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Tuesday, December 31, 2013

"Forced Arbitration"?

The New York Times this week editorializes against what it calls "forced arbitration."  What the Times means is "arbitration clauses in form contracts typically drafted by businesses and presented to consumers (along with most of the other terms on the form) on a take-it-or-leave-it basis."  The Times focuses on the recent Consumer Financial Protection Bureau study I blogged about here.

The Times says banks' widespread use of use of such arbitration clauses "results in a systematic denial of justice."  In contrast, I argue that such clauses should generally be enforceable, as they are under current law.  Further analysis, I co-authored with KU Law Professor Chris Drahozal is here.

The Times does recognize that class actions are a big part of the debate on consumer arbitration.  This is true not only at the Consumer Financial Protection Bureau, but also in Congress, and in the courts.  For recent congressional testimony, see here.


Thursday, December 26, 2013

Arbitration Clauses Between Colleges and Their Students

"Many for-profit college companies have included mandatory arbitration requirements in enrollment agreements for years," according to Stephen Burd at the New America Foundation.  Read more

For cases enforcing arbitration clauses used by colleges, see this post by the law firm DLA Piper.

Saturday, December 21, 2013

Ninth Circuit Refuses to Enforce Agreement Narrowing Grounds for Vacating Arbitration Award

"In the Hall Street decision in 2008, SCOTUS held that parties could not contractually enlarge Section 10 of the Federal Arbitration Act by agreeing that a court could vacate the arbitration award for reasons not found in that section.  This week, the Ninth Circuit held that parties also cannot contractually restrict Section 10 by providing for 'binding, non-appealable arbitration,'” explains Liz Kramer in one of her characteristically good analyses.  "This decision is important in that it protects consumers and other parties without negotiating power from arbitration agreements that write out even the minimal appeal bases in Section 10."

The Ninth Circuit opinion in In re Wal-Mart Wage and Hour Employment Practices Litig., __ F.3d __, 2013 WL 6605350 (9th Cir. Dec. 17, 2013) is here.  CPR's commentary by Bette Shifman is here.

I wonder if parties can get around this ruling to some extent (and in effect narrow some of the grounds for vacatur) by agreeing to arbitrate pursuant to the law of a state with arbitration law that has narrower grounds for vacatur than FAA section 10.  See the California supreme court's Cable Connections case and the Texas supreme court's Nafta Traders case.

Wednesday, December 18, 2013

Arbitration Clause in Lawyer's Contract with Client

A law firm's contract with its client said either side could opt for binding arbitration to settle a fee dispute or “any other dispute that arises out of or relates to this agreement or the services provided by the law firm.”  Despite this clause, the client sued the firm and three lawyers for malpractice. The First Circuit affirmed the district court in enforcing the arbitration clause and dismissing the case.

Read more in the National Law Journal about Bezio v. Draeger

An analysis by Jeff Mason contrasts this First Circuit Bezio case with a Ninth Circuit case, Smith v. JEM, 2013 WL 6570899 (9th Cir. Dec. 16, 2013), affirming a district court holding that the arbitration clause was unconscionable under Washington state law that makes arbitration clauses material provisions in attorney retainer agreements and, as such, enforceable only if “fully disclosed.”   Jeff Mason asks if The Easiest Arbitration Agreement to Avoid May Be the One Between Attorney and Client and "Are lawyers’ clients really such a special group of consumers that their arbitration clauses should be held to different standards?"  See also  Hodges v. Reasonover, 103 So. 3d 1069 (La. 2012) (placing special hurdles to enforcement of lawyer-client arbitration clauses).

Congressional Hearing on Arbitration

Yesterday, the Senate Judiciary Committee held a hearing entitled "The Federal Arbitration Act and Access to Justice: Will Recent Supreme Court Decisions Undermine the Rights of Consumers, Workers, and Small Businesses?"   Video of the hearing is here.   Senator Al Franken begins the hearing with a strongly negative view toward arbitration clauses in consumer and employment contracts of adhesion.  While I disagree with much of it, he is a very intelligent person, which showed in his comedy career and shows in the senate.

The witnesses at this hearing include several very impressive and capable people:

Deputy Assistant Attorney General for Civil Enforcement, Antitrust Division
U.S. Department of Justice

Alan Carlson
Italian Colors Restaurant
Oakland, CA

Professor of Law
Benjamin N. Cardozo School of Law

Crowder, Teske, Katz, & Micko, PLLP
Minneapolis, MN

Partner & Co-Chair, Consumer Litigation & Class Actions practice
Mayer Brown LLP
Washington, DC

Associate Dean for Faculty Development
Herman E. Talmadge Chair of Law
University of Georgia School of Law

UNLV Law Prof. Jean Sternlight's written testimony is here.

