No. 12-135

SL, pfeme Court, U.S.FILED

./AN 2 3 2013OFFICE OF THE CLERK

In the

OXFORD HEALTH PLANS LLC,

Petitioner,V.

JOHN IVAN SUTTER, M.D.,

Respondent.

On Writ of Certiorarito the United States Court of Appeals

for the Third Circuit

BRIEF AMICUS CURIAE OFPACIFIC LEGAL FOUNDATIONIN SUPPORT OF PETITIONER

*DEBORAH J. LA FETRA

TIMOTHY SANDEFUR

*Counsel of RecordPacific Legal Foundation930 G StreetSacramento, California 95814Telephone: (916) 419-7111Facsimile: (916) 419-7747dlafetra@pacificlegal.orgtsandefur@pacificlegal.org

Counsel for Amicus Curiae Pacific Legal Foundation

QUESTION PRESENTED

In Stolt-Nielsen v. AnimalFeeds InternationalCorp., 130 S. Ct. 1758, 1776 (2010), this Court madeclear that "class-action arbitration changes the natureof arbitration to such a degree that it cannot bepresumed the parties consented to it by simplyagreeing to submit their disputes to arbitration." Inthis case, an arbitrator concluded that the partiesaffirmatively consented to class arbitration on thebasis of a contract provision stating: "No civil actionconcerning any dispute arising under this Agreementshall be instituted before any court, and all suchdisputes shall be submitted to final and bindingarbitration." The question presented is:

Whether an arbitrator acts within his powersunder the Federal Arbitration Act (as the Second andThird Circuits have held) or exceeds those powers (asthe Fifth Circuit has held) by determining that partiesaffirmatively "agreed to authorize class arbitration,"Stolt-Nielsen, 130 S. Ct. at 1776, based solely on theiruse of broad contractual language precluding litigationand requiring arbitration of any dispute arising undertheir contract.

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TABLE OF CONTENTSPage

QUESTION PRESENTED ....................i

TABLE OF AUTHORITIES ..................iv

INTEREST OF AMICUS CURIAE .............

SUMMARY OF ARGUMENT ..................2

ARGUMENT ............................... 3

I. FEDERAL COMMON LAW OFARBITRATION BASED ON THEFAA CONTROLS INTERPRETATION OFARBITRATION CONTRACTS WHERE ITCONFLICTS WITH STATE LAW ..........3

II. CLASS ARBITRATION IMPLICATESSPECIAL DUE PROCESS CONCERNSAND THEREFORE REQUIRES ANEXPRESS, AFFIRMATIVE WAIVER OFTHOSE RIGHTS ........................ 6

A. Class Arbitration Violates Due ProcessRights of Absent Class Members ........6

B. Absent Parties Have Individual Rightsin an Arbitral Forum ................. 9

1. Every Party Purported to BeBound Must Be Notified, but SuchNotice Impacts ConfidentialityInherent in Arbitration ............ 9

2. Each Party to an Arbitration IsEntitled to Make Key Decisions ....12

.oo111

TABLE OF CONTENTS--ContinuedPage

III. FUNDAMENTAL DUE PROCESSRIGHTS MAY NOT BE WAIVED BYSILENCE ............................ 16

CONCLUSION ............................ 21

Arbitrators May Be Unable toDiscern and Accommodate DueProcess Rights in Complex ClassArbitration ..................... 14

iv

TABLE OF AUTHORITIESPage

Cases

Abram Landau Real Estate v. Benova,123 F.3d 69 (2d Cir. 1997) ..................6

Aetna Ins. Co. v. Kennedy to Use of Bogash,301 U.S. 389 (1937) ....................... 17

AT&T Mobility LLC v. Concepcion,131 S. Ct. 1740 (2011) ...............1, 3, 6, 13

AT&T Techs., Inc. v. Communs. Workers of Am.,475 U.S. 643 (1986) ........................ 5

Baravati v. Josephthal, Lyon & Ross, Inc.,28 F.3d 704 (7th Cir. 1994) .................18

Brady v. United States, 397 U.S. 742 (1970) .....17

Chicago, B. & Q. R. Co. v. Chicago,166 U.S. 226 (1897) ........................ 8

Cimino v. Raymark Industries, Inc.,151 F.3d 297 (5th Cir. 1998) ................15

Coll. Say. Bank v. Fla. Prepaid PostsecondaryEduc. Expense Bd., 527 U.S. 666 (1999) ......17

D’Oench, Duhme & Co. v. FDIC,315 U.S. 447 (1942) ........................ 4

Exelon Generation Co., LLC v. Local 15, Int’lBrotherhood of Elec. Workers, AFL-CIO,540 F.3d 640 (7th Cir. 2008) .................8

First Options of Chicago, Inc. v. Kaplan,514 U.S. 938 (1995) ........................ 5

V

TABLE OF AUTHORITIES--ContinuedPage

Granite Rock Co. v. Int’l Bhd. of Teamsters,130 S. Ct. 2847 (2010) ...................... 5

Green Tree Financial Corp. v. Bazzle,539 U.S. 444 (2003) ................... 4, 9, 11

Hall Street Assocs., LLC v. Mattel, Inc.,552 U.S. 576 (2008) ........................ 1

Hansberry v. Lee, 311 U.S. 32 (1940) ..........7-8

Hilton v. South Carolina Pub. Rys. Comm’n,502 U.S. 197 (1991) ....................... 21

