107, 108 (6th Cir. 1991).
9 Caudle v. Am. Arbitration Ass'n, 230 F.3d 920, 921 (7th Cir. 2000); Connecticut Gen. Life Ins. Co. v. Sun Life Assurance Co. of Canada, 210 F.3d 771, 774 (7th Cir. 2000); Champ v. Siegel Trading Co., 55 F.3d 269, 275 (7th Cir. 1995).
10 Dominium Austin Partners, LLC v. Emerson, 248 F.3d 720, 728-29 (8th Cir. 2001); Baesler v. Cont'l Grain Co., 900 F.2d 1193, 1195 (8th Cir. 1990).
11 Weyerhaeuser Co. v. Western Seas Shipping Co., 743 F.2d 635, 637 (9th Cir. 1984), cert. denied 469 U.S. 1061 (1984).
12 Protective Life Ins. v. Lincoln Nat'l Life Ins. Corp., 873 F.2d 281, 282 (11th Cir. 1989); see also Kirkpatrick v. J.C. Bradford & Co., 827 F.2d 718, 725 n.5 (11th Cir. 1987).
13 The First Circuit stood alone in its view that consolidation of arbitration proceedings may be had absent the parties' agreement (and the Tenth Circuit had not yet addressed the issue by the time the Bazzle opinion issued). See New England Energy, Inc. v. Keystone Shipping Co., 855 F.2d 1, 5 (1st Cir. 1988).
14 Glencore, 189 F.3d at 266; Boeing, 998 F.2d at 71; Deiulemar, 198 F.3d at 482 (discussing Champ, 55 F.3d 269); Am. Centennial, 951 F.2d at 108; Champ, 55 F.3d at 274-75; Dominium Austin Partners, 248 F.3d at 728-29; Baesler, 900 F.2d at 1195; Weyerhaeuser, 743 F.2d at 637; Protective Life Ins., 873 F.2d at 282.
15 See Volt, 489 U.S. at 478; Weyerhaeuser , 743 F.2d at 637.
16 Boeing, 998 F.2d at 74; Deiulemar , 198 F.3d at 482; Champ, 55 F.3d at 275; Dominium Austin Partners, 248 F.3d at 728-29; Protective Life Ins., 873 F.2d at 282.
17 See Bazzle, 123 S.Ct. at 2407; see also Howsam v. Dean Witter Reynolds, Inc., 123 S.Ct. 588, 592 (2002).
18 See Bazzle, 123 S.Ct. at 2407.
19 See http://www.adr.org/drs.
20 See AAA Supplementary Rules for Class Arbitrations, effective October 8, 2003 (the "Class Rules").
21 See AAA Class Rule 1(a); AAA Policy on Class Arbitrations. Just as in class action litigation, class arbitration requires that a representative claimant represent the interests of similarly-situated absent claimants whose contracts contain similar arbitration clauses. See AAA Class Rule 4.
22 AAA Policy on Class Arbitrations. Although the Class Rules expressly state that their existence should not militate either in favor of or against permitting classwide arbitration, see Class Rule 3, some arbitrators have disregarded this admonition and taken into consideration the existence of the Supplementary Rules in their clause construction awards. See, e.g., Terrapin Express, Inc. v. Airborne Express, Inc., Case No. 11 199 01536 05; see also, e.g., Melissa Medina v. GMRI, Inc., Case No. 11 160 02409 04; Dale Groves v. Hemet Mfg. Co, Inc., Case No. 11 160 00194 05; Gregory Jost v. Sizzler USA Restaurants, Inc., AAA Case No. 11 160 01721 05.
In order to certify a class, the Class Rules require that the arbitrator engage in a Rule 23-like analysis. Specifically, an arbitrator must determine that: (i) the class is so numerous that joinder of separate arbitrations on behalf of all members is impracticable; (ii) there are questions of law or fact common to the class; (iii) the claims or defenses of the representative parties are typical of the claims or defenses of the class; (iv) the representative parties will fairly and adequately protect the interests of the class; (v) counsel selected to represent the class will fairly and adequately protect the interests of the class; and (vi) each class member has entered into an agreement containing an arbitration clause which is substantially similar to that signed by the class representative(s) and each of the other class members.
23 Additionally, the arbitrator must find that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class arbitration is superior to other available methods for the fair and efficient adjudication of the controversy. See AAA Class Rule 4.
