Roundup: Legislation with Mediation or Arbitration…Maybe for the future?

By Elena Gurevich

According to Congress.gov, the official website for U.S. federal legislative information, and Govtrack.us, an organization that tracks legislation and votes, several bills have been introduced in the U.S. House of Representatives and the Senate this year that touch upon arbitration or mediation.

Out of five bills introduced, only one deals with mediation as well as arbitration. Although (according to Govtrack) it is highly unlikely that these bills will be passed by the present Congress, they might get a shot in the future under a different Congress.

H.R. 156—Labor Relations First Contract Negotiations Act of 2017. The bill, introduced on Jan. 3 by Rep. Gene Green, D., Texas, has a prognosis of passage of 1%, according to Govtrack, whose projection estimates are supplied by Skopos Labs, a New York software company. The bill amends the National Labor Relations Act to address initial contract negotiation. Specifically, the bill requires mediation if an employer and a newly certified union have not reached a collective bargaining agreement within 60 days. “Either the employer or the union may request binding arbitration if the parties have not reached an agreement within 30 days of selecting a mediator.”

See https://www.congress.gov/bill/115th-congress/house-bill/156.

H.R. 832—Arbitration Transparency Act of 2017, with a 3% chance of passage, requires that an arbitration proceeding between a consumer and a financial institution, in a dispute involving a consumer financial product or service, must be open to the public. It was introduced Feb. 2 by Rep. Michael Capuano, D., Mass.

See: https://www.congress.gov/bill/115th-congress/house-bill/832?r=10

H.R. 1374—Arbitration Fairness Act of 2017 was introduced on March 7. The bill prohibits a predispute arbitration agreement from being valid or enforceable if it requires arbitration of an employment, consumer, antitrust, or civil rights dispute. The bill, sponsored by Rep. Hank Johnson, D., Ga., has a 3% chance of passing, according to Govtrack.

See: https://www.congress.gov/bill/115th-congress/house-bill/1374?r=7

  1. 542—Safety Over Arbitration Act of 2017 was introduced on March 7, with a current prognosis of 9%. The Congress.gov summary says the bill “prohibits the use of arbitration whenever a contract between an individual and another party requires arbitration to resolve a claim or controversy alleging facts relevant to a hazard to public health or safety unless all parties to the controversy consent in writing after the controversy arises.” The sponsor is Sheldon Whitehouse, D., R.I.

See: https://www.congress.gov/bill/115th-congress/senate-bill/542?r=22

  1. 647—Mandatory Arbitration Transparency Act of 2017. The bill has only a 2% chance of passing in this Congress, according Govtrack and Skopos Labs. The bill amends U.S.C. Title 9 on arbitration. According to the Congress.gov summary, the bill “prohibits predispute arbitration agreements from containing a confidentiality clause regarding an employment, consumer, or civil rights dispute that could be interpreted to prohibit a party from: (1) making a communication in a manner such that the prohibition would violate a whistle-blower statute; or (2) reporting or making a communication about tortious conduct, unlawful conduct, or issues of public policy or public concern. But the prohibition shall not apply if a party can demonstrate a confidentiality interest that significantly outweighs the private and public interest in disclosure.” Richard Blumenthal, D., Conn., is the sponsor.

See: https://www.congress.gov/bill/115th-congress/senate-bill/647

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The author is a CPR Institute 2017 Fall Intern.

Updating the Global Pound Conference: A Survey on Mediation in Cross-Border Disputes

By Angela Cipolla

The recent Report on International Mediation and Enforcement Mechanisms found that, while mediation survey respondents believe in the necessity of using the process for cross-border disputes, a lack of education about how mediation works is a problem.

The report’s results also strongly boost calls for an international mediation enforcement mechanism.

The recent report was issued by the Institute for Dispute Resolution, at New Jersey City University’s School of Business in Jersey City, N.J., to the International Mediation Institute for the benefit of delegates attending the UNCITRAL Working Group II (Dispute Settlement) 67th Session, on dispute settlement, which was held last month in Vienna. For more information, see www.imimediation.org.

The report follows and incorporates results of surveying done at the Global Pound Conference, which concluded a year of face-to-face meetings with practitioners worldwide in July. See http://globalpound.org; for a wrap-up of the GPC series, see CPR Speaks blog post at http://bit.ly/2vxV2P1.  The IMI and NJCU IDR surveys received responses from users in various fields and professions that represented, according to respondents who identified their locations, 24 countries.

The information was collected in the 28 GPC events held in 22 countries, as well as through online voting. Votes were categorized by stakeholders.

The report, written by David S. Weiss, director of the Institute for Dispute Resolution and a visiting scholar at the New Jersey City University’s business school, and New Jersey attorney Michael R. Griffith, analyzed views on establishing an international treaty for the enforcement of mediated settlements collected online from June 2016 to March 2017; it also analyzed responses from the Global Pound Conference Survey, which was available at IMI Global Pound Conference gatherings and online from March 2016 to September.

The report also expands upon how the international legal and business communities use mediation.  See S.I. Strong, “Use and Perception of International Commercial Mediation and Conciliation: A Preliminary Report on Issues Relating to the Proposed UNCITRAL Convention on International Commercial Mediation and Conciliation,” U. of Missouri School of Law Legal Studies Research Paper (Nov. 17, 2014)(available at http://bit.ly/2yAzUhp).

Overview

Weiss and Griffith gathered the opinions of “those who are most likely affected by the adoption of any prospective drafts or proposals by Working Group II (Dispute Settlement) with emphasis on the users.” The views, reflecting 103 survey responses, reflect the “wider business community, their advisors, providers, and those that may influence the mediation space,” they write. The GPC conference and online surveying produced responses from about 2,500 stakeholders.

The report follows the same pedagogical and methodological process as Strong’s article, presenting research “gathered by an international quantitative-qualitative study of users’ assessments of the enforcement of international commercial settlement agreements resulting from conciliation.”

The Report’s Findings

With regard to the report’s own survey questions, the study brought to light a lack of education regarding the benefits and uses of mediation in cross-border disputes. It found that 40% of the respondents said they use or have been advised to use mediation in a cross-border dispute as a best practice in business “infrequently,” and 24% answered “not at all.”

When users were asked why they thought parties do not resolve their commercial cross-border disputes through mediation, the most frequent answer at 57% of the responses was that “they are unfamiliar with mediation.”

The study called the result “a surprisingly [sic] lack of knowledge about mediation among users.”

These results demonstrate a need for more education about mediation. Interestingly, the second highest-ranked reason in response to the question was that no universal mechanism to enforce a mediated settlement exists.

While the IMI and NJCU survey also showed “a general positive direction of users to incorporate mediation clauses into cross-border contracts,” 80% of users were even more apt to participate in mediation if there was a uniform global mechanism to enforce mediation settlements in place.

This demonstrates the incentive that such a mechanism would provide and the possible positive effects it would have on mediation use in cross-border disputes.

Accordingly, the report found that the majority of users and stakeholders in both the study conducted for the report and the GPC surveying “believe that a uniform global mechanism to enforce mediation settlements would improve commercial dispute resolution.”

Some concerns regarding faith and trust in the mediation process were raised in the IMI and NJCU study’s comments, suggesting that more confidence in the process needs to be built as the use of mediation becomes more prevalent.

The report also looked to whether a treaty should include provisions similar to the longstanding Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the New York Convention.

This idea was well received. An overwhelming 84% of users stated that they would be “more likely” to use or increase their use of mediation in a cross-border dispute if there were a uniform global mechanism in place, similar to the New York Convention, which would ensure enforcements of settlement agreements.

The report speculates that a majority of users would like to use the uniform mechanism as a “bargaining chip;” 60% of users stated that they would prefer an “opt-in” system.

Additionally, the report examined the challenges users faced in mediation. When asked whether users faced any post-mediation challenges to settlement agreements in cross-border disputes on the grounds of capacity, duress, or fraud, the two largest recorded answers were 47%, responding “never,” and 36% responding, “sometimes.”

The report also asked users whether they would be less likely to use mediation if a uniform global mechanism of enforcement included any defenses.  The question didn’t show that defenses would have a significant impact on a user’s willingness. Forty-four percent of the users responded “no,” while 27% responded “yes.”

When asked if the users would prefer a uniform global mechanism that limited defenses, similar to the New York Convention’s Article V, 54% of users responded “yes,” while 22% responded “no.”

The report also revealed that though re-litigating settlements doesn’t occur often, the rate was high.  The study found that 35% of users answered “infrequently” when asked if they have ever were required to re-litigate on general contract defense a mediation settlement agreement that was not honored. “If this was not a problem,” the authors wrote, “we would expect to see user’s answering ‘infrequently’ at a much lower percentage.”

This indicates a problem that a global enforcement mechanism might help alleviate. Additionally, regarding the availability of mediators, the report showed that “[w]hile it is generally positive that 61% of users are generally able to find qualified mediators, there [is] a vast amount of room for improvement.”

In addition to its own questions, the report also analyzed the GPC Series Questions. The report found that just like the users in its study, a majority of GPC stakeholders “believe that a uniform global mechanism to enforce mediation settlements would improve commercial dispute resolution, with 51% [of users concurring.]”

Overall, the GPC Series Questions had a positive view of taking action on mediation settlement enforcement.  Those conference and web survey questions found 51% of users “clearly supporting a uniform global mechanism to enforce mediation settlements as their first preference.”

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The report concludes that global enforcement of mediation settlement agreements is a “necessary tool for encouraging mediation,” and that such an enforcement mechanism should be “congruent with the methodological approach that was adopted by the arbitration community through the New York Convention.”

The report further emphasizes that “practical certainty” in mediated settlement agreements will (1) improve access to justice and (2) “increase efficiency for the wider business community,” and that both of these benefits are crucial to advance trading systems and aide businesses.

UNCITRAL’s Working Group II’s 68th session, expected to consider a mediation enforcement convention further, is scheduled to be held in New York, from Feb. 5 – 9.

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The author is a Fall 2017 CPR Institute Intern.

The EU Mediation Blues: Is there a way to resolve the EU Mediation “Paradox”?

javierBy Javier Fernández-Samaniego

Almost ten years have elapsed since the European Union adopted the Mediation Directive (2008/52/EC) in civil and commercial matters, and four years since the European Parliament acknowledged the so-called “EU Mediation Paradox” [1] in its study “‘Rebooting’ the mediation directive”. The study drew attention to the lack of significant development of mediation, utilized only in less than an average 1% of the cases in courts of Member States in the EU, despite its high success and satisfaction rates when used.

As rightly pointed out in the Report from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the application of Directive 2008/52/EC (Aug 2016)[2], due to the “unofficial” nature of mediation compared to formal court proceedings, it is very difficult to obtain comprehensive statistical data on mediation such as the profile of companies using mediation, number of mediated cases, the average length and success rates of mediation processes.

In what seems to be a fresh verse in the EU Mediation blues song, a new Resolution of 12 September 2017 on the implementation of the EU Mediation Directive (2008/52/EC) issued by the European Parliament[3] notes that certain difficulties exist in relation to the functioning of the national mediation systems in practice. These difficulties are mainly rooted in the adversarial tradition and the lack of a “mediation culture” in the Member States, the low level of awareness of mediation in most Member States, insufficient knowledge of how to deal with cross-border cases and the functioning of the quality control mechanisms for mediators.

In this Resolution, the European Parliament has made the following recommendations:

  1. EU Member States should boost awareness of how useful mediation is and step up their efforts to encourage the use of mediation in civil and commercial disputes, such as through information campaigns, improved cooperation between legal professionals and an exchange of best practices in the different local jurisdictions of EU.
  2. The Commission should assess the need to develop EU-wide quality standards for the provision of mediation services, especially in the form of minimum standards ensuring consistency, while considering the fundamental right of access to justice.
  3. The Commission should assess the need for Member States to create national registers of mediated proceedings as useful sources of information for Commission and mediators across Europe.
  4. The Commission should undertake a detailed study on the obstacles to the free circulation of foreign mediation agreements in the Union and on various options to promote the use of mediation as a sound, affordable and effective way to solve conflicts in internal and cross-border disputes in the Union, considering the rule of law and ongoing international developments in this field.

Lastly, in an apparent call for new rules, the Parliament requests that the Commission offer solutions to extend the scope of mediation to other civil or administrative matters in future regulation and highlights that, despite the voluntary nature of mediation, further steps must be taken to ensure the enforceability of mediated agreements in a quick and affordable manner.

On the brighter side, there are some less worried notes to the EU Mediation blues tune since the Parliament also welcomes the Commission’s dedication to co-financing various projects aimed at the promotion of mediation and training for judges and practitioners in the Member States. It appears that, after ten years’ investment in civil and commercial mediation since the Directive has been adopted, the perseverance will pay off.

The International Institute for Conflict Prevention and Resolution (CPR) through its European Advisory Board is working hard to fulfill the agreed-upon objectives and has recently published a guide for European corporates and organizations on the use of mediation and other ADR processes [4] that includes resources and practices to help identify disputes suitable for ADR and make the most out of them. The Guide also includes several successful case studies. There is no doubt that such efforts will eventually turn the moody blues of EU mediation into a happier upbeat melody.

FOOTNOTES:

[1] See the European Parliament’s study: “‘Rebooting’ the mediation directive”: http://www.europarl.europa.eu/thinktank/en/document.html?reference=IPOL-JURI_ET(2014)493042

[2] Report from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the application of Directive 2008/52/EC of the European Parliament and of the Council on certain aspects of mediation in civil and commercial matters. Brussels, 26.8.2016 COM(2016) 542 final http://ec.europa.eu/justice/civil/files/act_part1_adopted_en.pdf

[3] http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2017-0321+0+DOC+XML+V0//EN&language=EN

[4] https://www.cpradr.org/resource-center/toolkits/european-mediation-adr-guide

 

Javier Fernández-Samaniego is the Managing Director of the IberoAmerican law firm SAMANIEGO LAW with offices in Madrid and Miami (for Latin America) and head of its Commercial, Dispute Resolution and Tech & Comms team. He regularly serves as an arbitrator and mediator of complex international disputes and he is a member of the Institute’s CPR Panel of Distinguished Neutral and of CPR European Advisory Board. He can be reached at javier.samaniego@samaniegolaw.com.

 

Sealing of Record to Confirm Arbitration Award Rejected in Favor of Specific Redactions of Only the Most Sensitive Information

Kantor Photo (8-2012)By Mark Kantor

A decision of the US District Court for the District of Columbia in the middle of last month offers a reminder of the hurdle a party must meet in order to seal from public access the entire record of a proceeding to confirm or vacate an arbitration award.  In XPO INTERMODAL, INC. v. American President Lines, Ltd., Civ. Action No. 17-2015 (PLF) (D. D.C., October 16, 2017)(available here – https://scholar.google.com/scholar_case?case=5024133744129204150&hl=en&lr=lang_en&as_sdt=20003&as_vis=1&oi=scholaralrt), the applicant (XPO INTERMODAL) sought an order in a confirmation proceeding to seal its petition to confirm the arbitration award (denominated, oddly, as a “Binding Mediation Decision”), as well as all exhibits.  US District Court Judge Paul L. Friedman denied the request notwithstanding a confidentiality provision in the contract underlying the arbitrated dispute (“this matter can and should be open to the public to the greatest extent possible”).  But he did order that the parties seek to agree in redactions of “only the most sensitive information.”

XPO INTERMODAL sought the order to seal “its Petition to Confirm Arbitration Award, as well as two exhibits attached thereto: the Binding Mediation Decision issued by the three-member mediation panel and the parties’ Amended and Restated Stacktrain Services Agreement and Schedules A-F and Appendices 1-4 thereto.”  The Court characterized that as a request deny public access to “what, in effect, amounts to the entire substantive record in this case.”   In support, the petitioner referred to the confidentiality provisions of the services agreement out of which the underlying dispute arose, and further stated that the award and exhibits contained “highly sensitive propriety [sic] commercial information,” including information regarding the parties’ “rates and business practices.””  Apart from those general arguments, however, XPO INTERMODAL offered little to the court to justify sealing the record.

In support of its motion, applicant directs the Court to the confidentiality terms of the parties’ Services Agreement and represents that “[b]oth parties have strong property and privacy interests in maintaining the confidentiality of these documents, as they contain highly sensitive propriety [sic] commercial information,” including information regarding the parties’ “rates and business practices.” See Mot. 4. Beyond these general assertions, however, applicant’s motion proffers little to justify sealing what, in effect, amounts to the entire substantive record in this case.

The District Court began its analysis by referring to the “strong tradition” of public access to judicial proceedings.

This country has a “strong tradition of access to judicial proceedings.” United States v. Hubbard, 650 F.2d 293, 317 n.89 (D.C. Cir. 1980). “[A]s a general rule, the courts are not intended to be, nor should they be, secretive places for the resolution of secret disputes.” United States v. Bank Julius, Baer & Co., 149 F. Supp. 3d 69, 70 (D.D.C. 2015) (citing Nixon v. Warner Communications, Inc., 435 U.S. 589, 597 (1978))….

Therefore, “[t]he starting point in considering a motion to seal court records is a strong presumption in favor of public access to judicial proceedings.”  To obtain an order to seal judicial records in the Federal courts despite this presumption, the applicant must satisfy the court regarding whether there is a need for public access, the extent of prior public access, whether someone has objected to disclosure, the strength of property and privacy interests, and the purposes of the documents in the court proceeding.

To determine whether a party seeking to seal court records has overcome this presumption, courts apply a six-factor balancing test to assess:

(1) the need for public access to the documents at issue; (2) the extent of previous public access to the documents; (3) the fact that someone has objected to disclosure, and the identity of that person; (4) the strength of any property and privacy interests asserted; (5) the possibility of prejudice in those opposing disclosure; and (6) the purposes for which the documents were introduced during the judicial proceedings.

After reciting this “six-factor balancing test,” though, Judge Friedman simply jumped to his conclusion without addressing how the various factors weighed in the circumstances of this application.  The only two factors noted by the District Court Judge in his analysis were the presumption in favor of public access and the ease of redaction.

Given the strong presumption in favor of public access and the ease with which confidential information may be redacted from documents before they are publicly filed, the Court concludes that this matter can and should be open to the public to the greatest extent possible.

Importantly, Judge Friedman was not persuaded that exhibits should be sealed in their entirety “simply because they contain or refer to confidential information.”  Generalized business interests in confidentiality (even if mutual between the parties) would not suffice, especially if redaction is feasible.

First, generalized business interests in confidentiality simply “do[] not rise to the level of the privacy and property interests that courts have permitted to outweigh the public’s right of access.” ….   This is particularly so where trade secrets, pricing, and other sensitive information regarding business practices or strategies may be redacted. ….

Judge Friedman noted in particular a line of cases rejecting the argument that confidentiality provisions in the underlying contract were sufficient to provide for sealing the judicial record.

Furthermore, the parties’ mutual desire for confidentiality, without more, does not justify the sealing of the entire substantive record of the case. See Grynberg v. BP P.L.C., 205 F. Supp. 3d 1, 3 (D.D.C. 2016) (explaining that even if disclosure would violate the terms of the parties’ settlement and confidentiality agreements, such agreements between private parties “do not dictate whether documents can be filed under seal” (citing In re Fort Totten Metrorail Cases, 960 F. Supp. 2d 2, 9-11 (D.D.C. 2013))); see also Am. Prof. Agency v. NASW Assurance Serv., 121 F. Supp. 3d 21, 25 (D.D.C. 2013); Brown & Williamson Tobacco Corp. v. FTC, 710 F.2d at 1180.

The District Court acknowledged that XPO INTERMODAL’s confirmation filings appeared to contain “some potentially sensitive business information, including rates and schedules.”  Accordingly, the Court ordered the parties to seek to agree on redactions to the documents rather than complete sealing of the filings.

Here, it appears that the exhibits to applicant’s Petition do include some potentially sensitive business information, including rates and schedules, but the filings otherwise do not warrant sealing from the public. The Court thus sees no reason why the Petition itself should not be made publicly available in full, nor any reason why the exhibits thereto should not be made generally available, with only the most sensitive information redacted. The Court is confident that a more rigorous examination undertaken in good faith will lead to a more tailored and appropriate proposal for redaction.

****

FURTHER ORDERED that the parties shall confer regarding the Petition’s exhibits and submit proposed redactions to the Court on or before October 30, 2017

The simple lesson from XPO INTERMODAL is that, if the judge is paying attention, requests to seal the entirety of a judicial proceeding to confirm an arbitration award are likely to be met with an instruction instead to identify particular redactions of “only the most sensitive information.”

Mark Kantor is a CPR Distinguished Neutral and a regular contributor to CPR Speaks. 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.

Subpoenas to Arbitrators Quashed for Lack of Clear Evidence of Impropriety

Kantor Photo (8-2012)By Mark Kantor

Last week, a Magistrate Judge in the US District Court of the Eastern District of North Carolina quashed document subpoenas served on three arbitrators seeking evidence of alleged non-disclosures of relationships with counsel in connection with a FINRA securities arbitration award.  In In the Matter of Arbitration Between Shepherd, et al., v. LPL Financial LLC, No. 5:17-CV-150-D (Order, Nov. 1, 2017), Magistrate Judge Robert Jones decided that the failure by one arbitrator, Lynne T. Albert, to disclose in the current arbitration two previous arbitrations where counsel for the arbitration defendants had represented parties before her, did not constitute “clear evidence of impropriety” justifying post-award discovery from the arbitrator.  Moreover, Magistrate Judge Jones additionally rejected petitioner Shepherd’s effort to seek discovery by means of document subpoenas addressed to the two other arbitrators, Richard J. Igou and Richard S. Zaifert, which petitioner Shepherd sought to justify not on grounds of “impropriety” but rather because “the alleged impropriety by Albert makes it necessary to “double-check” the other two panelists for additional nondisclosures.”  This decision is yet another in the string of Federal court rulings rejecting aggressive efforts by disappointed parties to extend the “evident partiality” standard under the US Federal Arbitration Act for vacatur of awards due to arbitrator misconduct, as well as reiterating a high hurdle that must be met before the court will permit discovery from an arbitrator.

The Magistrate Judge first concluded that the proper standard for permitting post-award discovery from an arbitrator was “clear evidence of impropriety,” rather than the lesser general standard from Federal Rules of Civil Procedure 26(b)(1) that the information sought was “relevant to any party’s claim or defense and proportional to the needs of the case” (footnotes omitted).

the weight of persuasive case law demands a heightened showing of “clear evidence of impropriety” to obtain discovery from a non-party arbitrator. See Lucent Techs. Inc. v. Tatung Co., 379 F.3d 24, 32 (2d Cir. 2004) (concluding discovery into potential arbitrator bias was not appropriate where the party “has not presented the ‘clear evidence of impropriety’ we have held necessary before granting post-award discovery into potential arbitrator bias.”) (citing Andros v. Marc Rich & Co., A.G., 579 F.2d 691, 702 (2d Cir. 1978)); Van Pelt v. UBS Fin. Servs., No. 3:05-CV-477, 2006 WL 1698861, at * 2 (W.D.N.C. June 14, 2006) (applying the clear evidence of impropriety standard and denying discovery of an arbitrator’s employment records to determine whether he failed to disclose a material fact); see also TransAtlantic Lines LLC v. Am. Steamship Owners Mut. Prat. & Indem. Ass’n, Inc., 253 F. Supp. 3d 725 (S.D.N.Y. 2017)(“In order to take discovery from the ADR panel itself, a litigant must present ‘clear evidence of impropriety,’ such as bias or corruption.”) (citation omitted).

Arguing in the alternative, Shepherd also asserted that arbitrator Albert’s alleged non-disclosures constituted the requisite “clear evidence.”  Magistrate Judge Jones was unmoved.

Plaintiffs argue they have presented clear evidence of impropriety based on Albert’s two nondisclosures. …  The Second Circuit’s decision in the Andros case is instructive here. The Andros court determined that an arbitrator’s undisclosed professional relationship with one of the parties was insufficient to establish clear evidence of impropriety and did not justify discovery into the issue. …  The arbitrator in Andros knew the president of one of the companies involved in the arbitration, as both men previously served on 19 arbitration panels together. …  Despite claims by the opposing side that the president and arbitrator were “close personal friends,” the lower court found the relationship was professional in nature because the interactions were limited to arbitration panels and other social functions related to arbitrations. ….  Moreover, the arbitrator had no financial stake or other interest in the outcome of the arbitration. … Based on these facts, the Second Circuit affirmed the lower court’s decision and found no “clear evidence of impropriety” was presented to support an evidentiary hearing, to compel discovery, or to vacate the ruling.

The Judge considered the instant dispute to be similar to the 2nd Circuit Andros case.  The contact between Albert and the counsel in the other two arbitrations was, he wrote, “strictly professional.”  Further, the FINRA arbitration award was unanimous, and thus any “interactions” between Albert and the counsel had no impact on the result.  And, in any event, Albert eventually disclosed the “interactions” six months before petitioners chose to allege that the conduct constituted impropriety.

Similarly here, the undisclosed relationship is strictly professional-a lawyer appearing before an arbitrator-and the circumstances surrounding Albert’s nondisclosures do not give the impression of clear impropriety: Plaintiffs won the Underlying Arbitration with a unanimous award from all three panelists, including Albert…; and instead of exhibiting behavior consistent with wrongdoing, such as hiding her interactions with Defense Counsel, Albert disclosed this relationship in the June and July 2016 Arbitrations almost six months before Plaintiffs first alleged any impropriety by the Arbitrators in the Underlying Arbitration….

At bottom, “[t]o allow discovery of an arbitrator under these circumstances would “encourage the losing party to every arbitration to conduct a background investigation of each of the arbitrators in an effort to uncover evidence of a former relationship” and “increase the cost and undermine the finality of arbitration, contrary to the purpose of the United States Arbitration Act of making arbitration a swift, inexpensive, and effective substitute for judicial dispute resolution.””  Accordingly, Judge Jones quashed the subpoena addressed to arbitrator Albert.

The Judge then dealt shortly with Shepherd’s further subpoenas seeking documents from the other two arbitrators to “double-check” for possible non-disclosures (“Such reasoning is in direct conflict with a policy favoring the finality of arbitration and does not establish the requisite clear evidence of impropriety”).

With respect to Igou and Zaifert, Plaintiffs present no evidence of impropriety, but rather argue that the alleged impropriety by Albert makes it necessary to “double-check” the other two panelists for additional nondisclosures. …. Such reasoning is in direct conflict with a policy favoring the finality of arbitration and does not establish the requisite clear evidence of impropriety to justify the discovery sought from Igou and Zaifert.

Mark Kantor is a CPR Distinguished Neutral and a regular contributor to CPR Speaks. 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.

JAMS Disputes NJ’s Classification of its Operations as the Practice of Law

By Elena Gurevich

Earlier this month the New Jersey Supreme Court granted a cert petition request by JAMS, the nation’s largest private alternative dispute resolution provider, giving the organization a chance to argue that the retired lawyers and judges who serve on its neutrals’ panels are not practicing law, and therefore do not have to comply with all the state’s requirements for doing so.

In August 2016, JAMS filed a request for an advisory opinion from three New Jersey Supreme Court committees as to whether it could open an office to provide neutral services “without the requirements of a law office practice.”

Having reviewed the committee and Court opinions that guide New Jersey law practice, JAMS concluded that so long as its ADR office is “maintained as a business which does not offer or advertise traditional legal services where there is an attorney-client relationship, this business may be independently maintained, even though staffed by retired judges and lawyers who act as Neutrals in providing ADR services such as mediation, arbitration and the like and are held out to the public using the designation retired judge or ‘Esq.’ for lawyer neutrals.”

JAMS is a nearly 40-year-old Irvine, Calif.-based firm that focuses on mediating and arbitrating complex business and commercial cases via its panel of neutrals. See www.jamsadr.com. The ADR provider has offices in 14 states, the District of Columbia, and in London and Toronto.

JAMS agreed that its New Jersey lawyer-neutrals are subject to the Rules of Professional Conduct for lawyers, but argued that the New Jersey requirements for a traditional law practice “are not necessary for the provision of neutral services in the state.”

On May 1, 2017, three New Jersey Supreme Court advisory committees—the Advisory Committee on Professional Ethics, the Committee on the Unauthorized Practice of Law and the Committee on Attorney Advertising—responded to JAMS’ request with a joint advisory letter decision that says that the state’s ethics rules apply to the provider.

The consequences of the determination are that JAMS would need to open a bona fide office in the state, and maintain a trust account.

Predominantly relying upon ACPE Opinion 676/CAA Opinion 18 (April 1994)(available at http://bit.ly/2hRLF7E), the joint committee decision advised that, because the lawyers and retired judges at JAMS work as third-party neutrals, they are engaged in the practice of law and as such must “comply with the rules governing lawyers in private practice.”

On June 30, JAMS filed a petition to New Jersey Supreme Court seeking review of the joint decision. JAMS asserted that as a provider of “non-traditional legal services” it does not establish any attorney-client relationship.

The state’s top Court granted the petition on Oct. 4.

In the petition, JAMS cited a University of Baltimore law review article asserting that mediation “is not the practice of law because it is not illegal for non-lawyers to be mediators.” Robert Rubinson, “The New Maryland Rules of Professional Conduct and Mediation: Perplexing Questions Answered and

Perplexing Questions That Remain,” University of Baltimore Law Forum Vol. 36: No. 1, Article 2 at 12 (available at http://bit.ly/2yEf8fk).

The article also emphasizes the definition of mediation that involves mediators “who, without providing legal advice, assist the parties in reaching their own voluntary agreement.” That, according to the article, signified the fact that under Maryland law mediators are not practicing law.

In its joint answer brief prepared by the state attorney general’s office and filed Aug. 30, the Supreme Court committees reject the argument. saying that the Maryland law “carries no weight in New Jersey” since the jurisdiction uses a different analysis when it tries to determine if someone has engaged in the unauthorized practice of law. It explains that New Jersey “first decides whether an activity constitutes the practice of law; it then considers whether, if non-lawyers engage in that activity, it is in the public interest to permit them to continue.”

The joint answer also notes that the attorney-client relationship was “immaterial to the issue.” Instead, it focuses on the public interest and regulation of neutral services, saying it was “germane to the Committees ‘ analysis.”

According to the joint answer, the Court committees “sufficiently addressed” the public interest concerns in their decision, pointing out that JAMS’ “expressly markets its neutrals’ legal experience and skill through their roles as lawyers and retired judges.” The committees expressed their concern that JAMS’ prospective customers “are entitled to rely on that experience and those designations in their selection of a neutral, calling for proper regulation of “these individuals.”

JAMS filed a Sept. 18 reply brief arguing that “[p]ermission for N.J. admitted lawyers and retired judges to conduct a neutral practice under the JAMS umbrella does not diminish regulatory oversight or the public interest.”

JAMS asserted that it mentioned the Maryland law review article simply to “illustrate the shift by other courts throughout the nation towards acceptance of the provision of neutral services as not being tantamount to the practice of law.  . . .”

JAMS also underscored that it did not “seek to redefine how ADR practice in New Jersey fits into law,” asking the court to recognize that practice has evolved immensely over the past 20 years since Joint Opinion 676, discussed above, was issued.

The ADR provider drew the court’s attention to the dichotomy Joint Opinion 676 presented. According to the reply brief, “an ADR neutral’s practice is a part of law practice,” but the joint opinion simultaneously recognizes that non-admitted lawyers and other professionals also may practice in the field. JAMS opined, “It would be helpful and in the public interest for the court to address this dichotomy.”

JAMS expects to file a supplemental brief on or before Nov. 13, according to its attorney, Robert Margulies, of Jersey City, NJ’s Margulies & Wind. The joint committee’s response brief would be due on or before Dec.18.

The Court’s acceptance of the case was first reported in Michael Booth, “Justices Will Hear JAMS Challenge to NJ Ethics Rules,” N.J.L.J. (Oct. 10)(available at http://bit.ly/2hSuMdg).

 

The author, who has just completed her L.L.M. with a focus on IP law at Cardozo School of Law in New York, is a 2017 CPR Institute Fall Intern.

Changing the Rules: FINRA Eases Arbitration Withdrawal Requirements, While NY Courts Want Mediation Certification

By Angela Cipolla

There have been significant recent updates on rules regarding alternative dispute resolution mechanisms in the regulatory world and in courts. Below is a summary of a recently proposed amendment for FINRA arbitration rules, which is now open for comment, and the recently finalized ADR certification for courts in the New York Commercial Division.

FINRA Regulatory Notice 17-33

FINRA’s Oct. 18 Regulatory Notice 17-33 addresses the issue of unpaid customer arbitration awards. The goal of the proposed amendment to FINRA’s Code of Arbitration Procedure for Customer Disputes is to expand a customer’s options to withdraw an arbitration claim in two situations: (1) when a firm becomes inactive during a pending arbitration, or (2) where an “associated person” becomes inactive either before a claim is filed or during a pending arbitration. Both situations have not yet been addressed in existing FINRA rules.

The proposed amendment seeks to fill the gap of FINRA’s current rule, Rule 12202, “Claims Against Inactive Members.” Rule 12202 protects customers by allowing them an opportunity to “evaluate the likelihood of collecting on an award and make an informed decision whether to proceed in arbitration” against members that have been declared inactive prior to the commencement of the arbitration.

The proposed amendment addresses the issue of when a member firm becomes inactive during the course of an arbitration.  It seeks to give customers an opportunity to evaluate the decision to arbitrate, regardless of whether an existing pre-dispute arbitration agreement was signed.

Under the proposed change, FINRA would notify customers “if a member or an associated person becomes inactive during a pending arbitration,” giving the customer “60 days to withdraw the claim(s) with or without prejudice.”

The proposed amendment also seeks to add definitions of “inactive member” and “inactive associated person” under FINRA Rule 12100, “Definitions.” The proposal states that “inactive member” would be defined as “a member whose membership is terminated, suspended, cancelled or revoked; that has been expelled from FINRA; or that is otherwise defunct.”

“Inactive associated person” would be defined as a person “associated with a member whose registration is revoked or suspended, or whose registration has been terminated for a minimum of 365 days.”

FINRA also seeks to amend Rule 12309 on “Amending Pleadings,” which limits a party’s ability to amend its pleadings once a panel is appointed to the case. The proposed amendment would allow customers to amend a pleading, and add a new party within sixty (60) days of receiving notice from FINRA that a firm or associated person has become inactive.

This proposal is motivated by FINRA’s belief that a customer should have the right to change a litigation strategy after learning that a firm or associated person has become inactive and may pose a collection problem in the event of an award.

Regarding issues of postponement, FINRA proposes to amend Rule 12601 to allow a customer, upon notice from FINRA of a firm or associated person’s status change, to postpone the hearing date if such notice was within sixty (60) days of the scheduled hearing.

In this situation, FINRA also proposes to waive the usual postponement fee and/or additional fees per arbitrator if a customer chooses to exercise the right to postpone. To honor the arbitrators’ time, FINRA would amend Rule 12214 and would take it upon itself to pay the arbitrators’ fee if a customer postpones within ten (10) days before a scheduled hearing due to the inactive status of the firm or associated person against whom the customer has filed for relief.

FINRA has proposed to amend FINRA Rule 12801(a) to allow claimants to “request a default proceeding against a terminated associated person who fails to file an answer within the time provided in the Code regardless of the number of days since termination.”  The change would allow, for example, a customer to start a default proceeding against an associated person who left a firm, but remains active at another firm and failed to answer a claim.

Finally, FINRA’s proposed rules amendment includes a revision to Rule 12900, “Fees Due When a Claim is Filed,” which would allow for a customer to receive a full refund of the filing fee if FINRA provided notice of a status change of a firm or associated member to inactive, and the case is withdrawn within 60 days of the notification.

FINRA is receiving comments on the proposed amendments until Dec. 18; submissions can be emailed to pubcom@finra.org or mailed to FINRA’s Office of the Corporate Secretary.

The full copy of the regulatory notice can be found at http://bit.ly/2yOHQbx.

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New York Commercial Division Rule: Amendment to Rules 10 and 11 of Section 202.70(g)

On Oct. 11, New York Courts Chief Administrative Judge Lawrence K. Marks signed an order that amended Rules 10 and 11 of Section 202.60(g) of the “Rules of Practice for the Commercial Division.” (22 NYCRR 202.70).

The rule changes represent an effort on behalf of the New York state courts’ Commercial Division to emphasize the use of alternative dispute resolution procedures among litigating parties.

Rule 10, “Submission of Information,” will now include an amendment, “Certification Relating to Alternative Dispute Resolution.”  The certification, a form for which was annexed to Marks’ order, will require each party to submit to the court a certifying statement which states that counsel and the party discussed the availability of alternative dispute resolution mechanisms—including those “provided by the Commercial Division and/or private ADR providers.”

The statement also must specify whether the party is “presently willing to pursue mediation at some point during the litigation.”

Additionally, the change for Rule 11 on discovery will now require that preliminary conference orders include, where appropriate, “a specific date by which a mediator shall be identified by the parties for assistance with resolution of the action.” This requirement will take effect in cases that the parties certify their willingness to pursue mediation, pursuant to the amended Rule 10.

These amendments have been adopted by the Unified Court System’s Administrative Board and will take effect on Jan. 1, 2018.

The original proposal was explained in this April 10 memorandum: http://bit.ly/2gEmZ2n. Judge Marks’ order, with the certification form, is available at http://bit.ly/2zQhxld.

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The author is a Fall 2017 CPR Institute Intern.

The Reaction: Here’s What They’re Saying in the Wake of the Senate’s Vote to Overturn the CFPB Arbitration Rule

By Elena Gurevich and Russ Bleemer

Last night in a narrow 51-50 vote, Senate Republicans overturned the Consumer Financial Protection Bureau rule that would have allowed the consumers to file class action suits against financial institutions and prohibited waivers of such processes accompanied by mandatory predispute arbitration.

Vice President Mike Pence cast the deciding vote.  See our blog post from earlier today here.

According to the New York Times, “By defeating the rule, Republicans are dismantling a major effort of the Consumer Financial Protection Bureau, the watchdog created by Congress in the aftermath of the mortgage mess.” See Jessica Silver-Greenberg, “Consumer Bureau Loses Fight to Allow More Class-Action Suits,” N.Y. Times (Oct. 24)(available at http://nyti.ms/2yL9eHn)

Reuters, noting that the House already passed the resolution repealing the rule soon after it was released in July, observed that the resolution under the Congressional Review Act “also bars regulators from instituting a similar ban in the future.” Lisa Lambert, “Republicans, Wall Street score victory in dismantling class-action rule,” Reuters (Oct. 24)(available at http://cnb.cx/2yQd8B2).

Moments after the vote, the White House issued a statement applauding Congress for passing the resolution and stating that a recent Treasury Department report was clear evidence that “the CFPB’s rule would neither protect consumers nor serve the public interest.” The White House statement is available at http://bit.ly/2yLFOew.

President Trump is expected to sign the resolution the moment it hits his desk. This, according to Reuters, will “abruptly end a years-long fight that has included multiple federal regulators, consumer advocacy groups, and financial lobbyists.”

