More Class: Fifth Circuit Sends Arbitrability to the Court, Not the Tribunal

By Hew Zhan Tze

The Fifth U.S. Circuit Court of Appeals recently held that class arbitrability is to be determined by the Court instead of the arbitrators in a class arbitration case.  20/20 Comms. Inc. v. Lennox Crawford, No. 18-10260 (5th Cir. July 22, 2019). The case appears to add a level of inquiry in the subject matter that may run counter to a U.S. Supreme Case earlier this year.

Several employees of 20/20 Communications, a marketing firm based in Fort Worth, Texas, filed individual arbitration claims against the employer. The arbitrator commenced a class arbitration despite an arbitration agreement contract clause prohibiting the consolidation of individual claims, “on the theory that the parties’ class arbitration bar is prohibited by federal law.”

Following the views of the Fourth, Sixth, Seventh, Eighth, Ninth and Eleventh Circuits, the Fifth Circuit held that where class arbitration is an issue, a legal presumption arises that the Court will determine the availability of class arbitration unless the arbitration agreement contained clear and unmistakable language to the contrary.

The Fifth Circuit, in a unanimous opinion written by Circuit Judge James C. Ho, reversed the decisions of two district courts. In one case, the district court held that the arbitration agreement authorized the arbitrator to determine class arbitrability instead of the court. See 20/20 Comms. Inc. v. Randall Blevins, No. 4:16-cv-00810-Y (N.D. Tex.) (Means, J.). In the other case, the district court held that the class arbitration bar was unenforceable under the National Labor Relations Act. See 20/20 Comms. Inc. v. Lennox Crawford, No. 4:17-cv-929-A (N.D. Tex.) (McBryde, J.).

The Fifth Circuit determined that class arbitrability is a gateway issue for the court. It rejected the employee’s arguments that the delegation provisions in the arbitration agreement clearly and unmistakably delegated the determination of class arbitrability to the arbitrator.

The circuit court said class arbitrability falls under the category of a gateway issue which would presumptively be determined by the courts because (i) the increased size and complexity of the dispute, (ii) the due process concerns that are raised and (iii) the privacy and confidentiality of the parties may be compromised.

While these factors point toward class arbitrability being a gateway issue, the appeals court stops short of elaborating on why arbitrators are not well-equipped to handle these concerns. An arbitrator could undertake these considerations and determine not to consolidate the individual claims.

Regardless, it means that the court could be involved despite the parties’ attempt to resolve the dispute via arbitration. Additionally, to the extent the employee can bargain, the individual may not reach an agreement with the employer to use the “clear and unmistakable” language sought by the courts to override the legal presumption that the court is to decide class arbitrability.

Having raised the legal presumption that class arbitrability is to be determined by the court, not the arbitrator, the court’s next task, according to the Fifth Circuit, would be to assess whether the arbitration agreement contained delegation provisions in clear and unmistakable language that would override the legal presumption. The circuits courts are currently split on whether traditional delegation provisions are sufficient to override this legal presumption.

The Arbitration Nation blog points out that in the Second, Tenth and Eleventh Circuits, traditional delegation provisions which submits any dispute to the arbitrator were held to be sufficient to overcome the presumption, citing Wells Fargo Advisors LLC v. Sappington, 884 F. 3d 392 (2nd Cir. 2018) and Spirit Airlines, Inc. v. Maizes, 899 F. 3d 1230 (11th Cir. 2018). See Henry Allen Blair, “The Fifth Circuit Weighs in About Who Decides Class Arbitrability,” Arbitration Nation (July 28) (available at http://bit.ly/2KqcIFu). It is noted that the Tenth Circuit held similarly in Dish Network L.L.C. v. Matthew Ray, 900 F.3d 1240 (10th Cir. 2018).

On the other hand, Blair’s Arbitration Nation post notes that the Third, Fourth, Sixth and Eighth Circuits concluded that notwithstanding traditional delegation provisions or provisions incorporating institutional rules which delegates the decision of class arbitrability to the arbitrator, the decision of class arbitrability still lies with the Court. See Opalinski v. Robert Half Intern Inc., 761 F. 3d 326 (3rd Cir. 2014); Dell Web Communities Inc. v. Carlson, 817 F.3d 867 (4th Cir. 2016); Reed Elsevier Inc. v. Crockett, 734 F. 3d 594 (6th Cir. 2013), and Catamaran Corp. v. Towncrest Pharmacy, 864 F. 3d 966 (8th Cir. 2017), among others.

In the Fifth Circuit Crawford opinion, typical delegation provisions were included in the arbitration provision. Interestingly, after a brief discussion of the delegation provisions at issue, the court stated that it ultimately need not make a conclusion on “[w]hether these provisions, standing alone, clearly and unmistakably empower the arbitrator to decide questions of class arbitrability.” Instead, the Court considered it sufficient to compare the class arbitration bar at issue with the delegation provisions to reach the conclusion that none of the provisions “state with the requisite clear and unmistakable language that arbitrators, rather than courts, shall decide questions of class arbitrability.”

The Fifth Circuit’s conclusion raises an important question: What language used in the arbitration agreement would be clear and unmistakable enough to overcome the legal presumption that it is the courts that will decide class arbitrability instead of the arbitrators when there is a contractual clause barring class arbitration?

“[T]here is tension in this decision,” notes Philip J. Loree Jr., of New York’s Loree & Loree, who closely watches class arbitration cases, “and I think the culprit is the Court’s ruling that the clarity of the class arbitration waiver should be considered as evidence that the parties did not clearly and unmistakably  intend arbitrators to decide arbitrability.”

