More on Section 1782: Why the U.S. Supreme Court Says the Law Doesn’t Permit Discovery Requests from International Arbitrations

By Tamia Sutherland & Russ Bleemer

Here is a deeper dive into today’s U.S. Supreme Court consolidated decision in ZF Automotive US Inc. v. Luxshare Ltd.No. 21-401, which was consolidated with and covers AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign StatesNo. 21-518. Does the new decision, which restricts discovery under a law aiding foreign governmental entities in U.S. courts, also limit discovery under the Federal Arbitration Act?

Our post covering the opinion from this morning can be found on CPR Speaks here.

In today’s unanimous 9-0 opinion, available here, the Court held that the use of 28 U.S.C. § 1782 for discovery in international proceedings was limited. “Only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under 28 U. S. C. §1782,” wrote Justice Amy Coney Barrett in her first arbitration decision since ascending to the bench in 2020, “and the bodies at issue in these cases do not qualify.”

The statute, as the opinion notes, “permits district courts to order testimony or the production of evidence ‘for use in a proceeding in a foreign or international tribunal.’”

Specifically, Section 1782 states:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.

Justice Barrett focused in the opinion on the phrase “foreign or international tribunal,” citing Black’s Law Dictionary and the Court’s only previous Sec. 1782 holding, Intel Corp. v. Advanced Micro Devices Inc., 542 U. S. 241  (2004) (available at https://bit.ly/3xKIMO5), which permitted discovery to a foreign tribunal but didn’t decide the arbitration-application issue. She parses the definitions individually of “foreign,” “international,” and “tribunal.”

Citing the U.S. government’s brief, which sought a limited use of the statute that didn’t include arbitration, Barrett writes,

“Tribunal” is a word with potential governmental or sovereign connotations, so “foreign tribunal” more naturally refers to a tribunal belonging to a foreign nation than to a tribunal that is simply located in a foreign nation. And for a tribunal to belong to a foreign nation, the tribunal must possess sovereign authority conferred by that nation.”

John B. Pinney, counsel to Cincinnati’s Graydon Head & Ritchey–who is counsel of record on an AlixPartners amicus brief urging the Court to accept the case on behalf of CPR, publisher of this blog (details here)–says that the government’s intervention in the case was pivotal. He cites the government brief and, in particular, Assistant Solicitor General Edwin Kneedler’s participation in the March 23 Supreme Court hearing.

“Between the lines,” notes Pinney in an email, “Kneedler’s argument on behalf of the United States did change the momentum of the proponents’ arguments as well as bolstering the opponents’ arguments.  . . . Justice [Stephen G.] Breyer, whose early questions seemed to put him in the proponent’s camp, appeared to move toward the opponents’ position during Kneedler’s argument when he made a comment that the well-heeled users of international arbitration could petition Congress if they wanted authorization for federal court judicial assistance.  In other words: the view that the operative phrase, ‘foreign or international tribunal,’ in Sec. 1782 ought not be expansively interpreted and that, as a result, it should be up to Congress to be clear if it truly wanted federal courts to have jurisdiction to provide discovery assistance for international arbitral tribunals.”

The Supreme Court opinion’s section on the meaning of the statutory wording concludes by excluding private matters, stating,

“[F]oreign tribunal” and “international tribunal” complement one another; the former is a tribunal imbued with governmental authority by one nation, and the latter is a tribunal imbued with governmental authority by multiple nations.

* * *

The opinion then compares 28 U.S.C. 1782 discovery to the Federal Arbitration Act. It notes that limiting the law’s use to “only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” referring to the Commission on International Rules of Judicial Procedure, which studied U.S. judicial assistance to foreign countries, and recommended improvements, including the law.

Barrett discusses the effects of adopting a broader reading, and, rejecting the plea, notes:

[T]he animating purpose of §1782 is comity: Permitting federal courts to assist foreign and international governmental bodies promotes respect for foreign governments and encourages reciprocal assistance. It is difficult to see how enlisting district courts to help private bodies would serve that end. Such a broad reading of §1782 would open district court doors to any interested person seeking assistance for proceedings before any private adjudicative body—a category broad enough to include everything from a commercial arbitration panel to a university’s student disciplinary tribunal. [The opinion cites petitioner ZF Automotive’s brief.]

An extension to private bodies of Section 1782 would create “significant tension with the FAA” because the discovery allowed under Section 1782 is broader, Barrett explains.

But in discussing the contrast, the passage that followed also appears to refine the FAA’s use, and is sure to raise questions about the limits among veteran practitioners:

Among other differences, the FAA permits only the arbitration panel to request discovery, see 9 U. S. C. §7, while district courts can entertain §1782 requests from foreign or international tribunals or any “interested person,” 28 U. S. C. §1782(a). In addition, prearbitration discovery is off the table under the FAA but broadly available under §1782. See Intel, 542 U. S., at 259 (holding that discovery is available for use in proceedings “within reasonable contemplation”).

“This wouldn’t be the first time the Court made arbitration law via dicta,” notes Fordham University School of Law adjunct George H. Friedman, a former longtime senior vice president of dispute resolution at FINRA in an email, adding, “Manifest disregard” [which had been used in addition to FAA Sec. 10 to overturn awards] was announced via dicta in Wilko v. Swan back in 1953.” For more on the Court’s FAA gloss, see George H. Friedman, “SCOTUS Decides ZF Automotive: Yet Another Unanimous Decision, This One Holding that Section 1782 Discovery in Foreign Arbitrations Applies Only to Governmental Tribunals,” Securities Arbitration Alert (June 13) (available here).

Barrett concludes the Court’s Section 1782 definition by noting,

§1782 requires a “foreign or international tribunal” to be governmental or intergovernmental. Thus, a “foreign tribunal” is one that exercises governmental authority conferred by a single nation, and an “international tribunal” is one that exercises governmental authority conferred by two or more nations. Private adjudicatory bodies do not fall within §1782.

* * *

In looking at the facts in the two arbitration cases on appeal to the Supreme Court, the opinion analyzed whether the “adjudicative bodies” were “governmental or intergovernmental,” concluding that the matters were private arbitration, and not subject to Section 1782 discovery.

It was an easy call on the ZF Automotive case:

[P]rivate entities do not become governmental because laws govern them and courts enforce their contracts—that would erase any distinction between private and governmental adjudicative bodies. [Respondent] Luxshare’s implausibly broad definition of a governmental adjudicative body is nothing but an attempted end run around §1782’s limit.  

The opinion quickly notes, however, that the AlixPartners case involving the Lithuanian government is harder. It features a government on one side of a case where the arbitration option is contained in an international treaty rather than a private contract, making the case appear to be an intergovernmental dispute under Section 1782.

“Yet neither Lithuania’s presence nor the treaty’s existence is dispositive, because Russia and Lithuania are free to structure investor-state dispute resolution as they see fit,” the opinion states.

Instead, wrote Barrett, “What matters is the substance of their agreement: Did these two nations intend to confer governmental authority on an ad hoc panel formed pursuant to the treaty?”

The Supreme Court analyzed the parties’ contractual arbitration options, which included using court-related processes, as well as Arbitration Institute of the Stockholm Chamber of Commerce and the  International Chamber of Commerce’s Court of Arbitration.

But the parties chose “an ad hoc arbitration in accordance with Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).”

That, wrote Justice Barrett, “by contrast, is not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes. And nothing in the treaty reflects Russia and Lithuania’s intent that an ad hoc panel exercise governmental authority. For instance, the treaty does not itself create the panel; instead, it simply references the set of rules that govern the panel’s formation and procedure if an investor chooses that forum. In addition, the ad hoc panel “functions independently” of and is not affiliated with either Lithuania or Russia.”

The opinion adds, “So inclusion in the treaty does not, as the [respondent] Fund suggests, automatically render ad hoc arbitration governmental.” Still, after its focus on the ad hoc nature of the investor-state bilateral investment treaty dispute resolution process, the opinion notes that in the future, sovereign parties may be able to “imbue an ad hoc arbitration with official authority.”

In reversing the lower court decisions in both consolidated cases, Justice Barrett lays out the new rule of law on overseas discovery under 28 U.S. 1782 succinctly in her conclusion:

In sum, only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal” under §1782. Such bodies are those that exercise governmental authority conferred by one nation or multiple nations. Neither the private commercial arbitral panel in the first case nor the ad hoc arbitration panel in the second case qualifies.

* * *

Sutherland, a former year-long 2021-2022 CPR intern, will be a third-year law student at the Howard University School of Law, in Washington, D.C. this fall. Bleemer edits Alternatives to the High Cost of Litigation for CPR and John Wiley & Sons.

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Supreme Court Bars Discovery Assistance for Private Overseas Arbitration Panels Under U.S. Law

By Tamia Sutherland & Russ Bleemer

The U.S. Supreme Court this morning restricted the use of 28 U.S.C. § 1782 for discovery in international proceedings to “[o]nly a governmental or intergovernmental adjudicative” body, but not cross-border arbitration matters.

The unanimous 9-0 decision in consolidated cases by Justice Amy Coney Barrett—her first arbitration opinion as a member of the nation’s high Court—clarifies the use of the 1964 law, which recently split the federal circuit courts over its reach for arbitration parties.

“Interpreting §1782 to reach only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” wrote Barrett–referring to the 1960’s Commission on International Rules of Judicial Procedure, to improve U.S. laws reaching overseas–in today’s decision in ZF Automotive US Inc. v. Luxshare Ltd.No. 21-401, which was consolidated with and covers AlixPartners LLP v. The Fund for Protection of Investor Rights in Foreign StatesNo. 21-518.

The opinion can be found here.

The issue was whether 28 U.S.C. § 1782 can be invoked in international arbitrations to obtain U.S.-style discovery for evidence. This inquiry looked at whether the statutory language—“foreign or international tribunal”—extends to arbitration panels.

The opinion had little problem removing arbitration discovery requests from a private arbitration tribunal in ZF Automotive, where a federal district court permitted discovery under the statute in the U.S. for parties in the court’s jurisdiction. The Sixth U.S. Circuit Court of Appeals denied a ZF Automotive request to stay the order.

Today’s opinion, however, states that the legislative history behind the statute, as well as a comparison to the domestic-focused Federal Arbitration Act, which allows far narrower discovery than Section 1782, puts the law’s focus on discovery for governmental bodies, not private arbitration tribunals.

The Court had more difficulty with the AlixPartners case, which involved the government of Lithuania. But the Barrett opinion says that the parties’ actions under a bilateral investment treaty are the key here–the parties were acting more like private parties than governmental entities in setting up an ad hoc ADR process. 

“An ad hoc arbitration panel, by contrast, is not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes,” wrote Barrett, “And nothing in the treaty reflects Russia and Lithuania’s intent that an ad hoc panel exercise governmental authority.”

AlixPartners focused on investor-state arbitration, in which one of the parties is the Lithuanian government. In AlixPartners, the respondent is a Russian entity representing investors pursuing claims before an ad hoc UNCITRAL-rules arbitral tribunal against Lithuania for the investors’ financial losses resulting from the insolvency of a Lithuanian bank. The Second U.S. Circuit Court of Appeals permitted discovery, finding that the ad hoc panel qualified under Section 1782 as a “foreign or international” tribunal rather than a private arbitration matter.

The Barrett opinion notes that the inclusion of arbitration in the BIT did not automatically make the process a governmental proceeding meriting the use of Section 1782. “Instead,” wrote Barrett, “it reflects the countries’ choice to offer investors the potentially appealing option of bringing their disputes to a private arbitration panel that operates like commercial arbitration panels do.”

[The publisher of this blog, CPR, urged the Court in an amicus brief to hear the AlixPartners case last year, without taking a merits position on the case. Details are available here.]

In ZF Automotive, a private commercial contract with ZF Automotive’s German parent required that disputes be arbitrated before the German Arbitration Institute, an arbitration provider. The ZF Automotive case, however, was brought in Detroit before the commencement of the Germany private international arbitration. 

The U.S. District Court allowed the requested discovery.  On appeal to the Sixth Circuit, ZF Automotive, in an unusual move, petitioned for certiorari before judgment to bypass waiting for the Sixth Circuit to decide its appeal. The Sixth Circuit, as noted, declined to stay the lower court’s order. Respondent Luxshare had requested and was granted discovery for the arbitration, in which it alleged fraud against ZF Automotive, under Section 1782. The Supreme Court granted certiorari on Dec. 10, and reversed the lower court decision today.

During a two-week, four-argument deep dive into arbitration law and practice in March (see this CPR Speaks link for previews, argument summaries, and reports on the decisions issued so far here), the Supreme Court heard these Sec. 1782 consolidated arguments as well as an oral argument from the U.S. Solicitor General’s office.

Veteran Assistant Solicitor General Edwin Kneedler’s contention that the Court should be cautious in accepting respondents’ arguments because any expansion of the scope of Section 1782’s reach should be addressed by Congress is reflected in the decision-making process, and the U.S. government’s brief is cited by Justice Barrett. Full details on the March 23 ZF Automotive oral arguments are available on this CPR Speaks blog here.

* * *

Sutherland, a former year-long 2021-2022 CPR intern, will be a third-year law student at the Howard University School of Law, in Washington, D.C. this fall. Bleemer edits Alternatives to the High Cost of Litigation for CPR and John Wiley & Sons.

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Supreme Court Backs Airport Worker, Applies Federal Arbitration Act Sec. 1 Exemption, and Sends Employment Dispute to Court

By Russ Bleemer and R. Daniel Knaap

The U.S. Supreme Court affirmed unanimously a Seventh U.S. Circuit Court of Appeals decision that a worker who loads or unloads goods from vehicles that engage in interstate commerce, but does not physically transport goods, is exempt from the Federal Arbitration Act as a “worker engaged in foreign or interstate commerce” under FAA Sec. 1, resolving a circuit split.

Southwest Airlines Co. v. Saxon, No. 21-309 (today’s decision is available here), involves a Fair Labor Standards Act suit brought by Illinois respondent Latrice Saxon against petitioner Southwest Airlines Co., her employer. Southwest was initially successful, moving to dismiss under the FAA despite Saxon’s argument that she, as a ramp supervisor, is exempt from the FAA under FAA Sec. 1. Case No, 19-cv-0403 (N.D. Ill. Oct. 8, 2019) (available here). The District Court had followed the Fifth U.S. Circuit Court of Appeals.

But the Seventh Circuit reversed, agreeing with Saxon that airplane cargo loaders are engaged in interstate commerce, even though she was located solely at Chicago Midway International Airport. Saxon, in the Seventh Circuit’s view, consequently is a transportation worker whose employment contract is exempt from the FAA. 993 F.3d 492 (7th Cir. 2021) (available here).

That view was affirmed today in the 8-0 opinion by Justice Clarence Thomas, erasing the circuit split with the Fifth Circuit. Justice Amy Coney Barrett didn’t participate.

Southwest “maintain[ed] that §1 ‘exempts classes of workers based on their conduct, not their employer’s,’ and the relevant class therefore includes only those airline employees who are actually engaged in interstate commerce in their day-to-day work,” according to today’s opinion.

The view that the localized worker was not engaged in interstate commerce and was therefore subject to arbitration was soundly rejected in today’s opinion. The case may have implications for app-based companies, like Amazon and Lyft, who strongly urged the Court to back Southwest in amicus briefs and reject the use of the FAA Sec. 1 carve-out exemption from arbitration for Saxon.

* * *

The Court has usually been focused on getting cases into arbitration, and that hasn’t meant success for individuals fighting arbitration and seeking court processes.

Yet the three arbitration cases decided this term, all based in employment matters, backed the workers. In addition to affirming today’s employee victory in the Seventh Circuit, last month, the Court ruled in favor of a Taco Bell worker resisting her employer’s motion to compel arbitration in a unanimous opinion by Justice Elena Kagan. The Court found that a party need not show it was prejudiced by the moving party’s actions, but instead focuses on the employer’s actions to indicate whether the employer had waived its right to arbitration. Details on Morgan v. Sundance Inc., No. 21-328 (available at https://bit.ly/3NywXj5) are available on CPR Speaks here.

In the first of the 2021-2022 arbitration cases to be decided, the Court embraced a narrow construction of subject-matter jurisdiction in arbitration matters. The March 31 decision reversed a Fifth U.S. Circuit Court of Appeals opinion that a federal trial court had jurisdiction under Sections 9 and 10 of the Federal Arbitration Act to confirm and overturn arbitration awards. The decision in Badgerow v. Walters, No. 20-1143 (available here) potentially gave the employee, who filed suit over workplace discrimination, a new shot at overturning an arbitration award in state court.

* * *

So in today’s case, the Court also backs a worker trying to avoid arbitration, following similarly the 2019 New Prime v. Oliveira case, where Justice Neil Gorsuch, in his first Supreme Court arbitration opinion, read FAA Sec. 1 to exempt an independent contractor/interstate truck driver from arbitration. The Court has limited the exemption from FAA application to transportation workers “engaged in” interstate commerce only in Circuit City Stores Inc. v. Adams, 532 U.S. 105 (2001) (available at https://bit.ly/2HhwYLu). But since then, the Court has only recognized an FAA Sec. 1 exemption for an independent contractor—a long-haul truck driver—in New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019) (available here).

Today’s decision revisits the limited scope of the FAA Sec. 1 exemption, and says it applies to the original plaintiff/respondent in the case.

First, Justice Thomas notes that Saxon, who is a Southwest ramp supervisor located solely at Chicago Midway, belongs to a class of workers who physically load and unload cargo on and off airplanes, using plain language and textual analysis to put the respondent/original plaintiff in the FAA Sec. 1 exemption. He finds that such workers are “as a practical matter, part of the interstate transportation of goods.” (Citation omitted.)

He used the Circuit City Sec. 1 analysis holding that the exemption applies only to transportation workers to establish the backing for Saxon’s position, finding, “Cargo loaders exhibit this central feature of a transportation worker.”

In analyzing the nature of interstate commerce in a key part of the opinion, Thomas notes, “any class of workers that loads or unloads cargo on or off airplanes bound for a different State or country is ‘engaged in foreign or interstate commerce’”—a point sure to refocus attorneys on the employment arbitration policies of app-based commerce. Amazon, for example, strongly urged the Court to reverse and back Southwest in an amicus brief, available here. (See the docket link above for more amicus briefs supporting both sides.) In a footnote, the Court notes that the issues most important to delivery companies weren’t needed to be addressed to decide Southwest Airlines.

Still, Thomas stopped short of including all airline industry employees as “transportation workers” for purposes of the FAA Sec. 1 exemption, which states, “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

In a painstaking dictionary analysis, Thomas notes that seamen and railroad workers are not industry-wide categories, and therefore don’t include the entire industry workforces. The implication is that a job-by-job, task-by-task analysis with the effects on interstate commerce, will be required for exempting workers from arbitration under FAA Sec. 1.

At the same time, the Thomas opinion rejects three Southwest points that sought to keep Saxon out of the exemption and require her to arbitrate under her employment agreement. Similar to the opinion’s rejection of the generalized interpretation of transportation workers that would include all airline workers by Saxon, the Court also states that the idea that the employee must ride on transportation in interstate commerce is too broad a reading of the FAA Sec. 1 language.

Next, Thomas notes that the goods that Saxon loaded only in Illinois were destined for interstate commerce, pointedly rejecting other Southwest-cited cases where the Court found localized activity was not in interstate commerce.

Finally, the opinion rejects a “statutory purpose” argument by Southwest, which claimed that the Seventh Circuit’s Sec. 1 interpretation hurts the pro-arbitration lean of the rest of the statute, particularly FAA Sec. 2, which “broadly requires courts to enforce arbitration agreements in any ‘contract evidencing a transaction involving commerce.'”

“Here,” countered Justice Thomas, “§1’s plain text suffices to show that airplane cargo loaders are exempt from the FAA’s scope, and we have no warrant to elevate vague invocations of statutory purpose over the words Congress chose.”

The opinion concludes, “Latrice Saxon frequently loads and unloads cargo on and off airplanes that travel in interstate commerce. She therefore belongs to a ‘class of workers engaged in foreign or interstate commerce’ to which §1’s exemption applies.”

* * *

While the nation awaits decisions on abortion and gun rights, the decision comes in an unprecedented time for arbitration at the Court. While there are usually one or two arbitration decisions per term, the Court has heard six cases—two consolidated–on how arbitration works during the 2021-2022 term, four of which were argued in March alone.  Highlights of the cases can be found on CPR Speaks, here, including with the preview and argument reports for the three cases already decided, including today’s case. Detailed oral argument coverage for Southwest Airlines v. Saxon can be found on CPR Speaks here; and the preview with background can be found here. The remaining two 2021-2022 Supreme Court arbitration cases are expected to be decided before the current term ends at the end of this month.

* * *

Bleemer edits Alternatives to the High Cost of Litigation for CPR; Knaap, a law student at Columbia University Law School in New York, is a 2022 CPR Summer intern.

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One Declined, One Pending: Scotus Asked to Enforce an Arbitration Award against a Sovereign and an Oil Company

By R. Daniel Knaap

The U.S. Supreme Court earlier this week declined to hear a case where Saudi Arabian landowners sought to enforce an arbitration award against the Saudi Arabian Oil Co., best known as Saudi Aramco.

The long-running matter, rooted in a nearly 90-year oil development land lease agreement, isn’t over. There’s a companion case from the same petitioners before the Court–against Chevron Corp., Saudi Aramco’s predecessor in the oil exploration and production deal–scheduled to be considered at a Supreme Court conference on June 16.

The Saudi Aramco case explores the limits of sovereign immunity in the face of a request to enforce an arbitral award against a government-tied entity. Now, at least in the Fifth Circuit’s view, the matter’s complex back story was sufficient to deny enforcement of the award against the state-owned enterprise in the absence of a 28 U.S.C. §1605 exception to foreign sovereign immunity.

In contrast, the Chevron case involves the issue of whether its predecessor’s arbitration agreement applies to the dispute.

The petitioners instituted two different enforcement proceedings regarding an $18 billion International Arbitration Center award against Saudi Aramco (Al-Qarqani v. Arab AMOCO, 2020 WL 6748031 (S.D. Tex., Nov. 17, 2020) and Chevron (Al-Qarqani v. Chevron Corp., 2019 WL 4729467 (N.D. Cal., Sept. 24, 2019).

Both the California and Texas U.S. District Courts refused to confirm the award. The Ninth Circuit affirmed the California district court, holding that the enforcement petition should be denied on the merits and not dismissed for failure to state a claim. Al-Qarqani v. Chevron Corp., 8 F.4th 1018 (9th Cir. 2021) (available at https://bit.ly/3zhYVvM). It further denied the petitions for rehearing and rehearing en banc, Al-Qarqani v. Chevron Corp., 2021 U.S. App. LEXIS 33976 (9th Cir. Cal., Nov. 16, 2021).

The case continues. A petition for certiorari in the nation’s top Court for Waleed Khalid Abu Al-Waleed Al Hood Al-Qarqani, et al. v. Chevron Corp., No. 21-1153, is pending and distributed for the June 16 conference.

In the Saudi Aramco case, the Fifth Circuit vacated the Southern District of Texas’s judgment, remanding with instructions that the case should be dismissed for lack of jurisdiction since Saudi Aramco qualified as a foreign state immune from suit under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. §1603. Al-Waleed v. Saudi Arabian Oil Co., 19 F.4th 794 (5th Cir. 2021) (available at https://bit.ly/3zgvSZC).

The petition for certiorari in that case, Waleed Khalid Abu Al-Waleed Al Hood Al Qarqani, et al. v. Saudi Arabian Oil Co., No. 21-1335, was denied on May 31; Tuesday’s order declining cert is available here.

* * *

According to the Supreme Court filings and lower court decisions, the case concerns a dispute between Saudi landowners and Saudi Aramco, which is Chevron’s successor in interest and fully owned by the Kingdom of Saudi Arabia. In 1933, an agreement was concluded between Chevron’s predecessor, Standard Oil Co. of California, and Saudi Arabia, which provided for rent payments to private landowners of oil-rich land, who were not a party to the agreement.

A deed of concession was concluded in 1949, which transferred the property from the landowners to Arabian American Oil Co., now Saudi Aramco. The petitioners, heirs of the landowners that were a party to the 1949 deed, claim that the land was leased, not sold, and that the 1933 agreement arbitration provision was imported into the 1949 deed. The petitioners initially sought back rent in Saudi Arabian courts. That proceeding took place in 2011, and a “Saudi Legal Committee” found that the 1949 deed was a sale, not a lease. 19 F.4th 794, 797.

The petitioners commenced arbitration proceedings at the International Arbitration Center in Egypt against Aramco and Chevron entities. Aramco rejected the arbitration and did not participate in the proceedings. The Chevron entities objected but nominated an arbitrator. Initially, the tribunal held that it lacked jurisdiction, but the proceedings were reopened by a panel with different members, resulting in an opinion in favor of the petitioners, awarding them $18 billion. Id. In the aftermath of the arbitration, an Egyptian court convicted two IAC administrators and three arbitrators of fraud, forgery, and other crimes relating to the second proceeding. Id.

* * *

The Saudi Aramco petition presented the following questions: whether a foreign sovereign or instrumentality of a state that (1) is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards–the New York Convention–may assert the FSIA as a defense to enforcement of a foreign arbitral award, (2) accepts and accedes the United Nations Conventions on Jurisdictional Immunities amounts to an express waiver of sovereign immunity under the New York Convention, and (3) fails to timely file a cross appeal from a U.S. district court order that denied the sovereign’s assertion of the FSIA as a defense amounts to waiver and bars a subsequent request for a jurisdictional dismissal on appeal that is based on the merits.

Since certiorari was denied, the Fifth Circuit’s judgment stands. It held that Saudi Aramco is a foreign state under the FSIA since it was “a distinct legal entity incorporated under Saudi law, a majority of whose shares are owned by the Kingdom of Saudi Arabia and whose principal place of business is in Saudi Arabia” and thus “presumptively immune from suit in the courts of the United States.” 19 F.4th 794, 800. This immunity was not waived by the exceptions set out in FSIA’s 28 U.S.C. §1605(a). It was not waived under §1605(a)(1) because “the dispute underlying the arbitral award at issue … is clearly outside its scope,” since neither Saudi Aramco, its predecessor, nor the petitioners were party to the 1933 agreement. Id.

The immunity was also not waived under §1605(a)(2) by Saudi Aramco conducting business in the United States since the arbitration took place in Egypt and “did not cause a ‘direct effect’ in the United States.” Id., at 801.

The expropriation exception provided in §1605(a)(3) also does not apply because the action is to enforce an arbitral award, “not litigation of a property dispute involving international law.” Id.

Finally, immunity also was not waived under §1605(a)(6)’s arbitration agreement exception since neither Saudi Aramco, its predecessor, nor the petitioners were party to the 1933 agreement, and the 1949 deed did not mention arbitration nor did it refer to the 1933 agreement’s arbitration clause. Therefore, the Fifth Circuit concluded, the action should be dismissed for lack of jurisdiction instead of denying the petition for enforcement. Id. at 801-2.

The cert denial allowing the Fifth Circuit decision to stand in turn appears to provide some answers to the petitioner’s questions presented.

First, a foreign sovereign or instrumentality of a state that is a signatory to the New York Convention may assert the FSIA as a defense to enforcement of a foreign arbitral award. Second, a foreign sovereign or instrumentality of a state that accepts and accedes the United Nations Convention on Jurisdictional Immunities does not amount to an express waiver of sovereign immunity under the New York Convention. The third question, however, was not explicitly addressed since the appeal was found to be timely.

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The author, a law student at Columbia University Law School in New York, is a 2022 CPR Summer intern.

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Supreme Court Won’t Hear Rates-Review Arbitration Request, Sending Customer Dispute to Court

By Russ Bleemer

The U.S. Supreme Court this morning declined to hear a case on whether the nearly century-old Federal Arbitration Act preempts state law—this time, a clash with Tennessee common law on contracts.

The FAA has shown a lot of muscle in the U.S. Supreme Court over its history, and it’s rarely displaced.  Petitioners seeking to avoid arbitration under a state law are almost always sent to arbitration.

That was not outcome in today’s cert denial in Branch Banking and Trust Co. v. Sevier County Schools Federal Credit Union, et al., No. 21-365. The matter also was about arbitrability–not on the merits of a dispute as to whether the respondents get the money market interest rate on their investment guaranteed by a predecessor of the petitioner bank, which wanted the case over its rate-drop arbitrated.

The petitioner bank had required account holders to arbitrate disputes by amending its agreement with the fund holders after it had purchased the predecessor bank.

The respondent account holders’ argument–successful in the federal appeals court at Sevier Cnty. Sch. Fed. Credit Union v. Branch Banking & Tr. Co., 990 F.3d 470 (6th Cir. 2021) (available at https://bit.ly/3K7BxnV)–was straightforward:  The so-called FAA Sec. 2 Savings clause (an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract “) backs a state-law challenge to the contract. 

And the Sixth Circuit held that there was a lack of mutual assent to the arbitration clause, which is required under Tennessee law. The bank services agreements “in question are clearly contracts of adhesion,” stated the Sixth Circuit opinion.

That opinion stands as a result of the today’s cert denial.

The appeals court criticized the petitioner bank’s unilateral imposition of the arbitration clause and, while noting that the rate promised two decades ago was several times higher than current available rates, it agreed with the plaintiffs’ analysis that the bank couldn’t require ADR where there had been none in the original bank services agreement.

The bank countered in its Supreme Court cert petition, “The Sixth Circuit’s decision is directly at odds with this Court’s recent arbitration decisions and with the law in other courts.”

The issue formally presented to the Court by the petitioner bank was

Whether the Federal Arbitration Act displaces a state common-law rule forbidding companies from adding an arbitration requirement to their standard form contract with customers unless the contract already includes a dispute-resolution clause.

The bank noted in its petition,

The Sixth Circuit’s adoption of a rule that singles out arbitration agreements and subjects them to heightened contract-formation requirements conflicts with [Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1424 (2017) (available at https://bit.ly/3GojOWE), which struck a Kentucky rule that “singles out arbitration agreements for disfavored treatment”] and other recent precedents from this Court holding that arbitration agreements cannot be “disfavored” or subjected to more demanding requirements than other contracts. The panel opinion did not cite, let alone distinguish, any of this Court’s modern FAA precedents.

