Court Backs Award for Class Arbitration, Refusing to Wait for Supreme Court’s Decision

By Shravanthi Suresh-Silver

A recent Wisconsin federal trial court decision backs confirmation of an arbitration award even though the defendant asked for it to be stayed until the class waivers-arbitration cases currently before the U.S. Supreme Court are decided.

The arbitrator in the case had backed a class arbitration process on behalf of employees, who said that the defendant, Waterstone Mortgage Corp., a Pewaukee, Wis.-based lender, failed to pay its loan officers overtime.

The three consolidated cases on waivers that ban class processes in favor of mandatory individual arbitration were argued together in the Supreme Court on Oct. 2. A decision on the relationship between the Federal Arbitration Act and the National Labor Relations Act is expected soon.

In Herrington v. Waterstone Mortgage Corp., No. 11-cv-779-bbc (U.S.W.D Dec. 4)(available at http://bit.ly/2BgULTT), U.S. District Court Senior Judge Barbara B. Crabb, based in Madison, Wis., concluded that plaintiff’s claims would have to be resolved through arbitration under the parties’ agreement, and that the NLRA gave the plaintiff the right to join other employees in her case.

Herrington also is notable because the court rejected an arbitrator bias argument and addressed claims that the arbitrator, former Second U.S. Circuit Court of Appeals Judge George Pratt, slept through key proceedings.

Plaintiff Herrington commenced arbitration on March 23, 2012, under her employment contract. Arbitrator Pratt issued an order determining that the arbitration could proceed as a collective action. Ultimately, the Wisconsin federal court opinion by Senior Judge Crabb notes, 174 class members opted into the arbitration.

On July 5, 2017, Pratt issued a final decision, holding that Waterstone was liable under the Fair Labor Standards Act for unpaid minimum wages and overtime and attorney fees and costs, but not liable under Wisconsin statutory or contract law. He ordered Waterstone to pay nearly $7.3 million in damages; $3.3 million in attorney fees and costs and an incentive fee of $20,000 to be paid to Herrington.

The plaintiff moved for confirmation of the award under 9 U.S.C. § 9 in the Wisconsin federal court, while the mortgage company moved to vacate or modify the award, asking Senior Judge Bragg to stay any action relating to the award until the U.S. Supreme Court reaches a decision in the consolidated cases of Ernst & Young LLP v. Morris; Epic Systems Corp. v. Lewis, and NLRB v. Murphy Oil USA Inc. (For more information on the cases, see CPR Speaks at http://bit.ly/2yWjWuf.). In the cases, the Court is considering whether class and collective action waivers in arbitration agreements violate the National Labor Relations Act.

The plaintiff countered by asking for sanctions against the defendant lender, arguing that the objections to the award’s confirmation were frivolous.

The court denied the defendant’s motions to stay and to vacate the arbitration award, as well as Herrington’s sanctions motion. The court confirmed the arbitration award, with one modification to correct the mathematical error identified by both parties.

In arguing to stay any action relating to the award until the Supreme Court reaches its decision in the consolidated cases, Waterstone suggested that if the Supreme Court concludes that class and collective action waivers do not violate the National Labor Relations Act, the defendant will be able to rely on that decision to file a motion under Federal Rule of Civil Procedure 60(b)(6) challenging Bragg’s March 2012 decision in the case striking the class waiver in the company’s employment agreement.

In noting that the defendant’s assumption was flawed, the Wisconsin court reemphasized that “a change in law showing that a previous judgment may have been incorrect is not an ‘extraordinary circumstance’ justifying relief under Rule 60(b)(6).” (Quoting Nash v. Hepp, 740 F.3d 1075, 1078 (7th Cir. 2014)(“Rule 60(b) cannot be used to reopen the judgment in a civil case just because later authority shows that the judgment may have been incorrect.” (Internal citation omitted.)), Bragg noted in her opinion that the defendant “made no attempt to explain why a change in the law would justify reconsideration of a decision made in this case five years ago.”

The court also noted that the ultimate decision allowing the case to proceed on a collective basis was made by Arbitrator Pratt, not the court. Bragg noted that Pratt said he was bound by her finding that the class waiver provision was invalid under the National Labor Relations Act.

But the opinion also says that Pratt found the employment agreement’s arbitration clause was ambiguous. Despite the waiver, he noted, the clause also stated that arbitration should proceed “in accordance with the rules of the American Arbitration Association,” which permits class arbitration.

The arbitrator noted that the defendant “at the very least created an ambiguity, which must be construed against [Waterstone,] the party who drafted the Agreement.”

The opinion says that the arbitrator “also noted plaintiff’s argument that the language of the so-called ‘waiver’ clause should actually be read as permitting class or collective arbitration, rather than prohibiting it, though the arbitrator chose not to resolve that dispute.”

Wrote Senior Judge Bragg,

In other words, the arbitrator’s discussion suggests that he believed there were independent bases for permitting collective arbitration, aside from this court’s previous decision. Thus, it is far from clear that the Supreme Court’s decision . . . would cause the arbitrator to change his decision to permit collective arbitration.

The court also stated that the case had been pending since 2011 and that it was not at an early stage. It was noted that a further delay would prejudice the plaintiff, who had been waiting several years through numerous delays to recover unpaid wages.

