Let’s Schein Again!

The International Institute for Conflict Prevention and Resolution presents a CPR Speaks blog discussion of the 1/25/2021 U.S. Supreme Court per curiam decision dismissing Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, and a same-day order declining to hear Piersing v. Domino’s Pizza Franchising LLC, No. 20-695. Alternatives to the High Cost of Litigation Editor Russ Bleemer hosts Prof. Angela Downes, University of North Texas-Dallas College of Law, and arbitrator-advocates contributors Richard Faulkner, also of Dallas, and Philip J. Loree Jr. in New York.

By Russ Bleemer

The panel returns to CPR Speaks and YouTube to analyze the Monday Henry Schein dismissal–a one-line decision–just a month after the Court heard oral arguments on the issue of how a contract carve-out removing injunctions from arbitration affects the delegation of the entire matter to arbitration.

In fact, the Dec. 8, 2020, Henry Schein oral argument repeatedly turned to an issue in the rejected Piersing case on the effectiveness of the incorporation by reference of arbitration rules in designating an arbitration tribunal to decide whether a case is arbitrated, rather than a court deciding whether the matter is to be arbitrated. A cross-petition by Archer and White asking for review of the incorporation by reference of the arbitration contract’s American Arbitration Association rules was declined by the Supreme Court the same day it agreed to hear the carve-out issue last June.

Our panel discussed these issues after the oral argument on this blog.  See “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa) (in which the panelists also discuss their work on an amicus brief in the case, a subject that arose in this post’s video).

You can see today’s per curiam decision on the Supreme Court’s website here.

Monday’s Henry Schein dismissal ends a long period of Supreme Court litigation in the case that also included a 2019 U.S. Supreme Court decision. For now, the case returns to the Fifth Circuit for proceedings on whether the parties properly intended to arbitrate the case.

Details on the Supreme Court’s Monday cert denial in Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, are available on CPR Speaks here.

For more analysis on the Henry Schein dismissal, see Ronald Mann, “Justices dismiss arbitrability dispute,” Scotusblog (Jan. 25, 2021) (available at http://bit.ly/2Yh9U4O), in which the Columbia University professor and Scotusblog analyst concludes that

it seems likely that the justices ultimately decided that they couldn’t sensibly say anything about this matter without addressing the question of whether the contract called for arbitration of the gateway question. Because they had declined to call for briefs on that question, it did not make sense to address it here. A logical course of action, then, was to dismiss the matter from the docket, providing a rare victory for a party opposing arbitration.

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The author edits Alternatives for the CPR Institute.

Scotus’s Henry Schein No-Decision

By Russ Bleemer

If the U.S. Supreme Court appeared frustrated at last month’s arbitration argument in Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, this morning’s one-line decision confirmed it.

The Court today dismissed the entire case without a decision on the merits.  The entire per curiam decision:  “The writ of certiorari is dismissed as improvidently granted.”

You can view it on the Supreme Court’s website here.

The immediate effect is that respondent Archer and White Sales sees a big win:  It will get the determination of whether its long-running case over a medical equipment contract dispute is to be arbitrated made by a judge, not an arbitrator.  A Fifth U.S. Circuit Court of Appeals decision now stands. See Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274 (5th Cir. 2019) (available at http://bit.ly/2NC7EmL).

Archer and White contended that a delegation agreement sending a matter to arbitration did not “clearly and unmistakably” send the case to arbitration because of a contract carve-out for injunctions.

With a one-line dismissal, it’s unknown why the Court did what it did. In shutting down the case, it may be backing Archer and White’s and the Fifth Circuit’s view. 

Or it may have reconsidered a point that Henry Schein’s successor status to the contract didn’t sustain its arbitration demand.

Or, in a point returned to repeatedly in last month’s argument, the Court may have botched the case on its own. When it granted Henry Schein’s cert petition on June 15 on the carve-out issue, the Supreme Court simultaneously rejected Archer and White’s cross petition challenging the determination of arbitrability of the case on a question of incorporation by reference. The cross petition contended that the “clear and unmistakable” evidence of an intent to arbitrate was insufficient; the contract incorporated American Arbitration Association rules that include a provision that arbitrators decide arbitrability.

Even though the Court rejected the cross-petition, the issue returned in the December arguments, at times overwhelming the discussion of the question of the carve-out’s effect. For more on the argument, see “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa).

One thing is certain:  The Court won’t use a follow-up petition to address the incorporation-by-reference issue, which would have interpreted the standard from the Court’s seminal decision on arbitrability, First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (available at https://bit.ly/39fAwcR).

That’s because a case that a petitioner and an amicus stated presented the issue cleanly—unencumbered by the carve-out issue and Henry Schein’s long history, including a 2019 U.S. Supreme Court decision—was denied certiorari 30 minutes ahead of today’s one-line opinion. Details on the Court’s cert denial in Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, are available on CPR Speaks here.

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The author edits Alternatives for the CPR Institute.

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Court Again Rejects Review on Incorporating Rules that Define Arbitrability

By Temitope Akande & Russ Bleemer

The U.S. Supreme Court this morning declined to hear a case that presented a persistent arbitration issue: whether the incorporation of a set of arbitration rules that state that an arbitrator decides whether a case goes to arbitration, instead of a court making the arbitrability decision, provides sufficient “clear and unmistakable evidence” that the parties agreed for the tribunal to make the decision.

