Membership Minute: A New “CPR Speaks” Feature

This posting is the first of what will be an ongoing series written by Niki Borofsky, Vice President of Membership, focusing on CPR Members and ways to make the most of CPR Member Benefits.

CPR’s Value Proposition: Meaningful Connections Are the Heart of Membership

As a relative newbie to CPR, I am still getting to know our members. But after six months of calls and emails, conferences and coffees, I am compelled to share a few key observations.

membership 1CPR members are, to a person: smart, creative, powerful, engaged, connected and caring.

It logically follows that the greatest advantage of participating in the CPR community – especially as a fully-fledged member – is the people you will meet and the interactions you will have. This truth cannot be overstated.

On the surface, CPR membership offers a variety of appreciable perks and benefits:

membership 2These tools, lists and courses are amazing, but they are the tip of the value iceberg compared to the lawyers, businesspeople, academics, neutrals, staff and committee members you will meet as an engaged participant in the CPR community.

The more you put in, the more you get out.

Over time, working on committees and subcommittees, planning events and chairing task forces, CPR members get to know each other. As a team, we share our strengths – virtuoso elocution, incisive writing, vast experience, a knack for legal synthesis – and each member contributes and collaborates to help inform and create the resources that make CPR great. More importantly, trust is built, friendships are born and professional networks grow.

The rewards of CPR membership are big and small, subtle and obvious.

The stories of how, when and where CPR members recognize the value of relationships that have been strengthening throughout their time with CPR are varied and unique:

  • Finding a familiar face at a seminar,
  • Knowing exactly who to call when you are stumped on a difficult case,
  • Understanding how to frame a business proposal from the client’s perspective,
  • Winning new business, getting selected as a neutral, or hired for your next job,
  • Being confident that your complex and delicate dispute is in the most competent hands.

For those of you who are already members, I encourage you to explore new ways to engage.

How will you make your next lasting connection?

As we start off our new fiscal year, I hope this brief reminder inspires you to become even more involved. CPR brings together an awe-inspiring crowd: general counsel of Fortune 500 companies, senior partners at Am Law 100 firms and globally-respected neutrals, and young, talented attorneys on the rise – all committed to advancing the field of dispute resolution and creating a better future. What do you have to offer? What do you have to learn? Do better while doing good with us.

If you are an existing member who would like additional ideas on how to get involved – or if you are not yet a member but would like more information on joining CPR – please give me a call (646) 753-8225 or email nborofsky@cpradr.org.

Until next time,

Niki Borofsky

It’s a Wrap: Global Pound Conference Concludes

By Lyn Lawrence

The Global Pound Conference Series: Shaping the Future of Dispute Resolution and Improving Access to Justice (see http://bit.ly/2v4dX4V) came to its conclusion after the last local event was held in London on July 6, 2017.

The purpose of the GPC Series was “[t]o create a conversation about what can be done to improve access to justice and the quality of justice around the world in commercial conflicts and to collect actionable data,” according to the GPC’s Singapore Report from its March 2016 kickoff event (available at http://bit.ly/2voNWfU).

The GPC Series was inspired by the original Pound Conference, held in Minnesota in 1976, and the positive effect it had on improving access to justice. At its conclusion almost 41 years after the original, the GPC Series held events in 29 cities worldwide, attended by more than 2,000 participants and supported by global sponsors (which included the CPR Institute, the publisher of this blog).

A detailed discussion on the inception of the GPC Series and the New York event can be found in the following articles published in CPR’s Alternatives, “Attempting to Define the Practice, Pound Conference Organizers Launch a Worldwide Series on ADR Common Ground,” 33 Alternatives 11 (December 2015) (available at http://bit.ly/2e1WaXW) and “A Look Back On, And Forward To, the Global Pound Conference,” 35 Alternatives 1 (January 2017) (available at http://bit.ly/2t2r4Sr).

THE DATA

The data collected throughout the GPC Series belongs to the International Mediation Institute, a nonprofit mediator accreditation organization based in the Hague, Netherlands, that founded the GPC series. After each local event, an Academic Committee processed the results, which are available at http://bit.ly/2tWPo9z.

The Academic Committee also created accumulative results as the events had been concluded. At the time of posting, the most recent results consisted of data collected at the inaugural Singapore conference up until the June 29 Johannesburg conference (available at http://bit.ly/2tWYQKp), excluding only the final event in London on July 6.

Each local event had an identical set-up with the same GPC Series core questions (available at http://bit.ly/2tVFabk), divided among four sessions, and headed by a panel of professionals in dispute resolution.

The data was gathered from participants grouped into stakeholder categories. They were asked to answer the core 20 multiple-choice questions using a GPC Series Event Application that was downloaded by participants on their own electronic devices.

Before the conclusion of each session, the stakeholders were divided into groups to answer four open text questions. Many of these questions were formulated at the 2014 London pilot event (available at http://bit.ly/2ulNsdx). The results were tallied on the spot, and then displayed on a screen and discussed by the panel and conference attendees.

WHAT WAS LEARNED?

Academic Committee Chairman Prof. Barney Jordaan was cautious in adding in the Singapore Report that, “While all care was taken to ensure the integrity of the data gathering process and rigour in the formulation of the survey questions and the analysis in this Report, the Series is not intended to be primarily an academic project nor does the data gathering process represent a pure data collection environment. Any use of the GPC data must be undertaken with these limitations in mind.”

Considering these qualifications, such as the varied number of participants in each stakeholder group, there are a few noticeable highlights from the accumulated results–particularly, where there was a split or unanimous agreement among the stakeholder groups.

All four sessions had a different focus area ranging from parties’ needs and expectations to how the current commercial dispute resolution market addressed these needs and expectations. Keeping with the theme of the event, there were also several questions on steps that can be taken to improve the current dispute resolution market for commercial disputes.

The majority of the stakeholder groups voted that financial interests were the primary consideration for parties and providers alike. This is consistent with the local events that were held in the United States, particularly the New York event. Stakeholder groups were also in agreement that “external lawyers” would be the most resistant to change in commercial dispute resolution.

There was a three-way tie when it came time to deciding where “policy makers, governments and administrators” should focus their attention when improving access to justice. Receiving 46% of the votes each were the “use of protocols promoting non-adjudicative processes,” “pre-dispute or early stage case evaluation or assessment systems using third party advisors who will not be involved in subsequent proceedings” and “making non-adjudicative processes (mediation or conciliation) compulsory and/or a process parties can ‘opt-out’ of before adjudicative process can be initiated.”

With only two percentage points separating the results on the role lawyers should play in commercial disputes, advisers and adjudicative providers voted that lawyers should speak and/or advocate on a party’s behalf, while parties, non-adjudicators and “influencers” voted that lawyers should work “collaboratively” with the parties and “may request actions” on their behalf.

Stakeholder groups were mostly in agreement when it came to answering the remaining core questions; see the aggregated results at the link above.

WHAT IS NEXT?

The data from the conferences was consistent through the local events, but it is unclear how the final report will develop these findings.

Those who were unable to attend any of the local events have the opportunity to complete the core questions online until July 31. (Available at http://bit.ly/2voPRkz).

The GPC Series website, at http://globalpoundconference.org, encourages individuals to complete the core questions online as it will form part of the GPC Series data.

Once the final report is released, it will be interesting to see the final results and the impact it will have on improving dispute resolution. In addition, this GPC Series was limited to commercial disputes—perhaps the creators will expand into other areas in future projects.

One of the event organizers indicated recently the potential importance and use of the data in growing ADR. “The core questions ask these stakeholders to provide their input on the same topics,” noted former International Mediation Institute chairman and current board member Michael McIlwrath, adding that the “answers to these questions arrive at a time in which civil justice around the world is facing a moment of transformation. And international arbitration is now experiencing changes that, in our view, would have been considered heretical or at least highly unorthodox just a decade ago.” See Michael McIlwrath and Phil Ray, “The Global Pound Conference Reaches Its Conclusion: User Focus Is Now Mainstream,” Kluwer Arbitration Blog (July 5, 2017)(available at http://bit.ly/2sGmTzX).

The author is a CPR Institute Summer 2017 Intern.

CPR Launches New Cyber Panel Focused on Security Disputes and Related Insurance Claims

A cyber security breach occurs, possibly exposing consumer or other sensitive information. What happens next, at the corporate level?

Certainly underlying any serious cyber event are the questions of who is responsible, who is going to do what to remedy it and who is going to pay for it, including related insurance issues that will arise.

“With attacks occurring with both greater frequency and sophistication, smart companies and their counsel are adopting proactive strategies to prevent and/or resolve cyber-related disputes in a manner that best protects operations, customers and reputation,” said CPR President & CEO, Noah J. Hanft.