Today’s order denying cert, available here, granted a motion by the American Bankers Association to file an amicus brief, which strongly urged the Court to take the case and reverse the Sixth Circuit. That brief is available at the Court’s docket page linked above (directly here).

The original plaintiffs’ Sixth Circuit success in avoiding arbitration is a rarity once cases reach the U.S. Supreme Court.

The nation’s top Court has taken six arbitration cases over five arguments in the current term. Two have been decided, and three cases, all argued in March’s second half, await decision.  Details on the decisions, arguments, and case previews can be found on this blog by searching on the U.S. Supreme Court here.

* * *

Bleemer edits Alternatives to the High Cost of Litigation for CPR.

[END]

The EEOC Set to Release Two Reports Comparing Online and In-Person Mediation

By Mylene Chan

The U.S. Equal Employment Opportunity Commission, a federal agency which enforces federal workplace anti-discrimination laws, will release Tuesday two reports on the transition to video mediation from traditional in-person sessions during the course of the pandemic.

The reports’ striking positive view of online ADR points to continued use, post-pandemic.

The EEOC had conducted about 10,000 mediations annually in the past decade–in-person until mid-March 2022, when it transitioned to online dispute resolution due to the Covid-19 outbreak. See “EEOC Mediation Statistics FY 1999 through FY 2020,” at https://bit.ly/38VirmT.

In September 2020, the EEOC commissioned researcher E. Patrick McDermott, a professor of management and legal studies of Franklin P. Perdue School of Business at Salisbury University in Salisbury, Md., with Ruth Obar, a program evaluation scholar based in Manila, Philippines, to conduct an online dispute resolution survey to measure the performance of online mediation against in-person processes.

This survey used the same performance measures employed in previous surveys by the EEOC since 2000 annually to measure participant satisfaction with in-person mediation.

“Our two independent studies of the mediator and participants’ experience in online mediation,  which includes party representatives, leave no doubt that we are seeing the rise of a new and improved model of workplace discrimination mediation,” said McDermott. He added, “Without a playbook, the EEOC mediation program National Coordinator, Stephen Ichniowski,  the District Office ADR Program Managers, and the many program mediators transitioned successfully from in-person to online mediation.  This program’s success and the data should be considered in future dispute resolution design in the courts, administrative agencies, and private models.”

The new releases covering the two studies, “Equal Employment Opportunity Commission Mediators’ Perception of Remote Mediation and Comparisons to In-Person Mediation” and “The Equal Employment Opportunity Commission Mediation Participants Experience in Online Mediation and Comparison to In-Person Mediation,” are expected to be released here Tuesday morning. [UPDATE: The studies were released Wednesday, June 1, and can be accessed directly here.] They indicate that most of the survey participants prefer online mediation over in-person mediation, and that they believe procedural fairness, distributive justice, and access to justice are greater in online mediation. 

Here are the key findings:

  • 92% of charging parties and 98% of employers would conduct EEOC online mediation again.
  • 86% of charging parties and 94% of employers believe that EEOC’s online mediation procedures are fair.
  • 82% of charging parties and 91% of employers regard the overall online mediation as fair.
  • 60% of charging parties and 72% of employers are satisfied with the outcome of the online mediation, a rate higher than the same measure taken for in-person mediation previously. 
  • Nearly 70% of the participants prefer online mediation to in-person mediation.
  • Online mediation affords significantly greater access to justice because employers are more willing to participate in a mediation done online.
  • Employers report higher satisfaction across procedural and due process measures in online mediation.

The EEOC’s results echo and confirm the views of many practitioners who find Zoom mediation to be a successful model. 

John M. Noble, a Greensburg, Pa., mediator who reports he had 267 2021 mediations, shared his positive experience with Zoom:

Having conducted 564 remote sessions in the first 26 months of this Covid era, the mid-2020 notion that in-person ADR is still “better” than Zoom is now near non-existent. The non-travel benefits alone have proven life-altering: when the session is over, you are home or in the office; no more hotels or trains, planes and automobiles; no weather/dangerous highway issues; plaintiffs are expressly more comfortable in their own homes; defense representatives markedly increase efficiencies–at no added costs–participating from their home or office work-stations, given the routine in-person session down-time.

The participants and shared documents are “closer” to me on screen than in-person and I hear better with the head-set. Remarkably, while five of the eight insisted-upon in-person sessions I reluctantly conducted in 2020-22 did not settle (two of the cases saw no offers!), I have seen record numbers of settlement dollars accepted remotely­-over $450 million and counting. Frankly, my location has become irrelevant as I now Zoom with people from any time zone and I very thankfully no longer travel 12-20 hours a week. Beyond sold: . . . remote ADR is here to stay!

Colin Rule, chief executive officer of Resourceful Internet Solutions Inc., which owns mediate.com, commented,

Zoom has revolutionized the practice of mediation. Many mediators conducted their first online mediation via Zoom during the pandemic, and now they won’t go back.  Video conference mediation has become the new normal, with face-to-face processes the exception–a complete reversal from pre-2019. 

Zoom-based mediation helps parties be at their best; it allows for more flexible mediation processes (with more breaks), and it’s much greener (with fewer car miles and airline flights).  Parties prefer Zoom for mediation because of the cost and convenience, and studies are showing mediation over Zoom is equally as effective as face-to-face mediations.  Zoom is constantly improving their platform, and video and audio quality are certain to get even better over the coming years.  Zoom may be the gateway to more technological innovations for mediation in the near future.

Other mediators see advantages and disadvantages of online mediation and will use it if needed . . . but do not prefer it.  See, e.g., Robert A. Creo, “The Post Pandemic Compromise: Hybrid Mediation!”, 39 Alternatives to the High Cost of Litigation 111 (July/August 2021)  (available at https://bit.ly/3wQaxmZ).  

The two EEOC reports confirm that online mediation is widely accepted by mediators and participants. Online mediation, which was initially deemed as a temporary fix, is likely to continue to become mainstream at the EEOC even after the pandemic recedes.

***

The author is 2022 Founders’ Fellow of Mediators Beyond Borders International. She is a former CPR intern, and has written for and contributed to this CPR Speaks blog and CPR’s newsletter, Alternatives to the High Cost of Litigation.

[END]

Supreme Court Rejects Prejudice Requirement for Defeating a Motion to Compel Arbitration

By R. Daniel Knaap & Russ Bleemer

The U.S. Supreme Court backed a Taco Bell worker resisting her employer’s motion to compel arbitration this morning when it ruled, in a unanimous opinion by Justice Elena Kagan, that a party need not show it was prejudiced by the moving party’s actions.

The decision vacated an Eighth U.S. Circuit Court of Appeals decision that arbitration was not waived because the resisting party did not prove it was prejudiced by the adversary’s actions.

Morgan v. Sundance, Inc., No. 21-328 (today’s decision available at https://bit.ly/3NywXj5), means that parties waive their right to compel arbitration based on their actions, not on the judicially established prejudice requirement—a plain reading of the Federal Arbitration Act.

“Did Sundance knowingly relinquish the right to arbitrate by acting inconsistently with that right?” writes Kagan, framing the state of the law on the inquiry for courts. The opinion concludes: “On remand, the Court of Appeals may resolve that question, or determine that a different procedural framework (such as forfeiture) is appropriate. The Court’s sole holding today is that it may not make up a new procedural rule based on the FAA’s ‘policy favoring arbitration.’”