It was the second time in eight months that the Court has rejected a significant case on the issue.

Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, would have analyzed the clear-and-unmistakable evidence standard for delegation to arbitrability from the Court’s First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (available at https://bit.ly/39fAwcR).  

The question presented by the petitioner, a former employee of two Domino’s franchisers who had a claim against the parent company, was:

In the context of a form employment agreement, is providing that a particular set of rules will govern arbitration proceedings, without more, “clear and unmistakable evidence” of the parties’ intent to have the arbitrator decide questions of arbitrability?

Last June, the Court declined to hear the question on arbitrability in a cross-petition in Henry Schein Inc. v. Archer & White Sales Inc., No. 19-1080 (June 15, 2020), while accepting the case on the original cert petition on another, close issue involving the reach of carve-out provisions in arbitration agreements. 

In its December arguments in Schein, which awaits decision, the discussion of incorporation by reference on arbitrability arose.  See “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa). In its brief in Piersing, the petitioner “acknowledges that [the] Court recently denied certiorari of a cross-petition presenting a similar question,” citing Schein, adding, “however, the question is presented in this case cleanly and as a stand-alone question.”

In Piersing, the petitioner worked as a delivery driver for a franchisee of respondent Domino’s, and later got an employment offer from Carpe Diem, another Washington state Domino’s franchisee. While the petitioner intended to increase his hours and earnings, the first franchisee fired him based on a no-poach clause in his employment agreement.

He eventually brought a U.S. District Court class-action suit against Domino’s alleging that the hiring rules violated, among other things, antitrust laws.

Domino’s sought to compel arbitration of Piersing’s claims based on the arbitration agreement between the employee and Carpe Diem.  Domino’s asked for arbitration, according to the Sixth Circuit opinion in the case that was the subject of the cert petition (see Blanton v. Domino’s Pizza Franchising LLC, 962 F.3d 842 (6th Cir. 2020) (available at http://bit.ly/3sWDlrg)), “because the agreement’s reference to the AAA rules constituted a delegation clause in that the AAA rules supposedly provide for delegation.”

The district court held that equitable estoppel applies to permit franchiser Domino’s to enforce franchisee Carpe Diem’s agreement against Piersing and, according to the petitioner’s cert petition brief, “that the clause providing the AAA rules would govern any arbitration amounted to ‘clear and unmistakable’ evidence of Piersing’s and Carpe Diem’s intent to delegate questions of arbitrability to the arbitrator.”

Piersing appealed the district court’s decision. Relying on Rent-a-Center, West Inc. v. Jackson, 561 U.S. 63 (2010), and more, the Sixth Circuit held that the incorporation of arbitration rules that permit the arbitrator to resolve questions of arbitrability is sufficient to delegate those questions to the arbitrator.

Piersing’s Supreme Court cert petition brief analyzed the holdings in First Options, Rent-a-Center, West, and the first Henry Schein decision, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019), which wrestled with the question of and the standard for who decides arbitrability, the tribunal or the court.

Based on these precedents, the petitioner argued that the existing circuit court analysis allowing for incorporation of rules that included arbitrators determining arbitrability wasn’t “clear and unmistakable evidence” of the parties’ intent to arbitrate.  It emphasized that, particularly for consumers and employees, the cases weren’t sufficiently thorough in light of the First Options standard. The petitioner also noted that the Sixth Circuit’s decision conflicts with the holdings of several state high courts.

Domino’s countered that an agreement incorporating privately promulgated arbitral rules that assign questions of arbitrability to the arbitrator clearly and unmistakably show the parties’ agreement that an arbitrator, not the court, will resolve whether the case is suitable for arbitration.

Domino’s successfully argued for the nation’s top Court to reject the petition and thereby uphold the Sixth Circuit.

An amicus brief in support of the petitioner was filed by Columbia University Law School Prof. George Bermann, who described the issue in the appeal as “a central but unsettled issue of domestic and international arbitration.” Echoing the petitioner, the brief noted the importance of the issue in both Henry Schein Supreme Court cases, but stated that “the delegation question is presented front and center for review in this case.” It also cited the divergence between state and federal court views.

The amicus brief discussed the principle of “competence-competence” in international commercial law—the international equivalent of the arbitrability question under which the tribunal is presumed to be in a position to determine its jurisdiction, and which the Sixth Circuit invoked.  Bermann’s brief discussed the concept under the “clear and unmistakable” agreement standard of parties to arbitrate.

The amicus noted that the competence-competence language does not constitute “clear and unmistakable” evidence. “[A]ll modern arbitral procedure rules contain a ‘competence-competence’ clause,” the brief argued, “so that treating such language as clear and unmistakable evidence of a delegation means that parties will almost invariably lose their right to a judicial determination of what this Court has multiple times referred to as the very cornerstone of arbitration, viz. consent to arbitrate.”

Noting the state-federal divide in the interpretation of whether the incorporation of rules satisfies First Options, the brief concluded, “Only this Court can definitively resolve that issue and ensure that parties do not forfeit their right to a judicial determination of arbitrability unless they manifest that intention clearly and unmistakably.”

For more information on the case and an in-depth discussion of the issues involved, see the Supreme Court’s docket page at http://bit.ly/39Zxed1.

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Akande, 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. Bleemer edits Alternatives for the CPR Institute.

