Current issues in consumer arbitration

INTRODUCTION

This past year extended a five-year trend in which the courts have shown an increasing willingness to enforce consumer arbitration provisions. This trend is likely to continue. The Federal Arbitration Act (FAA) (1) generally requires the enforcement of arbitration agreements, and every challenge to arbitration must now reckon with substantial FAA precedent in the consumer area. As importantly, businesses have noted the cases in which arbitration provisions were invalidated and have redrafted their clauses to assure enforceability–generally by making arbitration even less expensive and more accessible to consumers. (2)

This Article focuses on five recent developments that provide texture to this general trend: (i) continuing battles over the enforceability of particular conditions on arbitration

ENFORCEABILITY OF PARTICULAR ASPECTS OF ARBITRATION AGREEMENTS

The FAA places arbitration agreements “upon the same footing as other contracts” (3) by preempting state laws and policies disfavoring arbitration, and allowing challenges to arbitration solely “upon such grounds as exist at law or in equity for the revocation of any contract.” (4) Forced to operate within these boundaries, attacks on arbitration agreements frequently rely on unconscionability claims targeting specific provisions, such as: (i) clauses imposing duties to arbitrate on only one party

MUTUALITY

Arbitration clauses that do not impose parallel duties to arbitrate on both parties are frequently challenged for lack of consideration, lack of equivalent promises (often called “mutuality of obligation”), unconscionability, or all of the above. The majority position among federal courts is that parties need not have identical, reciprocal duties to arbitrate so long as the underlying contract as a whole is supported by valid consideration. (7) Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, (8) Ingle v. Circuit City Stores, Inc., (9) and a number of recent state court decisions, however, have refused to enforce agreements that impose duties to arbitrate upon consumers or employees but leave businesses free to litigate. (10) Contractual provisions that authorize one party to change its arbitration obligations upon notice to the other party, however, have generally been rejected as grounds for challenging present enforcement. (11)

CONFIDENTIALITY

Some arbitration provisions have also been attacked on the grounds that they include confidentiality clauses. Such clauses allegedly favor defendants who, unlike plaintiffs, participate in many arbitrations and so may know how prior cases were resolved. Although confidentiality has been a common feature of arbitration proceedings for years–National Arbitration Forum and American Arbitration Association rules, for instance, generally require confidentiality (12)–recent decisions such as Ting v. AT&T (13) and Eagle v. Fred Martin Motor Co. (14) have held that confidentiality requirements may be unconscionable in consumer and employment contexts because they allow defendants to avoid creating precedent that could help future generations of plaintiffs and alert the public to improper practices. (15) Even though confidentiality requirements are facially neutral, these courts have reasoned that the clauses unreasonably favor “repeat players,” and prevent plaintiffs from accessing information needed to show intentional misconduct. (16)

A close examination of these cases suggests that they are motivated by the same generalized public policy concerns about the nature of arbitration as the U.S. Supreme Court has ruled are overridden by the FAA. (17) As the Fifth Circuit recently noted in Iberia Credit Bureau, challenges to confidentiality provisions in part attack the character of arbitration itself, because arbitration streamlines many of the features of litigation that are designed to produce reliable precedent. (18) Moreover, as discussed in Parilla v. IAP Worldwide Services VI, Inc., (19) such challenges do not focus on imbalances between the parties to the immediate contract, but rather on broader public policies underlying the enforcement of substantive statutory schemes. (20) Given that state law generally permits the parties to produce much the same result by settling cases before judgment and agreeing to keep the terms confidential, (21) treating confidentiality clauses in arbitration agreements differently from other contracts would appear to raise serious federal preemption concerns. (22) Indeed, even in the context of vindicating federal statutory rights, the Supreme Court has dismissed similar arguments that arbitration will result in a “lack of public knowledge of [defendants’ misconduct], an inability to obtain effective appellate review, and a stifling of the development of the law,” where federal law permits parties to settle their claims privately. (23)