Loree notes in an email, “Whether or not the class arbitration waiver is clear and unmistakable says nothing about who is supposed to interpret and apply the waiver. This, he notes, gives the impression that the Fifth Circuit is —perhaps unintentionally— making an end around this year’s U.S. Supreme Court rejection of the “wholly groundless” exception to the clear and unmistakable rule set out in Henry Schein, Inc. v. Archer And White Sales, Inc., 139 S.Ct. 524 (2019) (available at http://bit.ly/2YLDkWQ) (see Mark Kantor, “Implications of Henry Schein and New Prime US Supreme Court Decisions,” CPR Speaks (Jan. 22) (available at http://bit.ly/33d5nSo).

Loree notes that where an arbitrator ignores the parties’ clear and unmistakable class arbitration waiver, the award would presumably be vacated under Federal Arbitration Act Section 10(a)(4), following the Supreme Court’s decisions in Stolt-Nielsen S.A v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758 (2010) and Oxford Health Plans LLC v. John Ivan Sutter, 133 S.Ct. 2064 (2013).

“But rather than allow that scenario to play itself out,” he continues, “the Fifth Circuit has effectively conflated the clarity of the contract on the merits issue (class arbitration consent) with the clarity of the contract on the issue of who gets to decide class arbitration consent.”

This, according to Loree, runs counter to the Supreme Court’s Schein decision.

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The author is a CPR Institute summer intern.

 

Update: Legislatures on Invalidating Pre-Dispute Arbitration Agreements

By Andrew Garcia

A federal court has slowed the momentum by legislatures—in this case, New York state’s—to bar arbitration in employment cases. A New York U.S. District Court judge has struck down the application of a recent state law which allowed employees to avoid mandatory pre-dispute employment agreements to arbitrate sexual harassment claims.

The statute at issue, NYCPLR § 7515, originally passed and signed into law a year ago, aimed to void arbitration clauses in employment contracts that require the use of arbitration proceedings to resolve workplace sexual harassment claims in New York state. In June, the New York Senate and Assembly passed amendments to § 7515 that expanded this prohibition to agreements that sought to arbitrate all workplace discrimination claims.

This year’s bill, awaiting Gov. Andrew Cuomo’s expected signature (see http://bit.ly/2SKnH0c), was a victory for lawmakers like the sponsor, State Democratic Senator Alessandra Biaggi. (She wrote on Twitter on June 19: “6 months & 2 public hearings later, we passed #BiaggiBill S6577 to expand protections for survivors, & hold New York employers, agencies, & organizations liable for all forms of workplace sexual harassment and discrimination.” See @SenatorBiaggi.)

But any victories may be short-lived. A federal court found that the currently enacted version of § 7515 was preempted by the Federal Arbitration Act and therefore invalid about a week after the amendments passed both New York houses.

On June 26, U.S. District Court Judge Denise Cote issued an opinion that deemed a recently modified New York State law preempted by the Federal Arbitration Act.  Latif v. Morgan Stanley & Co. LLC et al., No. 18cv11528 – Document 52 (S.D.N.Y. 2019) (available at http://bit.ly/2y9w6AL). In Latif, the plaintiff filed a suit against his employer, alleging discrimination and sexual assault claims. At the beginning of his employment, Latif signed an offer letter that incorporated by reference Morgan Stanley’s CARE Arbitration Program Arbitration Agreement.

Judge Cote found that the application of § 7515 to invalidate the parties’ agreement to arbitrate Latif’s claims would be inconsistent with the FAA. The opinion states that § 7515 does not displace the FAA’s presumption that arbitration agreements are enforceable. Judge Cote did not address the viability of § 7515 in purely an intrastate matter where the FAA would not be implicated.

The recently passed amendments to § 7515 are part of a growing trend in state and federal legislatures to pass laws that ban pre-dispute arbitration agreements for sexual harassment claims and more. In 2018, the Maryland legislature passed the Disclosing Sexual Harassment in the Workplace Act, which prohibited employers from enforcing arbitration agreements for sexual harassment or retaliation claims. In Vermont, the legislature passed “An Act Relating to the Prevention of Sexual Harassment,”  which prohibited agreements that prevent an employee from filing a sexual harassment claim in court.

The states have moved faster than Congress, but there is no shortage of proposals at the federal level. In the current session, there have been at least 11 new bills introduced to amend the FAA, the Fair Labor Standards Act, or the National Labor Relations Act to prohibit most employment and consumer pre-dispute arbitration agreements.

Table 1: 116th Legislative Session Bills Pertaining to Arbitration (Senate = S; House = HR)

Bill Name Bill Number Sponsors Current Status
Forced Arbitration Injustice Repeal (FAIR) Act S. 610 Sen. Richard Blumenthal, D., Conn. 2/28/19: Introduced
H.R. 1423 Rep. Hank Johnson, D., Ga. 4/8/19: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law
Bringing an End to Harassment by Enhancing Accountability and Rejecting Discrimination (BE HEARD) in the Workplace Act S. 1082 Sen. Patty Murray, D. Wash. 4/9/19: Introduced
H.R. 2148 Rep. Katherine Clark, D. Mass. 5/3/19: Referred to the Subcommittee on the Constitution Civil Rights, and Civil Liberties
Restoring Justice for Workers Act S. 1491 Sen. Patty Murray D., Wash. 5/15/19: Introduced and referred to the Committee on Health, Education, Labor, and Pensions.
H.R. 2749 Rep. Jerrold Nadler, D., N.Y. 6/26/19: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law
Ending Forced Arbitration of Sexual Harassment Act H.R. 1443 Rep. Cheri Bustos, D. Ill. 4/8/19: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law
Restoring Statutory Rights and Interests of the States Act S. 635 Sen. Patrick Leahy, D., Vt. 2/28/19: Introduced
Preventing Risky Operations from Threatening the Education and Career Trajectories of (PROTECT) Students Act S. 867 Sen. Margaret Wood Hassan, D. N.H. 3/26/19: Referred to the Committee on Health, Education, Labor, and Pensions
Court Legal Access and Student Support (CLASS) Act S. 608 Sen. Richard Durbin, D., Ill. 2/28/19: Referred to the Committee on Health, Education, Labor, and Pensions
H.R. 1430 Rep. Maxine Waters, D. Calif. 4/8/19: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law
Safety Over Arbitration Act S. 620 Sen. Sheldon Whitehouse, D., R.I. 2/28/19: Referred to the Committee on the Judiciary
Arbitration Fairness for Consumers Act S. 630 Sen. Sherrod Brown, D., Ohio 2/28/19: Referred to the Committee on Banking, Housing, and Urban Affairs
Justice for Servicemembers Act H.R. 2750 Rep. David Cicilline, D. R.I. 6/26/2019: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law

