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Prospective Higher Education Reform to Ban Arbitration of Student Claims

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By Vincent Sauvet

Another legislative proposal that would curtail arbitration was introduced in Congress on March 26.

The PROTECT Students Act of 2019 (S.867) was introduced on the Senate floor by New Hampshire Democrat Maggie Hassan. The bill, a general higher education reform which includes provisions related to institutions oversight and accountability, student loans and healthcare, would ban arbitration of claims brought by students against their institutions.

This follows up on CPR Speaks’ recent post on recent legislative efforts by congressional Democrats to limit the use of arbitration in various kind of disputes. See “New Push Coming for Familiar Arbitration Bills?” (April 3).

The text of Hassan’s bill would create add an exception to the enforcement of Chapter 1 of U.S. Code Title 9—the Federal Arbitration Act. It would bar enforcement of arbitration agreements in an enrollment agreement made between a student and an institution of higher education.

Combined with a prohibition for the institution to require a student to agree to, and enforce “any limitation or restriction on the ability of a student to pursue a claim, individually or with others, against an institution in court,” the provision would effectively ban even the possibility of arbitration of a claim a student may have against their institution.

Although the PROTECT Act is not really focused on arbitration—the name is an acronym for “Preventing Risky Operations from Threatening the Education and Career Trajectories of Students Act of 2019–it nevertheless includes provisions that can be found in other bills specifically targeting arbitration.

In fact, similar provisions are the entire point of the closely related Court Legal Access and Student Support (CLASS) Act of 2019.  The bill, introduced on Feb. 28 as S.608 by Sen. Richard Durbin, D., Ill., and as H.R. 1430 in the House by Rep. Maxine Waters, D., Cal., was part of a flurry of arbitration bills spearheaded by the FAIR Act of 2019, discussed in the previous CPR Speaks post.

Both the PROTECT and CLASS acts have been referred to committees and await further action.

While all of these bills face a tough climb to passage, the inclusion of such provisions in sector- specific reform bills could contribute to a “normalization” of criticism of arbitration.

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The author, an international LLM student at the Benjamin N. Cardozo School of Law in New York, is a 2019 CPR Institute spring intern.

New Push Coming for Familiar Arbitration Bills?

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By Vincent Sauvet

Democrats in Congress late last month announced their intention to focus their efforts on passing new legislation to ban mandatory arbitration in several types of disputes. A package of bills, some still awaiting introduction, would target the arbitration of employment, consumer, antitrust and civil rights disputes.

The bills are mostly updates of long-running efforts, some dating back to the 1990s, that seek to limit processes that interfere with consumers’ and workers’ abilities to file suits against product and service providers, and employers—especially those that targeted class actions.

Now, at least some of the bills appear to be gaining more publicity and increasing support in the wake of controversy over mandatory processes.

This legislative effort will be spearheaded by the Forced Arbitration Injustice Repeal, which its sponsors are referring to as the FAIR Act of 2019. It was announced by Sen. Richard Blumenthal, D., Conn., and Rep. Hank Johnson, D., Ga., both longtime opponents of mandatory arbitration, with the bill’s introduction on Feb. 28.

H.R.1423 and S.610 would “amend title 9 of the United States Code with respect to arbitration.” The flagship of the current crop of proposals targeting arbitration, the bill is co-sponsored by 32 Senate Democrats along with independent Vermont Sen. Bernie Sanders.  The number of House Democrats co-sponsoring the legislation has risen to 171 in the month since it was introduced, from 147.

The FAIR Act would ban arbitration in employment, consumer and antitrust disputes, as well as in civil rights disputes. The bill is a rebranding of the previous Congress’s Arbitration Fairness Act of 2018, also by Blumenthal and Johnson, covering the same issues.

In conjunction with the broad FAIR Act, several bills tackling more specific issues have also been announced.

The first is the Ending Forced Arbitration of Sexual Harassment Act of 2019, sponsored by Rep. Cheri Bustos, D., Ill., a reintroduction of her bill from the previous session, which had been co-sponsored by Pramila Jayapal, D., Wash., and, on the Senate side, New York Democrat and presidential candidate Kirsten Gillibrand.  Jayapal is co-sponsoring the new bill, along with—significantly–a New York Republican, Elise Stefanik.

The bill would ban mandatory arbitration of sex discrimination disputes by banning any predispute arbitration agreement between an employer and employee arising out of conduct that would form the basis of a claim based on sex under Title VII of the Civil Rights Act of 1964. Although this would be subject to some limitations, the prohibition would not apply to arbitration provisions contained in a contract between an employer and a labor organization, or between labor organizations.

Another bill, the Restoring Justice for Workers Act, would go even further than ending the arbitration of sexual harassment claims. It would establish an outright ban of mandatory arbitration clauses in employment contracts.

The bill was introduced in the previous 115th Congress, last October, by Rep. Jerrold Nadler, D. N.Y., and Sen. Patty Murray, D., Wash., seeking to make illegal any predispute arbitration agreement when related to an employment dispute, which would include sexual harassment. It also would pose further restrictions on post-dispute arbitration agreements.

The proposal was an immediate Congressional reaction to the U.S. Supreme Court’s Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (May 21, 2018), which it would have overturned. But the bill had trouble getting bipartisan support, and likely will suffer the same issues in the current Congress, where it has not yet been introduced.

A bill announced and introduced with the FAIR Act included the Arbitration Fairness for Consumers Act, S.630, sponsored by Ohio Democratic Sen. Sherrod Brown, which would tackle the specific issue of mandatory arbitration in financial adviser and broker contracts.

While Brown has focused primarily on student loans and credit card agreements, the bill is in fact broader in scope.  It would prohibit any predispute arbitration agreement and joint-action waivers related to any consumer financial product or service dispute.

Another bill introduced with the FAIR Act, the Safety Over Arbitration Act would render void any predispute agreement compelling the arbitration of claims alleging facts relevant to a public health or safety hazard. The bill, S.620, was introduced by Rhode Island Democratic Sen. Sheldon Whitehouse.

As an interesting side note, the bill would also compel the arbitrator of such a claim to provide to the parties a written explanation of the factual and legal basis for his decision. While most arbitrators provide such explanation already, there is no legal requirement to do so.

Under the sponsorship of Sen. Patrick Leahy, D., Vt., the Restoring Statutory Rights and Interests of the State Act, S.635, was also reintroduced. The bill would prohibit any predispute arbitration agreement providing for the arbitration of claims brought by an individual or small business concern and arising from the alleged violation of a state or federal statutory or constitutional provision. The bill is nearly identical to its previous iterations, which were introduced but ultimately died in the 114th and 115th Congresses, and is most likely to suffer the same fate.

The Justice for Servicemembers Act also should be reintroduced soon by Reps. David Cicilline, D., R.I., and Connecticut’s Sen. Blumenthal. Like the versions in the previous three Congressional sessions, the bill aims to end the use of arbitration in cases under the Uniform Services Employment Rights Act.

Finally, the Fairness in Long-Term Care Arbitration Act was also announced by Rep. Linda Sanchez, D., Calif. While there is no text available yet, the bill would end the use of arbitration clauses in nursing home agreements.

These announced attempts at legislative change regarding arbitration use come up at a time when arbitration has suffered from bad press. The #MeToo movement made arbitration, which usually is conducted out of the public’s view, appear as a tool to silence victims. Although the broader controversy over mandatory arbitration in employment and labor disputes traditionally has been the legislative target of Democrats, the specific issue of sexual harassment moved the subject into broader view, drawing attention from a larger section of the political spectrum.

Still, the broader bills, such as the FAIR Act, the Restoring Justice for Workers Act and the Arbitration Fairness for Consumers Act are unlikely to gather enough support in order to pass in the current Congress. They will, for the most part, face the same Republican opposition that have defeated similar proposals.

But new, more-specific bills–those providing small incremental changes that exhibit more potential for bipartisan support–are more likely to succeed. Given the current political climate, the Ending Forced Arbitration of Sexual Harassment stands a good chance of advancing. Several businesses such as Google, Microsoft, Uber and Lyft have effectively banned the arbitration of sexual harassment claims and sometimes other employment matters.

Though there are only three co-sponsors, the early appearance of a House Republican could indicate the bill’s broader appeal.

These moves, collectively, provide at least some momentum. “I’m encouraged that some of the leading companies are voluntarily changing their practices… but we can’t rely on everyone to do the right thing voluntarily” Sen. Blumenthal said.

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The author, an international LLM student at the Benjamin N. Cardozo School of Law in New York, is a 2019 CPR Institute spring intern.

Notes from AM 19/ Preparing For the Robo-Revolution: Arbitrating Smart Contract Disputes

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By Shannon Collins

Following up on last week’s CPR Speaks post on the CPR Institute’s 2019 Annual Meeting—see “The ‘Risky Business’ of NAFTA, BITs, ITAs and Global Trade” (March 21)–blockchain, artificial intelligence and “smart” contracts were the focal points of CPR AM19’s Session 7, “Preparing for the Robo-Revolution: Arbitrating Smart Contract Disputes.”

On Friday, March 1, panelists Daniel E. Gonzalez, a Miami partner in Hogan Lovells; Andrew James Lom, a partner in the New York office of Norton Rose Fulbright; Lee Schneider, a New York-based general counsel at block.one, a Grand Caymans company that publishes protocols enabling blockchain transactions; and moderator David L. Earnest, Shearman & Sterling partner in Washington alerted attendees to the increasing use and necessity of technology in arbitration, as well as the legal professional overall.

The session’s topics included the use of technology in arbitration today, an overview of blockchain and an introduction to Ricardian contracts.

