Arbitration

U.S. Supreme Court’s 2015-2016 Term Has Early Arbitration Focus

/ CPR Staff / Leave a comment

U.S. Supreme Court’s 2015-2016 Term Has an Early Arbitration Focus

By Russ Bleemer

The U.S. Supreme Court began its new term with an early arbitration argument—the fourth case argued on the term’s second day, Oct. 6.

The argument followed a week after the nation’s top court agreed to hear a second arbitration case sometime this term.

Both of the cases involve California arbitration practice.  The new case on the docket–which started out focused on unconscionability but will be argued on whether a problematic arbitration clause is salvageable–is a federal case appeal from the Ninth U.S. Circuit Court of Appeals, which covers the state.

The state-court matter that was the subject of the early-term argument, DirecTV Inc. v. Imburgia, No. 14-462, returned to an issue that already had been covered and decided by the Court: federal preemption of conflicting state law that affected arbitrability.

Or so it seemed.

The official issue in the case was “[w]hether the California Court of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act requires the application of state law preempted by the Federal Arbitration Act.”

The parties—a satellite television provider and an individual subscriber who filed a class action suit over early cancellation fees—had an agreement that provided for individual arbitrations. The form contract waived class arbitration, and was part of a purchase agreement before another California-derived case, AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), backed class waivers.

In AT&T Mobility, the U.S. Supreme Court invalidated a rule from a California Supreme Court case, Discover Bank v. Superior Court, 113 P.3d 1100 (2005), which forbid class processes. The split AT&T Mobility Supreme Court overturned California’s Discover Bank rule because it interfered with the Federal Arbitration Act.

The DirecTV customer agreement the Court reviewed had hedged its terms about class waivers and arbitration in the wake of the then-pending litigation.  Under the purchase agreement, the parties were bound by the FAA.

But the contract stated that if “the law of your state would find this agreement to dispense with class arbitration procedures unenforceable,” then the entire arbitration provision would be stricken from the purchase agreement.

Seemingly flying in the face of the since-decided AT&T Mobility, the California state Court of Appeal in DirecTV had concluded that the contract provision on “the law of your state,” in the words of the DirecTV petition to the Supreme Court, was a non-severable clause that “nullif[ied] the parties’ arbitration provision, even though [the Discover Bank] rule is concededly inconsistent with, and thus preempted by, the FAA under [AT&T Mobility], and even though the arbitration agreement here is concededly governed by the FAA.”

The petition said that the state appellate court had meant the phrase “the law of your state” to mean “state law immune from the preemptive force of federal law.”

It appeared that the U.S. Supreme Court took the case to reverse it and put it in line with its AT&T Mobility precedent.

At the argument, both conservative and liberal justices found the state appeals court’s reading of the contract, in refusing to enforce arbitration, puzzling.  Associate Justice Antonin Scalia said the state appeals court holding “flouts well-accepted universal contract-law principles.”  Associate Justice Elena Kagan lamented “the extent you can find reasoning in this opinion—which you have to search to find.”  The opinion under review is Imburgia v. DirecTV Inc., No. B239361 (Cal. 2nd App. Dist. April 7, 2014)(available at http://ow.ly/Tg4Mi).

The defense of the California state court opinion was that it must be maintained to prevent federal law from usurping state courts’ ability to interpret contract terms.

But the satellite television provider’s slam-dunk argument ran aground when the Court insisted DirecTV’s lawyer set a standard as to how the Court should evaluate state court contract interpretations.

Still, that argument was far simpler than the plaintiff’s argument, which faced a Court mostly unsympathetic to collective actions and which was looking at odd reasoning in the California appellate opinion.

The argument transcript is available at http://ow.ly/TfFui; the November Alternatives, available here on or before Nov. 9, has a full analysis.

* * *

The November Alternatives also will discuss the case that the Court accepted on Oct. 1, MHN Government Servs. Inc. v. Zaborowski, 14-1458, another matter with allegations of California hostility to arbitration.

The case focused originally on unconscionability.  MHN, a San Rafael, Calif., military contractor that provides life consulting services to military members and their families, sought to compel arbitration against the respondents, who were consultants in MHN’s network.

MHN’s motion to compel arbitration lost in both a California federal district court and in the Ninth U.S. Circuit Court of Appeals.

The Ninth Circuit, in an unpublished opinion, agreed with the lower court that MHN’s consulting contract was both procedurally and substantively unconscionable.

