Arbitration

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

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By Angela Cipolla

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

FINRA Regulatory Notice 17-33

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The author is a Fall 2017 CPR Institute Intern.

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

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By Elena Gurevich and Russ Bleemer

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

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

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

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

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

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

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

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

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

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

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

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

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

The CFPB’s Arbitration Rule is Overturned by the Senate

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By Elena Gurevich and Russ Bleemer

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Class Waiver-Arbitration Argument: The Supreme Court Transcript

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By Russ Bleemer

There’s no indication, yet, that the newest U.S. Supreme Court Justice, Neil M. Gorsuch, will be the swing vote in the employment arbitration cases that kicked off the Court’s 2017-2018 term yesterday morning.

The justice—who had been active in oral arguments after he was seated in April to fill the Court vacancy created by the death of Justice Antonin Scalia in February 2016—didn’t say a word.

But the liberal and conservative wings of the Court had their say. The former posed tough questions to the employers’ representative and the government, who are fighting against employees joining together under the National Labor Relations Act to file class action suits for workplace disputes, despite the presence in their employment agreements of class waivers and a requirement of individual arbitration.

The Court conservatives who spoke at the hearing seemed skeptical that the NLRA could override the Court’s strong historical backing of the Federal Arbitration Act, and defeat the employers’ requirement that matters proceed one at a time, in arbitration.

Though Justice Clarence Thomas also maintained his customary silence during the arguments, observers saw a 5-4 split yesterday assuming he and Gorsuch joined the conservative block, with Justice Anthony Kennedy leaning toward the business side.

Washington, D.C. neutral and Georgetown University Law Center adjunct Mark Kantor gathered reports and added analysis on CPR Speaks yesterday, here. See also Adam Liptak, “Supreme Court Divided on Arbitration for Workplace Cases,” N.Y. Times (Oct. 2)(available at http://nyti.ms/2fHZ8ya).

The dispute has been running since the National Labor Relations Board ruled that class waivers accompanied by mandatory arbitration provisions were illegal under the NLRA in 2012, and eliminated by the FAA’s Sec. 2 savings clause, which enforces arbitration agreements “save upon such grounds as exist at law or in equity for the revocation of any contract.”

Last winter, the Court accepted three cases on the issue, including one in which the NLRB is a party.  It consolidated them, then announced the argument would be held until the term that began yesterday—presumably to await the new justice for the vacancy eventually taken by Gorsuch, rather than risking a 4-4 split on the issue, which has divided the federal circuit courts that have tackled the issue.

The unusual hour-long argument was notable for other reasons: The federal government was facing off against one of its own agencies. In a June amicus filing, the Justice Department’s acting solicitor general, Jeffrey Wall, told the Court the Trump administration had “reconsidered the issue and has reached the opposite conclusion” from the stance the department had taken under President Obama on the NLRB’s behalf.  [For more information on Justice’s position, see the October issue of Alternatives, which will be posted later soon at https://www.cpradr.org/news-publications/alternatives and http://bit.ly/2kh91YT.]

Wall presented an amicus argument yesterday, facing off against the NLRB’s general counsel, two of four advocates in the argument.

The discussion highlights below come from the Court’s transcript, posted late yesterday, available at http://bit.ly/2yFDsKA.

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First, frequent Supreme Court argument participant and former U.S. Solicitor General Paul D. Clement, a Washington, D.C. partner at Kirkland & Ellis, faced tough questions and skepticism from the Court in his argument on behalf of the petitioner-employers in Epic Systems Corp. v. Lewis, No. 16-285 and Ernst & Young LLP v. Morris, No. 16-300, as well as the respondent employer in NLRB v. Murphy Oil USA Inc., No. 16-307.

Clement opened by noting the employees’ claims that arbitration agreements providing for individual arbitration that are enforceable under the Federal Arbitration Agreement are invalidated by another federal statute, the National Labor Relations Act.

But, he said, ‘this Court’s cases provide a well-trod path for resolving such claims.” Clement explained that “[b]ecause of the clarity with which the FAA speaks to enforcing arbitration agreements as written, the FAA will only yield in the face of a contrary congressional command[,] and the tie goes to arbitration.”

Justice Stephen G. Breyer soon said that he didn’t accept the argument, or the premise. “You started out saying this is an arbitration case,” said Breyer.  “I don’t know that it is. I thought these contracts would forbid . . . joint action, which could be just two people joining a case in judicial, as well as arbitration forums.”

