The U.S. Supreme Court has set the oral argument for Nov. 2 in Badgerow v. Walters, No.20-1143, now the sole remaining arbitration case on the docket for the new term beginning next month.
The issue the nation’s top Court will examine is whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is a dispute regarding a federal question.
Section 9 deals with confirming an award, and Section 10 provides the limited grounds that can overturn an award and thereby defeat a move to confirm.
Last week, the Court removed the first arbitration case it had taken for the term from its argument schedule and dismissed the case after a party request. The case, Servotronics Inc. v. Rolls-Royce PLC, et al., Docket No. 20-794, would have examined the parameters of the discretion granted to district courts under 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” by determining whether the statute includes private commercial arbitral tribunals.
For more details on the dismissal on this blog, see Bryanna Rainwater, “Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket,” CPR Speaks (Sept. 8) (available at https://bit.ly/39oFdAx).
The Fifth U.S. Circuit Court of Appeals in Badgerow affirmed the district court’s decision that exercised subject-matter jurisdiction over the plaintiff’s petition to vacate an arbitral award stemming from an employment dispute, denying remand of the issue. Badgerow v. Walters, 975 F.3d 469 (5th Cir. Sept. 15, 2020) (available at https://bit.ly/394xUh3).
Petitioner Denise Badgerow–a former employee of REJ Properties Inc., a Louisiana-based financial services firm that was a unit of Ameriprise Financial Services Inc.–signed an agreement to arbitrate any employment disputes with Ameriprise and any of its affiliates.
She was terminated and initiated arbitration against company officials alleging gender discrimination and other Title VII and equal pay claims before a Financial Industry Regulatory Authority panel. Ameriprise successfully moved to compel arbitration in a separate federal suit and Badgerow added a declaratory judgment claim against Ameriprise to the FINRA arbitration.
Badgerow sought damages against the REJ principals for tortious interference of contract for a violation of Louisiana’s “whistleblower” law. Id. at 471. The FINRA panel dismissed all of Badgerow’s claims against the principals and Ameriprise with prejudice.
In May 2019, Badgerow brought a new Louisiana state court action to vacate the FINRA award that dismissed her complaints, alleging fraud by the principals against the FINRA arbitrators. The principals removed the case to Louisiana’s Eastern U.S. District Court. Badgerow filed a motion to remand, asserting the lack of federal subject-matter jurisdiction.
The district court held that there was federal subject matter jurisdiction, and Badgerow appealed the denial of her motion to remand to state court.
The Fifth Circuit relied upon the approach in Vaden v. Discover Bank, in which the Supreme Court adopted the “look through” approach to determining federal jurisdiction in actions that compel arbitration under FAA Section 4. Vaden v. Discover Bank, 556 U.S. 49 (2009) (available at https://bit.ly/3Ca42MA). Under this approach, a federal court should “look through” the Federal Arbitration Act claims to the “substantive controversy” to determine if they could have been brought in federal court.
Badgerow disagreed with the district court’s four-step analysis for conveying federal jurisdiction in her case because she did not include Ameriprise in her state-court action, but the district court rejected this argument, holding, “’Badgerow cannot deprive the Court of subject matter jurisdiction over an action to vacate the award by stripping off a single state law claim.’” Id.at 474 (quoting the district court opinion).
The Fifth Circuit noted that a close reading of Vaden vindicated the district court’s reasoning. Since Vaden’s rule is “if, save for” the arbitration agreement, a claim could be held in federal court, then there is federal jurisdiction.
The Fifth Circuit agreed that this analysis does not fail in an action to vacate the award by “stripping off a single state law claim.” Id. The court decided that since Badgerow’s claims “all arose from the same common nucleus of operative fact” that “the district court correctly found that the federal claim against Ameriprise in the FINRA arbitration proceeding meant that there was federal subject-matter jurisdiction over the removed petition to vacate the FINRA arbitration dismissal award.” Id.
The case now stands before the Supreme Court, which granted cert on May 17.
In her petition, Badgerow lays out the clear question of “whether Vaden’s ‘look through’ approach applies to motions to enforce or vacate arbitration awards under [FAA] Sections 9 and 10.”
The petitioner noted that there is disagreement among district judges regarding the Vaden analysis as it relates to FAA enforcement of arbitral awards, and that the Fifth Circuit itself divided 2-1 on the Vaden look-through approach for motions to confirm in a case addressed while Badgerow was pending. Quezada v. Bechtel OG & C Constr. Servs. Inc., 946 F.3d 837 (5th Cir. 2020) (available at https://bit.ly/3lrMZ1X).
The cert petition says that the divisiveness between the courts and the confusion surrounding the FAA language are reasons to question the Fifth Circuit’s decision in asking the Supreme Court to clarify whether Vaden’s approach to federal jurisdiction extends from FAA Section 4 to Sections 9 and 10.
While the steady stream of Supreme Court arbitration cases has generated a concurrent steady stream of regularly appearing parties as amicus curiae, oddly, at this writing, less than two months ahead of arguments, no friend-of-the-court briefs have been filed either on the successful cert petition or the case itself. The case documents, including the party briefs and any future amicus filings, can be found on the Supreme Court docket page at https://bit.ly/3zfSqps.
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The author, a second-year student at Brooklyn Law School, is a 2021 CPR Fall Intern.
Friedman’s talk focused on events described in a Politico article, “‘I Got Obama’d’: A California conflict-resolution guru entered politics thinking he could fix it. Instead, it brought a punishing counterattack.” The May 1 article, an excerpt from “High Conflict,” a book by Amanda Ripley published in June by Simon & Schuster (see https://bit.ly/3yT3ee0), can be found at https://politi.co/3iOX9tf.
The excerpt and book recount Friedman’s political term “on his local Community Services District Board of Directors, a five-member council in charge of area roads and water management,” in Muir Beach, Calif., from 2016 to 2021.
Friedman’s brief political life exemplifies that even experienced mediators can be easily pulled into an adversarial mode, away from peace-making. But, according to Friedman, if one refocuses, the Understanding Model of mediation, which Friedman developed with his Center for Understanding in Conflict partner Jack Himmelstein, can help resolve conflicts.
For more than 40 years, Friedman has lived in Muir Beach, which is governed by the five-member board. Hoping to bring “reinvigorate democracy” in his hometown, according to the book excerpt, Friedman ran for office in 2015 and was elected.
Unfortunately, during Friedman’s governance as board president, he violated principles of his Understanding Model. Friedman explained in his talk that he was blinded by power and the conflicts that were directly targeted him. As a result, he said his litigator inner-self emerged–he was a trial lawyer before turning to mediation–and he became defensive, combative, and aggressive.
Friedman said he ended up creating more polarization and alienated his community in what he coined his “period of derangement.”
Understanding, according to Friedman, is an underused power that has the potential to help people make better solutions. The loop of understanding, however, does not work if it is disingenuous. Friedman intimated that while governing in his village, he used understanding as lip service so that he could soften others in attempts to convince them that they were wrong.
Friedman said that his Understanding Model is based on putting the responsibility on the disputants–not the professional–to solve the problem. This means believing in people and giving them power because ultimately it is the disputants who know best about what solutions will work.
But when Friedman acted as the board president, he said he took power from his constituents instead of giving power. Friedman did not believe in the people’s ability to solve problems themselves; Friedman said he felt he knew best.
Mediators practicing the Understanding Model are expected to proceed with the disputants by agreement on how to work together. By contrast, when Friedman was in charge, he explained that he made numerous unilateral decisions that angered his constituents or fellow board members.
For example, he eliminated the tradition of having snacks and socializing time at board meetings. Even when constituents vehemently objected, he limited each person to three minutes of speaking time and prohibited anyone from raising issues not on the agenda.
Furthermore, in a town of just 250 people, Friedman established 23 subcommittees that were poorly attended. Friedman’s critics complained that he was arrogant, power hungry, and Napoleon-like.
Two years into a five-year term, Friedman was removed as board president. He said about himself, “I felt actually humiliated by my behavior . . . and how I became untethered.” When Friedman saw how far he had fallen from his own ideals, he said he started to probe internally what was truly important to him and why. He said his mediator “inner-self”–which depends on self-awareness–re-emerged.
Realizing that what he wanted was to help his neighbors understand each other and to make conflicts useful, Friedman began voting for his opposition intentionally to undo the conflicts he created. He also blurred the lines between the old board members and his allies on the new board through voting on both sides. Most important, he said, he made efforts to genuinely connect and understand his constituents, one by one.
Before Friedman stepped down from the board, he reconciled with his community and accomplished some political agendas he set out to do initially. Roads were repaired, the water rate was raised, and the tone of the meetings improved.
At the roundtable, Friedman noted that the Politico book excerpt has gotten a lot of attention. “I’ve been hearing from thousands of people that came out of the woodwork all over the world . . . and I think that my failure as a politician is really meant to encourage all of us, because I not only failed but I survived the failure.”