MHN avoided the unconscionability arguments in its successful U.S. Supreme Court cert petition, and instead counters with a focus on severability.  It tells the nation’s top Court that California has a rule on severability for contracts that operates differently when the contract is for arbitration, and the state is biased against arbitration.

The original plaintiffs counter that the federal court opinions exercised appropriate discretion in declining to sever clauses in an arbitration agreement that has been refused to be enforced “by over a dozen judges,” including in a 9-0 Washington state Supreme Court opinion that similarly refused to sever.

Full details, cites, links and analysis will be available in the November Alternatives at the link above.

Russ Bleemer is a CPR Consultant and the Editor of CPR’s award-winning publication, Alternatives

CFPB Decision Implicitly Recognizes Arbitration as Legitimate Alternative to Litigation

/ CPR Staff / Leave a comment

CFPB’s Decision Not to Bar Mandatory Arbitration Clauses Implicitly Recognizes Arbitration as Legitimate Alternative to Litigation

There has been much focus over the past years on mandatory arbitration clauses combined with class action waiver provisions that preclude parties from bringing claims on anything other than an individual basis. Earlier this month, in a move to protect consumers, The Consumer Financial Protection Bureau’s Arbitration Field Hearing announced the Bureau’s decision, following a study and report the CFPB published and issued to Congress earlier this year, to launch a rulemaking process to bar class action waivers in combination with consumer financial arbitration agreements,

Here’s what CFPB Director, Richard Cordray, had to say regarding the decision:

After carefully considering the findings of our landmark study, the Bureau has decided to launch a rulemaking process to protect consumers. The proposal under consideration would prohibit companies from blocking group lawsuits through the use of arbitration clauses in their contracts. This would apply generally to the consumer financial products and services that the Bureau oversees, including credit cards, checking and deposit accounts, certain auto loans, small-dollar or payday loans, private student loans, and some other products and services as well. …

 So what does this rulemaking process mean?

To start, the rules wouldn’t ban arbitration clauses altogether. Rather, they would require clauses to state that they don’t apply to cases filed as potential class-action lawsuits unless a judge denies class certification or a court dismisses the claims. Furthermore, the proposals would mandate that companies using arbitration clauses divulge records to the CFPB showing the claims filed by consumers and the awards issued — which may be made available to the public in an effort to ensure fairness and transparency of the arbitration process on behalf of the consumer. Should the proposal be adopted by the CFPB, new rules would apply to financial products overseen by the CFPB, including those cited by CFPB director, Cordray.

Many consumer groups are hailing the CFPB’s efforts as a victory for consumers. Still, the CFPB’s move is expected to face stiff opposition from the likes of the U.S. Chamber of Commerce; the Minneapolis-based Association of Credit and Collection Professionals (ACA International), a membership group of credit and collection industry firms as well as asset buyers, attorneys, creditors and vendor affiliates; and other business groups which, according to a recent New York Times article, maintain that “arbitration offers a more efficient but equally fair means for consumers to resolve complaints. These private proceedings, held outside court, provide the same opportunity for relief without the staggering legal bills, the groups say.”

According to CPR’s SVP of Product Development and Public Policy, Beth Trent, “While it’s difficult to tell the precise impact of the CFPB’s proposed rule, the CFPB’s decision not to bar mandatory arbitration clauses is quite telling. It implicitly recognizes that arbitration is a legitimate alternative to litigation, which is supported by the CFPB’s own data which shows that arbitration is a speedier process than class action litigation, that claim rates in class actions are low, and that average recovery per class member is low.”

“People generally prefer speedy resolution of their claims, and it’s not clear that individuals would necessarily choose to bring a class action,” Ms. Trent added. “That said, lawyers most often initiate class actions with only one, or a few named class representatives, and the vast majority of individuals have no choice regarding whether they are included in a proposed class. In fact, they may be entirely unaware that they are included in a class action at all. Ultimately, the impact of the proposed rule will be shaped, at least in part, by the business response to that rule. Most notably, whether businesses offer arbitration programs that meet standards of due process and consumer needs in a cost-effective manner.”

The next CFPB step is convening meetings of a Small Business Regulatory Enforcement Fairness Act panel, which will review the impact of the proposed regulation on small businesses.  The first such meeting is scheduled for Washington, D.C., Oct. 28, according to the CFPB Monitor, a blog published by the Philadelphia-based law firm Ballard Spahr.