With CPR’s announcement, today, of a new CPR Cyber Panel, now those strategies can even more squarely include CPR, as well as thoughtful options outside of traditional litigation. The CPR Cyber Panel contains neutrals who are expert in data breaches and other cybersecurity issues, as well as those experienced in handling related insurance coverage disputes.

“Mediation of cyber security disputes and insurance claims if done by the right individuals can drive substantial value to all parties,” said Daniel Garrie, a longtime CPR Distinguished Neutral, Editor-in-Chief of Law & Cyber Warfare and CPR Cyber Panel member. “Of course, it is critical that your mediator have the mediation experience and real-world technical cyber expertise to ensure the right outcome. If done by the right individual supported by a quality ADR organization with strong rules and protocols, an entity will be able to realize the benefits a cyber security neutral.”

In the Law360 article, “Growing Demand for Mediation of Data Breach Disputes,” Barton LLP Partner and CPR Cyber Panel member Kenneth N. Rashbaum stated, “For reasons of financial savings, efficiency and plain peace of mind, those who prepare agreements in technology areas have increasingly turned to mediation and other dispute resolution clauses and this, in turn, has created a demand for mediators with backgrounds that comprise multiple practice areas, including cybersecurity, privacy, technology transactions and litigation. And they should open to dispute-mitigation alternatives. For example, arbitration clauses have been around for a very long time but newer and possibly less expensive modalities include ‘cooling-off and mediation’ provisions that require the aggrieved party to notify her counterpart of the disputed matter and then, only after a certain period of time, the parties will proceed to mediation and can only go further, to arbitration or litigation, if mediation fails.”

“One of the things CPR has particularly prided itself on, over its 40 year history, is being both tuned in and highly responsive to the needs of our members and the ADR community as a whole,” said CPR’s Helena Tavares Erickson, Senior Vice President,
Dispute Resolution Services and Corporate Secretary. “CPR’s new Cyber Panel is a perfect example of that dynamic in action: We were told about increasing cyber-related dispute resolution needs, and we acted. We encourage the community to let us know its needs as we are ready to act.”

CPR’s Panels of Distinguished Neutrals comprise those among the most respected and elite mediators and arbitrators in the world. They include prominent attorneys, retired state and federal judges, academics, as well as highly-skilled business executives, legal experts and dispute resolution professionals who are particularly qualified to resolve all business disputes including those involving multi-national corporations or issues of public sensitivity.

Focusing in more than 20 practice areas, CPR’s esteemed arbitrators and mediators have provided resolutions in thousands of cases, with billions of dollars at issue worldwide. Admission to one of CPR Panels occurs only after an individual is reviewed and approved by CPR and/or a select panel of high-end users, peers and/or academics. Candidates are screened for their ADR expertise and training, and candidate references are asked to comment specifically on the applicant’s qualifications to serve on complex commercial disputes. Qualification to the CPR roster is demanding and available openings are limited.

“Once again, Noah Hanft and CPR are leading the way in dispute resolution,” concluded Steven J. Antunes, Senior Litigation Counsel at AEGIS Insurance Services, Inc. “As the law regarding cyber security evolves and the claims become more sophisticated , the most cost effective manner in which to resolve cyber-related disputes may very well be through mediation.”

Congress Responds Rapidly to Block CFPB Rule Banning Mandatory Arbitration Clauses

On Monday, July 10, the Consumer Financial Protection Bureau announced its new rule preventing banks and credit card companies from using mandatory arbitration clauses in new customer accounts.

On Tuesday, July 11, and as predicted on “CPR Speaks,” Congress moved to stop the CFPB final rule. Arkansas Republican Sen. Tom Cotton announced he was drafting a resolution to get the new CFPB rule rescinded using the Congressional Review Act. Pennsylvania Republican Sen. Pat Toomey, Chair of the Subcommittee on Financial Institutions and Consumer Protection, is reported to be considering a similar step.

The newly popular 1996 Congressional Review Act—see the “CPR Speaks” link above–provides expedited  procedures through which the Senate may overrule regulations issued by federal agencies by enacting a joint resolution.

Characterizing the CFPB as having gone “rogue,” and its new rule as an “anti-business regulation,” Cotton is stressing the benefits of arbitration, as well as consumers’ capacity to make business decisions.

Financial Services Committee Chairman Jeb Hensarling, R., Texas, is also publicly criticizing the rule as bureaucratic and beneficial only to class action trial attorneys. He is urging Congress to work with President Trump to reform the CFPB and excessive administration by government. As also mentioned in yesterday’s post, in April Hensarling proposed H.R. 10, the Financial CHOICE Act of 2017, which would repeal the CFPB’s authority to restrict arbitration. The bill has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.

It remains to be seen whether the CFPB’s new rule will survive these and other potential congressional and court challenges. Much will depend upon the Senate and how many Republicans switch sides on this issue. Please stay tuned to this space for important developments.

SEC Office of Investor Advocate Praises Securities Arbitration Clinics

By Jill Gross

Congress created the Office of the Investor Advocate of the Securities and Exchange Commission in the Dodd-Frank Act in 2010 to, among other things, “(A) assist retail investors in resolving significant problems such investors may have with the Commission or with self-regulatory organizations (SROs); (B) identify areas in which investors would benefit from changes in the regulations of the Commission or the rules of SROs…” Exchange Act §  4g(4). In turn, the Investor Advocate appointed an Ombudsman to “act as a liaison between the Commission and any retail investor in resolving problems that retail investors may have with the Commission
or with SROs.” Exchange Act § 4(g)(8)(A). Both the Investor Advocate and the Ombudsman are required to submit reports to Congress on their activities. This week, the Office of the Investor Advocate submitted its Report on Objectives for fiscal year 2018, which included the Ombudsman’s Report.

In her Report, the Ombudsman addresses several items of interest to the dispute resolution community. First, the Report (p. 23) describes how her office is monitoring whether recommendations from the FINRA Dispute Resolution Task Force Report have been implemented in ways that help retail investors. She expresses concerns about elements of customer arbitrations at FINRA, offering another voice to the ongoing efforts to improve the fairness of securities arbitration.

Second, in recommending that the FINRA Investor Education Foundation support ongoing operations of law school securities clinics, the Ombudsman details (p. 24) the value that these clinics offer retail investors:

The Ombudsman is concerned about the challenges faced by investors—especially pro se investors who face sophisticated opposing counsel representing broker-dealer firms in a forum that has become increasingly complex—when the life savings of the investor are at stake and there is little ground for appeal. Investor rights clinics fill a critical void by supplying information and advocacy services to vulnerable retail investors in need. Competent representation of retail investors in FINRA’s dispute resolution forum is a critically important step in helping vulnerable retail investors protect their rights. These clinics and the investors they serve merit the Foundation’s support.

Third, the Ombudsman describes (p. 24) her Office’s new outreach program to the clinics, including visits with students at Pace Law’s Investor Rights Clinic and the University of Miami School of Law Investor Rights Clinic.  The Report praises the investor education work of the students, and emphasizes the importance of providing investors with representation in arbitration. The SEC’s spotlight on these law school securities clinics celebrates the tremendous work that law students do in representing investors in their disputes with their brokerage firms!

Jill I. Gross is a nationally known expert in the field of securities dispute resolution and a professor at Pace Law School. Her complete bio can be found HEREThis post was originally published in Indisputably and is reprinted with permission.  

CFPB Announces Final Rule Barring Mandatory Arbitration In Consumer Financial Contracts

By Russ Bleemer

The broadest move by a government agency so far to restrict arbitration has been unveiled by the Consumer Financial Protection Bureau—a long-expected ban on the use of class-action waivers that require mandatory arbitration in consumer financial contracts.

While arbitration itself wasn’t the direct target, the practice has taken a public relations hit, becoming a proxy in a war over class-action processes.

Under the CFPB’s final rule—it proposed the ban last year under the Obama Administration after researching the subject since 2012—financial services firms, including those providing bank accounts and credit agreements, would be prohibited from using contracts that prevent consumers from joining together in class-action suits in court and require, instead, individualized arbitration processes.

Arbitration, the CFPB emphasized, would not be banned.

But it will be subject to unprecedented regulation.  Companies would have to note in their consumer credit agreements that the arbitration process being offered does not prevent the individual from initiating or joining a class-action suit.

And the companies using arbitration would have to provide the results of those processes to the CFPB, which on Monday announced it would post those cases, after redacting identifying information, on its website beginning in July 2019.

The rule, according to CFPB Director Richard Cordray, “prevents financial companies from using mandatory arbitration clauses to deny groups of consumers their day in court.”

Still, it may never get to the marketplace.  The rule, the CFPB said Monday, will be sent to the Federal Register for publishing, expected in the next week or two.  There is a total of 241 days needed for compliance before the rule is fully effective—the CFPB said it would announce an exact date upon publication.

In the interim, the Republican Congress may move to revoke it.  The 2017 Congress has embraced the Congressional Review Act, a formerly little-used 1996 law that allows it to review new federal regulations issued by government agencies and overrule them under a joint resolution.

This year, the CRA has been invoked 14 times to overturn regulations. The CFPB’s arbitration efforts have been squarely in the sights of banking and finance lobbyists, among others.

There are other options, including President Trump firing Cordray and replacing him with a director who would strike the CFPB proposal.  See Alan S. Kaplinsky, “Proposed CFPB Arbitration Rule Faces Multiple Obstacles,” 35 Alternatives 3 (January 2017)(available at http://bit.ly/2hRb943).

And H.R. 10, the Financial CHOICE Act of 2017, an April proposal by Rep. Jeb Hensarling, R., Texas, would repeal the CFPB’s authority to restrict arbitration.  The bill passed the House and has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.

Late last month, the Trump Administration reversed course on mandatory employment arbitration contracts, switching sides in three consolidated U.S. Supreme Court cases to be argued this fall in which the National Labor Relations Board similarly had banned the use of arbitration clauses because they prevent class cases against employers.  See Nicholas Denny, “DOJ to NLRB: You’re On Your Own in the Supreme Court,” CPR Speaks (June 21)(available at http://bit.ly/2uJNDwC).

Said Cordray, “I am aware, of course, of those parties who have indicated they will seek to have the Congress nullify the new rule.” He said that such steps will be “determined on the merits.” He continued: “My obligation as the [CFPB director] is to act for the protection of consumers and in the public interest, [and] that is what I believe have done” with the release of the final class waiver-arbitration rule.

The CFPB’s press announcement, along with links to the rule’s text and a new video explaining the moves, can be found HERE.

Russ Bleemer is the editor of CPR’s award-winning magazine, Alternatives.

U.S. Court of Appeals Upholds Trial Court’s Sanctions Against Attorney for Frivolous Arguments Seeking to Avoid Arbitration Agreement

By Mark Kantor

The US Court of Appeals for the Seventh Circuit, in Appeal of Jana Yocum Rine in Hunt v. Moore Brothers, No. 16-2055 (June 27, 2017), recently upheld sanctions imposed by the trial court against an attorney personally for her frivolous arguments seeking to avoid an arbitration agreement in a contract between an independent trucker and a trucking company.  The appellate opinion is available at http://cases.justia.com/federal/appellate-courts/ca7/16-2055/16-2055-2017-06-29.pdf?ts=1498759242.

Very briefly, the trial court had required Ms. Rine, counsel for Mr. Hunt, to pay $7,500 in legal fees and expenses incurred by Moore Brothers defending against frivolous claims in a complaint filed by Ms. Rine in District Court and frivolous arguments that the arbitration agreement in the contract between Hunt and Moore Brothers was unenforceable, including a claim that the trucking company was holding Hunt “in peonage.”

James Hunt worked as a truck driver in Nebraska. On July 1, 2010, he signed an Independent Contractor Operating Agreement with Moore Brothers, a small company located in Norfolk, Nebraska.  Three years later, Hunt and Moore renewed the Agreement.  Before the second term expired, however, relations between the parties soured.  Hunt hired Attorney Jana Yocum Rine to sue Moore on his behalf.  She did so in federal court, raising a wide variety of claims, but paying little heed to the fact that the Agreements contained arbitration clauses.  Rine resisted arbitration, primarily on the theory that the clause was unenforceable as a matter of Nebraska law.  Tired of what it regarded as a flood of frivolous arguments and motions, the district court granted Moore’s motion for sanctions under 28 U.S.C. § 1927 and ordered Rine to pay Moore about $7,500.  The court later dismissed the entire action without prejudice.

****

The relevant part of the arbitration clauses in the Agreements reads as follows:

This Agreement and any properly adopted Addendum shall constitute the entire Agreement and understanding between us and it shall be interpreted under the laws of the State of Nebraska. … To the extent any disputes arise under this Agreement or its interpretation, we both agree to submit such disputes to final and binding arbitration before any arbitrator mutually agreed upon by both parties.

When Rine decided to take formal action on Hunt’s part, she ignored that language and filed a multi‐count complaint in federal court.  The complaint was notable only for its breadth: it accused Moore of holding Hunt in peonage in violation of 18 U.S.C. § 1581 (a criminal statute), and of violating the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962; the federal antitrust laws, 15 U.S.C. §§ 1, 4, 14; the Illinois Employee Classification Act, 820 ILCS 185/1 et seq.; and for good measure, the Illinois tort of false representation.