Breyer continued: “Regardless, I’m worried about what you are saying is overturning labor law that goes back to, for FDR at least, the entire heart of the New Deal.”

The justice explained that the NLRA “protects the worker when two workers join together to go into a judicial or administrative forum for the purpose of improving working conditions, and the employers here all said, we will employ you only if you promise not to do that.”

Breyer concluded, “I haven’t seen a way that you can . . . win the case, . . . without undermining and changing radically what has gone back to the New Deal.”

“For 77 years,” countered Paul Clement, “the NLRB did not find anything incompatible about Section 7 and bilateral arbitration agreements, and that includes in 2010 when the NLRB general counsel looked at this precise issue.”

NLRA Sec. 7 permits concerted action by employees “for the purposes of collective bargaining or other mutual aid or protection.”

Clement also explained, at length, that “from the very beginning, the most that has been protected is the resort to the forum, and then, when you get there, you are subject to the rules of the forum.”

He later added, “[T]he NLRA in no other context extends beyond the workplace to dictate the rules of the forum.”

Said Clement, “I think the way to think about the Section 7 right is it gets you to the courthouse, it gets you to the Board, it gets you to the arbitrator. But once you are there.  . . .”

* * *

Deputy Solicitor General Jeffrey B. Wall, who led the Justice Department’s reversal of position in the case, followed Clement with an amicus argument supporting the employers. “[I]f you understand Section 7 to protect you from retaliation when you seek class treatment but not to give you an entitlement to proceed as a class in the forum, then . . . everything fits together perfectly fine, and these arbitration agreements are enforced.”

Wall concluded, “[O]ur simple point is this case is at the heartland of the FAA. It is, at best, at the periphery of the NLRA, on the margins of its ambiguity, and you simply can’t get there under the court’s cases.”

* * *

Under questioning from Chief Justice John G. Roberts Jr. at the beginning of his argument, NLRB General Counsel Richard F. Griffin Jr., arguing in support of the employees, said that the employers needed to keep open access in the forum so that the employees can proceed jointly—in arbitration or litigation.

But Roberts pressed, and Griffin agreed, that judicial options can be waived because the Court has recognized the equivalence of arbitration.  “I don’t understand how that is consistent with your position that these rights can’t be waived,” said the Chief Justice.

Griffin countered that the NLRB’s position that the right to a class process can’t be waived “takes into account this Court’s view with respect to the ability to effectively vindicate these rights in an arbitral forum.”

Justice Anthony Kennedy said that Griffin’s argument meant that employers “are now constrained in the kind of arbitration agreements they can have.” Griffin responded that they are “constrained with respect to limiting employees’ ability to act concertedly in the same way that, from the beginning of the National Labor Relations Act, individual agreements could not be used to require employees to proceed individually in dealing with their employers.”

Under tough questioning by Roberts and Kennedy, Richard Griffin stuck to his positon that the rules of the forum—arbitral or court—must be followed, but an arbitration agreement that violates the NLRA by limiting the employees’ right to proceed must fall. He suggested that ADR provider rules could limit the procedures, but the employers couldn’t because if they did, it would be limiting employees’ access to justice.

* * *

The employees’ attorney, Daniel R. Ortiz, director of the Supreme Court Litigation Clinic at the University of Virginia School of Law in Charlottesville, Va., began his argument by addressing an earlier question posed by Justice Sonia Sotomayor to Richard Griffin.  Ortiz said that about 55% of nonunion private employees have contracts with mandatory arbitration agreements, covering 60 million workers, with about 25 million people covered by the equivalent of class wavers.

The key part of Ortiz’s argument, which emerged in discussions with a skeptical Chief Justice Roberts, was that the employers’ conduct was clearly illegal under NLRA Sec. 7, and thereby removed the enforcement of the arbitration agreement under FAA Sec. 2’s savings clause, because the section makes illegality of a contract provision a basis for striking an obligation to arbitrate.

* * *

In his rebuttal, Paul Clement picked up on comments by Justice Kennedy earlier that, even if they have waived class litigation and arbitration, employees still have the right to concerted activity by choosing the same lawyer to represent them in an arbitral forum, even if they proceeded individually.  He also said that they can take their pay claims to the Labor Department, which would allow employees to proceed without arbitration.

