#CPRAM21: Inside Counsel Focus on Prioritizing Dispute Prevention Efforts–How? And How Much?

By Claudia Diaz

Here are notes from the 2021 CPR Annual Meeting second-day panel, “Expanding the Definition Of ADR: The Case for Conflict Prevention & Risk Management,” an hour-long Jan. 28 afternoon event.

Moderator:

Loren H. Brown

Partner, Global & U.S. Co-Chair, Litigation Practice, DLA Piper, New York

Panelists:

T. Reed Stephens

Partner, Winston & Strawn, Washington, D.C.

Laura Robertson

Deputy General Counsel, Litigation, Arbitration & IP, ConocoPhillips Co., Houston

Megan Westerberg

Assistant General Counsel, Eisai U.S., Woodcliff Lake, N.J.

The session opened with the panel members introducing themselves:

  • Laura Robertson manages worldwide disputes—litigation and international arbitration, as well as intellectual property matters, as deputy general counsel, and serves on CPR’s board.
  • Megan Westerberg works in risk management, among other duties, as assistant general counsel at her employer, a U.S. unit of a Japan-based pharmaceutical company.
  • Reed Stephens, a former U.S. Department of Justice prosecutor, focuses on pharmaceutical fraud and abuse, corporate compliance, and risk management.

  • Q [by Moderator Brown to Panelist Westerberg]: The role prevention takes in your in-house job?
  • A:
    • The company is in “a constant state of assessing risk benchmarking, trying to anticipate . . . what our regulators’ next move might be.”
    • A focus on robust training–constantly evolving our training.
    • Proactive monitoring–will spend resources and go out looking for processes.
    • Quarterly and monthly updates to risk assessment processes. 
    • Lawyers and business colleagues working together at all times, making efforts to assess and benchmark “anything . . . that is different, unique, novel, cutting edge.”
    • “Our goal is obviously taking smart risks.”
    • Private party conflicts–There can be internal “silos.” When the company starts to see tensions with another party, the company will assess who internally is working with the other party, and there is already a dialogue–looking for ways to de-escalate.
  • Q [to Robertson]: The role prevention takes in your company?  . . . Can you give insight into the culture of prevention in your company?
  • A [by Robertson]:
    • The legal department wants to foresee issues. Early evaluation and resolution saves money.
    • The legal department has a written litigation management mission statement focused on early resolution and early evaluation, and “feel[s] strongly” about multistep dispute resolution provisions.
    • We want to be consistent with business goals in the legal department–we want to help the business be successful.
    • A focus on trust building so we can resolve disputes early and quickly . . . before they become full-fledged litigation.
  • Q [to Stephens]: It’s probably harder to draw attention to prevention in large law firms.  Can you talk about risk management and prevention?
  • A:
    • “My perspective on this . . . is built around the idea that conflict avoidance really depends on active risk identification and active management.
    • “I am coming out on the back end” after the company has fallen into a situation, so the task is to “see how a problem really emerged.”
    • The challenge is how to persuade stakeholders to not get there in the first place.
    • Being able to explain to clients that they need an active risk management approach “can take some doing.”
    • Part of the job is to explain the value in doing this risk management—”to the extent it is proportionate to the risk” being taken.
    • The industry is important . . . different types of risk depending on what the enterprise focuses on.”
  • Q [to Robertson]: How do you measure successful prevention “in a world where everyone wants metrics” to prove outcomes and demonstrate performance. How do you measure this?
  • A:
    • Success is around the business clients feeling like the legal department helped prevent business interruptions.
    • In an example of a dispute with a foreign government, the company was able to resolve the dispute and make a framework for future disputes that clarified definitions.  “It actually improved the relationship.  . . . I use that as an example of success.”
    • It is “mak[ing] lemonade out of lemons.”
  • Q [to Westerberg]: How do you evaluate the value of the risk prevention work?
  • A:
    • We have a Japanese parent company and that has helped us . . . look to other cultures and to how they approach conflict.
    • A “proud parent moment”: “We spend a lot of time” counseling and asking why the leadership is not getting this, but “then you get struck by this a-ha moment,” and we see them explaining “the gray areas” and helping their teams navigate “with or without our help. [T]his is . . . a measure of success.”
    • If the legal department does not see that type of moment, “then it causes use to go back to the drawing board” and ask why the policy, guidance, or training was not getting through.
    • “We don’t want to be thought of as the police.  . . . We need to get to know the business . . . and let [the business executives] know you’re approachable.”  
    • The company is not “running metrics on those ‘proud parent moments’ but it sure makes us feel warm and fuzzy when they happen.”
  • Q: Prevention can be seen as different things, for example, de-escalation, or sometimes you work on contract provisions on exposure when a situation arises. You talked a little bit about risk assessment.  . . . How do you prioritize what you are going to spend your time on in terms of prevention? . . . Reed, from an outside counsel perspective, how do you think prioritization should work?
  • A [from Stephens]:
    • It’s “the idea of figuring out what’s the high value [of] catastrophe,” dollars or personal injury or reputation, “and then you back through your operational structure” to address it. It requires identifying where the employees “have the most discretion to make a decision” and focus on those potential bad outcomes with them.
    • Where outside counsel comes in is to help the enterprise align where the big risk is, with how the product or service is being delivered.
    • The effort is connecting real world problems with the consequences back to the process to identify where the highest risk, and the activities surrounding it that can lead to problems.
  • Q: I would be interested to hear about early case assessment and early resolution.
  • A [from Robertson]:
    • A tool we use for early evaluation is decision tree analysis, the “Treeage” software (see https://www.treeage.com/) that is designed for litigation and disputes. For large matters, the company brings in a consultant, but it also trains “all of” its lawyers and paralegals. The point is to “define the issue.”
    • At the end of that process, “we always come out of it with a better understanding of what is really at stake.”
  • Q [to Westerberg]: How do you approach early resolution in the pharmacy industry?
  • A:
    • “I’ve really been reflecting on the need . . . for the in-house lawyer to step back and get the team . . . in-house counsel, outside counsel, your insurance company, to pause, and in our case without the software . . . do that assessment. Where is this going . . .?”
    • “That is, I want to commit myself to [assessing] . . . the pros and cons of those options.”
  • A [from Stephens]:
    • A lot depends on your adversaries and if they are interested in early resolutions.
    • The government is more accustomed to a matter taking two or three years–“and they’re comfortable with that.”
    • “As outside counsel, being able to get the government to even entertain the thought of early resolution, without, essentially, handing over the keys to the kingdom is a challenge.”
    • Defining the problem is critical when discussing issues with the government.  “You’ve always got to be ahead of the government.”
    • “[T]he biggest challenge with dealing with government conflicts is really figuring out a pathway to get the government’s attention, [and] engage them to be willing to look at issues of exposure,” instead of allowing “months and months to go by.”
  • Q [by moderator Loren Brown]:  Regarding the pandemic, “I had no idea how much [the world] would also need lawyers, but when things are uncertain and dislocated this way, and our clients are responding to change, they need advice and counsel. . . .  How [has the] pandemic changed what you are doing . . . on your legal teams, in your practice and how that has affected prevention?”
  • A [from Robertson]:
    • “We may be too close to see really see [the long-term] impact.” But the biggest impact to how the company has managed disputes and dispute prevention and resolution in a virtual world is how much “we just skyrocketed . . . our use of Microsoft Teams and Zoom, and people have gotten so good at using virtual platform for meetings and hearings.” But how much will stay virtual?
    • This environment is challenging for negotiations. It is hard to do a negotiation with an adversary because it’s harder to develop rapport. “When we get out of this [it’s something] we won’t do—I think that’s something that’s been a real challenge for the last year.”
    • Not having courts open, “has had an interesting psychology impact on resolution.”
    • On the positive side, virtual work won’t disappear.  “There’s a lot of value” in virtual events like CPR’s Annual Meeting that can have hundreds of people all over the world “that we never could have done before.” And the cost savings from less business travel is significant.
  • Brown: Mediations have been going really well virtually.
  • A [from Westerberg]:
    • “Value transfers” with customers, healthcare providers, are “always scrutinized by the government.”
    • Has the company “been able to educate [its] providers over the past year” without having to provide entertainment and events associated with the sale of pharmaceuticals? And, if so, it may mean that the company and industry “has fundamentally shifted how we interact with customers.”
    • “Are we just going to pivot back to the old way? . . . [W]hat will the government think and say about that? We’ve proven we can educate through ways that are more nimble, less expensive.”

