New Clear and Unmistakable Outcome Exception to the Old Clear and Unmistakable Rule? (Part II)

loreejrII

By Philip J. Loree Jr.

Part I of this post discussed how the Second and Fifth Circuits, in  Metropolitan Life Ins. Co. v. Bucsek, ___ F.3d ___, No. 17-881, slip op. (2d Cir. Mar. 22, 2019), and 20/20 Comms. Inc. v. Lennox Crawford, ___ F.3d ___, No. 18-10260 (5th Cir. July 22, 2019), suggest a trend toward what might (tongue-in-cheek) be called a “Clear and Unmistakable Outcome Exception” to the First Options Reverse Presumption of Arbitrability (a/k/a the “Clear and Unmistakable Rule”).

Under this Clear and Unmistakable Outcome Exception to the Clear and Unmistakable Rule, courts consider the merits of an underlying arbitrability issue as part of their analysis of whether the parties clearly and unmistakably agreed to arbitrate arbitrability issues.

But the Clear and Unmistakable Outcome Exception runs directly counter to the U.S. Supreme Court’s decision in Schein v. Archer & White Sales, Inc., 586 U.S. ___, 139 S. Ct. 524 (January 8, 2019), and thus contravenes the Federal Arbitration Act as interpreted by Schein. 139 S. Ct. at 527-28, 529-31.

This Part II analyzes and discusses how Met Life and 20/20 Comm. effectively made an end run around Schein and considers what might have motivated those Courts to rule as they did.

Making an End Run Around Schein?

When, prior to 20/20 Comm. we wrote about Met Life, we said it “an important decision because it means in future cases where parties have not expressly agreed to arbitrate arbitrability questions, but have agreed to a very broad arbitration agreement, the question whether the parties’ have nevertheless clearly and unmistakably agreed to arbitrate arbitrability questions may turn, at least in part, on an analysis of the merits of the arbitrability question presented.” (See here. )

But after the Fifth Circuit decided 20/20 Comm. this July, in comments we made to Russ Bleemer, Editor of Alternatives, the Newsletter of the International Institute for Conflict Prevention & Resolution (“CPR”)—which were reproduced with our consent in Mr. Zhan Tze’s CPR Speaks blog article about 20/20 Comm. (here)—we expressed the belief that the Fifth Circuit was (whether intentionally or unintentionally) making an end run around Schein, effectively creating an exception to the Clear and Unmistakable Rule.

After analyzing 20/20 Comm. and comparing it to the Second Circuit’s Met Life decision, we concluded that the Second Circuit’s decision also ran counter to Schein.

Schein’s Abrogation of the “Wholly Groundless Exception” to the Clear and Unmistakable Rule

In Schein the U.S. Supreme Court abrogated the so-called “wholly groundless exception” to the Clear and Unmistakable Rule. Prior to Schein certain courts, including the Fifth Circuit, held that even when parties clearly and unmistakably agreed to arbitrate arbitrability questions, courts could effectively circumvent the parties’ agreement and decide for itself arbitrability challenges that it determined were “wholly groundless.”

The rationale Schein used to jettison the “wholly groundless exception” to the Clear and Unmistakable Rule is incompatible with the rationales the Second and Fifth Circuit used to support their decisions in Met Life and 20/20 Comm.

Under FAA Section 2, the Schein Court explained, “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.” Schein, 139 S. Ct. at 529 (citation omitted). When those contracts delegate arbitrability questions to an arbitrator, “a court may not override the contract[,]” and has “no power to decide the arbitrability issue.” 139 S. Ct. at 529. That is so even where a Court “thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.” 139 S. Ct. at 529.

Schein explained that its conclusion was supported not only by the FAA’s text, but also by U.S. Supreme Court precedent. Citing and quoting cases decided under Section 301 of the Labor Management and Relations Act, the Court explained that courts may not “‘rule on the potential merits of the underlying’ claim that is assigned by contract to an arbitrator, ‘even if it appears to the court to be frivolous[,]’” and that “[a] court has “‘no business weighing the merits of the grievance’” because the “‘agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.’” 139 S. Ct. at 529 (quoting AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649–650 (1986) and Steelworkers v. American Mfg. Co., 363 U.S. 564, 568 (1960)).

This “principle,” said the Schein Court, “applies with equal force to the threshold issue of arbitrability[]”—for “[j]ust as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator.” 139 S. Ct. at 530.

Exception to Clear and Unmistakable Rule? Why the Second and Fifth Circuit Decisions Conflict with Schein

Both the Second Circuit and Fifth Circuit decided that the parties before them did not clearly and unmistakably agree to arbitrate arbitrability because each Court believed that there was not even a barely colorable basis for a court or an arbitrator to find that the underlying dispute should be submitted to arbitration. In other words, both courts focused on contractual provisions governing the merits of the arbitrability dispute rather than confining their analysis to the terms of the contract dealing directly with whether the parties clearly and unmistakably agreed to arbitrate arbitrability.

In Met Life the Court decided the merits of the underlying arbitrability issue before analyzing whether the provisions of the contract directly pertinent to the arbitration of arbitrability did or did not clearly and unmistakably delegate arbitrability to the arbitrators. The Court quite correctly found it implausible that the parties agreed to arbitrate a dispute that arose years after one of the parties had left the NASD and was not a member of FINRA.

But that was a conclusion about the merits of the arbitrability dispute, not about whether the parties clearly and unmistakably agreed to arbitrate arbitrability disputes. The Clear and Unmistakable Rule turns solely on whether the parties clearly and unmistakably delegated arbitrability questions to the arbitrator, irrespective of what the merits of those arbitrability questions may be.

In 20/20 Comm. the Court’s focus was on the parties’ broad class arbitration waiver. Class arbitration waivers are ordinarily dispositive of the merits of whether the parties consented to class arbitration, but the class arbitration waiver in 20/20 Comm., like most or all others we’ve seen, says nothing about who decides whether or not the parties consented to class arbitration.

Had the Fifth Circuit not focused on the class arbitration waiver, and instead on the three provisions directly relating to arbitrability, then it could have easily found that the parties clearly and unmistakably delegated class arbitration consent issues to the arbitrator.

The so-called “exception language” in those provisions (see Part I, here) was quite beside the point. There is nothing “inconsistent” with an arbitrator, rather than a court, deciding the effect of the class arbitration waiver, no matter how clear it may be that the outcome will, or at least should, be an arbitral determination that the parties did not consent to class arbitration.

Exception to Clear and Unmistakable Rule?Second Circuit Attempted to Distinguish Schein, but Fifth Circuit did not

The Second Circuit articulated the reasons it believed that Schein did not foreclose its examination of the merits of the arbitrability issue before it, but the Fifth Circuit did not address Schein.

The Second Circuit said “[t]he point of the [Schein] opinion was that, where the parties have agreed to submit arbitrability to arbitration, courts may not nullify that agreement on the basis that the claim of arbitrability is groundless.” Met Life, slip op. at 24 (emphasis in original). The Court said it “reject[s] [A’s] claim for arbitration of arbitrability not because” it considers the “claim of arbitrability” to be “groundless[,]” but “because, upon consideration of all evidence of the intentions of the arbitration agreement, including the groundlessness of [A’s] claim of arbitrability, the agreement does not clearly and unambiguously provide for arbitration of the question of arbitrability.” Met Life, slip op. at 25. That “reasoning is based on the parties’ contract, and not based on any exception to what the parties have contracted for.” Met Life, slip op. at 25.

The Fifth Circuit might have made the same or a similar argument, but said nothing about whether it thought its decision was consistent with Schein.

While the Second Circuit’s reasoning was theoretically sound, it doesn’t hold up in practice. Apart from questions concerning the existence of the contract, the merits of most, if not all, arbitrability questions turn in large part on the language of the parties’ contract. That was certainly the case in both Met Life and 20/20 Comm.

Under the reasoning of those cases, however, the language directly relating to the question whether the parties clearly and unmistakably agreed to arbitrate arbitrability must be viewed in conjunction with the language of the contract bearing on the merits of the arbitrability dispute. If the language pertinent to the merits of the arbitrability issue suggests that the parties did not agree to arbitrate the dispute (or did not consent to class arbitration), then under the Second and Fifth Circuits’ reasoning, that conclusion weakens (or eliminates) the inference that the parties clearly and unmistakably agreed to arbitrate arbitrability.

