Green Tree Financial Corp., et al. v. Randolph, Larketta (12/11/2000)

Questions presented: (1) Did the appeals court err in concluding that an order compelling arbitration and dismissing the lawsuit is a final decision with respect to arbitration appealable under 9 U.S.C. Section 16(a)(3)? (2) Did the appeals court err in concluding that an arbitration provision that was silent on the issue of costs and fees was unenforceable under the Federal Arbitration Act because of the risk that plaintiffs might be required to bear unknown costs and fees in trying to vindicate their statutory rights?

BY: MAURA GYAN, MEDILL NEWS SERVICE

When Larketta Randolph bought her new mobile home in 1994 from Better Cents Home Builders, Inc., in Opelika, Ala., she financed the house with Green Tree Financial Corp.--Alabama.

Upon receiving the contract, Randolph "went over the front and glanced over the back" of the documents and didnt see anything that caused her any concern, she said.

With no force or pressure from Green Tree, Randolph signed the contract.

But on the back page of Green Trees contract, a clause required binding arbitration and a waiver of any rights to a jury trial for "all disputes, claims or controversies." The contract allowed only the assignee, Green Tree Financial Corp., of which Green Tree Financial Corp.--Alabama is a subsidiary, to bring court action if they decided to do so.

Two years later, Randolph sued Green Tree, seeking damages, attorneys fees and costs for Green Trees alleged violations against her consumer rights. She claimed the binding arbitration and jury waiver provisions violated the Truth In Lending Act and the Equal Credit Opportunity Act.

On Nov. 26, 1997, U.S. District Judge Ira De Ment dismissed the case and ordered Randolph to submit to arbitration, ruling that she "voluntarily and knowingly entered into her contract, including the arbitration provisions."

"Plaintiffs failure to read what she signed does not insulate her from contractual obligations, including the agreement to arbitrate," De Ment said.

Before an 11th U.S. Circuit Court of Appeals panel, Green Tree admitted in oral argument that arbitrators set their own fees, that no filing fees are required, and that they do not use American Arbitration Association rules -- which offer guidelines on the fees, costs and rules -- for the arbitrations falling under the clause in Randolphs contract. They also failed to clarify for the panel which set of rules the company used for the arbitration process.

In a 2-0 opinion, with one judge retiring during the pendency of the appeal, the 11th Circuit reversed, finding for Randolph that the arbitration clause is unenforceable "because it fails to provide the minimum guarantees required to ensure that Randolphs ability to vindicate her statutory rights will not be undone by steep filing fees, steep arbitrators fees, or other high costs of arbitration."

The U.S. Supreme Court granted certiorari on April 3, 2000. On Aug. 28, the Court allowed Terry Johnson, et al., to file an amicus brief in the case.

On Dec. 11, 2000, on the day the Court was hearing its second set of oral arguments in Bush v. Gore, the Florida Presidential recount case, the Court issued its divided opinion in the case.

In the opinion, written by Chief Justice William Rehnquist, the Court held 5-4 for Green Tree that the arbitration clause was enforceable. In so concluding, the Court conceded that large arbitration costs may preclude someone like Randolph from effectively vindicating her rights, but that the record doesn't show that she will in this case.

In dissent, Justice Ruth Bader Ginsburg critized the majority for "reach[ing] out prematurely to resolve the matter in the lenders favor."

In the dissent on behalf of herself and Justices John Paul Stevens, David Souter and Stephen Breyer, Ginsburg argued that Randolph should not be required to submit to arbitration without knowing how much it will cost her.

She noted that the arbitration agreement at issue is contained in a "form contract drawn by a commercial party and presented to an individual consumer on a take-it-or-leave-it basis," with no reliable indication that Randolphs claim will be arbitrated under any consumer-protective fee arrangement.

The part of the opinion that addressed whether the order compelling arbitration was final and appealable was answered yes by all nine justices.