 

Ending Forced Arbitration for Victims of Data Breaches Act H.R. 327 Rep. Ted Lieu, D. Calif. 1/25/19: Referred to the Subcommittee on Consumer Protection and Commerce

The bill with the most co-sponsors (215 House members and 34 Senators) and the most prominent media coverage is the Forced Arbitration Injustice Repeal (FAIR) Act, which would ban pre-dispute arbitration in employment, consumer, antitrust, and civil rights disputes. Introduced in both the House and the Senate, the FAIR Act was recently referred to the House Subcommittee on Antitrust, Commercial, and Administrative Law.

Another bill with growing support (96 House members and 18 Senators co-sponsoring) is the Bringing an End to Harassment by Enhancing Accountability and Rejecting Discrimination (BE HEARD) in the Workplace Act. The BE HEARD in the Workplace Act bans all pre-dispute arbitration agreements that require arbitration of a work dispute, and all post-dispute arbitration agreements where an employee’s consent was coerced, or if the agreement was not in sufficiently plain language likely to be understood by the average worker.

The BE HEARD in the Workplace Act would also amend the NLRA to expand “Unfair Labor Practices” to situations where an employer enters into or attempts to enforce any agreement that prevents litigation, or support of joint, class, or collective claims arising from or relating to the employment of a worker, coerces the worker to enter into such an agreement, and retaliates against a worker for refusing to enter into such an agreement. The House bill, sponsored by Rep. Katherine Clark, D., Mass., is currently in the Subcommittee on the Constitution, Civil Rights, and Civil Liberties.

Another key bill, with 48 members of the House and 18 Senators co-sponsoring, is the Restoring Justice for Workers Act. This bill would amend the NLRA to prohibit pre-dispute arbitration agreements that require arbitration of work disputes, retaliation against workers for refusing to enter into arbitration agreements and ensure that post-dispute arbitration agreements are “truly voluntary.” The House bill, sponsored by Rep. Jerrold Nadler, D., is currently in the Subcommittee on Antitrust, Commercial, and Administrative Law.

The Latif holding that the FAA preempts § 7515 might push federal and state lawmakers to accelerate the momentum of the pending federal legislation. Judge Cote in Latif notes that the law already had been cited by the U.S. Supreme Court, in dissent, as an example of state action that seeks to protect workers’ ability to bring sexual harassment suits in court in the wake of other top court decisions backing employment arbitration. See Lamps Plus v. Varela, 139 S. Ct. 1407, 1422 (2019) (Ginsburg, J., dissenting) (available at http://bit.ly/2GxwFbC).

Although legislation that has sought to ban fully pre-dispute arbitration agreements has not been successful, this could change given the political landscape and outcome of the 2020 election.

The author, a Summer 2019 CPR Institute intern, is a law student at Brooklyn Law School.

 

 

CMS Finalizes Rule on Nursing Home Pre-Dispute Arbitration Agreements

By Mark Kantor

Kantor Photo (8-2012)

You will recall the controversy during the Obama Administration over the use of mandatory pre-dispute arbitration agreements by nursing homes.  Last week, the Centers for Medicare & Medicaid Services (CMS) of the U.S. Department of Health and Human Services finalized a revised rule (the 2019 Final Rule) removing the prohibition in the 2016 Rule on pre-dispute arbitration agreements for long-term healthcare facilities but keeping provisions from the 2016 rule “banning facilities from requiring that residents sign arbitration agreements as a condition of admission to a facility” and “specifying that a resident’s right to continue to receive care at the facility must not be contingent upon signing an arbitration agreement.”

Many thanks to Beth Graham and Karl Bayer’s Disputing Blog for following these developments – see www.disputingblog.com/cms-issues-final-rule-allowing-pre-dispute-nursing-home-arbitration-agreements/ .

As M-and-A participants will recall, CMS promulgated a rule in October 2016 barring long-term care facilities (e.g., nursing homes) from Medicare and Medicaid programs unless the facility gave up provisions requiring pre-dispute binding arbitration agreements between LTC facilities and their residents.  The 2016 Rule:

“prohibit[ed] LTC facilities from entering into pre- dispute, binding arbitration agreements with any resident or his or her representative, or requiring that a resident sign an arbitration agreement as a condition of admission to the LTC facility. It also required that an agreement for post-dispute binding arbitration be entered into by the resident voluntarily, that the parties agree on the selection of a neutral arbitrator, and that the arbitral venue be convenient to both parties. The arbitration agreement could be signed by another individual only if allowed by the relevant state’s law, if all of the other requirements in this section were met, and if that individual had no interest in the facility. In addition, a resident’s right to continue to receive care at the facility post-dispute could not be contingent upon the resident or his or her representative signing an arbitration agreement. The arbitration agreement could not contain any language that prohibited or discouraged the resident or anyone else from communicating with federal, state, or local officials, including but not limited to, federal and state surveyors, other federal and state health department employees, and representatives of the Office of the State Long-Term Care Ombudsman. In addition, when a LTC facility and a resident resolved a dispute through arbitration, a copy of the signed agreement for binding arbitration and the arbitrator’s final decision was required to be retained by the facility for 5 years and be available for inspection upon request by the Centers for Medicare & Medicaid Services (CMS) or its designee.

The 2016 Rule was preliminarily enjoined nationwide by the U.S. District Court for the Northern District of Mississippi in November 2016 as a result of litigation brought by the American Health Care Association and a group of affiliated nursing homes.  Promptly thereafter, CMS issued an instruction calling for non-enforcement of the 2016 Rule’s pre-dispute arbitration agreement provisions.  In 2017, the new Trump Administration issued proposed revisions to the 2016 Rule.  CMS sought public comment on the 2017 proposed rule, receiving over 1,000 comments including many from groups that advocate for the rights of older adults, residents in nursing homes or people with disabilities, as well as State Offices of the Long-Term Care Ombudsman.

Last week, CMS finalized and issued a revised 2019 Final Rule at 84 Fed. Reg. 34718 (July 18, 2019, available at https://www.govinfo.gov/content/pkg/FR-2019-07-18/pdf/2019-14945.pdf), making some changes to its proposed revised rule but retaining the removal of the core prohibition on pre-dispute arbitration agreements for long-term healthcare facilities.  Significantly, the final rule keeps important provisions from the 2016 Rule “banning facilities from requiring that residents sign arbitration agreements as a condition of admission to a facility” or “specifying that a resident’s right to continue to receive care at the facility must not be contingent upon signing an arbitration agreement.”  The 2019 Final Rule also modifies in some respects the transparency requirements offered in the 2017 proposed rule.  The CMS short summary of the Final Rule states as follows.

We have reviewed all of the comments received and considered the concerns raised by all stakeholders. As a result, we have made some revisions to the proposed rule in response to public comments. Specifically, as discussed in detail below, we are finalizing our proposals to remove the requirement at § 483.70(n)(1) precluding facilities from entering into pre-dispute, binding agreements for binding arbitration with any resident or his or her representative, and the provisions at § 483.70(n)(2)(ii) regarding the terms of arbitration agreements. We are not finalizing the proposed removal of the provision at § 483.70(n)(2)(iii) banning facilities from requiring that residents sign arbitration agreements as a condition of admission to a facility. Therefore, facilities will continue to be prohibited from requiring any resident or his or her representative to sign an agreement for binding arbitration as a condition of admission to the facility. In addition, to address commenters’ concerns that facilities may still coerce or intimidate the resident and his or her representative into signing the agreement, the facility must explicitly inform the resident or his or her representative that signing the agreement is not a condition of admission and ensure that this language is also in the agreement. We are finalizing provisions requiring that arbitration agreements be in a form and manner that the resident understands. However, we are not finalizing the proposed transparency related provisions that the facility must ensure that the agreement for binding arbitration is in ‘‘plain language’’ and that the facility post a notice regarding the use of agreements for binding arbitration in an area that is visible to residents and visitors. We are not finalizing the proposed removal of the provision specifying that a resident’s right to continue to receive care at the facility must not be contingent upon signing an arbitration agreement. Finally, based on comments, we are adding a requirement that facilities grant to residents a 30 calendar day period during which they may rescind their agreement to an arbitration agreement.

The full revised Final Rule can be found here – https://www.govinfo.gov/content/pkg/FR-2019-07-18/pdf/2019-14945.pdf.  It will be interesting to see if the nursing home industry opposes this Rule as well, in reliance on the reasoning of Epic Systems Corp. v. Lewis.  Whether or not there is a potential conflict between Epic Systems and CMS’ 2019 Final Rule, the industry may simply believe it has won enough in the political battle to step away from the legal battle.

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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.

New Report Comparing Arbitration and Litigation in Employment Disputes Sparks Backlash

By Andrew Garcia

In May, the U.S. Chamber of Commerce affiliate, the Institute for Legal Reform, released a report praising the results of arbitration in encouraging settlement, providing more wins for employees, higher awards, and faster outcomes versus litigation in employment disputes.

The Chamber’s report, “Fairer, Faster, Better: An Empirical Assessment of Employment Arbitration,” authored by Nam D. Pham and Mary Donovan, researchers at Washington, D.C., consulting firm NDP Analytics, seemed awash in good news.

It was based on a five-year review between 2014 and 2018 of 10,000 employment arbitrations with data from arbitration providers American Arbitration Association and JAMS. The report compared the arbitrations with more than 90,000 employment lawsuits in federal courts between 2014-2018. It found that employees were three times more likely to prevail in arbitration than in litigation, arbitrations lasted on average 96 days shorter than litigated cases, and the average amount awarded was almost twice as much in employment arbitration, at more than $520,000,  compared to litigation.

Twitter erupted. Critics slammed the report saying that it ignored key data, failed to account for cases cut off by compulsory alternative dispute resolution processes, and flat-out cooked the awards data conclusions by using the mean to skew the size of awards, rather than the median.

More significantly, labor forces moved to debunk the Chamber’s  report saying it was designed for a May Congressional hearing, Justice Denied: Forced Arbitration and the Erosion of our Legal System, where it was the crux of the Chamber’s pro-arbitration argument.

A principle criticism is the report doesn’t cite the contrary significant data that emerged over the past decade from the Economic Policy Institute, a Washington, D.C., nonprofit that researches economic data from low- and middle-income workers’ perspective. The 2015 EPI report criticized arbitration as a litigation alternative in employment cases.

That December 2015 EPI report, “The Arbitration Epidemic,” authored by UCLA School of Law Prof. Katherine Stone, and Alexander Colvin, who is dean and the Martin F. Scheinman Professor of Conflict Resolution at Cornell University’s ILR School, argued that employees who are contractually bound to arbitrate disputes are less likely to receive favorable outcomes or substantial awards compared to employees that initiate disputes through litigation.

Stone and Colvin compared two separate studies that examined outcomes in arbitration and litigation actions, An Empirical Study of Employment Arbitration: Case Outcomes and Processes (2011), and Arbitration and Litigation of Employment Claims: An Empirical Comparison (2003).  They found that employee arbitration win rates were 59% as often as in federal court actions, and 38% as often in state court actions.