Additionally, despite the defendant’s assertion that a stay would “greatly simplify the issues and reduce the burden of litigation,” Bragg wrote that she was not persuaded that the Supreme Court’s decision will necessarily simplify the issues in this case, however it rules.

There were other significant issues. The defendant argued that Arbitrator Pratt “demonstrated bias in favor of plaintiff when he sent a survey to potential class members as part of his decision whether to certify a class.” The defendant stated that when the survey was submitted, discovery on class certification was closed and the arbitrator had said that the plaintiff’s evidence supporting class certification was insufficient.

Additionally, Waterstone argued that the phrasing of the survey was biased in favor of plaintiff.

But Bragg dismissed the bias claims.  She held that “there is nothing about the arbitrator’s decision to send out the survey and consider the responses that suggests bias in favor of plaintiff or against defendant.” The inquiries, the opinion noted, were “simply ‘yes’ and ‘no’ questions regarding the experiences of putative class members.”

Furthermore, the arbitrator permitted the parties to argue and brief their views regarding the survey, “and issued a written decision explaining his reasons for considering the results.” Pratt “later issued a well-reasoned 16-page written decision on class certification,” Bragg noted in her opinion, “explaining the survey results and his conclusion that the results supported class certification.”

Finally, the arbitrator was clear that he understood the evidentiary limitations of the survey results. Therefore, the court dismissed the defendant’s allegations of arbitrator bias.

The defendant also argued that the award should be vacated because Arbitrator Pratt “slept through portions of the evidentiary hearing,” the opinion says.

Waterstone argued that the arbitrator’s “alleged sleeping amounts to abdication of his duties and qualifies as misconduct sufficient to justify vacating the arbitration award,” the opinion says.

Senior Judge Bragg said she agreed with Plaintiff Herrington that if the defense believed Pratt slept during the hearing, it should have asked for a break. The court noted that there appeared to be a factual dispute regarding whether Pratt dozed. “To raise this issue now seems far too late,” the opinion says.

Bragg emphasized that even if the arbitrator dozed off, the defendant “had pointed to nothing suggesting that the arbitrator was prejudiced by the alleged napping.” While Waterstone claimed that Pratt slept during important testimony, it failed to identify any specific testimony that he missed.

In dismissing the defendant’s motion that the arbitration award should be vacated, the court noted that the defendant’s arguments about prejudice are based entirely on speculation.

* * *

The author is a CPR intern.

The Class Waiver-Arbitration Argument: The Supreme Court Transcript

By Russ Bleemer

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

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

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

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

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

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

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

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

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

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

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

* * *

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

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

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

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

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

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

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

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

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

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

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

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

* * *

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

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

* * *

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

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

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

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

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

* * *

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

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

* * *

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

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

 

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

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

By Mark Kantor

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

This material was first published on OGEMID, the Oil Gas Energy Mining Infrastructure and Investment Disputes discussion group sponsored by the on-line journal Transnational Dispute Management (TDM, at https://www.transnational-dispute-management.com/), and is republished with consent.

DOJ to NLRB: You’re On Your Own in the Supreme Court

CLASS WAIVER/MANDATORY ARBITRATION CASES

By Nicholas Denny

In the clearest illustration so far of the Trump Administration’s evolving hands-off policy toward mandatory arbitration clauses and class action waivers, the U.S. Solicitor General authorized the National Labor Relations Board (NLRB) last week to represent itself in one of three consolidated arbitration cases to be heard by the U.S. Supreme Court this fall.

At the same time, the U.S. Department of Justice, which had been representing the board in NLRB v. Murphy Oil USA Inc., No. 16-307 (U.S. Supreme Court docket page at http://bit.ly/2kOPxal) until last week, switched sides in the case, filing an amicus brief backing the employer in the matter.

Justice, via the friend-of-the-court briefs, is now advocating against the NLRB, and against its previous position.

The case—along with its companions, Ernst & Young v. Morris, No. 16-300 (Docket page at http://bit.ly/2kLxCEg) and Epic Systems Corp. v. Lewis, No. 16-285 (Docket page at http://bit.ly/2kFVxm6)—asks whether mandatory arbitration clauses as a condition of employment bar individual employees from pursuing work-related claims on a collective or class basis under the National Labor Relations Act (NLRA). Mandatory arbitration clauses are used throughout employment settings and apply to employees regardless of titles or union affiliation; two of the three cases involve white-collar office workers.

The Supreme Court will hear the consolidated cases in the term beginning in October.

The issue in the consolidated cases is whether employers can continue to unilaterally require that employees agree to a mandatory arbitration clause in employment contracts. Often, these clauses are non-negotiable: either employees accept the employer’s terms or the employer finds someone else to hire.

The Supreme Court must decide which of two laws controls: the National Labor Relations Act, 29 U.S.C. § 151, et seq., or the Federal Arbitration Act, at 9 U.S.C. § 1 et seq. Under the NLRA, an employee’s rights to collective bargaining and action are protected. Under the FAA, however, an employment contract that includes a mandatory arbitration clause binds the worker to arbitrate with the employer instead of litigating in court, and is accompanied by a waiver barring the employee from bringing a class-action suit in favor of an individualized process.