In response to a question by Justice Ruth Bader Ginsburg, Clement said that confidentiality agreements wouldn’t affect a lawyer’s ability to take multiple arbitration matters.

 

The author edits Alternatives to the High Cost of Litigation for the CPR Institute. 

Supreme Court Oral Argument on NLRB Class Actions vs. Arbitration Policy

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By Mark Kantor

The US Supreme Court heard oral argument this morning in the three consolidated cases involving the policy of the National Labor Relations Board (NLRB) prohibiting arbitration clauses in employment agreements that bar class actions (Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA).  The transcript of that oral argument will be available here later this afternoon – https://www.supremecourt.gov/oral_arguments/argument_transcript/2017

Many observers believe the Court’s decision in these cases will come down to Justice Anthony Kennedy’s vote.  For what it is worth, Reuters characterized Justice Kennedy’s questions as “pro-employer” (https://www.reuters.com/article/us-usa-court-labor/u-s-supreme-court-divided-over-key-employment-dispute-idUSKCN1C71RP).

Justice Anthony Kennedy, often the swing vote in major cases, asked questions that appeared to favor employers, as did two fellow conservatives, Chief Justice John Roberts and Justice Samuel Alito.

Kennedy indicated that a loss for workers would not prevent them from acting in concert because they would still be able to join together to hire the same lawyer to bring claims, even though the claims would be arbitrated individually. That would provide “many of the advantages” of collective action, Kennedy said.

See also Bloomberg’s take, which picked up on the same Kennedy comment –  https://www.bloomberg.com/news/articles/2017-10-02/justices-suggest-they-will-divide-on-worker-class-action-rights.

Anne Howe, the respected Court-watcher writing on her own blog Howe on the Court and on Scotusblog, started her review of the proceedings with her bottom line; “In the first oral argument of the new term, a divided Supreme Court seemed likely to uphold employment agreements that require an an employee to resolve a dispute with an employer through individual arbitration, waiving the possibility of proceeding collectively.” (http://amylhowe.com/2017/10/02/argument-analysis-epic-day-employers-arbitration-case/, republished at www.scotusblog.com/2017/10/argument-analysis-epic-day-employers-arbitration-case/#more-262296 ).

Not often noted in the analyses of these cases, the NLRB regulatory policy at issue in Epic Systems et al may in any event become moot.  Effective just a few days ago, the Board of the NLRB now has a Republican majority (http://fortune.com/2017/09/26/nlrb-labor-workers-rights-william-emanuel/).  Moreover, the incumbent NLRB General Counsel (a separate position appointed directly by the President, not the NLRB Board, and subject to Senate confirmation), who actually argued the cases for the NLRB, is scheduled to leave his post in November, thereby opening up that position to a Republican nominee who has apparently already been identified (http://www.insidecounsel.com/2017/09/19/peter-robb-trumps-pick-for-nlrb-general-counsel-is).  It would not at all be surprising for Republican control of the NLRB to result in a reversal of this NLRB policy, just as Democratic control of the NLRB led to promulgation of the policy in the first place.  This dispute is a reminder that many aspects of arbitration in the US are now a partisan political issue, with regulatory measures addressing arbitration shifting back and forth as political party control shifts back and forth.

More broadly, for those of you who feel that these individual employment cases (and similar measures by Federal regulators, under general regulatory statutes, preferring class actions in court over mandatory arbitration of individual claims) are not relevant to your commercial or investment arbitration practice, the precedential impact of a Supreme Court ruling overturning the NLRB’s pro-class action policy may extend far beyond employment and consumer-related claims.  Illustratively, for many years, the U.S. Securities Exchange Commission (SEC) has maintained an informal policy of refusing to register public offerings of stock by companies that include mandatory arbitration clauses in their charter documents for disputes between shareholders and the issuing company.  As a result, shareholder law suits (such as shareholder class actions) are brought in the US courts.

In July of this year, Republican SEC Commissioner Michael Piwowar stated publicly that the SEC is now open to the idea of allowing companies contemplating initial public securities offerings to include mandatory shareholder arbitration provisions in their company charter documents.  That idea, if implemented, could arguably kill off shareholder securities class actions in the US courts.  One might think that a Republican majority of Commissioners on the SEC would be amenable to changing the SEC’s shareholder claims policy barring arbitration.  It is not, however, yet clear whether the SEC’s new Republican Chairman Jay Clayton is also receptive to the idea. See  https://www.reuters.com/article/us-otc-arbitration/shareholder-alert-sec-commissioner-floats-class-action-killing-proposal-idUSKBN1A326T .

The SEC’s unwritten policy barring mandatory arbitration of shareholder claims came under interest group pressure in 2006-2007.  It was also the subject of several corporate efforts to cause a change in the SEC’s policy, most notably in connection with a 2012 proposed share offering by the Carlyle Group.  But the SEC policy survived due to inter alia push-back from the Democratic-controlled Congress.  A broad pro-arbitration decision by the US Supreme Court, rejecting the NLRB’s regulatory effort to preserve employment class actions by prohibiting mandatory arbitration, could easily have a significant impact on the SEC’s unwritten policy to deny registration of securities offerings covered by a mandatory arbitration provision in the issuer’s charter documents.

The SEC question is sure to trigger aggressive lobbying by both sides as it arises again – indeed, it has already done so in the blogosphere.  Illustratively:

For shareholder arbitration and against class actions  – http://clsbluesky.law.columbia.edu/2017/08/21/shareholders-deserve-right-to-choose-mandatory-arbitration/

Against shareholder arbitration and for class actions – http://clsbluesky.law.columbia.edu/2017/08/28/mandatory-arbitration-does-not-give-stockholders-a-choice/

 

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

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.

Managing Risk in International Arbitration: Third Party Funding Developments in Asia

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By Meriam Al-Rashid (pictured left) and Diora Ziyaeva (pictured right), Dentons

blog duoAs practitioners and clients alike are well aware, international arbitration is not without its risks. Third party funding is one effective risk management tool that can curb the potential losses and soaring costs associated with international arbitration by assisting under-resourced parties. To stimulate arbitration in Asia and maintain a competitive edge, Hong Kong and Singapore recently passed legislation providing express frameworks for third party funding in international arbitration proceedings, joining the global trend supporting this alternate source of funding.[1] As the Hong Kong and Singapore laws highlight, however, third party funding is not without its own risks. So, while third party funding can provide a useful tool to engage in arbitration, clients should be aware of the pitfalls they may encounter.

Singapore

On March 1, 2017, Singapore enacted The Civil Law (Amendment) Act of 2017 (the “Act”) and Civil Law (Third Party Funding) Regulations of 2017 (the “Regulations”). Under the Act and accompanying Regulations, third party funding agreements with qualifying third party funders are no longer illegal and unenforceable under Singapore law, so long as funding is provided for an international arbitration and/or related court or mediation proceedings. The Regulations stipulate that eligible third party funders must (1) carry on the “principal business” of funding dispute resolution proceedings in Singapore or somewhere else, and (2) have a paid up share capital of at least SGD 5 million.

The new legislation in Singapore has already had an effect. In April 2017, funder IMF Bentham opened its first Asian office in Singapore, in part persuaded by this new legislation.[2] In July 2017, Burford Capital announced that it was funding a claimant in a Singapore-seated arbitration.[3]

Hong Kong

On June 14, 2017, Hong Kong passed the Arbitration and mediation Legislation (Third Party Funding) Bill of 2016 (the “2016 Bill”). Under the 2016 Bill, the doctrines of maintenance and champerty expressly do not apply to third party funding in arbitration proceedings and mediation, including proceedings before emergency arbitrators and ancillary courts.[4]  Notably, the term “third party funder” under the Hong Kong legislation has a broader meaning than it does in the Singapore law in that it is not solely limited to professional funders. Thus, anyone, even those persons or entities that do not generally have an interest in the arbitration proceedings, can potentially serve as a third party funder. For example, law firms and/or lawyers in Hong Kong could provide third party funding, so long as they are not involved in the same arbitration.

The bill does not apply to litigation in Hong Kong courts, except for those proceedings which specifically relate to arbitration – such as enforcement and challenges to an award.  

Risks of Third Party Funding

While third party funding provides alternative and much-needed sources of funding for under-resourced parties, it is not without its risks. Third party funding can require a significant cost upfront as the party’s legal team conducts its due diligence on funders, and negotiates and sets up confidentiality and funding agreements. Arrangements with third party funders can result in undisclosed conflicts of interest and can also run afoul of rules of privilege and confidentiality, which vary across jurisdictions.[5] Third party funding also raises concerns regarding the improper influence that funders may have over proceedings. Since a funder has a direct financial stake in the outcome of the dispute, it may seek to pressure a party to agree to a course of conduct, such as settlement, even when not in that party’s best interest.