Daniel Gonzalez started the panel off by discussing the arbitration technology. He noted that general counsels are pushing for more use of technology because they strongly believe it will increase efficiency. Software can be used to help appoint arbitrators, conduct document review, aid in document production, manage costs and assist with research.

Picking arbitrators with artificial technology poses several issues, Gonzalez explained. While it can assess a likely outcome of a case using algorithms, these algorithms rely on correlation on a purely mathematical level, while legal disputes are based on causation.

These algorithms can also be biased, which seems counterintuitive, but they are programmed by people. People are inherently biased and the data sets that they use as a base for the algorithm may reflect those biases, which in turn can affect the outcomes.

Lee Schneider echoed this concern, noting that people working in artificial intelligence are grappling with getting the right data set because if the data is skewed, then it can result in biases. Programmers must be careful and judicious about the elements of the data sets.

The discussion noted that even if they are carefully coded, algorithms can still fail to see the human factor in disputes that an arbitrator may see. An arbitrator could be swayed on a deeply personal level by an argument and rule in a way that is inconsistent with their history. The algorithms cannot account for this. In arbitration, this means there will be accurate data available for the arbitrator to consider when ruling on a case.

Gonzalez brought up questions of “robo-arbitrators,” which are not yet replacing arbitrators, but that Gonzalez says will play an increasing role in the process and is something we should all embrace. Not many institutions have rules specifically requiring “natural persons,” Gonzalez informed the room, which brings interesting determinations of whether Due Process is satisfied with the use of a robot as arbitrator. Another concern with robo-arbitrators is their inability to provide reason for a decision. They purely provide an outcome.

Gonzalez also discussed technology specifically in the context of construction disputes. Drone technology collects data that can be useful for monitoring tagging of each piece of equipment or material as well as tagging workers. By using a tagging system, the supply chain and the project’s progress can be tracked entirely from inception to construction, thereby ensuring transparency and efficiency.

The tagging systems are an example of the kind of data that can benefit by storage on a blockchain. As explained by Andrew Lom, the blockchain is a database where data lives in blocks. The chain links these blocks together through a crypto-relationship. These blocks are sealed once a new block is added to the chain and it is incredibly difficult to alter a block once the new block is added, because additions are conspicuous and documented.

Lom emphasized that the blockchain is not automated or perpetual. You need people to pay attention to the database, he said. This doesn’t mean that it would always need to be monitored, but without attention, then it could fall apart, because alterations in blocks of data could go unnoticed.

The blockchain serves as a useful tool on which smart contracts can be stored. A smart contract is a self-executing contract. Lom equates it to when a bank is authorized to automatically pay the minimum on a credit card. It is done automatically without the debtor’s need for immediate implementation.

Smart contracts are written in code like a computer program. Ricardian smart contracts are contracts that are written partially in computer code and partially in human-readable language. (A smart contract usually describes the terms and contains codes that execute electronically under the contract’s terms, while a Ricardian contract is similarly linked to code, but is usually fully realized whether executed or not.) According to Lee Schneider, this introduces the human element into drafting smart contracts. Humans serve as a check for the execution of the contract. They can discover when something goes wrong and resolve the issue.

Andrew Lom posed the problem of bugs in the code. If the code is flawed, could that constitute a drafting error? A person would have to catch it and correct it. Could that correction potentially be modifying the substance of the contract?

These are questions and problems that will be answered only in time. As for now, Schneider noted, we are all participating in a digital world.

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The author is a CPR Institute Spring 2019 intern.

Notes from AM19: The “Risky Business” of NAFTA, BITs, ITAs and Global Trade

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By Evan Drake

The CPR Institute’s 2019 Annual Meeting was held at the Fairmont Hotel in Washington, D.C., Feb. 28-March 2.  The event featured more than 50 speakers on 16 panels addressing the most pressing issues in commercial conflict resolution.

One of the many CPR AM19 highlights was a lively panel discussion of international investment arbitration, Navigating Risky Business: NAFTA, BITs, ITAs and Global Trade.  The panel included international investment arbitration experts Arif H. Ali, a partner who co-chairs Dechert LLP’s international arbitration practice in Washington and London; Mélida Hodgson, a partner in the New York office of Foley Hoag; Mark Luz, senior counsel and deputy director of the Trade Law Bureau of Global Affairs Canada in Ottawa, a Canada government agency; and moderator Ank Santens, a partner in the New York office of White & Case and a CPR Institute board member.

The panel discussed the potential impact of the recent United States–Mexico–Canada free trade agreement, best known as the USMCA.  The agreement, which is awaiting ratification by each of the nations, regulates both trade and investment. Once ratified, it will replace the NAFTA.

The panel focused on international investment arbitration.

Moderator Santens began by introducing the panel members and providing an outline of modern investor-state dispute settlement, or ISDS.  Santens, who has served as both counsel and arbitrator in investment disputes under all major international arbitration rules, highlighted that bilateral and multilateral investment treaties, or BITs, play an important role in the global economy by increasing investment-system stability.

The typical ISDS claim is brought by an investor against a state, typically for breach of a substantive standard of protection contained in a BIT.  These standards vary treaty by treaty, but usually include at minimum protections against expropriation and guarantees of fair and equitable treatment. NAFTA, a multilateral trade and investment treaty, grants similar protections to U.S., Canadian and Mexican investors.

The reciprocal protections created by these treaties, Santens continued, allow investors to bring claims against states that would otherwise lack privity, and the number of these claims has increased substantially over the past 10 years.  The bulk of these claims have been arbitrated through ICSID–the International Centre for Settlement of Investment Disputes, which is part of the World Bank and based in Washington, D.C.

But other forums, including the Permanent Court of Arbitration in The Hague, Netherlands, the International Chamber of Commerce and the Stockholm Chamber of Commerce may be available to claimants. The United Nations Commission for International Trade Law, or UNCITRAL, among others, provides frequently-used ISDS rules.  (Private and nonprofit providers, including the CPR Institute, which publishes this blog, also have adaptable rules.)

The panel then shifted its focus to ISDS history and development. Panelist Mark Luz, who works in the Canadian Department of Foreign Affairs and International Trade, began the discussion with the tongue-in-cheek goal of “explaining 120 years of investment law history in ten minutes.”

Luz, who has represented the Canadian government in NAFTA and other investment arbitration proceedings, described how the “gunboat diplomacy” of the early 20th century was gradually displaced by a system of treaties providing for protection of foreign investments, and how this system has developed rapidly in the past 20 years.

Prior to the advent of inter-state investment treaties, he explained, states defended the interests of their investors abroad in the same way they defended their nationals–through diplomatic protection. For capital-exporting European powers, this might even entail dispatching warships to pressure foreign governments into honoring their commitments to investors.

Evidence of this practice can be seen in the Hague Convention of 1907, on the law of war, in which states undertook not to use armed force for the recovery of debts owed to themselves or their nationals—provided, however, that the debtor states agreed to submit to arbitration.

Diplomatic protection, said Luz, was a poor system for resolving investment disputes.  Under this system, investors would generally need to exhaust local legal remedies before applying to their home states for diplomatic protection—a time-consuming and potentially expensive endeavor.

Furthermore, states were under no obligation to grant protection to their nationals, even in the event of a meritorious claim.  If political considerations weighed against damaging a sensitive relationship, a state might simply decline to exercise this protection, and an investor would have no way of seeking redress individually.

During the early-to-mid 20th century, certain customary protections began to gain expression through treaties; interstate bodies such as the U.S,-Mexico Claims Commission (1924) were created to adjudicate investment-related disputes.  But it was not until the NAFTA’s 1994 passage that investment arbitration “exploded” into the broad-reaching network of substantive protections for individual investors that characterizes modern ISDS.

Luz also noted that ISDS is not without its critics, and that many consider the system to be in the midst of a “legitimacy crisis.”  He recalled that during one NAFTA negotiation over an oil and gas project, protesters floated a blimp with the slogan “Frack Off NAFTA Chapter 11” outside the window of the conference room.  Chapter 11 is the NAFTA’s investment section.

Although many states have become increasingly critical of investment arbitration, Mark Luz believes that ISDS is more likely to adapt than to perish.  Pointing out the varied approaches that different actors have taken toward reforming the system—including NAFTA’s renegotiation, and the development of an international investment court at the United Nations—he emphasized that most states will seek to preserve the stability created by ISDS, even as they act to transform it.

Panelist Mélida Hodgson, of Foley Hoag, who has been both arbitrator and counsel representing the United States in NAFTA and World Trade Organization disputes, cited the USMCA’s transformative potential, but cautioned that the system isn’t changing just yet.

Until the new rules are ratified, Ms. Hodgson said, NAFTA is still the law.  Although the so-called “legitimacy crisis” facing ISDS may result in significant future changes, the USMCA represents a discreet set of reforms in both trade and investment law, which should be considered in the context of specific political factors.

Canada and Mexico, for example, have fared far worse in NAFTA disputes than the United States, and yet current U.S. Trade Representative Robert E. Lighthizer and his office has sought to reduce the scope of protections for North American investors.  While Mexico may want to re-assert government prerogatives in the energy sector, Canada appears more concerned with the USMCA’s trade provisions than its investment protections.

The result of these negotiations seems to be a two-tiered system, where investments in certain “special sectors”—e.g., oil and gas—will receive greater protection than other investments.

In any event, as members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), both Canada and Mexico have already committed to a limited set of obligations toward foreign investors. The CPTPP, like much of the USMCA, includes a higher bar than NAFTA for demonstrating discriminatory treatment against an investor, as well as reduced protections against expropriations. President Trump withdrew the United States from the agreement 2017.

Shifting the discussion to Europe, Dechert’s Arif Ali agreed with Mélida Hodgson that any USMCA impact will come only after the agreement is ratified. Ali stressed that modern ISDS development represented a historical shift from a “power-based system to a rules-based system,” and that European and other states are unlikely to abandon this useful framework for depoliticizing investment disputes.

Ali first took issue with the oft-repeated criticism that arbitrators in investment cases are, in effect, deciding public policy.  Issues of public policy often arise in cases of expropriation, in which states seek to regulate foreign investments for the public good, creating situations where arbitrators may determine that a state’s regulations are impermissible under an investment treaty.  Far from rejecting the system, however, he highlighted that states are more likely to use public policy as a litigation tool within ISDS, developing new procedural and substantive rights in the process.

Drawing a parallel with the USMCA, Ali cited the controversial Achmea decision of the Court of Justice of the European Union as an exaggerated threat to investment arbitration.  In its landmark 2018 opinion in Achmea, the CJEU declared that a Netherlands-Slovakia BIT–and by extension all inter-EU BITs–were incompatible with EU law.  The EC has supported this position by submitting amicus briefs in EU investment disputes. (For information on the case, see CPR Speaks here.)

Nevertheless, European states continue to refer their investment disputes to arbitration, and it is unclear to what extent the Achmea decision will actually affect the practice of arbitral tribunals.  As Arif Ali pointed out at the CPR AM19 panel discussion, the applicability of the Achmea decision to intra-EU treaties such as the Energy Charter Treaty, to which the EU itself is a part, is unclear, and already has sparked conflicting interpretations.  In Vattenfall v. Germany, for example, an ICSID tribunal determined that the ECT was unaffected by Achmea, despite the issuance of a “guidance note” by the European Commission to the opposite effect.

Ali looked at the proposed EU multilateral investment court as another possible evolution of European ISDS, rather than a departure from the system.  Considering the greater focus in more recent BITs on public policy, he said he felt that the development of such an institution would be “in principle, not a bad thing.”

Collectively, the panelists seemed to agree that NAFTA’s renegotiation should be seen as part of a systemic evolution in international investment arbitration.  In Europe, North America, and around the world, the panel members indicated that they believed that states are acting to reform ISDS to suit their changing interests. The USMCA, like the Trans-Pacific Partnership and Achmea, represents one piece of a continuing process.

The author is a CPR Institute Spring 2019 intern from Brooklyn Law School.

Mandatory Shareholder Arbitration: J&J View Passes SEC’s Test

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By Shannon Collins

A no-action letter last month put the U.S. Securities and Exchange Commission’s stamp of approval on Johnson & Johnson’s move to bar a shareholder vote at its annual meeting on the use of mandatory arbitration for securities disputes between the company and its shareholders.

Last spring, U.S. Securities and Exchange Commission chairman Jay Clayton discussed the possibility of supporting a mandatory arbitration provision that would bar class actions as part of an initial public offering, according to two Reuters articles. See Alison Frankel, “SEC chair Clayton is in no rush for mandatory shareholder arbitration,” Reuters (April 27, 2018) (available at https://reut.rs/2EJlRX4), and Alison Frankel, “The case against mandatory shareholder arbitration,” Reuters (Aug. 22, 2018) (available at https://reut.rs/2Tmptby).

While arbitration is an invaluable dispute resolution tool, the use of mandatory processes in consumer and employment cases with class-action waivers generated controversy before the Supreme Court signed off on permitting them last year in employment cases, and in 2011 in consumer contracts.

In IPOs, mandatory individual arbitration would eliminate shareholder class actions, which is a mechanism frequently used to prosecute securities fraud suits—often after share price fluctuations following the initial offerings.

The class-action model allows for more shareholders to participate in litigation against fraud and have their voices heard, while individual arbitration may remain confidential and result in varying terms and decisions, according to a coalition of organizations seeking to bar mandatory shareholder arbitration under the securities laws.  See Letter to SEC Chairman Jay Clayton, (Jan. 16, 2018) (available at http://bit.ly/2NJdRJs).

Clayton’s comments caused an uproar from several organizations and resulted in the formation of a consumer-group coalition, Secure Our Savings. SOS comprises the Consumer Federation of America and the Consumers Union, along with attorneys from the American Association for Justice, Public Justice, and Public Citizen, among many others.

Johnson & Johnson has been the center of attention of mandatory shareholder arbitration news. Hal Scott, a Harvard Law professor who represents a trust that owns J&J shares, issued an open letter to the health care giant on behalf of the trust encouraging a shareholder proposal for mandatory dispute arbitration, including disputes involving securities fraud.

Micah Hauptman, financial services counsel at Washington, D.C.’s Consumer Federation of America, wrote in response to an email inquiry that he believes such clauses “would violate the federal securities laws and would be inconsistent with longstanding SEC policy on the matter. In addition, such clauses would violate state law because they would exceed the bounds of the internal affairs doctrine.” See also Barbara Roper and Micah Hauptman, “A Settled Matter: Mandatory Shareholder Arbitration Is against the Law and the Public Interest,” Consumer Federation of America (Aug. 15, 2018) (available at http://bit.ly/2UpR1ZR).

In response to Scott’s proposal, New Brunswick, N.J.-based J&J submitted a request to the SEC asking for a no-action letter that would allow the company to exclude the mandatory arbitration proposal from J&J’s annual meeting proxy statement.

The basis of J&J’s exclusion is 1934 Securities Exchange Act Rule 14a-8(i)(2), which allows for companies to exclude shareholder proposals “if the proposal would, if implemented, cause the company to violate any state, federal, or foreign law to which it is subject.” J&J said it believed that the proposal would cause it to violate federal securities law, as well as New Jersey state law.

J&J claimed in its letter to the SEC that the proposal violates Exchange Act Section 29(a), which voids provisions that “bind[] any person to waive compliance with any [part of the act] . . . or of any rule or regulation thereunder.”

The U.S. Supreme Court has held that Section 29 applies only to waivers of substantive provisions, not procedural provisions. Shearson/American Express v. McMahon, 482 U.S. 220 (1987) (available at http://bit.ly/2ECOyVh). Therefore, J&J could not claim that mandatory arbitration violates Exchange Act Section 27 (granting exclusive jurisdiction of claims under the act to U.S. District Courts).  J&J instead argued that mandatory arbitration would violate Exchange Act Rules 10b and 10b-5 prohibiting securities fraud.

Though J&J noted that the Supreme Court has held that arbitration provisions do not cause a waiver of compliance with substantive Exchange Act provisions, the SEC has allowed for exclusion of arbitration proposals based partially on arguments of Section 29(a) violations. J&J relied on those exclusions as precedent.

J&J also raised public policy concerns, arguing that arbitration agreements should be made on an individual basis rather than by corporate organizational documents.

In contrast, Hal Scott assured in his supporting statement that his proposal in no way violates state or federal law. (See the link above to the J&J letter on the SEC’s website; Scott’s proposal and supporting statement are exhibits.)

He wrote that the Supreme Court has held that mandatory individual arbitration provisions aren’t in conflict with the federal securities laws, and that New Jersey law allows for the provision because the state views corporate bylaws as a contract between corporations and stockholders.

Scott supported his proposal by highlighting the billions of dollars companies can spend on shareholder lawsuits. “We believe arbitration is an effective alternative to class actions,” he wrote. These suits also can be frivolous and result in a waste of both time and money for all parties involved, according to Scott.

After evaluating the parties’ arguments on the complex securities laws, Commissioner Clayton released a Feb. 11 statement backing the J&J request. The SEC response assured that, should J&J exclude Scott’s shareholder proposal, the SEC would not seek enforcement action.

Clayton’s statement emphasized that the no-action response is neither an acknowledgment nor a denial that Scott’s proposal violates Rule 14a-8(i)(2), but rather is just a statement that the proposal will not be enforced.

The New Jersey laws carried the no-action determination. Clayton states that no New Jersey precedent applies to the matter perfectly, but he seemed to be more inclined to believe that the proposal could violate state law.

That view was reinforced by a determination by N.J. Attorney General Gurbir Grewal, who advised the SEC in January that the proposal violates New Jersey law. “We view this submission as a legally authoritative statement that we are not in a position to question,” wrote SEC Corporation Finance Division attorney-adviser Jacqueline Kaufman in the agency’s no action letter.

In a Wall Street Journal article, Clayton indicated that he “wants to avoid a brawl” for now over a topic as divisive as this one, choosing instead to toe the line rather than spark a political fight.

With news of this SEC decision, Hal Scott remains optimistic about the possible future of mandatory shareholder arbitration. He spoke to Reuters about plans to appeal the SEC’s recommendation and discussed his reaction to the filing.

While he is unconvinced the appeal will succeed, he sees opportunity for future proposals like the one he submitted to J&J in the SEC’s deliberate omission of an affirmative statement regarding the legality of mandatory shareholder arbitration in the no-action letter.

This, according to Scott, is the most significant development so far. According to the Reuters article, the move “leaves open the prospect of mandatory shareholder arbitration for corporations based in states whose corporate codes would permit it.”

With the SEC permitting exclusion of shareholder proposals for mandatory arbitration, it raises a question of whether any company undertaking an IPO will be able to implement such a proposal.

The SEC at least appears hesitant to make a ruling on whether it believes mandatory arbitration violates any state or federal laws. If the SEC continues to allow exclusions like J&J’s, however, it may effectively result in the SEC taking the position that these arbitration provisions likely violate state or federal law.

A determination like this may be best left for Congress, rather than the SEC—though Clayton, according to Reuters, has vowed to have the full commission decide the issue of shareholder arbitration and the FAA, rather than piecemeal Corporation Finance Division opinions, when the time is ripe.

Regardless, this is an unsettled area of law that, once resolved, potentially will have immense impact on the landscape of public offerings, corporate governance, litigation and ADR.

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The author, a CPR Institute Spring 2019 intern, is a student at the Benjamin N. Cardozo School of Law in New York.

CPR Delegation Participates in the 69th Session of the UNCITRAL Working Group II on Expedited Arbitration

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In the picture (from left to right): Franco Gevaerd, Olivier P. André, and Piotr S. Wójtowicz.

By Franco Gevaerd

From Feb. 4-8, 2019, the United Nations Commission on International Trade Law Working Group II held its 69th session at the United Nations headquarters in New York. At this session, as set forth by the UNCITRAL during its 51st session, Working Group II commenced its deliberations on issues relating to expedited arbitration (see the Report of the UNCITRAL on the 51st session).

Given the CPR Institute’s international experience and expertise in international arbitration, the UNCITRAL Secretariat invited CPR to participate in the session as an observer delegation representing its views on expedited arbitration to facilitate Working Group II’s deliberations.

CPR sent a five-member delegation: Noah J. Hanft, President & CEO; Olivier P. André, Senior Vice President, International; Anna M. Hershenberg, Vice President, Programs and Public Policy & Corporate Counsel; Franco Gevaerd, International Consultant/Legal Intern; and Piotr S. Wójtowicz, Legal Intern.

Established in 1966 by the U.N. General Assembly, UNCITRAL plays an important role in developing an improved legal framework for international trade and investment, and in harmonizing and modernizing the law of these fields. The substantive preparatory work involved in doing that is typically assigned to UNCITRAL’s working groups (see the U.N.’s “A Guide to UNCITRAL”).

The UNCITRAL Working Group II is composed of UNCITRAL’s 60 member States and has been developing work focused on arbitration, conciliation and mediation, and dispute settlement. The group’s most recent project is the Singapore Convention. A signing ceremony for the convention is scheduled for Aug. 7, 2019.  Now, as mentioned above, the group’s attention has turned to the topic of expedited arbitration.

Expedited arbitration aims to streamline the process to reduce its time and cost. This topic has long been discussed by the international arbitration community and explored by arbitration institutions, mostly due to concerns with the length, cost and undue formality in the process, especially in less complex cases.

At the beginning of the group’s deliberations, it was generally agreed that this session’s work should “focus on establishing an international framework on expedited arbitration, without prejudice to the form that such work might take.” After that, the work should then proceed to analyze aspects relating to emergency arbitrators, adjudication, early dismissal of claims, and preliminary determinations by arbitral tribunals.

During the session, Working Group II participants discussed in depth many issues related to key aspects of expedited arbitration, including how to foster efficiency while preserving quality, due process and fairness; enforcement of awards resulting from expedited arbitration; application of the expedited procedure, and management of the proceedings.

CPR’s contributed substantially to the discussion throughout the week. In the Working Group II session’s first day, Anna Hershenberg pointed out that since its foundation, CPR has focused on creating rules that aim at efficient dispute resolution and users’ autonomy. She noted that in order to foster efficiency, CPR has built into its domestic and international arbitration rules quick time frames. Consequently, CPR’s international and domestic arbitration cases historically take an average of slightly more than 11 months from commencement of the proceedings to the arbitral award.

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Anna M. Hershenberg making her remarks during the session.

Later in the week, addressing the Working Group’s request to arbitral institutions to provide input on their experiences handling expedited arbitration proceedings, Olivier André pointed out:

CPR administered and non-administered arbitration rules already provide for time requirements which limit the length of proceedings. Users of CPR arbitration often customize their arbitration clauses to further limit these time requirements. In 2006, CPR also promulgated a fast-track procedure to supplement the non-administered arbitration rules. Parties can agree to this procedure to shorten the time requirements provided for under the rules and limit certain other procedural aspects, such as disclosure and the number of arbitrators, to expedite their proceeding.

oatun

Olivier P. André making his remarks during the session.

Besides the CPR’s Fast Track Arbitration Rules, CPR also offers to users two other set of rules that provide for expedited arbitration procedures: The CPR Rules for Expedited Arbitration of Construction Disputes, and the CPR’s Global Rules for Accelerated Commercial Arbitration. In addition, CPR’s committees, which are composed of representatives from different stakeholders involved in the arbitration process, often discuss ways to improve the arbitration process in general and in specific industries.

By the end of the week’s discussion, Working Group II was able to find a consensus in many of the key aspects of expedited arbitration discussed, such as reasoned vs. unreasoned awards, monetary thresholds, and number of arbitrators for expedited arbitration.

Several questions, however, are still open to discussion for the next Working Group II session. For example, what will be the form of the group’s work? And will this international framework be applied to arbitration in general, or specific to international commercial arbitration?

The next session of the UNCITRAL Working Group II is preliminarily scheduled to take place from Sept. 30 to Oct. 4, 2019, at the United Nations in Vienna. CPR is looking forward to continuing to contribute to the efforts.

* * *

The author is CPR’s International Consultant/Legal Intern. He holds a LL.B. from Pontifical Catholic University of Paraná (Brazil) and a LL.M. in International Commercial Law and Dispute Resolution from Pepperdine Law/Straus Institute for Dispute Resolution.

More on Mass Individual Arbitration As an Alternative to Class Arbitration

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By Echo K.X. Wang

A plaintiffs-side law firm is embracing a recently developed path to pursuing employment disputes against companies that mandate class-action waivers.

Last month in California’s Northern District federal court, Uber and Lyft were separately faced with individual JAMS Inc./American Arbitration Association claims and petitions to compel arbitration from thousands of Uber and Lyft drivers working for each company.

The Uber lawsuit, Abadilla v. Uber Technologies Inc., is scheduled for a hearing on a motion to compel arbitration on March 28 with U.S. District Court Judge Edward M. Chen. (The Abadilla case page is available at http://bit.ly/2By5Zpf.)

The Lyft lawsuit, Abarca v. Lyft Inc., is scheduled for an initial case management conference on Mar. 14, 2019 with U.S. District Court Judge William Haskell Alsup. (The Abarca case page can be found at http://bit.ly/2Svtny8.)

The drivers claimed that the ride-share companies have misclassified them as independent contractors and violated the Fair Labor Standards Act.

The basis for these arbitration claims arose in light of last year’s California Supreme Court case, Dynamex v. Superior Court of Los Angeles County, 4 Cal. 5th 903 (Cal. April 30, 2018) (available at http://bit.ly/2ByKGnH), where the state’s top Court limited companies’ ability to label their workers as independent contractors. Unlike workers classified as employees, independent contractors, including Lyft and Uber drivers, are not entitled to minimum wage and other benefits promised under state and federal law.

The U.S. Supreme Court last year ruled in favor of employers in limiting employee’s ability to bring class suits, backing waivers in favor of mandatory individual arbitration, in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) (available at https://bit.ly/2rWzAE8); see also Noah Hanft, “What’s Next for Employers, Post Epic Systems?” Corporate Counsel (July 24, 2018) (available on the CPR Institute’s website at http://bit.ly/2E6ZUlB).

Another earlier Supreme Court case, Stolt-Nielsen v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) (available at http://bit.ly/2SP4ugk), held that a party may not be compelled to submit to class arbitration under the Federal Arbitration Act unless otherwise provided for within the contract.

These decisions impose restrictions on employees’ ability to resolve workplace disputes, requiring them to arbitrate claims individually.

Yet 2019 has started off with a shift toward a more expansive view of workers’ rights which will affect—in ways yet to be determined—resolving conflicts with their employers. Last month, the Supreme Court in New Prime v. Oliveira, No. 17–340 (2019) (available at https://bit.ly/2CyEpbd) resolved a circuit split about whether the FAA Section 1 exemption applies to independent contractor agreements.

Plaintiff Oliveira brought a class action wage-and-hours claims against New Prime, an interstate trucking company. When New Prime sought to enforce its mandatory arbitration agreement under the FAA, Oliveira contended that he qualifies for the FAA Section 1 exemption, and the FAA shouldn’t apply to his case, thereby striking the mandatory arbitration clause in his independent contractor agreement.

The exemption clause states that “nothing herein” the FAA “shall apply to contracts of employment of . . . any [] class of workers engaged in foreign or interstate commerce.” While both parties agreed that Oliveira is considered a class of worker “engaged in interstate commerce,” the parties disagreed on whether the FAA’s “contracts of employment” included independent contractor agreements, or only to employer-employee agreements.

In the unanimous 8-0 decision by Justice Neil M. Gorsuch—new Justice Brett Kavanaugh wasn’t seated when the case was argued and didn’t participate—the Court held that “contract of employment” includes a broad reading of employee-employer relationships, including independent contractor agreements. Therefore, under FAA Sec.1, transportation workers like Oliveira may not be compelled to arbitrate.

Looking to the historical usage of the word “employment,” Gorsuch explained that when the FAA was enacted in 1925, “employment” was understood broadly to be “more or less as a synonym for ‘work.’” He also noted that both federal and state courts in the early 20th century have used the term “contract of employment” to describe work agreements involving independent contractors.

In summary, he wrote, “a contract of employment did not necessarily imply the existence of an employer-employee . . . . relationship.” (Emphasis is in the opinion.)

* * *

The New Prime decision could have a significant impact on the interstate transportation industry, including the outcomes of the pending Uber and Lyft disputes. Chicago-based law firm Keller Lenkner  initially filed and is orchestrating both the 12,501 arbitrations claims against Uber (Abadilla v. Uber Technologies Inc.)and the 3,420 Lyft drivers arbitration claims against Lyft (Abarca v. Lyft Inc.).

When the two companies failed to fully pay the initial arbitration filing fees as promised within the companies’ arbitration agreements, Keller Lenkner enlisted Los Angeles firm Larson O’Brien LLP to help with the Uber Abadilla cases, and filed a motion to compel arbitration against both companies in the N. D. California District Court.

It is not a surprise that Uber and Lyft are delaying the fee payments. As it turns out, the large numbers of individual arbitrations are expensive and time consuming for companies. In the Uber arbitrations under JAMS, the initial filing fees for arbitration is $1,500 per dispute.

Similarly, Lyft’s American Arbitration Association arbitrations are $1,900 per dispute. A detailed list of AAA’s employment dispute arbitration fees is available at https://bit.ly/2X4VD9Q.

At the same time, Uber counters in the joint case management statement filed by both parties on Feb. 7 that the plaintiffs haven’t paid their arbitration fees either. The joint statement is available at http://bit.ly/2X10Tew.

Uber even proposed to resolve the arbitrations through four representative arbitrations. Alison Frankel, “Forced into arbitration, 12,500 drivers claim Uber won’t pay fees to launch case,” Reuters (Dec. 6, 2018) (available at https://reut.rs/2tha1xS). While Keller Lenkner rejected this offer on behalf of its clients, it is interesting and unusual that Uber proposed the equivalent of class arbitration, after fighting so hard—and successfully—against class action arbitrations at the Ninth U.S. Circuit Court of Appeals. O’Connor, et al.  v. Uber Technologies Inc., No. 14-16078 (Sept. 25, 2018) (available at http://bit.ly/2Gnhggl).

In combatting these individual arbitration claims, the ride-share companies adopted several tactics including: 1) delay the arbitrations by not paying the arbitration initial filing fees, 2) challenging their opposing counsels’ qualifications, and 3) offering incentives for employees to drop their arbitration claims.

The tactic to delay arbitration fee payments, as both Uber and Lyft seem to be doing, is not new. See Howard E. Levin, Stiffing the Arbitrators and the Respondents, ABA GPSolo eReport (Aug. 22, 2017) (available at http://bit.ly/2WZQD6c). Neither is the plaintiffs’ push for mass individual arbitrations. See Jessica Goodheart, “Why 24 Hour Fitness Is Going to the Mat against Its Own Employees,” Fast Company (March 13) (available at http://bit.ly/2pkDPIm) (A class of health club employees decertified by a California federal court filed hundreds of individual arbitrations, which the employer settled as a group); Ben Penn, “Buffalo Wild Wings Case Tests Future of Class Action Waivers,” Bloomberg Law (July 12, 2018), https://bit.ly/2Sx9qXY (Workers at Buffalo Wild Wings filed nearly 400 individual arbitrations for wage-and-hour disputes, which also resolved in a group settlement).

Uber and Lyft did not respond to a request for comment.

Since arbitrations can only proceed after the initial filing fees are paid, there is perverse incentive for companies to delay or even refuse to pay the arbitration fees, in hopes that employees would either pay for the filing fees themselves, or simply give up and abandon the claims altogether.

As noted, the companies advanced arguments to attack the qualifications of their opposing firms and attorneys. In a separate but similar wage-and-hour arbitration dispute at the California Northern District federal court, Uber succeeded in its motion to disqualify Keller Lenkner and its partner Warren Postman from representing Diva Limousine against Uber in Diva Limousine Ltd. v. Uber Technologies Inc. (case page available at http://bit.ly/2Ia1wz2).

In Diva, Uber argued that in his previous job at the U.S. Chamber of Commerce, Postman frequently “exchanged confidential and privileged communications [with Uber] on the driver classification issue,” and should therefore be disqualified for conflicts of interest. (A detailed account of Uber’s argument can be found at Alison Frankel, “Law firm for Uber drivers in mass arbitration is bounced from federal court case,” Reuters (Jan. 10) (available at https://reut.rs/2GntPYS).

On Jan. 11, Judge Edward M. Chen from the California Northern District federal court in San Francisco granted Uber’s motion to disqualify Postman & Keller Lenkner. On Feb. 11, 2019, the plaintiff appealed this decision to the Ninth Circuit, filing a writ of mandamus.

Uber is now trying to use the Diva opinion as the basis to disqualify Keller Lenkner and Larson O’Brien in the Abadilla case. In Uber’s opposition to the plaintiffs’ motion to compel arbitration (see motion available at http://bit.ly/2TNcnjx), the company argued that while the counsel of record for the 12,501 drivers is the Larson O’Brien firm, the arbitration demands were initially submitted to JAMS by Keller Lenkner.

Uber expressed doubts on Larson O’Brien’s involvement in the case, alleging that Keller Lenkner, with Larson O’Brien by association, should not be able to represent the drivers given the Diva disqualification judgment.

Keller Lenkner might face the same conflict problem against Lyft as well.  In November, soon after Keller Lenkner requested arbitration, Lyft filed a tort lawsuit against Postman, seeking both money damages and an injunction against Postman from representing the Lyft drivers in arbitrations. (Lyft Inc. v. Postman, case court docket available at https://bit.ly/2SRO4DY). There, Lyft alleged that Postman worked closely with Lyft when he was at the Chamber of Commerce, and like Uber, alleged that he was exposed to confidential information about Lyft’s driver classification issues (see motion available at https://bit.ly/2tiNMYu).

On Jan. 16, the Court grant an extension for Postman to respond to the complaint, but Postman has yet to respond as of Feb. 14. It is unclear if the Diva opinion, now on appeal, would affect Keller Lenkner’s eligibility to represent the drivers in the Lyft arbitrations.

* * *

In addition to stalling the arbitration and imposing other defenses against the arbitrations, Uber and Lyft might also consider other ways to settle these claims. Uber already did this in the past, in offering to pay 11 cents per mile in exchange for drivers to opt out of another arbitration. After all, Uber and Lyft are both hoping to go public in the next few months, and it would be to their advantage to resolve these matters before then.

It is unknown if mass individual arbitrations—the plaintiffs’ “death by a thousand cuts” strategy—will turn out to be a key path for gig-economy workers. While mass individual arbitrations may impose pressure for companies to change their policies or to settle, would it be possible to arbitrate so many disputes?

Although it appears that Uber is stalling for time by attacking Postman’s qualifications, it is questionable whether Keller Lenkner, a 10-attorney firm, is equipped to handle more than 16,000 individual arbitrations–though, according to Keller Lenkner, they have been referring affected clients to other firms as a way to address this problem.

The plaintiffs’ mass arbitration strategy also has been questioned by experts, who wonder whether it risks corrupting the processes.  They charge that attorneys employing this strategy may be trying to gain negotiation leverage, rather than intending to arbitrate each claim, which, they say, is detrimental to ADR. See Andrew Wallender, “Corporate Arbitration Tactic Backfires as Claims Flood In,” Bloomberg Law (Feb. 11) (available at https://bit.ly/2BwruqF).

Moreover, in light of New Prime, significant changes loom in how transportation workers bring their claims. For drivers in the ride-share industry who “engage[] in … interstate commerce,” New Prime stands for the proposition that they have a choice to bring future wage and hour claims directly to the state and federal courts, rather than through arbitrations.

Another question is whether Uber and Lyft drivers will fit under the FAA Sec. 1 umbrella of transportation workers “engaged in … interstate commerce.” Even if they are, how will the New Prime sit with individual state laws and regulations?

 

The author is a Spring 2019 CPR Institute intern, and a student at Brooklyn Law School.

The European View: The Decision on the Jurisdictional Objection in Vattenfall AB and Others v. Federal Republic of Germany

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WierzbowskiSzostak_oferta

EU flag

By Krzysztof Wierzbowski[1] and Aleksander Szostak[2]

On 31 August 2018, the Arbitral Tribunal in Vattenfall AB and others v. Federal Republic of Germany issued a decision on jurisdictional objection made by the Federal Republic of Germany (decision).[3] The Tribunal asserted its jurisdiction, despite Germany’s argument based on the groundbreaking Slovak Republic v. Achmea decision issued earlier that year by the Court of Justice of the European Union (CJEU).

Background on the decision

The dispute between Vattenfall and Germany concerns the decision by Germany following the 2011 Fukushima disaster to phase out nuclear power by 2022.[4]

Vattenfall initiated proceedings pursuant to the Energy Charter Treaty (ECT) and ICSID Convention, claiming that the decision to phase out nuclear power and, thereby, shut down nuclear plants breached Germany’s obligations under the ECT.

Germany based its jurisdictional objection on the reasoning of the CJEU in the Achmea preliminary ruling, in which it was decided that the investor-State Dispute Settlement (ISDS) mechanism in the relevant intra-EU BIT is incompatible with EU law because the mechanism prevents investment treaty disputes from being decided within the judicial system of the EU. [5]

Germany essentially claimed that Art. 26 ECT, providing for the ISDS mechanism, must be interpreted restrictively in such a manner that the ISDS is not applicable in intra-EU investor-State disputes.[6] It further noted that the reasoning of the CJEU in Achmea extends to intra-EU investor-State disputes initiated under multilateral treaties, such as the ECT, as the risk to the consistent interpretation and application of EU law exists irrespective of the bilateral, or multilateral character of a treaty.[7]

Decision of the Tribunal on the Achmea issue

The ICSID Tribunal rejected the argument that Art. 26 ECT should be interpreted to exclude intra-EU investor-State arbitration.[8] In this sense, it dismissed Germany’s claim and asserted its jurisdiction.

The ICSID Tribunal stated that while the CJEU in Achmea interpreted the ISDS clause in the underlying intra-EU BIT as conflicting with the provisions of the European Union (EU) law, it limited its considerations to ISDS clauses in intra-EU treaties of bilateral character. Thus, the CJEU did not extend its reasoning to multilateral treaties concluded between EU members and third States.[9] The ICSID Tribunal further contended that the ECT is not an agreement concluded between EU Member States within the meaning of Achmea, but rather constitutes a mixed agreement between EU Member States, third States and the EU itself.[10]

The ICSID Tribunal pointed out that in line with the view expressed in Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, the CJEU in Achmea did not address the argument in the Opinion of the Advocate General Wathelet (AG), in which the AG distinguished between ISDS clauses in BITs and ECT, further supporting the position of the ICSID Tribunal.[11]

Having carried out an interpretation of Art. 26 ECT in accordance with Art. 31 of the Vienna Convention on the Law of Treaties, the ICSID Tribunal concluded that in light of the context, object and purpose of the ECT, Art. 26 ECT does not exclude the possibility of intra-EU ECT arbitration.[12]

The ICSID Tribunal further noted that the lack of the “disconnection clause” in the ECT, which aims to ensure that the provisions of a multilateral treaty apply only between particular States, confirms that the ECT creates obligations between EU Member States and does not exclude intra-EU ECT arbitration.[13]

Implications of the decision

The decision on the Achmea issue has a number of implications for investment protection system in the EU.

In particular, the decision confirms the full effectiveness of the ECT in relations between parties that are EU Member States. This is clearly beneficial for investors engaging in the European market as the restructuring of investment will not be necessary to benefit from protection granted by the ECT. This may contribute to further development of the European energy market. Undoubtedly, the Decision, by asserting the full effectiveness and binding force of the ECT, could positively affect the cross-border cooperation in the energy industry between its Parties.

Nonetheless, it must be emphasized that while the Decision presents the perspective of an arbitral tribunal, the European Commission (EC) and the CJEU may advocate that the Achmea argument extends to MITs, which raises a threat to the ECT as well to the recognition and enforcement mechanism of ICSID arbitral awards in the EU Member States. Art. 54 of the ICSID Convention provides that each contracting state shall recognize an award rendered by an ICSID Tribunal as binding and enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court where recognition is sought. This unique recognition mechanism does not leave room for any ground on which the recognition could be refused.

Therefore, considering the possibility that the EC and, depending on whether there will be a preliminary ruling on the compatibility of Art. 26 ECT with the EU law and the role of the ICSID Convention, CJEU will not accept the reasoning of the ICSID Tribunal in Vattenfall AB and others, the national court where the recognition is sought will be faced with a rather complex and uncertain situation of conflicting treaty obligations. It must decide whether to recognize the award pursuant to Art. 54 of the ICSID Convention, or to comply with the EU law and, thereby, refuse to recognize the award.

The possibility that a national court may decide not to recognize the award rendered pursuant to the ICSID Convention may undermine the effectiveness of the Convention and deprive investors of the benefit of its recognition mechanism.

Additionally, it must be noted that payment of compensation awarded by the arbitral tribunal may, as it was the case in the Ioan Micula, Viorel Micula and others v Romania and Decision adopted by the EC, constitute illegal state aid under Article 107(1) of the Treaty on the Functioning of the European Union (TFEU).[14] This leads to the consideration that even if the Achmea argument would not cover MITs, the enforcing court would still face a dilemma of whether to enforce the award.

In light of the above, it is interesting to note that the ICSID Tribunal explicitly stated that while it is mindful of the duty to render an enforceable award, it must perform its mandate given under the ECT and, thereby, is not as such concerned with the question of whether the award will be recognized or enforced.[15]

Conclusion

The Decision of the ICSID Tribunal in Vattenfall AB and others on the jurisdictional objection made by the Federal Republic of Germany demonstrates the approach of investment treaty tribunal to the “Achmea issue” and adds to the ongoing discussion on the relationship between EU law and investment protection treaties.

While the ICSID Tribunal confirmed that the reasoning of the CJEU in Slovak Republic v. Achmea preliminary ruling does not extend to intra-EU arbitrations initiated on the basis of multilateral treaties, there is uncertainty as to the approach of the EC and, possibly, CJEU to the matter. Ultimately, it is the domestic court of a Member State before which the recognition and/or enforcement of the award will be sought that will have final say on the matter.

It is worth noting that because of the fragmentation of international investment law and lack of stare decisis principle in investment treaty arbitration, there is much uncertainty as to whether arbitral tribunals will follow the reasoning of the ICSID Tribunal in Vattenfall AB and others.

After the decision of the EC with respect to Ioan Micula, Viorel Micula and others v. Romania, even if the EC and CJEU would share the reasoning of the ICSID Tribunal in Vattenfall AB and others regarding jurisdiction, investors may be unable to obtain compensation awarded by tribunals, as it would amount to illegal State aid.

Finally, the Achmea argument has the potential to become a popular strategy of defendants in investment arbitration proceedings to challenge the jurisdiction of arbitral tribunal, or admissibility of a claim.

Endnotes

[1] Krzysztof Wierzbowski is the senior partner at Wierzbowski Eversheds Sutherland.

[2] Aleksander Szostak LL.M., LL.B. is a trainee lawyer at Wierzbowski Eversheds Sutherland.

[3] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018].

[4] 13. AtGÄndG v. 31.07.2011, BGBl I S. 1704 (No. 43); Nathalie Bernasconi-Osterwalder and Rhea Tamara Hoffmann, The German Nuclear Phase-Out Put to the Test in International Investment Arbitration? Background to the new dispute Vattenfall v Germany (II) (The International Institute for Sustainable Development 2012).

[5] Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV [2018] par. 59-60.

[6] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018] par.50.

[7] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018] par.51-52.

[8] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018] par. 211.

[9] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018] par.213.

[10] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018] par.162.

[11] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018] par.163-164; Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV [2018], Opinion of AG Wathelet [2017] par.43; see. Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award [16 May 2018].

[12] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018] par.207.

[13] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018] par. 201-206.

[14] See. Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20; Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania — Arbitral award Micula v Romania of 11 December 2013.

[15] Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018] par.230-231.

Blind Justice: Can Individuals Be Bound to Arbitration Clauses They Can’t Read?

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By Michael Heller

The First U.S. Circuit Court of Appeals in Boston recently declined to enforce an arbitration clause in the Container Store’s loyalty program against blind customers. The ruling followed a trend of other circuits requiring a minimum level of notice for arbitration agreements to be binding.

In the case, Nat’l Fed’n of the Blind v. Container Store, Inc., No. 16-2112, 2018 U.S. App. LEXIS 26122 (1st Cir. Sept. 14, 2018)(available at https://bit.ly/2xVaxUY), a unanimous circuit panel that included retired U.S. Supreme Court Justice David Souter, sitting by designation, examined whether an arbitration clause in the retailer’s loyalty program agreement was binding to blind customers.

The plaintiffs alleged that the Container Store’s sign-up process wasn’t handicap accessible. The retailer’s in-store touch screen interface required the customers to announce their private account information to clerks, creating privacy concerns. The complaint alleged violations of the Americans with Disabilities Acts and under the state laws where the plaintiffs joined the loyalty program, Massachusetts, California, Texas and New York.

Three of the plaintiffs signed up for the loyalty program in-store, and one registered online. The in-store customers signed up on a touch-screen device with the aid of an employee, but there was no evidence that they were notified by that they were agreeing to waive any rights to court by signing up for the program, which included an arbitration clause.

The plaintiff who signed up on her home computer said she didn’t recall being presented with the arbitration agreement.

The court held that no valid agreement to arbitrate was formed with the in-store customers because they did not receive a “minimum level of notice,” pursuant to the Americans with Disabilities Act that they were waiving any rights to pursue future ADA claims in court. The court held that an agreement was formed with the online customer, but that it was void as illusory under Texas state law.

The Container Store contended the suit was an attack on the validity of the entire agreement, but the appeals panel agreed with the plaintiffs that the problem was that there was no valid contract formed for arbitration.

Traditionally, courts have upheld the rule that an inability to read a contract is not a defense to contract formation. But “at the same time,” the opinion noted, “a party cannot enter into a contract to arbitrate when it does not know or have reason to know the basic terms of the offer.”

The unanimous opinion authored by First Circuit Judge O. Rogeriee Thompson, and joined by Senior Circuit Judge Bruce M. Selya, as well as retired Supreme Court Associate Justice Souter, cited recent case law that has begun to carve out an exception where a party is not made aware that they are entering into an agreement in the first place.

In Noble v. Samsung Elecs. Am., Inc., 682 Fed. App’x. 113 (3d. Cir. 2017), the Third Circuit examined an agreement to arbitrate that was buried deep within a lengthy smartwatch operation manual. The court held that no agreement to arbitrate was formed because a customer cannot be deemed to have consented to a writing that does not even appear to be a contract.

In Sgouros v. TransUnion Corp., 817 F.3d 1029 (7th Cir. 2016), the Seventh Circuit held that a link to a service agreement on a credit-score website did not properly identify itself as an agreement containing an arbitration clause and therefore did not create a valid agreement to arbitrate.

In Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279 (9th Cir. 2017), the Ninth Circuit acknowledged a rule that, “an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious.”

And in Nicosia v. Amazon.com Inc., 834 F.3d 220, (2d Cir. 2016), a Second Circuit panel held that where a customer was not required to manifest assent to conditions of use containing an arbitration provision, they were not bound to those terms.

These cases, the Nat’l Fed’n of the Blind opinion noted, demonstrated that courts recognize that parties cannot be bound by an agreement to arbitrate that they are not given notice of.

But the opinion noted that parties can be bound to an agreement to arbitrate that they were not made aware of in situations where it is clear that parties are entering into a contractual relationship. The court referenced obtaining a loan, employment and being admitted into a nursing home as situations where a contractual relationship could be presumed.

Companies seeking to ensure the enforceability of their arbitration clauses should take these recent developments into account. The burden imposed by these cases are seemingly minimal: only that parties are made aware that they are entering into a contractual relationship.

In addition, as this case shows, special considerations have to be taken into account for people with disabilities.

The author is a Brooklyn Law School student who is a CPR Institute Fall 2018 Intern.

Amicus Preview, Part 2: The Independent Contractors Want Their FAA Sec. 1 Exemption

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By Sara Higgins and Russ Bleemer

The respondents’ amicus briefs urging the U.S. Supreme Court to affirm the First U.S. Circuit Court decision in New Prime Inc. v. Oliveira, No. 17-340, which was argued earlier this month, focus on statutory history and the plain meaning of the Federal Arbitration Act.

They argue that independent contractors are exempt from FAA application like other transportation workers under a “contract of employment.” That exemption is in the act itself, in Sec. 1, which states, “. . . nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

In other words, the unions, scholars and think tanks excerpted below say the protections the 1925 FAA drafters provided to transportation employees also goes to independent contractors.  Some amicus argue that the term “employees” meant something different then than it means now.

One brief tackles the arbitrability issue that is before the Court, too. Though most amicus filers on both sides focused on the merits of whether the FAA applies to independent contractors, the source of the arbitrability decision–on whether the matter will be heard in arbitration to be made by either a court or an arbitrator–also is expected to be a part of the Supreme Court’s opinion.

The material below covers the respondents’ friend-of-the-court briefs backing independent truck driver Dominic Oliveira. For the petitioner’s briefs, which were filed first, as well as for background on the case and links to deeper dives into the facts and the issues, see the immediately previous CPR Speaks feature, Sara Higgins, “Amicus Preview: New Prime’s New Look at Mandatory Arbitration,” CPR Speaks (Oct. 2)(available at https://bit.ly/2zNqYUF).

In support of Respondent Oliveira:

  1. American Association for Justice
  • AAJ, which represents trial lawyers, offers a broad historical argument that says that the FAA Sec. 1 exemption from the law’s application includes all transportation workers, not just seamen and railway workers.
  • The Washington, D.C.-based association is concerned that the Federal Arbitration Act constructions by petitioner New Prime undermine the right of U.S. workers to pursue their statutory and common-law rights in a judicial forum.
  • AAJ believes it is clear that all workers in the transportation sector, whether “employees” or “independent contractors,” were meant to be exempted from the FAA.
  • New Prime’s narrow construction belies the FAA enactment history, Congressional intent, and basic principles of contract construction as applied by the Court and elsewhere. Independent vehicle owner-operators and others contracting to perform work themselves certainly existed at the time the FAA was passed, and had Congress not wished the exemption to apply to all who actually worked in the transportation sector, it would have said so.
  • That Congress meant to exempt all workers in the transportation section from the FAA– not limited or reliant upon how that worker happened to be paid—is consistent with the Court’s decisions and other Congressional action.
  • In historical context, the use of the term “contracts of employment” routinely included the “employment” of “independent contractor” drivers and, hence, is not meant to exclude any drivers from the benefit of the exception. The Sec. 1 exemption, which was urged by American Federation of Labor lobbyists at the 1925 FAA enactment, the brief notes, “would surely have included all members of one of its most important affiliates, the Teamsters.”
  1. Public Citizen, Inc.
  • The Washington consumer advocacy group, a frequent participant in federal arbitration litigation on behalf of consumers and employees, submits its amicus brief to address one of the two issues raised by petitioner New Prime: whether, when a contract contains an arbitration provision including a clause delegating questions of the arbitrability of a matter to an arbitrator, the FAA requires a court to compel arbitration of the issue whether the FAA even applies to the contract.
  • The brief notes that both the amicus and the parties focus more on the merits issue—that is, whether the FAA exemption applies to all transportation workers—and pay insufficient attention to the arbitrability issue before the Court.
  • Although New Prime’s argument—that the FAA requires a court to refer the issue of its own applicability to an arbitrator without first addressing a substantial argument that the FAA doesn’t not apply to the contract containing the delegation clause the court is being asked to enforce—seems counterintuitive, Public Citizen says its amicus brief addressing the issue may assist the Court in reaching a decision that adds clarity to arbitration law and helps define the limits of the Court’s rulings on the subject.
  • The FAA cannot, and does not, require a court to enforce any arbitration agreement unless the court determines that the FAA applies to that agreement.
  • “The requirement that a court decide whether the contract at issue is excluded from the FAA’s coverage by section 1 before ordering arbitration of any issue (including the section 1 issue itself) is critical, because any order compelling arbitration under the FAA is necessarily applying the FAA to give effect to a purported agreement to arbitrate. A court may not apply the FAA where the FAA itself provides that it is inapplicable.”
  • New Prime’s invocation of its delegation clause and the principle of “severability” cannot justify application of the FAA to a contract to which the FAA does not apply.
  1. Sheldon Whitehouse, D., R.I.
  • Whitehouse, a former state attorney general and U.S. Attorney, invokes Alexis de Tocqueville, Blackstone, and Machiavelli at the outset of his brief, which launches a broadside at the Court’s arbitration jurisprudence. He writes that he files the brief “to draw attention to the Court’s steady march of decisions eroding the Constitution’s Seventh Amendment protections and to warn of the Court’s perilous destabilization of its own institutional reputation.”
  • “Over the past decade,” states Whitehouse, “a predictable conservative majority of the Supreme Court has handed down an accommodating string of 5-4 decisions closing off ordinary citizens’ pathways to the courtroom. Corporate victories at the Supreme Court have undermined civil litigants’ constitutional right to have their claims heard before a jury of their peers, and have whittled to a nub the protective role courts and the jury system were designed to play in our society. Such victories have allowed corporations to steer plaintiffs out of courtrooms and into arbitration, where the odds can be stacked in favor of big business. The Court’s recent arbitration decisions regarding the [FAA], aggrandizing its reach and undermining the original purpose of the Seventh Amendment, are an example.”
  • “[T]his grant of certiorari has the same seeming inevitability as those 5-4 decisions in cases preceding it. Accordingly, amicus fears that the outcome of this case may be preordained—not by the FAA’s plain language, but instead by the trajectory of the recent pattern of 5-4 partisan decisions (decisions in which the Court divides 5-4 with the Republican-appointed majority voting as a bloc). With numbingly predictable inevitability, these cases seem to be won by the ‘more powerful and wealthy’ corporate citizens.”
  • Whitehouse’s legal arguments surrounded two key points in urging the Court to back the First Circuit: “A clear policy preference has emerged for denying citizens their day in court,” and the Court “compromises its legitimacy when it jettisons neutral principles to reach a desired outcome.”
  1. Historians
  • The amicus brief was prepared on behalf “scholars of American labor and legal history [who] have a professional interest in accurate and valid inferences from the historical record”: Shane Hamilton, University of York; Jon Huibregtse, Framingham State University; James Gray Pope, Rutgers Law School; Imre Szalai, Loyola University New Orleans College of Law; Paul Taillon, University of Auckland; and Ahmed White, University of Colorado School of Law.
  • By operation of the ejusdem generis canon, which indicates that a statutory provision should be interpreted in accordance with the words nearby—“of the same kind”–the FAA exemption’s residual clause (“any other class of workers”) does not cover only common law employees in the wake of the statute’s enumeration of railroad workers and seamen. If Congress had intended the FAA exemption to cover only common-law employees, as New Prime now reads it, Congress would have disrupted the statutory dispute resolution schemes for “seamen” and “railroad employees” that it had wanted to avoid unsettling.
  • Relying on more than three dozen agency determinations, the brief notes that the Transportation Act covered railroad workers who would not have counted as employees under the common law of agency. Similarly, shipping arbitration “covered ‘any question whatsoever’ in a seaman’s dispute, including those that did not turn on whether the seaman was anyone’s ‘employee’ under the common law of agency.”
  • The FAA would have disrupted the Transportation Act had it only exempted common-law employees. The theory appears to be that the FAA Sec. 1 exemption applies to independent contractors, which the brief barely mentions, though it notes that independent contractors were covered for railway workers disputes under the Transportation Act of 1920 and seamen disputes under the Shipping Commissioners Act of 1872.
  1. Constitutional Accountability Center
  • The Washington, D.C., think tank and public interest law firm, devoted to a progressive interpretation of the Constitution’s text and history, is concerned with “ensuring meaningful access to the courts, in accordance with constitutional text, history, and values.” Heavily citing numerous dictionary definitions, the Center argues that New Prime’s argument badly misinterprets the view of the definition of employees when the FAA was passed. The Center backs affirming the First Circuit interpretation.
  • When Congress enacted the FAA, “employment” was a broad and general term that did not connote a master-servant relationship. Dictionaries of the era, however, defined the word “employment” by consistently giving it a broad meaning—one that encompassed paying another person for his or her work, whether or not the common-law criteria for a master-servant relationship were satisfied. The word “employee” gradually influenced, and limited, the meaning of the term employment, but only well after the FAA was enacted.
  1. Massachusetts, et al.
  • Fourteen states and the District of Columbia filed an amicus brief because they state that they enforce laws that protect the public interest, including those that set fair labor standards and promote the health and safety of all working people. Employees who are misclassified as independent contractors are often denied many basic workplace protections and benefits that they are entitled to receive—and employers who fail to properly classify and pay their workers gain an unfair competitive advantage. The states and the District of Columbia “have an interest in seeing that transportation sector workers such as Respondent Dominic Oliveira get their day in court, as Congress intended.”
  • Because states have limited resources, they rely on individual employees to supplement the efforts of attorneys general through private enforcement actions. “And many transportation companies engage in exploitative labor practices while at the same time using mandatory arbitration agreements with unreasonable forum selection clauses to attempt to prevent their misclassified drivers from pursuing otherwise available legal remedies.”
  • The FAA Sec. 1 language of the transportation workers’ exemption excludes interstate truck drivers from the FAA’s scope, regardless of whether they are employees or independent owner-operators. This conclusion becomes especially clear in light of the history surrounding Congress’s regulation of leases between independent truck drivers and authorized motor carriers.
  • Both of New Prime’s arguments are foreclosed by the FAA’s plain language, read in its proper historical context.
  1. Employment Law Scholars
  • The amicus brief signers are 35 law professors who have taught and written about employment law. They submit this brief because they believe that the FAA should be construed consistent with how all other statutes and related case law treat issues of worker status.
  • Petitioner New Prime and its amicus supporters ask the Court to interpret contracts of employment as used in the FAA based solely on the labels used in particular contracts, drawing distinctions between independent contractors and employees where there is no sound basis to do so.
  • “Allowing worker status to be decided by contract would set the FAA apart from every other federal statute governing workers. It would lead to inconsistency and uncertainty in the workplace because worker status would vary based on contract or the label chosen for each worker.” In New Prime, it could jeopardize the Fair Labor Standards Act’s mission that “prevent[s] parties from contracting away employees’ rights to minimum wages and overtime compensation,” the brief notes, adding that the Court “must not, through the FAA, endorse this type of race to the bottom.”
  • Many federal and state statutory schemes do not distinguish between common law employees and independent contractors.
  • The reality of the working relationship, not the face of the contract, determines workers status under federal employment statutes.
  1. Owner-Operator Independent Drivers Association Inc.
  • The 45-year-old Grain Valley, Mo.-based association submitted its amicus brief to inform the court that owner-operator truck drivers are a class of workers engaged in interstate commerce, and how their lease agreements with motor carriers, such as petitioner New Prime, are contracts of employment as set out in the FAA Sec. 1 exemption.
  • The amicus brief is filed by the largest international trade association representing the interests of independent owner-operators, small-business motor carriers, and professional drivers. The association notes that the question of whether the contracts of owner-operators are subject to the FAA will determine whether owner-operators will continue to have any meaningful opportunity to protect their small businesses from the type of predatory behavior described in defendant Oliveira’s brief. “Especially important,” the association notes, “is the right to bring an action in federal court for damages and injunctive relief specifically granted to owner-operators by Congress in 1995.”
  • Congress looked to two factors when it formed FAA Sec. 1’s scope: “the maintenance of a smooth operating transportation system and Congressional concerns for enacting specific regulations governing the contracts of transportation workers.” The legislative and regulatory history demonstrates that motor carrier/owner-operator contracts are among those Congress exempted from FAA application by Sec. 1 to achieve the goals in the statute’s adoption: The “provision of different procedures and forums to resolve disputes under those contracts demonstrate precisely the type of contract for employment of persons engaged in interstate commerce that Congress intended to exempt from the FAA.”
  1. International Brotherhood of Teamsters, National Employment Law Project Inc., Economic Policy Institute, and National Employment Lawyers Association
  • Like AAJ and the state amicus briefs, the four-party amicus brief also is concerned about the misclassification of independent contractors by employers, which, among other things, cuts off employers’ responsibility for taxes and liability on behalf of and to their workers. The brief is concerned that a ruling in favor of petitioner New Prime would create incentives for more companies to misclassify their employees as independent contractors in order to evade worker protections.
  • The interest in this case by the amicus filers—a big union, an employment lawyers’ association that focuses on plaintiffs’ representation; an employees’ advocacy research organization, and an economics policy think tank–is to ensure that drivers involved in interstate commerce, including those classified as independent contractors, are afforded the FAA Sec. 1 exemption granted to contracts of employment in the transportation industry.
  • The brief also states that Prime’s errant suggestion that employment relationships under the FAA should be identified by the terms of the contract alone may affect misclassification analysis under other statutes.
  • Truck drivers, like respondent Oliveira, “are frequently misclassified by their employers as independent contractors. This treatment excludes drivers from basic labor and employment protections like the minimum wage, health and safety, and discrimination protections, to name a few.”
  • The brief says that the Supreme Court doesn’t need to determine whether Oliveira was misclassified by New Prime, “because he and the company entered into a contract of employment that should be exempt under the plain language of the Federal Arbitration Act.”
  • Alternatively, the brief argues, if the Court decides that the employee versus independent contractor relationship must be decided in order to determine FAA applicability, “it should take into account the independent contractor misclassification problems endemic in the trucking industry, the impacts on workers, other employers, and state budget and tax coffers, and on employers’ economic incentives to misclassify more drivers that will result.”
  • And if the Court finds that the contract-of-employment analysis requires a determination of whether a worker is an independent contractor, that determination must consider all incidents of the relationship and not be limited to the unilaterally imposed terms of the contract.
  • The FAA’s plain text shows that the Court should find that truckers’ independent contractor arrangements are “contracts of employment” and exempt from the FAA’s coverage. The brief emphasizes the policy consequences of a holding to the contrary.
  • Independent contractor misclassification and the unlawful and exploitative working conditions it engenders are rampant across the economy, but particularly prominent in the trucking sector.
  • Bad-actor employers misclassify works in attempts to avoid tax and other liability, imposing significant societal costs on the public, law-abiding employers, and workers.
  1. Statutory Construction Scholars
  • The amicus brief was written on behalf of 14 law school professors engaged in the teaching and study of statutory construction principles. They believe that a “shared commitment” to certain standards of analytical care “leads to only one conclusion in this case–that application of key canons of statutory construction” to the FAA contracts-of-employment language “applies to all transportation workers without exclusion of workers who are deemed to be independent contractors, and without the legally protected status of “employees.”
  • “The First Circuit’s opinion in Oliveira v. New Prime Inc., reflects a well-reasoned, thoughtful approach to statutory construction. Petitioner attempts to upend that decision and contorts the canons of statutory construction beyond their reasonable parameters in a miscarriage of justice.”
  • The petitioner’s conclusion that the FAA’s contracts-of-employment statutory exception is limited to only those with the legal status of “employees” is not sound.
  • First, the words in statutes are read in light of their ordinary, plain meaning. Those words, the brief notes, “are understood from the perspective of what was meant when they were drafted.” [Emphasis is in the brief.] The petitioner’s argument, “which rests on modern dictionary definitions instead of inquiring into the terms’ meaning at the time the FAA was enacted, fails to comply with those canons of statutory construction and should be disregarded.”
  • The ejusdem generis canon (see above) does not support limiting contracts of employment to employees.
  • Reading the residual exclusion of the FAA’s Sec. 1 to include all transportation workers does not negate FAA Sec. 2 language, which must be read independently because it has a different substantive mandate.