COSTS

Finally, the costs of arbitration remain a sore point despite substantial evidence that arbitration is less expensive than traditional litigation. Cost challenges are frequently framed under the Supreme Court’s decision in Green Tree Financial v. Randolph, (24) which held that arbitration clauses are unenforceable if the costs of arbitration are so high as to effectively preclude a party from vindicating its federal statutory rights. (25) The Court held that mere speculative risk is insufficient to carry plaintiffs’ burden of proof, but did not provide guidance as to how detailed a record is required. (26) Although Green Tree reconciled the FAA with other federal statutory schemes, many recent cases have applied the same rationale to arbitration of state law claims without noting the distinction. (27) Other cases have analyzed cost-sharing provisions under state unconscionability standards. (28)

The case law is divided on a number of cost issues, particularly at what point in time financial burdens should be assessed, and on whether the analysis should be affected by offers to waive contractual cost provisions, or by national arbitration association rules that shift costs away from indigent parties. One approach in employment cases, recently articulated by the U.S. Court of Appeals for the Sixth Circuit in Cooper v. MRM Investment Co., (29) holds that courts should compare the up-front costs for filing an arbitration action to those for filing lawsuits to determine whether there is a “chilling effect” that will discourage plaintiffs or other similarly situated parties from bringing claims. (30) Under this theory, defendants’ individualized offers to waive explicit contract terms and arbitration association rules providing that costs may be shifted to defendants under some circumstances carry little weight, if the arbitration clause itself makes dispute resolution appear expensive. (31) At the opposite end of the spectrum, the U.S. Court of Appeals for the Eleventh Circuit held in Musnick v King Motor Co., (32) that a party must actually go through arbitration to determine how a “loser pays” provision played out before it could satisfy the Randolph burden. (33) Most recent decisions appear to fall somewhere between these two extremes, and generally accept that defendants’ offers to advance or waive costs and/or arbitration associations’ rules for accommodating indigent parties resolve cost concerns. (34)

Courts have also split over whether arbitration agreements’ provisions concerning class dispute resolution can have sufficient impact on costs as to render the agreements unenforceable. A number of plaintiffs have argued that class action bans make it impossible for them to vindicate statutory rights because litigating or arbitrating on an individual basis is so expensive relative to the potential recovery that no lawyers will take their cases. Some courts have held that such arguments support holding an arbitration clause unconscionable. (35) Other courts have reasoned that the Green Tree analysis focuses solely on the costs of arbitration relative to litigation rather than the general economics of representation. (36) In general, where statutes provide for recovery of costs, courts have found that there is no reason to believe that plaintiffs are prevented from vindicating their rights simply because they must proceed on an individual basis. (37)

CIRCUIT SPLITS

Two splits among the U.S. circuit courts of appeal with regard to FAA interpretation were highlighted in 2004 cases. First, the Eleventh Circuit joined a growing split with regard to stays pending interlocutory appeal from denials of arbitration. In Blinco v. Green Tree Servicing, LLC, (38) the court held that stays should be automatic because the filing of a nonfrivolous appeal of an arbitration denial divests the trial court of jurisdiction over the core question of whether the underlying dispute should be litigated. (39) Embracing an earlier decision by the Seventh Circuit, (40) Blinco further noted that the FAA provides interlocutory appeal rights because Congress recognized that “one of the principal benefits of arbitration, avoiding the high costs and time involved in judicial dispute resolution, is lost if the case proceeds in both judicial and arbitral forums.” (41) Allowing litigation to proceed in district court when there is a risk that the appellate court will hold an arbitration clause enforceable would undermine this purpose, the court reasoned, by imposing costs on the parties that may ultimately prove duplicative. (42) The Ninth Circuit, however, has held that stays pending appeal are a matter of discretion for the trial court. (43)

Second, the Fifth Circuit contributed to a continuing debate over the scope of judicial review over final arbitration decisions in the wake of the Supreme Court’s decision in First Options of Chicago, Inc. v. Kaplan. (44) First Options acknowledged “manifest disregard of the law” as a basis for vacatur, even though the FAA does not list that standard. (45) In Brabham v. A.G. Edwards & Sons Inc., (46) the Fifth Circuit refused to vacate an award as arbitrary and capricious, holding that further expansion of the bases for vacatur should be done “reluctantly and carefully.” (47) Although the Eleventh Circuit is the only federal appellate court to date to recognize arbitrariness and capriciousness as grounds for vacatur, (48) other circuits have recognized a variety of other non-statutory bases for vacating arbitration awards. (49)

