The following article is reprinted from Basis Points® , Vol. 2, Issue 8, Copyright © 2003, with the permission of CounselorLibrary.com, LLC. All Rights Reserved. Further reproduction is prohibited without permission.

The U.S. Supreme Court has made its ruling in a long-awaited decision, with the Court not ruling on the issue of whether class action arbitrations may be ordered in circumstances in which the arbitration agreement does not expressly address class action arbitration. However, the Court's decision suggests that an arbitration clause may prohibit class action arbitrations.

The question the Court granted certiorari on was: "Whether the Federal Arbitration Act, 9 U.S.C. § 1 et seq., prohibits class-action procedures from being superimposed onto an arbitration agreement that does not provide for class action arbitration." After reciting the question, however, the Court seemed to go off on a tangent. The majority notes that the defendant argued that the clause was not silent - that it actually prohibited class arbitration. This raised a factual question in the minds of the majority, and they determined that it should have been the arbitrator, not the court, that originally interpreted whether the arbitration agreement actually prohibited or permitted class arbitration.

The majority remanded the case. Justice Breyer was joined by four justices, three joining his decision and Justice Stevens concurring in the result, but dissenting in part. The majority said it was for the arbitrator to determine whether the arbitration clause permits class arbitration. The majority found that the state court initially erred when it both certified a class in the lead case (the Bazzle case had been consolidated by the South Carolina Supreme Court with another, essentially identical, case against the same defendant) and ordered the matter to arbitration.

The majority ruled that the question of whether the clause authorized class arbitration was a question for the arbitrator and should not have been decided by the court. Interestingly, in the second case that was joined in this appeal, only the arbitrator decided that the clause in question permitted class arbitration, but the Court noted that the arbitrator making this judgment was the same arbitrator that had been ordered by the state court to hear a class-wide arbitration based on the same arbitration clause in the first case. Thus, the majority felt that the arbitrator might have felt bound by the state court's earlier ruling that the arbitration clause permitted class arbitration.

Three dissenting justices, in an opinion written by Chief Justice Rehnquist, argued that the arbitration clause clearly did not permit class arbitration and that the opinion of the South Carolina Supreme Court upholding the state court's decision should have been reversed in full and the matters remanded for individual arbitration. Justice Thomas dissented based on his long-held view that the Federal Arbitration Act does not affect matters heard in state court.

For more information, look for Green Tree Financial Corp. v. Bazzle, 2003 WL 21433403 (Sup. Ct. (S.C.) June 23, 2003).

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