THE NEUTRAL’S NOTEPAD: Writing an Award that Withstands the Scrutiny of the Parties and the Courts

/ CPR Staff / Leave a comment

THE NEUTRAL’S NOTEPAD: Writing an Award that Withstands the Scrutiny of the Parties and the Courts

Eaton_TimBy J. Timothy Eaton

The end game in arbitrations is the final award. In most business-to-business commercial arbitrations, the final award is a reasoned explanation of the facts and law, and the relief being awarded. Since most arbitration awards are confidential, the audience for the written award is the parties and if subject to a review, the courts. What should be considered in writing an award that will withstand their scrutiny?

The first consideration is the title of the award. How the award is labeled is important and has consequences. If it is titled an “Interim Award,” its duration should be no longer than the arbitration itself and it should be entitled to reconsideration at any time before the final award is entered.

If it is a “Partial Final Award” – such as a finding as to liability only – it generally would not be subject to a reconsideration and may be appealable to the courts unless the tribunal indicates otherwise. The tribunal should make its intention clear as to whether it intends for the award to be judicially reviewable at that stage or not.

If it is a “Final Award,” the assumption is the tribunal has completed its task and the award is subject to enforcement or judicial review. The tribunal’s authority is over at that point.

Once the award has been labeled properly, the next step in preparing the award is to identify the parties and their status. This may seem obvious, but the issues and the relief may depend upon which party is raising a claim or defense. With the frequency of counterclaims, characterizing who is bringing the claim and the relief sought becomes an important point in the analysis.

Most arbitrators then like to proceed with a factual and procedural background to set the framework for the issues and analysis. This certainly makes sense, but first it may be helpful to consider the issues that you are going to be resolving. The issues really control the findings and facts which are necessary to recite in the award. What facts are material to the issues will become more evident once you have articulated the issues being decided.

Most arbitrators then set forth the procedural history by identifying what has occurred prior to the hearing. This section is really more for reviewing courts than for the parties because the parties know what has transpired. But is important for someone new to the arbitration to understand that the parties had an ample opportunity to engage in discovery, make their arguments, submit their exhibits and have their witnesses heard and examined. Some of the grounds for vacatur are based upon whether the parties had a fair and meaningful opportunity to present their case, so spelling out in detail how the arbitration progressed lends credence to the award.

Then the crux of the award follows with the statement of the issues that the parties are raising and how they are decided. It is critical that a party understands that the tribunal understood what issues they were raising. The tribunal may not agree with a party’s position on a given issue, but both for the purposes of confidence in the award and its possible reviewability, every material issue that was raised should be identified and ruled upon. A “sweeper” clause that issues not identified were fully considered (a clause I have used myself at times) is not generally satisfactory to the parties or to reviewing courts. The tribunal’s ruling on the merits of the issue is really secondary to the fact that the issues were properly identified.

Next is the analysis of the material issues and the reasoning behind the conclusions reached. Each conclusion should be supported by a logical interpretation of the facts and law. References to case law are not always necessary but if there are statutes or authorities on given issues that the parties have relied upon, some reference to them in the award will at least signal that they were considered.

Most tribunals are both very measured in their analysis of the issues and not unduly critical of a party’s position. Arguments made by the parties are generally made in good faith and, even if you disagree with them, they should be treated with the same measure of good faith.

Last but not least, the award should specify the relief being afforded. It is a good practice to have the parties in the prehearing briefs state specifically the relief they are seeking in the claims or counterclaims. Sometimes an earlier filed claim is not clear as to what relief the party is seeking, and the relief sought may change as the discovery in the arbitration unfolds. So a delineation in the prehearing brief of the issues and the relief sought is very helpful to the tribunal.

After considering the specific relief requested, it is a good idea to review the arbitration agreement again to determine whether it has any limits on what relief can be given. Limits on punitive damages in particular are frequently included in the arbitration agreement. Other limitations may include a bar on consequential damages or attorneys fees.

Finally, do a gut check on what final relief should be ordered. Is it warranted by the facts in the law? Are you compromising the award because you do not agree with the law? Is it what the parties expect? Before you pull the trigger, you want to make sure your aim is on what the arbitration agreement contemplates and more importantly, requires.

In conclusion, each step in writing the award from the title to the relief must be carefully considered. The result is sometimes not as important as the process achieving it. Make sure the award informs parties and the courts as to how you arrived at it.

Tim Eaton is a Fellow of the College of Commercial Arbitrators and a member of the CPR Panel of Distinguished Neutral Arbitrators in Chicago. He is a member of the National Academy of Distinguished Neutrals and a member of the American Arbitration Association’s Roster of Commercial Arbitrators. He has lectured and written on arbitration topics. He is a litigation partner at the law firm of Taft, Stettinius & Hollister.