RULES CHANGES BY NATIONAL ARBITRATION ASSOCIATIONS

For many years, class arbitration of consumer disputes was regarded as a mythical beast: half litigation, half arbitration, and rarely seen. In the wake of the Supreme Court decision in Green Tree Financial Corp. v. Bazzle, (50) however, two national arbitration associations have promulgated class arbitration rules. The American Arbitration Association (AAA) issued Supplementary Rules for Class Arbitrations in October 2003 (the “AAA Supplementary Rules”) while JAMS issued its Class Action Procedures in early 2005 (the “JAMS Class Action Procedures”). (51)

The AAA Supplementary Rules apply to any case in which a court refers to the AAA a matter that was pleaded as a class action, as well as to cases in which a party submits a new dispute or new claims directly to the AAA on behalf of or against a class or purported class. (52) In all such cases, the Supplementary Rules require arbitrators to make an initial determination as to whether the parties’ arbitration, agreement “permits the arbitration to proceed on behalf of or against a class.” (53) If so, the arbitrator must then determine whether class certification is appropriate based on criteria that are substantially similar to those described in Federal Rule of Civil Procedure 23(b)(3): The arbitrator must find not only numerosity, commonality, typicality, and adequacy, but also that common questions of law or fact predominate, and that class arbitration is “superior to other available methods for the fair and efficient adjudication of the controversy.” (54)

Although the Supplementary Rules generally conform to their federal counterparts, there are several causes for concern. For example:

* The Rules’ direction to arbitrators to determine whether the parties’ agreement “permits” class arbitration is troubling. Because an arbitrator has only those powers explicitly vested in her by the parties’ agreement, it would be more appropriate for the arbitrator to determine whether the provisions affirmatively “authorize” class arbitration.

* The Rules provide that after the provision of “class construction awards” (determining whether the parties’ agreement permits class arbitration) and “class determination awards” (regarding certification), the arbitrator must stay proceedings for thirty days to permit any party to move a court to confirm or vacate the award. (55) There is no guarantee, however, that a court would entertain an interim appeal, or that judicial review of such determinations would go beyond the highly deferential standards of review set forth in the Federal Arbitration Act. (56)

* The Rules are unclear as to the parties’ responsibilities for notice to class members, (57) and as to the source of arbitrators’ purported authority to disapprove settlements to which the parties have consented. (58)

The JAMS Class Action Procedures are generally similar to the AAA Supplementary Rules in scope and language. For instance, like their AAA counterparts, the JAMS Procedures direct arbitrators to determine “as a threshold matter whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class.” (59) The JAMS Procedures, however, differ from their AAA counterparts in the following respects: First, the JAMS Procedures permit class certification under circumstances analogous to Federal Rule of Civil Procedure 23(b)(1) and (b)(2), as well as (b)(3). (60) Second, the JAMS rules give the arbitrator discretion on whether to issue a partial final award regarding his or her construction of the parties’ agreement concerning class arbitration and concerning class certification, so as to permit immediate judicial review, and do not explicitly provide for a stay pending such judicial review. (61) The AAA rules, in contrast, automatically require a thirty-day stay to permit parties to seek judicial review of an arbitrator’s decision on class arbitration and class certification. (62)

In addition to promulgating rules to govern class arbitrations, JAMS attempted to enforce a new policy from November 2004 through March 2005 that purported to invalidate consumer arbitration provisions that preclude class claims. The policy provided that “JAMS will not enforce [class preclusion] clauses in class action arbitrations and will require that they be waived in individual cases.” (63) In December 2004, JAMS issued an addendum softening its position by acknowledging that the new policy was not designed to dictate a particular approach by the JAMS arbitrator, (64) and that JAMS would abide by a judicial ruling upholding a class action preclusion clause. (65) JAMS then withdrew the policy altogether in March 2005, acknowledging that its “attempt … to bring uniformity to the administration of class wide arbitrations … has created concern and confusion” in light of “[r]ecent court decisions on the validity of class action preclusion clauses [that] have varied by jurisdiction,” and affirming “that we have a fundamental responsibility and commitment to absolute neutrality and the highest ethical and professional standards” and “will always apply the law on a case by case basis in each jurisdiction.” (66)