The decision resolves a 9-2 circuit split; nine jurisdictions require a party resisting arbitration under waiver to prove that they have been prejudiced, while two jurisdictions do not have such a requirement. Today’s opinion sides with the minority position, rejecting the idea that the FAA authorizes federal courts to invent arbitration-specific procedural rules, holding that the “federal policy is about treating arbitration contracts like all others, not about fostering arbitration.”

Morgan is the second arbitration opinion of the term, and the second by Kagan invoking a plain reading of the FAA that backs the plaintiff’s position. Today’s 9-0 decision was preceded by Badgerow v. Walters, No. 20-1143 (available here), an 8-1 March 31 decision rejecting FAA jurisdiction in federal courts for statutory sections on enforcing and challenging awards. For more on Badgerow, see Russ Bleemer & Andrew Ling, “Supreme Court Rejects Federal FAA Jurisdiction for Arbitration Award Enforcement and Challenges, (March 31) (available at https://bit.ly/3wB2hZ8).

In fact, three more decisions are pending. Morgan is one of four arbitration cases argued in the nation’s top Court in the second half of March. Decisions on the other three cases are pending. More information can be found by inserting “Supreme Court” in the box in the upper right of this page to search CPR Speaks, or by clicking here.

* * *

In Morgan, Justice Kagan takes both narrow and broad views of different arbitration points.

First, the opinion narrowly declines to tackle a variety of analogous analysis points on state law in assessing waiver, focusing the decision on the Eighth Circuit’s approach that has “generally resolved cases like this one as a matter of federal law, using the terminology of waiver.”

“For today,” writes Kagan, “we assume without deciding they are right to do so.”

After declining to rule fully on that approach, the opinion said that instead it looked solely at “the next step,” whether federal courts “may create arbitration-specific variants of federal procedural rules, like those concerning waiver, based on the FAA’s ‘policy favoring arbitration.’”

That made the case an easy call. The Court agreed in just seven pages that the answer is a hard no on adding a prejudice requirement to the inquiry of whether the party knew it was subject to arbitration, and acted inconsistently with that right.

The opinion notes that “in demanding . . . proof [of prejudice] before finding the waiver of an arbitration right, the Eighth Circuit applies a rule found nowhere else—consider it a bespoke rule of waiver for arbitration.”

Instead, the Court adopted the views of the Seventh and District of Columbia U.S. Circuit Courts of Appeals that there is no prejudice requirement.

But more broadly, Kagan also used the opinion to tamp down perceptions of the Court’s tilt to arbitration. The effect of the clarification is an unmistakable unanimous Court acknowledgment to criticism that it has elevated arbitration over courtroom litigation.

The opinion returned to seminal cases to explain—in the opinion’s view, re-emphasize–that the Court’s policy favoring arbitration–emanating from Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983)–“does not authorize federal courts to invent special, arbitration-preferring procedural rules.” Nor does it allow courts to “devise novel rules to favor arbitration over litigation,” referring to Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213, 218–221 (1985).

Citing Granite Rock Co. v. Teamsters, 561 U. S. 287, 302 (2010), Kagan writes that the policy “is merely an acknowledgment of the FAA’s commitment to overrule the judiciary’s longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the same footing as other contracts.”

She then added the Prima Paint pronouncement: “The policy is to make ‘arbitration agreements as enforceable as other contracts, but not more so.’” Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 404, n. 12 (1967).

* * *

Morgan involves a Fair Labor Standards Act suit brought by petitioner Robyn Morgan against Sundance Inc., which owns 150 Taco Bell franchises throughout the United States, including the Iowa franchise where Morgan was an hourly employee. The complaint alleged that Sundance did not fully compensate its employees for the hours they worked. Although the suit was initially filed as a nationwide collective action, Michigan hourly employees were excluded because they were able to join a similar action filed two years earlier in Michigan’s Eastern U.S. District Court–the so-called Wood action.

The Morgan and Wood plaintiffs engaged in joint mediation with Sundance in April 2019. The mediation settled the Wood action, but not Morgan. Sundance then moved to compel individual arbitration of Morgan’s claims in May 2019, invoking the arbitration provision in the employment contract.

Morgan opposed this, arguing that Sundance had waived its right to compel arbitration by engaging in litigation. The Iowa Southern U.S. District Court denied the motion, finding that Morgan was prejudiced by having to defend to Sundance’s earlier motion to dismiss and by spending time and resources on the class-wide mediation instead of individual arbitration.

The oral arguments were discussed in detail at “Supreme Court Reviews the Role of Prejudice to a Party in Determining Arbitration Waiver,” CPR Speaks (March 21) (available here).

For more on the history of the case, see Mark Kantor, “U.S. Supreme Court Adds an Arbitration Issue: Is Proof of Prejudice Needed to Defeat a Motion to Compel?” CPR Speaks (November 15, 2021) (available here), and Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022) (available here).

* * *

Knaap, a law student at Columbia University Law School in New York, is a 2022 CPR Summer intern. Bleemer edits Alternatives to the High Cost of Litigation for CPR.

[END]

Government Support: Task Force Meeting Covers ADR’s Reach into Federal Agencies

By Katerina Karamousalidou

A CPR Government & ADR Task Force meeting last month focused on the U.S. government’s executive branch alternative dispute resolution use. The participants, who included authors of a recent federal government ADR study, described ADR use and emphasized the need for support and assessments of the effectiveness of the processes used to negotiate and settle.

The April 19 meeting started with an introduction from CPR Senior Vice-President Ellen Parker, who explained that the Task Force’s mission is to educate companies, law firms, and government agencies and their attorneys on the laws and the specific requirements for engaging in ADR with target government agencies.

The Task Force comprises leading practitioners, corporate counsel, neutrals, academics, and current and former federal government employees, including ADR specialists and dispute resolution directors. Parker introduced the Committee chair, Pete Swanson, Director of the Office of Conflict Management and Prevention at the Federal Mediation and Conciliation Service, a 75-year-old independent Washington, D.C., agency whose mission is to preserve and promote labor-management peace and cooperation.  

Swanson, together with Jeremy Graboyes, Director of Public and Interagency Programs at the Administrative Conference of the United States, an independent federal agency whose statutory mission is to identify ways to improve the procedures by which federal agencies protect the public interest and determine the rights, privileges, and obligations of private persons.

They dove into ACUS’s history and the work it has been doing in promoting ADR use by federal agencies. Swanson and Graboyes were joined by University of Nebraska College of Law Prof. Kristen M. Blankley, of Lincoln, Neb., and Mediator Judith Starr, who heads ADR consulting firm Starr ADR in Palmetto, Fla. Blankley and Starr are co-authors of a consulting report on ACUS’s work, “Alternative Dispute Resolution in Agency Administrative Programs with the Administrative Conference of the United States” (Dec. 17, 2021) (available at https://bit.ly/38Vaeii).

Jeremy Graboyes set the stage by explaining ACUS’s mission in promoting effective public participation in the regulatory process by reducing unnecessary litigation and improving the use of science and the effectiveness of applicable laws.

He emphasized that ACUS has long been active in examining how agencies use ADR to manage federal administrative programs fairly and efficiently. ACUS also has published a variety of ADR-related reports in source books during its tenure, including a 1995 practitioners’ deskbook developed in partnership with the CPR Institute, the “The ADR Breakthrough for Government Contract Disputes.”

The agency’s efforts led to passage of the Administrative Dispute Resolution Act in 1990 and 1996 (an ACUS wiki explains the acts here), and the Negotiated Rulemaking Act (ACUS wiki here). Both acts designated ACUS as the lead agency responsible for coordinating ADR and negotiated rulemaking.

Jeremy Graboyes also mentioned that ACUS undertook an important project, the use of ombuds in federal agencies, and launched a new project to investigate how agencies might better use different types of ADR to resolve matters related to their core statutory authorities.