24 See AAA Class Rules 3, 5.
25 AAA Clause Construction Awards are available on the AAA's website at http://www.adr.org. The two awards where silent arbitration agreements were found not to permit classwide proceedings are Todd Rich v. Rent-A-Center, Inc., AAA Case No. 11 160 01833 04, and Paul Veliz, et al. v. Cintas Corp., et al., AAA Case No. 11 160 01323 04.
26 See Debra A. and Gerald J. Bunder v. Ralph Oats, AAA Case No. 11 181 00828 04; Bagpeddler.com v. US Bancorp & Nova Info. Sys., AAA Case No. 11 181 00322 04; Jennifer Harris v. TeleTech Holdings, AAA Case No 11 160 02701 04; Joseph Milstein v. Protection One Alarm Sys., Inc., AAA Case No. 11 110 00270 04; Robert Scher v. Oxford Health Plans, AAA Case No. 11 193 00548 05, rev'd in Albert Cheng, et al. v. Oxford Health Plans, Inc., et al., Index No. 604083 (N.Y. Gen. Term. Nov. 28, 2006); Cable Connection, Inc. v. Direct TV, Inc., AAA Case No. 11 145 00752 04 (As of June 15, 2007, the panel's decision in this case has been overturned by the Superior Court of California, which was in turn overruled by the Second District Court of Appeals. On December 20, 2006, the Supreme Court of California granted Direct TV's petition for review.) Terrapin Express, Inc. v. Airborne Express, Inc., AAA Case No. 11 199 01536 05; Fred Krastel, et al. v. TES Franchising, LLC, AAA Case No. 11 114 00320 05; Chris Zacharias, et al. v. Cypress Communications, Inc., et al., AAA Case No. 11 181 00004 06 ; Robert Bryant, et al. v. Joel Antunes, LLC, et al., AAA Case No. 11 160 01783 05; David Olson v. Rent-A-Center, Inc., AAA Case No. 11 160 01831 04 ; 0, AAA Case No. 11 181 01663 04; John Ivan Sutter, M.D. v. Oxford Health Plans, Inc., AAA Case No. 18 193 20593 02 ; Peter Weller v. Spring Communications, L.P., AAA Case No. 11 181 00070 06; Healthside Restaurant, Inc. v. Qwest Dex, Inc., AAA Case No. 11 147 00357 04.
27 See Associated Pathology Consultants, S.C. v. United Healthcare of Illinois, Inc., AAA Case No. 11 195 00971 06; Sutter v. Oxford Health Plans, Inc., AAA Case No. 18 193 20593; Bagpeddler.com v. US Bancorp & Nova Info. Sys., AAA Case No. 11 181 00322 04; Nathan and Jennifer Addleman v. The Ryland Group, Inc., AAA Case No. 11 181 01524 05 ; Francis D. Petsch v. Orkin Exterminating Co., AAA Case No. 11 181 02541 04; Erin Cole v. Long John Silver's Restaurant, Inc., AAA Case No. 11 160 00194 04 ; Fredda Levitt v. Lipper Holding, LLC, AAA Case No. 11 168 00663 04; Janice Barton v. Cottage Homesteads of Am., Inc., AAA Case No. 11 115 02967 04; Michelle Sanchez v. Corinthian Colleges, Inc., AAA Case No. 11 181 00236 05 ; Daniel Orea v. Tavistock Restaurants, LLC, AAA Case No. 11 160 01982 06; Ahmed Ali, et al. v Morton's of Chicago/Sacrament, Inc., AAA Case No. 11 160 02015 ; Dub Herring Ford, Inc., et al. v. Dealer Computer Servs., Inc., AAA Case No. 11 181 01119 06; Gary B. Lundy v. Blimpie Int'l, Inc., AAA Case No. 13 114 03098 02.
28 See Mike Cook v. Rent-A-Center, Inc., AAA Case No. 11 160 01815 04; Dale Groves v. Hemet Mfg. Co., Inc., AAA Case No. 11 160 00194 05; Melissa Medina v. GMRI, Inc., AAA Case No. 11 160 02409 04; Scott Mitchell v. GMRI, Inc., Case No. 11 160 02939 03; Jogesh Sidhu v. GMRI, Inc., AAA Case No. 11 160 02273 04; Warrior Transp. v. Fee Transp. Servs., Inc., AAA Case No. 11 118 00365 06; Michael Bandler v. Charter One Bank, N.A., AAA Case No. 11 148 02801 04; Richard Fortuna v. Snap-on Tools Co., LLC, AAA Case No 11 114 01818 04; Tomeldon Co., Inc., et al. v. Medco Health Solutions, Inc., AAA Case No. 11 193 00546 06 ; Stacey Smith v. TeleTech Holdings, AAA Case No. 11 160 02726 04.