As a result, arbitration clauses can deliver a one-two punch: (1) workers arbitrating individually may have less power, because they are not operating as part of a collective whole as contemplated by the NLRA, and (2) a worker may be less likely to find counsel because arbitration awards are perceived to be much smaller than court and class-action outcomes—meaning a lawyer working for a portion of the settlement would be less likely to take the case.

On the other hand, employers contend that mandatory arbitration clauses protect the company and benefit the employee. They argue that arbitration clauses ensure a speedier and more cost-effective conclusion to conflicts: class actions are harder and more costly to fight than arbitrations.

The disagreement over the use of mandatory arbitration clauses has arisen in the political arena, too. While the Obama Administration focused on pro-employee, anti-mandatory arbitration policies that prohibited employers from unilaterally waiving workers’ rights to concerted action under the NLRA, the Trump Administration is leaning toward an employer-centric policy by permitting mandatory arbitration clauses in employment contracts and as a condition of hiring.

This drastic shift in policy culminated with Friday’s news that the NLRB will represent itself, and that the Department of Justice would switch sides. The NLRB, as an autonomous government entity, is tasked with protecting “the right of employees to engage in protected concerted activities—group action to improve wages, benefits, and working conditions and to engage in union activities and support a union,” according to its website, as well as protecting the right of workers to refrain from engaging in protected concerted or union activities.

While the Justice Department prosecutes on behalf of the nation as well as defends government agencies, it is exceedingly rare for it to withdraw its representation of an agency it had been representing and subsequently file a brief in opposition to the position had it previously taken.

The Justice Department amicus brief switching sides in Murphy Oil is available at http://bit.ly/2sUnFbL.  The NLRB’s June 16 announcement that it would represent itself without Justice Department support can be found on the board’s website at http://bit.ly/2traH2s.

The move, however, is consistent with another recent Trump Administration policy shift on arbitration. In early June, the Centers for Medicare and Medicaid Services, an arm of the U.S. Department of Health and Human Services, withdrew a 2016 Obama Administration position prohibiting mandatory arbitration clauses in long-term care nursing home contracts.

CMS’s new position allows arbitration agreements provided that the provisions are written in plain language, and explained to and accepted by the applying resident.  Among other conditions, the CMS requires that the nursing home retain a copy of the signed agreement and post a notice that details the nursing home’s arbitration policy.

In addition, House Republicans introduced the “Financial CHOICE Act” earlier this month, a proposed law that aims to dismantle the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank is an extensive law that was passed to ensure higher accountability in the U.S. financial sector after the economic recession of 2008 and it was endorsed by former President Obama.

Among its many goals, Dodd-Frank pointed its then-new Consumer Financial Protection Bureau at pre-dispute mandatory arbitration clauses in consumer finance contracts. A lengthy study concluded last year by the CFPB resulted in a promise to finalize regulations that would ban the use of predispute mandatory arbitration in consumer financial contracts, such as cellphone agreements.

But should the “Financial CHOICE Act” become law, it likely would allow financial institutions to include mandatory arbitration clauses in their consumer contracts and agreements, and negate the CFPB efforts.

President Trump’s stance on mandatory arbitration clauses is becoming clear. Whether the clauses are legal in the employment context, and whether they will withstand Supreme Court scrutiny, are developing issues that are expected to be answered within the year. Watch CPR Speaks for updates.


The author is a CPR Institute Summer 2017 intern.

Making the Mandatory Argument: Arbitration, Class Waivers and the Practitioners’ Role

By Russ Bleemer

Legislative and court arguments over whether ADR processes can be used to defray class litigation are moving toward a decisive 2017 conclusion.

New regulations barring the use of class waivers associated with mandatory arbitration clauses in consumer financial contracts, like credit card agreements or wireless telephone service agreements, are due for release soon by the Washington, D.C.-based Consumer Financial Protection Bureau.  The CFPB had issued a proposal in May and accepted public comments until August.

In the December Alternatives, Sanford Jaffe and Linda Stamato, longtime conflict resolution process theorists, designers, and practitioners at the Center for Negotiation and Conflict Resolution at Rutgers University in New Brunswick, N.J., backed the move.  They argue that the mandatory arbitration processes that prohibit class litigation that the CFPB targets indeed should go.

But with the intervention of last month’s election, the prospects for the vitality and longevity of the coming regulation has dimmed.

So the authors also argue that the responsibility for preserving the integrity of alternative dispute resolution processes by breaking the link between mandatory processes and class waivers lies with practitioners themselves.

“Rarely seen are misgivings about mandatory arbitration expressed by dispute resolution professionals,” the authors write. “But we ought to be heard in the hearings and rule-making processes, and in social and print media, to support the proper use of the processes we have worked to design, develop, apply and evaluate.  We need . . . to defend the principles upon which this field is grounded, not the least of which is choice. We need to return to the attitudes and beliefs with which the field started decades ago, to fulfill the promises of the architects of the field.”

In addition to discussing mandatory arbitration in contracts over which the CFPB regulates, Jaffe and Stamato discuss mandatory arbitration in the employment context, noting the line of cases involving the clash between the Federal Arbitration Act and the National Labor Relations Act.