GOVERNMENT TREATMENT OF ARBITRATION AGREEMENTS

In 2004, the Federal Home Loan Mortgage Corporation (“Freddie Mac”) implemented a new policy against purchasing subprime mortgages containing mandatory arbitration clauses. The Federal National Mortgage Association (“Fannie Mae”) announced that it will only purchase such mortgages if they contain a waiver clause providing that the arbitration agreement immediately becomes void upon transfer or sale of the loan, or an interest in the loan, to Fannie Mae. (67) Freddie Mac’s policy went into effect on August 1, 2004, (68) and Fannie Mae’s on October 31, 2004, (69) though trade groups have asked that the issue be reopened because lenders were not given an opportunity to provide input. (70) These policies conform Fannie Mac and Freddie Mac’s subprime practices to their existing policies for prime loans, (71) and the two have promoted alternative dispute resolution in other ways such as including a provision in their uniform instruments requiring notice and an opportunity to cure before going to court. (72)

ARBITRATION FRAUD

Facilitated by Internet websites and email solicitations, a growing number of “debt elimination experts” are luring consumers into arbitration schemes purporting to eliminate their credit card and other debt obligations. (73) In return for payments ranging into the thousands of dollars, these “experts” promise to provide immediate relief from banks and creditors, eliminate or drastically reduce debts, restore credit ratings, and transform debts into monies owed to borrowers.

These arbitration schemes typically operate by first instructing the borrower to send a “change-of-terms” notice to the lender purporting to add an arbitration clause to the parties’ debt agreement or designating a new arbitration forum. The newly designated forum, which typically lacks a street address and rules, in turn issues an “award” declaring the debt unenforceable. In many cases, the arbitration “ruling” also finds that the consumer is owed the dollar amount of the loan as a penalty for unlawful activity. Courts have refused to enforce the bogus awards, (74) but these schemes often push already financially vulnerable consumers toward bankruptcy by wasting money and time, while their debts continue to accrue interest and fees. At the end of the process, consumers may have judgments entered against them for attorneys’ fees as well as the original debts.

Some lenders report receiving more than 1,000 such change-of-terms notices in the last year, and at least one bank received more than 4,000. Lenders can combat the problem by warning their customer service representatives to be on the look-out for such notices, tracking them closely, responding quickly to dissuade customers from participation, and challenging the awards through litigation. As this problem grows, we expect that the Federal Trade Commission, state attorneys general, and other government agencies will begin to take action against these schemes.

(1.) 9 U.S.C. [subsection] 1-16 (2000).

(2.) The increased use of consumer arbitration benefits consumers and businesses alike. See Eric J. Mogilnicki & Kirk D. Jensen, Arbitration and Unconscionability, 19 GA. ST. U. L. REV. 761, 763-65 (2003). Indeed, recent research indicates that consumers and employees are more likely to secure a favorable result in arbitration than in litigation. See, e.g., American Arbitration Association, Fair Play: Perspectives from American Arbitration Association on Consumer and Employment Arbitration (Jan. 2003)

(3.) Allied-Brace Terminix Cos. v. Dodson, 513 U.S. 265, 271 (1995) (citation omitted).

(4.) 9 U.S.C. [section] 2

(5.) One study comparing unconscionability case law in 1982-83 with case law in 2002-03 found that the total number of unconscionability decisions available through case law databases jumped from 54 to 235, and that nearly 70% of the recent cases involved arbitration agreements. About half of the 2002-03 arbitration cases held at least one clause of the provision unconscionable, compared to only 25.6% of the non-arbitration cases. The author concluded that the discrepancy is due in significant part to judicial hostility toward arbitration. See Susan Randall, Judicial Attitudes Toward Arbitration and the Resurgence of Unconscionability, 52 BUFF. L. REV. 185, 194-96 (2004). Regarding class action waiver provisions, see Alan S. Kaplinsky & Mark J. Levin, Consensus or Conflict? Most (But Not All) Courts Enforce Express Class Action Waivers in Consumer Arbitration Agreements, 60 BUS. LAW. 775 (2005), in this Survey.

