By Mark Kantor
I have received questions as to how, if at all, the results of the recent U.S. elections will affect the environment for arbitration in the U.S. Being a lazy person, it occurred to me that sharing updated bullet points for a presentation I made on that topic at Dublin Arbitration Day might be an easy way to answer. I offer the below idiosyncratic opinions and invite any comments, corrections, criticisms or witticisms you may wish to offer in response.
In short, not much new.
- The controversial hot-seat substantive public policy proposals seeking to limit pre-dispute mandatory arbitration agreements in the U.S. (supported by the voices surrounding the forthcoming Biden Administration) relate to consumer arbitration, employment/civil rights arbitration, the use of arbitration to limit class actions and securities arbitration – some but not much overlap with international arbitration. There is no appetite in political circles (i.e., outside the scholarly world and some practitioners) for technical reforms to modernize the Federal Arbitration Act (FAA).
- Major legislative action on the above hot-seat arbitration issues is in any event highly unlikely in a deeply divided Congress during the two years before mid-term Congressional elections occur in 2022, regardless of who has control of the U.S. Senate after the Georgia Senate run-off elections in early January. If Republicans control the Senate, they will not support such legislation. Most Democrats would support that legislation, but a small number of conservative Democratic Senators (principally Sens. Joe Manchin, D., W.Va., and Jon Tester, D., Mt.), may not. Moreover, substantive legislation in Congress still requires a successful 60-vote on a cloture motion in the Senate to stop a filibuster. [Under existing Senate rules, final passage of substantive legislation only requires a majority of the votes (50 + Vice President Kamala Harris if the Democrats secure the two Georgia seats); but that vote can be prevented from happening unless a “cloture” motion passes with 60 votes.] A successful cloture vote would require 10 Republicans to join all 50 Democrats [in the event of a Democratic majority] in voting for cloture. Due to inter alia opposition to removing the 60-vote requirement by a number of senior Senators in both parties and the impact of a divided Senate, the prospects for the Senate to remove the 60-vote requirement to halt a filibuster of substantive legislation are extremely dim even if the Democrats win both Georgia Senate seats and reach 50-50 equality in the Senate with ties broken by Vice President Harris. As one law firm put it, “with the Senate in its apparent 2021 configuration, any attempt to abolish the filibuster as it applies to [substantive] legislation appears to be shelved.”
- Existing legislative proposals from Democrats like the “Forced Arbitration Injustice Repeal Act” (AKA the “FAIR Act”) are written so broadly they might bleed over from consumer/employment/civil rights/securities/class action disputes into B2B or ISDS arbitrations. Those proposals are, however, highly unlikely to move forward in the divided Senate during the next two years.
- The approach of protectors of B2B arbitration (domestic and international) is to aim to limit any such legislation (if it moves forward notwithstanding) to a new Chapter of the FAA to avoid bleeding over of new legislative restrictions (if any) from consumer/employment/civil rights/class action issues into B2B or ISDS.
- If any Congressional action does move forward, it will instead likely be (1) specific to subject-matters that secure bipartisan support (e.g., perhaps barring pre-dispute arbitration agreements covering nursing home or workplace/sexual harassment disputes) or (2) embedded inside “must-pass” legislation. That has been the pattern in Congress for many years now. Still, even that type of legislation remains highly unlikely in a divided Congress.
- The ability of a new Administration to introduce unilateral administrative regulations limiting or prohibiting arbitration (the practice in the Obama and Trump Administrations) has been greatly reduced by the 2018 U.S. Supreme Court decision in Epic Systems v. Lewis, 138 S. Ct. 1612 (2018). Epic Systems held that authority to override by administrative regulation the impact of the FAA provisions requiring enforcement of arbitration agreements must be found in specific legislative authority to limit or prohibit mandatory arbitration agreements, not pre-existing general legislative grants of overall regulatory authority. I speculate without evidence that administrative regulatory proposals in the Biden Administration might focus on banning enforcement of pre-dispute waivers of class actions, in both arbitrations and courts, to try to avoid the impact of the principle from Epic Systems that arbitration cannot be singled out for restrictions in the absence of specific legislative authorization.
- International economic policies under the Biden Administration will surely differ from those under the Trump Administration. However, Democrats have further retreated from supporting ISDS since the Obama Administration while Trump has split the previous Republican de facto unanimity in support. Those trends may continue in Congress, while the position of the Biden Administration awaits further appointments to Biden’s economic and trade team. During the election campaign, Biden stated only “I oppose the ability of private corporations to attack labor, health, and environmental policies through the Investor-State Dispute Settlement (ISDS) process and I oppose the inclusion of such provisions in future trade agreements.” [See Biden’s answers to questions from the United Steelworkers Political Action fund at https://bit.ly/3opEZyp.] That statement fails to clarify whether Biden supports or opposes ISDS when labor, health or environmental policies are not at stake. Trade Promotion Act Authority to negotiate international trade agreements will be up for renewal in 2021–that will be the first true test of the appetite in the Biden Administration and the new Congress for reform or elimination of ISDS. A return to the ISDS format found in the Trans-Pacific Partnership negotiated by the Obama Administration, contrasted with the form found in the United States-Mexico-Canada Agreement, seems unlikely regardless.
- The replacement of Justice Ruth Bader Ginsburg on the U.S. Supreme Court with Justice Amy Coney Barrett likely signals no change in the Supreme Court’s recent pro-arbitration jurisprudence. Justice Ginsburg was a critic of some of that jurisprudence, but in dissent. We will see how Justice Barrett resolves arbitration-related disputes when the Supreme Court issues its decision in Henry Schein II sometime next year (oral argument to be heard on Dec. 8–if you are a subscriber to OGEMID/Young OGEMID, there will live reports those listserv’s covering that argument) [For more on Henry Schein II, see “Supreme Court Argument Preview: Looking Ahead to Round 2 on Schein and Arbitrability,” CPR Speaks (Dec 3) (available at https://bit.ly/2VyD1z6)]. However, many observers feel that Justice Barrett is not likely to follow Justice Ginsburg’s dissents rather than the majority’s approach toward hot-button issues such as consumer and employment arbitration. Henry Schein II does not, though, involve the hot-button issues that have divided the Court into majority and minority positions in recent years. Instead, it involves issues of arbitrability in the face of a carve-out in an arbitration clause allocating mandatory jurisdiction for injunctive relief and certain IP issues to the courts rather than an arbitral tribunal. Consequently, Henry Schein II may not be the best test of Justice Barrett’s views on the sensitive public policy issues. It may, though, offer a good measure of her adherence to the general pro-arbitration stance found in the Supreme Court’s recent jurisprudence.
- There is, however, some non-zero possibility that, due to Epic Systems, a future court might overturn the current informal U.S. Securities and Exchange Commission policy refusing to register equity securities offerings for public sale where the underlying corporate organic documents provide for arbitral jurisdiction (with class waivers) rather than court proceedings for shareholder disputes with the issuing company. Several such cases are wending their way through the lower federal courts at this time. The Trump Administration and the SEC largely stayed out of that issue, to the frustration of corporate advocates and the approval of shareholder advocates. If the Biden Administration or an SEC controlled by a Biden-appointed chair chooses to become involved, it would likely intervene in support of the existing informal SEC policy.
I hope this is useful.
Mark Kantor is a member of CPR-DR’s Panels of Distinguished Neutrals. Until he retired from Milbank, Tweed, Hadley & McCloy, he was a partner in the firm’s Corporate and Project Finance Groups. 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). He also is Editor-in-Chief of the online journal Transnational Dispute Management. This CPR Speaks post originally was circulated to a private list serv and adapted with the author’s permission.