* * *

The author, a third-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.

[END]

#CPRAM21 Day 2 Opener: Carlos Hernandez Presents Five Principles of Prevention

Former CPR Board Chairman
Carlos Hernandez

By Antranik Chekemian

Carlos M. Hernandez, recently retired Chief Executive Officer of Fluor, opened the second day of the CPR 2021 Annual Meeting to an online audience of about 180 conflict resolution professionals focusing on dispute prevention techniques.

Hernandez, a former CPR chairman and a current board member, reflected on how his perspective on dispute resolution has evolved throughout his professional career. He said, “As I matured as a lawyer, especially after going in-house, I began to understand that disputes often had implications well beyond, and more material,  than the immediate conflict.”

Coming out of law school, said Hernandez, “my career goal was to get the opportunity to try to win cases. I wanted to deliver favorable outcomes and of course I wasn’t too concerned about the business relationship between my client and their adversaries. . . . If I delivered a win, regardless of how I got there, within ethical bounds of course, the post-dispute relationship was not my concern.”

He said his experiences as a lawyer and then as CEO have led him to think of litigation as a last resort, ADR as a better alternative, and conflict prevention as best practice.

He reflected on the decade in the construction industry and how the industry players suffered staggering financial losses with bankruptcies and lost projects. This upheaval, said Hernandez, involved tremendous amounts of litigation, much of which might have been prevented. “And the cost and destruction of litigation itself has contributed to the demise of contractors and projects, and of course, the careers of many good people,” he said.

Hernandez outlined principles he found helpful in conflict prevention, noting that these principles are still frequently disregarded.

He first emphasized that “contracts need to be fair and capable of being executed by both parties. The ‘I win, you lose’ approach often results in both parties losing.” Hernandez noted, “Entering into a bad deal with the expectation that one will work things out, or solve disputes through negotiations, frequently results in solving the dispute through costly formal proceedings.” He also acknowledged the significant imbalance in market power, often resulting in bad contracts.

Second, Hernandez mentioned the importance of entering into contractual relationships with parties that will live by the terms of the contract–meaning that parties should not take contract terms as mere suggestions. “Have some degree of trust in the counterparty and respect the bargain. Seek partnership rather than an adversarial relationship with your counterparty in the performance of the contract,” said Hernandez.

Reflecting on the keynote address of Dana Bash, CNN’s chief political correspondent (see CPR Speaks post yesterday here), about the lack of personal relationships among Beltway politicians, and the resulting lack of conflict resolution in the federal legislature, he pointed out that this theme transcends institutional boundaries.

He recommended alignment sessions at the inception stage of business ventures as ways to discuss potential uncertainties. For example, one can establish communication channels even beyond the terms of the contract. These sessions, by building working relationships, have led to greater trust, better communications, and fewer disputes, said Hernandez.

Third, Hernandez encouraged lawyers to plan for good-faith disagreements and to negotiate contracts that contemplate that disagreements will arise, and that have prescribed means of addressing them in a prompt and business-like manner.

Conflict prevention provisions, he said, should be as standard in contracts as conflict resolution provisions. This may include having a third party providing nonbinding opinions such as a standing project neutral who has an ongoing relationship with the parties and knowledge about the project during its lifetime.

His fourth principle was about confronting potential disputes early. There is often a tendency to avoid addressing potential disputes early, he said , but typically, conflicts do not get better with time.


Arguments for resisting addressing an issue with a customer early on include that it would damage the relationship and that it would make continued execution of the contract more difficult, or that it would adversely affect the prospects for future contracts.

Hernandez, however, noted that one does not have to communicate in an adversarial or threatening way. “Disagree in a respectful way, don’t overstate your position, and leave the door open.  . . . I see it as an approach with the best interests of the client in mind,” he emphasized.

His final principle was that it is seldom too early or too late to engage a neutral third party for assistance, when the contracting parties are at odds. Hernandez concluded: “If all methods of conflict prevention have been exhausted without success, then mediation is a way to engage and settle discussions with third party neutrals that is worthy of pursuing.”

* * *

Carlos Hernandez is adapting and expanding his presentation for the March issue of Alternatives to the High Cost of Litigation, which will be available at the end of next month at www.altnewsletter.com. Follow CPR on Twitter @CPR_Institute and Alternatives @altnewsletter.

* * *

The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.

[END]

James Mattis’s #CPRAM21 Second-Day Keynote Focuses on Listening to Resolve Conflict

General Jim Mattis during his Zoom #CPRAM21 keynote on Jan. 28.

By Amy Foust

Thursday’s CPR 2021 Annual Meeting lunchtime keynote by James N. Mattis, a former U.S. Secretary of Defense for the first halt of President Trump’s term and a four-star general, reflected on conflict resolution and prevention for the business audience. 

Mattis began his comments by musing on the irony in inviting a war general to #CPRAM21, to speak to a group devoted to preventing conflicts, but went on to articulate a clear and concise plan for national reconciliation and healing.  He emphasized committing to local civics action, and relying on listening skills.

Mattis is currently a senior counselor at the Cohen Group, a Washington, D.C. consulting firm founded and headed by former U.S. Senator William Cohen, who preceded Mattis as defense secretary by 20 years.  Mattis was defense secretary from January 2017 to January 2019.

In his presentation, Mattis returned frequently to the theme of handing the world off to the next generation in the same or better condition than current leaders inherited it.  He noted that often means working closely with people with whom you disagree, people who may be inexperienced, ill-spirited, or just wrong. 

It also means admitting when predicted outcomes turn out differently. He said that people of opposing viewpoints need to work together to address issues, which usually starts with relatively small tasks where there is broad consensus on how to improve—he mentioned education and infrastructure–and then working up to bigger and more divisive issues. 

Mattis encouraged the audience to hold close people whose behavior offends, because, he said, “I’ve never seen it help when we cut people off in terms of them becoming more ethical in their performance.”