(6.) Severability clauses authorize courts to strike unlawful contract terms rather than voiding whole agreements. Courts frequently honor such clauses in arbitration agreements out of respect for the parties’ intent, and for the general federal policy favoring arbitration. See, e.g., Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 674-75 (6th Cir. 2003)

(7.) See, e.g., Oblix, Inc. v. Winiecki, 374 F.3d 488, 490-91 (7th Cir. 2004)

(8.) 379 F.3d 159 (5th Cir. 2004).

(9.) 328 F.3d 1165 (9th Cir. 2003).

(10.) Iberia Credit Bureau, 379 F.3d at 168-71

(11.) See, e.g., Iberia Credit Bureau, 379 F.3d at 173-74

(12.) See American Arbitration Association, Commercial Arbitration Rules & Mediation Procedures, R-23 (July 1, 2003), available at http://www.adr.org/RulesProcedures (Attendance at Hearings)

(13.) 319 F.3d 1126 (9th Cir. 2003), cert. denied, 540 U.S. 811 (2003).

(14.) 809 N.E.2d 1161 (Ohio Ct. App. 2004).

(15.) Ting, 319 F.3d at 1151-52

(16.) Ting, 319 F.3d at 1151-52

(17.) See generally Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30 (1991) (rejecting “generalized attacks on arbitration res[ting] on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants”) (internal quotation marks and citation omitted).

(18.) Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 175-76 (5th Cir. 2004).

(19.) 368 F.3d 269 (3d Cir. 2004).

(20.) Id. at 280. For other recent cases rejecting confidentiality challenges, see Lloyd v. Hovensa, LLC, 369 F.3d 263, 275 (3d Cir. 2004)

(21.) See Iberia Credit Bureau, Inc., 379 F.3d at 176

(22.) Federal preemption is a particularly strong concern when the underlying statutory rights at issue are based in state law, as in Eagle. Eagle v. Fred Martin Motor Co., 809 N.E.2d 1161, 1180-83 (Ohio Ct. App. 2004) (basing the court’s holding on the public policies underlying the state Consumer Sales Practices Act).

(23.) Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31-32 (1991) (rejecting objections to arbitration based on the fact that arbitrators often do not issue written decisions where age discrimination claims can be settled by parties privately or by the Equal Employment Opportunity Commission through informal conciliation).

(24.) 531 U.S. 79, 91 (2000). Randolph and most other cost case law focus on procedural costs that are unique to arbitration, rather than total costs including attorneys fees. But see Walther v. Sovereign Bank, No. 302, slip op. at 14-15 (Md. Ct. Spec. App. May 26, 2004) (concluding that slightly higher mandatory costs of arbitration are more than offset by the fact that a trial would likely be longer and more procedurally cumbersome).

(25.) Randolph, 531 U.S. at 90-92.

(26.) Id. at 91-92.

(27.) See, e.g., D.R. Horton, Inc. v. Green, 96 P.3d 1159, 1165 & n.29 (Nev. 2004) (per curiam) (citing Randolph in dispute over construction defects)

(28.) See, e.g., Pro Tech Indus., Inc., 377 F.3d at 873 (analyzing challenge only under state unconscionability standard focusing on fairness of contract at time of formation)

(29.) 367 F.3d 493 (6th Cir. 2004).

(30.) Id. at 510-11

(31.) See Cooper, 367 F.3d at 509

(32.) 325 F.3d 1255 (11th Cir. 2003).

(33.) Id. at 1260-61

(34.) Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 300 (5th Cir. 2004)

(35.) See, e.g., Jenkins v. First Am. Cash Advance of Ga., LLC, 313 F. Supp. 2d 1370, 1375 (S.D. Ga. 2003).