By regulating third party funding, both the Singapore and Hong Kong legislations offer some protections for parties seeking such funding. For example, the Singapore Act stipulates that, where a third party funder fails to comply with the requirements laid out in the Act and Regulations, it will not only be unable to enforce its rights under the agreement entered into with the claimant but it will still be required to fulfill its obligations to the claimant. In addition to the provisions under the Act and Regulations, Singapore’s Legal Profession Rules of 2015 were also amended, making it mandatory for legal practitioners to disclose the existence of any third party funding agreement to the court or tribunal and all other parties to the proceedings in order to ensure that there is no conflict of interest.

Hong Kong’s 2016 Bill calls for an advisory body to be created to oversee funders operating in the region. This advisory body will be responsible for undertaking biannual reviews of funding activity as well as creating a code of practice that will establish standards and good practices of third party funders regarding funding agreements and minimum capital requirements, and proper internal procedures to address conflicts of interest and complaints. While failure to comply with the code will not result in any judicial sanction or other liability, the code can be used as evidence and may be taken into account in a case of non-compliance.

Conclusion

Third party funding provides a much-needed source of funding and creates access to justice for many claimants who would otherwise have no means to engage in protracted dispute resolution proceedings. However, third party funding is, itself, fraught with risk. The Singapore and Hong Kong laws, then, provide a means to regulate this previously unchecked system. Whether the laws will adequately regulate third party funding without stifling it remains to be seen. Nevertheless, potential claimants should take advantage of these new legal developments, making sure to conduct the appropriate risk analysis in their assessment of whether to move forward with third party funding.

____________________________________________

ENDNOTES

[1] Singapore and Hong Kong join the United Kingdom, Australia and other countries that already allow third party funding.
[2] See Douglas Thomson, Singapore’s Seismic Shift on Funding, Global Arbitration Review (June 7, 2017).
[3] See Burford finances first Singaporean arbitration matter, James MacKinnon joins Burford, Burford Capital (Press Release) (June 29, 2017).
[4] The English doctrines of maintenance and champerty were intended to prevent “…gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy…” See Sapna Jhangiani and Rupert Coldwell, Third Party Funding for International Arbitration in Singapore and Hong Kong – A Race to the Top?, Kluwer Arbitration Blog (November 30, 2016) (citing to The Hong Kong Consultation Paper, referring to Ram Coomar Coondoo v. Chunder Canto Mookerjee [1876] 2 App. Cas. 186, at 210).
[5] In the United States, for example, third party funding agreements have been held to “create confusion concerning the party who actually owns and controls the lawsuit, and create risks that the attorney-client privilege will be waived unintentionally.” See Fausone v. US Claims, Inc., 915 So. 2d 626, 630 (Fla. Dist. Ct. App. 2005).

Meriam Al-Rashid is a partner and Diora Ziyaeva is a senior associate at Dentons’ New York Litigation and International Arbitration practice groups. The views expressed in this article are exclusively those of the authors and shall not be attributed to Dentons US LLP or its clients.

Second Circuit Backs Overturning Award That Had Been Annulled At Arbitral Seat

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By Ugonna Kanu

The Second U.S. Circuit Court of Appeals this summer affirmed a New York Southern District federal court decision to vacate the trial court’s previous enforcement of an arbitral award after the award was annulled at its seat in Malaysia.

In Thai-Lao Lignite (Thailand) Co., Ltd. v. Government of the Lao People’s Democratic Republic, Docket Nos. 14-597, 12-1052, 14-1497 (2d Cir. July 20, 2017)(available at http://bit.ly/2wS9HpS)(available at http://bit.ly/2vKDHnE), a commercial dispute arose between Thai-Lao Lignite (Thailand) with its subsidiary, Hongsa Lignite (Lao PDR), and the Government of the Lao People’s Democratic Republic, which the parties submitted to arbitration in Malaysia.

According to the Second Circuit opinion, in the 2009 Kuala Lumpur arbitration, a panel of three U.S. lawyers conducting the matter under the United Nations Commission on International Trade Law Arbitration Rules found the defendants—the government of Laos–in breach over a dispute on mining rights the defendants had granted to the mining company petitioners.

