The Rise and Fall of Class Arbitration - Part 2, Chapter 9 - AAA Yearbook on Arbitration and the Law - 23rd Edition
John M. Townsend is a Partner in the Washington office of Hughes Hubbard & Reed LLP and chairs that firm's Arbitration and ADR Group. He was the Chairman of the Board of Directors of the American Arbitration Association from 2007 to 2010 and previously chaired the AAA's Executive Committee and Law Committee. Mr. Townsend was named by President Bush to the Panel of Arbitrators of ICSID. He is a Trustee as well as a member of the Arbitration and Competition Law Committees of the U.S. Council for International Business and chairs the U.S. Council's European Privilege Task Force. He was the first Chair of the Mediation Committee of the International Bar Association (2005-2006), and is also a member of the American Law Institute and of the College of Commercial Arbitrators. Mr. Townsend is a graduate of Yale University (B.A., 1968) and Yale Law School (J.D., 1971).
Class arbitration is a useful procedural device in need of a friend. It is the first choice of almost no one as a means of resolving disputes involving large numbers of claimants or respondents. Rather, it is primarily a creature of the courts: The Supreme Court called it into existence in its Bazzle decision in 2003, and effectively disowned it in its Stolt-Nielsen decision in 2010.1 Nevertheless, it has real advantages to offer as a method of dispute resolution, if the adversaries in the ongoing battle over class actions would stop shooting at each other long enough to consider them.
Class arbitration is, in its origins, a reaction to a reaction to a reaction: A reaction of the courts to the reactions of class action lawyers to the reactions of corporations to class actions. The first reaction was of large corporations that do business with significant numbers of customers or employees against class actions, as that procedural device is used in American courts. Many corporations came to feel that class actions, used to aggregate claims of individuals for damages in small amounts that would not individually make it economical to retain a lawyer, were used primarily to enrich the lawyers who brought the class actions. They point to a history of such actions being settled after a class action was certified, when the risk of an adverse decision became great enough to persuade the defendant to agree to a settlement that would pay a large fee to the class action lawyer, but would only pay such a small amount to each class member that many class members never claimed their shares.2