(36.) See, e.g., Taylor v. First N. Am. Nat’l Bank, 325 F. Supp. 2d 1304, 1318 (M.D. Ala. 2004)

(37.) See, e.g., Snowden v. Checkpoint Check Cashing, 290 F.3d 631, 638 (4th Cir. 2002)

(38.) 366 F.3d 1249 (11th Cir. 2004).

(39.) Id. at 1251-53

(40.) Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504 (7th Cir. 1997).

(41.) Blinco, 366 F.3d at 1251.

(42.) Id. at 1252.

(43.) Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990)

(44.) 514 U.S. 938 (1995).

(45.) Id. at 942 (internal quotation marks and citation omitted). Rather, the FAA states that an award may be vacated only upon a finding of fraud or corruption, evident partiality, misconduct, or actions exceeding the scope of the arbitrator’s powers. 9 U.S.C [section] 10 (2000).

(46.) 376 F.3d 377 (5th Cir. 2004).

(47.) Id. at 385.

(48.) Lifecare Int’l, Inc. v. CD Med., Inc., 68 F.3d 429, 435 (11th Cir. 1995).

(49.) See, e.g., Schoch v. InfoUSA, Inc., 341 F.3d 785, 788 (8th Cir. 2003), cert. denied, 540 U.S. 1180 (2004) (manifest disregard of law or complete irrationality)

(50.) 539 U.S. 444 (2003). Bazzle concerned review of a South Carolina Supreme Court decision holding as a matter of state law that arbitration agreements that are silent with regard to class status could be interpreted as permitting class arbitration. Four .justices concluded that, under the terms of the agreement, the issue should have been determined in the first instance by the arbitrator. Id. at 454. Justice Stevens concluded that the lower court decision was correct as a matter of law, but concurred in the judgment to ensure a decisive outcome. Id. at 454-55 (Stevens, J., concurring in the judgment and dissenting in part). See also Kaplinsky and Levin, supra note 5, at 775-76.

(51.) JAMS Class Action Procedures (Feb. 2005) [hereinafter JAMS Class Action Procedures]

(52.) AAA Supplementary Rules, supra note 51, Rule l(a). The party seeking class treatment must pay a preliminary filing fee of $3,250. Id. Rule 11(a). Upon the issuance of a class construction award determining whether the parties’ agreement permits class arbitration, the requesting party must then pay a supplementary filing fee based on the amount claimed. Id. The supplementary fee for claims between $5 million and $10 million would be $14,000, for example, which may give rise to cost challenges. See American Arbitration Association, Commercial Arbitration Rules, Fee Schedule, available at http://www.adr.org/RulesProcedures (last visited Feb. 7, 2005)

(53.) AAA Supplementary Rules, supra note 51, Rule 3.

(54.) Id. Rule 4. The Rules do not provide for class arbitration in situations analogous to FED. R. CIV. P. 23(b)(1) or (b)(2), though the arbitrator is authorized in “some exceptional circumstance” to refuse to allow class members to opt out of the class. AAA Supplementary Rules, supra note 51, Rule 5(c).

(55.) See AAA Supplementary Rules, supra note 51, Rules 3 (class construction), 5(d) (class determination).

(56.) See 9 U.S.C. [section] 10(1)-(4) (2000)

(57.) AAA Supplementary Rule 6 provides that a notice with content substantially similar to that required by FED. R. CIV. P. 23(c)(2)(B) be sent to class members. AAA Supplementary Rules, supra note 51, Rule 6. AAA Supplementary Rule 8(a)(2) governs notice of settlement and dismissal. Id. Rule 8(a)(2). Neither rule specifies which party must send the notice or bear the expense.

(58.) AAA Supplementary Rule 8(a)(1) does not permit the parties to settle a claim filed as a class arbitration unless the settlement is approved by the arbitrator, even if no class has been certified. AAA Supplementary Rules, supra note 51, Rule 8(a)(1). It is unclear how an arbitrator–whose authority over a dispute arises solely from the parties’ agreement–has the authority to disapprove of an agreement by those parties to settle their dispute.

(59.) JAMS Class Action Procedures, supra note 51, Rule 2 (emphasis added). The JAMS Procedures are also like their AAA counterparts in failing to specify which party bears responsibility for class notices and arbitrators’ purported basis of authority for disproving class settlements that the parties have approved. See id. Rules 4, 6

(60.) JAMS Class Action Procedures, supra note 51, Rule 3(b).

