Green Tree Financial Corp. v. Bazzle
The Court vacated a South Carolina ruling that had let two groups of borrowers pursue class-wide arbitration against a lender under contracts that never mentioned class arbitration, because no one had yet gotten an arbitrator's own decision on whether the contracts allowed it.
The plurality held that this kind of question — what type of arbitration the parties actually agreed to — belongs to the arbitrator to decide, not the courts, so the case was sent back for an arbitrator to make that call.
How it got here: South Carolina trial courts and an arbitrator allowed class-wide arbitration in two consolidated loan disputes; the state supreme court upheld that result, and the lender asked the U.S. Supreme Court to review it.
The Case in Depth
What happened
Homeowners and mobile-home buyers took out loans from Green Tree Financial and signed contracts with arbitration clauses. When Green Tree allegedly failed to give them a legally required disclosure form, two groups sued in South Carolina state court seeking class treatment. Arbitration proceeded on a class-wide basis in both cases, and arbitrators awarded the classes millions of dollars in damages and fees.
The question before the Court
When a loan contract's arbitration clause says nothing about class-wide arbitration, who should decide whether class arbitration is actually allowed — a court or the arbitrator?
The Court's answer
Partly — the plurality did not decide whether the loan contracts actually allow class-wide arbitration. Instead, it held that this is a question for the arbitrator, not the courts, to answer, because it is not a threshold 'gateway' question about whether the parties agreed to arbitrate at all, but a question about what kind of arbitration procedure they agreed to.
Because the record showed the earlier class-arbitration decisions likely reflected courts' views rather than an arbitrator's independent judgment, the Court vacated the South Carolina ruling and sent the case back so an arbitrator could genuinely decide, for the first time, whether these silent contracts permit class arbitration.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Millions of consumer contracts contain arbitration clauses that say nothing about class procedures. This decision meant that, going forward, arbitrators rather than judges would typically decide whether those silent clauses permit class-wide arbitration — a threshold gatekeeping role with major consequences for whether large groups of consumers can band together instead of arbitrating individually.
What changes now
The case returns to arbitration so that an arbitrator — not a court — can decide whether the loan contracts actually permit class-wide arbitration. That determination could still come out either way; the Supreme Court did not say what the right answer is, only who must answer it. The underlying multimillion-dollar damages awards remain unresolved until that contract-interpretation question is settled.
What this does not decide
The Court did not decide whether these contracts actually permit or forbid class arbitration. It decided only who gets to answer that question — the arbitrator — leaving the substantive answer, and the fate of the underlying damages awards, to be resolved on remand.
Concurrences and dissents
Concurrence in part — Justice Stevens
Justice Stevens agreed South Carolina law properly governed and thought the state court's decision that the silent contracts allowed class arbitration was correct on the merits, so he would simply have affirmed. He noted the interpretation question arguably should have gone to the arbitrator first, but since Green Tree never argued the wrong decisionmaker ruled, he saw no need to remand. He joined the judgment only so the Court would have a controlling opinion.
Dissent — Justice Rehnquist
“I would reverse because this determination is one for the courts, not for the arbitrator, and the holding of the Supreme Court of South Carolina contravenes the terms of the contracts and is therefore pre-empted by the FAA.”The dissent's central objection that courts, not arbitrators, should decide this question.
Chief Justice Rehnquist argued the choice of arbitrator was as fundamental to the parties' agreement as what could be arbitrated, so courts, not arbitrators, should decide whether the contracts permit class arbitration. He concluded the contracts' terms plainly required a separately chosen arbitrator for each customer's dispute, making class arbitration incompatible with the agreement and pre-empted by the Federal Arbitration Act. He would have reversed outright rather than remanded.
Dissent — Justice Thomas
Justice Thomas reiterated his longstanding view that the Federal Arbitration Act does not apply to state court proceedings at all, so it cannot be used to pre-empt a state court's interpretation of a private arbitration agreement. On that basis he would have left the South Carolina Supreme Court's judgment undisturbed.
How the Court got there
The legal reasoning, step by step
- The Court first had to resolve a threshold dispute: Green Tree argued the contracts actually forbade class arbitration, while the South Carolina Supreme Court had read them as merely silent on the issue — a disputed question of contract interpretation that had to be addressed before anything else.
- The Court explained that courts, rather than arbitrators, decide an arbitration-related question only in limited situations — mainly 'gateway' matters like whether a valid arbitration agreement exists at all — and only when there is clear and unmistakable evidence the parties wanted a judge to decide it.
- Because the question here was not whether the parties agreed to arbitrate at all, but what kind of arbitration procedure they agreed to, the Court treated it as more like an ordinary procedural question arbitrators are well suited to answer, following its recent reasoning in Howsam v. Dean Witter Reynolds.
- Applying that framework to the record, the Court found a strong likelihood that in both the Bazzle and Lackey proceedings, the class-arbitration decision actually reflected a state trial court's view of the contracts rather than an arbitrator's own independent interpretation.
- Because the parties had not yet received a genuine arbitrator's decision on whether the contracts permitted class arbitration, the Court concluded that question needed to go to an arbitrator before it could be resolved.
Doctrinal impact
Cases affected by this decision
Distinguishes First Options of Chicago, Inc. v. Kaplan (514 U.S. 938)
The Court said this case is not about whether parties wanted a judge or arbitrator to decide arbitrability, unlike First Options.
Reaffirms Howsam v. Dean Witter Reynolds, Inc. (537 U.S. 79)
The Court relied on Howsam's reasoning that procedural gateway questions are for the arbitrator to decide.