AFTER THE VETO: The Current State of Employment Arbitration in Brazil

/ CPR Staff / Leave a comment

By Cristiane Ordonez and Colin McGeough, CPR Legal Interns

According to an article published by José Pastore, a professor at FEA-University of São Paulo, Brazil’s National Congress voted to approve the use of arbitration for the arbitration of employment disputes, but Brazilian President, Dilma Rousseff, reacted to the legislation by banning employment arbitration via her veto power. Pastore and others in Brazil advocate strongly in favor of ADR of employment disputes.

After the initial approval by the National Congress, employment arbitration was limited to directors and managers who agreed to use arbitration as their preferred dispute resolution method; however, according to Pastore, Brazil’s President banned even the limited use of employment arbitration because of the position of the Ministry of Labor. In short, the Ministry of Labor argued that the use of arbitration for some would lead to discrimination against others. Pastore also mentions, in his article, that the Ministry of Labor took issue with the reference to “managers” and “directors” because the Ministry felt those terms were strangers to Brazil’s legislation. In opposition to that, Pastore points out that the Labor Code, Civil Code, and others have those words present within their paragraphs, and any issue with “managers” and “directors” should not have been taken so seriously.

One of the largest frustrations from the veto seems to come from the idea that employment arbitration could have had such a positive effect on employment courts, the parties, and the judiciary system in Brazil. It could have, and likely would have, offered a quicker and more simplified method of dispute resolution than litigation because non-arbitral court disputes often have additional costs and longer proceedings that can span many months or even years.

Another disappointment comes with the veto as well, one that involves Brazil not having the benefit of being on par with so many other developed countries that have laws that use and allow employment arbitration. Pastore discusses the laws of the United States, various countries of the EU and Asia, and Australia and New Zealand. Furthermore, Pastore shows that 97% of collective agreements to settle employment disputes in the US opt for arbitration. Pastore’s theory, as we understand it, is that the use of employment arbitration by developed countries will cause these types of arbitrations to spread to Latin American countries too. Many Brazilians, including Pastore, hoped it would have happened by now, but the President’s veto has delayed such progress.

It must be said that Pastore also stresses the importance of parties having the autonomy to choose arbitration rather than being forced to litigate all employment disputes, or in fact having mandatory arbitrations. Allowing parties to choose between litigation and arbitration affords many more benefits than it does detriments because every dispute is different and party choice allows for different methods of conflict resolution that will best fit the needs of a party’s case. However, Pastore urges the use of arbitration as an option because non-arbitral proceedings are often transactions of “sealed packages.”  In other words, claimants ask for one thing, respondents offer another, and a judge ends up settling the dispute by ordering something completely different.

It is hard to believe, in the eyes of Pastore, that Brazil’s President and Labor Courts would ban an alternative dispute method (arbitration) for employment disputes because the courts are crowded, and both the courts and parties are suffering from high litigation costs. As mentioned earlier, Pastore believes the veto needs to be reviewed and the issue solved as quickly as possible.

Cristiane is a Brazilian attorney serving as a fellow of CPR, a Florida accredited mediator and a mediator and conciliator working in Brazil.  Colin is a summer legal intern at CPR, a rising 3L at New York Law School, and President of New York Law School’s Dispute Resolution Team.

THE NEUTRAL’S NOTEPAD: Consider Expanded Use of Written Witness Statements

/ CPR Staff / Leave a comment

With this post, The CPR Institute introduces a new “CPR Speaks” series feature in which members of our esteemed panel of neutrals will periodically contribute their thoughts on developments and best practices in dispute resolution.

THE NEUTRAL’S NOTEPAD: U.S. Advocates and Arbitrators Should Consider an Expanded Use of Written Witness Statements in U.S. Domestic Arbitration

BenderRay-41309-06By Raymond G. Bender

One technique for creating efficiencies in arbitration is submitting the direct testimony of fact witnesses in writing rather than orally.  Written witness statements provide detailed testimony a witness would offer (including references to relevant documents) if questioned live.  The written testimony is signed by the witness, its truth and accuracy is sworn to or affirmed, and the statements are exchanged in advance of the hearing.  Each witness providing a written statement appears at the hearing for cross-examination by opposing counsel and questioning by the tribunal.