ACUS has recently established an ADR Advisory Group to advise the agency on potential new initiatives to improve ADR design and administration across the federal government, working closely with Pete Swanson and FMCS.

Kristen Blankley explained the overview, methodology, and main research areas of the ACUS consulting report. Judith Starr then talked about ADR’s deep historical roots in federal agencies since early 1900s to 1990 ADRA, the subsequent legislative landmarks, and the ACUS’s role in assisting in executive branch ADR implementation.

Blankley analyzed the most preferred selection and implementation of ADR modalities, including mediation, facilitation, ombuds, arbitration, conciliation, and factfinding.  She reviewed recommendations regarding the selection and implementation of ADR processes in relation to the increased visibility of these programs, as well as the need to establish routine outside program evaluation.

Judith Starr said that staffing practices are highly dependent on agency resources. She talked about training programs and opportunities, their variation in length and form, and recommended continuing education, certification opportunities, and specialized training. Blankley emphasized the importance of increasing transparency in ADR proceedings, confidentiality, and harmonized ethics rules. Blankley also highlighted ADR case management strategies and tools, the importance of external audits, software review, and ethics policies for case managers.

Starr concluded her presentation by talking about interagency ADR operations, and Blankley discussed areas for further research, such as wellness, diversity, online dispute resolution, and supporting ADR across the executive branch.

The meeting concluded with a Q-and-A session.

* * *

The author, an LLM student focusing on international commercial arbitration at Pepperdine University School of Law’s Straus Institute for Dispute Resolution in Malibu, Calif., is a Spring 2022 CPR Intern.

[END]

Mediating Commercial Disputes: Understanding the Process to Maximize the Benefits

By Mia Levi

Mediation is a process in which a neutral third party—a mediator—meets with the disputing parties and actively assists them in reaching a settlement. Mediation is private and confidential, flexible, and more informal than other processes such as arbitration or litigation. It is concluded expeditiously, allowing parties to settle the dispute or narrow their issues at moderate cost. The overwhelming majority of disputes in mediation (70% to 80% of commercial disputes) settle, and because the outcomes are mutually agreed upon, they have high rates of compliance.

Mediation is able to preserve relationships because the emphasis is on the interests of the parties—process flexibility allows the people involved to find the best path to agreement. Parties may adapt the procedure to their own needs and can explore a wide range of remedies that might not have been available to them in court. It’s also more predictable than a trial decided by a judge or jury, avoids a “win or lose” outcome, and allows for an amicable resolution that may preserve the parties’ relationship. The goal is to resolve problems in a principled fashion (or reach an impasse) and move on.

But often, parties may be hesitant to agree to mediation. This can be remedied by understanding which kinds of disputes are suitable for mediation, when to schedule the mediation so that it is most successful, and, finally, how the mediation process itself works.

Is the Dispute Right for Mediation?

It is possible that the dispute at hand is not suitable for mediation. The ADR Suitability Guide, published by the International Institute for Conflict Prevention & Resolution (CPR), outlines three factors parties should consider in deciding the suitability of a case for mediation: (1) the parties’ goals for managing the dispute, (2) the suitability of the dispute for a mediation process, and (3) the potential benefits of mediation in relation to the specific dispute being considered.

First, looking at the parties’ goals, if there is a desire to maintain a working relationship, maintain control over the outcome, limit costs and disruption, and maintain privacy, then mediation may be a preferable tool. Second, for the dispute to be suitable for mediation, there should be no deep desire for vindication or revenge by the parties, no need to attain legal precedent, and no extreme power imbalance. Third, the potential benefits of mediation include allowing the parties to explore mutual needs and interests confidentially, providing an opportunity to be heard, providing a “reality check” for internal decision makers, helping to clarify the issues, and providing the opportunity to have an intermediary help frame proposals and present offers and counteroffers. Parties should weigh all these factors in making the decision to mediate.

Among dispute resolution processes, mediation offers a maximum degree of confidentiality and privacy. Contractual and legal protections provide additional assurances against the use or disclosure of mediation statements or documents. These confidentiality protections contrast sharply with the public nature of the litigation process and its procedures that encourage public disclosure. If parties are looking to attain a ruling that will contribute to legal precedent or require articulation of public policy, mediation likely is not the proper forum.

When Should Parties Mediate?

There is no one right time to conduct a mediation. Including a mediation step (prior to arbitration or litigation) in the proceedings is an easy way to ensure that the parties discuss settlement options. When mediated, many cases are settled or partially settled at the initial stages of the case. Settling even part of the dispute up front can make the arbitration hearings or litigation shorter and less expensive. The opportunities to reduce the costs and wear and tear of court proceedings are greatest before litigation has commenced, but mediation may be a sensible option at any point in the litigation process, even while an appeal from a trial court judgment is pending. Parties not ready for mediation at the outset of the case may be more receptive as it runs its course.

Indeed, the timing of mediation may be rendered somewhat inflexible when parties contract for a sequential, multistep dispute resolution. While tiered dispute resolution clauses may get parties to the mediation table, these provisions may not assist parties in achieving this goal at an ideal time in the life of their dispute. Some parties may find it more beneficial to mediate their dispute after some discovery has been exchanged. Parties should continuously keep an open mind as opportunities for settlement arise throughout the proceedings. It is not uncommon for cases to settle during or even after the hearings. Sometimes, an additional mediation session after some discovery is effective in reaching a settlement.

For those parties contemplating mediation in conjunction with arbitration, the Concurrent Mediation-Arbitration Clauses and Protocol, which CPR introduced in July 2020, allows the parties to agree they will attempt to settle any dispute that is the subject of arbitration by confidential mediation conducted during the pendency of the arbitration. This process was developed to encourage the availability of mediation to parties in a more flexible manner than is provided under standard multistep dispute resolution provisions. This, in turn, creates an opportunity for parties to continue to explore settlement options based on what they learn during the arbitration proceedings and without delaying those proceedings.

What Should the Parties Expect from Mediation?

Parties who have not written mediation into their contract or dispute resolution clause may need to execute a submission agreement—essentially an agreement to submit the dispute to mediation with an alternative dispute resolution (ADR) provider—or they may agree to mediate in an ad hoc process. Notably, an ADR provider will be able to assist the parties in selecting the appropriate mediator for their dispute.

Many ADR institutions provide opportunities for parties to further streamline the mediator-appointment process. For example, streamlined mediator appointment is suitable for disputes where the parties wish the ADR provider to choose a mediator for them. Parties submit information about their dispute and the candidate sought, and the ADR provider will make the selection based on the information provided by the parties and vet the candidate for conflicts purposes before the appointment. This streamlined process lowers administrative costs and allows the parties greater speed in getting a mediator appointed and the process underway.

The process itself will depend on the mediator selected. Mediators will have different styles of mediation. On one side of the spectrum, facilitative mediators will work with parties to find creative solutions that meet the interests and needs of the parties. This will be beneficial for cases where parties wish to continue a personal or business relationship. On the other side, evaluative mediators will offer an opinion regarding the relative strength of each side’s legal arguments and generally will predict the likely outcome if the parties were to bring the case to trial. Mediators may also offer a hybrid style, combining the two.

Conclusion

Understanding the mediation process will help parties gain more advantages from the mediation itself. It is important for parties to realize that while settlement of their dispute might be the most desired outcome, an impasse does not mean that the parties have failed. If parties narrow the issues, understand the opposing side’s point of view, or simply have an opportunity to be heard, it will be successful for the parties in the long run.

* * *

Mia Levi (mlevi@cpradr.org) is the Vice President of Global Development for Dispute Resolution Services of the International Institute for Conflict Prevention and Resolution (CPR).

