Relevant Facts: Multiple consumers separately received loans from Green Tree to buy mobile homes. The loan contracts each included a choice of law provision and an arbitration clause. The consumers sued, independently of each other, and Green Tree moved to compel arbitration in each action. The plaintiffs then came together and sought class status. The court granted the class certification and also ordered arbitration. The class plaintiffs won over $10M in arbitration. The defendant appealed, claiming class arbitration was legally impermissible. The state supreme court ruled for the class plaintiffs, holding “that the contracts were silent in respect to arbitration, that they consequently authorized class arbitration, and that arbitration had properly taken that form.”
Question Before The Court: Whether the question of an arbitration clause can be enforced collectively should be determined by a judge or an arbitrator.
The Opinion: Under the facts, a plurality concluded that an arbitrator must determine whether a contract forbids class arbitration. To the Court, the relevant question was what kind of arbitral proceedings the parties agreed to – individual or class? In the Court’s view, the answer is to be determined as a matter of contract interpretation on a case by case basis, something the Court reasoned arbitrators are well situated to resolve. The Court held that because it was not a question of whether arbitration would occur, but what form of arbitration would occur—individual or class—the arbitrator could decide.
The Court further provided, “In certain limited cases, courts assume that the parties intended courts, not arbitrators, to decide a particular arbitration-related matter. These limited instances typically involve . . . certain gateway matters, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy.”
It is worth noting that the Justices, in speaking about the different types of arbitral proceedings, never questioned the permissibility of class proceedings in arbitration. On the contrary, this opinion reads as though it was a foregone conclusion that class arbitrations are fine so long as the parties agreed to it. This assumption deteriorates in the next few cases, as the Court begins to redefine the very nature of arbitration. In hindsight, you can see what this case truly set the stage for the enforceability of class action bans in forced arbitration clauses. It also set up the Court’s holding in Rent-A-Center, West v. Jackson, 561 U.S. 63 (2010), which established broad acceptance of delegation provisions in forced arbitration clauses.