Hodges v. Easton, 106 U.S. 408 (1882) ..........16

Iberia Credit Bureau, Inc. v. Cingular Wireless,LLC, 379 F.3d 159 (5th Cir. 2004) ...........10

Johnson v. Zerbst, 304 U.S. 458 (1938) .........17

Lefkovitz v. Wagner, 395 F.3d 773 (7th Cir.),cert. denied, 546 U.S. 812 (2005) ............12

Livingston v. Assocs. Fin., Inc.,339 F.3d 553 (7th Cir. 2003) ................12

Mariner Health Care Ctr., Inc. v. Brown,132 S. Ct. 1201 (2012) ..................... 5

Metro. Edison Co. v. NLRB,460 U.S. 693 (1983) ....................... 17

Miranda v. Arizona, 384 U.S. 436 (1966) ........17

Mobil Oil Corp. v. Higginbotham,436 U.S. 618 (1978) ....................... 4

TABLE OF AUTHORITIES---ContinuedPage

Monrosa v. Carbon Black Export, Inc.,359 U.S. 180 (1959) ........................ 2

Nitro-Lift Techs., LLC v. Howard,133 S. Ct. 500 (2012) .......................5

Parilla v. IAP Worldwide Servs. VI, Inc.,368 F.3d 269 (3d Cir. 2004) ................10

Phillips Petroleum Co. v. Shutts,472 U.S. 797 (1985) .....................9, 11

Plumb v. Goodnow’s Adm’r,123 U.S. 560 (1887) ........................ 8

PPG Industries, Inc. v. Guardian IndustriesCorp., 597 F.2d 1090 (6th Cir.),cert. denied, 444 U.S. 930 (1979) ............17

Preston v. Ferret, 552 U.S. 346 (2008) .........1, 4

Rent-A-Center, W., Inc. v. Jackson,130 S. Ct. 2772 (2010) ......................1

Rosenberg v. Merrill, Lynch, Pierce, Fenner &Smith, Inc., 170 F.3d 1 (lst Cir. 1999) ........10

Stolt-Nielsen S. A. v. AnimaIFeeds Int’l Corp.,130 S. Ct. 1758 (2010) .......... 1-3, 5-6, 10, 18

Taylor v. Illinois, 484 U.S. 400 (1988) ..........16

Ting v. AT&T, 319 F.3d 1126 (9th Cir.),cert. denied, 540 U.S. 811 (2003) ............12

Todd Shipyards Corp. v. Cunard Line, Ltd.,943 F.2d 1056 (9th Cir. 1991) ...............19

United States v. Olano, 507 U.S. 725 (1993) .....16

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TABLE OF AUTHORITIES--ContinuedPage

Volt Info. Scis., Inc. v. Bd. of Trs. of LelandStanford Jr. Univ., 489 U.S. 468 (1989) .... 3, 21

Rules

Fed. R. Cir. P. 23 ......................... 7, 11

Sup. Ct. R. 37.3(a) ........................... 1

Sup. Ct. R. 37.6 ............................. 1

Miscellaneous

Alderman, M., Consumer Arbitration: TheDestruction of the Common Law,2 J. Am. Arb. 1 (2003) ..................... 12

Am. Arbitration Ass’n, AAA SupplementaryRules for Class Arbitrations (2003),available at http://www.jamsadr.com/rules-class-action-procedures/(last visited Jan. 16, 2013) ................. 11

Anderson, Edward C. & Knutson, Kirk D.,"Class"Arbitration? What About theRights of Absent "Class" Members?,7 Engage 148 (2006), The FederalistSociety for Law and Public Policy Studies,available at http://www.fed-soc.org/doclib/20080214_LitAnderson.pdf(last visited Jan. 15, 2013) ................. 11

Androski, Linsday R., A Contested Merger:The Intersection of Class Actions andMandatory Arbitration Clauses,2003 U. Chi. Legal F. 631 ..................13

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TABLE OF AUTHORITIES--ContinuedPage

Bermann, George A., The Supreme CourtTrilogy and Its Impact on U.S. ArbitrationLaw, 22 Am. Rev. Int’l Arb. 551 (2011) .......18

Blankley, Kristen M., Class Actions BehindClosed Doors? How Consumer Claims Can(and Should) Be Resolved by Class-ActionArbitration,20 Ohio St. J. on Disp. Resol. 451 (2005) ... 4, 14

Buckley, Shalu Tandon, Note, PracticalConcerns Regarding the Arbitration ofStatutory Employment Claims: Questionsthat Remain Unanswered After Gilmer andSome Suggested Answers,11 Ohio St. J. on Disp. Resol. 149 (1996) ......15

Buckner, Carole J., Due Process in ClassArbitration, 58 Fla. L. Rev. 185 (2006) ........9

Buonocore, Nicole, Resurrecting a DeadHorse--Arbitrator Certification as aMeans to Achieve Diversity,76 U. Det. Mercy L. Rev. 483 (1999) .........14

Burch, Thomas, Necessity Never Made a GoodBargain: When Consumer ArbitrationAgreements Prohibit Class Relief,31 Fla. St. U. L. Rev. 1005 (2004) ...........13

Clancy, David S. & Stein, Matthew M. K., AnUninvited Guest: Class Arbitration andthe Federal Arbitration Act’s LegislativeHistory, 63 Bus. Law. 55 (2007) ...........4, 19

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TABLE OF AUTHORITIES--ContinuedPage

Darnall, Jason F. & Bales, Richard, ArbitralDiscovery of Non-Parties,2001 J. Disp. Resol. 321 ................... 14