In the end, Friedman said he repaired the conflicts he created using the Understanding Model.
The Aug. 5 ACR/John Jay breakfast roundtable is available on video at https://bit.ly/3sku9Na. For another view of the event, see John Lande, “More on Gary Friedman’s Not-So-Excellent Adventure in Politics,” Indisputably.org (Aug. 8) (available at https://bit.ly/3k1EsSC).
For more on the Understanding Model, see Mylene Chan, “Highlights from the June Session of the Harvard Law School Program on Negotiation ‘Mediating Disputes’ Training,” CPR Speaks (June 24) (available at https://bit.ly/37SaTx2).
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The author, an LLM candidate at Pepperdine University Caruso School of Law’s Straus Institute for Dispute Resolution, in Malibu, Calif., is a 2021 CPR Summer Intern.
The program was divided into two parts: (1) a focus on two-party complex mediations with potential court filings, and (2) a focus on multiparty, multi-issue public dispute mediation.
During the first two days, the faculty addressed the main features of two-party complex mediations, such as ethics, breaking impasses, the use of caucuses versus joint sessions, implicit bias, and the art of co-mediation. Many of the concepts are laid out in “Mediation: A Practice Guide for Mediators, Lawyers, and Other Professionals,” by David A. Hoffman and other contributors (Massachusetts Continuing Legal Education, 2013).
The mediation strategy and process design espoused by this faculty is structured on Roger Fisher’s interest-based model, as outlined in the classic “Getting to Yes: Negotiating Agreement Without Giving In,” by Roger Fisher, William Ury, and Bruce Patton (Penguin Books 2011 (originally published in 1981)). The basic principles call for separating people from the problem and shifting from interests from positions.
Their theory is also heavily influenced by the framework of the core concerns explored in “Beyond Reason: Using Emotions as You Negotiate,” by Roger Fisher and Daniel Shapiro (Penguin Books 2005). Core concerns–or emotional interests–are human wants that underlie every negotiation. They include autonomy, appreciation, affiliation, status, and role.
Faculty member Audrey Lee explained that exploring disputants’ core concerns allows mediators to shift the focus to disputants’ real interests and to promote better understanding, thus facilitating agreement.
During the first two days, the workshop participants practiced co-mediating in two cases involving commercial contracts, intellectual property, and employment disputes. Many participants commented that they had never co-mediated, and that they tended to be more driven by positions than interests. Some added that they struggled to be creative in devising ways to expand the pie, noting that they had to turn off their combative litigator instincts and the urge to render advice and advocate.
The program then transitioned from two-party matters to multiparty, multi-issue public disputes. Lawrence Susskind, a leader in the development of public dispute mediation, introduced these complex public disputes, explaining that their form and substance shift. The number of parties can range from as few as 30 to beyond 100, many of whom may be unfamiliar with professional facilitation, and with more parties potentially joining over the course of the dispute resolution process.
An additional challenge, Susskind explained, is that the parties may represent stakeholder groups without full empowerment to speak on the groups’ behalf.
Also, the agenda is likely to keep changing because very often parties continue to reshape or argue about it.
Furthermore, scientific and technical uncertainty and disagreement abound. Examples of these amorphous dispute resolution settings are global treaty negotiations, budgetary negotiations, environmental policy disputes, and public dialogues on issues such as police conduct. A deeper exploration of these issues can be found in “Breaking Robert’s Rules: The New Way to Run Your Meeting, Build Consensus and Get Results,” by Lawrence E. Susskind and Jeffrey L. Cruikshank (Oxford University Press 2006).
Susan Podziba then elaborated on the process she uses in mediating these complex cases. She has worked with the United Nations and individual national governments to resolve intractable disputes with widespread and long-lasting ramifications. She said she begins with an assessment by reading all the publicly available information, followed by discussions with people who have lived through the conflict.
In many cases, parties have not been identified, and therefore, Podziba said she starts by talking to the parties who are obvious, and from those conversations identifying additional parties that should be participating.
Once the first phase is concluded, Podziba develops the process design, aimed at enabling diverse groups to work together to resolve a complex conflict. The process design typically includes constructing five basic building blocks: (1) the product (the form of agreement such as joint statements or MOUs) that will result from the negotiations; (2) the complementary goals that need to be achieved before agreement can be reached; (3) outreach to and consultations with outside experts; (4) trusted information (that is, information from objective sources that can correct biases); and (5) ground rules and logistics relating to the negotiation session itself. For more details, see “Civic Fusion: Mediating Polarized Public Disputes,” by Susan L. Podziba (ABA Publishing 2012).
The faculty prepared three complex public policy dispute mediation role-play sessions for the class. The first one concerned the reconstruction of the World Trade Center after 9/11, involving many public parties such as the New York state government, New York City, and the families of the deceased. Many participants who played the role of the families said that they felt the emotions.
After the day concluded, the faculty arranged for a guided group screening of a training video co-produced by CPR, publisher of CPR Speaks, and Harvard PON on the World Trade Center reconstruction. Details are available on Lawrence Susskind’s website, here.
The workshop participants also mediated the ethical dilemmas surrounding water shutoffs in older U.S. cities. Susskind said that his Massachusetts Institute of Technology research team–he is MIT’s Ford Professor of Urban and Environmental Planning–has mapped where U.S. local governments have shut off water supplies.
After the role-play, many participants inquired about how to gain experience in public policy mediation. Susskind responded that public policy mediators are paid at an hourly rate and discussed the Consensus Building Institute, an international public policy mediation center Susskind founded in 1993.
On the final day of the workshop, Susan Podziba introduced the conflict over the construction of the Thirty Meter Telescope on sacred lands on Mauna Kea in Hawaii–a massive conflict involving foreign countries and many academic institutions. After the simulation, many participants reflected on Podziba’s systematic process design and said that they will incorporate such a design into their mediation practice.
David Hoffman, who is credited with bringing collaborative law to the commercial sector via the firm he founded, the Boston Law Collaborative, ended by urging the attendees to consider being peacemakers:
[T]he opportunities to impact out there in the world exist in every one of those cases, when you think about the infinite dimensions of the human heart, and the opportunity we have when we enter the sacred space of people’s conflicts to heal those wounded hearts. We have a mandate for mediation on a very deep and grand scale.
This Harvard workshop offered veteran mediators an opportunity to have experts critique their trade and to gain exposure to some of the cutting-edge theories and practices of mediation taught at Harvard Law School and its Program on Negotiation.
The author, an LLM candidate at Pepperdine University Caruso School of Law’s Straus Institute for Dispute Resolution, in Malibu, Calif., is a 2021 CPR Summer Intern. She participated in the Harvard program detailed in this post.
Earlier this month, the United Nations Commission on International Trade Law adopted the UNCITRAL Mediation Rules, the UNCITRAL Notes on Mediation, and the Guide to Enactment and Use of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation.
Judith Knieper, Legal Officer at the UNCITRAL Secretariat, at a side forum on investor-state mediation, commented that these texts complete UNCITRAL’s mediation framework, with the milestone 2018 Singapore Convention on international settlement agreements as a pillar.
Starting in 1980, UNCITRAL began to develop a mediation framework, which now includes the following:
UNCITRAL Conciliation Rules (1980) (updated in 2021).
UNCITRAL Model Law on International Commercial Conciliation (2002) (amended in 2018).
UNCITRAL Guide to Enactment and Use of the 2002 Model Law (2002) (replaced in 2021).
UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (2018) (amending the 2002 Model Law). See page 2 of UNCITRAL Working Document 1073 here.
The United Nations Convention on International Settlement Agreements Resulting from Mediation (2018), commonly known as the “Singapore Convention.”
UNCITRAL Mediation Rules (2021) (updating the 1980 Conciliation Rules)
UNCITRAL Notes on Mediation (2021).
Guide to Enactment and Use of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (2021) (replacing the 2002 Guide) (available in the Working Document linked above).
These texts provide a means for the harmonization of laws, procedural rules, and enforcement mechanisms for international mediation. The most significant tool for international commercial dispute resolution is the Singapore Convention, which enables enforcement of mediated settlement agreements among its signatories.
As a result of the adoption of the Singapore Convention, international businesses now have an effective alternative to litigation and arbitration in resolving cross-border disputes. Judith Knieper said that 54 states had signed the Singapore Convention, and she said she hoped that more will join as many states are currently engaged in the ratification process.
The UNCITRAL Secretariat has invited CPR to participate as an observer delegation to its Working Group II deliberations, and solicited its comments on the drafts to facilitate finalizing the texts. The UNCITRAL Working Group II is composed of UNCITRAL’s 60-member states and has been developing work focused on mediation, arbitration, and dispute settlement.
During UNCITRAL’s recent 54th session, which ran from June 28 and concluded July 16, and was held in person in Vienna, Working Group II introduced a number of updated provisions aimed at taking into account recent mediation trends and developments, including court-ordered mediation. See page 2 UNCITRAL Working Document 1074 here. UNCITRAL incorporated Working Group II’s revisions as part of the newly adopted UNCITRAL Mediation Rules.
Major updates in the UNCITRAL Mediation Rules include the following:
Clarify that the rules apply to mediation regardless of the process’s origin, including an agreement between the parties, an investment treaty, a court order, or a mandatory statutory provision.
Introduce a definition of mediation.
Stipulate that in a case of conflict, mandatory provisions in the applicable international instrument, court order, or law will prevail.
Specify that mediation commences when the disputants agree to engage in the mediation.
Require disclosure of circumstances regarding impartiality or independence.
Permit use of alternative means of communication during the mediation and of remote consultations.
Provide that information shared by parties with the mediator is confidential unless parties express otherwise.
Update the provisions governing the preparation of settlement agreements to take into account UNCITRAL’s legal framework, including the recently adopted Singapore Convention.
Address the interaction between mediation and other proceedings.
Provide for exclusion of liability for mediators.
Encourage gender and geographical diversity in selection of mediators.
Specify that parties and the mediator should agree upfront on the methods of assessing mediation costs, with multiparty mediations shared on a pro rata basis.
UNCITRAL is expected to publish the UNCITRAL Mediation Rules and the UNCITRAL Notes on Mediation together later this year, according to a statement at the end of the session.
UNCITRAL’s work on mediation will continue with the drafting of rules and guidelines relating to investor-state mediation and with work exploring educational best practices, according to an official’s comments in a side forum, which is a lunch-hour roundtable in which UNCITRAL officials discussed topics related to UNCITRAL’s work.
All this remarkable focus on mediation—and activity around it—heralds a new era for the dispute resolution process that ideally promotes enhanced understanding, dialogue and creative problem solving. This may be a renaissance time for mediation—one that is very welcome in the divided and polarized time we inhabit.
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The author, an LLM candidate at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, has covered UNCITRAL’s 54th Session proceedings as a 2021 CPR Summer Intern.
In response, governments at the federal, state, and local levels have developed short-term eviction moratoriums and similar measures to help renters keep their homes. But in the long run, eviction proceedings are likely to rise.
Federal, state, and local governments have adopted a variety of temporary emergency measures aimed at helping renters. For example, in September 2020, the U.S. Department of Housing and Urban Development and the Centers for Disease Control issued a nationwide moratorium on evictions. See the Federal Register announcement, since extended, here.
This moratorium was challenged by real estate groups, but a U.S. Supreme Court ruling this week allowed it to remain in effect through the end of the month. Alabama Association of Realtors, et al. v. Department of Health and Human Services, et al., No. 20A169 (June 29); see also analysis at Amy Howe, “Divided court leaves eviction ban in place,” Scotusblog (June 29) (available at https://bit.ly/3xhd74c).
In addition, Congress allocated $46 billion in rental assistance to struggling renters through the American Rescue Plan Act of 2021 and the December 2020 Covid-19 relief package; much of the relief funding, however, has yet to reach struggling renters. See, e.g., “Emergency Rental Assistance through the Coronavirus Relief Fund,” Congressional Research Service (June 8) (available at https://bit.ly/3Ak9vjX). See also Kristian Hernández, “As CDC’s Eviction Moratorium Ends, States Prepare for Flood of Cases,” Pew Stateline (June 22) (available at https://bit.ly/3AqTHw2).
Several states and cities–such as Maryland, New York, Vermont, Hawaii, Philadelphia and Washington, D.C.–have adopted eviction bans or limitations. These moratoriums have sharply reduced eviction filings during the extent of the pandemic.
But eviction restrictions will not remain in place indefinitely. After being extended several times, the federal moratorium is scheduled to expire on July 31. (See the CDC press release on the extension at https://bit.ly/3684qNN.) State and local eviction protections are also expected to end at some point this year. As a result, states and cities are preparing for a potential wave of eviction actions in their housing courts once moratoriums lift.
Some states and local governments have attempted to modify eviction procedures to make the process less burdensome on renters. For example, Maine passed a bill instructing landlords to explain the eviction process, options for legal assistance and rent relief, and eviction notices. Nevada and Illinois each adopted a law requiring courts to seal records of evictions relating to defaults during the pandemic.
One possible solution that could help both the courts and renters adapt to the expected rise in evictions is alternative dispute resolution. These programs aren’t new. But recently, interest has been heightened due to the pandemic, and many U.S. jurisdictions have turned to ADR eviction programs to encourage tenants and landlords to negotiate.
According to the Urban Institute, as of April, there were 38 ADR eviction diversion and prevention programs nationwide. Mark Treskon, Solomon Greene, Olivia Fiol & Anne Junod, “Eviction Prevention and Diversion Programs,” Urban Institute Housing Research Crisis Collaborative (April 2021) (available at https://urbn.is/3qI9C4j).
The states with programs include California, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire, Ohio, Oregon, Pennsylvania, Tennessee, Texas, and Washington. See https://bit.ly/3xdHMPP, collected by Chicago’s Resolutions Systems Institute.
ADR eviction programs have been successful in several jurisdictions over the past few years. One example is a St. Paul, Minn., housing clinic. Colleen Ebinger & Elizabeth Clysdale, “Justice Served, Housing Preserved: The Ramsey County Housing Court Model,” 41:3 Mitchell Hamline L.J. of Pub. Policy & Practice: Article 10 (2020) (available at https://bit.ly/2V1DaON).
In July 2018, the Ramsey County court—covering part of the Minneapolis-St. Paul area–launched a housing clinic with the target of reducing eviction by 50% in five years. Eighteen months after implementation, eviction judgments declined, settlements rose, the court trial calendar lightened and expungements doubled.
Another successful eviction mediation program was developed by the Washington University School of Law Civil Rights & Mediation Clinic and the Metropolitan St. Louis Equal Housing and Opportunity Council in St. Louis in 2012. Karen Tokarz, Samuel Hoff Stragand, Michael Geigerman & Wolf Smith, “Addressing the Eviction Crisis and Housing Instability Through Mediation,” 63 Washington U. J. of Law & Policy 243 (available at https://bit.ly/3694AEG).
In the St. Louis Mediation Project, professional mediators and students provide free mediation services for landlord-tenant cases. In 2018, 71% of pro se landlord-tenant cases mediated by the project resulted in a settlement. More than half of these agreements resulted in a dismissal of eviction proceedings.
There is some evidence that even many landlords support ADR in the eviction context. Last month, the American Bar Association and the Harvard Negotiation & Mediation Clinical Program published a report identifying nationwide best practices to divert eviction filings and enhance housing stability. See “Designing for Housing Stability: Best Practices for Court-Based and Court-Adjacent Eviction Prevention and/or Diversion Programs” (available at https://bit.ly/3yn3FN7).
This research revealed that stakeholders generally supported eviction prevention efforts during the pandemic. More than 70% of the landlords surveyed were willing to discuss tenant non-payment outside of court.
Report author Deanna Parrish, Clinical Instructor and Lecturer at Harvard Law School’s Dispute Systems Design Clinic, wrote in an e-mail:
Effective eviction prevention and/or diversion programs use a multi-sector and holistic approach to provide parties with a combination of legal representation, quality mediation, cash or rental assistance, and self-help or supportive services. Investing in eviction prevention and/or diversion programs is not just urgent, it is doable. These programs enjoy wide support across landlords, court staff, and tenants. Over 81% of property owners surveyed reported being less likely to pursue eviction if their tenant had access to rental or cash assistance.Court staff and judicial stakeholders reported eviction diversion programs as essential to helping lighten what they described as an “oncoming tsunami” of eviction filings once the CDC moratorium lifts. Tenant advocates have long been calling for legal representation and easily accessible rental and cash assistance, among other interventions, to help increase housing stability. Legislatures and courts should act swiftly to formalize eviction prevention. Doing so would be nothing short of a lifeline for millions of Americans, landlords and tenants alike.
As the Covid-19 pandemic winds down and emergency measures are lifted, alternative dispute resolution eviction programs may soften the blow to tenants as eviction moratoriums end. Although these ADR programs are in the early stages of adoption, there are promising signs that they might help the U.S. economy’s housing segment return to normalcy without significant housing disruptions.
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The author, an LLM candidate, at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, is a 2021 CPR Summer Intern.
Last week, the Sixth Circuit U.S. Court of Appeals issued one of the rare rulings addressing the authority of an arbitral institution to make decisions.
In the case, the appeals court considered the authority of an American Arbitration Association administrator to make what the court considered a “gateway” decision under the AAA’s Healthcare Policy Statement and rules rather than allowing that decision to be made by arbitrators.
The 2-1 majority opinion ruled that only an arbitrator could make the decision, not the administrator. That ruling has significant implications for the administrability of due process protocols and policy statements in patient healthcare, consumer and employment disputes.
In Ciccio, et al. v. SmileDirectClub LLC, No. 20-5833 (6th Cir. June 25, 2021) (available at https://bit.ly/2U8OqZ8), Senior Circuit Judge David W. McKeague authored the majority Sixth Circuit panel opinion overturning an AAA decision to apply the AAA’s policy against accepting a claim that “implicated various AAA policies that precluded arbitration unless the parties signed a post-dispute arbitration agreement or a court otherwise ordered arbitration.”
The AAA’s Consumer Arbitration Rules, Healthcare Policy Statement and Healthcare Due Process Protocol bar the AAA from arbitrating a patient healthcare dispute unless either (1) all parties have agreed to submit the matter to arbitration after the dispute has arisen or(2) a court has ordered the disputing parties to arbitrate the matter. The AAA Healthcare Policy Statement describes this policy succinctly:
In 2003, the American Arbitration Association (“AAA”) announced that it would not administer healthcare arbitrations between individual patients and healthcare service providers that relate to medical services, such as negligence and medical malpractice disputes, unless all parties agreed to submit the matter to arbitration after the dispute arose. . . . However, the AAA will administer disputes between patients and healthcare providers to the extent a court order directs such a dispute to arbitration where the parties’ agreement provides for the AAA’s rules or AAA administration.
The dispute in this case arose out of a false advertising claim brought by plaintiffs and former patients Dena Nigohosian, Dr. Joseph Ciccio, Dr. Arthur Kapit, and Dr. Vishu Raj, and joined by Dana Johnson and others, against SmileDirect, originally in federal court. The U.S. District Court first held that an arbitration agreement in SmileDirect’s customer contract applied and ordered Nigohosian to arbitrate. The other plaintiffs then voluntarily dismissed their court claims.
The arbitration clause in question read:
AGREEMENT TO ARBITRATE – I hereby agree that any dispute regarding the products and services offered [b]y SmileDirectClub and/or affiliated dental professionals, including but not limited to medical malpractice disputes, will be determined by submission to arbitration and not [b]y lawsuit filed in any court, except claims within the jurisdiction of Small Claims Court . . . . I agree that the arbitration shall be conducted by a single, neutral arbitrator selected by the parties and shall be resolved using the rules of the American Arbitration Association.
Johnson thereafter filed a class arbitration claim against SmileDirect with the AAA on behalf of consumer claimants who had been SmileDirect patients.
At that point, the AAA itself became involved in deciding whether the class arbitration should proceed in light of AAA policies and rules. An AAA administrator advised the parties that that AAA’s Healthcare Due Process Protocol and Healthcare Policy Statement in the circumstances required healthcare providers and their consumers to sign post-dispute arbitration unless a court order has compelled arbitration, according to the Sixth Circuit opinion:
An AAA administrator informed the parties that AAA’s Healthcare Due Process Protocol and Healthcare Policy Statement applied, which require healthcare providers and their patients to sign an arbitration agreement after a dispute arises in certain cases unless a court order has compelled arbitration. SmileDirect’s counsel asked the AAA administrator to reverse this decision but the AAA administrator maintained his “initial, administrative determination [that] the Protocol [and the Healthcare Policy Statement] appl[y].” . . . SmileDirect’s counsel objected again, noting that the district court had already compelled Nigohosian to arbitrate “whether the claims themselves are arbitrable” and argued that “AAA’s administrative decision to apply the Protocol [and the Healthcare Policy Statement] to these consumer claims is erroneous. ***
The AAA administrator “reaffirm[ed] [his] administrative determination” that the Healthcare Policy Statement applied to Johnson’s claims. . . . He concluded that arbitration could only proceed following a court order (seemingly like the court order already entered for Nigohosian) or a post-dispute arbitration agreement.
Johnson refused to sign a post-dispute agreement consenting to arbitration, while Nigohosian (who was bound by the earlier District Court order compelling arbitration) never initiated arbitration herself. When claimants renewed their court proceedings in the U.S. District Court, however, “SmileDirect responded that they couldn’t rejoin the case because the Agreement required an arbitrator to decide the merits of any dispute, including any gateway issues about whether the dispute was arbitrable.” (Emphasis added.)
The district court, though, decided that SmileDirect and Johnson “got what they bargained for” because the dispute had been “resolved using the rules of the [AAA].” Consequently, the court determined that Johnson could renew the dispute before the judicial forum:
The district court interpreted the Agreement to fully incorporate Rule 1(d), the Consumer Due Process Protocol, and the Healthcare Policy Statement. The court’s interpretation of these rules and policies next led it to conclude that Johnson had discharged his obligations under the Agreement and could “submit [his] dispute to the appropriate court for resolution.” . . . Under the district court’s reasoning, Rule 1(d) incorporates the Consumer Due Process Protocol, which in turn states that AAA has subject-specific policies (incorporating the Healthcare Due Process Protocol and Healthcare Policy Statement by implication), and the Healthcare Policy Statement requires a post-dispute arbitration agreement or a court order. Therefore, the court held that “the AAA process to which the parties mutually agreed ha[d] been completed in Johnson’s case.”
With respect to Nigohosian, however, the Court decided that she was bound by the existing Court order compelling arbitration. The District Court therefore stayed her claims, pending arbitration.
SmileDirect thereafter appealed the decision regarding Johnson to the Sixth Circuit Court of Appeals.
The Court of Appeals did not resolve the substantive arbitrability issue. Rather, Judge McKeague held on behalf of a majority of a divided appellate panel that “The text of the [parties’ arbitration agreement] confirms that the parties didn’t intend to allow an administrator to short-circuit arbitration by refusing to appoint an arbitrator to answer this initial gateway question. Accordingly, we don’t have anything further to say on the matter until and unless a party asks us to review an arbitrator’s decision under 9 U.S.C. § 10.”
To reach this result, the appellate panel started with basic principles in U.S. arbitration jurisprudence that “[w]hether the parties have agreed to arbitrate or whether their agreement covers a particular controversy” are gateway arbitrability questions.” The parties may decide to send these gateway issues to an arbitrator rather than a court, but only upon a showing of “clear and unmistakable” evidence that the parties did indeed intend to delegate those issues to an arbitrator under the ruling in the U.S. Supreme Court’s First Options v. Kaplan, 514 U.S. 938 (1995).
In the Sixth Circuit, like almost all other federal circuit courts, the incorporation of AAA rules authorizing the arbitrator to decide on the scope or validity of the arbitration agreement or the arbitrability of a claim satisfies the First Options standard.
Thus far, the Court of Appeal’s reasoning paralleled the U.S. District Court’s reasoning on gateway arbitration questions. But, stated the McKeague opinion, “What remains is the related question of whether the parties intended to allow an AAA administrator to apply the Healthcare Policy Statement before sending any gateway-arbitrability questions to the arbitrator,” explaining that
The Agreement dictates that “any dispute . . . will be determined by submission to arbitration,” not by litigation, and “that the arbitration shall be conducted by a single, neutral arbitrator selected by the parties.” The parties never got that far here because an AAA administrator “ma[d]e an initial, administrative determination [that] the [Healthcare Policy Statement] applie[d].”
The appeals court read the arbitration agreement between the parties to show that they intended to send gateway questions of arbitrability “exclusively” to an arbitrator, not to an AAA administrator. Senior Circuit Judge McKeague expressed confusion as to the basis relied upon by the AAA administrator to take this decision rather than referring the question to an arbitral panel:
It is unclear what the administrator was doing. There are two ways to view his decision. Perhaps the administrator independently interpreted the Agreement and read it to incorporate the Healthcare Policy Statement, which led the administrator to conclude that the parties did not intend to arbitrate the instant dispute without a post-dispute agreement or court order. Or perhaps the administrator was simply applying AAA’s Healthcare Policy Statement because he concluded that this case concerns healthcare and the AAA follows this policy no matter what a particular agreement says or what particular parties intended.
“Either way,” wrote Judge McKeague, “the end result was contrary to the text of the Agreement and the FAA.” Arbitrators and arbitral administrators “are distinct.” Under AAA instruments, he wrote, administrators do not decide the merits of a dispute.