29 Paul Veliz v. Cintas Corp., et al., AAA Case No. 11 160 01323 04; Todd Rich v. Rent-a-Center, Inc., AAA Case No. 11 160 01833 04.
30 See Class Actions in Arbitration - An Idea Whose Time Should Pass, The Metropolitan Corporate Counsel, March 2007.
31 Federal district courts will generally only evaluate the merits of an arbitral award on a motion to modify or vacate the award, which can only occur on very narrow, specified grounds. See, e.g., First Options of Chicago v. Kaplan, 514 U.S. 938, 942 (1995); Puerto Rico Tel. Co., Inc. v. U.S. Phone Mfg. Corp., 427 F.3d 21, 25 (1st Cir. 2005); Boise Cascade Corp. v. United Steelworkers of Am., 588 F. 2d 127, 128 (5th Cir. 1979); Mack v. Strategic Materials, Inc., 106 Fed. Appx. 1000, 2004 WL 1987305 *2 (6th Cir. Sept. 2, 2004); St. John's Mercy Med. Ctr. v. Delfino, 414 F.3d 882, 884 (8th Cir. 2005); Hoffman v. Cargill Inc., 236 F.3d 458, 461 (8th Cir. 2001); PowerAgent Inc. v. Elec. Data Sys. Corp., 358 F.3d 1187, 1193 (9th Cir. 2004); Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 998 (9th Cir. 2003) (en banc); Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775, 778 (11th Cir. 1993); Booth, 902 F. 2d at 932; Parsons & Whittemore Ala. Mach. & Servs. Corp. v. Yeargin Constr. Co., Inc., 744 F. 2d 1482, 1484 (11th Cir. 1984) (per curiam); 9 U.S.C. 10, 11.
32 See, e.g., United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 36-38 (1984); Puerto Rico Tel. Co., 427 F.3d at 32; Booth, 902 F. 2d at 933; Tanoma Mining Co., Inc. v. Local Union No. 1269, 896 F.2d 745, 749 (3d Cir. 1990); Syncor Int'l Corp. v. McLeland, 120 F.3d 262, 1997 WL 452245 (4th Cir. 1997); Kyocera, 341 F.3d at 994 & 997; Hall Street Assocs., L.L.C. v. Mattel Inc., 196 F.3d Appx. 476, 2006 WL 2193411 *1 (9th Cir. Aug. 1, 2006); Hollern v. Wachovia Sec., 458 F.3d 1169, 1172 & 1176 (10th Cir. 2006); Denver & Rio Grande Western Railroad Co. v. Union Pacific Railroad Co., 119 F.3d 847 (10th Cir. 1997).
33 ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995); LB & B Assocs., Inc. v. Int'l Brotherhood of Electrical Workers, Local No. 113, 461 F.3d 1195, 1197 (10th Cir. 2006) (quotations omitted); Hollern, 458 F.3d at 1172 (quotations omitted); Kergosien v. Ocean Energy, Inc., 290 F.3d 346, 352 (5th Cir. 2004) ("A district court's review of an arbitration award is extraordinarily narrow.") (quotations omitted).
34 See, e.g., Booth v. Hume Publ'g, Inc., 902 F. 2d 925, 932 (11th Cir. 1990).
35 See, e.g. , 9 U.S.C. 10; Brown v. Rauscher Pierce Refsnes, Inc. , 994 F. 2d 775, 779 (11th Cir. 1993). The FAA 11 provides three statutory bases for modifying an arbitral award: (i) evident and material miscalculation of figures or mistake in describing person or thing; (ii) the arbitrator enters award on matter not before him unless it does not affect the merits; and (iii) it is an imperfect award that does not affect merits of controversy. See 9 U.S.C. 11.