Three federal circuit courts have held that the FAA permits employers to use class waivers in requiring arbitration to resolve workplace disputes, while two circuits have gone the other way, saying that the NLRA preserves a right to class processes, including litigation, under the law which says that employees may “engage in . . . concerted activities.” See CPR Blog post from Aug. 23 HERE.

Since the December issue of Alternatives was released (HERE free on CPR’s website for members logged in; HERE with archives on publisher John Wiley’s site) , the U.S. Supreme Court has scheduled five FAA-NLRA cases for discussion at its Jan. 6 case conference.

Experts believe the Court will accept one or more of the cases—perhaps one favoring the defense view upholding mandatory arbitration with a class waiver, and one backing the National Labor Relation Board’s ruling that class processes must be preserved—to finally decide the matter, which has been brewing since the NLRB struck the mandatory arbitration/class waiver provision it found in D.R. Horton Inc., 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8), enforcement denied in relevant part, 737 F.3d 344 (5th Cir. 2013)(Graves, J., dissenting)(PDF download link at http://bit.ly/1XRvjrM), reh’g denied, No. 12-60031 (Apr. 16, 2014).

Meantime, the viability of the CFPB’s yet-to-be-released regulations is in doubt in light of President-elect Trump’s anti-regulation views, including his loathing of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which authorized the CFPB.  While the agency is committed to a forthcoming final regulation, it’s unlikely it will stand without attack.

In the forthcoming January issue of Alternatives, available at the links above on or around Jan. 4, Philadelphia-based Ballard Spahr partner Alan Kaplinsky will counter the December Alternatives commentary discussed above with an outline of the options to challenge to the CFPB’s regulation, which some analysts say may emerge before Trump’s Jan. 20 inauguration.

As Kaplinsky points out, a Congressional repeal may not even be necessary.  A new Trump appointee replacing current CFPB Director Richard Cordray could roll back the roll-out, restore (or reassert) mandatory arbitration and class waivers, and delay or change the regulations via the Administrative Procedure Act.

The December Alternatives commentary, “Private Justice: Losing Our Day in Court,” by Sanford M. Jaffe and Linda Stamato, is available now for all readers HERE.

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

Ninth Circuit Backs NLRB’s View Barring Mandatory Pre-dispute Class Waivers, Deepening a Circuit Split

By Ksenia Koriukalova

The Ninth U.S. Court of Appeals Monday joined the Seventh Circuit in supporting the position of the National Labor Relations Board against “concerted action waivers” in employment agreements

Morris v. Ernst & Young LLP, No. 13-16599 (9th Cir. August 22, 2016) (available at http://bit.ly/2bqiU0k) contributes to deepening the circuit split regarding the enforceability of class waivers that compel employees to take their employment disputes to individual arbitration.

Morris v. Ernst & Young was the first case in which the NLRB intervened as amicus curiae to urge the court to support its view on the issue, which has been rejected by the Fifth and Eighth Circuits, but backed by the Seventh Circuit in Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016) (available at http://bit.ly/1U8lhTW).

Lewis, the first in which the NLRB argued, caused the split.  The Lewis parties requested and received an extension to decide upon and prepare a petition for certiorari to the U.S. Supreme Court.  Arbitration experts and analysts expect that employer Epic Systems will file for an appeal sometime next month.

On Monday, in the 2-1 Morris opinion written by Chief Circuit Judge Sidney R. Thomas, the Ninth Circuit vacated a federal district court order compelling individual arbitration in a class and collective action brought by Ernst & Young employees.

The action was originally brought in New York for the alleged misclassification of employees and violation of the Fair Labor Standards Act. After the case was transferred to California’s Northern District, Ernst & Young filed a motion to compel arbitration in accordance with the agreements executed by the plaintiffs as a condition of their employment.

The agreements contained provisions requiring the employees to pursue their legal claims against the accounting and consulting giant exclusively through arbitration, and to arbitrate only in their individual capacity and in “separate proceedings.”

The plaintiffs argued that the “separate proceedings” clause of their agreements violated federal law, in particular the National Labor Relations Act, or NLRA. The district court granted the employer’s motion to compel individual arbitration. The appellate court disagreed with that decision.

For full details on the November 2015 Morris argument in the Ninth Circuit, as well as information on the background of the case and resources on the class waivers-NLRA issue, see “Cutting Arbitration Classes: Facing Court Defeats on Workplace Waivers, the NLRB Refuses To Back Down,” 34 Alternatives 1 (January 2016)(available at http://bit.ly/2c3hewf).

This week, the Ninth Circuit overturned the district court decision and joined the Seventh Circuit view that class waivers mandating arbitration violate federal labor law.

Specifically, the Ninth Circuit panel held that by requiring employees to sign agreements containing “concerted action waivers,” the employer interfered with the employees’ “essential, substantive right” to “engage in concerted activity” granted by the NLRA § 7.

The panel relied on the NLRB’s decision D.R. Horton, Inc., 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8), enforcement denied in relevant part, 737 F.3d 344 (5th Cir. 2013) (Graves, J., dissenting)(PDF download link at http://bit.ly/1XRvjrM), reh’g denied, No. 12-60031 (Apr. 16, 2014).