The tribunal awarded the petitioners about $57 million.

The case, the opinion states, addresses “how a district court should adjudicate a motion to vacate a judgment that it has entered enforcing a foreign arbitral award, when that award has later been set aside by courts in the arbitral seat.” It examines the interaction between a Federal Rule of Civil Procedure 60(b) motion and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the New York Convention.

After a period for challenging the award expired, the petitioners successfully brought enforcement proceedings in the United States and United Kingdom. But almost a year after the award, the defendants applied at the Malaysian courts for the award to be set aside on the grounds that the arbitrators exceeded their jurisdiction by addressing disputes under contracts not covered by the relevant arbitration agreement.

The motion setting aside the award was granted in 2012. Then, returning to the United States, the defendants moved to vacate the order enforcing the award.

U.S. District Court Judge Kimba Wood relied on Federal Rule of Civil Procedure 60(b), in which the court can relieve a party from a final judgment if the judgment is based on an earlier judgement that has been vacated or reversed.

Wood analyzed the FRCP in conjunction with the New York Convention Article V(1)(e), which gives courts the discretion to refuse to recognize or enforce an award on party’s request under specific circumstances. In 2011, a year after confirming the award, Wood vacated the judgment to enforce, following the Malaysian nullification.

On appeal, the Second Circuit affirmed Wood’s decision to vacate her original judgment. In backing the district court decision, the Second Circuit referred to the clash between the federal rules and the convention. The appellate decision cited TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007)(available at http://bit.ly/2vR2S7S), where a unanimous panel, in an opinion written by Circuit Judge Susan L. Carney, noted that the convention’s “text appears to leave the District Court with discretion to enforce an award that has been annulled in the primary jurisdiction—after all, it does not say that enforcement of the award ‘must’ be refused—[but] held . . . that the scope of that discretion is ‘constrained by the prudential concern of international comity.’”

The Thai-Lao Lignite opinion endorsed TermoRio, where the D.C Circuit affirmed a decision denying enforcement of an annulled award, stating “when a competent foreign court has nullified a foreign arbitration award, United States courts should not go behind that decision absent extraordinary circumstances.” (Quoting the TermoRio appellees’ brief).  The D.C. Circuit said the exception to enforcement would be where a judgment is contrary to U.S. public policy.

The Second Circuit opinion notes that TermoRio followed the Second Circuit view on foreign awards in Baker Marine Ltd. v. Chevron Ltd., 191 F.3d 194 (2d Cir.  1999)(available at http://bit.ly/2uQIFBN). In Baker, the appellate court upheld the district court’s refusal to enforce an award that had been annulled in Nigeria, the arbitration seat, because to do otherwise would give a losing party “every reason to pursue its adversary with enforcement actions from country to country until a court is found, if any, which grants the enforcement.”

The result would be a loss of finality and conflicting judgments, as well as overall difficulty in maintaining a uniform and predictable arbitral framework and to prevent producing regularly conflicting judgments.

The Second Circuit’s Thai-Lao Lignite opinion suggested that the result would have been different if the decision of the foreign court was contrary to the “fundamental notions of what is decent and just” in the United States.  It based this public policy exception on Corporación Mexicana de Mantenimiento Integral, S. De R.L. de C.V. v. Pemex-Exploración y Producción, 832 F.3d 92, 107 (2d Cir. N.Y. Aug. 2, 2016)(available at http://bit.ly/2xcyLXZ).

In that case, the Second Circuit affirmed a district court enforcement decision to confirm an award that had been nullified at the primary jurisdiction in Mexico, on the grounds that the Mexican appellate court had retroactively applied Mexican law and deprived the plaintiff of a remedy, contrary to fundamental U.S. public policy.

The Second Circuit Thai-Lao Lignite panel notes that it held its opinion until a U.S. Supreme Court cert petition in Corporación Mexicana had been decided. The request was denied earlier this year.

But in Thai-Lao Lignite, the U.S appeals court saw no grounds for public policy concerns.  A question as to the defendant’s delay in challenging the award, and its dilatory tactics in discovery matters arising in the U.S. courts, were viewed by as justifiable by the district court; “these factors would not have materially changed the outcome,” the opinion states, considering the district court’s reasons for vacating the award.

The author is an attorney in Nigeria who has just completed her L.L.M. in Dispute Resolution at the University of Missouri-Columbia School of Law.  She was a CPR Institute 2017 summer intern.