Dore, Laurie Kratky, Secrecy in Litigation:Article: Public Courts Versus Private Justice:It’s Time to Let Some Sun Shine in onAlternative Dispute Resolution,81 Chi.-Kent L. Rev. 463 (2006) .............12

Ho, Wendy, Discovery in CommercialArbitration Proceedings,34 Hous. L. Rev. 199 (1997) ................14

JAMS, Class Action Procedures (2005),available at http://www.jamsadr.com/rules-class-action-procedures/(last visited Jan. 16, 2013) ................. 11

Levin, Murray S., The Role of SubstantiveLaw in Business Arbitration and theImportance of Volition,35 Am. Bus. L.J. 105 (1997) ................15

Menkel-Meadow, Carrie, Do the "Haves"Come Out Ahead in Alternative JudicialSystems?: Repeat Players in ADR,15 Ohio St. J. on Disp. Resol. 19 (1999) .......13

Ware, Stephen J., Default Rules fromMandatory Rules: Privatizing LawThrough Arbitration,83 Minn. L. Rev. 703 (1999) ................15

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TABLE OF AUTHORITIES--ContinuedPage

Weidemaier, W. Mark, Arbitration and theIndividuation Critique,49 Ariz. L. Rev. 69 (2007) ................. 12

Weston, Maureen A., Checks on ParticipantConduct in Compulsory ADR: Reconcilingthe Tension in the Need for Good-FaithParticipation, Autonomy, andConfidentiality, 76 Ind. L.J. 591 (2001) ... 10, 17

Weston, Maureen A., Universes Colliding." TheConstitutional Implications of Arbitral ClassActions, 47 Wm. & Mary L. Rev. 1711 (2006) .. 17

Wright, Charles Alan, et al., Federal Practice &Procedure: Federal Rules of Civil Procedure(3d ed. 2004) ............................. 7

INTEREST OF AMICUS CURIAE

Pacific Legal Foundation (PLF) respectfullysubmits this brief amicus curiae in support of thePetitioner.1

PLF was founded 40 years ago and is widelyrecognized as one of the largest and most experiencednonprofit legal foundations of its kind. PLF litigatesmatters affecting the public interest at all levels ofstate and federal courts and represents the views ofthousands of supporters nationwide. Among otherthings, PLF’s Free Enterprise Project defends thefreedom of contract, including the right of parties toagree by contract to the process for resolving disputesthat might arise between them. To that end, PLF hasparticipated as amicus curiae in many important casesinvolving the Federal Arbitration Act and contractualarbitration in general, including AT&T Mobility LLCv. Concepcion, 131 S. Ct. 1740 (2011); Rent-A-Center,W., Inc. v. Jackson, 130 S. Ct. 2772 (2010);StoIt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 130 $.Ct. 1758 (2010); Hall Street Assocs., LLC v. Mattel,Inc., 552 U.S. 576 (2008); and Preston v. Ferrer, 552U.S. 346 (2008). PLF believes its public policyexperience will assist this Court in its consideration ofthe merits of this case.

1 Pursuant to this Court’s Rule 37.3(a), all parties have consented

to the filing of this brief. Letters evidencing such consent havebeen filed with the Clerk of the Court.

Pursuant to Rule 37.6, Amicus Curiae affirms that no counselfor any party authored this brief in whole or in part, and nocounsel or party made a monetary contribution intended to fundthe preparation or submission of this brief. No person other thanAmicus Curiae, its members, or its counsel made a monetarycontribution to its preparation or submission.

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SUMMARY OF ARGUMENT

In Stolt-Nielsen, 130 S. Ct. at 1776, this Courtheld that the differences between individualarbitration and class arbitration are so great thatarbitrators lack the power under the FederalArbitration Act (FAA) to interpret parties’ mere silenceon the issue of class-action arbitration as constitutingconsent to resolve their disputes in class proceedings.Both sides to the dispute agreed that "silence," in thatcase, represented no meeting of the minds as to classarbitration. Id. at 1766. But silence could also meanthat class arbitration simply was not considered byeither side, leaving it to this Court to decide whethersuch a gap in a contract equals failure to consent toclass arbitration, or whether silence allows thearbitrator to fill in the gap.

A key factor in deciding this question is thatallowing arbitrators to impose class arbitration overthe objection of a nonconsenting party would threatenimportant constitutional due process rights. Aknowing and voluntary agreement to arbitrate waivescertain constitutional rights that would apply inlitigation. An arbitrator or court that infers an intentto arbitrate from equivocal evidence risks imposing awaiver of constitutional rights where the party did notso intend. This Court should not presume a waiver ofconstitutional rights via class arbitration absent anaffirmatively stated waiver of those rights. Thejudiciary should "not stretch the language" of anarbitration agreement when the parties have omitted"a provision [they] easily might have [included]."Monrosa v. Carbon Black Export, Inc., 359 U.S. 180,183 (1959). Because class arbitration is fundamentallydifferent than bilateral arbitration, implicating more

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significant due process concerns, the default ruleshould be that consent should not be inferred fromsilence. For these reasons, the decision below shouldbe reversed.