[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.

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Supreme Court Rejects an International Arbitration Case

By Russ Bleemer

The U.S. Supreme Court this morning declined to hear the international arbitration case of Big Port Service DMCC v. China Shipping Container Lines, No. 20-128.

The issue in the case was the standard for issuing an injunction related to arbitration–specifically, “Whether the U.S. Court of Appeals for the 2nd Circuit erred in recognizing a cause of action for a party seeking to avoid arbitration and in concluding that courts have remedial power — untethered to any federal statute and unconstrained by the Supreme Court’s precedents governing the grant of injunctive relief — to issue injunctions against arbitration.”

The Second Circuit’s March 5 unpublished summary order (available at https://bit.ly/3lD1IpA) stands. It affirmed a U.S. District Court order barring U.S. arbitration in the case, deferring instead to the Singapore High Court which had determined that there was no agreement to arbitrate, according to court decisions and papers filed in the case.

The case is six years old. While Big Port took the matter to the nation’s top Court, the parties continued to litigate the costs incurred while the U.S. actions were stayed and the case proceeded in Singapore. 

China Shipping’s request for attorneys fees went to a report and recommendation by a federal judge, which was adopted in August by another New York Southern District federal court judge.  China Shipping sought more than $45,000 in attorneys fees against Big Port, but was awarded just $43.20 in copying and other administrative fees by the report, and the case. See China Shipping Container Lines Co. v. Big Port Service DMCC, 15 Civ. 2006 (AT) (DF) (S.D.N.Y. Aug. 19, 2020) (available at https://bit.ly/36A2Jsi).

The Supreme Court’s Big Port case page, with the cert petition and briefs in the case, is available at https://bit.ly/36yOfJ2.

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

[END]

The Nominee and ADR: Circuit Judge Barrett on Arbitration

By Alice Albl

Seventh U.S. Circuit Court of Appeals Judge Amy Coney Barrett, whose nomination hearings before the Senate Judiciary Committee concluded last week, was on the federal circuit court based in South Bend, Ind., for less than three years before being nominated by President Trump for the Supreme Court on Sept. 26.

This small window has not allowed much time for alternative dispute resolution decisions. There are five opinions involving ADR in which Circuit Judge Barrett participated, four authored by the nominee and one on which she served as a panelist. The cases primarily are centered around employment law.

Barrett is a prolific academic, having written extensively about civil procedure, legal construction, evidence rules, and constitutional originalism over her 23-year career. She has taught at her alma mater, Notre Dame Law School, since 2002. See her University of Notre Dame Faculty Directory page at https://bit.ly/34WMa9h.

Barrett did not mention any work focused on ADR in her self-reported “Questionnaire for Nominee to the Supreme Court” to the U.S. Senate. The questionnaire is posted on the Senate Judiciary Committee’s website at https://bit.ly/3jdqBX1.  

Barrett has given several presentations on her time clerking for the late Justice Antonin Scalia. Her style echoes Scalia’s by favoring a narrow, textualist interpretation of the law. See Imre Szalai, “Judge Amy Coney Barrett & the FAA – A Disciple of Scalia,” Outsourcing Justice blog (Setp. 27) (available at https://bit.ly/2H2hb3K). 

On ADR issues, Barrett also has followed in Scalia’s footsteps by demonstrating a distaste for class actions. But she apparently does not share Justice Scalia’s strong views on the progress of ADR. See George H. Friedman, Securities Arbitration Alert blog (Oct. 1) (available at https://bit.ly/3k8QKYc) (in which Friedman covers the cases here and adds discussion of a Legaspy v. FINRA, No. 1:20-cv-04700, in which Barrett joined a panel denying a motion for a temporary restraining order to stop a pandemic-era video arbitration.)

Apart from her ruling in Herrington v. Waterstone Mortgage Corp. (see below), mirroring Scalia’s perspective on class-action suits, Circuit Judge Barrett’s ADR opinions have been filtered through analyses of civil procedure, textualism, and the rules of evidence. Id. All three are topics heavily present in Barrett’s academic writing. See the Senate link above.

The following is an overview of the five ADR-related decisions in which Circuit Judge Amy Coney Barrett participated, four written by the nominee, and one for which she served as a panelist:

  1. Wallace v. Grubhub Holdings Inc., 970 F.3d 798 (7th Cir. 2020) (available at https://bit.ly/33MvFwX).   

In organizing a class-action suit against defendant Grubhub for an alleged violation of the Fair Labor Standards Act–referred to in this post as the FLSA–plaintiff Wallace had to contend with the fact that all members of the class had signed an agreement to settle disputes with the defendant through arbitration.

Wallace requested to have the class recognized as exempt from arbitration under FAA Section 1, normally reserved for interstate transportation workers, because the class members transported food that generally included ingredients brought across state lines. The plaintiff said that the residual clause in the Section 1 exception, “any other class of workers engaged in foreign or interstate commerce,” applied.

The plaintiff’s request was denied by the lower court. In her Seventh Circuit opinion, Barrett similarly rejected the designation. This firmly placed the Seventh Circuit on one side of a debate about the scope of Section 1 as it applies to workers and interstate commerce. See, e.g., Michael S. Kun, “Ninth Circuit Conclusion that Amazon Delivery Drivers Don’t Need to Arbitrate their Claims under FAA’s ‘Transportation Worker’ Exemption Highlights Conflict among Courts,” Wage and Hour Defense Blog Epstein Becker Green (Aug. 24) (available at https://bit.ly/37hpza1), and Kris Olson, “FAA exemption extend to ‘last mile’ drivers,” New England In-House blog (Aug. 24) (available at https://bit.ly/3lZLYNm).