Sunday, December 15, 2013

When Parties Agree, Should the Arbitrator Do What the Parties Want?

Parties whose dispute is in arbitration often disagree on the process the arbitrator should follow to resolve the dispute.  But suppose the parties agree.  Does the arbitrator have to use the process the parties want? 

This important topic is highlighted by Barbara Reeves Neal a JAMS Arbitrator.  She rightly points that two or more of these principles can come into conflict:

  1. Arbitration is a delegated and defined power to make certain types of decisions in certain prescribed ways.
  2. The arbitrator’s powers derive from parties’ contract; the arbitrator is not entitled to do anything unauthorized by parties.
  3. The arbitrator has an obligation to the process of arbitration itself and must preserve the integrity and fairness of the process, while advancing the fair and efficient resolution of matters submitted for decision.
  4. It is the duty of the arbitrator to ensure a timely resolution and that the counsel and the parties understand the time and cost implications of potential time delays or adjournment they seek.
  5. The arbitrator should set meaningful limitations in order to preserve the efficiency and integrity of the arbitration process.
In fact, it is likely that the first two principles (party autonomy) will occasionally conflict with the last three principles which relate to the arbitrator's desire to have a good arbitration process ("integrity" "fairness" "timely" "efficiency").

If the parties agree that they want an arbitration with more discovery than the arbitrator thinks wise, or more continuances than the arbitrator thinks wise, should the arbitrator grant the parties' joint requests?  Generally, yes, in my view.   Arbitrator Barbara Reeves Neal's views are here.

Bankruptcy Law's Treatment of Creditors' Jury-Trial and Arbitration Rights

Bankruptcy Law's Treatment of Creditors' Jury-Trial and Arbitration Rights

This article starts with an apparent anomaly: Bankruptcy law treats the constitutional jury right with less deference than the, merely statutory, right to arbitrate.

This article explains that this apparent anomaly is actually the plausible result of a limitation within the Seventh Amendment jury right, its applicability only to claims at law but not claims in equity. The right to arbitrate is not similarly limited. So creditors seeking to arbitrate claims by and against debtors in bankruptcy are not defeated by longstanding holdings placing such claims on the equity side of the law/equity line. In contrast, creditors seeking jury trials of claims by and against debtors in bankruptcy are defeated by such holdings.

Friday, December 13, 2013

Consumer Arbitration Soon to be Regulated by Federal Agency?

Consumer Arbitration Soon to be Regulated by Federal Agency?

The Consumer Financial Protection Bureau released the preliminary results of its study on arbitration in consumer financial transactions such as checking accounts, credit cards and payday loans. Allison Frankel at Reuters says: 

 According to CFPB, exceedingly few consumers actually bring arbitration claims when they have a dispute with their credit card company, bank or payday lender. Tens of millions of consumers are subject to mandatory arbitration for disputes involving financial products and services, CFPB estimated, yet only 1,241 cases involving these products were filed with the American Arbitration Association between 2010 and 2012. Of those, according to CFPB chairman Richard Cordray, about 900 were filed by consumers. (The rest were initiated by banks and lenders.) CFPB offered some caveats, including the lack of data from JAMS Inc, which also hears consumer arbitrations, albeit far fewer than AAA. But the bureau isn’t exactly going out on a limb when it concludes that the evidence shows arbitration doesn’t provide any recovery to the overwhelming majority of consumers of financial products, especially those with small dollar claims. “Plainly, the number of arbitrations was low relative to the total populations using these products,” the report said, in a notable understatement.

A leading defender of such consumer arbitration, Alan Kaplinsky, says "The CFPB seems to be setting the stage for a rulemaking which will likely not be favorable to the industry".  For his updates see here.  A good analysis of the credit card aspect of this is here by Fred Williams. 

My views on the broader topic are here.

Tuesday, December 10, 2013

Parody of Arbitration Decision by Supreme Court Justice Scalia

Thanks to Professor Jean Sternlight for spreading the word about what she describes as a "brilliant but depressing parody Scalia decision finding that an employee is required to arbitrate all claims although the employer did not expressly impose arbitration on the employee."