A subsequent 2015 study on employment litigations indicated that the employee win rates in federal court cases lowered to an average of 29.7%, while another 2015 study on employment arbitrations found that employee win rates in arbitrations also lowered to an average of 19.1%. The EPI report commented that even though the outcome gap narrowed in 2015 compared to the 59% gap in 2011, the employee win rate in arbitration was still 35.7% lower than in federal court actions.

A subsequent 2018 report by Alexander Colvin found that only one in 10,400 employees subject to arbitration files a claim, which is a rate 35 to 80 times less than employees who file claims in federal and state courts.

So the new Chamber Institute for Legal Reform report served to reignite fights that have taken place over the past decade in courts and legislatures over employment and consumer arbitration. Yet despite the recurring arguments, there may be middle ground. Myriam Gilles, a professor at Cardozo School of Law in New York,  stated in her testimony at the May Congressional hearing that advocates opposed to mandatory arbitration are not arguing that arbitration be banned altogether, but that mandatory arbitration in a consumer or employment context that bars class actions is unworkable.

In addition, the Stone and Colvin report offers an in-house ADR solution that companies can adopt. The report cites that the former TRW Inc. in the 1990s adopted successful internal dispute resolution procedures that included local management complaint procedures, peer review panels, and then mediation. A 2004 study by Colvin found that only 72 TRW cases even reached mediation over the first three years of the program, and only three of the cases reached arbitration. In addition, TRW set up the process to be binding on the company but not on the employee, who would then be able to go to court after arbitration if the employee was not pleased with the outcome.

* * *

The author, a Summer 2019 CPR Institute intern, is a law student at Brooklyn Law School.

 

Update: ADR Breakfast on New York State’s Presumptive Mediation Implementation

By Savannah Billingham-Hemminger

An official of the New York state court system introduced new efforts on boosting the use of alternative dispute resolution, and especially mediation, at a regular gathering of practitioners last week.

Lisa Denig, Special Counsel for ADR Initiatives for the NY State Office of Court Administration, spoke about the moves, characterized by what the state is calling “presumptive ADR,” at the monthly New York City John Jay College of Criminal Justice ADR Breakfast on July 11.

In attendance were attorneys, neutrals, and representatives of organizations who are interested in how the ADR steps, part of New York State Chief Judge Janet DiFiore’s Excellence Initiative, would affect their practices. The effort will push litigants to using ADR in an effort to expedite and improve the quality of outcomes in the state court system.

Full details on the presumptive ADR and mediation efforts are in the new issue of Alternatives to the High Cost of Litigation, at “‘Presumptive Mediation’: New York Moves to Improve Its Court ADR Game,” 37 Alternatives 107 (available at http://bit.ly/2GbCWdK).

Denig opened the briefing with background on the effort. Earlier this year, Chief Judge DiFiore introduced the idea as a way to reduce court backlogs. While many pilot programs had already been conducted, the move is designed to ensure full participation and cement ADR as an option—as well as a focus—in all state courts.

While many perceive the efforts as a mediation-based program, it is officially termed “Presumptive ADR” because not every court will focus on mediation. Courts in the state’s 13 judicial districts are being given freedom to adopt programs in accordance with local demand. The districts are making ADR plans based upon their typical cases, and matching that with the ADR methods that work best for these cases.

The plans, which are being drafted by the administrative judge of each judicial district, are due to be submitted by Sept. 1. Denig said that the hope is that implementation will roll out by the end of the year. There are certain types of civil cases that are not conducive to ADR methods, but she assured the audience that presumptions will not change, but rather, the ADR approach will be adjusted.

The culture shift in New York state courts’ approach to cases has already brought up some challenges. Denig noted the biggest issues to be addressed included language diversity of neutrals; power imbalances in mediation; opt-out provisions for certain cases, and neutrals’ compensation.

She stated that these challenges are being worked out this summer. The administrative judges are looking at other states as models in addressing these issues, formulating their plans and developing their local rules. There will be statewide and local rules for the initiative, and they are being developed on parallel tracks.

The breakfast audience brought up many scenarios that members currently face in their ADR practices. The biggest concern—not surprising in a gathering that is often heavily attended by neutrals–is the state’s hiring process, requirements, and neutral compensation.

The answer to the questions was: Stay tuned.  Lisa Denig listened to the concerns, and assured the group that once the plans roll out in September, the presumptive ADR path will be much clearer.

The New York state court system’s May 14 announcement on the presumptive ADR moves is available at http://bit.ly/32lhjkq.

 

The author, a Summer 2019 CPR Intern, is a law student at Pepperdine University School of Law in Malibu, Calif.

 

 

 

Experiences & Impact from CPR’s 2019 International Mediation Competition

By Ibrahim Godofa (A member of the University of Nairobi Team)

The 2019 CPR International Mediation Competition has definitely been one of the key opportunities that I have been lucky enough to participate in this year and arguably for the entirety of my law school period. I believe it was an incredible opportunity for my teammates as well.

My attention was first drawn to this competition on LinkedIn where the poster was shared by Mr. Olivier André from the CPR Institute. I immediately shared the information with like-minded colleagues at the university and a team was formed, whereupon we applied for participation as well as a partial scholarship that had just been instituted to aid disadvantaged teams. Upon assessment, we were selected alongside 17 other teams from across the globe as the only team from the African continent. Additionally, we were granted the partial scholarship to participate!

“The role all of these takeaways will play in enhancing the position of mediation in Kenya, especially among our fellow students, cannot be underestimated.”

The competition period that took place between the 4th and 6th of April in São Paulo, Brazil was probably the most intensive and beneficial learning opportunity throughout the process. Coming from a jurisdiction where mediation is still a progress in motion, the first evening of the training session, featuring short lectures about the various emerging aspects of mediation, was an incredible way to start a learning curve that would last for the following two days. It was quite an eye-opening kick-off and equally interesting to be introduced to emerging technologies as well as business aspects, such as agricultural ones, in the practice of mediation. While this training session served as an effective way to expand the participants’ views on the evolving practice of mediation, we also found it to be a helpful approach to preparing for the actual competition, whose themes revolved around these emerging aspects.