This issue involves the Supreme Court’s decision in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) (available at https://bit.ly/2HhwYLu), which stated that the Section 1 phrasing—“…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”–should only be applicable for “transportation workers,” but left the meaning of “transportation workers” open to interpretation.

The Grubhub delivery workers in the case contested that they were independent contractors, and contended they are employees, in suits around the country.

Some courts have allowed the breadth of “transportation workers” to expand through comparison with the FLSA’s use of the term, or a historical analysis.  See, e.g., Waithaka v. Amazon.com, Inc., 966 F.3d 10 (1st Cir. 2020); Rittman v. Amazon.com, Inc., 971 F.3d 904 (9th Cir. 2020). Circuit Judge Barrett wielded textualism to create a test featuring a narrower version of the term.

Her analysis began with the interpretative canon ejusdem generis as defined by Justice Scalia in his book on statutory interpretation. Antonin Scalia, Reading Law: The Interpretation of Legal Texts 199 (2012) (“Where general words follow an enumeration of two or more things, they apply only to persons or things of the same general kind or class specifically mentioned.”) The canon states that generic terms at the end of lists including specific items should be interpreted to only include things similar to the specific items.

While other courts used ejusdem generis to allow FAA Sec. 1 language to include any workers involved in the “flow” of interstate commerce (see Rittman above), Circuit Judge Barrett tested for whether interstate commerce was a “central part of the class members’ job description.”

The plaintiff’s class did not pass the test, and the exception to arbitration under the FAA did not apply. According to Barrett, even though GrubHub workers delivered goods from other states, or even countries, that interstate aspect was characteristic of the goods and not the role served by the worker. This made them unlike railroad workers and seamen whose jobs focused on “the channels of commerce.”

Barrett distinguished the earlier New Prime Inc. v. Oliveira, 139 S.Ct. 532 (2019) (holding that an independent contractor’s contract is a “’contract of employment’ within the FAA Sec. 1 language that excepts such contracts from FAA application), which involved goods in interstate commerce. She wrote that the New Prime distinction between independent contractors and employees wasn’t a part of the case.

Author George Friedman noted last week that Wallace came up at Circuit Judge Barrett’s confirmation hearings.  See his account at “No Surprise Here: Arbitration Comes Up At Coney Barrett Confirmation Hearings,” Securities Arbitration Alert (Oct. 16) (available at https://bit.ly/37gsm3d).

Barrett sat on a panel that issued an opinion on giving notice to employees for a collective-action suit under the FLSA. The panel wrote that when a court considered allowing employees to opt-in to a collective-action FLSA suit, it was the defendant employer’s burden to prove whether those employees were ineligible or already bound to arbitration.

In this case, the plaintiff-employee Bigger brought an action against the defendant-employer Facebook. She alleged that the company should have paid overtime to her position and another, similar role. The plaintiff asked the lower court for authorization to form a collective-action suit. Notice of the suit was to be sent to every individual in the United States who worked in either of the roles. The lower court granted this authorization.

Facebook appealed to the Seventh Circuit, saying the court had erred because most would-be plaintiff employees had already entered arbitration agreements precluding litigation, so giving them notice about the suit would be misinformation. The defendant further argued that an inflated number of employees attempting to enter the collective-action suit would create undue pressure for a settlement.

The Seventh Circuit panel acknowledged the logic of the defendant’s argument but declined its request to deny plaintiff Bigger authorization for the formation of a collective action. Instead, the panel created a set of instructions. After a plaintiff had contested the existence of applicable arbitration agreements, it was the defendant’s responsibility to demonstrate that these agreements not only existed but precluded entrance into the collective action. Proof had to be given for every individual who would be precluded and not receive notice about the collective-action suit.

“Specifically, the court on remand should allow the parties to submit additional evidence on the existence of valid arbitration agreements between Facebook and proposed notice recipients,” wrote Circuit Judge Michael S. Kanne, joined by Supreme Court nominee Barrett and Seventh Circuit Chief Judge Diane P. Wood, adding, “If Facebook proves that certain proposed recipients entered valid arbitration agreements waiving their right to join the action, or if Bigger does not contest that those employees entered such agreements, the court may not authorize notice to those employees.”

In reviewing the enforcement order of a $10 million-plus arbitration award for employees, Circuit Judge Barrett vacated the award entirely. She held for a unanimous panel that “the availability of class or collective arbitration is a threshold question of arbitrability” and therefore, goes to the court, not the arbitrator. In the case, the arbitrator had allowed the plaintiff to pursue a collective action but, as stated in Barrett’s opinion, only the court had the authority to make such a decision.

The defendant argued that, even with the waiver struck, it only agreed to bilateral arbitration, with no consent given to class- or collective-action. Instead, the arbitrator used the rules chosen by the parties to control their arbitration proceedings to justify permitting the plaintiff’s class/collective-action suit. 