36 See McCarthy v. Citigroup Global Markets Inc., 463 F.3d 87, 91 (1st Cir. 2006); Nicholls v. Brookdale Univ. Hosp. & Med. Ctr., Slip Copy, 2006 WL 2990239 *3 (2d Cir. Oct. 18, 2006); Black Box Corp. v. Markham, 127 Fed. Appx. 22, 25 (3d Cir. 2005); Syncor Int'l Corp. v. McLeland, 120 F.3d 262, 1997 WL 452245 (4th Cir. 1997); Kergosien v. Ocean Energy, Inc., 290 F.3d 346, 355 (5th Cir. 2004); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir. 1995); Mack, 106 Fed. Appx. 1000, 2004 WL 1987305 at *2 (6th Cir. Sept. 2 , 2004); George Watts & Son v. Tiffany & Co., 248 F.3d 577, 581 (7th Cir. 2001); St. John's Mercy Med. Ctr. v. Delfino, 414 F.3d 882, 884 (8th Cir. 2005); Hoffman v. Cargill Inc., 236 F.3d at 461-62 ; Kyocera, 341 F.3d at 997; P & P Indus., Inc. v. Sutter Corp., 179 F. 3d 861, 870 (10th Cir. 1999); Hollern, 458 F.3d at 1172 & 1176; see also Wilko v. Swan, 346 U.S. 427, 436-37 (1953), overruled on other grounds, 490 U.S. 477 (1989). Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775, 779, n.3 (11th Cir. 1993); Raiford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 1410, 1413 (11th Cir. 1990).
37 The AAA Rules require that an arbitration be stayed for thirty days following a clause construction or class determination award in order to permit the parties to seek judicial review of each class-related interim award. See AAA Class Rules 3-7. As the U.S. Chamber of Commerce noted in a relatively recent amicus brief, "in any case in which arbitration is conducted on an all[-]or-nothing, class-wide basis, arbitration's simplicity and informality would become a thing of the past, as big teams of lawyers engage in elaborate motion practice and searching discovery. Arbitral finality would be replaced by endless appeals." Application of the Chamber of Commerce for Permission to File Amicus Curiae Brief and Amicus Curiae Brief in Support of Defendant-Petitioner , Discover Bank v. Super. Ct. of Los Angeles County (Boehr, Real Party in Interest), review granted, 65 P.3d 1285 (Cal. 2003) (No. S113725), available at 2003 WL 23270290, at 29-30.
38 See, e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 416 (1967) (Black, J., dissenting) (arbitrators' "compensation corresponds to the volume of arbitration they perform," which raises "serious questions of due process").
39 This concern is not meant to suggest that the AAA or any particular arbitrator involved in the 49 clause construction awards construing otherwise silent agreements were actually motivated by a desire to increase their fees or that other alternative dispute resolution services and their arbitrators do not have the same inherent financial interest.
40 In the absence of a clause in the parties' arbitration agreement prescribing an arbitrator selection process, the AAA will employ the following procedure for selection of a single arbitrator: (i) the parties must agree on an arbitrator from a list the AAA provides; or (ii) if the parties cannot agree on an arbitrator from the list, they must strike the names of those who are unacceptable and rank the remaining names in order of preference; and (iii) the arbitrator with the highest ranking overall is selected to hear the parties' dispute. See AAA Commercial Arbitration Rule 11. In arbitrations calling for a panel of arbitrators, each of the parties will select one arbitrator, and these 2 party-selected arbitrators will choose a third arbitrator to complete the panel. See AAA Commercial Arbitration Rule 13. The AAA employs a "national roster of class arbitration arbitrators," which is used for the selection of at least one arbitrator in a putative class proceeding administered by the AAA. See AAA Class Rule 2(a). Notably, under the AAA's "complex" rules, "[i]f the parties are unable to agree upon the number of arbitrators and a claim or counterclaim involves at least $1,000,000, then three arbitrator(s) shall hear and determine the case." AAA Complex Rule L-2. Since most class arbitration proceedings will likely involve amounts in controversy that meet or exceed the $1,000,000 threshold, the AAA appears to have contemplated that most class arbitrations will be heard before a panel of three arbitrators.
41 See, e.g., M. Berenson Co., Inc. v. Faneuil Hall Marketplace, Inc., 103 F.R.D. 635, 637 (D. Mass. Dec. 18, 1984) ; Robertson v. Nat'l Basketball Assn., 67 F.R.D. 691, 699 (S.D.N.Y. 1975).
42 See AAA Class Rule 9.
43 See Class Arbitration Docket, available at http://www.adr.org/sp.asp?id=25562
P. Christine Deruelle and Robert Clayton Roesch are associates in the litigation department of Weil, Gotshal & Manges LLP's Miami office. Their respective practices focus on complex commercial litigation, including class action defense. Ms. Deruelle can be reached at (305) 577-3277 and Mr. Roesch can be reached at (305) 577-3252. Please visit our website, www.metrocorpcounsel.com, for the text of the footnotes in this article.