The Court of Appeals, and the District Court before then, concluded that Rine had blown up a simple commercial dispute beyond all rational proportion; “This was a simple commercial dispute between Hunt and Moore, but one would never know that from reading Rine’s complaint.  She blew it up beyond all rational proportion.”

Writing for a unanimous appellate panel, Chief Justice Wood upheld the trial court’s imposition of sanctions against Rine personally as “within the district court’s broad discretion, in light of all the circumstances of this case….”

We have no need to consider whether the sanctions imposed by the district court were also justified under the court’s inherent power.  See Chambers v. NASCO, Inc., 501 U.S. 32, 45–46 (1991).  Nor are we saying that the district court would have erred if it had denied Moore’s sanctions motion.  We hold only that it lay within the district court’s broad discretion, in light of all the circumstances of this case, to impose a calibrated sanction on Rine for her conduct of the litigation, culminating in the objectively baseless motion she filed in opposition to arbitration.  We therefore AFFIRM the district court’s order imposing sanctions.

The judicial decisions in Hunt v. Moore Brothers are yet another illustration of the increasing peril to counsel personally in US Federal courts if the attorney pursues a frivolous “take no prisoners” approach seeking to avoid arbitration.

 

Mark Kantor is a CPR Distinguished Neutral. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.

This material was first published on OGEMID, the Oil Gas Energy Mining Infrastructure and Investment Disputes discussion group sponsored by the on-line journal Transnational Dispute Management (TDM, at https://www.transnational-dispute-management.com/), and is republished with consent.

Changes to Mediation Confidentiality to Be Considered by California Legislature

By Lyn Lawrence

The California Law Revision Commission, acting under the order of a resolution by the California Legislature, last month finalized a tentative recommendation that creates an exception in the state’s Evidence Code to mediation confidentiality.

If it is passed into law it will allow disgruntled clients to use information that is currently considered confidential as evidence in attorney malpractice suits.

The final version of the CLRC proposal is available at http://bit.ly/2rIuTvF.

This week, CPR and its monthly newsletter, Alternatives to the High Cost of Litigation, continue their coverage with two extensive examinations of the moves to change mediation confidentiality—a commentary by Los Angeles neutral Jeff Kichaven (see http://bit.ly/2snQUjF), and a compilation of key debate points submitted to the CLRC during its three years examining the issue, by CPR Summer 2017 intern Lyn Lawrence.

The new July/August issue of Alternatives can be found at http://bit.ly/1BUALop. CPR Institute members can access the issue when signed into CPR’s website at http://bit.ly/2kAakxH. Kichaven’s cover story will be available at altnewsletter.com later in July.

You can read last month’s “How California Intends to Recalibrate the Concept of Mediation Confidentiality,” 35 Alternatives 93 (June 2017) at http://bit.ly/2sWyqr1.

The CLRC’s recommendation for a mediation confidentiality exception for legal malpractice was sparked by California Supreme Court Justice Ming W. Chin’s concurring opinion in Cassel v. Superior Court (2011) 51 Cal. 4th 113, 117 (available at http://bit.ly/2tOHBgV). In the case, the client accused his attorneys of coercing him into accepting a mediation settlement that was not in his best interest.

The client was unsuccessful in his claim, but Chin wrote that the court had “to give effect to the literal statutory language” prohibiting disclosure of the mediation communications. “But,” he added, “I am not completely satisfied that the Legislature has fully considered whether attorneys should be shielded from accountability in this way. There may be better ways to balance the competing interests than simply providing that an attorney’s statements during mediation may never be disclosed.”

The exception contained in the CLRC’s tentative recommendation has received mixed reviews from ADR professionals, organizations and even California state departments operating in the mediation field.

Opponents of the CLRC efforts were dealt a blow when the tentative recommendation was approved by the commission on June 8. The approved tentative recommendation is available for public comment until Sept. 1, 2017.  A press release and instructions for commenting are available at http://bit.ly/2t0UyE8.

The creation and acceptance of the tentative recommendation come as a surprise to at least some practitioners, mainly due to California’s longstanding advocacy for the protection, support and growth of mediation. At the same time, some longtime practitioners viewed the preservation of a path to attorney malpractice cases as an enhancement to the integrity of mediation practice.