Invited by the moderator, CPR President & CEO Allen Waxman, to offer advice to a Zoom room of conflict resolution professionals predominated by lawyers, Mattis urged restraint from over-specific rules, which can lead to “brittle” situations and illogical outcomes.  He mentioned the importance of building trust before a crisis. 

Mattis recounted stories of watching great leaders build trust by listening to their counterparts, learning from them, and helping them.  He recounted General George Washington’s work with an untrained volunteer army that went on to defeat the world’s best army, and would go on to defeat Napoleon’s army just a few years later. 

General Mattis said Washington’s secret was “very boring”—

He would listen, and he would listen with a willingness to be persuaded.  He would actually change his views.  He listened to these guys from Delaware who went out on the water everyday and they kept in their own boat and now they’re in the army.  And the guy from South Carolina who couldn’t even understand those funny-talking people from Boston . . .

He’s learning from them, as he’s listening he’s willing to be persuaded.  He listens. He learns.  This is showing respect and when he does this, he helps them.  He helps them with the most . . . simple things at times like getting socks and warm coats and blankets. He does anything he can to help, and only then does he lead.

Citing was he said was the business community’s “more practiced effort” for defining and solving problems, Mattis called on the meeting attendees to apply their problem-solving skills to matters of public importance. Serve on school boards, he said, or the city council.  

“Run for office, if that’s your bent,” suggested Mattis, “but spend time giving back in the governance area—local, state, federal—because we need what business is bringing right now.” 

Answering his own question as to why local action is important, General Mattis concluded, “The country’s worth it.”

* * *

The author is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021. #CPRAM21 continues on Friday, Jan. 29; registration is free at www.cpradr.org.

[END]

#CPRAM21 Keynote: CNN’s Dana Bash on Negotiations, Conflict Resolution, and Truth Telling

CNN Anchor/Correspondent/Analyst Dana Bash kicking off CPR’s 2021 Annual Meeting

By Russ Bleemer

The International Institute for Conflict Prevention and Resolution opened its 2021 Annual Meeting Wednesday afternoon with remarks from CNN’s chief political correspondent, Dana Bash.

Bash, a three-decade veteran at the news network, brought an inside-the-Beltway view and application of negotiation and conflict resolution techniques to an online audience of about 250 conflict resolution professionals from corporations, law firms, academia and government.

[CPR’s Annual Meeting has two full days of program on Thursday, Jan. 28, and Friday, Jan. 29.  Registration for the first online event is free and open to the public.  See www.cprmeeting.org for the agenda and sign-up.]

Bash described a Capitol Hill where dispute resolution skills seem to be less valued—if not disappearing altogether.  “When I first began walking the halls of Congress, it was so different in terms of negotiation and deal making, in terms of conflict resolution,” she said at the outset, “It was different in that–name your topic, immigration, . . . Medicare reform . . . annual budget negotiations–there were always conflicts and partisan battles. But there were also meetings.  There were also discussions.”

Bash said that she and her colleagues “used to find rooms where [Capitol Hill legislators] were negotiating across party lines,” and wait out the talks to report the results. 

“The expectation was that there would be a deal,” she said.  “They didn’t know what, but the expectation was that there would be some deal.”

Things began to change, she said, well before the Trump Administration:  fewer meetings, fewer negotiations, with compromise happening less and less, often focused on “low-hanging fruit” like agriculture and defense bills that have many common constituent interests.

Senators and House members, explained Bash, simply weren’t talking like they once did.  They weren’t as likely to sit down with one another, she said, and weren’t as likely to have common ground to foster negotiations and address policy conflicts.

Bash offered the meeting attendees several reasons that she said she believes have contributed to the decline in negotiations and the increased impasses in producing federal legislation.

First, she said that lawmakers stopped moving their families to Washington.  She said it has origins in political calculation, with many lawmakers attacked because they lost touch with their districts.  “A fair criticism in a lot of states,” said Bash.

Unfortunately, she reported, the effect has now become extreme, with members going home weekends “understandably to see their family and not scheduling votes until Monday night or Tuesday.” That doesn’t leave much time to negotiate across party lines, said Bash, and the Senate and House members “don’t communicate the way they used to.”

A second reason for the decline, said Bash, is money. First is the obvious fundraising that is required to mount a House or Senate campaign.  Instead of taking time to have dinner or a cocktail with someone across the aisle, she said, candidates are “racing out of the building to go to a fundraiser” or to their party headquarters to dial for dollars. 

There’s more.  Bash attributed her analysis of the second part of the money factor to “a senior person in the Trump campaign,” who she said pointed out to her the significance of the candidates’ emphasis on the work involved in recruiting small-dollar donors, due to caps on individual donations.

“It connects to grass roots,” said Bash, explaining further, “It’s a talking point.  It’s a great form of democracy.” But the incentives of the appeal often means pitching to “the extremes of the party,” she said. 

That, Bash concluded, contributes to a gulf that has widened between the parties and contributed to the decline in negotiation efforts.

In addition, gerrymandering has gotten “so much worse,” she said, and with members worried about being primaried by a member of their own party, let alone the opposition, they aren’t looking to middle ground.

And a fourth factor, she said, is the Internet and social media.

President Biden, explained Bash, advocated in the 2020 campaign for a return to the form of face-to-face negotiation that characterized much of his political career.

“Can he recapture that?” Bash asked. She said the first test will be on the coronavirus stimulus bill. His initial $1.9 trillion proposal, she said, is a “pie in the sky” first move that the president clearly hopes will spark talks.

Countering the above trends, and an “anecdote to give hope,” Bash noted that the Senate women pre-pandemic had met monthly for an off-the-record, no-staff dinner, which helped break common ground.  She suggested that she expects that and similar efforts to return in the new Congress once it’s safe for such events.

She also cited the weekly prayer breakfast attended by members of the Senate as way for them to get to know one another and increase communications.

The biggest problem in resolving conflicts, Bash indicated, is the beliefs by many citizens in untruths.

“I don’t know what the answer is,” she lamented, adding, “People right now are not coming from the same set of facts.  It is so hard to bridge a very deep divide when you don’t agree on the same set of facts.”

She pointed to competitor Fox News, and conservative media. Conservative senators, she said, are “in a tough spot.”  She said, “It’s very hard to reason with people who believe a lie and don’t believe in a set of facts,” referring to debunked claims of election fraud.

As to her own role, said Bash, “all we can do . . . in the media is point out things that aren’t true.”

Bash concluded her nearly 45-program with interview questions from host Allen Waxman, CPR’s president and chief executive officer, and from Zoom audience members.

During the Q-and-A, Bash said that the media’s role since she started at CNN in the 1990s had changed considerably, and returned to the problem of reporting facts today. “The truth is more important than ever and you can’t just rely on the traditional journalistic formula of ‘Republican John Doe says X’ and ‘Democrat Jane Doe says Y.’  . . . You can’t do [that] when Jane Doe, [a] member of Congress, isn’t telling the truth.  So we just have to stand up for truth in a way we never did.”

Bash went further: “The first time I had to come out and say, ‘What you just heard from the president of the United States is not true,’ I felt like I was going to throw up.  . . . Then it happened over and over.  The deeper it got, the more of a responsibility, we all felt.”

She said with a sigh, “I will not take our role in democracy for granted, ever.”

