EX PARTE SABRINA JOHNSON ET AL. & EX PARTE LAMAR JENKINS ET AL.
Binding arbitration is often viewed by plaintiff's counsel as a death knell for injuries on unsophisticated consumers. Today, arbitration clauses grace the pages of most consumer contracts, whether it is purchasing a new car, contracting for home repairs, or purchasing a manufactured home. This essay discusses arbitration clauses and specifically the framework within clauses relating to class arbitration.
The use of arbitration as a method for settling disputes between nations dates back to antiquity. King Solomon was an arbitrator. (1) Phillip the Second, father of Alexander the Great, used arbitration to settle territorial disputes as far back as 377 B.C. (2) Arbitration is older than the common law system, and England used arbitration as a means of commercial dispute resolution as far back as 1224 A.D. (3) George Washington stated that he considered any arbitration decisions relating to his will, which contained an arbitration clause, as final and binding as any decision of the United States Supreme Court. (4)
The American Arbitration Association (AAA) is currently one of the most popular arbitration organizations in the world. (5) AAA employs over eight hundred people in thirty-five offices worldwide and represents over eight thousand arbitrators and mediators worldwide. As of 2002, AAA had administered over 230,000 cases and over two million cases in the past seventy-five years. (6) Proponents argue that arbitration could be used to ease the burden on the United States court system by decreasing the use of our courts as a tool to resolve property disputes, divorces, wills, and other similar civil courtroom situations. (7) Many economists predict that arbitration may become one of the fastest growing industries in the U.S. Due to the final and binding nature of arbitration, less than 1.5% of all arbitration cases in the U.S. ever go to court. (8)
With federal courts overwhelmed, beginning in the late 1990s, companies took advantage of a 1925 law permitting "alternative dispute resolution" between agreeing parties. (9) Unlike public courtrooms, arbitration proceedings are not disclosed to the public. (10) A 2002 California law required arbitration firms within the state to publish arbitration results on their website. (11) Public Citizen, a consumer advocacy group that sorted and analyzed the published data, determined that between January 2003 and March 2007 businesses won 94% of the 19,300 cases. (12) A single arbitrator made 1,292 rulings with only 21 in favor of the consumer. (13)
This Note will discuss a recent decision by the Alabama Supreme Court relating specifically to the court's current view of class arbitration. In 2008, the Alabama Supreme Court issued two writs of mandamus vacating a circuit judge's stay of arbitration proceedings. The opinion involves two petitions stemming from separate product liability actions filed in arbitration as contractually required by the sales agreement. For convenience, the court combined the two petitions into one opinion, and this Note does the same.
STATEMENT OF THE CASE
Recitation of the Undisputed Facts and Procedural Posture
In December 2006, Sabrina Johnson and others similarly situated, and Lamar Jenkins and others similarly situated filed separate complaints with the American Arbitration Association (AAA) pursuant to the contractual agreements between themselves and the manufacturers of mobile homes they purchased. (14) The complaints filed with AAA alleged violations relating to the improper design and manufacture of their mobile homes. (15)
The homeowners requested that AAA allow the arbitration of their claims on behalf of thousands of Alabamians who purchased defective mobile homes. (16) The AAA proceedings sought class arbitration in Montgomery County, Alabama. (17) The homeowners claimed that the walls of their homes were "literally rotting away as a result of a pervasive defect in their construction that [the mobile-home companies] have known about but failed to correct." (18)
The defendants in the arbitration complaints subsequently filed declaratory-judgment complaints in two Alabama Circuit Courts. (19) Champion Home Builders, Co., Champion Homes of Boaz, Inc., and Homes of Merit, Inc. ("mobile-home companies") sought relief in Dale County Circuit Court. (20) CMH Manufacturing, Inc. and Clayton Homes, Inc. ("mobile-home companies") sought relief in Geneva County Circuit Court. (21) The Dale and Geneva mobile-home companies then requested that AAA and the homeowners stay the arbitration proceedings in Montgomery County pending the disposition of the declaratory actions. (22) AAA and the homeowners refused the mobile-home companies' request. As a result, the companies filed separate motions in Dale and Geneva County Circuit Courts requesting that the trial judge (23) stay the arbitration proceedings in Montgomery County. (24) The trial judge granted the motions, and the homeowners sought relief from the Alabama Supreme Court in the form of a writ of prohibition or, alternatively, a writ of mandamus. (25)
The declaratory-judgment action in Dale County Circuit Court requested the court to declare that the Dale homeowners must individually arbitrate their claims in the jurisdiction of the original retail sale of the mobile homes, to declare the class-arbitration complaint contrary to Alabama law, impermissible, and find a breach of contract between the Dale mobile-home companies and the Dale homeowners. (26) The complaint sought to compel the Dale homeowners to arbitrate their claims individually in the correct jurisdiction. (27)
The declaratory-judgment action in Geneva County Circuit Court asked the court to declare that the arbitration provision does not obligate the Geneva mobile-home companies to do any of the following: arbitrate class claims, enjoin the previously instituted class arbitration, dismiss the Geneva homeowners' class-arbitration complaint, and compel individual arbitration according to the terms of their contracts. (28) The parties do not dispute the authority of the Commercial Arbitration Rules of the AAA in these actions. (29)
The Dale and Geneva homeowners contended that the circuit courts in their respective counties lacked both the jurisdiction and authority to stay the arbitration proceedings. (30) The homeowners consequently petitioned the Alabama Supreme Court through a writ of prohibition or, alternatively, a writ of mandamus, to vacate the trial judge's orders granting the mobile-home companies' requests to stay the arbitration proceedings. (31) However, the homeowners did not directly appeal the orders because they contended that the trial court lacked subject-matter jurisdiction. Due to the similarities of facts and procedural postures of the petitions, the Supreme Court issued the writs in a single opinion.
Holding and Reasoning
The court granted the petitions in these cases to settle the issue of "whether an arbitrator or a court is authorized to decide the arbitrability of certain threshold issues ... i.e., class-wide arbitration and the effect of contractual provisions in the arbitration agreements governing venue of individual claims in light of a contractual provision in those same agreements embracing rules permitting class-wide arbitration." (32) The court cited two earlier Alabama Supreme Court cases. In Smith v. Mark Dodge, Inc., the court noted that it required a trial court to permit arbitration when the "agreement unquestionably shows that the parties agreed to arbitrate the issue of arbitrability." (33) In CitiFinancial Corp., L.L.C. v. Peoples, the court held that "an arbitration provision that incorporates rules that provide for the arbitrator to decide issues of arbitrability clearly and unmistakably evidences the parties' intent to arbitrate the scope of the arbitration provision." (34)
The court held in Johnson that the contracts between the homeowners and mobile-home companies, "confers jurisdiction upon the AAA to make an initial determination as to 'whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class.'" (35) The court also noted that any attempt to obtain a declaratory judgment prior to the appointment of an arbitrator is beyond the subject-matter jurisdiction of the circuit court. A writ of mandamus was issued and the circuit judge was ordered to dismiss the complaints filed in both Dale and Geneva Counties.
The Alabama Supreme Court relies on a strong federal policy in favor of arbitration. (36) This court utilized the U.S. Supreme Court's interpretation of the Federal Arbitration Act (FAA) in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., which stated "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." (37) The FAA states in pertinent part:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration...