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.

California Appeals Panel Declines to Compel Arbitration in a Nursing Home Case

By Lyn Lawrence

The author is a CPR Institute Summer 2017 Intern.

California’s Third Appellate District has refused an appeal to compel arbitration in Hutcheson v. Eskaton FountainWood Lodge, No. C074846 (Cal. A.D.3d. June 14, 2017)(available at http://bit.ly/2rxIc1T), a nursing home dispute in which family members of a deceased former resident sought to sue the residential care facility for elder abuse, fraud and negligence.

The decedent, Barbara Lovenstein, granted a health care power of attorney to her niece, Robin Hutcheson, and a personal care power of attorney to her sister, Jean Charles. Charles transferred Lowenstein to Eskaton FountainWood Lodge, a residential care and assisted living facility in Orangevale, Calif., and entered into the admission agreement.

After the Lovenstein died, Hutcheson and Charles instituted legal proceedings against FountainWood, which submitted a motion to compel arbitration. A trial court denied the motion.  The court found that Charles acted beyond the powers of her personal care power of attorney when entering into the admission agreement, making the arbitration clause invalid.

FountainWood approached the Third Appellate District to overturn the trial court’s decision. But a unanimous three-judge panel affirmed, based on its interpretation of California’s Power of Attorney Law and Health Care Decisions Law, holding that the decision to admit the deceased was a health care decision, not within Charles’ personal care POA.

The court concluded that the trial court was correct in denying the defendant’s motion to compel arbitration.

It can be inferred from the judgment that the court would have compelled arbitration had Hutcheson, who held the health care power of attorney, entered into the admission agreement. The court stated that, “There is no evidence in the record that Hutcheson, Lovenstein’s attorney-in-fact for health care under the health care POA, was involved in any of the decisions and actions regarding Lovenstein’s admission, stay at, or discharge from FountainWood.”

The California case denying the care facility’s motion to compel arbitration runs counter to two recent events with national implications that backed arbitration for conflicts related to nursing home patients.

Hutcheson follows just a month after the U.S. Supreme Court held that the Kentucky Supreme Court’s interpretation of the state’s power-of-attorney law discriminated against arbitration.

See Kindred Nursing Centers v. Clark, No. 16-32 (May 15)(available at http://bit.ly/2pCk94L) (for analysis, “SCOTUS Says States Can’t Discriminate Against Arbitration, Directly or Indirectly,” CPR Speaks blog (May 16)(available at http://bit.ly/2rxGFeB).

In addition, the Center for Medicare and Medicaid Services, a part of the U.S. Department of Health and Human Services, rescinded its 2016 ban on including mandatory arbitration provisions in nursing home agreements early this month (see CMS fact sheet at http://go.cms.gov/2sA2Wae).

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.

* * *

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.

* * *

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.

* * *

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).

* * *

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).

* * *

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.

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

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

By Russ Bleemer

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

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

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

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

Or so it seemed.

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

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

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

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

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

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

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

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

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

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

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

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

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

* * *

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

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

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

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

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

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

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

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