The opinion notes, “The arbitrator decides the merits of a dispute. And if an administrator could preempt a final merits ruling by an arbitrator, the administrator would effectively run afoul of the provision that administrators ‘cannot overrule or change an arbitrator’s decisions or rulings.’” It continues later:
Under AAA’s rules, an arbitrator and an administrator are distinct. “The [a]dministrator’s role is to manage the administrative aspects of the arbitration, such as the appointment of the arbitrator. . . . [T]he [a]dministrator does not decide the merits of a case or make any rulings on issues such as what documents must be shared with each side.” . . . Unsurprisingly, the administrator helps disputes get to an arbitrator and doesn’t make merits rulings. On the other hand, “[a]rbitrators are neutral and independent decision makers who . . . make the final, binding decision on the dispute. . . . The [a]rbitrator makes all the procedural decisions on a case not made by the administrator.” …. The arbitrator decides the merits of a dispute. And if an administrator could preempt a final merits ruling by an arbitrator, the administrator would effectively run afoul of the provision that administrators “cannot overrule or change an arbitrator’s decisions or rulings.”
Therefore, concluded the Sixth Circuit, “the arbitrability of Johnson’s claim, thus should’ve gone to an arbitrator for a ‘final, binding decision.’”
The appellate court also considered whether the issue of compliance with the AAA’s post-dispute agreement requirement for consumer healthcare arbitrations is a “procedural decision” delegated to an AAA administrator rather than an arbitral panel. The appeals panel stated, “We don’t see how it could be.”
In so deciding, the appellate judges reminded the parties that contract interpretation is a legal question. Procedural decisions, stated the Court of Appeals, are more like administrative aspects of the arbitration such as appointment of arbitrators, location of hearings and fees:
The procedural decisions AAA administrators make, in turn, are more akin to “administrative aspects of the arbitration, such as the appointment of the arbitrator, . . . preliminary decisions about where hearings might take place, and . . . handl[ing] the fees.” *** So it generally wouldn’t make sense to require clear intent to delegate arbitrability questions to an arbitrator but then allow either arbitrators or administrators to decide that legal question. [Citation and footnote omitted.]
The appellate court distinguished in this regard a Fourth Circuit decision upholding resolution by AAA administrators of a dispute as to how many arbitrators would be appointed, Dockser v. Schwartzberg, 433 F.3d 421 (4th Cir. 2006).
Not only were the clauses in the two disputes different, said the Sixth Circuit majority, but the issue in that latter case was procedural. “Dockser dealt with ‘what kind of arbitration proceeding the parties agreed to,’ whereas here the relevant question is arbitrability—what the Agreement itself means.”
If, instead of interpreting the parties’ arbitration agreement, the AAA was applying its own “sound policy,” then according to Judge McKeague that conduct too would contravene applicable law. Nor did the arbitration agreement grant the AAA administrator the authority to make this policy choice for the parties. The majority opinion states:
Although the AAA may choose for itself which claims it will arbitrate, it is not at liberty to “impose its own view of sound policy” regarding when or how parties should be allowed to arbitrate independent of the parties’ own choices in their contract.
We also see nothing in the Agreement that gives the administrator the right to make this policy choice for the parties. To be sure, the Agreement incorporates the AAA rules, which perhaps could be read to include the AAA’s due process review under Consumer Rule 1(d). And Consumer Rule 53 says that “[t]he arbitrator shall interpret and apply these Rules as they relate to the arbitrator’s powers and duties” but that “[a]ll other Rules shall be interpreted and applied by the AAA.” . . . But Consumer Rules 1(d) and 53 must be read together with the Agreement and the other rules to ascertain the parties’ intent. . . . When an arbitration agreement and its incorporated rules seem to conflict, our job is to find the “best way to harmonize” them. [Emphasis is the court’s.]
“We won’t,” stated the appellate majority, “interpret this agreement to arbitrate to permit Johnson to avoid arbitration.”
Moreover, the appeals panel pointed out that its decision to require an arbitrator to decide the gateway question, rather than an administrator, was not inconsistent with AAA policy. The court’s resulting order would satisfy the AAA Healthcare Policy alternative that the AAA will arbitrate consumer healthcare disputes if so directed by a court order. The opinion notes:
The Healthcare Policy Statement also does not stand in the way of such an appointment. It makes clear that “the AAA will administer disputes between patients and healthcare providers” either when the parties enter into a post-dispute agreement or when “a court order directs such a dispute to arbitration where the parties’ agreement provides for the AAA’s rules or AAA administration.” . . . Our decision will lead to such a court order—seemingly clearing the administrative path. Here, to give effect to both the parties’ agreement that “the arbitration shall be conducted by a single, neutral arbitrator” and that the arbitration “shall be resolved using the rules of the American Arbitration Association,” we can’t read the AAA rules to preclude decision by an arbitrator.
.The Sixth Circuit opinion also drew attention to the fact that the approach taken by the majority will result in a different, narrower judicial review standard by the federal courts–review for vacatur of an arbitral decision rather than de novo review:
The district court effectively reviewed the Agreement de novo. In doing that, the district court relied on a court’s interpretation of the same set of AAA rules and policies to hold that the AAA rules effectively nullified an arbitration agreement. . . . But by agreeing, clearly and unmistakably, to send the arbitrability question to the arbitrator, the parties here bargained for the narrow 9 U.S.C. § 10 review, not de novo review. . . .
This is where the Agreement’s requirement that the dispute would not be determined by litigation comes in. The district court determined the contract-interpretation question, so the dispute was determined by litigation contrary to the intent of the parties. But once an arbitrator interprets the Agreement, any judicial review under 9 U.S.C. § 10 wouldn’t be review of the arbitrability question de novo but under the limited grounds identified (for fraud, corruption, etc.). Because the parties bargained for an arbitrator to interpret the Agreement and for the courts to have a very limited role, it wouldn’t make sense to allow an administrator’s preemptive contract interpretation to be a portal to de novo judicial review.
Circuit Judge Eric L. Clay dissented, noting “I agree with the majority’s statement at the onset of its opinion that “this case is about whether the Agreement incorporates the Healthcare Policy Statement,” even though it then proceeds to repudiate the Healthcare Policy Statement.” The parties, Circuit Judge Clay reasoned, “made their decision to abide by the rules when they signed the contract incorporating rules that included the Healthcare Policy Statement.” He added:
Turning to the plain language of the agreement, the threshold question of what the agreement incorporated is readily apparent: [disputes] shall be resolved using the rules of the American Arbitration Association. . . . As part of the AAA rules, the AAA maintains consumer protocols that ensure a fair process in healthcare disputes. The Healthcare Policy Statement’s incorporation into the agreement was clear to anyone who read the AAA’s rules. The parties made their decision to abide by the rules when they signed the contract incorporating rules that included the Healthcare Policy Statement, but in my colleagues’ view, those rules may simply be disregarded if they interfere with requiring the parties to proceed with the arbitration.
Here, the AAA determined that proceeding to arbitration would violate their due process rules without its mandatory post-dispute agreement. When the parties agreed that the dispute “shall be resolved using the rules of the AAA,” they were aware that those rules called for an administrator to render the AAA’s initial determination regarding the requirements of the organization’s own rules before proceeding to arbitration. That was not an unusual decision, nor a decision out of lockstep with the rules of the AAA. Quite the contrary, that decision followed the process by which the AAA typically administers all of its arbitrations. That provides the “clear and unmistakable” evidence that the parties intended to have these gateway issues decided in accordance with the AAA’s procedures and policies.
The majority opinion addressed Circuit Judge Clay’s dissent in footnotes 3 and 4. Notably, in footnote 4 the Court of Appeals stated, “we interpret the words of this Agreement in conjunction with AAA’s rules without deference to AAA’s ‘typical’ practice.” The footnotes state:
3The dissent agrees that AAA’s rules specifically assign arbitrability questions to the arbitrator while reserving AAA’s “administrative duties” for the administrator as detailed in the arbitration agreement and the AAA’s rules themselves. . . . Where we differ is whether the AAA rules include an initial arbitrability decision among these “administrative duties.” The dissent points to no rule granting the administrator such authority, but instead locates the authority in the general requirement that “the AAA will administer the arbitration.” . . . Our decision to follow the AAA’s rule granting such authority to an arbitrator doesn’t mean that the parties “contract[ed] the AAA’s administrator out of the process,” but instead means the parties intended the administrator to have the role the AAA’s rules mandate: “to manage the administrative aspects of the arbitration, such as the appointment of the arbitrator, preliminary decisions about where hearings might take place, and handling the fees associated with the arbitration.”
4The dissent suggests that requiring an administrator to determine arbitrability “was not an unusual decision” but is rather “the process by which the AAA typically administers all of its arbitrations”—a fact that “any party doing their due diligence would have seen.” . . . But we interpret the words of this Agreement in conjunction with AAA’s rules without deference to AAA’s “typical” practice. The Agreement or the AAA Rules could grant the administrator that authority, but in this case they do not.
Judge Clay volleyed back at the majority by arguing in his own footnote 1 that “The majority claims that we agree that the AAA’s rules assign arbitrability to the arbitrator, and ‘administrative duties’ to the administrator, but that is not the case. To the contrary, the AAA’s rules do not clearly delineate these roles as the majority alleges. Instead, as stated in the rule cited above, the AAA has the final decision on who administers cases under its rules.”