In its original D.R. Horton decision, the NLRB concluded that an employer’s requirement that an employee sign a waiver as a condition of employment violated the NLRA. The Ninth Circuit analyzed NLRA § 7, which establishes an employees’ rights to engage in concerted activities, and NLRA § 8, which enforces collective action rights.  The circuit appeals court agreed with the NLRB’s D.R. Horton interpretation of these statutory provisions.

“This case turns on a well-established principle,” wrote Chief Circuit Judge Thomas, “employees have the right to pursue work-related legal claims together.  . . . Concerted activity—the right of employees to act together—is the essential, substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in ‘separate proceedings.’” [Citations omitted.]

Moreover, the Ninth Circuit also held that the application of the Federal Arbitration Act did not change its conclusion. The panel found that the requirement to pursue legal claims against an employer in “separate proceedings” violated the NLRA, irrespective of whether employees were required to bring their complaints in arbitration or in court.

Circuit Judge Sandra Ikuta dissented, concluding that that the arbitration agreements signed by Ernst & Young employees were enforceable, because the NLRA did not contain a “contrary congressional command” overriding the FAA.

Morris v. Ernst & Young deepens the circuit split on enforceability of class action waivers in employment agreements. In addition to D.R. Horton, the Fifth Circuit also has reversed the NLRB’s decision repeatedly, most notably in Murphy Oil USA Inc., Case 10–CA–038804, 361 NLRB No. 72, 2014 WL 5465454 (Oct. 28, 2014) (PDF download link at http://bit.ly/1LVnR8d), enforcement denied in relevant part, 2015 WL 6457613 (5th Cir. Oct. 26, 2015)(PDF download link at http://bit.ly/1TMfDFO).

The Eighth Circuit followed the Fifth Circuit’s view in Cellular Sales of Missouri LLC v. NLRB, 824 F.3d 772 (8th Cir. 2016).  Earlier the Second Circuit also found class action waiver provisions in employment-related arbitration agreements to be enforceable. (see Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013)) But the viability of Sutherland decision is in question following the oral argument in Patterson v. Raymours Furniture Co. heard by the Second Circuit this past Friday.

The Seventh Circuit supported the NRLB’s interpretation in Lewis v. Epic Systems Corp., where the appeals court reaffirmed the NLRB’s position that class action waivers contained in arbitration agreements employees were required to sign as a condition of their employment violated the NLRA.

Monday’s Ninth Circuit Morris decision is powerful support for Lewis. As a result, while the concerted action waivers in employment-related agreements are considered incompatible with the federal labor law in the Seventh and the Ninth Circuit, the Fifth, the Eighth and the Second Circuits render them enforceable–that is, until the Supreme Court of the United States addresses the issue of the compatibility of the NLRA and the FAA nationwide.

The author is a Fall 2016 CPR Legal Intern. And please stay tuned: there will be more on the Patterson case posted here before the weekend! 

The Nominee’s Record on Dispute Resolution

BY PETER FEHER & RUSS BLEEMER

President Obama’s nomination of District of Columbia U.S. Circuit Court Chief Judge Merrick Garland didn’t bring with it a substantial judicial record on alternative dispute resolution cases.

But a new U.S. Supreme Court Associate Justice Garland won’t be a stranger to litigation over arbitration either.

Garland, 63, is in a tough confirmation fight.  At this writing, Senate Majority Leader Mitch McConnell, R., Ky., vowed not to allow a vote on a successor to the late Antonin Scalia before the November presidential election.

But Garland had bipartisan support when he was nominated to the D.C. Circuit in 1999 by President Clinton. He was confirmed 76-23, with a majority of Senators in both parties supporting him. Garland is well-respected on both sides of the aisle and in the legal community and reportedly was on the president’s list for SCOTUS nominees previously, when Associate Justice Sonia Sotomayor was nominated and confirmed in 2009, and Associate Justice Elena Kagan joined the Court a year later.

Research provided a limited number of arbitration cases before the D.C. Circuit in which Garland participated.  They show he backed arbitration.

It’s unclear whether and how the subject of ADR processes arose in his non-judicial career, which also is discussed below.  Garland’s extensive prosecutorial work at the U.S. Department of Justice as well as an Assistant U.S. Attorney for the District of Columbia was on the criminal side; he also was a litigation partner at Washington, D.C.’s Arnold & Porter.

Garland is probably best known for his U.S. Justice Department service from 1993 to his 1999 appointment as U.S. Circuit Judge.  During the period, when he was DOJ’s Principal Associate Deputy Attorney General, his responsibilities included supervising the Oklahoma City bombing and Unabomber prosecutions.

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In the D.C. Circuit, Garland wrote the unanimous affirmance in Kurke v. Oscar Gruss and Son Inc., 454 F.3d 350 (D.C. Cir. 2006)(available at bit.ly/1MjsCPT). The opinion backs arbitrators who awarded a brokerage customer damages after his account was churned, and the defendants charged that the award was made in manifest disregard of the law.
The case concerned a customer who brought an action seeking confirmation of an arbitration award brought by plaintiff David Kurke against securities firm Oscar Gruss, and a firm executive, after the customer’s account was subjected to what the plaintiff charged was unauthorized trading, churning and a breach of fiduciary duty.