Met Life and 20/20 Comm. Contravene the U.S. Supreme Court’s Decision in Schein

The Met Life/20-20 Comm. analytical regime effectively revives—and potentially might even expand the scope of—the “wholly groundless exception” that the U.S. Supreme Court laid to rest in Schein. Remember that disputes about arbitrability of arbitrability can be analytically broken down into at least four separate questions: (a) what the dispute on the merits is; (b) does that dispute raise a question of arbitrability, which is ordinarily decided by the court; (c) if so, did the parties clearly and unmistakably agree to arbitrate arbitrability disputes (i.e, does the Clear and Unmistakable Rule apply); and (d) what is the outcome of the dispute on the merits that the proper decisionmaker should reach once he or she decides it?

The Clear and Unmistakable Rule is concerned only with question (c), above, that is, did the parties clearly and unmistakably agree to arbitrate arbitrability disputes? The “wholly groundless exception” to the Clear and Unmistakable Rule—and the analytical regime imposed by the Second and Fifth Circuits—focuses not only on  question (c), above, but simultaneously considers question (d), that is, what is the outcome on the dispute on the merits that the proper decisionmaker should reach?

Assuming the dispute on the merits is a question of arbitrability (as was the case in Schein, Met Life, and 20/20 Comm.), if the provisions of the parties’ agreement suggest that there is only one proper outcome that a decisionmaker should reach on the merits of the arbitrability dispute—the subject of question (d), above— then a Court following Met Life and 20/20 Comm. would be more chary about concluding the parties clearly and unmistakably agreed to arbitrate arbitrability—the subject of question (c), above.

Schein forecloses any consideration of the merits of the arbitrability issue (question (d), above), limiting the scope of the Court’s analysis to whether the parties’ clearly and unmistakably agreed to arbitrate arbitrability (question (c), above).

Schein explains that, if the parties clearly and unmistakably agree to arbitrate arbitrability disputes, then courts should direct the parties to arbitrate the arbitrability issue. Just as it is with any other arbitrable issue, judicial review is postponed until the final award stage, and is limited to the grounds enumerated by Section 10 of the FAA, including manifest disregard of the agreement under Section 10(a)(4), and, in Circuits which recognize it (such as the Second—but not the Fifth—Circuit) manifest disregard of the law.

In Schein the proponent of the “wholly groundless exception” argued that the “back-end judicial review” available if an arbitrator “exceeds his or her powers” impliedly authorizes courts to determine that an arbitrability question is “wholly groundless” and obviates the need to submit the arbitrability question to arbitration. Schein, 139 S. Ct. at 530. But the Supreme Court said “[t]he dispositive answer to [the “wholly groundless exception” proponent’s] §10 argument is that Congress designed the Act in a specific way, and it is not our proper role to redesign the statute.”  Schein, 139 S. Ct. at 530.

The Schein Court further explained that acceptance of the “wholly groundless exception” proponent’s “argument would mean. . . that courts presumably also should decide frivolous merits questions that have been delegated to an arbitrator.” But, said the Supreme Court, “[we] have already rejected that argument: When the parties’ contract assigns a matter to arbitration, a court may not resolve the merits of the dispute even if the court thinks that a party’s claim on the merits is frivolous. So, too, with arbitrability.” 139 S. Ct. at 530 (citation omitted).

Under Schein the proper course for the Second and Fifth Circuits was to determine whether the parties clearly and unmistakably delegated arbitrability issues to the arbitrators without determining or analyzing the merits of those underlying arbitrability issues. If the answer was “yes,” then the Courts should have directed the arbitrators to decide those arbitrability questions.

If the arbitrators, after having decided those underlying arbitration issues, decided that the issues were arbitrable, then the arbitration opponents could challenge them as being in manifest disregard of the contract (and, in the Second Circuit, perhaps also in manifest disregard of the law).

But rather than let the arbitration and post-award review process run its course, the Second and Fifth Circuit took it upon themselves to decide arbitrability issues that the parties clearly and unmistakably agreed to submit to arbitration. Met Life and 20/20 Comm. cannot be meaningfully squared with Schein.

What Might have Motivated Met Life and 20/20 Comm. Courts to Rule the way they did?

While we respectfully believe that Met Life and 20/20 Comm. are inconsistent with Schein, it would be unfair not to acknowledge that the very able and experienced judges who decided those cases were faced with unusual circumstances that would presumably be of concern to many or most other fair-minded jurists. In Met Life a FINRA arbitration claim was made against an entity that had never been a member of FINRA, and had not been a member of the NASD, FINRA’s predecessor, for several years. The claim itself arose out of conduct that took place after the entity had left the NASD.

The Second Circuit concluded the dispute was not arbitrable because FINRA had no regulatory interest in the dispute, but apparently there were no FINRA rules, or terms in the parties’ agreement, which addressed directly the unusual arbitrability question the case presented. And prior Second Circuit precedent suggested that, under the Clear and Unmistakable Rule, the breadth of the parties’ arbitration agreement, together with a provision of the applicable arbitration rules, constituted clear and unmistakable evidence of an intent to arbitrate arbitrability.

The Second Circuit might have been legitimately concerned about whether a FINRA arbitrator would necessarily reach the same conclusion as the Court did, and if so, whether the award could be vacated if the arbitrator got it wrong. That would mean that the arbitration opponent might have been forced to arbitrate not only the underlying arbitrability issue, but also the entire dispute on the merits, before there was any opportunity for FAA Section 10 review.

If the award was ultimately vacated, the parties would be forced to incur a great deal of time and expense vindicating their rights. But if the award was not, and could not be, vacated, and the arbitration opponent lost on the merits, then the arbitration opponent would effectively have been forced to arbitrate a dispute that the Second Circuit strongly believed the parties never agreed to arbitrate.

“Hard cases,” the adage goes, “make bad law.”

The Fifth Circuit might have had similar reservations about the case before it, although the stakes were probably not as high as they were in Met Life. The contract’s incorporation of AAA employment arbitration rules, which brought into play the AAA Supplementary Rules for Class Arbitration, meant that the arbitrator would have been empowered to make a “Clause Construction Award,” which the parties are deemed to agree is a final award subject to judicial review under Section 10.

There was no reason to think that the briefing, argument, and decision of the Clause Construction issue, and the rendering of the Clause Construction Award, would take a great deal of time, given how narrow the issue was, and given the clear class arbitration waiver. And FAA Section 10 review would have been available once the Clause Construction Award was made.

Thus, had the Fifth Circuit compelled arbitration of the class arbitration consent issue, and had the arbitrator made a ruling in favor of class arbitration consent by ignoring the class arbitration waiver (or at least by not even arguably interpreting it), FAA Section 10 review would be available in relative short order, and certainly long before the parties were forced to engage in a class arbitration that could drag on for several years before Section 10 review could take place.

But the Fifth Circuit might nevertheless have been very concerned that a class arbitration opponent who had taken the time to include a broad class arbitration waiver in its contract, the enforceability of which is not really open to legitimate question in light of the many U.S. Supreme Court decisions that have closed state- and federal-law enforcement loopholes, should be forced to engage in the several months of arbitration and litigation necessary to vindicate its legitimate, bargained-for right to arbitrate on a bilateral basis only. Even apart from the extra costs imposed on the class arbitration opponent, compelling arbitration would have virtually guaranteed that within a relatively short period, the district court and, possibly also the Fifth Circuit, would again have to devote substantial time and effort into matters that were the subject of the consolidated appeal in 20/20 Comm.

Those concerns about economic inefficiency and judicial economy are unquestionably legitimate. But Schein, as we’ve seen, has already said that the courts do not, in the name of public policy or judicial economy, have the power to amend or alter the post-award-review-only procedures mandated by the FAA.

And the class arbitration opponent, a sophisticated business entity, could have drafted its contract more precisely, providing that notwithstanding anything to the contrary, disputes about class arbitration consent, including the application and interpretation of the class arbitration waiver, must be decided by courts, not arbitrators. In fact, other class arbitration opponents would be well advised to consider carefully whether they might find themselves in a situation where they are forced to arbitrate and litigate in the district court (and perhaps in an appellate court) for several months or more court, and if so, to take appropriate steps to mitigate this risk by more precisely drafting their contracts’ class arbitration waivers.

***

 

Philip J. Loree Jr. is a co-founder and partner at law firm, Loree and Loree. This post was originally published on the firm’s blog, Loree Reinsurance and Arbitration Forum, and has been republished with permission here.

New Clear and Unmistakable Outcome Exception to the Old Clear and Unmistakable Rule? (Part I)

loreejrIIBy Philip J. Loree Jr.

Arbitration law is replete with presumptions and other rules that favor one outcome or another depending on whether one thing or another is or is not clear and unmistakable. Put differently, outcomes often turn on the presence or absence of contractual ambiguity.

There are three presumptions that relate specifically to questions arbitrability, that is, whether or not an arbitrator or a court gets to decide a particular issue or dispute:

  1. The Moses Cone Presumption of Arbitrability: Ambiguities in the scope of the arbitration agreement itself must be resolved in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Rebutting this presumption requires clear and unmistakable evidence of an intent to exclude from arbitration disputes that are otherwise arguably within the scope of the agreement.
  2. The First Options Reverse Presumption of Arbitrability:  Parties are presumed not to have agreed to arbitrate questions of arbitrability unless the parties clearly and unmistakably agree to submit arbitrability questions to arbitration. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-46 (1995)
  3. The Howsam/John Wiley Presumption of Arbitrability of Procedural Matters: “‘[P]rocedural’ questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964)) (internal quotation marks omitted). To rebut this presumption, the parties must clearly and unmistakably exclude the procedural issue in question from arbitration.

These presumptions usually turn solely on what the contract has to say about the arbitrability of a dispute, not on what the outcome an arbitrator or court would—or at least should—reach on the merits of the dispute.

Some U.S. Circuit Courts of Appeal, including the Fifth Circuit, recognized an exception to the First Options Reverse Presumption of Arbitrability called the “wholly groundless exception.” Under that “wholly groundless exception,” courts could decide “wholly groundless” challenges to arbitrability even though the parties have clearly and unmistakably delegated arbitrability issues to the arbitrators. The apparent point of that exception was to avoid the additional time and expense associated with parties being required to arbitrate even wholly groundless arbitrability disputes, but the cost of the exception was a judicial override of the clear and unmistakable terms of the parties’ agreement to arbitrate.

Earlier this year the U.S. Supreme Court in Schein v. Archer & White Sales, Inc., 586 U.S. ___, slip op. at *1 (January 8, 2019) abrogated the “wholly groundless” exception. Schein, slip op. at *2, 5, & 8. “When,” explained the Court, “the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.” Schein, slip op. at 2, 8. The “wholly groundless” exception, said the Court, “is inconsistent with the statutory text and with precedent[,]” and “confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.” Schein,slip op. at 8.

But since Schein both the Second and Fifth Circuits have decided First Options Reverse Presumption of Arbitrability cases by effectively conflating the question of who gets to decide an arbitrability issue with the separate question of who should prevail on the merits of that arbitrability issue. The Courts in both cases determined whether the parties clearly and unmistakably agreed to arbitrate arbitrability questions by considering, as part of the clear and unmistakable calculus, the merits of the arbitrability question.

These two cases suggest a trend toward what might (tongue-in-cheek) be called a “Clear and Unmistakable Outcome Exception” to the First OptionsReverse Presumption of Arbitrability. But the problem with that trend is that it runs directly counter to the Supreme Court’s decision in Schein, and thus contravenes the Federal Arbitration Act as interpreted by Schein.

In Part I of this post we discuss the Second Circuit and Fifth Circuit decisions. In Part II we analyze and discuss how— and perhaps why — those courts effectively made an end run around Schein.

Clear and Unmistakable Rule: The Second Circuit’s Met Life Decision

We first wrote about the Second Circuit decision, Metropolitan Life Ins. Co. v. Bucsek, ___ F.3d ___, No. 17-881, slip op. (2d Cir. Mar. 22, 2019), in an April 3, 2019 post. In Met Life the Second Circuit was faced with an unusual situation where party A sought to arbitrate against party B, a former member of the Financial Industry Regulatory Authority (“FINRA”)’s predecessor, the National Association of Securities Dealers (“NASD”), a dispute arising out of events that occurred years after party B severed its ties with the NASD.

The district court rejected A’s arguments, ruling that: (a) this particular arbitrability question was for the Court to decide; and (b) the dispute was not arbitrable because it arose years after B left the NASD, and was based on events that occurred subsequent to B’s departure. The Second Circuit affirmed the district court’s judgment.

After the district court decision, but prior to the Second Circuit’s decision, the U.S. Supreme Court decided Schein, which—as we explained earlier—held that even so-called “wholly-groundless” arbitrability questions must be submitted to arbitration if the parties clearly and unmistakably delegate arbitrability questions to arbitration. Schein, slip op. at *2, 5, & 8.

The Second Circuit was faced a situation where a party sought to arbitrate a dispute which clearly was not arbitrable, but in circumstances under which prior precedent suggested that the parties clearly and unmistakably agreed to arbitrate arbitrability.

To give effect to the parties’ probable intent not to arbitrate before the NASD (or its successor, FINRA) arbitrability questions that arose after B left the NASD, the Second Circuit apparently believed it had no choice but to distinguish and qualify its prior precedent, and to attempt to do so without falling afoul of the Supreme Court’s recent pronouncement in Schein.

That required the Second Circuit to modify, to at least some extent, the contractual interpretation analysis in which courts within the Second Circuit are supposed to engage to ascertain whether parties “clearly and unmistakably” agreed to arbitrate arbitrability in circumstance where they have not specifically agreed to arbitrate such issues.

Met Life modified that analysis to mean that in cases where parties have not expressly agreed to arbitrate arbitrability questions, but have agreed to a very broad arbitration agreement, the question whether the parties’ have nevertheless clearly and unmistakably agreed to arbitrate arbitrability questions may turn, at least in part, on an analysis of the merits of the arbitrability question presented.

Effectively articulating a new interpretative rule necessitated by the unusual case before it, the Court said “what the arbitration agreement says about whether a category of dispute is arbitrable can have an important bearing on whether it was the intention of the agreement to confer authority over arbitrability on the arbitrators.” Slip op. at 13-14.

To that end, said the Court, “broad language expressing an intention to arbitrate all aspects of all disputes supports the inference of an intention to arbitrate arbitrability, and the clearer it is from the agreement that the parties intended to arbitrate the particular dispute presented, the more logical and likely the inference that they intended to arbitrate” arbitrability questions.  Slip op. at 12-13 (citations and quotations omitted).

The contrapositive, the court explained, was also true (at least conditionally): “the clearer it is that the terms of an arbitration agreement reject arbitration of the dispute, the less likely it is that the parties intended to be bound to arbitrate the question of arbitrability, unless they included clear language so providing . . . .” Slip op. at 13. But, added the Court, “vague provisions as to whether the dispute is arbitrable are unlikely to provide the needed clear and unmistakable inference of intent to arbitrate arbitrability.” Slip op. at 13.

What the Court appears to be saying is that where the parties have not expressly, clearly and unmistakably expressed their intent to arbitrate arbitrability questions, the strength of the inference of clear and unmistakable intent to arbitrate arbitrability is inversely proportional to how clear it is that the terms of the agreement reject arbitration of the dispute.

In other words, if the terms of the agreement strongly suggest that a court, rather than an arbitrator, should resolve the dispute on its merits, then the strength of the inference of clear and unmistakable intent to arbitrate the arbitrability of the dispute will be weaker. But, all else equal, if the terms of the agreement suggest that an arbitrator rather than a court should resolve the dispute on its merits, then the inference of clear and unmistakable intent to arbitrate arbitrability of the dispute will be stronger.

The Fifth Circuit’s 20/20 Comm. Decision

A few months after Met Life was decided, on July 22, 2019, the United States Court of Appeals for the Fifth Circuit decided 20/20 Comms. Inc. v. Lennox Crawford, ___ F.3d ___, No. 18-10260 (5th Cir. July 22, 2019). Although 20/20 Comms did not cite Met Life, it engaged in what might be roughly described as a simplified version of the Second Circuit’s reasoning in that case.

Hew Zhan Tze, an International Institute for Conflict Resolution and Prevention (“CPR”) summer intern has published— under the very able tutelage of our friend Russ Bleemer, a New York attorney who is the editor of CPR’s Alternatives, an international ADR newsletter published by John Wiley & Sons, Inc.—a well-written and insightful article about 20/20 Comm.in the CPR Speaks blog. (A shout-out also to CPR’s Tania Zamorsky, who is the blog master of CPR Speaks.)

