Class arbitration at home and abroad
By S.I. Strong
To paraphrase the Bard, the course of class arbitration never did run smooth. Ever since its inception in the early 1980s and 1990s, the development of class arbitration has been both complicated and controversial. For example, in 2003, the US Supreme Court decision in Green Tree Financial Corp. v. Bazzle, was read as providing implicit approval of class arbitration and resulted in the massive expansion of the procedure across the country. Seven years later, the Court took the opposite tack and decided to curtail the procedure with its opinion in Stolt-Nielsen S.A. v. Animal Feeds International Corp., which was followed by equally problematic decisions in AT&T Mobility LLC v. Concepcion, Oxford Health Plans LLC v. Sutter, and American Express Co. v. Italian Colors Restaurant.
One result of the Supreme Court’s recent activity has been the diminution in the number of class arbitrations that are being filed with arbitral institutions. However, the Court’s decisions have done little to silence either the policy debates or the litigation surrounding class arbitration. Indeed, approximately 80 federal court opinions and 40 state court opinions have been rendered on this subject in the last 12 months alone, which suggests that the United States’s struggle with large-scale arbitration is far from over.
Most observers recognize that the debate about class arbitration in the United States is closely tied to concerns about judicial class actions. However, other countries are beginning to expand the number and type of mechanisms used to provide relief for large-scale legal injuries at precisely the same time that the United States is pulling back from class actions and arbitrations. These other legal systems have created a variety of means of addressing mass injuries, including several types of large-scale arbitration. Furthermore, efforts to adopt large-scale arbitration in other jurisdictions typically do not generate the same type of animosity and opposition that is seen in the United States. This phenomenon suggests that there is much that the United States can learn by studying the mechanisms used in these other legal systems.
One jurisdiction that has come out strongly in favor of large-scale arbitration is Brazil, which has created a constitutional right to large-scale arbitration in labor disputes. The Brazilian legislature is also currently contemplating a bill (No. 5139/2009) that would extend the right to large-scale arbitration to other types of mass legal disputes. In many ways, Brazilian acceptance of class and collective arbitration is unsurprising, since Brazil also embraces various types of large-scale litigation. However, US courts and policymakers could find it useful to consider the way in which Brazil differentiates between matters that are appropriate for court and matters that are appropriate for arbitration, since some of these analyses may also be relevant in the United States.
Spain also provides for large-scale arbitration, although the Spanish procedure is statutory rather than constitutional in nature. The Spanish approach involves a non-representative collective procedure that addresses many of the concerns commonly enunciated by respondents, particularly with respect to the issue of consent. Because the Spanish statute on collective arbitration is limited to consumer disputes, the legislature was able to tailor the mechanism narrowly to suit the needs of the participants. This type of subject-specific approach could prove instructive to those in the United States who are concerned about the problems associated with a trans-substantive procedure or with questions of consent.
Some commentators have suggested that class arbitration in the United States has experienced difficulties because the procedure was created through non-democratic (i.e. judicial) means rather than through legislative measures. This theory would discount the usefulness of the Brazilian and Spanish procedures because they were implemented through democratic processes. However, other countries have adopted large-scale arbitration through judicial action and have nevertheless avoided the kinds of ongoing difficulties seen in the United States.
The Republic of Colombia was the first jurisdiction outside the United States to adopt large-scale arbitration through judicial means. Both the Supreme Court of Justice and the Constitutional Court have suggested that class claims are arbitrable, and at least one arbitral tribunal is known to have rendered an award in a group action. Although other jurisdictions, most notably Canada, have declined to adopt class arbitration through judicial means, Colombia’s acceptance of class arbitration suggests that the United States is not an outlier in terms of the way in which class arbitration has developed.
This conclusion is borne out by the fact that several other legal systems have authorized large-scale arbitration through judicial measures. For example, the German Federal Court of Justice authorized arbitration of shareholder disputes in 2009, after having decided against doing so in 1996. The earlier decision was based on the belief that the legislature should be the one to determine whether these types of issues were arbitrable. However, when the democratically elected officials failed to take action one way or another, the judicial branch decided to step in. As a result of the 2009 decision, the German Institution of Arbitration (DIS) created its Supplementary Rules for Corporate Law Disputes (DIS-SRCoLD), which allow for a unique type of non-representative collective arbitration. Although the rules are aimed primarily at so-called “traditional” multiparty disputes (i.e., those that involve only a handful of participants), some of the procedural elements could be usefully adopted in matters involving larger numbers of parties.
Large-scale proceedings have also been adopted by arbitral tribunals acting without the guidance of a court. The most well-known example of this phenomenon was seen in the context of investment arbitration. In 2011, the arbitral tribunal in Abaclat v. Argentine Republic allowed 60,000 Italian bondholders to join together and bring their claims in a single proceeding. The resulting procedure has been characterized as “mass” arbitration rather than class arbitration, since it contains both representative and aggregative features. Although no other mass arbitration has yet been seen in the investment realm, the award in Abaclat was cited with approval by the tribunal in Ambiente Ufficio v. Argentine Republic, which involved ninety claimants.
As the preceding suggests, large-scale arbitration takes many forms and arises in many different ways. Although the US Supreme Court has attempted to curtail one particular mechanism (class arbitration), there are a multitude of other means of allowing large numbers of similarly-situated parties to join together to assert their claims. Indeed, parties in the United States have already begun to experiment with various types of non-class arbitration. For example, some parties have successfully brought large-scale, non-representative (collective) arbitrations, while other parties have resorted to filing large numbers of bilateral arbitrations simultaneously so as to drive respondents to the settlement table. These techniques underscore the need for scholars, policy-makers and practitioners to continue to debate and discuss the various issues relating to large-scale arbitration in the United States. In so doing, a comparative analysis would be beneficial, since the best solution to these problems may be found in procedures developed in other jurisdictions.
S.I. Strong is Associate Professor of Law at the University of Missouri School of Law. She is the author of Class, Mass, and Collective Arbitration in National and International Law and Research and Practice in International Commercial Arbitration: Sources and Strategies.