The "opinion" says "We hold both that the failure to refer to arbitration in haec verba does not bar a finding of an agreement to arbitrate under the Federal Arbitration Act, and that arbitration is so much the preferred method of dispute resolution under the FAA that, for all contracts within its ambit, arbitration should be presumptively the sole method of resolving disputes that arise under that contract. Only when the parties have expressly and unmistakably negated arbitration, and insisted on judicial resolution, should a court refuse to order arbitration." 

Points for guessing which real opinions by J. Scalia this is parodying?

Why Do Businesses Use (or Not Use) Arbitration Clauses?

Why Do Businesses Use (or Not Use) Arbitration Clauses?

by Christopher R. Drahozal and Stephen J. Ware

Some recent scholarship contends that arbitration is failing in its attempts to compete with litigation. When arbitration does succeed in attracting customers, such as businesses including arbitration clauses in their consumer contracts, commentators assert that it does so illegitimately, such as by enabling businesses to evade class actions and other forms of aggregate relief.

Both of these positions have found support in a pair of recent empirical studies authored by Theodore Eisenberg and Geoffrey Miller (and, for one of the studies, by Emily Sherwin as well). The first study examined the use of arbitration clauses in a sample of material contracts (such as loan commitments and merger agreements) filed with the SEC, and found that only a small percentage of the material contracts included arbitration clauses. The second study (with Professor Sherwin) compared the use of arbitration clauses in material corporate contracts of telecommunications and financial services companies with the use of arbitration clauses (and class arbitration waivers) in consumer contracts drafted by the same companies, and found a much higher use of arbitration clauses in the consumer contracts.

In this paper, we revisit the Eisenberg and Miller (and Sherwin) studies. The studies provide a fascinating and valuable look into the use of arbitration clauses in the types of contracts they studied. But as we show in detail, the types of contracts they studied are not representative of either business or consumer contracts as a whole. Indeed, the business contracts they studied are predominantly types unlikely to include arbitration clauses, while the consumer contracts they studied are among those most likely to include arbitration clauses and class arbitration waivers. As a result, their findings need to be construed narrowly, as limited to the types of contracts studied, and not as applicable to either business or consumer contracts generally.

Sunday, December 8, 2013

What Makes Securities Arbitration Different from Other Consumer and Employment Arbitration?

What Makes Securities Arbitration Different from Other Consumer and Employment Arbitration?

Securities law imposes non-contractual duties to arbitrate on both broker-dealers and securities employees. I argue these laws are bad policy. I conclude that securities arbitration should be contractual, like other arbitration.

Hyundai Drops Arbitration Clause

Auto Manufacturer Hyundai Drops Arbitration Clause For Warranty Disputes.

The New York Times reports that, soon after its earlier story about the arbitration clause in a supplement to the car owners' handbooks, Hyundai said it would not use this arbitration clause.   The clause required arbitration of some warranty disputes unless car owners notified Hyundai, within 90 days of purchasing the vehicle, of their decision to opt out of the arrangement.

The Times article quotes two of the leading opponents of what they and many others call "mandatory" consumer arbitration, Paul Bland of Public Justice and UNLV Law Prof. Jean Sternlight.  My more favorable views on arbitration clauses in consumer form contracts are here.

Thursday, December 5, 2013

Arbitration Law's Separability Doctrine After Buckeye Check Cashing, Inc. v. Cardegna

Arbitration Law's Separability Doctrine After Buckeye Check Cashing, Inc. v. Cardegna

This article analyzes the Supreme Court cases of Buckeye Check Cashing, Inc. v. Cardegna, and Prima Paint Corp. v. Flood & Conklin Manufacturing Co.  It discuss the separability issues they leave unresolved. Finally, this Article critiques the separability doctrine and calls for its repeal by Congress.

Wednesday, December 4, 2013

Precluding Class Actions

Homebuilder D.R. Horton's employment arbitration agreement precludes classwide arbitration.  The National Labor Relations Board found that this violated labor law.  The Fifth Circuit disagreed with the NLRB in reliance on the Federal Arbitration Act.

D.R. Horton, Inc. v. Nat’l Labor Relations Bd., __ F.3d __, 2013 WL 6231617 (5th Cir. Dec. 4, 2013).

Marty Heller says of the Fifth Circuit's decision it "very quietly overturned the NLRB" and "this decision provides an interesting conversation starter regarding the active (perhaps overactive) NLRB."

Tuesday, December 3, 2013

National Arbitration Forum Agreements to Arbitrate

The National Arbitration Forum was often named in consumer finance contracts as the arbitration organization, but it stopped accepting cases in 2009, after settling a suit brought by the Minnesota Attorney General. So what happens to disputes arising out of contracts naming the NAF?  Helpful answers by Timothy Abeska at Barnes and Thornburg.

