Monday, November 5, 2012

Late-Game Interference



Bandler v. Charter One Bank, 2012 VT 83.

It’s tricky being a trial court in the ten states in which decisions are directly appealable to the state’s supreme court.  The court’s decisions must be within the boundaries of the law, such as it is when handed down and codified by the Legislature or interpreted piecemeal by the supremes (minus Florence Ballard).  The trial court’s decisions must simultaneously pass muster and creatively interpret the precise contours of amorphous legal concepts.


Today’s case presents an obscure and narrow legal question with little application to the everyday Vermonter, on which the SCOV ultimately determines that the trial court got it wrong.  The question was whether a Vermont trial court has limitless authority to review arbitration decisions on class-action claims.  The SCOV concludes it does not, after wending its way through the somewhat confusing Vermont Arbitration Act and the sparse case law surrounding arbitration in Vermont.

This case also highlights why it’s important to pay attention to statutory limits that exist on one’s right to appeal a decisions.

The facts of the underlying claims matter little to the SCOV’s conclusion; the devil is in the procedural details.  Plaintiff had a bank account with Defendant Charter One Bank.  The account was subject to an arbitration provision.  In 2003, Plaintiff sued Bank claiming the bank failed to honor its advertising promises regarding free checking accounts.  Bank asked for and received a judgment order dismissing the case to allow the parties to arbitrate.

In 2005, Plaintiff demanded arbitration of his claim.  A year later, he asked the arbitrator to allow him to amend his claim into a class-action and include claims for all persons who opened “free-checking” accounts only to be slammed with charges.  The arbitration provision in the contract said nothing about class-action claims.  The arbitrator concluded that a class-action claim was arbitrable, by reference to a United States Supreme Court case considering a similar question, Green Tree Financial Corp. v. Bazzle.

The arbitrator stayed the arbitration for thirty days in the event the parties wanted to appeal it.  Under 12 V.S.A. § 5277(c), a party has thirty days from the decision to do so.  The thirty days came and went for the arbitrator’s class-action claim, with no challenge by either side.  The arbitrator and the parties resumed the arbitration.

Fast-forward three years to 2009.  The United States Supreme Court granted certiorari in Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., a case reconsidering Green Tree Financial’s conclusion regarding class-claim arbitration where the contract is silent on it.  Bank seized on this opportunity, and convinced the arbitrator to stay the arbitration proceedings until Stolt-Nielsen was decided.

In 2010, the SCOTUS issued its Stolt-Nielsen decision.  As sometimes happens when the High Court cannot agree on a narrow question of law, the SCOTUS’ decision was split on numerous points, and no particular line of reasoning got the support of a majority of the justices.  What was clear, however, was that the SCOTUS did not believe a silent contract was grounds for compelling class-action arbitration.  Sadly, the SCOTUS did not touch on what contract language would allow for class-action arbitration.

Bank did not take long to pick up on the mixed good fortune of the fractured Stolt-Nielsen decision.  Within a month of the SCOTUS deciding Stolt-Nielsen, Bank bypassed the paused arbitration and went straight to the trial court that ordered the arbitration back in 2004 with a motion for dismissal, claiming the arbitrator got it wrong when it allowed the class-action claim to be arbitrated in 2006.  Plaintiff for his part asked that the trial court take no action because the case was under the jurisdiction of the arbitrator.  Plaintiff also noted that the trial court had dismissed it already at the insistence of Bank.

After a hearing, the trial court dismissed the case and vacated the arbitrator’s class-action claim decision.  Its decision focused on Stolt-Nielsen, and concluded that even though the Vermont Arbitration Act limits the court’s power to vacate an arbitration decision to thirty days from the date of the decision, by not raising the time limitation the parties waived the issue.  The trial court directed the parties to continue with their arbitration regarding just Plaintiff’s claim, as the class-action was now closed.  Plaintiff appealed.

The question on appeal seems to be, then, whether Stolt-Nielsen would require the trial court to vacate the arbitration decision and allow Plaintiff’s class-action claim to be arbitrated.  But, the SCOV says in its infinite wisdom, the threshold question is really whether the trial court even had the authority to vacate the arbitration decision in the first place.

The SCOV explores the statutory basis Vermont courts have for taking action with respect to matters subject to arbitration.  Under the Vermont Arbitration Act, trial courts may make a very specific, enumerated set of orders, and may only grant relief from an arbitration award if it’s requested within thirty days.

Oh no, says Bank.  It was not seeking to vacate the arbitration award.  Rather, Bank characterizes its appeal as a challenge to the arbitrator’s subject-matter jurisdiction.  As those who survived their first-year civil procedure course may remember, subject-matter jurisdiction is an issue that is always ripe for the raising as it is at any time in the proceedings grounds for dismissal.

The SCOV smirks at this challenge, and rephrases the question Bank is really asking as whether the trial court had “unfettered authority to, at any time, consider and rule on the arbitrability of class claims.”  The SCOV then proceeds to smack down this concept by reference to its own decisions and those of other states.

The central thread in the cases the SCOV cites is this: the boundaries set by the Legislature require restraint on the part of the courts.  In Springfield Teachers Ass’n v. Springfield School Directors, the SCOV refused to go outside the specific grounds for vacating an award set in the statute, some of which were “jurisdictional” grounds.  Likewise, in In re Denio, the SCOV refused to consider a challenge to the Environmental Board’s Act 250 jurisdiction when it was raised after the statutorily-allowed time period.

Arbitration is akin to a quasi-judicial proceeding before an administrative body, in which the trial court has specific and limited areas to review.   Without restraints set by the Legislature on the limits of judicial review, arbitration would not be as effective a means of extrajudicial conflict resolution.  It would merely be another procedural hurdle between the parties and final resolution.  Arbitration is popular and powerful because it is quick, informal, and final.  Vermont is not alone in reaching this decision, the SCOV notes, citing three other states and the Second Circuit Court of Appeals.

The Vermont Arbitration Act, the SCOV concludes, precludes “free-floating judicial authority” over arbitration decisions.  The cases cited by Bank do nothing to dissuade the SCOV.  In fact, it finds a common thread underlying them and the SCOV’s conclusion: the Vermont Arbitration Act sets the boundaries within which the courts may review an arbitrator’s decision, and decisions such as the trial court’s here exceed that authority.

What results from today’s decision is a mixed bag for Plaintiff: he wins his appeal, gets a reversal, and the trial court is directed to dismiss its motion to dismiss.  The downside is he must now arbitrate his class-action claim, and hope for an award in his favor. 

At least he has the cold comfort of knowing the trial court should never have considered the arbitrability of his claim to begin with.

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