Mr. Zhan Tze’s excellent article discusses the case and quotes some commentary I provided by email to Russ about the case, as both Russ and I were quite intrigued by the decision. You can read that article in the CPR Speaks Blog here.

Zhan Tze’s article thoroughly discusses the background of the case, its reasoning, and holding. (See here.) The case involved consent to class arbitration.

There were two questions before the Court: (a) whether class arbitration consent was a question of arbitrability for the Court; and (b) if so, whether the parties, under the First Options Reverse Presumption of Arbitrability, had clearly and unmistakably agreed to submit class arbitration consent questions to the arbitrator.

As to the first issue, the Court determined that consent to class arbitration was a question of arbitrability, thereby joining the Fourth, Sixth, Seventh, Eighth, Ninth, and Eleventh circuits, which have likewise concluded that class arbitration consent presents a question of arbitrability. See Del Webb Cmtys., Inc. v. Carlson, 817 F.3d 867, 877 (4th Cir. 2016); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013); Herrington v. Waterstone Mortg. Corp., 907 F.3d 502, 506-07 (7th Cir. 2018); Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966, 972 (8th Cir. 2017); Eshagh v. Terminix Int’l Co., L.P., 588 F. App’x 703, 704 (9th Cir. 2014) (unpublished); JPay, Inc. v. Kobel, 904 F.3d 923, 935-36 (11th Cir. 2018).

As respects the second issue—whether the parties clearly and unmistakably agreed to arbitrate class-arbitration consent issues— the Court held that the parties did not clearly and unmistakably so agree.

The parties’ contract contained three provisions pertinent to arbitrability questions:

1.      “If Employer and Employee disagree over issues concerning the formation or meaning of this Agreement, the arbitrator will hear and resolve these arbitrability issues.”

2.      “The arbitrator selected by the parties will administer the arbitration according to the National Rules for the Resolution of Employment Disputes (or successor rules) of the American Arbitration Association (‘AAA’) except where such rules are inconsistent with this Agreement, in which case the terms of this Agreement will govern.” (emphasis added)

3.      “Except as provided below, Employee and Employer, on behalf of their affiliates, successors, heirs, and assigns, both agree that all disputes and claims between them . . . shall be determined exclusively by final and binding arbitration.” (emphasis added)

But the parties’ contract also contained a broad class arbitration waiver, which provided:

[T]he parties agree that this Agreement prohibits the arbitrator from consolidating the claims of others into one proceeding, to the maximum extent permitted by law. This means that an arbitrator will hear only individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group of employees in one proceeding, to the maximum extent permitted by law.

(Emphasis added.)

The Court said that the first three provisions, “[d]ivorced from other provisions of the arbitration (most notably, the class arbitration bar). . . could arguably be construed to authorize arbitrators to decide gateway issues of arbitrability, such as class arbitration.” Slip op. at 8. As respects the second of the three, the incorporation by reference of the National Rules for the Resolution of Employment Disputes (or successor rules) of the AAA, the Court noted that “Rule 3 of the AAA Supplementary Rules for Class Arbitration provides that the arbitrator is empowered to determine class arbitrability.” Slip op. at 8. And, according to the Court, “the third provision states in broad terms that ‘all disputes and claims between them’ shall be determined by the arbitrator, language arguably capacious enough under this court’s previous rulings to include disputes over class arbitrability.” Slip op. at 8.

But the Court did not decide whether those “provisions, standing alone, clearly and unmistakably” required arbitration of the class arbitration consent issue, because the Court held that the class arbitration waiver foreclosed such a finding. Slip op. at 8, 6-7.

The court said “that this class arbitration bar operates not only to bar class arbitrations to the maximum extent permitted by law, but also to foreclose any suggestion that the parties meant to disrupt the presumption that questions of class arbitration are decided by courts rather than arbitrators.” Slip op. at 6-7. “[I]t is[,]” observed the Court, “difficult for us to imagine why parties would categorically prohibit class arbitrations to the maximum extent permitted by law, only to then take the time and effort to vest the arbitrator with the authority to decide whether class arbitrations shall be available.” Slip op. at 7.  “Having closed the door to class arbitrations to the fullest extent possible,” queried the Court rhetorically, “why would the parties then re-open the door to the possibility of class arbitrations, by announcing specific procedures to govern how such determinations shall be made?” Slip op. at 7.

Comparing the first three provisions “with the class arbitration bar at issue in this case, we conclude that none of them state with the requisite clear and unmistakable language that arbitrators, rather than courts, shall decide questions of class arbitrability.” Slip op. at 8.

Two of the provisions, said the Court, “include express exception clauses. . . , which “expressly negate any effect these provisions might have in the event they conflict with any other provision of the arbitration agreement—as they plainly do here in light of the class arbitration bar.” Slip op. at 9.

Even apart from “the exception clauses,” none of the three provisions “speak with any specificity to the particular matter of class arbitration.” Slip op. at 9. “[B]]y contrast[,]” said the Court, [t]he class arbitration bar. . . specifically prohibits arbitrators from arbitrating disputes as a class action, and permits the arbitration of individual claims only.” Slip op. at 9 (citations and quotations omitted).

Those three provisions “[a]ccordingly[]. . . do not clearly and unmistakably overcome the legal presumption—reinforced as it is here by the class arbitration bar—that courts, not arbitrators, must decide the issue of class arbitration.” Slip op. at 9.

In our next post we’ll analyze and discuss how Met Life and 20/20 Comm. effectively make an end run around Schein and what might have motivated those courts to rule as they did.

***

 

Philip J. Loree Jr. is a co-founder and partner at law firm, Loree and Loree. This post was originally published on the firm’s blog, Loree Reinsurance and Arbitration Forum, and has been republished with permission here.

Ready to Sign: The Singapore Convention, An International Mediation Treaty, Opens for Ratification

By Hew Zhan Tze

After years of negotiations, the Singapore Convention on Mediation last week reached the signature phase.

That means that countries around the globe can sign on, and ratify, a treaty designed to boost the use and support for mediation in cross-border transactions.

The convention is officially known as the United Nations Convention on International Settlement Agreements Resulting from Mediation, and is available at https://bit.ly/2YWbHKN.

On Aug. 7, more than 1,500 international delegates from 70 countries attended a Singapore signing ceremony.

A total of 46 countries–including the United States and China–signed the convention on the first day. (The full list is available from the United Nations at http://bit.ly/2ZPFGFl.)

The convention is a product of the efforts of the United Nations Commission on International Trade Law Working Group II to alleviate the difficulties of enforcing a cross-border settlement agreement reached from mediation. It can only come into effect after six months, and after three signatory countries ratify the treaty. See Article 14(1) of the Singapore Convention at the first link above.

Ratification is a signatory country’s domestic procedure where treaty approval is sought, and necessary legislation is enacted to give effect to the convention.

Generally, in the United States, a treaty can only be ratified by the president after receiving the advice and consent of the U.S. Senate. The Senate must pass a ratification resolution, requiring a two-thirds approval.  See U. S. Const. Art. II, § 2 (available at https://bit.ly/2zBgoge).

The Singapore Convention’s goals have been likened to a mediation version of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention. (Available at http://bit.ly/2KHaa5W.)

The large number of initial signatories to the Singapore Convention appears to show a positive reception toward easing enforcement of a settlement agreement obtained from other similarly bound jurisdictions. This is in comparison to the 10 signatures received at the launch of the New York Convention six decades ago. The increase in numbers likely reflects an increased recognition of the effectiveness of ADR methods.

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More analysis on the Singapore Convention on Mediation will appear in the September Alternatives to the High Cost of Litigation, available soon at altnewsletter.com.

The author was a CPR Institute Summer 2019 intern.

 

Gov Cuomo Signs New Legislation Barring Use of Mandatory Arbitration to Resolve Workplace Discrimination and Harassment in New York State

By Anna Hershenberg

As expected, on Monday, August 12, 2019, Governor Cuomo signed new legislation that, among other things, purports to bar the use of mandatory arbitration to resolve discrimination and harassment cases in the workplace in New York state.

The prior version of this law, New York CPLR § 7515, which went into effect last year, aimed to prohibit mandatory arbitration of workplace sexual harassment claims only; this version expands the prohibition to claims of other types of discrimination.

In June, Judge Denise Cote (SDNY) found the prior version of  § 7515 to be preempted by the Federal Arbitration Act and therefore invalid. (Latif v. Morgan Stanley & Co. LLC et al. (S.D.N.Y. 2019) (available at http://bit.ly/2y9w6AL)) Her ruling should apply with equal force to the amended version of § 7515, at least with respect to interstate matters.

CPR covered this issue earlier this month on CPRSpeaks:

https://blog.cpradr.org/2019/08/01/update-legislatures-on-invalidating-pre-dispute-arbitration-agreements/

The full text of the newly enacted § 7515 is pasted below (revisions in blue).

Section 7515: Mandatory arbitration clauses; prohibited

(a) Definitions. As used in this section:

1. The term “employer” shall have the same meaning as provided in subdivision five of section two hundred ninety-two of the executive law.

2. The term “prohibited clause” shall mean any clause or provision in any contract which requires as a condition of the enforcement of the contract or obtaining remedies under the contract that the parties submit to mandatory arbitration to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment. discrimination, in violation of laws prohibiting discrimination, including but not limited to, article fifteen of the executive law.

3. The term “mandatory arbitration clause” shall mean a term or provision contained in a written contract which requires the parties to such contract to submit any matter thereafter arising under such contract to arbitration prior to the commencement of any legal action to enforce the provisions of such contract and which also further provides language to the effect that the facts found or determination made by the arbitrator or panel of arbitrators in its application to a party alleging an unlawful discriminatory practice based on sexual harassment in violation of laws prohibiting discrimination, including but not limited to, article fifteen of the executive law shall be final and not subject to independent court review.

4. The term “arbitration” shall mean the use of a decision making forum conducted by an arbitrator or panel of arbitrators within the meaning and subject to the provisions of article seventy-five of the civil practice law and rules.

(b) (i) Prohibition. Except where inconsistent with federal law, no written contract, entered into on or after the effective date of this section shall contain a prohibited clause as defined in paragraph two of subdivision (a) of this section.

(ii) Exceptions. Nothing contained in this section shall be construed to impair or prohibit an employer from incorporating a non-prohibited clause or other mandatory arbitration provision within such contract, that the parties agree upon.

(iii) Mandatory arbitration clause null and void. Except where inconsistent with federal law, the provisions of such prohibited clause as defined in paragraph two of subdivision (a) of this section shall be null and void. The inclusion of such clause in a written contract shall not serve to impair the enforceability of any other provision of such contract.

(c) Where there is a conflict between any collective bargaining agreement and this section, such agreement shall be controlling.

Anna Hershenberg is CPR’s Vice President of Programs and Public Policy

More Class: Fifth Circuit Sends Arbitrability to the Court, Not the Tribunal

By Hew Zhan Tze

The Fifth U.S. Circuit Court of Appeals recently held that class arbitrability is to be determined by the Court instead of the arbitrators in a class arbitration case.  20/20 Comms. Inc. v. Lennox Crawford, No. 18-10260 (5th Cir. July 22, 2019). The case appears to add a level of inquiry in the subject matter that may run counter to a U.S. Supreme Case earlier this year.

Several employees of 20/20 Communications, a marketing firm based in Fort Worth, Texas, filed individual arbitration claims against the employer. The arbitrator commenced a class arbitration despite an arbitration agreement contract clause prohibiting the consolidation of individual claims, “on the theory that the parties’ class arbitration bar is prohibited by federal law.”

Following the views of the Fourth, Sixth, Seventh, Eighth, Ninth and Eleventh Circuits, the Fifth Circuit held that where class arbitration is an issue, a legal presumption arises that the Court will determine the availability of class arbitration unless the arbitration agreement contained clear and unmistakable language to the contrary.

The Fifth Circuit, in a unanimous opinion written by Circuit Judge James C. Ho, reversed the decisions of two district courts. In one case, the district court held that the arbitration agreement authorized the arbitrator to determine class arbitrability instead of the court. See 20/20 Comms. Inc. v. Randall Blevins, No. 4:16-cv-00810-Y (N.D. Tex.) (Means, J.). In the other case, the district court held that the class arbitration bar was unenforceable under the National Labor Relations Act. See 20/20 Comms. Inc. v. Lennox Crawford, No. 4:17-cv-929-A (N.D. Tex.) (McBryde, J.).

The Fifth Circuit determined that class arbitrability is a gateway issue for the court. It rejected the employee’s arguments that the delegation provisions in the arbitration agreement clearly and unmistakably delegated the determination of class arbitrability to the arbitrator.

The circuit court said class arbitrability falls under the category of a gateway issue which would presumptively be determined by the courts because (i) the increased size and complexity of the dispute, (ii) the due process concerns that are raised and (iii) the privacy and confidentiality of the parties may be compromised.

While these factors point toward class arbitrability being a gateway issue, the appeals court stops short of elaborating on why arbitrators are not well-equipped to handle these concerns. An arbitrator could undertake these considerations and determine not to consolidate the individual claims.

Regardless, it means that the court could be involved despite the parties’ attempt to resolve the dispute via arbitration. Additionally, to the extent the employee can bargain, the individual may not reach an agreement with the employer to use the “clear and unmistakable” language sought by the courts to override the legal presumption that the court is to decide class arbitrability.

Having raised the legal presumption that class arbitrability is to be determined by the court, not the arbitrator, the court’s next task, according to the Fifth Circuit, would be to assess whether the arbitration agreement contained delegation provisions in clear and unmistakable language that would override the legal presumption. The circuits courts are currently split on whether traditional delegation provisions are sufficient to override this legal presumption.

The Arbitration Nation blog points out that in the Second, Tenth and Eleventh Circuits, traditional delegation provisions which submits any dispute to the arbitrator were held to be sufficient to overcome the presumption, citing Wells Fargo Advisors LLC v. Sappington, 884 F. 3d 392 (2nd Cir. 2018) and Spirit Airlines, Inc. v. Maizes, 899 F. 3d 1230 (11th Cir. 2018). See Henry Allen Blair, “The Fifth Circuit Weighs in About Who Decides Class Arbitrability,” Arbitration Nation (July 28) (available at http://bit.ly/2KqcIFu). It is noted that the Tenth Circuit held similarly in Dish Network L.L.C. v. Matthew Ray, 900 F.3d 1240 (10th Cir. 2018).

On the other hand, Blair’s Arbitration Nation post notes that the Third, Fourth, Sixth and Eighth Circuits concluded that notwithstanding traditional delegation provisions or provisions incorporating institutional rules which delegates the decision of class arbitrability to the arbitrator, the decision of class arbitrability still lies with the Court. See Opalinski v. Robert Half Intern Inc., 761 F. 3d 326 (3rd Cir. 2014); Dell Web Communities Inc. v. Carlson, 817 F.3d 867 (4th Cir. 2016); Reed Elsevier Inc. v. Crockett, 734 F. 3d 594 (6th Cir. 2013), and Catamaran Corp. v. Towncrest Pharmacy, 864 F. 3d 966 (8th Cir. 2017), among others.

In the Fifth Circuit Crawford opinion, typical delegation provisions were included in the arbitration provision. Interestingly, after a brief discussion of the delegation provisions at issue, the court stated that it ultimately need not make a conclusion on “[w]hether these provisions, standing alone, clearly and unmistakably empower the arbitrator to decide questions of class arbitrability.” Instead, the Court considered it sufficient to compare the class arbitration bar at issue with the delegation provisions to reach the conclusion that none of the provisions “state with the requisite clear and unmistakable language that arbitrators, rather than courts, shall decide questions of class arbitrability.”

The Fifth Circuit’s conclusion raises an important question: What language used in the arbitration agreement would be clear and unmistakable enough to overcome the legal presumption that it is the courts that will decide class arbitrability instead of the arbitrators when there is a contractual clause barring class arbitration?

“[T]here is tension in this decision,” notes Philip J. Loree Jr., of New York’s Loree & Loree, who closely watches class arbitration cases, “and I think the culprit is the Court’s ruling that the clarity of the class arbitration waiver should be considered as evidence that the parties did not clearly and unmistakably  intend arbitrators to decide arbitrability.”

Loree notes in an email, “Whether or not the class arbitration waiver is clear and unmistakable says nothing about who is supposed to interpret and apply the waiver. This, he notes, gives the impression that the Fifth Circuit is —perhaps unintentionally— making an end around this year’s U.S. Supreme Court rejection of the “wholly groundless” exception to the clear and unmistakable rule set out in Henry Schein, Inc. v. Archer And White Sales, Inc., 139 S.Ct. 524 (2019) (available at http://bit.ly/2YLDkWQ) (see Mark Kantor, “Implications of Henry Schein and New Prime US Supreme Court Decisions,” CPR Speaks (Jan. 22) (available at http://bit.ly/33d5nSo).