After discussing the Jan. 6 attack on the Capitol and the inauguration in response to questions, Waxman and an audience member combined to ask what the dispute resolution community could do.

First, Bash said that she didn’t think there would be any fundamental changes in the political system such as a new party.

The ADR community can best act at the local level, Bash suggested. She urged attendees to talk to their neighbors and apply their skills to develop understanding.  She conceded that she wasn’t sure how to fully address misinformation, “the echo chamber, and [the focus on] only information that addresses . . . preconceived notions.”

But Bash concluded that the news business—and by extension, the ADR community—has to address what is in front of it.  “We have to rightly get back to the human element of things around us,” she said.

* * *

The author edits Alternatives to the High Cost of Litigation.

[END]

Love’s New Mediation Data: Whither the Joint Session?

By Temitope Akande

New York Law School’s Alternative Dispute Resolution Skills Program kicked off its first 2021 round of biweekly Wednesday lunch conversations yesterday featuring mediator Lela Porter Love, a law professor and director of the Kukin Program for Conflict Resolution at New York’s Benjamin N. Cardozo School of Law.

Love opened by emphatically noting that dialogue is currently dying or impoverished, even on the political scene. Mediation, she said, “is the last bastion,” with mediators trained to promote dialogue. But even in mediation, there is “less and less mandate for mediators to bring parties together into joint sessions.”

Her discussion was mostly based on a 2019 survey of practicing mediators in a professional group, the International Academy of Mediators, to determine the use of joint and caucus sessions. Presenting a PowerPoint, “The Disappearing Joint Session,” based on 129 responses and anecdotal discussions, Love said that the data reflects the title: There is a lessening frequency of the use of joint sessions and more reliance on mediators conducting caucuses with individual parties.

Prof. Love moved to a 2017 survey by the American Bar Association Dispute Resolution Section Task Force on the Relation of Mediator Actions to Mediation Outcomes also on the use of caucus during mediation. The results, she said, were counterintuitive: caucusing had an increased settlement effect in labor-management disputes, but no effect, according to her presentation slide, “in other types of disputes regardless of [the] purpose of caucus (i.e., whether to establish trust or discuss settlement proposals).”

She said that the use of caucus has shown that parties are more likely to file an enforcement action based on their settlement—which indicates that increased caucusing didn’t reduce acrimony. As a result, caucus sessions, while they may increase labor-management case settlement, may have potential for negative effects on the parties’ perceptions and relationships.

Love discussed the caucusing results in a broad Maryland state judiciary ADR evaluation report. Based on the evaluation of caucus sessions, the greater the percentage of time participants spent in caucus, the less likely the parties were satisfied with the outcome, and the less likely the participants report that the issues “were resolved with a fair and implementable outcome.”

“On balance,” said Love, “you don’t see this real, ‘Wow, now I understand why there is this great move to caucusing.’”

The Maryland study showed that when the mediators controlled the sessions, limiting the issues instead of presenting a broad range, parties showed an increase in a desire to better understand the other party. The long-term aftereffects results show that the greater percentage of time participants spent in caucus, the more likely participants will return to court for an enforcement action after mediation, reflecting a lack of durability of those mediation results.

Love further discussed the values that influence mediation style and reasons why mediators use caucus sessions instead of joint sessions, returning to the IAM study. First, mediators who do not use joint sessions primarily do not do so because attorneys do not want joint sessions.

The second reason they lean toward caucus and away from joint sessions is that parties tend to decline joint sessions because they feel more comfortable participating in the mediation process by sharing their stories in caucus sessions with the mediator, rather than facing their adversary. “People in conflict are really angry at each other and they don’t want to see each other,” explained Love.

Love further noted that mediators were mostly trained to use joint sessions, though different schools of mediation also favored caucuses. A more important factor in constructing and conducting mediation sessions is that a significant purpose is to get people together to heal relationships—as opposed to the “war” of adjudication–which orients toward using joint sessions.

Prof. Love concluded by stressing that listening helps settle cases, and it is important in helping people tell their stories. The mediators who seek to identify the parties’ interests perhaps are doing only one aspect of the process, noted NYLS ADR Skills Program Director and moderator F. Peter Phillips, who added that mediation might be better handled if the emphasis was on all parties listening and working to understand one another. Love concurred, and, noting that mediators are witnesses to the participants’ stories, suggested that neutrals provide “respectful-person listening” that enhances the process.

Love’s Jan. 13 NYLS Conversations in Conflict Resolution session is available on YouTube at https://bit.ly/3nOluyK.

* * *

The author, who received a Master of Laws in Alternative Dispute Resolution last May at the University of Southern California Gould School of Law in Los Angeles, is volunteering with the CPR Institute through Spring 2021.

[END]

CPR Files Amicus Brief Asking U.S. Supreme Court to Tackle Foreign Discovery for Arbitration

The International Institute for Conflict Prevention and Resolution has filed an amicus brief requesting that the U.S. Supreme Court grant certiorari to resolve a federal circuit court split on whether 28 U.S.C. § 1782 allows federal district courts to order discovery for private commercial arbitration abroad.

CPR did not take a position on the merits of the case.

Yesterday’s filing in Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794, highlights the circuit split underlying the case.  Petitioner Servotronics presents the question,

Whether the discretion granted to district courts in 28 U.S.C. § 1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” encompasses private commercial arbitral tribunals, as the U.S. Courts of Appeals for the 4th and 6th Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the U.S. Courts of Appeals for the 2nd, 5th and, in the case below, the 7th Circuit, have held.

CPR urged the Court to resolve this circuit court split, noting in the brief that “the question of whether United States district courts may entertain applications for judicial assistance in obtaining evidence for presentation in arbitral proceedings before international tribunals is one of great relevance to CPR and its constituents.”

The friend-of-the-Court brief states that the “current existence of opposite rules on whether district courts have jurisdiction to render assistance under Section 1782 in gathering evidence for international arbitral tribunals creates both the opportunity for blatant forum shopping and the likelihood of protracted litigation on the threshold jurisdictional question in each of the seven remaining regional circuits that have not decided the question.”

CPR also argues that the court should set the case for argument this term to avoid the likelihood that it will become moot prior to decision.

Section 1782 authorizes “any interested person” in a proceeding before a “foreign or international tribunal” to ask for and receive discovery from a person in the United States.  But the conflicting federal circuit cases differ on whether the statute’s definition of tribunals would cover arbitration matters. The Servotronics parties have decisions going both ways, one in the Fourth Circuit, and the second, the subject of the cert petition, in the Seventh Circuit.

CPR has created a web page for the brief at http://bit.ly/3nklaYp.

CPR Speaks has addressed the issues in this case as they arose.  John Pinney, counsel to Graydon in Cincinnati who prepared the amicus filing on CPR’s behalf, discusses the case in a video post here.  Updates on the circuit split as it developed in 2020’s second half are available here and here.

You can find the CPR amicus filing, as well as other filings in the case, on the Supreme Docket page, here. Law360 covered the filing here, available with a subscription.

[END]

Schein II: Argument in Review

Alternatives to the High Cost of Litigation Editor Russ Bleemer hosts analysis by Prof. Angela Downes, University of North Texas-Dallas College of Law, and arbitrator-advocate-amicus brief contributors Richard Faulkner, also of Dallas, and Philip J. Loree Jr. in New York.