* * *

This post is © 2022. Published in GPSolo eReport, Volume 11, Number 9, April 2022, by the American Bar Association. (Available here.) Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

[END]

Update: An Influx of Arbitration Legislation

By Tamia Sutherland

The passage and March 3 signing of H.R. 4445, Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 has inspired the introduction of more than 170 bills involving arbitration.

Sen. Lindsey Graham, R., S.C., called H.R. 4445 the most significant workplace reform since the Occupational Safety and Health Act of 1970, and said he is open to further arbitration law changes, on a bipartisan basis. Lindsay Wise and Jess Bravin, Senate Approves Bill Barring Forced Arbitration in Sexual-Assault, Harassment Claims, Wall Street Journal (Feb. 10)(available at https://on.wsj.com/38tmR3Q).

Of the current arbitration-related proposals, there are some duplicates with House and Senate introductions. Still, many facets of arbitration, in and out of government, are covered by the bills.

Activity on some is possible this year.

* * *

In an April 6 Securities Arbitration Alert blog post, George Friedman, Publisher & Editor-in-Chief, discussed Congress and the rise in arbitration legislation:

The recent pace of legislative activity prompted us to look up how many bills have been introduced in the 117th Congress that in some way, shape, or form, refer to arbitration.

search we conducted using the non-partisan www.govtrack.us Website shows that 171 bills have been introduced so far that contain the term “arbitration” or “arbitrate” – 106 in the House and 65 in the Senate.

Not all bills are anti-arbitration, although the majority would amend the Federal Arbitration Act, other federal laws, or both, to curb pre-dispute arbitration agreement use. Democrats introduced all but four bills.

The Securities Arbitration Alert post can be found here.

A few days after the passage of H.R. 4445, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a March 8 hearing on arbitration’s effects on consumers’ financial services contracts. The purpose was to introduce another arbitration bill.

Chairman Sherrod Brown, D., Ohio, presided over the hearing, and in his opening statement said that:

Big companies should not decide on behalf of Americans how they should pursue justice. Consumers–not corporations–should be able to decide whether they want to go through the public court system, through mediation, or through arbitration. . . . That’s why I introduced the Arbitration Fairness for Consumers Act last week with 21 cosponsors in the Senate, many of whom serve on this Committee.”

The Arbitration Fairness for Consumers Act would prohibit arbitration clauses in consumer financial products by amending the Consumer Financial Protection Act of 2010. Chairman Brown explained that the bill “gives consumers the right to decide how they want to pursue justice.” Brown’s website lists this press release and one-pager regarding the bill.

Following the opening statement, Ranking Member Patrick J. Toomey, R., Pa., provided background on Congressional attempts at arbitration restrictions in consumers’ financial services contracts:

In 2017, the CFPB issued a rule that would’ve banned these agreements for consumer financial products. However, Congress overturned this rule under the Congressional Review Act. Since then, Democrats have introduced bills that would undo Congress’ sensible decision.

Then, witnesses representing consumer interest groups Public Justice and Public Citizen, and the business-backed U.S. Chamber of Commerce, provided opposing testimony regarding the regulation of arbitration clauses in consumers’ financial services contracts.

In addition, law professors Todd J. Zywicki and Myriam Gilles from, respectively, Arlington, Va.’s George Mason University Antonin Scalia School of Law and Yeshiva University’s Benjamin N. Cardozo School of Law in New York also provided expert testimony, with Zywicki anti-legislation and Gilles strongly supporting the proposal.

A video of the March 8 hearing and the witness statements are available here. Since its introduction, no further action has occurred on the Arbitration Fairness for Consumers Act.

There’s more. The Forced Arbitration Injustice Repeal (FAIR) Act of 2022, a broad bill that would void all pre-dispute mandatory arbitration agreements in employment, antitrust, consumer, and civil rights passed the House by a 222-209 vote on March 17. That vote’s margin is much narrower than the 335-97 vote the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act received in the House in February.

The FAIR Act passed the House despite strong opposition. Two reports from the Institute for Legal Reform, a U.S. Chamber of Commerce unit that lobbies for tort reform on behalf of businesses and has long opposed arbitration restrictions, concluded that consumers and workers typically do better in arbitration. A November 2020 Institute for Legal Reform report is available here, updated from 2019, and an even more recent November 2021 update is available here.

Consumer organizations, on the other hand, were elated. Following the FAIR Act’s passage Lisa Gilbert, executive vice president of Public Citizen, noted:

“…Today, in an important step forward, the House passed the FAIR Act, a measure that would end the tricks and traps that are endemic in form contracts, including those you enter by clicking ‘I agree’ on the internet.

Hundreds of millions of contracts contain forced arbitration provisions and class-action waivers, denying consumers and workers the ability to file lawsuits in court and preventing them from joining with other similarly situated people to sue together…Today, the House finally stated: No more.”

Gilbert’s full statement is available here.

The FAIR Act was introduced by longtime mandatory arbitration opponent Hank Johnson, D., Ga., who has introduced this legislation in the past. For a discussion of the act’s September 2019 House passage–it later stalled in the Senate–and the controversy over the Institute for Legal Reform’s original 2019 arbitration report, is available at Andrew Garcia, The Fairness Agenda: Arbitration Legislation Advances in the Wake of a Critical Report , 37 Alternatives 157 (November 2019) (available at https://bit.ly/3LSoG93).

The House Committee on the Judiciary published this press release following last month’s passage of the FAIR act.  There has been no action yet on the Senate version, which is before the Judiciary Committee.

* * *

Other arbitration bills have attracted attention, and could gain traction in the wake of H.R. 4445’s passage and signing.  They include:

  • The Justice for Servicemembers Act,
  • Fairness in Nursing Home Arbitration Act, and
  • The Investor Choice Act.

The Justice for Servicemembers Act aims to amend Title 9 of the U.S. Code—the Federal Arbitration Act—to prohibit pre-dispute agreements that require arbitration of certain disputes arising from claims of servicemembers and veterans.  The disputes are claims brought under chapter 43 of U.S.C. Title 38 relating to employment and reemployment rights of members of the uniformed services, and under the Servicemembers Civil Relief Act (50 U.S.C. 3901–4043).

The Fairness in Nursing Home Arbitration Act was introduced to amend titles XVIII and XIX of the Social Security Act “to prohibit skilled nursing facilities and nursing facilities from using pre-dispute arbitration agreements with respect to residents of those facilities under the Medicare and Medicaid programs, and for other purposes.”

The Investor Choice Act attempts to amend the Securities Exchange Act of 1934 to prohibit mandatory pre-dispute arbitration in investment adviser agreements.

Also, H.R. 5974, the Veterans and Consumers Fair Credit Act, was introduced in both the House and Senate to amend the Truth in Lending Act to extend to all consumers the consumer credit protections provided to U.S. Armed Forces members and their dependents under title 10 of the U.S. Code. The bill garnered a joint letter in support signed by 188 civil rights, community, consumer, faith, housing, labor, legal services, senior rights, small business, veterans’ organizations, and academics representing all 50 states and the District of Columbia. Some of the signatories include Main Street Alliance, Minority Veterans of America, the NAACP, National Fair Housing Alliance, and Public Citizen. The joint letter is available at the website of Public Justice, a Washington nonprofit law consumer- and employee-side law firm, here.

Many of these proposals are riding H.R. 4445’s coattails and have the potential to be framed as an extension of the bill ahead of the midterm elections.

For more background information on H.R. 4445, and how it restricts arbitration use for certain employment matters, see Tamia Sutherland & Russ Bleemer, Senate Sends Bill Restricting Arbitration for Workplace Sexual Assault Victims for Biden’s Signature, CPR Speaks (Feb. 10) (available here).

* * *

The author, a second-year law student at the Howard University School of Law, in Washington, D.C., is a CPR 2021-22 intern.

[END]