Loree notes that where an arbitrator ignores the parties’ clear and unmistakable class arbitration waiver, the award would presumably be vacated under Federal Arbitration Act Section 10(a)(4), following the Supreme Court’s decisions in Stolt-Nielsen S.A v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758 (2010) and Oxford Health Plans LLC v. John Ivan Sutter, 133 S.Ct. 2064 (2013).

“But rather than allow that scenario to play itself out,” he continues, “the Fifth Circuit has effectively conflated the clarity of the contract on the merits issue (class arbitration consent) with the clarity of the contract on the issue of who gets to decide class arbitration consent.”

This, according to Loree, runs counter to the Supreme Court’s Schein decision.

* * *

The author is a CPR Institute summer intern.

 

Update: Legislatures on Invalidating Pre-Dispute Arbitration Agreements

By Andrew Garcia

A federal court has slowed the momentum by legislatures—in this case, New York state’s—to bar arbitration in employment cases. A New York U.S. District Court judge has struck down the application of a recent state law which allowed employees to avoid mandatory pre-dispute employment agreements to arbitrate sexual harassment claims.

The statute at issue, NYCPLR § 7515, originally passed and signed into law a year ago, aimed to void arbitration clauses in employment contracts that require the use of arbitration proceedings to resolve workplace sexual harassment claims in New York state. In June, the New York Senate and Assembly passed amendments to § 7515 that expanded this prohibition to agreements that sought to arbitrate all workplace discrimination claims.

This year’s bill, awaiting Gov. Andrew Cuomo’s expected signature (see http://bit.ly/2SKnH0c), was a victory for lawmakers like the sponsor, State Democratic Senator Alessandra Biaggi. (She wrote on Twitter on June 19: “6 months & 2 public hearings later, we passed #BiaggiBill S6577 to expand protections for survivors, & hold New York employers, agencies, & organizations liable for all forms of workplace sexual harassment and discrimination.” See @SenatorBiaggi.)

But any victories may be short-lived. A federal court found that the currently enacted version of § 7515 was preempted by the Federal Arbitration Act and therefore invalid about a week after the amendments passed both New York houses.

On June 26, U.S. District Court Judge Denise Cote issued an opinion that deemed a recently modified New York State law preempted by the Federal Arbitration Act.  Latif v. Morgan Stanley & Co. LLC et al., No. 18cv11528 – Document 52 (S.D.N.Y. 2019) (available at http://bit.ly/2y9w6AL). In Latif, the plaintiff filed a suit against his employer, alleging discrimination and sexual assault claims. At the beginning of his employment, Latif signed an offer letter that incorporated by reference Morgan Stanley’s CARE Arbitration Program Arbitration Agreement.

Judge Cote found that the application of § 7515 to invalidate the parties’ agreement to arbitrate Latif’s claims would be inconsistent with the FAA. The opinion states that § 7515 does not displace the FAA’s presumption that arbitration agreements are enforceable. Judge Cote did not address the viability of § 7515 in purely an intrastate matter where the FAA would not be implicated.

The recently passed amendments to § 7515 are part of a growing trend in state and federal legislatures to pass laws that ban pre-dispute arbitration agreements for sexual harassment claims and more. In 2018, the Maryland legislature passed the Disclosing Sexual Harassment in the Workplace Act, which prohibited employers from enforcing arbitration agreements for sexual harassment or retaliation claims. In Vermont, the legislature passed “An Act Relating to the Prevention of Sexual Harassment,”  which prohibited agreements that prevent an employee from filing a sexual harassment claim in court.

The states have moved faster than Congress, but there is no shortage of proposals at the federal level. In the current session, there have been at least 11 new bills introduced to amend the FAA, the Fair Labor Standards Act, or the National Labor Relations Act to prohibit most employment and consumer pre-dispute arbitration agreements.

Table 1: 116th Legislative Session Bills Pertaining to Arbitration (Senate = S; House = HR)

Bill Name Bill Number Sponsors Current Status
Forced Arbitration Injustice Repeal (FAIR) Act S. 610 Sen. Richard Blumenthal, D., Conn. 2/28/19: Introduced
H.R. 1423 Rep. Hank Johnson, D., Ga. 4/8/19: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law
Bringing an End to Harassment by Enhancing Accountability and Rejecting Discrimination (BE HEARD) in the Workplace Act S. 1082 Sen. Patty Murray, D. Wash. 4/9/19: Introduced
H.R. 2148 Rep. Katherine Clark, D. Mass. 5/3/19: Referred to the Subcommittee on the Constitution Civil Rights, and Civil Liberties
Restoring Justice for Workers Act S. 1491 Sen. Patty Murray D., Wash. 5/15/19: Introduced and referred to the Committee on Health, Education, Labor, and Pensions.
H.R. 2749 Rep. Jerrold Nadler, D., N.Y. 6/26/19: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law
Ending Forced Arbitration of Sexual Harassment Act H.R. 1443 Rep. Cheri Bustos, D. Ill. 4/8/19: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law
Restoring Statutory Rights and Interests of the States Act S. 635 Sen. Patrick Leahy, D., Vt. 2/28/19: Introduced
Preventing Risky Operations from Threatening the Education and Career Trajectories of (PROTECT) Students Act S. 867 Sen. Margaret Wood Hassan, D. N.H. 3/26/19: Referred to the Committee on Health, Education, Labor, and Pensions
Court Legal Access and Student Support (CLASS) Act S. 608 Sen. Richard Durbin, D., Ill. 2/28/19: Referred to the Committee on Health, Education, Labor, and Pensions
H.R. 1430 Rep. Maxine Waters, D. Calif. 4/8/19: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law
Safety Over Arbitration Act S. 620 Sen. Sheldon Whitehouse, D., R.I. 2/28/19: Referred to the Committee on the Judiciary
Arbitration Fairness for Consumers Act S. 630 Sen. Sherrod Brown, D., Ohio 2/28/19: Referred to the Committee on Banking, Housing, and Urban Affairs
Justice for Servicemembers Act H.R. 2750 Rep. David Cicilline, D. R.I. 6/26/2019: Referred to the Subcommittee on Antitrust, Commercial, and Administrative Law

 

Ending Forced Arbitration for Victims of Data Breaches Act H.R. 327 Rep. Ted Lieu, D. Calif. 1/25/19: Referred to the Subcommittee on Consumer Protection and Commerce

The bill with the most co-sponsors (215 House members and 34 Senators) and the most prominent media coverage is the Forced Arbitration Injustice Repeal (FAIR) Act, which would ban pre-dispute arbitration in employment, consumer, antitrust, and civil rights disputes. Introduced in both the House and the Senate, the FAIR Act was recently referred to the House Subcommittee on Antitrust, Commercial, and Administrative Law.

Another bill with growing support (96 House members and 18 Senators co-sponsoring) is the Bringing an End to Harassment by Enhancing Accountability and Rejecting Discrimination (BE HEARD) in the Workplace Act. The BE HEARD in the Workplace Act bans all pre-dispute arbitration agreements that require arbitration of a work dispute, and all post-dispute arbitration agreements where an employee’s consent was coerced, or if the agreement was not in sufficiently plain language likely to be understood by the average worker.

The BE HEARD in the Workplace Act would also amend the NLRA to expand “Unfair Labor Practices” to situations where an employer enters into or attempts to enforce any agreement that prevents litigation, or support of joint, class, or collective claims arising from or relating to the employment of a worker, coerces the worker to enter into such an agreement, and retaliates against a worker for refusing to enter into such an agreement. The House bill, sponsored by Rep. Katherine Clark, D., Mass., is currently in the Subcommittee on the Constitution, Civil Rights, and Civil Liberties.

Another key bill, with 48 members of the House and 18 Senators co-sponsoring, is the Restoring Justice for Workers Act. This bill would amend the NLRA to prohibit pre-dispute arbitration agreements that require arbitration of work disputes, retaliation against workers for refusing to enter into arbitration agreements and ensure that post-dispute arbitration agreements are “truly voluntary.” The House bill, sponsored by Rep. Jerrold Nadler, D., is currently in the Subcommittee on Antitrust, Commercial, and Administrative Law.