Written witness statements can afford material advantages in arbitration.  For example, as lengthy oral testimony becomes unnecessary, written testimony can save days or even weeks (in a complex case).  Exchanging witness statements in advance also permits opposing counsel to prepare fully for cross-examination. In fact, exchanging witness testimony prior to hearing permits all of the participants in the hearing—counsel and arbitrators alike—to focus before hearing on the key issues in dispute, formulate pertinent questions for the witness, and conduct a more efficient and streamlined proceeding.  Moreover, witness statements can obviate or lessen the need for depositions since opposing counsel will have advanced notice of a witness’ direct testimony.  Finally, written statements can serve an important fact-finding function when depositions are disallowed or limited to key witnesses.

Why are written witness statements so common in international arbitration, but not as prevalent in U.S. domestic arbitration?  Some U.S. counsel and arbitrators may be unfamiliar with the technique, particularly if they serve exclusively in U.S. domestic proceedings where oral testimony is the norm.  Others may believe that drawbacks associated with witness statements outweigh the advantages.

For example, some may feel that lawyers draft witness statements and the testimony therefore is not as spontaneous or genuine as when a witness testifies live.  A witness also might rely too heavily on the lawyer and not review the testimony carefully or completely.

However, when preparing witnesses for oral testimony, attorneys also typically assist and invite them to rehearse their hearing presentations.  Attorneys have a duty to admonish witnesses concerning the truth and accuracy of their testimony—whether they testify orally or in writing—and to highlight the need to defend the testimony under cross-examination and arbitrator questioning.  Witnesses also sign and/or swear or attest to their written testimony, and such formalities signal that witness statements need to be truthful and accurate and not approached in a careless manner.

Another potential concern about written versus oral direct testimony is that the tribunal’s first exposure to the witness would be on cross-examination.  No lawyer wants arbitrators to observe a witness initially in a defensive posture under questioning by opposing counsel.

This concern can be addressed by permitting counsel offering the witness to conduct a brief direct examination (e.g., 15 to 30 minutes), depending on the nature and size of the testimony and the case.  This lets the tribunal hear from the witness in his or her own words.  Such abbreviated direct examination could include background information on the witness and/or a summary of key aspects of the witness’ written testimony.   This direct testimony should be relatively brief so as not to frustrate a fundamental purpose for using written witness statements, i.e., to achieve efficiency and cost-savings.

A final potential concern is that using written statements prevents arbitrators from evaluating a witness’ credibility on direct examination.

There normally are sufficient opportunities for a tribunal to assess witness credibility other than on direct examination—most critically during cross-examination, but also on re-direct, and during questioning by the tribunal as well.  Moreover, permitting an abbreviated direct exam before a witness is cross-examined, as discussed above, affords yet another window for arbitrators to assess witness credibility.

Granted, written witness statements may not be an optimal solution for every witness or in every case.  For example, where believability of a key witness or witnesses may influence the outcome in an arbitration, presenting the witness’ direct testimony live may be preferable to using a written witness statement.

Additionally, any decision to present the direct testimony of fact witnesses in written or oral form ultimately should reside with the parties and counsel. Arbitration still is a creature of party agreement, and arbitrators in U.S. domestic arbitration should never compel the use of one technique over the other.

However, here are some general practice tips that arbitrators might keep in mind, not only to help ensure that counsel consider the full range of their options, but to utilize written direct testimony, if they so choose, in an optimal way:

  • Arbitrators should encourage written witness statements where appropriate and highlight the benefits surrounding their use.  Including witness statements as an item on the preliminary hearing agenda, and having an open discussion of the pros and cons during the preliminary hearing itself, can expose the technique to counsel otherwise unfamiliar with it.
  • Arbitrators should condition the use of written direct testimony on the witness’s attendance at hearing for cross-examination and questioning by the tribunal (unless all parties and the tribunal agree to waive a witness’ appearance).  Cross-examination of witnesses generally is considered a fundamental right in the U.S. (and in other common law jurisdictions) and this right should be safeguarded when written witness statements are used.
  • Arbitrators should permit sponsoring counsel to question the witness briefly on direct examination (e.g., to summarize key points) so the witness can “warm to the seat” before being turned over for cross-examination.  This procedure lets the witness become comfortable in the arbitral setting and also allows the tribunal to observe witness credibility (albeit briefly) on direct examination.
  • U.S. arbitrators should review witness statements in preparation for the hearing, listen attentively during examination by counsel and, if appropriate, pose follow-up questions to the witness to clarify relevant facts, gain insight as to witness credibility, or achieve a better understanding of the case.