Sunday, December 1, 2013

Class Arbitration

ContractsProf Blog weighs in on the Sixth Circuit class arbitration decision discussed here.

Prof. Jeremy Telman, Valparaiso Univ. Law School, argues that an arbitration clause silent on class arbitration should be interpreted to permit it.  "In such cases, courts should invoke contra proferentem and interpret the agreement in favor of the non-drafting party."

Saturday, November 30, 2013

Domain-Name Arbitration in the Arbitration-Law Context: Consent to, and Fairness in, the UDRP

Domain-Name Arbitration in the Arbitration-Law Context: Consent to, and Fairness in, the UDRP

This Article begins by introducing the domain-name arbitration system. This Article provides what may be the first sustained analysis of consent issues in domain-name arbitration. It also assesses the fairness of domain-name arbitration.

Wednesday, November 27, 2013

Federal Arbitration Act Preemption

Ohio State law professor Sarah Rudolph Cole is an experienced, careful, and well-balanced scholar of arbitration law.  Her recent article discusses one of the most important topics in arbitration law, FAA preemption of state law.  She points out that the Supreme Court’s Stolt-Nielsen (2010) and Concepcion (2011) decisions permit preemption of state law in areas the FAA does not address.

Teaching Arbitration Law

This article is written with the following goals: to provide useful suggestions for those who teach arbitration, to persuade some ADR teachers who only touch on arbitration to give serious thought to additional coverage, to persuade some teachers to include a bit of arbitration in their first-year courses, and to encourage the continued growth of fine teaching materials on arbitration.

Sunday, November 24, 2013

West Virginia Arbitration Cases

Liz Kramer rightly says "A few months ago, you would have reasonably thought that West Virginia was one of the most anti-arbitration states in the country.  There was not an unconscionability argument that the state didn’t seem to buy with respect to arbitration clauses."  However, she explains, recent cases show the state's high court more receptive to enforcing arbitration clauses. 

West Virginia has some similarities to Alabama and Montana, other states that have had anti-arbitration bents at various times, insofar as all 3 states have a cultural populism and strong plaintiffs' bar that can combine against outsiders, particular businesses from outside the state.  I wrote about that in The Alabama Story: Arbitration shows law’s connection to politics, culture, DISP. RESOL. MAG. 24 (Summer 2001), reprinted as Arbitration: A License to Steal, 12 WORLD ARB. & MED. REP. 316 (Dec. 2001).

Saturday, November 23, 2013

The Source of Alabama's Abundance of Arbitration Cases: Alabama's Bizarre Law of Damages for Mental Anguish

This Article, co-authored with Scott Simpson and Vicki Willard, provides an overview of arbitration litigation in Alabama, including the evolution of mental anguish jurisprudence in contract cases, especially with regard to the automobile and home industries.  It proposes substantive and procedural reforms.

Friday, November 22, 2013

Social Networking Users Routinely Agree to Arbitrate

Suffolk University Law Professor  Michael Rustad writes here that users of social network sites "around the world are required to agree to predispute mandatory arbitration as a condition of joining social networking communities. Consumers who enter into “clickwrap” or “browsewrap” terms of service agreements waive their right to a jury trial, discovery, and appeal, without reasonable notice that they are waiving these important rights." 

For my views on the enforceability of these and other consumer arbitration clauses, see The Case for Enforcing Adhesive Arbitration Agreements

Monday, November 18, 2013

Consumer and Employment Arbitration Law in Comparative Perspective: The Importance of the Civil Jury

This article argues that much of what makes civil litigation in the United States materially different from civil litigation elsewhere in the world can plausibly be traced back to the jury. By contrast, enforcement of consumer and employment arbitration agreements affects only a few categories of cases and, within those categories, affects only those cases in which an enforceable arbitration agreement has been formed. The civil jury is a mountain; enforcement of consumer and employment arbitration agreements is a molehill. Those who value uniformity across nations and seek to bring U.S. law into the international mainstream should be far more troubled by the civil jury than by enforcement of consumer and employment arbitration agreements. Bringing the United States into the mainstream on the civil jury might even bring it into the mainstream on arbitration. It may not be a coincidence that the only nation with the civil jury is the only nation that enforces consumer and employment arbitration agreements.