The Latif holding that the FAA preempts § 7515 might push federal and state lawmakers to accelerate the momentum of the pending federal legislation. Judge Cote in Latif notes that the law already had been cited by the U.S. Supreme Court, in dissent, as an example of state action that seeks to protect workers’ ability to bring sexual harassment suits in court in the wake of other top court decisions backing employment arbitration. See Lamps Plus v. Varela, 139 S. Ct. 1407, 1422 (2019) (Ginsburg, J., dissenting) (available at http://bit.ly/2GxwFbC).

Although legislation that has sought to ban fully pre-dispute arbitration agreements has not been successful, this could change given the political landscape and outcome of the 2020 election.

The author, a Summer 2019 CPR Institute intern, is a law student at Brooklyn Law School.

 

 

New Report Comparing Arbitration and Litigation in Employment Disputes Sparks Backlash

By Andrew Garcia

In May, the U.S. Chamber of Commerce affiliate, the Institute for Legal Reform, released a report praising the results of arbitration in encouraging settlement, providing more wins for employees, higher awards, and faster outcomes versus litigation in employment disputes.

The Chamber’s report, “Fairer, Faster, Better: An Empirical Assessment of Employment Arbitration,” authored by Nam D. Pham and Mary Donovan, researchers at Washington, D.C., consulting firm NDP Analytics, seemed awash in good news.

It was based on a five-year review between 2014 and 2018 of 10,000 employment arbitrations with data from arbitration providers American Arbitration Association and JAMS. The report compared the arbitrations with more than 90,000 employment lawsuits in federal courts between 2014-2018. It found that employees were three times more likely to prevail in arbitration than in litigation, arbitrations lasted on average 96 days shorter than litigated cases, and the average amount awarded was almost twice as much in employment arbitration, at more than $520,000,  compared to litigation.

Twitter erupted. Critics slammed the report saying that it ignored key data, failed to account for cases cut off by compulsory alternative dispute resolution processes, and flat-out cooked the awards data conclusions by using the mean to skew the size of awards, rather than the median.

More significantly, labor forces moved to debunk the Chamber’s  report saying it was designed for a May Congressional hearing, Justice Denied: Forced Arbitration and the Erosion of our Legal System, where it was the crux of the Chamber’s pro-arbitration argument.

A principle criticism is the report doesn’t cite the contrary significant data that emerged over the past decade from the Economic Policy Institute, a Washington, D.C., nonprofit that researches economic data from low- and middle-income workers’ perspective. The 2015 EPI report criticized arbitration as a litigation alternative in employment cases.

That December 2015 EPI report, “The Arbitration Epidemic,” authored by UCLA School of Law Prof. Katherine Stone, and Alexander Colvin, who is dean and the Martin F. Scheinman Professor of Conflict Resolution at Cornell University’s ILR School, argued that employees who are contractually bound to arbitrate disputes are less likely to receive favorable outcomes or substantial awards compared to employees that initiate disputes through litigation.

Stone and Colvin compared two separate studies that examined outcomes in arbitration and litigation actions, An Empirical Study of Employment Arbitration: Case Outcomes and Processes (2011), and Arbitration and Litigation of Employment Claims: An Empirical Comparison (2003).  They found that employee arbitration win rates were 59% as often as in federal court actions, and 38% as often in state court actions.

A subsequent 2015 study on employment litigations indicated that the employee win rates in federal court cases lowered to an average of 29.7%, while another 2015 study on employment arbitrations found that employee win rates in arbitrations also lowered to an average of 19.1%. The EPI report commented that even though the outcome gap narrowed in 2015 compared to the 59% gap in 2011, the employee win rate in arbitration was still 35.7% lower than in federal court actions.

A subsequent 2018 report by Alexander Colvin found that only one in 10,400 employees subject to arbitration files a claim, which is a rate 35 to 80 times less than employees who file claims in federal and state courts.

So the new Chamber Institute for Legal Reform report served to reignite fights that have taken place over the past decade in courts and legislatures over employment and consumer arbitration. Yet despite the recurring arguments, there may be middle ground. Myriam Gilles, a professor at Cardozo School of Law in New York,  stated in her testimony at the May Congressional hearing that advocates opposed to mandatory arbitration are not arguing that arbitration be banned altogether, but that mandatory arbitration in a consumer or employment context that bars class actions is unworkable.

In addition, the Stone and Colvin report offers an in-house ADR solution that companies can adopt. The report cites that the former TRW Inc. in the 1990s adopted successful internal dispute resolution procedures that included local management complaint procedures, peer review panels, and then mediation. A 2004 study by Colvin found that only 72 TRW cases even reached mediation over the first three years of the program, and only three of the cases reached arbitration. In addition, TRW set up the process to be binding on the company but not on the employee, who would then be able to go to court after arbitration if the employee was not pleased with the outcome.

* * *

The author, a Summer 2019 CPR Institute intern, is a law student at Brooklyn Law School.

 

Update: ADR Breakfast on New York State’s Presumptive Mediation Implementation

By Savannah Billingham-Hemminger

An official of the New York state court system introduced new efforts on boosting the use of alternative dispute resolution, and especially mediation, at a regular gathering of practitioners last week.

Lisa Denig, Special Counsel for ADR Initiatives for the NY State Office of Court Administration, spoke about the moves, characterized by what the state is calling “presumptive ADR,” at the monthly New York City John Jay College of Criminal Justice ADR Breakfast on July 11.

In attendance were attorneys, neutrals, and representatives of organizations who are interested in how the ADR steps, part of New York State Chief Judge Janet DiFiore’s Excellence Initiative, would affect their practices. The effort will push litigants to using ADR in an effort to expedite and improve the quality of outcomes in the state court system.

Full details on the presumptive ADR and mediation efforts are in the new issue of Alternatives to the High Cost of Litigation, at “‘Presumptive Mediation’: New York Moves to Improve Its Court ADR Game,” 37 Alternatives 107 (available at http://bit.ly/2GbCWdK).

Denig opened the briefing with background on the effort. Earlier this year, Chief Judge DiFiore introduced the idea as a way to reduce court backlogs. While many pilot programs had already been conducted, the move is designed to ensure full participation and cement ADR as an option—as well as a focus—in all state courts.

While many perceive the efforts as a mediation-based program, it is officially termed “Presumptive ADR” because not every court will focus on mediation. Courts in the state’s 13 judicial districts are being given freedom to adopt programs in accordance with local demand. The districts are making ADR plans based upon their typical cases, and matching that with the ADR methods that work best for these cases.

The plans, which are being drafted by the administrative judge of each judicial district, are due to be submitted by Sept. 1. Denig said that the hope is that implementation will roll out by the end of the year. There are certain types of civil cases that are not conducive to ADR methods, but she assured the audience that presumptions will not change, but rather, the ADR approach will be adjusted.

The culture shift in New York state courts’ approach to cases has already brought up some challenges. Denig noted the biggest issues to be addressed included language diversity of neutrals; power imbalances in mediation; opt-out provisions for certain cases, and neutrals’ compensation.

She stated that these challenges are being worked out this summer. The administrative judges are looking at other states as models in addressing these issues, formulating their plans and developing their local rules. There will be statewide and local rules for the initiative, and they are being developed on parallel tracks.

The breakfast audience brought up many scenarios that members currently face in their ADR practices. The biggest concern—not surprising in a gathering that is often heavily attended by neutrals–is the state’s hiring process, requirements, and neutral compensation.

The answer to the questions was: Stay tuned.  Lisa Denig listened to the concerns, and assured the group that once the plans roll out in September, the presumptive ADR path will be much clearer.

The New York state court system’s May 14 announcement on the presumptive ADR moves is available at http://bit.ly/32lhjkq.

 

The author, a Summer 2019 CPR Intern, is a law student at Pepperdine University School of Law in Malibu, Calif.

 

 

 

Experiences & Impact from CPR’s 2019 International Mediation Competition

By Ibrahim Godofa (A member of the University of Nairobi Team)

The 2019 CPR International Mediation Competition has definitely been one of the key opportunities that I have been lucky enough to participate in this year and arguably for the entirety of my law school period. I believe it was an incredible opportunity for my teammates as well.