An arbitration panel agreed, awarding Kurke compensatory damages from both Oscar Gruss and the executive, in the amounts of $648,000 and $58,000, respectively. According to the Garland opinion, Oscar Gruss trading had turned Kurke’s $520,000 investment into $39,000, just four months after the account had been valued at more than $1 million.
The federal district court granted Kurke’s enforcement petition, and Oscar Gruss appealed the arbitration award.

The appellants urged that the awards can be vacated on the ground that the arbitrators made them in “manifest disregard” of the law.

The opinion indicated that manifest disregard “is an extremely narrow standard of review.” Under the standard, the reviewing court must find that arbitrators knew of governing legal principle yet refused to apply it or ignored it altogether, and the law ignored by the arbitrators was well-defined, explicit and clearly applicable to the case. Kurke, at 354 (quoting LaPrade v. Kidder, Peabody & Co. Inc., 246 F.3d 702, 706 (D.C.Cir. 2001)).

The firm argued that the arbitration panel’s award to Kurke was made in manifest disregard of the law because under the terms of his margin agreement, Kurke’s failure to object to the unauthorized trades in writing within the stipulated time frame effectively ratified those trades.  The defendants argued that Kurke’s failure to mitigate his damages after he became aware of them relieved the company for liability for Kurke’s losses. Kurke, at 355.

Circuit Judge Garland noted three exceptions to the rule that ratification agreements will be enforced.  The opinion notes that the arbitrators could have refused to enforce the ratification agreement if they credited Kurke’s testimony that he did not comprehend the highly complicated options trades contained on his monthly statements; that assurances or deceptive acts forestalled his filing of the written complaint; or that Kurke was not advised of his right to reject the unauthorized trades.  Kurke, at 356.

Focusing on statements by an Oscar Gruss employee that forestalled the plaintiff from acting, Judge Garland wrote, “we can readily ‘discern [a] colorable justification for the arbitrator[s’] judgment,’ . . .  and cannot say their award was made in manifest disregard of the law regarding ratification.’” Id.

Garland rejected the appellants’ other arguments to establish manifest disregard and affirmed the District Court’s arbitration award in full.

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In Aliron Int’l Inc., v. Cherokee Nation Indus. Inc., 531 F.3d 863 (D.C. Cir. 2008)(available at bit.ly/22BaC7J), Circuit Judge Garland, who became the D.C. Circuit’s chief judge in February 2013,  affirmed a district court’s decision to compel arbitration.

In the case, the U.S. Army entered into a “Prime Contract” with Cherokee Nation, or CNI, which in turn entered into a subcontract with Aliron to provide the service and staffing resources that CNI needed to fulfill its duties under the Prime Contract.

The parties agreed that the subcontract “shall be construed and interpreted in accordance with the laws of the State of Oklahoma” and that “any dispute between the parties will be submitted to binding arbitration in the State of Oklahoma. The parties further agreed Oklahoma law “shall govern the arbitration proceedings.” Aliron International Inc., at 864.

About two weeks into the contract performance, the parties had to enter into an additional support agreement in order to comply with the Status of Forces Agreement between the United States and Germany.  The SOFA precluded CNI from hiring a subcontractor under the Prime Contract. But unlike the subcontract, the Support Agreement did not include an express provision requiring arbitration of all disputes. Id. at 864.

Aliron filed an action against CNI for breach of obligations under the Support Agreement. CNI moved to compel arbitration of the dispute. CNI argued that although only the subcontract contained an express arbitration clause, the two documents should be read together.

The District of Columbia federal district court agreed with CNI, holding that “because the Subcontract and the Support Agreement involve the same subject matter, and because the plain language on the fact of the Support Agreement indicated that it was entered into to preserve the intent of the Subcontract, they must be construed together as one contract.” Id. at 865.

Garland noted in an opinion on behalf of the unanimous three-judge federal appellate panel that courts generally should apply ordinary state law principles that govern contract formation. He wrote, “The Oklahoma Supreme Court has long instructed that ‘[w]here two contracts, not executed at the same time, refer to the same subject matter and show on their face that one was executed to carry out the intent of the other, it is proper to construe them together as if they were one contract.’” [Citations omitted.]

Two criteria must be satisfied before the subcontract’s arbitration provision can be deemed to govern disputes under the Support Agreement, according to the Garland opinion:  “(1) the Subcontract and Support Agreement must each refer to the same subject matter, and (2) the Support Agreement must show on its face that it was executed to carry out” the subcontract’s intent. Id. at 866.

Judge Garland found both elements were satisfied and required the two contracts to be read together as one under Oklahoma law because they referred to the same subject matter, and because the Support Agreement plainly showed that it was executed to preserve the subcontract’s intent. Id. at 868.

In affirming the lower court, Garland rejected two additional arguments by Aliron, one which required extrinsic evidence about the contract, and another contesting the formation of an arbitration agreement.

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Judge Garland handed down another decision that mentioned alternative dispute resolution in labor law. In the case, Davenport v. Int’l Brotherhood of Teamsters, AFL-CIO, members of a flight attendants union brought an action against the union and the employer challenging the union’s failure to submit a temporary side agreement on work hours to the collective bargaining accord to a rank-and-file ratification vote. 166 F.3d 356 (D.C. Cir. 1999)(available at bit.ly/1Vyplyw).