In its blog that closely monitors the CFPB, consumerfinancemonitor.com, Ballard Spahr, a Philadelphia-based law firm, congratulated the Senate for “its courageous action and for recognizing . . . that arbitration benefits consumers, while class action litigation benefits only the plaintiffs’ bar.”

Keith A. Noreika, the acting Comptroller of the Currency, issued a statement praising the vote and calling it “a victory for consumers and small banks across the country.” Noreika stressed the crucial role of the OCC that “identified the rule’s likely significant effect on consumers.” The OCC statement is available at http://bit.ly/2gJ1rFC.

Late Tuesday night, Sen. Elizabeth Warren, D. Mass., who was among those who defended the rule this week wrote on Twitter, “Tonight @VP Pence & the @SenateGOP gave a giant wet kiss to Wall Street. No wonder Americans think the system is rigged against them. It is.”

CNN reported that “Consumer advocates said the vote was a tremendous setback for Americans, and that it offered companies like Wells Fargo and Equifax ‘a get-out-of-jail-free card.’” Donna Borak & Ted Barrett, “Senate kills rule that made it easier to sue banks,” CNN (Oct. 25)(available at http://cnn.it/2zCxJFN).

CNN also quoted Karl Frisch, executive director of Washington’s Allied Progress, a consumer watchdog group, who said that “This repeal will hurt millions of consumers across the country by denying them their rightful day in court when they get screwed over by financial predators.”

Public Citizen, a Washington, D.C., nonprofit consumer advocacy group echoed this sentiment, tweeting that the “#RipoffClause enables bad actor banks like @WellsFargo to steal billions from the very consumers they defraud and get off scot free.”

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Gurevich is a CPR Institute 2017 Fall Intern. Bleemer edits Alternatives for the CPR Institute.

The CFPB’s Arbitration Rule is Overturned by the Senate

By Elena Gurevich and Russ Bleemer

Just a day after the U.S. Treasury Department issued a report criticizing a controversial Consumer Financial Protection Bureau rule that prohibited class waivers requiring consumers use mandatory predispute arbitration for disputes, the U.S. Senate voted on October 24 to overturn the rule.

The House in July had voted to overturn the rule under the Congressional Review Act, which gives Congress 60 legislative-session days to reverse administrative rulings it disagrees with.

The bill will go to President Trump, who is expected to sign it.

The legislative moves will overturn five years’ worth of efforts to roll back the use of class waivers accompanied by arbitration by the CFPB, which was designated by the 2010 Dodd-Frank Act to examine the utility of the ADR process in consumer disputes.

A 728-page 2015 study by the independent Washington agency said that arbitration was ineffective in vindicating consumers’ rights in financial services contracts, which are under the CFPB’s jurisdiction. The agency vowed to regulate arbitration.

After the report, Republicans, who long said the agency was too powerful, used the CFPB’s moves to increase calls to eliminate the agency in last year’s presidential campaign.

Late last night, Jeb Hensarling, R., Texas,  who as House Judiciary Committee chair led the fight against the rule, congratulated the Senate, noting in a statement on his social networks that the vote “is a victory for consumers, a defeat for the wealthy trial lawyers lobby and a rejection of the unchecked, unconstitutional and unaccountable CFPB.”

The CFPB had finalized its rule and published it July 19. It would have fully taken effect next year after a 180-day waiting period.

The rule, however, didn’t outlaw arbitration, though it increased the CFPB’s scrutiny by requiring reporting. The rule instead required that class processes, in either litigation or arbitration, be made available to consumers signing financing contracts or purchasing financial services.

Business lawyers, lobbyists and trade groups said the rule would wipe out financial services arbitration, because companies would rather face class action in courts, under familiar federal rules, than class arbitration with few outlets for appeal.

The Senate didn’t follow the House’s quick lead because it didn’t have the votes to overturn the rule, with some Republicans fearing a backlash for voting to support a banking industry-approved bill in the wake of scandals that invoked arbitration.

In fact, the Senate was split evenly, with two Republicans, Lindsay Graham, of South Carolina, and John Kennedy, of Louisiana, joining the Democrats. Vice President Mike Pence joined fellow Republicans to cast the deciding vote.

Treasury might have brought a senator or two to the side of overturning the law. On Monday, in a highly unusual move, the Treasury Department issued a 17-page report blasting the rule. See “Limiting Consumer Choice, Expanding Costly Litigation: An Analysis of the CFPB Arbitration Rule,” U.S. Dept. of the Treasury (Oct. 23)(available at http://bit.ly/2h0N7VB).

According to the Washington Post, Jaret Seiberg, an analyst with Cowen and Co.’s Washington Research Group, said that the Treasury Department report “[p]rovides some needed political cover for the few Senate Republicans who have been reluctant to vote in favor of the banks.” See Renae Merle, “Treasury Department sides with Wall Street, against federal consumer watchdog agency on arbitration rule,” Washington Post (Oct. 23)(available at http://wapo.st/2zxMABI).

It wasn’t the first Washington institution to fire back at one of its own on arbitration.  Earlier this month, the CFPB report and rule had been the subject of a heated argument between Keith A. Noreika, the acting U.S. Comptroller of the Currency, and Richard Cordray, the CFPB’s director.

Noreika slammed the CFPB’s action in an article on the Beltway website The Hill.  See “Senate should vacate the harmful consumer banking arbitration rule,” The Hill (Oct. 13)(available at http://bit.ly/2izENzT).

According to Noreika, the CFPB failed to support its case and “failed to disclose the costs to consumers that will likely result from the rule’s implementation.”

Soon after Noreika’s post, Cordray responded, stating that Noreika’s claims were “bogus” and “out of the blue.” See “The truth about the arbitration rule is it protects American consumers,” The Hill (Oct. 16)(available at http://bit.ly/2gIHbk2).

Added Cordray, “Why should Wells Fargo be able to block groups of customers from suing over fake accounts? Why should Equifax be able to force people to surrender their legal rights when the company put their personal information at risk?”

For more on yesterday’s vote, see Jessica Silver-Greenberg, “Consumer Bureau Loses Fight to Allow More Class-Action Suits,” N.Y. Times (Oct. 24)(available at http://nyti.ms/2yL9eHn).

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Gurevich is a CPR Institute 2017 Fall Intern. Bleemer edits Alternatives for the CPR Institute.