Plaintiff Harrington contested the validity of the agreement to arbitrate that she had signed with defendant Waterstone. While the lower court determined that the agreement was valid, it struck a waiver in the contract that barred others from joining the suit. The court gave an order to the arbitrator that the plaintiff “must be allowed to join other employees to her case.” The arbitrator then allowed the plaintiff to proceed with a collective action, in which employees could opt into the matter.

Barrett disagreed with the move. Allowing a class/collective-action was a question of “arbitrability” that bore upon the fundamental terms and legal validity of the arbitration, and was reserved for the court. Although the Seventh Circuit had not previously recognized the authorization of collective action as a question of arbitrability, identifying it this way fell in line with every other circuit court to decide on the matter. See, e.g., Del Webb Communities Inc. v. Carlson, 817 F.3d 867, 877 (4th Cir. 2016), and  Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013), among others Barrett cites. 

According to Circuit Judge Barrett, “The availability of class or collective arbitration involves a foundational question of arbitrability: whether the potential parties to the arbitration agreed to arbitrate.” She noted that decisions on class/collective-action suits were questions of arbitrability in three different ways. First, they affected who would participate in an arbitration. Second, they affected the scope of an arbitration. Third, these decisions affected the structure of an arbitration. 

The late Justice Antonin Scalia had strong opinions on how class-collective-suits affect the structure of an arbitration, and Barrett devoted most of her attention to this factor. Citing heavily Scalia’s AT&T Mobility LLC v. Concepcion opinion, Barrett reiterated her mentor’s viewpoint, stating that the structural shifts caused by switching to class/collective-action gives up the advantage of informality in an arbitration. AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011). She described this as “reduced efficiency.” 

Barrett concluded her analysis of the structural aspect of class/collective-action arbitration by referencing another Scalia misgiving, that the finality of arbitration increases the risk for defendants when facing potentially thousands of plaintiffs in class/collective-suits. Barrett projected the risk of this finality onto arbitration as a whole, an association that Prof. Szalai of Loyola Law School found contentious.

In his blog, “Outsourcing Justice,” linked above, Szalai wrote that Barrett’s arbitration view would be in good company among the conservative justices of the Supreme Court, saying that, overall, the Court’s arbitration decisions have been critiqued as reflecting “an overly-simplistic manner [that] tend to conceptualize arbitration as a homogeneous process, and they sometimes have flawed assumptions or preconceived notions regarding arbitration.“

Nevertheless, plaintiff Herrington’s case was allowed to continue.  Barrett remanded the case on behalf of the appellate panel to the district court, rather than the arbitrator, to evaluate whether Herrington’s contract with Waterstone permitted class or collective arbitration.

  • Webb v. Financial Industry Regulatory Authority Inc., 889 F.3d 853 (7th Cir. 2018), (available at https://bit.ly/3iNuh1l).

In writing for the court, Barrett declined to consider the applicability of arbitral immunity. Instead, she determined that the lower court had erred in allowing the case to be heard at all, because it was not within federal jurisdiction.

Plaintiff Webb and a colleague filed suit when a dispute with their former employer could not be resolved in defendant FINRA’s arbitration forum after two-and-a-half years.

The plaintiffs sought damages “in excess of $50,000” in Illinois state court, alleging that the defendant had mismanaged the arbitration—”including failing  to  properly  train  arbitrators,  failing  to  provide  arbitrators  with  appropriate  procedural  mechanisms,  interfering  with  the  arbitrators’  discretion,  and  failing  to  permit  reasonable  discovery.”

The defendant responded by removing to federal court, then moving to have the case dismissed on multiple grounds, including arbitral immunity. This doctrine protects arbitrators from civil liability when performing their duties as neutrals. The lower court decided that the doctrine was applicable and granted the defendant’s motion. Webb v. Fin. Indus. Regulatory Auth., Inc., No. 16-CV-04664 (N.D. Ill.  2017), vacated, 889 F.3d 853 (7th Cir. 2018). The plaintiffs appealed to the Seventh Circuit.

Barrett declined to apply arbitral immunity, but found that the lower court had erred in allowing the case to be heard at all. The damages the plaintiffs sought either could not be recovered under controlling Illinois law, or did not meet the $75,000 minimum amount necessary to grant federal jurisdiction.

The defendant argued that federal jurisdiction was valid because its U.S. Securities and Exchange Commission-approved Code of Arbitration Procedure was involved in the suit. Barrett rebuffed this by echoing the Supreme Court’s rulings in Grable & Sons Metal Products, Inc. v. Darue Engineering  &  Manufacturing,  545  U.S.  308  (2005) and Merrill  Lynch,  Pierce,  Fenner  &  Smith  v.  Manning,  136  S.  Ct.  1562,  1566  (2016), noting that one party having a “federal role” did not necessarily make a case eligible for federal court consideration.

Defendant WeConnect appealed after the lower court stated that it was not a party to plaintiff Goplin’s arbitration agreement. The agreement compelled the plaintiff to arbitrate with another entity, AEI, and not the defendant.

Although defendant WeConnect’s website stated that AEI was a separate entity, it claimed through an employee affidavit that AEI was actually the defendant’s former name. It further asserted that the lower court was mistaken in considering the website, violating rules of judicial notice by performing its own research.

