Carole J. Buckner, Due Process in Class Arbitration

58 Fla. L. Rev. 185 (2006) | | | |

INTRODUCTION :: The ubiquity of arbitration clauses in consumer and employment agreements and the Supreme Court’s plurality opinion in Green Tree Financial Corp. v. Bazzle, which implicitly permitted class arbitration, marked the beginning of a new era in class arbitration. Although it is well-established that procedural due process is not required in non-class arbitration, at least two state supreme court decisions assume that due process is required in class arbitration. The United States Supreme Court has not directly addressed the issue of whether the law requires due process in class arbitration, despite at least two opportunities to do so. After the Supreme Court implicitly authorized class arbitration in Bazzle, two arbitration providers promulgated procedural rules for class arbitration that provide some measure of due process-like protection to participants, presumably because in the litigation context, class action judgments bind absent class members only when due process protections are present, but probably also because of the uncertainty surrounding this newly developing area of the law.

This Article examines three issues concerning due process in class arbitration. First, it examines whether due process is required in class arbitration under the state action doctrine, even though it is not required in non-class arbitration, and concludes that state action may exist under some current models of class arbitration, requiring due process. Second, the Article addresses whether providing due process in class arbitration is appropriate even if it is not required, given other important doctrinal and practical considerations, just as due process-like protections are provided in non- class arbitration through voluntary protocols. Finally, the Article analyzes three existing approaches to providing due process or due process-like protections in class arbitration and concludes that the provision of such protections through a voluntary due process protocol consistent with a pure arbitral paradigm is preferable-both doctrinally and as a practical matter-to the provision of such protections through a hybrid system of class arbitration or through existing provider systems, all of which to varying degrees “judicialize” class arbitration in violation of the Federal Arbitration Act (FAA).


As a foundational matter, Part II of this Article describes the scope of due process required in class action litigation to protect the interests of absent class members, including notice and an opportunity to participate or opt out, assessment of the adequacy of class representatives and class counsel to represent the interests of the absent members of the class, and the unique role of the judiciary in class action litigation in protecting the interests of absent class members and approving settlements. Part II also considers the risk of collateral attack resulting from the failure to provide adequate due process and the scholarly criticisms regarding the failure of the courts to provide adequate due process protection in class action litigation.

Part III sets forth the state action doctrine, which determines whether due process is required in class arbitration. Briefly, whether state action is present depends on whether the adjudication of class actions is traditionally an exclusive public function or whether a sufficient degree of entanglement exists between private and state actors. This Part examines peremptory challenge cases and attachment cases in which courts apply the state action doctrine because these cases are the most analogous to class arbitration, since they involve interrelated conduct of the judicial system and private actors.

Part IV discusses the case law applying the state action doctrine to non-class arbitration, including the rationale for the well-established proposition that non- class arbitration does not involve state action. Briefly, state action is not present in non-class arbitration because the involvement of the courts in non-class arbitration is so minimal that the entanglement requirement of the state action doctrine is not met, and because dispute resolution is not traditionally an exclusive public function. Further, Part IV describes how and why arbitration providers voluntarily provide due process-like protections through voluntary due process protocols applicable to disputes involving consumer, employment, and health care disputes, even though due process is not required, as a prelude to considering the merits of such an approach regarding class arbitration.

Part V addresses whether the state action doctrine requires arbitrators to provide due process in class arbitration. Because “dispute-system design has a significant impact on the structure and operation of the resulting system,” this Part examines three models of class arbitration: the hybrid model, followed in a minority of jurisdictions including California, and two models created by JAMS and the American Arbitration Association (AAA) respectively. Next, this Part applies the state action doctrine to existing models of class arbitration and concludes that state action may exist in class arbitration under the public function prong of the state action doctrine because private arbitration providers assume a traditionally exclusive public function in adjudicating class disputes which, until the Bazzle decision in 2003, the majority of courts deemed inappropriate for arbitration. Under the hybrid system, the delegation aspect of the public function prong of the state action doctrine is satisfied because courts exercise discretion in sending class disputes to arbitration. However, such delegation may not exist in any particular case under provider models of class arbitration in situations where the class arbitration arises from private contractual arrangements and where arbitration commences without judicial involvement beyond that typical of non-class arbitration.

Present models of class arbitration also may involve state action as a result of the entanglement or entwinement of the judiciary with class arbitration. Judicial involvement in class arbitration is somewhat analogous to the judicial role in the peremptory challenge cases and property seizure cases, in which the Supreme Court has determined that state action exists. Because at least under some models, and in particular cases, the role of the court in class arbitration is elevated significantly beyond the court’s role in non-class arbitration-both qualitatively and quantitatively-the entanglement or entwinement of the judicial state actor with class arbitration is greater than judicial involvement in non-class arbitration. This increases the likelihood that courts will find the existence of state action.

Part V further examines existing approaches to providing due process through the hybrid model and due process-like protections of two private providers’ procedural regimes. All three approaches address due process concerns by maintaining a variety of judicial involvement in the class arbitration process, but these approaches suffer both doctrinal and practical flaws. Doctrinally, allowing continuing judicial participation in class arbitration violates the FAA’s mandate to enforce parties’ agreements to an arbitral forum and ignores the Supreme Court’s opinion in Bazzle. Practically, approaches judicializing class arbitration create delay, increase expense, and provide arbitrators with false assurance through interim judicial approval of their decisions which may not, in fact, provide actual due process. Given the possible arguments for the existence of state action, and the risk of collateral attack on class arbitration awards by absent class members if due process or due process-like protections are not provided, and other doctrinal and practical considerations, the more prudent approach is to provide procedural due process-like protections in class arbitration.

Part VI offers an alternative model for providing due process or due process- like protections in class arbitration-a pure arbitral paradigm of class arbitration (without judicial involvement other than as sanctioned under the FAA) combined with a voluntary due process protocol. Such an approach resolves doctrinal and practical issues in a manner superior to both the hybrid and provider models of class arbitration. A pure arbitral model of class arbitration is consistent with the FAA’s mandate to enforce parties’ agreements that select an arbitral forum and consistent with Bazzle’s implicit delegation of such tasks to the arbitrator, not the courts. Making arbitrators solely accountable for providing due process through adherence to a voluntary due process protocol specific to class arbitration is more practical than existing systems. While existing arbitration-provider rules provide a start toward such a model, they fall short in certain respects by permitting continuing judicial involvement, and I recommend instead the adoption of a voluntary due process protocol for class arbitration, which is set forth in Part VII.

Adoption of a pure arbitral model of class arbitration combined with a voluntary due process protocol is doctrinally consistent with the concept of arbitration as a non-judicial proceeding, yet it preserves the preclusive nature of arbitral adjudications against attack by absent class members, and circumvents potentially protracted litigation regarding whether state action theory requires due process.

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