Confidentiality is a cornerstone of the mediation process, and it is unclear what the effect the exception would have if it is adopted into California law.  A legislative fight looms.

But exceptions to mediation confidentiality aren’t particularly new. For example, the Uniform Mediation Act (available at http://bit.ly/2tGNrRj) has been adopted by numerous states and contains exceptions to mediation confidentiality. Jeff Kichaven expands on these exceptions in his Alternatives commentary, which strongly backs the CLRC tentative proposal.

The CPR Institute will continue to follow the CLRC’s activity, including when the commission publishes the public comments, which it stated in an email would be after the Sept. 1 comment deadline.

The author is a CPR Institute Summer 2017 Intern.

Third Circuit Clarifies its Standard on Motions to Compel

By Ugonna Kanu

The Third U.S. Circuit Court of Appeals recently held that a federal district court had erred when it denied an employer’s motion to dismiss a suit before the court had determined the fate of its motion to compel arbitration. The case was Silfee v. Automatic Data Processing Inc.; ERG Staffing Service LLP, No. 16-3725 (3d. Cir. June 13, 2017)(unpublished)(available at http://bit.ly/2rUZpln).

A unanimous Third Circuit panel ruled, in an unpublished decision, that the trial court first must determine the motion to compel arbitration before the motion to dismiss.

The plaintiff in Silfee filed suit against his former employer for violating Pennsylvania law on payroll practices. ERG, a Dickson City, Pa.-based employment agency, filed a motion to compel arbitration “arguing that the arbitration agreement between Silfee and ERG’s payroll vendor precluded Silfee’s suit against ERG,” according to the opinion.

ERG moved to dismiss Silfee’s suit. The district court, however, placed a hold on compelling arbitration, and denied the motion to dismiss the suit.

The Third Circuit panel opinion, written by Circuit Judge Thomas M. Hardiman, of Pittsburgh, distinguished between the case and Guidotti v. Legal Helpers Debt Resolution L.L.C., 716 F.3d 764, 771 (3d Cir. 2013)(available at http://bit.ly/1pXcNnD), in which the Third Circuit held that where it is apparent that a party’s claims are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered without discovery delay under Federal Rule of Civil Procedure 12(b)(6).

But, where the agreement to arbitrate is unclear, or the plaintiff facing the motion to compel has provided “additional facts sufficient to place the agreement to arbitrate in issue,” then the court may order limited briefing and discovery on the issue of arbitrability, and assess the question under a summary judgment standard of Rule 56, the opinion explained.

Before Guidotti’s application, the panel opinion noted that the FAA provides a gateway test. It says that a trial court must make an inquiry under Federal Arbitration Act Section 4 where there is a motion to compel arbitration.

Section 4, the opinion emphasized, provides that “[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement.”

Plaintiff Silfee didn’t produce “additional facts sufficient to place the agreement to arbitrate in issue”—the Guidotti standard to get past a motion to dismiss. As a result, the Third Circuit ruled, the court should have applied the Rule 12(b)(6) standard.

While the appeals panel stopped short of dismissing Silfee’s suit and compelling arbitration, it remanded the case to the U.S. District Court with an order to consider the parties’ “competing arguments regarding arbitrability” under ERG’s motion to compel.

The author is a CPR Institute Summer 2017 intern.

DOJ to NLRB: You’re On Your Own in the Supreme Court

CLASS WAIVER/MANDATORY ARBITRATION CASES

By Nicholas Denny

In the clearest illustration so far of the Trump Administration’s evolving hands-off policy toward mandatory arbitration clauses and class action waivers, the U.S. Solicitor General authorized the National Labor Relations Board (NLRB) last week to represent itself in one of three consolidated arbitration cases to be heard by the U.S. Supreme Court this fall.

At the same time, the U.S. Department of Justice, which had been representing the board in NLRB v. Murphy Oil USA Inc., No. 16-307 (U.S. Supreme Court docket page at http://bit.ly/2kOPxal) until last week, switched sides in the case, filing an amicus brief backing the employer in the matter.

Justice, via the friend-of-the-court briefs, is now advocating against the NLRB, and against its previous position.

The case—along with its companions, Ernst & Young v. Morris, No. 16-300 (Docket page at http://bit.ly/2kLxCEg) and Epic Systems Corp. v. Lewis, No. 16-285 (Docket page at http://bit.ly/2kFVxm6)—asks whether mandatory arbitration clauses as a condition of employment bar individual employees from pursuing work-related claims on a collective or class basis under the National Labor Relations Act (NLRA). Mandatory arbitration clauses are used throughout employment settings and apply to employees regardless of titles or union affiliation; two of the three cases involve white-collar office workers.