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Whether one agrees with Senior Circuit Judge McKeague’s opinion on behalf of the majority or with Circuit Judge Clay’s dissent, this ruling has significant implications for many disputes in the U.S. involving healthcare, consumer and employment matters.
The AAA has adopted due process protocols for those areas, as well as making policy statements regarding how the AAA will handle applications for arbitration in many areas. The reasoning by the Ciccio majority could vitiate the authority of an AAA administrator to apply those instruments to decline to accept cases that do not comply with those protocols and policy statements.
Instead, application of those instruments would be allocated to an arbitral panel, resulting in significant delay and expense while the panel is constituted and briefed before a decision on the applicability of due process protocols and policies crystallizes.
Given the dissent, it is worth wondering whether this case is headed toward en banc review by the Sixth Circuit Court of Appeals or will be the subject of a certiorari petition to the U.S. Supreme Court.
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Mark Kantor is a member of CPR-DR’s Panels of Distinguished Neutrals. Until he retired from Milbank, Tweed, Hadley & McCloy, he was a partner in the firm’s Corporate and Project Finance Groups. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). He also is Editor-in-Chief of the online journal Transnational Dispute Management. He is a frequent contributor to CPR Speaks, and this post originally was circulated to a private list serv and adapted with the author’s permission.
Anna Hershenberg, Vice President of Programs and Public Policy & Corporate Counsel, welcomed an online audience of nearly 200 attendees for the CPR Institute’s webinar “What Labor and Employment ADR Will Look Like Under a Biden Administration?” The Feb. 24 webinar was presented jointly by CPR’s Employment Disputes Committee and its Government & ADR Task Force.
This is the first of two CPR Speaks installments with highlights from the discussion.
Hershenberg then turned the program over to Aaron Warshaw, a shareholder in the New York office of Ogletree, Deakins, Nash, Smoak & Stewart, who is chair of CPR’s Employment Disputes Committee. Warshaw described the Employment Disputes Committee as “made up of in-house employment counsel, management-side attorneys, employee-side attorneys, and neutrals. Throughout its long history, the committee … [has provided] a platform for all of the stakeholders to come together and explore ways to resolve disputes in employment matters,”.
Warshaw also noted that the committee is currently working on soon-to-be-released administered employment arbitration rules, and a workplace disputes programs. “There is also an active committee currently revising CPR’s Employment-Related Mass Claims Protocol,” he said. The release of these projects will be announced at www.cpradr.org and on social media.
Warshaw then introduced the panel moderator, Arthur Pearlstein, who is Director of Arbitration for the Federal Mediation & Conciliation Service, a Washington, D.C.-based independent agency whose mission is to preserve and promote labor-management peace and cooperation. He also directs FMCS’s Office of Shared Neutrals and has previously served as the agency’s general counsel.
Pearlstein opened the conversation stating that “Joe Biden and Kamala Harris ran a campaign that reflected a closer alignment with organized labor than I think we’ve seen in a very long time.”
Pearlstein pointed out the remarks made by President Biden a week ahead of the CPR program, where the president called himself a “labor guy,” and referred to labor people as “the folks that brung me to the dance.” Pearlstein, however, noted that Biden “did hasten to add, ‘There’s no reason why it’s inconsistent with business-growing either.’”
Pearlstein further said that even though it had been just a month since the inauguration at the time of the panel discussion, already dramatic steps had been taken. He cited the firing of the National Labor Relations Board’s general counsel.
The president has also issued a number of executive orders and halted some regulations. “He definitely wants to be seen as a champion of worker rights,” said Pearlstein.
Pearlstein added that Biden backs “the most significant piece of labor legislation since perhaps Taft-Hartley Act in 1947, . . . the PRO Act, that would dramatically change the landscape in the labor relations world in a way that’s very favorable to unions.” See Mark Kantor, “House Passes ‘PRO’ Act, Which Includes Arbitration Restrictions,” CPR Speaks (March 10) (available at https://bit.ly/38u5w87).
Biden also supports the FAIR Act which, if passed, could end mandatory employment arbitration, said Pearlstein, adding that Covid-19 in the workplace and the rights of gig workers are also important administration considerations. See Mark Kantor, “House Reintroduces a Proposal to Restrict Arbitration at a ‘Justice Restored’ Hearing,” CPR Speaks (Feb. 12) (available at http://bit.ly/3rze7y1).
Mark Gaston Pearce is a Visiting Professor and Executive Director of the Georgetown University Law Center Workers’ Rights Institute. Formerly a two-term board member and chairman of the National Labor Relations Board, Pearce previously taught at Cornell University’s School of Industrial and Labor Relations.
Kathryn Siegel is a shareholder in Littler Mendelsohn’s Chicago office, representing employers in matters of both employment law and labor relations before federal and state courts and federal agencies like the NLRB and the Equal Employment Opportunity Commission, as well as state agencies.
Mark Kantor started off the conversation by focusing on two general areas:
a) the prospects for legislative change in the Congress for arbitration of employment and labor issues; and
b) the prospects for regulatory measures by independent or executive agencies in the absence of new legislation.
He noted that, in the previous Congress, the legislation passed the House of Representatives by a 225-186 vote–all Democrats plus two Republicans. When it reached the Senate, however, “it went nowhere,” he said. “Not surprising,” he said, under Republican control, “There were no hearings, there were no committee markups, no committee activity, and the FAIR Act certainly never reached the floor of the Senate.”
In the current Congress, however, he noted, “We can expect the FAIR Act to pass the House of Representatives again, and then go to the Senate. Matters in the Senate might be a little different than they were in the last Congress. We can . . . expect committee activity, hearings, possibly a markup, maybe getting the legislation to the floor of the Senate.”
He said that Senate floor challenges exist for the legislation, because substantive measures are subject to a filibuster. Overcoming a filibuster requires 60 votes.
He added that Republicans are united in their opposition to the FAIR Act as it currently stands. Moreover, trying to avoid the filibuster by altering Senate rules to eliminate the filibuster runs into the problem that there are at least two Democratic Senators who will oppose that: Sen. Joe Manchin, from West Virginia, and Sen. Kyrsten Sinema from Arizona. Therefore, he said, “overriding a filibuster seems highly unlikely.”
That means there are very few formal ways to avoid the filibuster. Some people have suggested that Vice President Harris might simply override a parliamentary ruling that the legislation is outside the scope of budget reconciliation. That is also not likely to go anywhere, because Senators Manchin and Sinema will not support that. Consequently, you don’t have 50 votes out of the Democrats and you’re certainly not going to get any Republican votes to reach the threshold to allow Vice President Harris to make that decision.
Kantor then noted that there could still be other prospects for passage:
Appending the FAIR Act or other legislation to a “must pass” piece of legislation: “That’s exactly how restrictions on arbitration for consumer finance and securities arbitration, and whistleblower protections, was passed as part of the Dodd-Frank Act [in 2010], which did get 60 votes in support, because it was ‘must pass’ legislation,” he said.
Narrow legislation: Kantor noted that during the Feb. 11 hearing, “the ranking minority member of the House Judiciary Committee, Rep. [Ken Buck, a Republican] from Colorado, did signal an interest in supporting two narrow areas of restriction. One was for sexual harassment and racial discrimination, and the other was to override non-disclosure agreements for those two types of disputes.” Kantor added that Buck’s support sends a signal that Republicans on the Senate side also may be “open to focus targeted legislation, aiming at those two narrow areas.”
Kantor also pointed out that a provision in the National Defense Appropriations Act, which is renewed annually, “prohibits mandatory pre-dispute arbitration for sexual harassment and Title VII claims under procurement contracts in the national defense area and subcontracts for those procurements. That is not controversial in the national defense contracting community.”
But the bottom line here, he said, is that the filibuster will determine whether the FAIR Act or any of the other pieces of legislation like the PRO Act, which contain restrictions on pre-dispute arbitration for employment and labor, have a chance of Senate passage.
On regulatory measures, Kantor pointed out that the 2018 U.S. Supreme Court Epic Systems Corp. v. Lewis decision “set a very high barrier to utilizing preexisting general statutory authority for administrative agencies, independent, or executive agencies. It said that in order to prevail, the claim must show ‘clear and manifest’ intention to displace the Federal Arbitration Act.”
He continued: “Congress would be expected to have specifically addressed preexisting law, such as the Federal Arbitration Act. That meant ‘no’ for the [Fair Labor Standards Act], ‘no’ for the [National Labor Relations Act], and in subsequent court decisions, also ‘no’ for Title VII, [the Americans with Disabilities Act], [and the Age Discrimination in Employment] arguments.”