Second Circ. Holds Arbitration Provision in Uber App’s Terms of Service Created Valid Agreement to Arbitrate

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By Michael S. Oberman

Oberman
By opinion issued August 17 in Meyer v. Uber Technologies, the Second Circuit reversed a district court denial of a petition to compel arbitration and held that the arbitration provision within Uber’s terms of service as presented in Uber’s app interface resulted in a valid agreement to arbitrate.

Finding that New York and California law was essentially the same on contract formation but applying California law, the Second Circuit stated (at 21) that “we may determine that an agreement to arbitrate exists where the notice of the arbitration provision was reasonably conspicuous and manifestation of assent unambiguous as a matter of law.”

The court found reasonably conspicuous notice on these bases (at 24-26):

Accordingly, when considering the perspective of a reasonable smartphone user, we need not presume that the user has never before encountered an app or entered into a contract using a smartphone. Moreover, a reasonably prudent smartphone user knows that text that is highlighted in blue and underlined is hyperlinked to another webpage where additional information will be found.

Turning to the interface at issue in this case, we conclude that the design of the screen and language used render the notice provided reasonable as a matter of California law. The Payment Screen is uncluttered, with only fields for the user to enter his or her credit card details, buttons to register for a user account or to connect the userʹs pre‐existing PayPal account or Google Wallet to the Uber account, and the warning that ʺBy creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.ʺ The text, including the hyperlinks to the Terms and Conditions and Privacy Policy, appears directly below the buttons for registration. The entire screen is visible at once, and the user does not need to scroll beyond what is immediately visible to find notice of the Terms of Service. Although the sentence is in a small font, the dark print contrasts with the bright white background, and the hyperlinks are in blue and underlined. This presentation differs sharply from the screen we considered in Nicosia, which contained, among other things, summaries of the userʹs purchase and delivery information, ʺbetween fifteen and twenty‐five links,ʺ ʺtext . . . in at least four font sizes and six colors,ʺ and several buttons and advertisements. Nicosia, 834 F.3d at 236‐37. Furthermore, the notice of the terms and conditions in Nicosia was ʺnot directly adjacentʺ to the button intended to manifest assent to the terms, unlike the text and button at issue here. Id. at 236.

In addition to being spatially coupled with the mechanism for manifesting assent ‐‐ i.e., the register button ‐‐ the notice is temporally coupled… Here, notice of the Terms of Service is provided simultaneously to enrollment, thereby connecting the contractual terms to the services to which they apply. We think that a reasonably prudent smartphone user would understand that the terms were connected to the creation of a user account.

That the Terms of Service were available only by hyperlink does not preclude a determination of reasonable notice…. Moreover, the language ʺ[b]y creating an Uber account, you agreeʺ is a clear prompt directing users to read the Terms and Conditions and signaling that their acceptance of the benefit of registration would be subject to contractual terms. As long as the hyperlinked text was itself reasonably conspicuous ‐‐ and we conclude that it was ‐‐ a reasonably prudent smartphone user would have constructive notice of the terms. While it may be the case that many users will not bother reading the additional terms, that is the choice the user makes; the user is still on inquiry notice.

The Court further held (at 27), expressly reversing the district court, that although the terms were lengthy and must be reached by a hyperlink, the arbitration clause was not unreasonably hidden. “Once a user clicks through to the Terms of Service, the section heading (‘Dispute Resolution’) and the sentence waiving the user’s right to a jury trial on relevant claims are both bolded.”

Finally, the Court found manifestation of assent given the objectively reasonable notice and the user’s election to click on the registration button. “The fact that clicking the register button has two functions—creation of a user account and assent to the Terms of Service—does not render Meyer’s assent ambiguous.” (At 29). The Court added (at 30): “The transactional context of the partiesʹ dealings reinforces our conclusion. Meyer located and downloaded the Uber App, signed up for an account, and entered his credit card information with the intention of entering into a forward‐looking relationship with Uber. The registration process clearly contemplated some sort of continuing relationship between the putative user and Uber, one that would require some terms and conditions, and the Payment Screen provided clear notice that there were terms that governed that relationship.”