ARGUMENT

I

FEDERAL COMMON LAW OFARBITRATION BASED ON THE FAACONTROLS INTERPRETATION OF

ARBITRATION CONTRACTS WHERE ITCONFLICTS WITH STATE LAW

"The ’principal purpose’ of the FAA is to ’ensur[e]that private arbitration agreements are enforcedaccording to their terms.’" Concepcion, 131 S. Ct. at1748 (quoting Volt Info. Scis., Inc. v. Bd. of Trs. ofLeland Stanford Jr. Univ., 489 U.S. 468, 478 (1989))."Whether enforcing an agreement to arbitrate orconstruing an arbitration clause, courts and arbitratorsmust ’give effect to the contractual rights andexpectations of the parties.’" Stolt-Nielsen, 130 S. Ct.at 1773-74 (quoting Volt, 489 U.S. at 479).

In Concepcion, this Court emphasized that theFAA embodies a "liberal federal policy favoringarbitration," and that this policy extends only toindividual arbitration, not class arbitrations.Concepcion, 131 S. Ct. at 1745, 1748 ("Requiring theavailability of classwide arbitration interferes withfundamental attributes of arbitration and thus createsa scheme inconsistent with the FAA.").

The FAA incorporates this special solicitude forindividual arbitration as a matter of substantivefederal law, reflecting congressional favor for this form

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of alternative dispute resolution. Preston v. Ferrer, 552U.S. at 349 ("The Act, which rests on Congress’authority under the Commerce Clause, supplies notsimply a procedural framework applicable in federalcourts; it also calls for the application, in state as wellas federal courts, of federal substantive law regardingarbitration."). The FAA itself, however, does notattempt to micromanage arbitrations, leavingimportant details to arbitration organizations todevelop through their own rules, which contractingparties can agree to use to resolve disputes.2 SeeKristen M. Blankley, Class Actions Behind ClosedDoors? How Consumer Claims Can (and Should) BeResolved by Class-Action Arbitration, 20 Ohio St. J. onDisp. Resol. 451, 452 (2005) (The FAA offers noguidance on the arbitration procedure itself, such aschoosing an arbitrator, determining procedures, andproviding for fees.).

Because the FAA itself does not address mattersrelated to class arbitration, and parties may or maynot choose to accept the rules of a particulararbitration organization, courts have developedsubstantive federal common law to fill those gaps inthe statute. See Mobil Oil Corp. v. Higginbotham, 436U.S. 618, 625 (1978) (the object of federal common lawis to "fill[ ] a gap left by Congress’ silence" with respectto a matter otherwise governed by a federal statute);D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 469(1942) (Jackson, J., concurring) (" [W] herever we have

2 The American Arbitration Association developed rules for class

arbitration in 2003, in response to this Court’s decision in GreenTree Financial Corp. v. Bazzle, 539 U.S. 444 (2003). See David S.Clancy & Matthew M. K. Stein, An Uninvited Guest: ClassArbitration and the Federal Arbitration Act’s Legislative History,63 Bus. Law. 55, 55 (2007).

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occasion to decide a federal question which cannot beanswered from federal statutes alone we may . . .resort to all of the source materials of the common law[and] when we have fashioned an answer it . . .become[s] a part of the federal non-statutory orcommon law."). State law cannot contradict thissubstantive federal common law. Thus, in Nitro-LiftTechs., LLC v. Howard, 133 S. Ct. 500, 503 (2012), thisCourt rejected a state’s asserted interest ininvalidating noncompete agreements, where thatinterest disfavored federally-protected arbitrationcontracts. See also Marmet Health Care Ctr., Inc. v.Brown, 132 S. Ct. 1201, 1203 (2012) (chastisinganother state court for elevating state policypreferences above the federal substantive law ofarbitration).

Included within the substantive federal commonlaw of arbitration is the rule announced inStolt-Nielsen, requiring clear and unmistakable intentto authorize class arbitration. That requirement existsbecause the federal policy favoring arbitration cannotoverride the FAA’s protections for the parties’ freedomof contract. A court may submit to arbitration "onlythose disputes.., the parties have agreed to submit."First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,943 (1995). Policy considerations are no substitute forparty agreement. AT&T Techs., Inc. v. Communs.Workers of Am., 475 U.S. 643, 648-51 (1986). Forexample, in Granite Rock Co. v. Int’l Bhd. of Teamsters,130 S. Ct. 2847, 2863 (2010), the Court consideredwhether an employer "implicitly" consented toarbitration when it sued to enforce a no-strike rulethat turned on the date the collective bargainingagreement was ratified. The Court held that the filingof the lawsuit "[did] not establish an agreement,

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’implicit’ or otherwise, to arbitrate an issue (the CBA’sformation date) that the company did not raise" andthat the employer had consistently argued was beyondthe scope of the arbitration clause. See also AbramLandau Real Estate v. Benova, 123 F.3d 69, 72 (2d Cir.1997) (Where the parties contest the formation of anagreement, "any silence or ambiguity about whethersuch a question is arbitrable reverses the usualpresumption that issues should be resolved in[arbitration’s] favor.") (emphasis added).

II

CLASS ARBITRATION IMPLICATESSPECIAL DUE PROCESS CONCERNS

AND THEREFORE REQUIRES ANEXPRESS, AFFIRMATIVE WAIVER

OF THOSE RIGHTS

A. Class Arbitration ViolatesDue Process Rights ofAbsent Class Members

Parties to an arbitration contract have agreed toa process that is inherently individualistic, in contrastto class-based resolutions that resolve mass conflictsdeemed similar enough to warrant collectivetreatment. The parties in a class proceeding thereforedo not litigate the particular merits of their differentcircumstances. This raises the due process problemthat class arbitration may not protect absent parties.Concepcion, 131 S. Ct. at 1751-52 ("[I]t is at the veryleast odd to think that an arbitrator would beentrusted with ensuring that third parties’ due processrights are satisfied."); Stolt-Nielsen, 130 S. Ct. at 1776("The arbitrator’s award no longer purports to bind~ust

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the parties to a single arbitration agreement, butadjudicates the rights of absent parties as well.").

