Green Tree Financial Corp. v. Bazzle

2003-06-23

Headline: Ruling vacates state-court class-arbitration finding and remands so an arbitrator, not courts, decides whether consumer loan arbitration clauses allow class arbitration, affecting lender–customer class claims.

Holding: The Court vacated the South Carolina Supreme Court’s judgment and remanded, holding that the arbitrator—rather than a judge—must decide whether the loan arbitration clauses permit class arbitration.

Real World Impact:

Makes arbitrators the decisionmakers on whether consumer arbitration clauses allow class procedures.
State courts may need to vacate class-arbitration rulings pending arbitrator decisions.
Affects lenders and borrowers in consumer loan contracts with arbitration clauses.

Topics: class arbitration, consumer loan disputes, arbitration rules, contract wording

Summary

Background

A commercial lender (Green Tree) and several customers signed loan contracts that included broad arbitration clauses. The customers sued in South Carolina state courts after the lender failed to give them a required disclosure form. Courts certified class actions and arbitrators administered class arbitrations that resulted in multi-million dollar awards to the classes. The South Carolina Supreme Court held the contracts were silent about class arbitration and therefore allowed class procedures.

Reasoning

The central question was who should decide whether those arbitration clauses permit class arbitration: a judge or an arbitrator. The majority found that the contracts committed disputes “arising from or relating to” the contract to arbitration and gave arbitrators broad powers. Because that contract-interpretation question is a matter for the arbitrator and the record suggests an arbitrator has not independently decided it, the Court vacated the state court’s judgment and remanded so the arbitrator can decide whether the contracts forbid or allow class arbitration.

Real world impact

The decision sends the question of class arbitration availability back to arbitrators in similar consumer-loan cases. Lenders and borrowers with broad arbitration clauses may see arbitrators, not judges, resolve whether class procedures apply. The ruling is procedural, not a final decision on whether class arbitration is permitted; the arbitrator’s forthcoming decision could still allow or disallow class arbitration.

Dissents or concurrances

Justice Stevens would have simply affirmed the state court. Chief Justice Rehnquist and Justice Thomas dissented, arguing courts should decide or that the FAA should not govern state-court proceedings, respectively.