In re Wood

• Decision Date: 09 July 2004
• Docket Number: No. 03-0754.,03-0754.
• Citation: 140 S.W.3d 367
• Parties: In re Martha WOOD, Patricia Haynes, Ellie L. Corley, and All Others Similarly Situated, Relators.
• Court: Texas Supreme Court

140 S.W.3d 367

In re Martha WOOD, Patricia Haynes, Ellie L. Corley, and All Others Similarly Situated, Relators.

No. 03-0754.

Supreme Court of Texas.

July 9, 2004.

William Fred Hagans, Hagens, Bobb & Burdine, P.C., Joseph D. Jamail, Jamail & Kolius, Ronald D. Krist, The Krist Law Firm, P.C., Houston, Terry Scarborough, Hance Scarborough Wright, Austin, Clay Wilder, Wilder & Wilder, P.C., Henderson, and Dana C. Livingston Cobb, J. Woodfin

Jones, Roger Townsend, Douglas Alexander, Alexander Dubose Jones & Townsend LLP, Austin, for Relators.

Billy Shepherd, Sam W. Cruse Jr., John D. Vogel, Cruse Scott Henderson & Allen, L.L.P., Houston, Mike A. Hatchell, J.R., Locke Liddell & Sapp, LLP, Austin, J.R. "Rusty" Phenix, Phenix Phenix & Crump, Henderson, for Respondent.

PER CURIAM.

We must decide whether an arbitrator or a court should rule on class certification issues when the contracts at issue committed all disputes arising out of the agreement to the arbitrator. In these circumstances, we hold that such authority resides in the arbitrator, and we reverse the judgment of the court of appeals to the contrary. 2004 WL 1595731.

Real party in interest John O'Quinn represented over 3,000 women in breast-implant litigation. He has settled 2,000 of those claims for close to $2 billion, among them the claims of named plaintiffs Martha Wood, Patricia Haynes, and Ellie L. Corley (hereinafter Wood). Each of the plaintiffs signed a contract with a clause stating that attorneys would be reimbursed out of the "costs and expenses of litigation." When Wood and other O'Quinn clients received their net settlement proceeds, they discovered a 1.5 percent deduction for "common expenses." The contracts provide that all disputes arising out of the fee agreement will be submitted to binding arbitration "pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration rules then in effect with the American Arbitration Association."

This suit was filed on behalf of a putative class of more than 2,000 O'Quinn clients. Without ruling on class certification, the trial court ordered the case to arbitration. Wood sought mandamus relief in both the court of appeals and this Court, arguing that the lawsuit should not be ordered to arbitration. Both courts denied relief. Wood then moved to clarify who would decide the class certification issue, and the trial court signed an order referring all claims, including class claims, to arbitration. The order specifically authorized the arbitrator to decide the class certification issue.

O'Quinn sought mandamus relief in the court of appeals, requesting that the trial court be ordered to refer each of the claims to a separate arbitration. The court of appeals did not make this order, but it did conditionally grant the writ, directing the trial court to vacate the second order and to determine whether the parties' agreement permitted class arbitration and, if so, whether to certify the class. The trial court promptly vacated the second order authorizing the arbitrator to decide the class certification issue.

Two days before the court of appeals issued its opinion, the United States Supreme Court held that, where parties agreed to submit all disputes to an arbitrator under the Federal Arbitration Act, issues of class arbitration are for the arbitrator to decide. Green Tree Fin. Co. v. Bazzle, 539 U.S. 444, 123 S.Ct. 2402, 2407, 156 L.Ed.2d 414 (2003) (plurality opinion).¹ The court of appeals below dismissed Green Tree's application in a footnote: "We do not address whether, as a general proposition, class certification is a matter for the trial court or for the arbitrator. Furthermore, the holding in Green Tree Fin. Corp. v. Bazzle is inapplicable here." 140 S.W.3d at 368 n. 1(citation omitted).

To the contrary, Green Tree is directly on point. In Green Tree, two groups of homeowners sued a lender. Their contracts, like Wood's, provided that all disputes relating to the contract would be resolved by binding arbitration and included a FAA choice-of-law provision. Green Tree, 123 S.Ct. at 2405. A state trial court certified one class, ordering it to arbitration; another state trial court ordered the second case to arbitration, where the arbitrator certified a class. Id. at 2405-06. The South Carolina Supreme Court consolidated the appeals and held that the contracts authorized class arbitration. Bazzle v. Green Tree Fin. Corp., 351 S.C. 244, 569 S.E.2d 349, 354 (2002). The lender, arguing that the contract expressly forbade class arbitration, appealed to the United States Supreme Court. Green Tree, 123 S.Ct. at 2406. The Supreme Court did not decide whether the lender was correct about the contract interpretation issue. Id. at 2408. Instead, the Court held that, as a question of contract interpretation, the issue of class arbitrability had been committed to the arbitrator. "[T]he dispute about what the arbitration contract in each case means (i.e., whether it forbids the use of class arbitration procedures) is a dispute `relating to this contract'.... [T]he parties seem to have agreed that an arbitrator, not a judge, would answer the relevant question." Id. at 2407. The Supreme Court remanded the case so that the arbitrator could decide the class issue. Id. at 2408.

O'Quinn attempts to escape Green Tree's application by arguing that the AAA did not have rules for class arbitration at the time that this lawsuit was filed. The AAA has since published such rules.² O'Quinn argues that the "rules then in effect" can mean those in effect when Wood filed suit, the date when the trial court referred the case to arbitration, or the date arbitration was initiated, all of which occurred before the rules were promulgated. But another plausible interpretation of that language is the rules in effect when the arbitration actually begins, which has...