As a result, he added, one “can’t generally rely on pre-existing labor relations legislation to override mandatory pre-dispute arbitration agreements.” But Kantor provided two possible avenues agencies could explore in order to not run into an Epic Systems problem. He explained:
One is that you could avoid Epic Systems by focusing on the prohibition of class procedures, and prohibiting a prohibition of class procedures in any forum–that would be litigation and arbitration, and therefore would be nondiscriminatory. Indeed, the Epic Systems decision says, in essence, the Federal Arbitration Act sets up a nondiscrimination approach to whether or not other acts can be utilized to prevent arbitration. If it’s focused only on a fundamental attribute of arbitration, then there might be conflict preemption by the FAA. On the other hand, if it spreads more generally, there might not be.
The second avenue would be to look at nondisclosure agreements as Rep. Buck mentioned during the Feb. 11 hearing. Kantor added that the FAIR Act covers employment, civil rights, class action, antitrust legislation, and consumer disputes. If passed, it would also prohibit pre-dispute joint-action waivers of those disputes in any forum.
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Mark Gaston Pearce’s highlights focused on what is to be expected from the National Labor Relations Board with the Biden Administration.
He then discussed some of the NLRB cases. “There is a lot to be undone by the Trump board since the Trump board did a whole lot of undoing itself,” he said. He explained: “Among those things that the Trump board did was weakening the election reforms that were made in 2015,” said Pearce.
He explained that the Trump board changed union election rules by providing employers an increased ability to challenge and litigate certain issues prior to the election, and increased the length of time between the filing of a petition and the election date. “They were mandating that there should be a certain minimum time period to pass before an election,” he said.
Moreover, the Trump Board “lengthened the time period for an employer to serve a voter list and lengthened the time period for which an election is to be held if there was going to be a challenge to the [NLRB] Regional Director’s decision,” he said. [Among other things, Regional Directors are empowered to administer union elections. See the NLRB’s Organization and Functions, Sec. 203.1 (available at https://bit.ly/3ls48Ij.]
Pearce explained, “All of those provisions and a few more were struck by a [federal] district court judge once [they] went into effect. The basis for . . . striking . . . those provisions was that the board had determined that these actions were strictly procedural, and therefore under the . . . Administrative Procedure Act, they were not obliged to go through the full notice and comment requirements.” The district court decision, however, has been appealed and it is currently pending before the D.C. Circuit Court of Appeals, he said.
Pearce added that it is unlikely a decision will be issued before a new majority is in place. He noted that “it’s very likely that a new majority will withdraw that appeal and those provisions of the new rule will never see the light of the day.”
Pearce said MV Transportation standards–from a 2019 NLRB decision on whether an employer’s unilateral action is permitted by a collective-bargaining agreement—will affect arbitrators. In the case, he explained, the NLRB abandoned a standard requiring the employer to bargain over any material changes to a mandatory subject of bargaining unless the union gave a “clear and unmistakable waiver” of its right to bargain on the changes. The new standard is based on the “contract coverage.”
The “clear and unmistakable waiver” standard, Pearce explained, generally hindered an employer’s ability to make changes, so instead the board adopted the broader contract coverage standard for determining whether unionized employers’ unilateral change in terms and conditions of employment violated the National Labor Relations Act.
Pearce predicted that “MV Transportation will be revisited because the outgrowth . . . has been that unions, fearing that their position would be waived, are negotiating contracts with so many provisos or are likely to negotiate contracts with so many provisos in it that contract negotiations have become fairly untenable.”
He noted, however, that “with respect to arbitrators, there was always going to be an issue of whether or not, in fact, there is truly a contract coverage for the change that is being proposed, and I don’t think parties are going to want to constantly go to arbitration over every little thing that they plan on doing.”
Pearce then discussed recent developments in the area of higher education. He noted that there was a proposed rule that graduate students not be considered as employees under the National Labor Relations Act. He added, however, that it was unlikely for that rule to be adopted as the majority will likely object to such status. He said he predicts that there is going to be an “increase in petitions filed for graduate student bargaining units in the universities.”
“On the other hand,” Pearce explained, “[Last year’s NLRB decision] Bethany College, which reversed [a 2013 board decision,] Pacific Lutheran, . . . has resulted in a policy that has emanated from the courts that religious universities do not have to show much to consider themselves to have a religious bent and direction and therefore exclude faculty from being able to unionize.”
He directed attendees to the recent NLRB General Motors decision. “General Motors changed the standards with respect to offensive speech . . . during the course of protected concerted activity,” he said. Pearce added that cases involving sexist and racist remarks set on the picket line is an area that should not have received protections under the NLRA, though he said he backed the board’s decision in the case.
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Antranik Chekemian is a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.
A March 4 New York Law School Alternative Dispute Resolution Program presentation focused on the work of CPR’s Dispute Prevention Committee, centering on recognizing the inevitability of disagreements in complex business relationships, and the value of working to prevent problems from festering into conflict and formal disputes.
The program, “No Need to Resolve if You Can Prevent,” opened with moderator Noah Hanft, of New York consulting firm AcumenADR, noting that mediation was rare just a few decades ago, but is now common or even required in many jurisdictions. He expressed confidence that dispute prevention, although unusual today, will be a part of ADR’s future.
Hanft, who was CPR’s president and CEO from 2014-2019, co-chairs the CPR Dispute Prevention Committee with Gregory S. Gallopoulos of General Dynamics Corp., in Falls Church, Va. The committee has worked with CPR to develop a dispute prevention panel of professionals to assist companies in developing techniques and processes to head off conflicts, and Model Dispute Prevention and Resolution Provisions.
The model provisions assist with the appointment of a standing neutral for significant transactions, such as joint ventures where the parties envision a long-term relationship; a standby neutral, who is ready to step in but is not necessarily involved in regular meetings; or an agreement, without the appointment of a neutral, to work to recognize and resolve friction before it evolves into conflict.
CPR also offers a new Dispute Prevention Pledge for Business Relationships (it can be viewed and signed here) to recognize the importance of addressing conflict. The Pledge allows for contracting parties to incorporate dispute prevention mechanisms into business arrangements, such as the prompt identification of escalating conflicts or the appointment of a third-party neutral who will be engaged before disputes emerge.
Noting that the failure rate for joint ventures might be as high as 60%, the panel used portions of a video from a January dispute prevention simulation at the CPR Annual Meeting to discuss how dispute prevention might work in a complex business scenario, with several of the #CPRAM21 presenters returning for analysis at the NYLS program.
The video follows a hypothetical joint venture of two auto companies seeking to build a network of electric car charging stations. The scenario envisions perfunctory quarterly meetings, with increasing departures from projected results. In one version of the scenario, there is no early intervention. The failures lead to finger pointing and blaming. Mediation fails, and the case goes to arbitration.
In a second scenario, a neutral attends meetings, and calls attention to the pattern of falling revenues before the parties have expressly addressed them. Recognizing this as a likely source of future conflict, the neutral facilitates a conversation about the significance and causes of the departure from plan—a “constructive framework” for review. The parties work on a joint plan to revise the course of the deal or terminate the joint venture before a dispute emerges.
The video segments also addressed overcoming objections to adding a dispute prevention clause to an agreement, distinguishing dispute prevention from a routine dispute resolution clause. One mock negotiator dismissively described the appointment of a standing neutral as “like marriage counseling.”
But panelist Deborah Hylton, a neutral who heads her own Durham, N.C., firm and who also played the role of the standing neutral in the CPR video, described the neutral’s role as more “guiding and facilitative,” akin to “an honest broker.” She said the neutral can call out “the 500-pound. gorilla” neither side felt that it could address “for fear of signaling a weakness.” She described the value of the neutral’s ability to raise difficult issues.
Panelist Kimberly Maney, assistant general counsel at pharmaceutical manufacturer GlaxoSmithKline, based in Durham, N.C., spoke to the familiarity of the hypothetical scenario. These relationships start in a great place, she said, but then “something goes not quite right,” and the relationship “moves to a scorched-earth posture.”
Her business partners, Maney offered, would be happy to have a better option for managing conflict than burning the relationship to the ground. Dispute prevention is helpful in allowing the parties to have a disagreement but still maintain a relationship, she noted.
Panelist Steven Bierman, a New York-based partner in Sidley Austin, noted that outside counsel and litigators are ultimately problem-solvers. One way to help clients, he said, is to litigate or arbitrate a case, but another is to help clients anticipate problems and avoid litigation. There will always be disputes to be litigated, Bierman said–if not this one, the next one.
In responding to audience questions, the panel encouraged counsel to engage the business executives involved in a large transaction in crafting a dispute resolution clause appropriate to the relationship the parties seek to establish.
This is too important, Moderator Noah Hanft said, to be left to the lawyers. Using ADR provisions as boilerplate copied from one agreement to the next is likely inadequate. ADR clauses typically address how to resolve disputes, not how to manage the relationship to prevent disputes.