The Supreme Court will hear the consolidated cases in the term beginning in October.

The issue in the consolidated cases is whether employers can continue to unilaterally require that employees agree to a mandatory arbitration clause in employment contracts. Often, these clauses are non-negotiable: either employees accept the employer’s terms or the employer finds someone else to hire.

The Supreme Court must decide which of two laws controls: the National Labor Relations Act, 29 U.S.C. § 151, et seq., or the Federal Arbitration Act, at 9 U.S.C. § 1 et seq. Under the NLRA, an employee’s rights to collective bargaining and action are protected. Under the FAA, however, an employment contract that includes a mandatory arbitration clause binds the worker to arbitrate with the employer instead of litigating in court, and is accompanied by a waiver barring the employee from bringing a class-action suit in favor of an individualized process.

As a result, arbitration clauses can deliver a one-two punch: (1) workers arbitrating individually may have less power, because they are not operating as part of a collective whole as contemplated by the NLRA, and (2) a worker may be less likely to find counsel because arbitration awards are perceived to be much smaller than court and class-action outcomes—meaning a lawyer working for a portion of the settlement would be less likely to take the case.

On the other hand, employers contend that mandatory arbitration clauses protect the company and benefit the employee. They argue that arbitration clauses ensure a speedier and more cost-effective conclusion to conflicts: class actions are harder and more costly to fight than arbitrations.

The disagreement over the use of mandatory arbitration clauses has arisen in the political arena, too. While the Obama Administration focused on pro-employee, anti-mandatory arbitration policies that prohibited employers from unilaterally waiving workers’ rights to concerted action under the NLRA, the Trump Administration is leaning toward an employer-centric policy by permitting mandatory arbitration clauses in employment contracts and as a condition of hiring.

This drastic shift in policy culminated with Friday’s news that the NLRB will represent itself, and that the Department of Justice would switch sides. The NLRB, as an autonomous government entity, is tasked with protecting “the right of employees to engage in protected concerted activities—group action to improve wages, benefits, and working conditions and to engage in union activities and support a union,” according to its website, as well as protecting the right of workers to refrain from engaging in protected concerted or union activities.

While the Justice Department prosecutes on behalf of the nation as well as defends government agencies, it is exceedingly rare for it to withdraw its representation of an agency it had been representing and subsequently file a brief in opposition to the position had it previously taken.

The Justice Department amicus brief switching sides in Murphy Oil is available at http://bit.ly/2sUnFbL.  The NLRB’s June 16 announcement that it would represent itself without Justice Department support can be found on the board’s website at http://bit.ly/2traH2s.

The move, however, is consistent with another recent Trump Administration policy shift on arbitration. In early June, the Centers for Medicare and Medicaid Services, an arm of the U.S. Department of Health and Human Services, withdrew a 2016 Obama Administration position prohibiting mandatory arbitration clauses in long-term care nursing home contracts.

CMS’s new position allows arbitration agreements provided that the provisions are written in plain language, and explained to and accepted by the applying resident.  Among other conditions, the CMS requires that the nursing home retain a copy of the signed agreement and post a notice that details the nursing home’s arbitration policy.

In addition, House Republicans introduced the “Financial CHOICE Act” earlier this month, a proposed law that aims to dismantle the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank is an extensive law that was passed to ensure higher accountability in the U.S. financial sector after the economic recession of 2008 and it was endorsed by former President Obama.

Among its many goals, Dodd-Frank pointed its then-new Consumer Financial Protection Bureau at pre-dispute mandatory arbitration clauses in consumer finance contracts. A lengthy study concluded last year by the CFPB resulted in a promise to finalize regulations that would ban the use of predispute mandatory arbitration in consumer financial contracts, such as cellphone agreements.

But should the “Financial CHOICE Act” become law, it likely would allow financial institutions to include mandatory arbitration clauses in their consumer contracts and agreements, and negate the CFPB efforts.

President Trump’s stance on mandatory arbitration clauses is becoming clear. Whether the clauses are legal in the employment context, and whether they will withstand Supreme Court scrutiny, are developing issues that are expected to be answered within the year. Watch CPR Speaks for updates.


The author is a CPR Institute Summer 2017 intern.