Court’s Rejected Cert Request Is Argued Anyway

By Russ Bleemer

Was the U.S. Supreme Court having second thoughts about how it has approached Tuesday’s arbitration case?

Back for its second round of arguments at the Court after a decision just last year, Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, returned to explore the issue, “Whether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.”

Schein’s attorney, Kannon K. Shanmugam, a partner in the Washington, D.C., office of Paul Weiss, Rifkind, Wharton & Garrison, argued that the Fifth U.S. Circuit Court of Appeals, in deciding not to compel arbitration in the case, misapplied the historical presumption of arbitrability. 

He also emphasized that “clear and unmistakable” evidence that the parties delegated the matter to arbitration puts the initial question of arbitrability to an arbitrator, even with the carveout for injunctions. 

The appeals court had said that clear and unmistakable evidence that the parties wanted to arbitrate existed, but not to arbitrate the injunctive relief—a drafting issue that justified sending the case to the courts.

In his counterargument, respondent attorney Daniel L. Geyser, of Dallas’s Alexander Dubose & Jefferson, countered with, among other things, a focus on the delegation to arbitration by the parties.

That focus produced an usual argument.  It wasn’t because many of the justices also focused on the particulars of the clause delegating the matter to arbitration.  In fact, Geyser and Archer and White had cross-petitioned the Court to take on the issue of the delegation clause’s incorporation by reference of arbitration rules.

The Court granted certiorari on June 15 on Shanmugam and Henry Schein’s issue on the sweep of the injunction carveout. But the Court rejected the cross petition on delegation and incorporation of rules. 

Yet at times, the rejected clause delegation issue was the argument’s primary focus.

“I want you to assume that we are not going to decide the question that you wanted us to decide in the cross-petition,” said Justice Samuel A. Alito Jr. during Geyser’s argument. “And if we make that assumption, I really don’t know how to answer the question that we granted review on because it does seem to turn on the degree of the delegation to the arbitrator of the power to decide whether the arbitrator can decide.”

Alito wasn’t the only one. 

Archer and White had persisted with the question in its brief in the case even after the cert denial. More significantly, the failed cross-petition or the delegation clause itself was raised directly or in passing by nearly every one of the nine justices, who argued the case in an online broadcast, as has become the custom in the pandemic since May.

The cert grant, and simultaneous cert denial, made sense on paper.  The Fifth Circuit had said the delegation was valid, putting the focus on the appellate court’s interpretation that the carveout for injunctions preceded the arbitrator’s work and had to be decided by a court.

But even Shanmugam’s argument on behalf of the petitioner anticipated the presence of his adversaries’ rejected issue. Before facing a single question, Shanmugam took on the cert denial himself, noting that 12 circuit courts agree that a delegation clause incorporating rules is sufficient.

The contract in the matter incorporated American Arbitration Association rules that give arbitrability decisions to the arbitrator.

Shanmugam opened his argument on behalf of petitioners Henry Schein stating that the Fifth Circuit review hierarchy was wrong for two reasons.  “First, a delegation is simply an antecedent agreement that is subject to the rules governing arbitration agreements more generally,” he said, continuing, “Second,  any doubts concerning the scope of arbitration agreements are resolved in favor of arbitration.”

If that arbitration presumption had been applied correctly, he argued, a carveout that doesn’t speak specifically to the delegation to an arbitrator cannot interfere with the overall delegation of a case to an arbitrator.  “The Court should stick to the question it agreed to decide,” advised Shanmugam on behalf of Henry Schein, “and it should decide that question in petitioner’s favor.”

The argument highlights below are based on the audio feed of the case, available on the Supreme Court’s webpage at https://bit.ly/3m2RCxz, and the transcript, also on the Court’s site at https://bit.ly/3a6xDMv. For background on the case, including links to key documents and the 2019 Supreme Court decision in the same matter, see “Supreme Court Argument Preview: Looking Ahead to Round 2 on Schein and Arbitrability,” CPR Speaks blog (Dec. 3)  (available at https://bit.ly/2VyD1z6) (The CPR Speaks link also contains information on the participants in the accompanying YouTube video discussion, conducted on Tuesday, Dec. 8.).

* * *

The Supreme Court generally seemed to agree with Kannon Shanmugam’s opening words, but still returned to the delegation and rules’ incorporation questions almost as much as the Fifth Circuit’s denial of arbitration.

“They don’t want arbitrators deciding this,” said  Chief Justice John G. Roberts Jr. in opening the questioning, referring to the presence of the contract clause carveout sending injunctions to court, adding, “Why would they want arbitrators to decide who gets to decide it?”

Shanmugam said that the Fifth Circuit divided the responsibility of who decides between the court and the arbitrator, while the contract was a clear delegation of the case to arbitration.  The result of the appeals court opinion was negating that arbitration intention because of the carveout sending the case to court instead.

He returned repeatedly to a need to assert the presumption of arbitrability in viewing the parties’ arbitration clause and the context for the carveout.

The contract clause states, “Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property . . .), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [the “AAA”].”

Justice Clarence Thomas focused on the delegation clause, asking Shanmugam to walk the Court through its use in the case.  “I don’t see the word ‘delegation’ at all or a verb ‘delegate’ at all,” said Thomas.

Shanmugam replied that the Supreme Court “has never required magic words on the face of the agreement. Instead, all that the Court has said is that you have to have clear and unmistakable evidence. And under ordinary objective principles of contract formation, the incorporation of a document [referring to the arbitration agreement’s AAA rules referral] suffices in order to render that document part of the contract.”

Borrowing from labor law and referencing key Supreme Court precedents, Justice Stephen G. Breyer said that the presumption of arbitration still requires a deciding court to judge the scope of that arbitration.  Shanmugam said that the delegation is “a kind of miniature contract formation,” that contemplates whether there was “a meeting of the minds that the arbitrator should decide questions concerning the scope of the arbitration agreement.” 

The incorporation of the AAA rules, he said, was sufficient under ordinary contract formation principles.

Justice Samuel A. Alito Jr. asked Henry Schein’s attorney about the basis for the presumption for arbitration.  Shanmugam replied it rested in the Federal Arbitration Act’s Section 2, as well as “flowing from the policy underlying the arbitration act as a whole.” He added, “if I were pressed, I would say it’s probably ultimately a matter of federal common law” as well as emanating from statute.

Justice Sonia Sotomayor returned immediately to the cross-petition on the delegation agreement’s incorporation of rules by reference, and said that the Henry Schein brief conceded that the Court could reach the issue to decide the case. She questioned whether the delegation to arbitration was clear for the injunction and all other issues.

Echoing the Fifth Circuit, Sotomayor agreed there was a clear delegation, but suggested she found ambiguity on the injunction’s decision maker. Shanmugam said that the appeals court incorrectly considered the presumption for arbitrability.  Even with an unclear scope of arbitration, he explained, the Fifth Circuit should have applied a presumption that the case was to be arbitrated once it found that valid delegation.

Justice Elena Kagan was focused on the injunction carveout, posing a hypothetical change in the contract wording, and concluding, “if you have something which at least arguably seeks injunctive relief, the court should deal with the question of whether it does and then should go on to decide the issue.”

