Kevin M. Kennedy

Green Tree Financial Corp. v. Bazzle: A New Day for Class Arbitrations?

October 27, 2003 Published Work
Franchise Law Journal, American Bar Association, Fall 2003, Volume 23, Number 2

Roughly half of all leading franchisors' franchise agreements require arbitration of disputes. One of the primary reasons that franchisors choose arbitration is the perception that arbitration awards are typically more rational than jury verdicts, and less likely to produce grossly excessive recoveries for franchisees. Arbitration has also been viewed as an effective risk management tool because of its utility as a "class action shield." The overwhelming majority of federal appellate courts addressing the issue held that arbitrators lacked the authority to allow class arbitrations unless an arbitration clause specifically contemplated that result. As one commentator observed in a 1997 Franchise Law Journal article, "[s]ince many (and perhaps most) of the putative class members" may never pursue individual claims in separate arbitrations, "and because arbitrators typically do not issue runaway awards, strict enforcement of an arbitration clause [forbidding class action arbitrations] should enable the franchisor to dramatically reduce its aggregate exposure." Accordingly, during the past decade, arbitration clauses have repeatedly enabled franchisors to "break up" attempts by franchisees to assert class or consolidated claims.