My attention was first drawn to this competition on LinkedIn where the poster was shared by Mr. Olivier André from the CPR Institute. I immediately shared the information with like-minded colleagues at the university and a team was formed, whereupon we applied for participation as well as a partial scholarship that had just been instituted to aid disadvantaged teams. Upon assessment, we were selected alongside 17 other teams from across the globe as the only team from the African continent. Additionally, we were granted the partial scholarship to participate!

“The role all of these takeaways will play in enhancing the position of mediation in Kenya, especially among our fellow students, cannot be underestimated.”

The competition period that took place between the 4th and 6th of April in São Paulo, Brazil was probably the most intensive and beneficial learning opportunity throughout the process. Coming from a jurisdiction where mediation is still a progress in motion, the first evening of the training session, featuring short lectures about the various emerging aspects of mediation, was an incredible way to start a learning curve that would last for the following two days. It was quite an eye-opening kick-off and equally interesting to be introduced to emerging technologies as well as business aspects, such as agricultural ones, in the practice of mediation. While this training session served as an effective way to expand the participants’ views on the evolving practice of mediation, we also found it to be a helpful approach to preparing for the actual competition, whose themes revolved around these emerging aspects.

FOTO-MARCOS-MESQUITA-890

The Nairobi team, receiving their award for best teamwork. The author, Ibrahim Godofa, is pictured on the right, along with his teammates Edgar Usagi Alema (left) and Sumaiyah Abdi Omar (center).

The first day of the competition provided many different kinds of lessons, as my team and I got the chance to go up against excellent teams from world class universities all around the world. My team had the rare chance to go up against teams from three different continents: South America, Asia and North America on this first day. It was quite an awesome experience trying out our preparation against teams that had different approaches and internal qualification processes to get to this stage of the competition, and some of which even had coaches, unlike my team. It was also an interesting experience to compete in the style in which the competition was set up—which was new to me, and (as I learned from speaking to them) to several of the other participants as well.

Additionally, as a team we had always known mediation to be a conflict resolution process that is not bent towards a win-lose outcome. While retaining the important values of a mediation, this competition allowed us to simultaneously act upon the rush of competitiveness coming from all the teams while maintaining a respectful and professional sportsmanship, which was one of the highlights of this phase of the competition observable from all the teams present.

The first day of the competition culminated quite memorably for us, with an announcement that our negotiating team was through to the quarter finals the following day. Being part of our negotiating team, this presented serious excitement for me and also meant continued work within the limited time we had to prepare for the quarter finals round. The quality of the competition in this round was even a notch higher than the previous day’s, and so were the stakes. However, my team would learn later in the day that our impressive run would end at this round, albeit against a worthy opponent, the Harvard Law School team.

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The team from the University of Nairobi, School of Law, taking a well-deserved break

Outside the competition rooms, there was an extended opportunity to interact and network with current and future voices in global mediation. This ranged from top-of-their-class students from the various participating universities as well as other professionals who were present in different capacities as judges, coaches and other volunteers. Interacting with these individuals and exchanging contacts provided an invaluable door to long-lasting partnerships and collaborations that are particularly priceless coming from a jurisdiction such as ours, where borrowing from global best practices brings a special kind of difference in an under-developed field such as mediation.

At the end of the competition, my team was recognized with the “Best Teamwork” Award, upon the completion and compilation of feedback from the excellent judging panels that we came across in the various rounds. This feedback from the judges, which continued to come to our attention even after the competition was long finished, has been a very important part of the competition’s learning process and my team is incredibly proud to have emerged with an award testament to the positive and constructive feedback that the judges had on our performance.

One of the main attractions of this competition to our team lay in the impact that the experience would have on mediation back in our circles at home, both in general and at our school in particular. The lessons taken home by our team from this experience are numerous. Some of the key takeaways from the wholesome experience of the competition include:

  • Best practices from other universities as far as student activities centered around mediation is concerned in their schools, especially for the universities from the United States
  • Valuable feedback from the judging panel, some of which contain long-term lessons for our future practices
  • And, most importantly, a model mediation practice procedure that can be employed to sharpen the skills of eager students back at our school through student-led trainings

It is important to also note that our team’s participation in this edition of the competition was the first of its kind at our school as far as any international Alternative Dispute Resolution competitions are concerned. Our participation has therefore paved way for other students to look for and take up similar opportunities, and to benefit from the connections that our team acquired internationally which can be leveraged to create a ripple of opportunities to others who will come after us. The role all of these takeaways will play in enhancing the position of mediation in Kenya, especially among our fellow students, cannot be underestimated. With all signs indicating the rise of mediation practice around the world, we are certainly committed to advancing this important dispute resolution resource within our immediate circle of friends and fellow students, starting from our school. And a big thank you goes to the CPR Institute for the invaluable role that it continues to play in driving a global mediation culture.

Our team’s appreciations go to Olivier André, the amazing Chris Silva and Franco Gevaerd from the CPR Institute, all of whom played a key role in making our experience of this competition, alongside their other colleagues, so memorable.

And oh! Brazil was an awesome place and the Paulistas were very friendly and welcoming residents of a great city! We had a wonderful time.

 

NJ’s Top Court Backs Arbitration in Car Sales Fraud Cases

By Brian Chihera

In Janell Goffe v. Foulke Management Corp (A-3/4-18/081258 ) (N.J. S.Ct.  June 5) (available at http://bit.ly/2X8njco), a unanimous N.J. Supreme court recently stated that two sales fraud claims against auto dealers must be decided through arbitration.

The Court followed longstanding U.S. Supreme Court law in holding that the plaintiffs’ challenges to their sales agreements were attacks on the contract formation, but not on the language used in the agreements to arbitrate.

Justice Jaynee LaVecchia wrote for the 7-0 Court, “Those rulings do not permit threshold issues about overall contract validity to be resolved by the courts when the arbitration agreement itself is not specifically challenged.”

The plaintiffs, who were customers of two Cherry Hill, N.J., auto dealerships, challenged the sales agreements they had entered into because they claimed that the contracts were concluded through fraud—at least one of which appeared to be a bait-and-switch scheme.

Previously, New Jersey’s top Court in Atalese v. U.S. Legal Servs. Grp., L.P., 99 A.3d 306, 311 (N.J. 2014) (available at http://bit.ly/2NpTG6W), cert. denied, 135 S. Ct. 2804 (2015), backed a plaintiffs’ challenge to an arbitration agreement because “ the wording of the service agreement did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court.”

But the Goffe court found that the challenge was to the overall contract’s formation, not the arbitration agreement.

The first plaintiff, Janell Goffe, had gone to Cherry Hill Mitsubishi, where she was told that she could get a Buick for a trade-in.  She paid $250 the same day and then would pay $750 two weeks later. Goffe was also told that the financing had been approved.  She then signed the sales contract, which included an arbitration clause.

After a few days, however, she was told that the financing had been declined and had she had to make a larger down payment and higher monthly payments, but she opted to return the Buick to the dealership, canceling the deal.

Sasha Robinson, the second plaintiff, asked about buying a car with Mall Chevrolet, and was told that she would have two days to change her mind about the purchase. She signed the contract, including the arbitration clause, the same day. When she tried to return the car to the dealership, Robinson was told that there was a mistake and she was bound by the contract, which meant that the matter would be taken for arbitration.

Goffe did not involve any challenge to the arbitration clause nor the language that was used in it. The plaintiffs alleged that they had been made to sign the contracts through fraudulent means, which constitutes challenges to the entirety of the contracts. They wanted the courts to nullify the contracts because they alleged fraud was committed.

In reaching its decision, the N.J. Supreme Court looked at how the U.S. Supreme Court had dealt with such issues. “The United States Supreme Court has held that when a plaintiff raises a claim of fraud in the inducement of a contract as a whole–rather than fraud in the making of the arbitration agreement itself–the Federal Arbitration Act requires that the dispute be resolved by the arbitrator,” stated Justice LaVecchia in the opinion, citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967).

She concluded, “based on the complaint and the certifications provided to the trial court, it is apparent to us that the parties’ claims are subject to an enforceable arbitration agreement. Therefore, the arbitration agreement is severable and enforceable. Plaintiffs must arbitrate their claims. Before the arbitrator, plaintiffs can raise any arbitrability issues consistent with the delegation clauses in these agreements.”

The Court reversed its Appellate Division, reinstating the trial courts’ orders to compel.

 

The author, a CPR Institute Summer 2019 intern, graduated in May with an LLM in dispute resolution from the University of Missouri School of Law in Columbia, Mo.