A person who signs an arbitration agreement witha business, but has no dispute with the firm at thetime that a class arbitration is brought against it byanother signer, could find herself barred from suinglater if a dispute does arise which is similar to thedispute resolved in arbitration. This would deprive herentirely of the opportunity for individualized resolutionto which she has a contractual right. Procedural rulesapplicable in class litigation typically require theparties to take steps to notify all potential classmembers of the proceedings and allow them toparticipate. Fed. R. Civ. P. 23. As Professor Wrightexplains,

[i]n order to be deemed a party byrepresentation, a class member must berepresented in such a way that his rights areprotected. Thus, an absent member of theclass, even when he is specifically identifiedin the judgment, will not be bound if he canestablish that to affect his rights woulddeprive him of property without due processof law, either because the class wasinadequately represented or because of afailure to give him adequate notice.

Charles Alan Wright, et al., Federal Practice &Procedure: Federal Rules of Civil Procedure § 1789 (3ded. 2004).

Due process requires that class members beadequately represented in a class proceeding becauseanother person’s judgment cannot bind a litigant whodid not participate in the lawsuit. Hansberry v. Lee,

311 U.S. 32, 45 (1940). The due process rights ofindividuals are jeopardized when "it cannot be saidthat the procedure adopted fairly insures theprotection of the interests of absent parties who are tobe bound by it." Id. at 42 (citing Chicago, B. & Q. R.Co. v. Chicago, 166 U.S. 226, 235 (1897)). Absent classmembers can be bound in abstentia only if "they arein fact adequately represented by parties who arepresent, or where they actually participate in theconduct of the litigation in which members of the classare present as parties." Id. at 42-43 (citing Plumb v.Goodnow’s Adm’r, 123 U.S. 560, 561 (1887)).

The Seventh Circuit applied these principles toarbitration in Exelon Generation Co., LLC v. Local 15,Int’l Brotherhood of Elec. Workers, AFL-CIO, 540 F.3d640 (7th Cir. 2008). In that case, a handful of retireessought union representation in an arbitration toresolve an issue related to their medical benefits, andthe question arose whether arbitral resolution of theirclaims could bind the retirees who were not otherwisecovered by the collective bargaining agreement, andwho had not individually agreed to representation bythe union. Id. at 643. The court held that the unioncould represent the seven individual retirees whoaffirmatively sought to be bound by the arbitration, id.at 647, but that the arbitral decision would not bindany other retiree. Ido at 649 ("The arbitrator’s decisionwould be final and binding on the parties to thearbitration. The CBA does not purport to bindnon-parties to the arbitration, and for good reason. Asa general rule, one is not bound by a judgment in anaction in which he is not a party.") (citing Hansberry).

While federal statutes and rules set forth specificstandards for notice in class litigation, there are no

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equivalent judicially-approved standards for what sortof notice requirements apply to class arbitration. InBazzle, 539 U.S. at 453-54, this Court limited thejudge’s role solely to determining arbitrability, notsupervising the arbitration to ensure that it complieswith due process rules. Nondisputants who signedarbitration agreements have no guarantee that theyare entitled to the same protections with respect toclass arbitrations that they receive vis-~i-vis classlitigation. See Carole J. Buckner, Due Process in ClassArbitration, 58 Fla. L. Rev. 185, 251-52 (2006)("[A]rbitration providers’ rules also fail to requireexplicitly the arbitrator to protect or safeguard therights of absent parties throughout the class actionproceeding as explicitly required in class actionlitigation."). In the absence of the sorts of protectionsthat apply in the judiciary, class arbitrations coulddeprive absent members of their right to sue, inviolation of due process of law.

B. Absent Parties Have IndividualRights in an Arbitral Forum

Every Party Purported to BeBound must Be Notified, but SuchNotice Impacts ConfidentialityInherent in Arbitration

In class action litigation, every party isconstitutionally entitled to notice of the proceeding.Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12(1985). Due process requires that each potentialplaintiffreceive "notice plus an opportunity to be heardand participate in the litigation, whether in person orthrough counsel." Id. at 812. Notice must be"reasonably calculated, under all the circumstances, toappraise interested parties of the pendency of the

10

action and afford them an opportunity to present theirobjections," and must describe the litigation as well asthe absent class members’ right to participate. Id. Dueprocess also requires "at a minimum that an absentplaintiff be provided with an opportunity to removehimself from the class by executing and returning an’opt out’ or ’request for exclusion’ form to the court."Id.

These notice requirements, however, can runheadlong into conflict with the parties’ desire tomaintain confidentiality in arbitral proceedings.Confidentiality is usually heralded as a principaladvantage of choosing alternative dispute resolutionprocedures, including arbitration, over litigation.Stolt-Nielsen, 130 S. Ct. at 1776 ("[The] presumption ofprivacy and confidentiality" that normally is anessential component of bilateral arbitrations "doesn’tapply in class arbitrations."); Rosenberg v. Merrill,Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 8 n.4(1st Cir. 1999) (both sides in an employment disputemight desire confidentiality); Iberia Credit Bureau, Inc.v. Cingular Wireless, LLC, 379 F.3d 159, 175 (5th Cir.2004) (same, in consumer context). Arbitrationagreements frequently contain express confidentialityprovisions or incorporate confidentiality by reference tospecific arbitral rules. See, e.g., Parilla v. IAPWorldwide Servs. VI, Inc., 368 F.3d 269, 272 (3d Cir.2004) (arbitration clause in employment contractincorporated confidentiality provision by reference torules of American Arbitration Association).Confidentiality offers the parties freedom to discloseinformation in arbitration knowing that it will not beused against them in any subsequent proceeding. SeeMaureen A. Weston, Checks on Participant Conduct in

11

Compulsory ADR: Reconciling the Tension in the Needfor Good-Faith Participation, Autonomy, andConfidentiality, 76 Ind. L.J. 591, 594 (2001) (thepromise of confidentiality encourages candor indiscussions and presentations of evidence).