The flight attendants sought a temporary injunction against the side agreement—which had been sparked by a change in federal law—that was denied in the district court.  Again writing for a unanimous D.C. Circuit panel, Garland’s opinion affirmed the lower court.
The employer-airline in the case—Northwest Airlines Inc., now part of Delta Air Lines Inc.–was subject to the Railway Labor Act.  Under the act, an adjustment board established by the employer and the unions had exclusive jurisdiction over “minor disputes”–those arising “out of grievances or out of the interpretation or application” of existing collective bargaining agreements.

Circuit Judge Garland noted that in “’major disputes,’ however, the district courts have jurisdiction to enjoin violations of the status quo pending the completion of required bargaining and mediation procedures.” Id. at 367. Major disputes go to the formation of the collective agreements, the opinion says.

But Garland wrote that the plaintiffs’ contention that the dispute was a “major dispute” requiring an injunction couldn’t be sustained.  The opinion held that there wasn’t enough grounds to vacate the district order for major-dispute ADR treatment or any of the other grounds on which the plaintiffs sought the court’s intervention.

It did allow re-argument of the “major dispute” controversy, since it was bought by the union itself late in the litigation.  But it’s not clear that the case got beyond the argument stages, because the collective bargaining agreement was due to be renegotiated to account for the side agreement. Press reports indicate that the relationship between Northwest and its union became strained later in 1999 over several issues, and headed to mediation. See, e.g., Associated Press, “Protesters disrupt Northwest Airline meeting,” Deseret News (April 24, 1999)(available at bit.ly/1RhBNQ9).

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Some business lobbyists are wary of Garland’s nomination given his deference to government agencies.

According to a Corporate Counsel article, while Garland has significant experience deciding challenges to government regulations, given the focus of the D.C. Circuit on administrative appeals, he has less experience on corporate law and governance questions. Rebekah Mintzer, “Justice Merrick Garland: Bad for Business?” Corporate Counsel (March 21)(available at bit.ly/1UCwHkS).

The article points out that, like Justice Scalia, who he would replace, Garland adheres to the Chevron doctrine, under which the judiciary defers to agency interpretations on ambiguous statutes under the agency’s jurisdictions.

This tendency, Corporate Counsel notes, has business groups worried because they are not sure how Garland would come out on corporate law decisions.  The nation’s largest small-business lobbying group, the National Federation of Independent Business, opposes Garland’s confirmation.

One key area that may implicate conflict resolution practices is labor and employment. Garland has firmly backed the National Labor Relations Board, affirming the view of the agency—which oversees workplace issues as embodied in the National Labor Relations Act—in 18 out of 22 cases that have come before him.

It’s likely that the Supreme Court will get that exact task in the arbitration context soon.  Cases are bubbling up in which federal courts have firmly backed the Court’s view that the Federal Arbitration Act allows for mandatory individual arbitration processes in employment disputes where the employee is required to waive class action litigation or arbitration.

But the principal case from which federal courts are adopting that view is a consumer credit case, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)(available at bit.ly/1MWMHVN).

The NLRB in 2012 decided that the NLRA trumps the FAA, and has produced dozens of decisions banning class action waivers.  It is continuing to issue those decisions even though it has been struck down in federal courts around the country, most notably in the Fifth U.S. Circuit Court of Appeals.  Both the NLRB and management-side labor lawyers expect the case to go to the U.S. Supreme Court to resolve the conflict. For full details, see “Cutting Arbitration Classes: Facing Court Defeats on Workplace Waivers, the NLRB Refuses to Back Down,” 34 Alternatives 1 (January 2016)(available at bit.ly/1LEnG8o).

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While Merrick Garland apparently hasn’t dealt with arbitration during his professional career as a corporate litigator and prosecutor, upon his confirmation he would be dealing with a slate of cases involving business issues.  But at this writing, no arbitration cases are on the Court’s docket.

Although unrelated to ADR practice, several partners at Garland’s former firm, Washington, D.C.’s Arnold & Porter said that the D.C. Circuit chief judge focused on the arcane area of antitrust, which he reportedly taught at his alma mater, Harvard Law School.  “Garland worked on antitrust cases, a specialty of the firm, several former partners said, yet few remembered specific cases he worked on.” Katelyn Polantz, “Lightning Strikes Twice at Arnold & Porter with Merrick Garland Nomination,” National Law Journal (March 17)(available at  bit.ly/1Re0Jcs). The article also notes that in one year during his practice, Garland also published articles in both Harvard Law Review and Yale Law Journal.

Garland, unlike some of his fellow appellate judges, does not speak publicly much. The National Law Journal collected some highlights of his notable decisions and public statements at Zoe Tillman, “The Quotable Merrick Garland: A Collection of Writings and Remarks,” National Law Journal (March 16)(available at  bit.ly/1pxgKPY).

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Feher is a Spring 2016 CPR Institute intern, and currently is a student at Brooklyn Law School, Class of 2016. Bleemer edits the CPR Institute-published Alternatives to the High Cost of Litigation.