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The Nairobi team, receiving their award for best teamwork. The author, Ibrahim Godofa, is pictured on the right, along with his teammates Edgar Usagi Alema (left) and Sumaiyah Abdi Omar (center).

The first day of the competition provided many different kinds of lessons, as my team and I got the chance to go up against excellent teams from world class universities all around the world. My team had the rare chance to go up against teams from three different continents: South America, Asia and North America on this first day. It was quite an awesome experience trying out our preparation against teams that had different approaches and internal qualification processes to get to this stage of the competition, and some of which even had coaches, unlike my team. It was also an interesting experience to compete in the style in which the competition was set up—which was new to me, and (as I learned from speaking to them) to several of the other participants as well.

Additionally, as a team we had always known mediation to be a conflict resolution process that is not bent towards a win-lose outcome. While retaining the important values of a mediation, this competition allowed us to simultaneously act upon the rush of competitiveness coming from all the teams while maintaining a respectful and professional sportsmanship, which was one of the highlights of this phase of the competition observable from all the teams present.

The first day of the competition culminated quite memorably for us, with an announcement that our negotiating team was through to the quarter finals the following day. Being part of our negotiating team, this presented serious excitement for me and also meant continued work within the limited time we had to prepare for the quarter finals round. The quality of the competition in this round was even a notch higher than the previous day’s, and so were the stakes. However, my team would learn later in the day that our impressive run would end at this round, albeit against a worthy opponent, the Harvard Law School team.

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The team from the University of Nairobi, School of Law, taking a well-deserved break

Outside the competition rooms, there was an extended opportunity to interact and network with current and future voices in global mediation. This ranged from top-of-their-class students from the various participating universities as well as other professionals who were present in different capacities as judges, coaches and other volunteers. Interacting with these individuals and exchanging contacts provided an invaluable door to long-lasting partnerships and collaborations that are particularly priceless coming from a jurisdiction such as ours, where borrowing from global best practices brings a special kind of difference in an under-developed field such as mediation.

At the end of the competition, my team was recognized with the “Best Teamwork” Award, upon the completion and compilation of feedback from the excellent judging panels that we came across in the various rounds. This feedback from the judges, which continued to come to our attention even after the competition was long finished, has been a very important part of the competition’s learning process and my team is incredibly proud to have emerged with an award testament to the positive and constructive feedback that the judges had on our performance.

One of the main attractions of this competition to our team lay in the impact that the experience would have on mediation back in our circles at home, both in general and at our school in particular. The lessons taken home by our team from this experience are numerous. Some of the key takeaways from the wholesome experience of the competition include:

  • Best practices from other universities as far as student activities centered around mediation is concerned in their schools, especially for the universities from the United States
  • Valuable feedback from the judging panel, some of which contain long-term lessons for our future practices
  • And, most importantly, a model mediation practice procedure that can be employed to sharpen the skills of eager students back at our school through student-led trainings

It is important to also note that our team’s participation in this edition of the competition was the first of its kind at our school as far as any international Alternative Dispute Resolution competitions are concerned. Our participation has therefore paved way for other students to look for and take up similar opportunities, and to benefit from the connections that our team acquired internationally which can be leveraged to create a ripple of opportunities to others who will come after us. The role all of these takeaways will play in enhancing the position of mediation in Kenya, especially among our fellow students, cannot be underestimated. With all signs indicating the rise of mediation practice around the world, we are certainly committed to advancing this important dispute resolution resource within our immediate circle of friends and fellow students, starting from our school. And a big thank you goes to the CPR Institute for the invaluable role that it continues to play in driving a global mediation culture.

Our team’s appreciations go to Olivier André, the amazing Chris Silva and Franco Gevaerd from the CPR Institute, all of whom played a key role in making our experience of this competition, alongside their other colleagues, so memorable.

And oh! Brazil was an awesome place and the Paulistas were very friendly and welcoming residents of a great city! We had a wonderful time.

 

NJ’s Top Court Backs Arbitration in Car Sales Fraud Cases

By Brian Chihera

In Janell Goffe v. Foulke Management Corp (A-3/4-18/081258 ) (N.J. S.Ct.  June 5) (available at http://bit.ly/2X8njco), a unanimous N.J. Supreme court recently stated that two sales fraud claims against auto dealers must be decided through arbitration.

The Court followed longstanding U.S. Supreme Court law in holding that the plaintiffs’ challenges to their sales agreements were attacks on the contract formation, but not on the language used in the agreements to arbitrate.

Justice Jaynee LaVecchia wrote for the 7-0 Court, “Those rulings do not permit threshold issues about overall contract validity to be resolved by the courts when the arbitration agreement itself is not specifically challenged.”

The plaintiffs, who were customers of two Cherry Hill, N.J., auto dealerships, challenged the sales agreements they had entered into because they claimed that the contracts were concluded through fraud—at least one of which appeared to be a bait-and-switch scheme.

Previously, New Jersey’s top Court in Atalese v. U.S. Legal Servs. Grp., L.P., 99 A.3d 306, 311 (N.J. 2014) (available at http://bit.ly/2NpTG6W), cert. denied, 135 S. Ct. 2804 (2015), backed a plaintiffs’ challenge to an arbitration agreement because “ the wording of the service agreement did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court.”

But the Goffe court found that the challenge was to the overall contract’s formation, not the arbitration agreement.

The first plaintiff, Janell Goffe, had gone to Cherry Hill Mitsubishi, where she was told that she could get a Buick for a trade-in.  She paid $250 the same day and then would pay $750 two weeks later. Goffe was also told that the financing had been approved.  She then signed the sales contract, which included an arbitration clause.

After a few days, however, she was told that the financing had been declined and had she had to make a larger down payment and higher monthly payments, but she opted to return the Buick to the dealership, canceling the deal.