Justice Neil Gorsuch pressed Shanmugam on the point discussed with Alito on a statutory basis for the presumption for arbitration. The Henry Schein attorney stuck to FAA Section 2.

Justice Brett Kavanaugh retraced Shanmugam’s argument points with the attorney, and asked about “real world” contracting situations–“how people draft these contracts, what they expect, my understanding was that the question of who decides arbitrability, the who-decides question, is almost never divided between a court and an arbitrator because that would be almost nonsensical in the real world because you need one person to decide, and it’s either going to be the court or the arbitrator, not both the court and the arbitrator.”

Though the question initially ignored the existence of the injunction carveout, Shanmugam quickly agreed. “That’s correct. And I’m aware of no examples of such a division.” Kavanaugh responded, “Right. Nor am I.”

Then, Kavanaugh tackled the contract carveout in the case sending the injunction to the court, noting that every contract has them. “And so, if that alone means the Court decides what is arbitrable, then the Court will always decide arbitrability and really eradicate the idea that arbitrators can ever decide arbitrability,” he said.

Justice Amy Coney Barrett also restated Shanmugam’s argument, acknowledging the cross-petition issue’s denial and accepting the delegation to the AAA rules as sending arbitrability to the arbitrator. But echoing Shanmugam, she indicated that it would be nonsensical “to carve up arbitrability questions.” She continued, “If that’s true, why isn’t that reason to interpret this clause as not being a clear and unmistakable delegation of all questions of arbitrability?”

“As a matter of contract formation,” concluded Shanmugam, focusing on the presumption of arbitration,  “there is an agreement to arbitrate arbitrability. At that point, Justice Barrett, everything else that we’re talking about is a question of interpretation. It’s a question of the scope of the delegation.”

Shanmugam summarized his argument for the Court, once again directing his attack on the delegation argument incorporating the AAA rules.  He noted that the “[r]espondent is really asking the Court to decide this case based on a different question, the incorporation question. And that would be a bold strategy in any case, but I would submit it’s a particularly bold strategy here because Respondent asked the Court to decide that question at the cert stage, and the Court seemingly consciously made the decision not to add it.”

He again asked the Court to avoid the issue it already declined to hear, noting, “All that the Court need do in this case is to hold that the court of appeals’ actual reasoning is inconsistent with this Court’s decisions applying familiar Federal Arbitration Act principles.”

* * *

Respondent attorney Daniel Geyser immediately attacked the delegation and incorporation points on behalf of his client Archer and White in his opening statement.  “It is simply not plausible that anyone would recognize this issue and choose to resolve it by relying on an oblique reference to the AAA rules rather than a simple, explicit sentence delegating the gateway issue,” he told the justices in his opening statement.  

He added that the injunction falls within the carveout from arbitration, and therefore isn’t subject to arbitration under the American Arbitration Association rules.  “It makes no difference what those rules say because the condition for activating them is unmet,” he said.

Using a hypothetical and invoking Justice Kavanaugh’s discussion, Chief Justice Roberts began questioning Daniel Geyser by asking why the carveout’s arbitrability should be treated differently than arbitrability issues in an arbitration contract with no express carveout.

“[N]ormally,” replied Geyser, “when parties include an express delegation provision, it’s unconditional and it’s categorical.  It’s not like what you have here.”

Roberts asked Geyser to leave the AAA rules’ delegation out of his answer.  “I think that’s what we tried to do when we denied cert on that question,” said the chief justice.

Geyser countered that the default is that the court decides the arbitrability issue.  He said, “The only time an arbitrator decides whether a dispute falls within the scope of the agreement is if there is, in fact, a delegation provision.”

Geyser suggested the problem was drafting:  “We absolutely concede that if the exception is limited solely to the scope of arbitration and there is a separate unconditional delegation provision, that the arbitrator gets to make that determination. “

He continued on the theme, telling Justice Thomas that phrasing matters, and the Court should focus on the delegation and the wording of exceptions. He said Archer and White would lose if there was a second sentence that said that arbitrator shall decide arbitrability—“an express unconditional delegation of the issue of arbitrability to the arbitrator.”

Geyser continued: “[U]nless there’s clear and unmistakable evidence that the parties wanted the arbitrator to decide arbitrability, then the default is with the court, and the court has to first identify a delegation agreement and identify any limits to that delegation agreement. “

Thomas was skeptical.  He noted that Geyser’s construction limits an arbitrator’s authority  on arbitrability after it had been granted by the contract.  “I don’t know how you can have it both ways,” said Thomas, “You [can’t] say he has the authority, and in these limited circumstances, he doesn’t.”

Geyser countered that the Court has “never” issued a “binary rule.” He said, “Parties are perfectly free under the Federal Arbitration Act to delegate some issues to arbitration and to delegate some arbitrability issues to arbitration.”

Facing Justice Alito’s concerns about the posture of the case, Geyser said the Court, in the face of the question of whether there was a clear and unmistakable delegation to arbitration of arbitrability, “could dismiss the case as improvidently granted,” or request additional briefing, though he quickly added that he thought the case was fully briefed.

But he also explained to Alito that he believed even in the face of a clear delegation, a plain-text reading of the agreement shows that the carveout for injunctions removes the case from the arbitrator. “[It’s] the most straightforward way to affirm in this case,” he said.

Justice Sotomayor said that Geyser’s argument falls short because of a clear delegation to the AAA rule for arbitrability matters. Geyser countered that the delegation was limited by the injunction carveout.

In response to Justice Kagan’s questioning, Dan Geyser said that court decision for the gateway-to-arbitration issues is “traditionally what parties expect.” He continued, “It provides a critical judicial safeguard and it avoids the situation where the arbitrator is deciding the scope of his or her own jurisdiction.”

He added that the FAA backed delegating “certain issues but not others to the arbitrator.”  He urged the Court to support the requirement that “unless parties clearly and unmistakably override the strong presumption in favor of courts acting as gatekeepers, that Congress imagined in the Federal Arbitration Act, in Sections 3 and 4, that, in fact, the courts keep that gateway role.”

Justice Kavanaugh returned to the purpose of contracting, saying he had a problem with Geyser’s conception that contracting parties divvy up arbitrable matters and court matters. “[T]hat’s just not how it works in the real world, nor could it [realistically] work that way in the real world,” he said.

Kavanaugh asked Geyser if the justice’s interpretation was wrong.  “In the real world,” Geyser replied, “parties sometimes do limit a delegation.  They might say that the court decides whether class arbitration is appropriate. And parties are perfectly free to do that.”

He told Cavanaugh, “I don’t see any way to read the actual text of this agreement to say that the carveout wouldn’t include a carveout to the AAA rules.”

Geyser conceded to Justice Barrett that his client would lose if the Court does not agree that there was no clear and unmistakable delegation to arbitration and declines “to get into the question that we denied cert on, [and instead] assume[s] that incorporating the AAA rules by reference is enough to constitute a clear and unmistakable delegation.  . . .”

* * *

Dan Geyser began his summation on behalf of respondent Archer and White noting, “[W]e apologize for trying to get the Court back into an issue that maybe it doesn’t wish to address.” He warned against “a profoundly atextual construction of the plain text of this agreement,” and said, “I think it would be very difficult to construe this language in a sensible way without getting into the delegation.”