In sum, the Court applied traditional contract principles to smartphone technology, and placed heavy emphasis on Uber’s screen design—the clarity of the hyperlink to the Terms of Service and, within the Terms of Service, the bolding of the Dispute Resolution heading. This reasonable disclosure, coupled with the user’s intent to create an account with Uber, proved sufficient for an agreement to arbitrate. In distinguishing the present case from the Court’s own recent opinion in Nicosia, the Court has provided some specific guidance on the graphic features that can separate a binding agreement from an unenforceable agreement in the smartphone era.

Mr. Oberman heads up Kramer Levin’s Alternative Dispute Resolution Practice Group. A fellow of the College of Commercial Arbitration, he serves as an arbitrator and a mediator, in addition to representing parties in ADR proceedings. He can be reached at moberman@kramerlevin.com.

CPR Appoints New Cyber Panel Ahead of Anticipated Increase in Data Security Disputes

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By Kate Wilford, Hogan Lovells (London)

The International Institute for Conflict Prevention and Resolution, a New York-based organisation offering Alternative Dispute Resolution (ADR) services, has recently announced the launch of a new specialised panel of neutrals, commissioned to deal with cybersecurity disputes. The Cyber Panel is composed of experts in cyber-related areas such as data breaches and subsequent insurance claims. In a press release, Noah Hanft, President of CPR, described the new panel as guiding the “critical effort” by businesses to “prevent and/or resolve cyber-related disputes in a manner that best protects operations, customers and reputation” due to attacks now occurring with increased frequency and sophistication.

CPR’s decision to establish a specialist cyber panel addresses a perceived need for arbitrators and mediators with relevant expertise, given that data protection and security breaches are regarded as an increasingly common cause of technology, media, and telecommunications (TMT) disputes, and therefore a significant growth area for commercial dispute resolution. According to the 2016 International Dispute Resolution survey on TMT disputes conducted by the School of International Arbitration at Queen Mary University of London, respondents predicted a 191% increase in disputes related to data/system security breaches, the largest growth area identified by the survey.  Despite the fact that only 9% of respondents had encountered such disputes over the last five years, 79% of respondents thought that they were either likely or very likely to arise over the next five years. The survey also suggested that data breaches are most often caused by employee action, followed by malicious third party attacks, with both being more common than breaches caused by system failures.

Given the significant reputational and financial damage that can result from a data security breach, it is crucial to resolve subsequent disputes through the use of a reliable procedure which is tailored to the wider commercial context. This is why TMT companies are increasingly often turning to international arbitration which, as the survey shows, was respondents’ preferred mechanism for resolving disputes in the sector. Compared to the 43% of respondents who expressed a preference for arbitration, only 15% chose court litigation as their most favoured option. However, at present, litigation remains the most used mechanism in practice, used in relation to 44% of TMT disputes over the last five years. In that regard, the authors of the survey add that many of these disputes arise from contracts which were concluded long before arbitration grew in popularity and consequently, they do not include an arbitration clause. If this is true, we are likely to witness a significant increase in the number of TMT arbitrations. Indeed, 82% of respondents believed that there was likely to be a general increase in TMT arbitrations.

In general, the survey suggests that TMT companies may require more confidence in international arbitration in order to make this theoretical preference a reality. One way in which this could be addressed is by increasing the number of arbitrators with specialist knowledge of the sector and the specific issues in dispute. This approach appears to correspond with the views of the respondents to the Queen Mary University of London survey, which identified the technical expertise of the decision maker as an important aspect when deciding on a dispute resolution mechanism, as well as decision makers. In light of this conclusion, it was a logical step for CPR, which already has a series of specialist panels in other areas, to appoint a specialised Cyber Panel which may appeal to parties faced with disputes relating from data security breaches. More generally, there seems to be a wide consensus that cybersecurity-related arbitration is going to be an area of future growth.

Kate Wilford is a Senior Associate in Hogan Lovells’ London office. She represents international companies in large-scale, international commercial disputes. Her practice focuses on international arbitration (most frequently under the ICC, LCIA and UNCITRAL rules) and associated court litigation, including challenges to and enforcement of arbitral awards. Ms. Wilford’s full bio can be accessed HERE.

This post was originally published at http://www.hldataprotection.com/2017/08/articles/cybersecurity-data-breaches/cpr-appoints-new-cyber-panel-ahead-of-anticipated-increase-in-data-security-disputes – the Hogan Lovells Chronicle of Data Protection blog. It was also republished on the firm’s international arbitration blog, ARBlog and is republished here with permission.