Broad confidentiality provisions typical ofindividual arbitration proceedings would preclude themost common type of notice: publication innewspapers of general circulation. For example, thenotice given in Phillips Petroleum Co. v. Shuttsdescribed the proceedings, named the representativesand their counsel, and offered the ability to opt out ofthe litigation in order to pursue a different claimagainst the same defendants. 472 U.S. at 812-13.Parties who prefer arbitration because it will avoidpublicity would find their intentions thwarted if ab sentclass members are alerted through the media. SeeEdward C. Anderson & Kirk D. Knutson, "Class"Arbitration? What About the Rights of Absent "Class"Members?, 7 Engage 148, 151 (2006)3 (Theconfidentiality of arbitration is at odds with the publicnature of the Rule 23 "opt-out" procedure, which, inpart, relies on mass media to disseminate notice toabsent class members.).4

Available at http://www.fed-soc.org/doclib/20080214_LitAnderson.pdf (last visited Jan. 15, 2013).

4 Both the AAA and JAMS class action procedures adopted afterBazzle include rules for publication of notice and arbitral awards.See Am. Arbitration Ass’n, AAA Supplementary Rules for ClassArbitrations (2003), available at http://www.jamsadr.com/rules-class-action-procedures/(last visited Jan. 16, 2013); JAMS, ClassAction Procedures (2005) (last visited Jan. 16, 2013);http://www.j amsadr.com/rules-class-action-procedures/ (lastvisited Jan. 16, 2013.) These rules borrow heavily from Federal

(continued...)

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2. Each Party to an Arbitration IsEntitled to Make Key Decisions

Each party to an arbitration has a right toparticipate in choosing the arbitrator--a right theSeventh Circuit calls "the cornerstone of the arbitralprocess." Lefkovitz v. Wagner, 395 F.3d 773, 780 (7thCir.), cert. denied, 546 U.S. 812 (2005). Also, in somecases, parties to an arbitration agreement are legallyentitled to invalidate that agreement, based onindividualized evidence arbitration is too expensive.Livingston v. Assocs. Fin., Inc., 339 F.3d 553, 557 (7thCir. 2003).5 Moreover, arbitrators are under nocompulsion to develop or follow precedent. SeeRichard M. Alderman, Consumer Arbitration: TheDestruction of the Common Law, 2 J. Am. Arb. 1, 11

4 (...continued)

Rule of Civil Procedure 23. See W. Mark Weidemaier, Arbitrationand the Individuation Critique, 49 Ariz. L. Rev. 69, 94 (2007)(noting that the AAA class arbitration rules "largely imitatefederal class action practice").

5 Arbitrators and the parties can also agree to many other facets

of the process. They are not bound to an existing courthouse, butmay choose any suitable location. There are no public dockets tonotify interested parties or the media of the dispute, and thepublic is not permitted to attend arbitral hearings. Arbitratorsmay limit the scope of discovery, and if discovery is permitted, theparties may agree to restrict its use to only the arbitrationproceedings. Laurie Kratky Dore, Secrecy in Litigation: Article:Public Courts Versus Private Justice: It’s Time to Let Some SunShine in on Alternative Dispute Resolution, 81 Chi.-Kent L. Rev.463, 484-85 (2006). Arbitration rules typically prohibit partiesfrom sharing evidence, testimony, briefs, motions, and otherinformation disclosed during the proceeding. See, e.g., Ting v.AT&T, 319 F.3d 1126, 1151 n.16 (9th Cir.), cert. denied, 540 U.So811 (2003) (agreement prohibited disclosure of the contents ofarbitration).

13

(2003) ("Unlike court opinions, which are published,most decisions of arbitrators are kept secret, often noteven accompanied by a written opinion. Even whenpublished..., the decision of one arbitrator, or a panelof arbitrators, is in no way binding on any other .... ").They may also rely on equity rather than the law toaward punitive damages, attorneys’ fees, or injunctiverelief. Carrie Menkel-Meadow, Do the "Haves" ComeOut Ahead in Alternative Judicial Systems?: RepeatPlayers in ADR, 15 Ohio St. J. on Disp. Resol. 19, 37(1999). These factors reveal that arbitration is anessentially individualized format, in which each partyhas reserved an opportunity for individualdetermination of his or her particular injury. See, e.g.,Thomas Burch, Necessity Never Made a Good Bargain:When Consumer Arbitration Agreements Prohibit ClassRelief, 31 Fla. St. U. L. Rev. 1005, 1031 (2004) (AAArules "place all the procedural responsibilities in thehands of the parties and the arbitrator."). Classtreatment would deprive the parties of thisindividualized treatment.