With a short opinion focused on this evidence issue, Circuit Judge Barrett affirmed the lower court determination. The plaintiff had referenced the website in a brief to the court along with several other examples that provided a more convincing case than the defendant’s single affidavit about a human resources document. The defendant had conclusively portrayed itself as separate from the entity mentioned in plaintiff Goplin’s arbitration agreement.

In reporting Goplin, George Friedman of the Securities Arbitration Alert blog noted that Circuit Judge Barrett maintained a narrow focus on the evidentiary issue, and not on arbitration law. See Friedman’s Oct. 1 blog post linked above.

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The author, a CPR Institute Fall 2020 intern, is a second-year student at Brooklyn Law School in New York.

Supreme Court Rejects Decade-Old Class Arbitration Employment Discrimination Case

By Cristina Carvajal

A contentious employment discrimination case now focusing on whether an arbitrator is within her authority to bind a class of employees who did not affirmatively opt-in or consent to class arbitration will not resurface now at the Supreme Court.

This morning, in its first 2020-2021 term order list (available at https://bit.ly/3la3Y72), declined to hear Jock v. Sterling Jewelers Inc., 942 F.3d 617 (2d Cir. 2019) (available at https://bit.ly/30yP3eZ).

The Second Circuit decision in the case last year will return the case to federal district court in New York for more proceedings ahead of arbitration in the 12-year-old-case.

The nation’s top Court today denied cert in Sterling Jewelers Inc. v. Jock, No. 1382 (Supreme Court case page available at https://bit.ly/3lgflL2). While the opt-in is the issue most recently litigated, the Court considered and rejected today a petition by the national jewelry chain on an event broader question presented,

Whether an arbitrator may compel class arbitration—binding the parties and absent class members—without finding actual consent, and instead based only on a finding that the agreement does not unambiguously prohibit class arbitration and should be construed against the drafter.

The employment case’s gender-based discrimination claim was first filed in 2008 by then-present and former women Sterling Jewelers employees. All workers were required to sign its Resolve agreement subject to American Arbitration Association rules, which included a mandatory arbitration clause, as well as a litigation waiver. For more, see Anne Muenchinger, “Still No Arbitration: In Its latest Jock decision, Second Circuit Reverses for More Contract Interpretation,” 38 Alternatives 77 (2020) (available at https://bit.ly/2GuxplA).

Not only has this case been moved from New York’s Southern U.S. District Court to the Second U.S. Circuit Court of Appeals four times, but today’s rejection was its second at the Supreme Court. Today’s decision puts the case back on a road to the case’s arbitrator, former New York Southern District magistrate Kathleen A. Roberts, now a JAMS Inc. neutral in the firm’s New York office.

David Bouffard, vice president of corporate affairs at Signet Jewelers Ltd.in Akron, Ohio, notes in a statement,

While we respect the Court’s decision, we believe the claims in this matter are without merit and are not substantiated the relevant facts and statistics. We will continue to vigorously defend against these claims, which do not accurately reflect our company or our culture. Indeed, we have long been committed to fostering a culture of respect, integrity, diversity, and inclusion where all employees feel safe, supported, and empowered—this is a tenet of who we are. In particular, Signet is a recognized leader among companies for gender diversity, with women filling 74% of store management positions and gender parity in both the C-Suite and Board of Directors. Under the leadership of our CEO, Gina Drosos, we continue to champion diversity and inclusion as a strategic priority, as we have been honored to be included on the Bloomberg Gender Equality Index for two consecutive years.

Plaintiffs’ attorney, Joseph M. Sellers, a Washington, D.C., partner in Cohen Milstein Sellers & Toll, declined to comment on the cert denial.

In its latest decision last year, the Second Circuit reversed the lower court’s judgment and held “that the arbitrator was within her authority in purporting to bind the absent class members to class proceedings because, by signing the operative arbitration agreement, the absent class members no less than the parties, bargained for the arbitrator’s construction of their agreement with respect to class arbitrability.” Jock v. Sterling Jewelers Inc., 942 F.3d 617 (2d Cir. 2019) (available at https://bit.ly/30yP3eZ).

The Second Circuit referred to its previous decisions as Jock I, Jock II and Jock III. (For more on the case’s knotty procedural history, see the Alternatives’ link above). Noting that a court’s standard of review of arbitrator decisions is highly deferential, the unanimous panel in the opinion written by Circuit Judge Peter W. Hall reasoned that the arbitration agreement’s incorporation of the AAA Rules, in particular the Supplementary Rules which give an arbitrator authority to decide if an arbitration clause permits class arbitration, makes it clear that the arbitrator can decide on the question of class arbitrability.

The panel further noted the arbitration agreement itself provides that “’[q]uestions of arbitrability’ and ‘procedural questions’ shall be decided by the arbitrator.” Id.at 624.

The decision underscored that while in Jock II the panel pointed out that Jock I did not address “whether the arbitrator had the power to bind absent class members to class arbitration given that they . . . never consented to the arbitrator determining whether class arbitration was permissible under the agreement in the first place.” (Quoting an earlier decision in the case.)

That fact, however, was not a basis to alter the Second Circuit’s analysis given that class actions in arbitration and courts may bind absent class members as part of mandatory or opt-out classes.

 The Second Circuit noted that its “use of ‘consent’ as shorthand” left unclear “the possibility that the absent class members consented in a different way to the arbitrator’s authority to decide class arbitrability.” Id.at 626.