2nd Update*: Class Waivers and Arbitration: The Battleground Focus Moves to Labor and Employment Law

*The area of class action waivers and employment law saw an absolutely whirlwind close to 2015, with the NLRB releasing yet another decision midday, on 12/31, following two weeks that saw 16 decisions restricting arbitration practices. Please see below for an up-to-date summary of these rapidly breaking developments.

By Russ Bleemer

The emphasis on the law and politics of consumer arbitrations, and their relationship to class waivers, has overshadowed developments in another closely related area of conflict resolution law.

But the time has come for finality on the legality of employment law class-action waivers.  Developments in 2015’s final quarter indicate that decisive events are coming in the area, which involves the intersection of U.S. labor law and the Federal Arbitration Act.

On the first day of December, the National Labor Relations Board issued two decisions finding labor law violations against companies for using mandatory pre-dispute class action waivers with their arbitration agreements requiring individual processes.  The waivers, the NLRB said, violate Sections 7 and 8 of the National Labor Relations Act, which allows employees, among other things, “to engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

That was only the beginning:  By Christmas, the NLRB had issued at least 16 more decisions striking down mandatory pre-dispute arbitration clauses that coupled class waivers as a condition of employment.

The decisions are crucial because the rights of collective action under the NLRA address far more than union workplaces. The law applies to most employees, and key cases that have arisen in this area focus on white-collar employees.

It’s a major statement by the Board. The NLRB decisions’ reasoning—that the NLRA and the FAA co-exist compatibly but the latter isn’t preferred over workers’ rights to act in concert—had already been rejected by the Fifth U.S. Circuit Court of Appeals.  Twice, in fact, including in a decision just five weeks before the December Board decisions, in Murphy Oil Inc. v. NLRB, No. 14-60800, 2015 WL 6457613 (5th Cir. Oct. 26, 2015).

The Fifth Circuit relied on the U.S. Supreme Court’s high-profile consumer-contract arbitration decision–AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), along with the business-to-business class waiver in American Express Co., et al. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013)—to justify rulings that mandatory individualized arbitrations are authorized by the FAA.

Consumer arbitration controversy has rolled over into politics in 2015, when the Consumer Financial Protection Bureau moved to regulate the process by barring waivers of all class processes. Congressional Republicans introduced legislation to hamper the regulation efforts directly, as well as defund the federal agency.

In November, the NLRB said it would request a rehearing in Murphy Oil, but it did not appeal the Fifth Circuit reversal of its first case on the subject, D.R. Horton Inc., 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012), enforcement denied in relevant part, 737 F.3d 344 (5th Cir. 2013) (Graves, J., dissenting), reh’g denied, No. 12-60031 (Apr. 16, 2014).

December’s stream of cases from Board decisions backing its Murphy Oil and D.R. Horton decisions mostly occurred mid-month, leading up to Christmas.  But for good measure, just hours before the close of business on Dec. 31, the Board added its final 2015 decision, again affirming its view in the cases already rejected by the Fifth Circuit.  The decision, GameStop Corp., 363 NLRB No. 89, 20-CA-080497 (Dec. 15, 2015), went even further, affirming a line in those cases barring class waivers in employment arbitration agreements that provide an “opt out” allowing employees to waive participation in the ADR scheme.

“Regardless of the procedures required, the fact that employees must take any steps to preserve their Section 7 rights burdens the exercise of those rights,” the decision states.

It’s clear that the NLRB, an independent federal agency that oversees workplace conduct by enforcing the National Labor Relations Act, is picking and choosing its battles, which experts on both sides of the argument agree will be finalized by a U.S. Supreme Court decision.  The NLRB appears to be seeking a suitable case to ask the Supreme Court to hear, unloading years of litigation in December sourced from a variety of forums that reject the FAA’s predominance over the NLRA.

And while it awaited Murphy Oil’s Fifth Circuit fate, and while preparing the Board decisions it released in December maintaining its insistence on the NLRA’s vitality in the face of required arbitration clauses, the NLRB for the first time filed an amicus brief in a court case on the subject in the Ninth U.S. Circuit Court of Appeals, in Morris v. Ernst & Young LLP, No. 13-16599.

The November filing, just a week after the Fifth Circuit decided Murphy Oil, noted that the Board would seek en banc review of that decision, and strongly defended its own D.R. Horton/Murphy Oil lineage.

At the oral argument on Nov. 18, Ninth Circuit Judge Andrew D. Hurwitz prodded the attorneys on both sides to come up with a formula for NLRA and FAA co-existence.  He suggested severing the waiver clause, but keeping arbitration decisions for a tribunal, rather than blowing up the entire ADR process in favor of litigation.

The Ninth Circuit argument also dissected the class rights being waived by the pre-dispute mandatory arbitration agreement in the context of Federal Rule of Civil Procedure 23, which establishes the ground rules for court class actions.

The details on the December NLRB decisions; the Fifth Circuit’s Murphy Oil reversal; the NLRB Morris amicus filing, and highlights of the Morris oral argument are the subject of the January 2016 cover article in Alternatives, out this week.

Alternatives is available HERE for CPR Institute members after logging into the CPR website.  The newsletter, marking its 33rd year of publication with the January issue, is available to nonmembers at altnewsletter.com.

 

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