This Court has identified several advantages toindividual arbitration, including the generalinformality and expedited nature of arbitration incomparison to litigation. Concepcion, 131 S. Ct. at1749. But class arbitration raises significant issuesregarding how the arbitrator and representativecomplainants would handle such matters as thenumber of witnesses called, or the timing and extent ofdiscovery, and whether their decisions on thosematters affects the rights of absent parties. SeeLinsday R. Androski, A Contested Merger: TheIntersection of Class Actions and MandatoryArbitration Clauses, 2003 U. Chi. Legal F. 631, 649

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(Class procedure "subjects arbitration to the veryjudicial burden that the contracting parties sought toavoid through arbitration."). Arbitrators have thepower to limit the number of witnesses called or thetime allotted for discovery. See Jason F. Darnall &Richard Bales, Arbitral Discovery of Non-Parties, 2001J. Disp. Resol. 321, 335-36 (favoring arbitratordiscretion to determine what discovery is necessaryand relevant in a given case); Wendy Ho, Discovery inCommercial Arbitration Proceedings, 34 Hous. L. Rev.199, 218-19 (1997) (there are few rules regardingarbitrators and discovery, so each arbitrator sets his orher own rules in each arbitration). In this respect,absent class members may not be adequatelyrepresented by the named parties if the named partieslack sufficient time or resources to present acompelling case. Blankley, supra, at 472-73.

3. Arbitrators May Be Unable toDiscern and Accommodate DueProcess Rights in Complex ClassArbitration

There are no requirements on who can or cannotbe an arbitrator. Nicole Buonocore, Resurrecting aDead Horse--Arbitrator Certification as a Means toAchieve Diversity, 76 U. Det. Mercy L. Rev. 483, 484(1999) ("Arbitration is often called a ’profession.’ Yetnone of the traditional characteristics associated witha profession, such as schooling in a particular field,testing, and licensing, apply to the arbitrationprofession."). Many arbitrators, especially thosespecializing in labor and employment disputes, are notlawyers, meaning that while they may have theknowledge advantageous to deciding complicatedmatters within their expertise, they have no particular

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proficiency in constitutional matters. See, e.g., ShaluTandon Buckley, Note, Practical Concerns Regardingthe Arbitration of Statutory Employment Claims:Questions that Remain Unanswered After Gilmer andSome Suggested Answers, 11 Ohio St. J. on Disp. Resol.149, 174 (1996) (many highly qualified arbitrators arenot members of the bar, but they are keen minds withexperience in the labor and employment industry).

Even if chosen arbitrators are familiar withconstitutional law, they are under no compulsion toapply that law--on either procedural or substantivematters--consistent with judicial precedents.Murray S. Levin, The Role of Substantive Law inBusiness Arbitration and the Importance of Volition, 35Am. Bus. L.J. 105, 118 (1997) (observing thatarbitration organizations such as the AAA do notemphasize the role of substantive law and oftenencourage arbitrators to craft awards based on equity);Stephen J. Ware, Default Rules from Mandatory Rules:Privatizing Law Through Arbitration, 83 Minn. L. Rev.703, 719-20 (1999) (stating that up to 90% ofarbitrators would disregard the law in order to reachan equitable result in a case).

In addition, due process rights in a class actionmay require complicated case management techniquessuch as the creation and separate adjudication ofsubclasses, or trials specific to individual classmembers on some or all issues. For example, inCimino v. Raymark Industries, Inc., 151 F.3d 297, 315-16 (5th Cir. 1998), the Fifth Circuit Court of Appealsreversed a class-action judgment in an asbestos casebecause the district court’s class action trial plan wasnot sufficiently individualized. The court held thatwhile class actions are intended to promote efficiency,

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the trial plan improperly glossed over person-by-personvariances in a way that adversely affected thedefendant’s right to a jury determination of the"distinct and separable issues of the actual damages ofeach of the extrapolation plaintiffs." Id. at 320-21.

These are serious considerations that any partywould want to consider prior to engaging in bindingarbitration. Allowing an arbitrator, even based onstate law principles, to sweep hundreds or thousandsof people into a class arbitration where the arbitrationcontract makes no mention of such a procedure, meansthat there are unwilling participants on both sides ofthe dispute--the company that never contemplatedand consented to class arbitration and absentindividuals who may share a grievance--a directcontradiction to the ultimate purpose of federally-protected arbitration. That purpose is to promote thefreedom of choice that lies at the heart of freedom ofcontract.

III

FUNDAMENTAL DUEPROCESS RIGHTS MAY

NOT BE WAIVED BY SILENCE

Under the Constitution, certain "fundamental" or’%asic" rights cannot be waived unless a defendantpersonally participates in the waiver. See, e.g., Taylorv. Illinois, 484 U.S. 400, 417-18 (1988); United Statesv. Olano, 507 U.S. 725, 733 (1993). "[E]veryreasonable presumption should be indulged against...waiver" of a constitutional right. Hodges v. Easton,

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106 U.S. 408, 412 (1882).6 Due process rights fallwithin this category,7 and due process implicationsabound when binding nondisputants to judgments inclass arbitrations. See, e.g., Maureen A. Weston,Universes Colliding: The Constitutional ImplicationsofArbitral Class Actions, 47 Wm. & Mary L. Rev. 1711,1722 (2006) ("An arbitral award generally cannot binda nonparty to the arbitration contract; however, thequestion of whether nonparticipatory class members’rights may be foreclosed in a private class arbitrationis not entirely clear.").