In remanding the case, the Second Circuit left open for the District Court to decide “whether the arbitrator exceeded her authority in certifying an opt-out, as opposed to a mandatory, class for injunctive and declaratory relief.” The Second Circuit already reversed an affirmative determination on that issue, but in the 2019 decision, the panel states that the lower court may revisit the issue “after allowing the parties an opportunity to present renewed argument in light of any subsequent developments in the law.”

* * *

The author, a third-year student at the City University of New York School of Law, is a Fall 2020 CPR Institute student intern.  Alternatives to the High Cost of Litigation editor Russ Bleemer assisted with reporting for this post.

[END]

The Dissent, and the Majority’s Push Back

By Russ Bleemer

The divisive battle over class waivers associated with mandatory arbitration, settled today in the Supreme Court with strong backing for Federal Arbitration Act supremacy over the National Labor Relations Act, was almost destined for a closely divided Court.

It’s unlikely any Court watchers were surprised by the majority’s 5-4 opinion in Epic Systems Corp. v. Lewis, No. 16-285 (opinion in the consolidated cases is available at https://bit.ly/2rWzAE8), written by Justice Neil Gorsuch, the Court’s newest member, especially in light of the arguments, which kicked off the term last Oct. 2.  [For details on the arguments, see the CPR Speaks: Mark Kantor, “Supreme Court Oral Argument on NLRB Class Actions vs. Arbitration Policy,” (Oct. 2)(available at http://bit.ly/2fLwU9C), and Russ Bleemer, “The Class Waiver-Arbitration Argument: The Supreme Court Transcript,” (Oct. 3) (available at http://bit.ly/2yWjWuf).]

The Court delayed the case from the previous term apparently with an eye to a full Court that would avoid a 4-4 split that would have allowed different laws depending on the circuit decisions.  In the interim, Gorsuch was confirmed.

His opinion today for the majority strongly backs the waivers and employers’ ability to require workplace disputes to be resolved in individual arbitration.  It is summarized on this CPR Speaks blog here: bit.ly/2KEuXFN 

Justice Clarence Thomas’s concurrence is summarized on CPR Speaks here: https://bit.ly/2wYEKEB.

And the generally expected lengthy dissent emerged too, authored by Justice Ruth Bader Ginsburg, who was joined by Justices Stephen G. Breyer, Sonia Sotomayor, and Elena Kagan.

“The Court today subordinates employee protective labor legislation to the [Federal] Arbitration Act,” notes Ginsburg at the dissent’s outset. “In so doing, the Court forgets the labor market imbalance that gave rise to the [Norris-LaGuardia Act] and the [National Labor Relations Act], and ignores the destructive consequences of diminishing the right of employees ‘to band together in confronting an employer.’ NLRB v. City Disposal Systems Inc., 465 U. S. 822, 835 (1984).”

The dissenters immediately asked for an intervention: “Congressional correction of the Court’s elevation of the FAA over workers’ rights to act in concert is urgently in order,” Ginsburg writes.

Ginsburg outlined her attack on the majority’s view in two intertwined points:  an analysis of “the extreme imbalance once prevalent in our Nation’s workplaces, and Congress’ aim in the NLGA and the NLRA to place employers and employees on a more equal footing,” as well as a counter-analysis of the FAA’s reach, which “does not shrink the NLRA’s protective sphere.”

Tracing the history of the nation’s labor movement, Ginsburg notes that actions enforcing “workplace rights collectively fit comfortably under the umbrella ‘concerted activities for the purpose of . . . mutual aid or protection.’ 29 U.S.C. § 157”—the NLRA’s Sec. 7, at the heart of the consolidated cases decided by the Court.

She notes that the Court’s view that the NLRA doesn’t protect class litigation is counter to the statute’s “text, history, purposes, and longstanding construction.”

The core dissent argument over Sec. 7 is the activity it enumerates.  Gorsuch, writing for the majority, describes a “regulatory regime” for the law that offers “specific guidance” for protective activities.  Ginsburg attacks the majority’s view that the NLRA doesn’t discuss employees’ collective litigation, about which Gorsuch noted that “it is hard to fathom why Congress would take such care to regulate all the other matters mentioned in [§7] yet remain mute about this matter alone—unless, of course, [§7] doesn’t speak to class and collective action procedures in the first place.”

But the dissent counters that NLRA Sec. 7 only discussed collective bargaining representatives’ selection with specificity. Ginsburg notes that the section didn’t offer “specific guidance” about forming labor organizations, the right to strike, or “other concerted activities” as provided in the law.

Later specific guidance on “some of the activities protected” under the law doesn’t “shed[] any light on Congress’s initial conception” of Sec. 7’s scope, which protects “numerous activities for which the [NLRA provides no ‘specific’ regulatory guidance.”

The dissent blasts the Court’s view that the employees should realize that with class action rules they use also provide inherent limits—that they can be contracted away in favor of individualized arbitration.

“The freedom to depart asserted by the Court,” writes Ginsburg, “is entirely one sided.” She concludes the section noting that NLRA Sec. 7 rights include the right to pursue collective litigation, and therefore “employer-dictated collective-litigation stoppers, i.e., ‘waivers,’ are unlawful.”

* * *

Similarly, Ginsburg analyzes the FAA’s history to conclude that it should not override NLRA protections she and her colleagues say are present in the labor statute. “In recent decades,” the dissent says, “this Court has veered away from Congress’ intent simply to afford merchants a speedy and economical means of resolving commercial disputes.”