In conclusion, greater reflection and dialogue on written witness statements should give U.S. counsel and arbitrators an enhanced appreciation for their use in U.S. domestic arbitration. U.S. arbitration proceedings would surely benefit from this development.

Raymond Bender is a full-time commercial Arbitrator in domestic and international disputes.  He is a member of the CPR Panel of Distinguished Neutral Arbitrators for Washington, D.C., Technology, and Cross-Border Disputes; the American Arbitration Association’s Roster of Commercial Arbitrators for Washington, D.C., Technology, and Large, Complex Cases; the International Center for Dispute Resolution (ICDR) Panel of International Arbitrators; and the Silicon Valley Arbitration and Mediation Center’s List of the World’s Leading Technology Neutrals.  He also has served in International Chamber of Commerce (ICC) and ad hoc arbitrations.  Mr. Bender is an Adjunct Professor at the Washington College of Law, American University, Washington D.C., where he teaches Alternative Dispute Resolution Law, and serves on the Arbitration Faculty of the International Law Institute.

On Norton Rose Fulbright Litigation Survey: In Litigation v. Arbitration Debate, Best Answer is “It Depends”

/ CPR Staff / Leave a comment

In mid-May, law firm Norton Rose Fulbright released its 11th annual Litigation Trends Survey—the broadest the firm had ever undertaken, compiling results from more than 800 corporate counsel (primarily general counsel) representing companies across 26 countries on dispute-related issues and challenges. According to the firm survey summary, “While each country or region surveyed is unique, one common theme comes through loud and clear—corporate counsel around the world see the growing litigiousness of the  business environment as an important trend that bears watching.”

Survey results reflected significant corporate spend on litigation, with 34% of US respondents reporting litigation budgets of 1 million to 5 million, as compared to only 26% two years ago. There was also a slight increase in the companies reporting litigation budgets of $10 million or more.

One point of particular interest was the broad utilization of international arbitration, particularly for larger companies (more than $1 billion in revenue). Across all regions and industries, more than two-thirds of companies with $5 to $10 billion in revenue preferred arbitration, and were also much more likely to have been involved in an arbitration in the past 12 months (38%). Specifically, given the choice, for disputes that were international in nature, nearly half of total respondents said they preferred arbitration over litigation, with about a quarter choosing litigation and the remaining quarter answering, “It depends.” Continue reading →

Arbitration Fairness Act of 2015 (AFA): An Overly Simplistic Approach?

/ CPR Staff / Leave a comment

The Arbitration Fairness Act of 2015 (AFA), recently introduced by Senator Al Franken and Representative Hank Johnson, would amend the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (FAA), to eliminate mandatory, pre-dispute arbitration clauses in employment, antitrust or civil rights matters—as well as all nearly all consumer contracts, for such things as cars, credit cards and cell phones. Allowing parties to agree to arbitration only after a dispute has arisen, the AFA would apply to “any dispute or claim that arises on or after” the date of AFA’s passing. The legislation would also give federal courts—instead of arbitrators—the authority to rule on an agreement’s validity and enforceability.

This is not the first legislative effort to narrow the use of pre-dispute arbitration agreements; somewhat similar bills were introduced in 2011 and then again in 2013, but neither made it out of committee. While some are applauding this step towards banning what they refer to as “forced” arbitration, others have expressed concerns that requiring parties to agree to arbitration only after a dispute has already arisen might take away the parties’ critical ability to utilize arbitration preventatively, planning for it in order to avoid disputes in the first place. Others question the wisdom of transferring these responsibilities away from arbitrators and to an already beleaguered court system. Finally, while the AFA does not expressly prohibit businesses from entering into pre-dispute arbitration agreements with other businesses, some question the effect this might have on the enforceability of arbitration in business contexts where there is potential consumer application.

Institute for Conflict Prevention & Resolution (CPR) President & CEO Noah Hanft observed that, “Just as with litigation, there are circumstances where arbitration may be abused. But, if practiced properly and thoughtfully, as it should be, arbitration remains a  more effective, efficient and less costly way to resolve certain disputes—a result from which consumers can clearly benefit as well.”

Hanft concluded, “Care must be taken that any legislation aimed at protecting abuses in the use of arbitration not be overly simplistic or condemn a practice that has brought real benefits in a multitude of circumstances around the world. Even advocates of tort reform that decry litigation abuses don’t propose sweeping bans on certain types of litigation.”