In his rebuttal, Henry Schein attorney Kannon Shanmugam urged the Court to reverse the Fifth Circuit, noting, “[I]t’s one thing to say that parties may want to divide up responsibility for different types of questions of arbitrability such as who is subject to the arbitration agreement or whether a class action waiver is valid, but as I’ve pointed out in my earlier colloquy with Justice Kavanaugh, we are not aware of any actual agreement in the real world that divides up responsibility for a particular question of arbitrability and in particular the paramount question of the scope of the arbitration agreement.”

* * *

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

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Supreme Court Declines Insurance Arbitration Matter from Oklahoma

The U.S. Supreme Court this morning declined to hear an insurance coverage case in which a consumer contract mandated arbitration.

The case, Old Republic Home Protection Co. v. Sparks, No. 20-237, involves a mandatory arbitration requirement in a consumer contract for home services repairs.

It examines a clash between the McCarran–Ferguson Act, 15 U.S.C. 1012(b), a 1945 law that gives insurance regulation to the states; the Federal Arbitration Act, and the Oklahoma Arbitration Act, which states, “The [Oklahoma] Arbitration Act shall not apply to collective bargaining  agreements and contracts which reference insurance, except for those contracts between insurance companies.” Okla. Stat. Ann. tit. 12, § 1855(D).

The law, notes the Oklahoma Supreme Court case that was the subject of the home service company’s petition for certiorari, provides a “reverse preemption,” taking Oklahoma insurance contracts out from under the FAA’s auspices. 

Oklahoma’s top Court agreed with the plaintiffs, noting that they “argued that the federal McCarran-Ferguson Act authorized the ‘reverse preemption’ of the FAA in this instance. Because the FAA did not preempt relevant Oklahoma state law involving the regulation of insurance, [the plaintiffs] replied that the Court of Civil Appeals did not err in holding that § 1855 of the Oklahoma Uniform Arbitration Act barred the enforcement of arbitration in this matter.” Sparks v. Old Republic Home Protection Co., 467 P.3d 680 (Okla. S.Ct. 2020) (available at https://bit.ly/3omxDvA).

The decision stands, and the case appears headed for a trial court for resolution.

The plaintiffs are a Moore, Okla., married couple, that had filed suit against Old Republic Home Protection Co., of San Ramon, Calif., under a home service contract that they charged provided faulty repairs to their air conditioning system which damaged their home.

The issue officially presented by Old Republic and rejected by the Court today was

Whether, in a case involving interstate commerce and a written contract with an arbitration provision that expressly requires application of the Federal Arbitration Act, a state arbitration statute that by its terms “shall not apply to . . . contracts which reference insurance” (a) qualifies as a “law enacted by [a] State for the purpose of regulating the business of insurance” under the McCarran–Ferguson Act, and (b) can support reverse preemption of the FAA based on an asserted impairment of such a state law.

Scotusblog has the papers in the case, including the Oklahoma opinion, at https://bit.ly/39NaXR3.

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What the U.S. Election Will Mean for Arbitration

By Mark Kantor

I have received questions as to how, if at all, the results of the recent U.S. elections will affect the environment for arbitration in the U.S.  Being a lazy person, it occurred to me that sharing updated bullet points for a presentation I made on that topic at Dublin Arbitration Day might be an easy way to answer.  I offer the below idiosyncratic opinions and invite any comments, corrections, criticisms or witticisms you may wish to offer in response.

In short, not much new.

  • The controversial hot-seat substantive public policy proposals seeking to limit pre-dispute mandatory arbitration agreements in the U.S. (supported by the voices surrounding the forthcoming Biden Administration) relate to consumer arbitration, employment/civil rights arbitration, the use of arbitration to limit class actions and securities arbitration – some but not much overlap with international arbitration.  There is no appetite in political circles (i.e., outside the scholarly world and some practitioners) for technical reforms to modernize the Federal Arbitration Act (FAA).
  • Major legislative action on the above hot-seat arbitration issues is in any event highly unlikely in a deeply divided Congress during the two years before mid-term Congressional elections occur in 2022, regardless of who has control of the U.S. Senate after the Georgia Senate run-off elections in early January.  If Republicans control the Senate, they will not support such legislation.  Most Democrats would support that legislation, but a small number of conservative Democratic Senators (principally Sens. Joe Manchin, D., W.Va., and Jon Tester, D., Mt.), may not.  Moreover, substantive legislation in Congress still requires a successful 60-vote on a cloture motion in the Senate to stop a filibuster.  [Under existing Senate rules, final passage of substantive legislation only requires a majority of the votes (50 + Vice President Kamala Harris if the Democrats secure the two Georgia seats); but that vote can be prevented from happening unless a “cloture” motion passes with 60 votes.]  A successful cloture vote would require 10 Republicans to join all 50 Democrats [in the event of a Democratic majority] in voting for cloture.  Due to inter alia opposition to removing the 60-vote requirement by a number of senior Senators in both parties and the impact of a divided Senate, the prospects for the Senate to remove the 60-vote requirement to halt a filibuster of substantive legislation are extremely dim even if the Democrats win both Georgia Senate seats and reach 50-50 equality in the Senate with ties broken by Vice President Harris.  As one law firm put it, “with the Senate in its apparent 2021 configuration, any attempt to abolish the filibuster as it applies to [substantive] legislation appears to be shelved.”
  • Existing legislative proposals from Democrats like the “Forced Arbitration Injustice Repeal Act” (AKA the “FAIR Act”) are written so broadly they might bleed over from consumer/employment/civil rights/securities/class action disputes into B2B or ISDS arbitrations.  Those proposals are, however, highly unlikely to move forward in the divided Senate during the next two years.
  • The approach of protectors of B2B arbitration (domestic and international) is to aim to limit any such legislation (if it moves forward notwithstanding) to a new Chapter of the FAA to avoid bleeding over of new legislative restrictions (if any) from consumer/employment/civil rights/class action issues into B2B or ISDS. 
  • If any Congressional action does move forward, it will instead likely be (1) specific to subject-matters that secure bipartisan support (e.g., perhaps barring pre-dispute arbitration agreements covering nursing home or workplace/sexual harassment disputes) or (2) embedded inside “must-pass” legislation.  That has been the pattern in Congress for many years now.  Still, even that type of legislation remains highly unlikely in a divided Congress.
  • The ability of a new Administration to introduce unilateral administrative regulations limiting or prohibiting arbitration (the practice in the Obama and Trump Administrations) has been greatly reduced by the 2018 U.S. Supreme Court decision in Epic Systems v. Lewis, 138 S. Ct. 1612 (2018).  Epic Systems held that authority to override by administrative regulation the impact of the FAA provisions requiring enforcement of arbitration agreements must be found in specific legislative authority to limit or prohibit mandatory arbitration agreements, not pre-existing general legislative grants of overall regulatory authority.  I speculate without evidence that administrative regulatory proposals in the Biden Administration might focus on banning enforcement of pre-dispute waivers of class actions, in both arbitrations and courts, to try to avoid the impact of the principle from Epic Systems that arbitration cannot be singled out for restrictions in the absence of specific legislative authorization.
  • International economic policies under the Biden Administration will surely differ from those under the Trump Administration.  However, Democrats have further retreated from supporting ISDS since the Obama Administration while Trump has split the previous Republican de facto unanimity in support.  Those trends may continue in Congress, while the position of the Biden Administration awaits further appointments to Biden’s economic and trade team.  During the election campaign, Biden stated only “I oppose the ability of private corporations to attack labor, health, and environmental policies through the Investor-State Dispute Settlement (ISDS) process and I oppose the inclusion of such provisions in future trade agreements.”  [See Biden’s answers to questions from the United Steelworkers Political Action fund at https://bit.ly/3opEZyp.] That statement fails to clarify whether Biden supports or opposes ISDS when labor, health or environmental policies are not at stake.  Trade Promotion Act Authority to negotiate international trade agreements will be up for renewal in 2021–that will be the first true test of the appetite in the Biden Administration and the new Congress for reform or elimination of ISDS.  A return to the ISDS format found in the Trans-Pacific Partnership negotiated by the Obama Administration, contrasted with the form found in the United States-Mexico-Canada Agreement, seems unlikely regardless.
  • The replacement of Justice Ruth Bader Ginsburg on the U.S. Supreme Court with Justice Amy Coney Barrett likely signals no change in the Supreme Court’s recent pro-arbitration jurisprudence.  Justice Ginsburg was a critic of some of that jurisprudence, but in dissent.  We will see how Justice Barrett resolves arbitration-related disputes when the Supreme Court issues its decision in Henry Schein II sometime next year (oral argument to be heard on Dec. 8–if you are a subscriber to OGEMID/Young OGEMID, there will live reports those listserv’s covering that argument) [For more on Henry Schein II, see “Supreme Court Argument Preview: Looking Ahead to Round 2 on Schein and Arbitrability,” CPR Speaks (Dec 3) (available at https://bit.ly/2VyD1z6)]. However, many observers feel that Justice Barrett is not likely to follow Justice Ginsburg’s dissents rather than the majority’s approach toward  hot-button issues such as consumer and employment arbitration.  Henry Schein II does not, though, involve the hot-button issues that have divided the Court into majority and minority positions in recent years.  Instead, it involves issues of arbitrability in the face of a carve-out in an arbitration clause allocating mandatory jurisdiction for injunctive relief and certain IP issues to the courts rather than an arbitral tribunal.  Consequently, Henry Schein II may not be the best test of Justice Barrett’s views on the sensitive public policy issues.  It may, though, offer a good measure of her adherence to the general pro-arbitration stance found in the Supreme Court’s recent jurisprudence. 
  • There is, however, some non-zero possibility that, due to Epic Systems, a future court might overturn the current informal U.S. Securities and Exchange Commission policy refusing to register equity securities offerings for public sale where the underlying corporate organic documents provide for arbitral jurisdiction (with class waivers) rather than court proceedings for shareholder disputes with the issuing company.  Several such cases are wending their way through the lower federal courts at this time.  The Trump Administration and the SEC largely stayed out of that issue, to the frustration of corporate advocates and the approval of shareholder advocates.  If the Biden Administration or an SEC controlled by a Biden-appointed chair chooses to become involved, it would likely intervene in support of the existing informal SEC policy.