Furthermore, because the dispute prevention and resolution clauses govern the relationship, what worked in a prior relationship might not be in the best interests of a new relationship. The best time to address these issues is at the outset, when everyone is on good terms.
The program, hosted by NYLS ADR Skills Program Director F. Peter Phillips, is available at the program’s link above. The CPR Institute has a web page devoted to the program, too, and it includes the video, here. Panelist Deborah Hylton also posted an article that expands on the Annual Meeting and NYLS programs that can be found here.
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Author Amy Foust is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021.
Yesterday, the proposed Protecting the Right to Organize Act (PRO Act) passed the U.S. House of Representatives by a 225-206 vote, with five Republicans voting Yay and one Democrat voting Nay. The bill was sent to the U.S. Senate for consideration.
While much arbitration-related attention in the new Congress has focused on the arbitration-only FAIR Act (for details and links, see Mark Kantor, “House Reintroduces a Proposal to Restrict Arbitration at a ‘Justice Restored’ Hearing,” CPR Speaks (Feb. 12) (available at http://bit.ly/3rze7y1)), the PRO Act contains significant provisions that, if finally enacted, would limit employment arbitration.
Most important, the PRO Act would make it an unfair labor practice for an employer to prevent employees requiring arbitration agreements that obligate an employee “not to pursue, bring, join, litigate, or support any kind of joint, class, or collective claim arising from or relating to the employment of such employee in any forum that, but for such agreement, is of competent jurisdiction.”
Note that the coverage of the proposed PRO Act encompasses both employment contracts of adhesion and individually negotiated employment contracts, as well as covering individual independent contractors. See Section 101(b) of the legislation at the act’s link above.
Section 104 of the PRO Act would override Epic Systems v. Lewis,138 S. Ct. 1612 (May 21)(available at https://bit.ly/2rWzAE8), with respect to employment arbitration and class proceedings.
According to the accompanying section-by-section analysis released by the House, “ . . . on May 21, 2018, the Supreme Court held in Epic Systems Corp. v. Lewis that … employers may force workers into signing arbitration agreements that waive the right to pursue work-related litigation jointly, collectively or in a class action. This section overturns that decision by explicitly stating that employers may not require employees to waive their right to collective and class action litigation, without regard to union status.” (The analysis is available at https://bit.ly/2OGrKNj).
The ultimate Senate fate of the PRO Act is linked to the fate of the filibuster. As Politico states:
But the Protecting the Right to Organize Act, which advanced mostly along party lines, is unlikely to win the 60 votes needed for passage in the narrowly controlled Senate. And already, some union leaders — who hold outsize sway in the Biden administration — are amping up pressure on Democrats to eliminate the filibuster so they can see one of their top priorities enacted.
Eleanor Mueller and Sarah Ferris, “House passes labor overhaul, pitting unions against the filibuster,” Politico (March 9) (available at http://politi.co/3vbgFEu). For the latest on the limited prospects for overturning the filibuster in the Senate, see Burgess Everett, “Anti-filibuster liberals face a Senate math problem,” Politico (March 9) (available at http://politi.co/2ObVou0).
The filibuster affects large swaths of proposed legislation coming out of the House of Representatives and the Biden Administration agenda. We can anticipate daily media attention to every word any member of Congress or the administration speaks about the topic for some time to come.
The operative PRO Act text in Sec. 104 overriding Epic Systems reads as follows:
“(e) Notwithstanding chapter 1 of title 9, United States Code (commonly known as the ‘Federal Arbitration Act’), or any other provision of law, it shall be an unfair labor practice under subsection (a)(1) for any employer—
“(1) to enter into or attempt to enforce any agreement, express or implied, whereby prior to a dispute to which the agreement applies, an employee undertakes or promises not to pursue, bring, join, litigate, or support any kind of joint, class, or collective claim arising from or relating to the employment of such employee in any forum that, but for such agreement, is of competent jurisdiction;
“(2) to coerce an employee into undertaking or promising not to pursue, bring, join, litigate, or support any kind of joint, class, or collective claim arising from or relating to the employment of such employee; or
“(3) to retaliate or threaten to retaliate against an employee for refusing to undertake or promise not to pursue, bring, join, litigate, or support any kind of joint, class, or collective claim arising from or relating to the employment of such employee: Provided, That any agreement that violates this subsection or results from a violation of this subsection shall be to such extent unenforceable and void: Provided further, That this subsection shall not apply to any agreement embodied in or expressly permitted by a contract between an employer and a labor organization.”;
Also, according to the proposal’s section-by-section analysis, PRO Act Section 109(c) would create a private right of action in U.S. federal court if the NLRB fails to pursue a retaliation claim.
(c) Private right to civil action. If the NLRB does not seek an injunction to protect an employee within 60 days of filing a charge for retaliation against the employee’s right to join a union or engage in protected activity, that employee may bring a civil action in federal district court. The district court may award relief available to employees who file a charge before the NLRB.
Yesterday’s hearings have gone viral via fiery words backing the act’s passage by Tim Ryan, D., Ohio, who chided Republicans for failing to support workers. “Heaven forbid we pass something that’s going to help the damn workers in the United States of America!” shouted Ryan in the House chambers, adding, “Heaven forbid we tilt the balance that has been going in the wrong direction for 50 years!”
Republican opponents immediately fired back, saying that the bill would hurt workers by hurting business and the economy. For details, see Katie Shepherd, “Tim Ryan berates GOP over labor bill: ‘Stop talking about Dr. Seuss and start working with us,’” Washington Post (March 10) (available at http://wapo.st/3bz2YaF).
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Mark Kantor is a member of CPR-DR’s Panels of Distinguished Neutrals. Until he retired from Milbank, Tweed, Hadley & McCloy, he was a partner in the firm’s Corporate and Project Finance Groups. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). He also is Editor-in-Chief of the online journal Transnational Dispute Management. He is a frequent contributor to CPR Speaks, and this post originally was circulated to a private list serv and adapted with the author’s permission. Alternatives editor Russ Bleemer contributed to the research.
The Supreme Court today denied certiorari in GE Capital Retail Bank v. Belton, No. 20-481, an arbitration case in a bankruptcy matter. The question presented by petitioner GE Capital, and rejected in this morning’s order list by the Court, was “whether provisions of the Bankruptcy Code providing for a statutorily enforceable discharge of a debtor’s debts impliedly repeal the Federal Arbitration Act, 9 U.S.C. § 1 et seq.”
The U.S. Bankruptcy Code section in question, 11 U.S.C. § 524(a)(2), provides in part:
A discharge in a case under this title— …
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived[.]
The case, on cert petition from the Second U.S. Circuit Court of Appeals in New York, suggests a tension between this section of the bankruptcy code and the Federal Arbitration Act, which provides that written agreements to arbitrate are “valid, irrevocable, and enforceable” (9 U.S.C. §2), and that if there is no issue with the making of the agreement, a court “shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” 9 U.S.C. §4.
The underlying dispute was a putative class action related to GE Capital’s efforts to collect debts discharged in bankruptcy. The plaintiffs–the discharged debtors–brought contempt proceedings under § 524 arguing a violation of the injunction against continued recovery. GE Capital moved to have the dispute referred to arbitration.
The case of Respondent Belton and two others similarly situated were addressed in a consolidated decision by the federal bankruptcy court in New York’s Southern District, finding that referring these cases to arbitration would defeat the purpose of seeking bankruptcy protections. The U.S. District Court for the Southern District reversed the bankruptcy court and sent Belton’s case to arbitration.
But around the same time, the Second Circuit decided Anderson v. Credit One Bank, N.A., 884 F.3d 382 (2d Cir. 2018), a case involving similar facts to GE Capital. In Anderson, an appeals panel found an inherent conflict between § 524 and the FAA because the discharge injunction is critical to the bankruptcy code’s purpose; the contempt claim requires the bankruptcy court’s continuing supervision, and denying the court the power to enforce its own injunctions would undermine bankruptcy code enforcement.
In response to a request for reconsideration in view of Anderson, the U.S. District Court reversed itself and denied the motion to compel arbitration. GE Capital appealed to the Second Circuit, which affirmed the district court.
GE Capital then appealed to the Supreme Court, framing the issue as an implied repeal of the FAA, citing the Court’s support from Epic Systems v. Lewis, 138 S. Ct. 1612, 1627 (2018), where the Court rejected a request to have the National Labor Relations Act override the Federal Arbitration Act.
In a response to GE Capital’s request asking the nation’s top court to decline to hear the case, Respondent Belton had argued that the Second Circuit was correct in its analysis of this narrow issue, which is not the subject of any circuit split and did not merit the Court’s attention.
So the Second Circuit decision stands, allowing the respondents to proceed with contempt sanctions against major banks for continuing attempts to recover debts that had been subject of a bankruptcy discharge.
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The author is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021.