Specifically, the dissent cites Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 23 (1991)—which provided that the FAA authorized arbitration of Age Discrimination in Employment Act claims as long as the remedies available in courts were also available in arbitration—and Circuit City Stores Inc. v. Adams, 532 U. S. 105, 109 (2001), which opened FAA application up to a wide range of employment contracts containing arbitration clauses.

“Few employers imposed arbitration agreements on their employees in the early 1990’s,” Ginsburg writes. “After Gilmer and Circuit City, however, employers’ exaction of arbitration clauses in employment contracts grew steadily. “

The dissent calls that application “exorbitant,” and said it pushed the National Labor Relations Board to confront the issue in In re Horton, 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8).

“As I see it,” Ginsburg writes, “in relatively recent years, the Court’s [FAA] decisions have taken many wrong turns. Yet, even accepting the Court’s decisions as they are, nothing compels the destructive result the Court reaches today.”

She continues her FAA analysis by noting that the NLRA prohibition doesn’t discriminate against arbitration in violation of the arbitration law. “That statute neither discriminates against arbitration on its face, nor by covert operation,” notes the dissent, adding, “It requires invalidation of all employer-imposed contractual provisions prospectively waiving employees’ §7 rights.” [Emphasis in the opinion.]

The dissent concluded with a plea on behalf of U.S. workers, who Ginsburg writes will be subject to under-enforcement of federal and state statutes. “In stark contrast to today’s decision,” she writes, “the Court has repeatedly recognized the centrality of group action to the effective enforcement of antidiscrimination statutes.” The dissent passage cites a 2015 Consumer Financial Protection Bureau study that pre-dispute agreements cut off consumers’ claims; the study was used to outlaw mandatory consumer arbitration in financial services contracts, but was overturned by the Senate under the Congressional Review Act when Vice President Mike Pence cast the deciding vote to kill the regulation last October.

* * *

Justice Gorsuch countered the dissent arguments as vehemently as Ginsburg’s dissent took on the majority decision.

“In its view,” writes Gorsuch at the beginning of a section addressing the minority dissent, “today’s decision ushers us back to the Lochner era when this Court regularly overrode legislative policy judgments. The dissent even suggests we have resurrected the long-dead “yellow dog” contract. [Such contracts prohibited unionization; citation to Ginsburg’s opinion omitted.] But like most apocalyptic warnings, this one proves a false alarm.”

First, Gorsuch says that the decision doesn’t override Congressional policy. Workers’ rights to unionize and bargain collectively “stand every bit as strong today as they did yesterday,” the majority opinion states.

“[T]oday’s decision merely declines to read into the NLRA a novel right to class action procedures that the [NLRB’s] own general counsel disclaimed as recently as 2010,” the opinion says.

The minority’s problem, according to Gorsuch, is that it doesn’t like the Court’s FAA jurisprudence:

Shortly after invoking the specter of Lochner, it turns around and criticizes the Court for trying too hard to abide the Arbitration Act’s “‘liberal federal policy favoring arbitration agreements,’” Howsam v. Dean Witter Reynolds Inc., 537 U. S. 79, 83 (2002), saying we “‘ski’” too far down the “‘slippery slope’” of this Court’s arbitration precedent.  . . . [Internal citation omitted.] But the dissent’s real complaint lies with the mountain of precedent itself. The dissent spends page after page relitigating our [FAA] precedents, rehashing arguments this Court has heard and rejected many times in many cases that no party has asked us to revisit.

Similarly, Gorsuch and the majority also hammer the Ginsburg-minority NLRA view. “The dissent imposes a vast construction on Section 7’s language,” the opinion notes, “But a statute’s meaning does not always ‘turn solely’ on the broadest imaginable “definitions of its component words.” Yates v. United States, 574 U. S. ___, ___ (2015) (plurality opinion) (slip op., at 7). Linguistic and statutory context also matter. We have offered an extensive explanation why those clues support our reading today. By contrast, the dissent rests its interpretation on legislative history.  . . . But legislative history is not the law.” [Internal citations omitted.]

Gorsuch writes that the Court’s decision wasn’t between the laws the justices preferred but on the precise issue:

[T]he question before us is whether courts must enforce particular arbitration agreements according to their terms. And it’s the [FAA] that speaks directly to the enforceability of arbitration agreements, while the NLRA doesn’t mention arbitration at all. So if forced to choose between the two, we might well say the Arbitration Act offers the more on-point instruction. Of course, there is no need to make that call because, as our precedents demand, we have sought and found a persuasive interpretation that gives effect to all of Congress’s work.  . . .

Finally, the majority rejects the dissent policy arguments, noting that that the “respective merits of class actions and private arbitration as means of enforcing the law are questions constitutionally entrusted not to the courts to decide but to the policymakers in the political branches where those questions remain hotly contested.”

Gorsuch then, immediately, notes that the Senate’s repeal of the CFPB’s move to ban mandatory arbitration.

 

Russ Bleemer is the editor of CPR’s award-winning publication, Alternatives

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

By Mark Kantor

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

CLASS WAIVER/MANDATORY ARBITRATION CASES

By Nicholas Denny

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


The author is a CPR Institute Summer 2017 intern.