I hope this is useful.

_______________________________________________

Mark Kantor is a member of CPR-DR’s Panels of Distinguished Neutrals. Until he retired from Milbank, Tweed, Hadley & McCloy, he was a partner in the firm’s Corporate and Project Finance Groups. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). He also is Editor-in-Chief of the online journal Transnational Dispute Management. This CPR Speaks post originally was circulated to a private list serv and adapted with the author’s permission.

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Supreme Court Argument Preview: Looking Ahead to Round 2 on Schein and Arbitrability

Can a contract clause delegating a case to an arbitrator be preempted and sent to a court by words that exempt the consideration of specific issues, like injunctions, from the arbitrator?

That’s the question the U.S. Supreme Court will hear discussed in the Tuesday, Dec. 8 arguments in Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963 (Supreme Court case page is at https://bit.ly/2EvKPx3).  So far, it’s the only arbitration case the U.S. Supreme Court has agreed to hear in the 2021 term.

It’s the case’s second trip to the nation’s top Court in under two years.  In Henry Schein Inc. v. Archer and White Sales Inc., 139 S. Ct. 524 (Jan. 19, 2019) (available at https://bit.ly/338gdLT), the Court held that the “wholly groundless” exception to arbitrability is inconsistent with the Federal Arbitration Act and the Court’s precedent. But it declined to determine “whether the parties agreed to arbitrate arbitrability” as indicated by “clear and unmistakable evidence” in a unanimous opinion by Associate Justice Brett Kavanaugh.

On remand the Fifth Circuit found that a clause delegated the arbitration to the arbitrator via the incorporation of American Arbitration Association rules to that effect. But the Court didn’t compel arbitration.  It said that the way the clause was drafted, the carve out for injunctions still applied, and once again refused to enforce arbitration. 

Henry Schein asked the Court to hear the case between the two medical equipment supply companies a second time, contending that the delegation should have sent the question of arbitrability to the arbitrator, not a court.

On June 15, the Court agreed to hear the case again, this time on the issue of “[w]hether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.”

At the same time, the Court declined to accept Archer and White’s cross petition on two issues that could eventually be before the Court—possibly in a guest appearance as soon as Tuesday’s oral argument:

(1) Whether an arbitration agreement that identifies a set of arbitration rules to apply if there is arbitration clearly and unmistakably delegates to the arbitrator disputes about whether the parties agreed to arbitrate in the first place; and

(2) whether an arbitrator or a court decides whether a nonsignatory to an arbitration agreement can enforce the arbitration agreement through equitable estoppel.

For background on Tuesday’s argument, see Heather Cameron, “Decided, Granted, Denied: A Look At 2020’s Supreme Court Arbitration Cases,” 38 Alternatives to the High Cost of Litigation 118 (September 2020) (available at https://doi.org/10.1002/alt.21852); Russ Bleemer & Heather Cameron, “Supreme Court Returns Schein to Its Docket, With a Focus on Arbitrability,” CPR Speaks (June 15, 2020) (available at https://bit.ly/3d4HOPt); Philip J. Loree Jr., “Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court, CPR Speaks (Feb. 19, 2020) (available at http://bit.ly/3bQXQgl); Mark Kantor, “Henry Schein Redux – The Appeals Court Decides ‘The Placement of the Carve-Out is Dispositive,’” CPR Speaks (Aug. 15, 2019) (available at http://bit.ly/2IZ3MqQ).

Linked above, Alternatives editor Russ Bleemer is joined for a preview of the second Henry Schein Supreme Court arguments by Angela Downes, Professor of Practice and Assistant Director of Experiential Education, of the University of North Texas-Dallas College of Law in Dallas, and arbitrator-advocates Philip J. Loree Jr., of New York (see his Arbitration Law Forum blog and website at https://loreelawfirm.com/blog/), and Richard Faulkner, of Dallas (see his LinkedIn page at https://bit.ly/3qh5U13).

Loree and Faulkner worked on an amicus brief that has been filed in this case, and is discussed at length in the video.  It is posted on the Supreme Court’s website here.

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