A Lesson from the Third Circuit on Arbitration Clauses: Say What You Mean

orlofskygreenspan
By Stephen M. Orlofsky and Deborah Greenspan, Blank Rome LLP

A recent decision by the United States Court of Appeals for the Third Circuit reminds us that when we want an arbitration clause to apply in certain situations or to certain parties, we have to build that intention into the plain terms of the contract.  In White v. Sunoco, Inc., — F.3d —, No. 16-2808, 2017 WL 3864616 (3d Cir. Sept. 5, 2017), Sunoco promoted the “Sunoco Awards Program,” under which customers who used a Citibank-issued “Sunoco Rewards Card” credit card were supposed to receive a 5-cent per gallon discount on gasoline purchased at Sunoco gas stations. The promotional materials included a document entitled “Terms and Conditions of Offer,” which indicated that Citibank issued the Sunoco Rewards Card and applicants had to meet Citibank’s creditworthiness criteria to obtain the credit card.

Plaintiff Donald White obtained the Sunoco Rewards Card and realized that Sunoco did not apply the 5-cent discount on all fuel purchases at every Sunoco location. He then brought various class action claims for fraud against Sunoco, alleging that Sunoco omitted that limitation to the rewards program from the promotional materials to induce customers to sign up for the Sunoco Rewards Card and patronize Sunoco gas stations.

The Sunoco Rewards Card is governed by a card agreement, which White obtained from Citibank when he first obtained the credit card. The only parties to the card agreement were Citibank and White.  Sunoco was not a signatory to the card agreement. Neither Sunoco nor the 5-cent discount program are mentioned in the card agreement.

After White brought his lawsuit, Sunoco filed a motion to compel arbitration based on the arbitration clause in the card agreement. The card agreement provided that either party to the card agreement could elect mandatory arbitration to resolve any disputes between them: “[e]ither you or we may, without the other’s consent, elect mandatory, binding arbitration for any claim … between you and us.” The card agreement defined ‘we’ and ‘us’ as Citibank – the card issuer and ‘you’ as the card holder. In a paragraph entitled “Whose Claims are subject to arbitration?” the agreement stated, “[n]ot only ours and yours, but also claims made by or against anyone connected with us or you or claiming through us or you, such as a co-applicant or authorized user of your account, an employee, agent, representative, affiliated company, predecessor or successor, heir, assignee, or trustee in bankruptcy.” The key issue on Sunoco’s motion to compel arbitration was whether Sunoco could invoke the arbitration provision even though it was not a signatory to the card agreement.

The District Court denied Sunoco’s motion to compel, holding that the agreement itself did not allow a non-signatory to invoke the arbitration clause and that Sunoco could not compel arbitration under any contract, agency or estoppel principles because it was not a third-party beneficiary of the card agreement or an agent of Citibank and that estoppel principles did not apply. Accordingly, the District Court denied the motion to compel arbitration.

On appeal, Sunoco argued that its promotional materials and Citibank’s card agreement had to be considered as an “integrated whole” contract between White, Citibank, and Sunoco. The Third Circuit disagreed, noting that Sunoco’s promotional materials were not an “offer” such that they supplied any terms or obligations to be integrated with the card agreement. The court also reasoned that Sunoco failed to identify any ambiguity in the card agreement that would allow it to use the promotional materials as parol evidence to construe the meaning of the card agreement.

Sunoco also argued that it was “connected” to Citibank for purposes of the card agreement’s “Whose Claims” provision and that under that provision, “connected” entities such as Sunoco could demand arbitration for resolution of any claims relating to the Sunoco Rewards Card. The court disagreed with this argument, too, finding that Sunoco confused the “nature of the claims covered by the arbitration clause with the question of who can compel arbitration.” The court found that the “Whose Claims” clause applied to the former and that the arbitration clause applied to the latter. The court concluded that “[n]owhere does the agreement provide for a third party, like Sunoco, the ability to elect arbitration or to move to compel arbitration.” Finally, the court expressed its skepticism that Sunoco’s and Citibank’s joint marketing efforts rendered the two “connected” entities for purposes of the “Whose Claims” provision, especially since Sunoco was not even mentioned in the card agreement.

Judge Roth filed a dissenting opinion in which she concluded that because Citibank and Sunoco were jointly involved in the paper process by which a customer could obtain a Sunoco Rewards Card, the card agreement and promotional materials comprised an integrated contract between White, Citibank and Sunoco. In support of her opinion, Judge Roth drew on the legal precept that multiple documents may constitute a single contract and reasoned that the nature and terms of the various documents, including their internal references to and dependence on each other, indicated that the parties’ intent was for the promotional materials and card agreement to be read together as one contract. Based on that characterization of the contract, Judge Roth concluded that Sunoco was a party to the contract and that the parties’ intent was to allow Sunoco to invoke the mandatory arbitration clause Judge Roth also disagreed with the majority’s reading of the provisions of the card agreement describing the mechanism for electing mandatory arbitration as allowing only the signatories—Citibank and White—to make that election. Judge Roth concluded that the majority’s reading was overly narrow and neglected to account for or harmonize other provisions in the card agreement.

Both the majority and the dissent turn on the contract language. (Although Judge Roth’s dissent contends that the contract is not limited to the card agreement, the ultimate conclusion is that the majority misread the arbitration election clause to preclude a non-signatory from invoking arbitration.) The majority’s critical conclusion was that: “[n]owhere does the agreement provide for a third party, like Sunoco, the ability to elect arbitration or to move to compel arbitration.” If Sunoco and Citibank intended the card agreement to govern Sunoco’s relationship with White, in addition to Citibank’s relationship with White, Sunoco and Citibank easily could have included a clear provision in the agreement so stating.  But they didn’t—and perhaps more significantly, Sunoco’s name was nowhere to be found in the agreement.

Sunoco’s omission was not a fluke. Days after the Third Circuit issued its opinion in White, the court in Pacanowski v. Alltran Financial, LP, — F. Supp. 3d —, No. 3:16-CV-1778, 2017 WL 4151181, at *4 (M.D. Pa. Sept. 19, 2017) considered an identical arbitration provision in another card agreement. Relying on White, the court held that “because the plain language of the Card Agreement does not provide for non-signatories to initiate arbitration proceedings, Alltran cannot compel arbitration against Pacanowski in the instant case.”

Obviously, companies may want to consider revising this form credit card agreement. But the lesson of White applies more generally: if a party wants an arbitration clause in a contract to apply broadly to multiple claims or multiple parties—including non-signatories (where agency, third party beneficiary or estoppel principles might not apply), it needs to say so.

Stephen Orlofsky leads Blank Rome LLP’s appellate practice and is the administrative partner of the firm’s Princeton, New Jersey office. Judge Orlofsky concentrates his practice in the areas of complex litigation and alternative dispute resolution. He can be reached at Orlofsky@BlankRome.com.

Deborah Greenspan is a leading advisor on mass claims strategy and resolution. Her practice focuses on class actions, mass claims, dispute resolution, insurance recovery, and mass tort bankruptcy. She can be reached at DGreenspan@BlankRome.com.