This Court has repeatedly held that it will notlightly presume in favor of a waiver of constitutionalrights. See, e.g., Coll. Sav. Bank v. Fla. PrepaidPostsecondary Educ. Expense Bd., 527 U.S. 666, 682(1999); Aetna Ins. Co. v. Kennedy to Use of Bogash, 301U.S. 389, 393 (1937). Yet arbitration agreementsobviously waive certain constitutional protections. See,e.g., Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d

6 The vast majority of cases concerning waiver of constitutional

rights deal with criminal proceedings wherein the courtsrepeatedly stress that there must be "an intentionalrelinquishment or abandonment of a known right or privilege."Johnson v. Zerbst, 304 U.S. 458, 464 (1938); Brady v. UnitedStates, 397 U.S. 742, 748 (1970); Miranda v. Arizona, 384 U.S.436, 444 (1966).

7 The requirement of an express waiver of rights also arises in the

context of certain statutes intended to protect individual rights.See e.g., Metro. Edison Co. v. NLRB, 460 U.S. 693, 708 (1983)(’~¥]e will not infer from a general contractual provision that theparties intended to waive a statutorily protected right unless theundertaking is ’explicitly stated."’); PPG Industries, Inc. v.Guardian Industries Corp., 597 F.2d 1090, 1093 (6th Cir.), cert.denied, 444 U.S. 930 (1979) ("It has long been held by federalcourts that agreements granting patent licenses are personal andnot assignable unless expressly made so.")

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704, 709 (7th Cir. 1994) ("[S]hort of authorizing trial bybattle or ordeal or, more doubtfully, by a panel of threemonkeys, parties can stipulate to whatever proceduresthey want to govern the arbitration of their disputes;parties are as free to specify idiosyncratic terms ofarbitration as they are to specify any other terms intheir contract."). Thus, inferring that a party is willingto participate in class arbitration when the arbitrationagreement is silent on that matter might operate towaive constitutional procedural rights, both of thedefendant and those nondisputants who have alsosigned the arbitration agreement. This Court shouldresist adopting a rule that could lead to suchdangerous consequences.

Stolt-Nielsen, 130 S. Ct. at 1776, held that "thedifferences between bilateral and class-actionarbitration are too great for arbitrators to presume,consistent with their limited powers under the FAA,that the parties’ mere silence on the issue ofclass-action arbitration constitutes consent to resolvetheir disputes in class proceedings." The Courtidentified four reasons why class arbitration was notfairly encompassed in a contract that expresslyprovided only for individual arbitration: (1) the largenumber of disputes commonly embraced in classarbitration, (2) the lack of privacy and confidentialitythat class arbitration would entail, (3) the impact onabsent class members, and (4) the high commercialstakes. Id. For these reasons, "the Court found classarbitration to be more than merely distinctive fromarbitration generally; it found class arbitration to bevirtually antithetical to it." George A. Bermann, TheSupreme Court Trilogy and Its Impact on U.S.Arbitration Law, 22 Am. Rev. Int’l Arb. 551, 560(2011).

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The Federal Arbitration Act was designed toexpand and enforce freedom of choice. Adopting a rulethat might imply the waiver of importantconstitutional rights would undermine the purpose ofthe Act by replacing informed consent with implicationand coercion. It would replace a regime of freedecisionmaking with a rule that enforces "consent"where none actually exists.

[A]n arbitration contract that says nothingabout class arbitration should be deemed anagreement to the kind of arbitration that hasprevailed since the FAA’s enactment, i.e., anindividual, non-class arbitration--not anagreement to a new and unusual form ofarbitration that the parties almost certainlydid not contemplate.

Clancy & Stein, An Uninvited Guest, 63 Bus. Law. at65 n.46 (basing their conclusion upon a review of thelegislative history resulting in passage of the FAA in1925).

Decades of individual arbitration has given rise toa general understanding that parties trade the formaldue process in a court setting for the proceduralshortcuts (e.g., limited discovery and relaxedevidentiary standards) that are the essence ofarbitration. For example, the Ninth Circuit upheld aarbitrator’s million dollar punitive damages award inTodd Shipyards Corp. v. Cunard Line, Ltd., 943 F.2d1056, 1063-64 (9th Cir. 1991), over Cunard’s assertionthat the arbitration violated due process because of itslack of evidentiary rules. Id. at 1063. The courtrejected that argument because Cunard "[took]advantage of this process, into which it enteredvoluntarily," id. at 1063-64, and "parties enter into

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arbitration by contract, rather than through astatutory scheme imposed involuntarily." Id. Todefend freedom of choice and to put into effect theactual decisions of contracting parties, this Courtshould refuse to infer a willingness to participate inclass arbitration absent affirmative, express consent.

CONCLUSION

Arbitration "is a matter of consent, not coercion."Volt, 489 U.S. at 479. Divining intent from silencesubstitutes "telepathy" for interpretation. Hilton v.South Carolina Pub. Rys. Comm’n, 502 U.S. 197, 211(1991) (O’Connor, J., dissenting). The fundamentaldifferences between class arbitration and traditional,individual arbitration are such that consent must bemanifest as an affirmative agreement, not implied bysilence.

For the reasons stated above, the decision belowshould be reversed.

DATED: January, 2013.

Respectfully submitted,

*DEBORAH J. LA FETRATIMOTHY SAND EFUR

*Counsel of RecordPacific Legal Foundation930 G StreetSacramento, California 95814Telephone: (916) 419-7111Facsimile: (916) 419-7747dlafetra@pacificlegal.orgtsandefur@pacificlegal.org

Counsel for Amicus Curiae Pacific Legal Foundation