Sasha Robinson, the second plaintiff, asked about buying a car with Mall Chevrolet, and was told that she would have two days to change her mind about the purchase. She signed the contract, including the arbitration clause, the same day. When she tried to return the car to the dealership, Robinson was told that there was a mistake and she was bound by the contract, which meant that the matter would be taken for arbitration.

Goffe did not involve any challenge to the arbitration clause nor the language that was used in it. The plaintiffs alleged that they had been made to sign the contracts through fraudulent means, which constitutes challenges to the entirety of the contracts. They wanted the courts to nullify the contracts because they alleged fraud was committed.

In reaching its decision, the N.J. Supreme Court looked at how the U.S. Supreme Court had dealt with such issues. “The United States Supreme Court has held that when a plaintiff raises a claim of fraud in the inducement of a contract as a whole–rather than fraud in the making of the arbitration agreement itself–the Federal Arbitration Act requires that the dispute be resolved by the arbitrator,” stated Justice LaVecchia in the opinion, citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967).

She concluded, “based on the complaint and the certifications provided to the trial court, it is apparent to us that the parties’ claims are subject to an enforceable arbitration agreement. Therefore, the arbitration agreement is severable and enforceable. Plaintiffs must arbitrate their claims. Before the arbitrator, plaintiffs can raise any arbitrability issues consistent with the delegation clauses in these agreements.”

The Court reversed its Appellate Division, reinstating the trial courts’ orders to compel.

 

The author, a CPR Institute Summer 2019 intern, graduated in May with an LLM in dispute resolution from the University of Missouri School of Law in Columbia, Mo.

US Sup Ct Grants Review to Decide Whether New York Convention Permits Non-Signatory to Compel International Arbitration on Equitable Estoppel Grounds

By Mark Kantor

Kantor Photo (8-2012)

This morning the U.S. Supreme Court granted certiorari and agreed to hear in its next Term the international arbitration case of GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC (Docket No. 18-1048, case documents available at https://www.scotusblog.com/case-files/cases/ge-energy-power-conversion-france-sas-v-outokumpu-stainless-usa-llc/).  The dispute addresses whether, under the New York Convention, a non-signatory can compel arbitration.  The Question Presented is:

Whether the Convention on the Recognition and Enforcement of Foreign Arbitral Awards permits a nonsignatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel.

As described in GE’s petition for cert, “Sometimes, a signatory to a contract may sue a non-signatory for claims that arise out of the contract.  When that happens, is the signatory bound by the arbitration clause it agreed to in the contract?  For domestic arbitration agreements, the answer is yes: Equitable estoppel allows the non-signatory to enforce the arbitration clause.  But the Eleventh Circuit [Court of Appeals] held that a non-signatory cannot compel arbitration if one of the parties is a foreign entity.  That erroneous holding deepens a 2-to-2 circuit split and warrants this Court’s review.”

Readers will note that GE’s quoted description of the issue speaks confusingly about both (i) a signatory compelling arbitration with a non-signatory and (ii) a non-signatory compelling arbitration with a signatory.  One hopes the U.S. Supreme Court will be able to distinguish the two situations and determine whether that distinction is relevant to resolving the question.  The 11th Circuit decision declining to compel arbitration rested in part on the non-US nature of one of the parties.

We shall learn within the next year how the U.S. Supreme Court believes non-signatories fit into the commercial arbitration universe.

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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.

Faulty Procedure? Fifth Circuit Vacates an Arbitration Order for Unconscionability Inquiry

By Savannah Billingham-Hemminger

The Fifth U.S. Circuit Court of Appeals has reversed, vacated and remanded an order to compel arbitration in an age discrimination case so that the federal district court can re-examine the merits of a procedural unconscionability claim.

The circuit judges in Bowles v. OneMain Fin. Grp. LLC, No. 18-60749, 2019 U.S. App. LEXIS 18414 (June 19) (available at http://bit.ly/2KBXcJf) found that the district court had erroneously referred a procedural unconscionability challenge to an arbitrator after determining that such a claim was about the enforceability of the arbitration agreement.

Senior Circuit Judge E. Grady Jolly, writing for a unanimous three-judge panel, determined that procedural unconscionability instead goes toward contract formation, not contract enforcement, under Mississippi law. Contract formation issues are to be decided by the court, while contract enforcement is to be decided by the arbitrator.

According to the case, plaintiff Cathy Bowles worked for lender OneMain Financial Group for nearly 20 years when she was terminated for “allegedly inappropriate interactions with employees under her supervision.” During her time there, she was required to “review and acknowledge” the Employee Dispute Resolution Program/Agreement on multiple occasions.

After her termination, she filed a complaint with the U.S. Equal Employment Opportunity Commission, which was unsuccessful, and then filed a federal court suit under the Age Discrimination in Employment Act and Title VII of the Civil Rights Act of 1964. OneMain responded with a motion to compel arbitration under the Federal Arbitration Act and pursuant to a 2016 Arbitration Agreement that Bowles had acknowledged electronically.

Bowles objected to arbitration on two grounds: that there was no “meeting of the minds” resulting in mutual assent for contract formation, and that OneMain obtained consent through misrepresentation, which was procedurally unconscionable.

The district court granted the motion to compel, finding that the necessary meeting of the minds for contract formation was met under Mississippi law. Whether Bowles did or did not understand was irrelevant because lack of diligence before her acknowledgment does not impede formation of the contract.

On the second ground, the district court ruled against her as well. “The district court found that Bowles’s procedural unconscionability challenge went to the enforceability rather than the formation of the Arbitration Agreement and therefore referred it to the arbitrator for decision, in accordance with the Arbitration Agreement’s delegation clause.”

But the federal appellate court disagreed with the trial court on the second point.  It reviewed OneMain’s motion to compel arbitration de novo. The opinion noted that in determining the validity of an arbitration agreement, state-law principles should ordinarily apply to the formation of contracts, citing First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995).