(61.) Id. Rules 2, 3(c).

(62.) Compare id. Rules 2, 3(c), with AAA Supplementary Rules, supra note 51, Rules 3, 5(d).

(63.) JAMS Policy Regarding Use of Class Action Preclusion Clauses in Consumer Cases (Nov. 12, 2004) [hereinafter JAMS Policy]. In individual cases filed directly with JAMS or referred by a court, the policy provided that “JAMS will decline the case” if the class arbitration preclusion clause was not waived by plaintiff’s counsel or stricken by the court. Id. If a case was filed with JAMS by consumers as a class arbitration, the policy provided that “JAMS will accept the case and not enforce the clause.” Id. The JAMS Policy never explained how JAMS obtained its asserted authority to rewrite a contract without the parties’ consent.

(64.) JAMS, Addendum: Implementation of JAMS Class Action Arbitration Preclusion Policy in Consumer Cases (Dec. 2004) (“Neither JAMS nor any other ]alternative dispute resolution] Administrator has the authority to dictate a result to the arbitrator.”).

(65.) Id. (stating that where a court rules that a preclusion clause is valid or invalid, JAMS would proceed to administer the arbitration on either an individual or class basis in accordance with the court order). Where a matter was filed as a class arbitration and neither party went to court to seek a ruling on the validity of the preclusion clause, the Addendum provided that “JAMS will proceed with the administration of the arbitration as a class arbitration.” Id. Of course, many courts have held that class preclusion clauses are enforceable. See, e.g., Gilmer v Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991)

(66.) See Press Release, JAMS, JAMS Reaffirms Commitment to Neutrality Through Withdrawal of Class Action Arbitration Waiver Policy (Mar. 10, 2005), available at http://www.jamsadr.com/press/ show_release.asp?id=198.

In contrast to JAMS, AAA has maintained a neutral position as to the enforceability of class action preclusion clauses and reaffirmed that position in February 2005. See AAA, Commentary to American Arbitration Association’s Policy on Class Arbitrations (Feb. 18, 2005), available at http://www.adr.org/ sp.asp?id= 21944. The Commentary reaffirms the AAA’s practice of requiring parties to seek court guidance as to the enforceability of preclusion clauses contained in their agreements rather than having arbitrators make such decisions. Id. The AAA has taken no position on whether preclusion clauses are or should be enforceable. Id.

(67.) See Fannie Mae, Announcement 04-06, at 4 (Sept. 28, 2004), available at http://www.efannie mae.com/singlefamily/pdf/04-06.pdf (last visited Feb. 7, 2005)

(68.) Freddie Mac Arbitration Policy, supra note 67, at 1.

(69.) Fannie Mae Announcement 04-06, supra note 67, at 4-5.

(70.) Jody Shenn, Just Clause? Arbitration in Subprime, AM. BANKER, Sept. 7, 2004, at 1.

(71.) Id.

(72.) For state-specific uniform instruments, see http://www.freddiemac.com/uniform/(providing all states’ forms). Fannie Mae also uses arbitration clauses in securities and employment agreements. See, e.g., Shenn, supra note 70, at 1

(73.) For examples of debt elimination services generally, see www.debteliminationexperts.com, www.fiscalstrategies.net, www.debtsrgone.com, www.debtshack.net, and www.stratia.com (last visited Feb. 7, 2005).

(74.) See, e.g., Sorenson v. Fleet Bank (R.I.), N.A., No. 04-14 ADM/RLE, 2004 WL 964265, at *1-*2 (D. Minn. Apr. 30, 2004)

Kelly Thompson Cochran and Eric J. Mogilnicki *

* Eric J. Mogilnicki is a partner in the litigation and financial institutions departments of Wilmer Cutler Picketing Hale and Dorr LLP and Chair of the Alternative Dispute Resolution Subcommittee of the American Bar Association’s Consumer Financial Services Committee. Kelly Thompson Cochran is an associate with Wilmer Cutler Picketing Hale and Dorr LLP.