Steve Viscelli, et al.

  • Steve Viscelli is a University of Pennsylvania sociologist who studies work, labor markets, and public policy related to freight transportation, automation and energy. He submitted the brief to provide a better picture of the economic incentives at work in the trucking industry. He provides an analysis of trucking industry’s employment evolution to a “Lease-Operator” model from owner-operators in urging the Court to avoid requiring arbitration to settle employment disputes in the industry.
  • Viscelli is joined by six current or former owner-operators or Lease-Operator truck drivers, whose situations are used as examples in the brief. Also joining the brief as amicus parties is two nonprofits, the Wage Justice Center, a Los Angeles advocacy group for economic justice and fair pay, and REAL Women in Trucking Inc., a trade group that advocates for better working conditions (see http://www.realwomenintrucking.com).
  • The brief explains that New Prime, like other trucking firms, mostly now operates under a relatively new economic structure, the Lease-Operator model. The drivers lease their rigs directly from the company they work for, and often still may owe the company after they are paid for runs. The system often harms employees by misclassifying them as independent contractors.
  • “Because Lease-Operators lease a truck and pay for fuel, maintenance, and insurance, firms can potentially shift a significant amount of capital and operating costs to them, translating into much lower labor costs per unit of work. And, though Lease-Operators are often nominally free to choose what loads they haul, they are generally under greater pressure than employees to accept whatever work is offered to them and to spend more days working because they need to work many more hours per day and days per year to meet fixed expenses and then earn take-home pay at levels even close to what they would earn as company drivers.”
  • The FAA Sec. 1 exclusion prohibits courts from applying the statute to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The brief says that the Court should include the employment arrangements of drivers like respondent OIiveira, who are misclassified by their employers within the definition of contracts of employment.
  • “Workers who must arbitrate their claims are 59% less likely to win than those who take their case to federal court and 38% less likely to win than workers litigating in state courts. The median award in mandatory arbitration is 21% of the median award in the federal courts and 43% of the median award in the state courts. [Citations omitted.] . . . Employers who misclassify employees stand to gain significantly by using forced arbitration to resolve disputes. This Court should not read the FAA in a way that allows them to require arbitration of disputes about the nature of employment in the industry.”

Higgins was a 2018 CPR Institute summer intern and is a student at Northeastern University School of Law. Bleemer edits Alternatives to the High Cost of Litigation, published by the CPR Institute with John Wiley & Sons (see http://www.cpradr.org/news-publications/alternatives and altnewsletter.com).