The panel opinion found that the district court correctly concluded that mutual assent existed because on multiple occasions the Arbitration Agreement was communicated clearly to Bowles, and she acknowledged receipt.

But citing West v. West, 891 So. 2d 203 (Miss. 2013), the panel opinion said that in Mississippi, procedural unconscionability is a claim on the formation of the contract—”it is pellucid that ‘[p]rocedural unconscionability goes to the formation of the contract.’” In such a case, the court has a duty to resolve the challenge.

The opinion examines unconscionability factors using another Fifth Circuit case, Begole v. N. Miss. Med. Ctr., 761 Fed. Appx. 248 (2019). In a footnote, the court explained that general allegations of unconscionability going to the formation of the entire contract is an issue for the arbitrator. But in challenging the specific decision to agree to arbitrate as unconscionable, the district court must weigh in.

The opinion repeats Begole’s specific distinctions “between procedural and substantive unconscionability under Mississippi law:

Under substantive unconscionability, we look within the four corners of an agreement in order to discover any abuses relating to the specific terms which violate the expectations of, or cause gross disparity between, the contracting parties. Procedural unconscionability may be proved by showing a lack of knowledge, lack of voluntariness, inconspicuous print, the use of complex legalistic language, disparity in sophistication or bargaining power of the parties and/or a lack of opportunity to study the contract and inquire about the contract terms.”

Because the trial court needs to determine the procedural unconscionability claim on the merits, the Fifth Circuit panel reversed and remanded.

The author, a Summer 2019 CPR Intern, is a law student at Pepperdine University School of Law in Malibu, Calif.

 

Committee Q&A: A Conversation with the Co-Chairs of CPR’s Environmental Committee

We sat down recently with the Co-Chairs of CPR’s Environmental Committee, Steven Antunes of AEGIS Insurance Services, Inc. and John Bickerman of Bickerman Dispute Resolution, PLLC, to learn more about what this dynamic committee has been up to and has planned for the future.

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The Environmental Committee focuses generally on promoting the use of ADR in the environmental context and identifying best practices for mediation and arbitration in this highly technical area of the law. What are some of the specific issues that the Committee has focused on recently, and how?

John Bickerman: As working effectively with the government is almost always a critical component of environmental matters, the Committee organized a presentation on “Best Practices for Resolving Government Disputes” in Washington, D.C. in April 2018, featuring senior jurists from the EPA’s Environmental Appeals Board and directors of the dispute resolution divisions of FERC and the DOI.  Every agency has its own dispute resolution program. In the future, we intend to engage other agencies and have meetings outside of Washington, DC.  For example, we are considering holding meetings in the cities where EPA has regional offices because much of the interaction that the business community may have will come through the regional offices.

Steven Antunes: And just last month, we hosted a lunch time webinar on Ash Pond featuring Vivek Chopra of Perkins Coie and Kieran J. Purcell, Environmental Division Director of Rimkus Consulting Group, Inc. A recording of this webinar is available, for CPR members only, on CPR’s website HERE (members must be logged in to access). The Committee provided a primer on the functionality of an ash pond and its potential environmental affects and how ADR is utilized in resolving legal conflicts arising there from.

Can you give us a preview of some of the important environmental issues the Committee will be focusing on next?

Steven Antunes: The re-emergence of asbestos litigation has become an issue. The Committee will offer a comprehensive webinar in December 2019 regarding the role ADR plays in resolving asbestos-related matters.  The Committee is also putting together a session on how ADR should/could resolve potential environmental issues arising out of a Green New Deal scenario.

John Bickerman: One of the very significant challenges industry faces is the shifting regulatory and enforcement regimes of different Administrations. How much does the mission of an environmental agency change with each new Administration and how do companies plan and manage their environmental programs?

What have you both personally gotten out of participating in CPR’s committee structure, and what would you say to busy CPR members about why they should become more involved?

John Bickerman: Committee work gives a member the opportunity to immerse oneself more fully in specific areas of interest. Through committee work, a member can meet and develop meaningful relationships with colleagues who have shared interests. And, as a full-time neutral, CPR programs have provided an opportunity to understand better the thinking and approach of key corporate decision makers on how they approach resolving disputes.  And, it has also given prospective clients an opportunity to meet me and understand how I do my job.

Steven Antunes: My company is a longstanding CPR member and advocate of ADR so, I acknowledge that there may be a bias in my experience but every time I leave a CPR event, including Environmental Committee meetings, I walk away having learned something that will assist me in reaching an acceptable resolution to a matter. Committee members can be involved to whatever extent works for them. One can choose to formally participate and volunteer for projects, such as creating the resources that committees often collaboratively author. The opportunity to assume leadership roles on the CPR Committees exists or one can just take advantage of the events, which are an exclusive benefit of CPR membership. These events alone provide incredibly rewarding educational and networking experiences and truly should not be missed. They are also a great way to explore various committees one might be interested in before formally joining. The exchange of ideas and experiences that takes place during CPR events is invaluable. I challenge anyone to find an organization that offers its membership comparable access to business, corporate and legal talent.

Why would you encourage people to join the Environmental Committee?  

John Bickerman: Environmental issues will always be at the forefront of public policy and draw great public attention. The committee provides an opportunity to learn about these issues and be better prepared for the future impacts environmental policies will have on the business community.

Steven Antunes:  First of all, there can never be too much talent or knowledge associated with a given topic. If your practice involves any type of environmental issue, this CPR value added opportunity will only enhance your ability to successfully navigate the process of resolving environmental issues without the high costs and drawn out litigation process. This Committee offers first class interaction between/among some of the best in the environmental business.

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CPR committees are always looking to increase membership and participation, and there are no extra fees or costs associated with joining. Learn more about CPR’s other industry and subject matter committees here. To become a committee member, log in and join the committee(s) of your choice or email a note of interest to Richard Murphy at rmurphy@cpradr.org.

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