Thursday, November 14, 2013

The Case for Enforcing Adhesive Arbitration Agreements

Arbitration clauses appear in a wide variety of the form contracts through which consumers obtain goods, services and credit, as well as in employment agreements, and other contracts of ordinary individuals. These adhesive agreements to arbitrate are generally enforced by courts, but this enforcement is quite controversial. Countless law review articles criticize it, while the few that defend it are usually limited in important ways. This paper defends the general enforcement of adhesive arbitration agreements.

Section I shows that this general enforcement is socially desirable and that it benefits most consumers, employees and other adhering parties. Section II introduces the doctrines on which courts most commonly rely in refusing to enforce particular adhesive arbitration agreements, the unconscionability and effectively vindicate doctrines, and applies them to typical adhesive arbitration agreements. Sections III and IV apply these doctrines to two issues that are now hotly contested in the courts: an arbitration agreement's prohibition of class actions (discussed in Section III) and the costs of pursuing a claim in arbitration (discussed in Section IV).

This paper concludes in Section V that many courts have been too reluctant to enforce adhesive arbitration agreements that prohibit class actions or require plaintiffs to pay forum fees not required in litigation. This reluctance is largely caused by courts narrowly considering only how the arbitration agreement affects the particular adhering party before the court, and considering those effects given the existence of the particular dispute that gave rise to litigation. This paper calls on courts to take the broader approach of considering all the adhering parties who adhered to the same form contract and considering the agreement's effects on those parties as of the time they entered into the agreement. This ex ante perspective would lead courts to consider the adhering parties who benefit from, as well as those who are harmed by, adhesive arbitration agreements.

Wednesday, November 13, 2013

$2.76 Billion Arbitration Award

$2.76 Billion arbitration award against Starbuck's.  I don't recall ever hearing of such a large award in any other arbitration. 

Sunday, November 10, 2013

"Whether Class Arbitration?" Decided by Courts, not Arbitrators

Recent Sixth Circuit holding summarized by Liz Kramer "even though a plurality of the Supreme Court concluded in Bazzle that classwide arbitration is a question for arbitrators, the Sixth Circuit held this week that it is a gateway question that is presumptively for judges.  Furthermore, in this case the parties had not clearly and explicitly authorized arbitrators to determine the availability of class action, so the default rule governed."  The "gateway" analysis the Supreme Court started years ago guides lower courts on a variety of issues but I wonder if it's good guidance.

Monday, November 4, 2013

Arbitration for Baseball Star Alex Rodriquez

This article shows the money and intensity in the A-Rod arbitration, with some New York landmarks for color, e.g., "after Mr. Reyes had been served the subpoena at the Times Square toy store, he was back on Park Avenue to testify in the arbitration."  Read more

Sunday, November 3, 2013

Consumer Arbitration

Paying the Price of Process: Judicial Regulation of Consumer Arbitration Agreements

Arbitration clauses now appear in many of the form contracts through which consumers obtain goods, services and credit. This article in the Journal of Dispute Resolution considers the effect on prices of two sorts of judicial decisions: (1) decisions making consumer arbitration clauses generally enforceable, and (2) decisions refusing to enforce arbitration clauses that lack certain pro-consumer features.

Wednesday, October 30, 2013

Suit against LegalZoom must go to arbitration, Arkansas Supreme Court says

Suit against LegalZoom must go to arbitration, Arkansas Supreme Court says

The 5-2 decision reverses a trial court order that denied the company's motion to compel arbitration of a class action accusing LegalZoom of violating the Arkansas Deceptive Trade Practices Act by providing services that amount to the unauthorized practice of law.

Saturday, October 26, 2013

Appeals Court Throws Out Confidential Arbitration in Delaware

Appeals Court Throws Out Confidential Arbitration in Delaware

"The United States Court of Appeals for the Third Circuit upheld a lower court ruling that Delaware’s state-sponsored arbitration program violated the First Amendment."  Those words, "state-sponsored", are key.  This "arbitration" was not arbitration in the usual sense of a private-sector alternative to the public-sector courts.

Sunday, October 20, 2013

Arbitration Clauses, Jury-Waiver Clauses and Other Contractual Waivers of Constitutional Rights

Arbitration Clauses, Jury-Waiver Clauses and Other Contractual Waivers of Constitutional Rights

Consenting to a contract containing an arbitration clause or a jury-waiver clause alienates or waives the Seventh Amendment jury-trial right in federal court. The standards of consent in arbitration law, however, tend to be lower than the standards of consent in the federal caselaw governing jury-waiver clauses. The Federal Arbitration Act (FAA) requires courts to apply contract law's standards of consent to arbitration agreements, while certain commentators argue that courts are instead constitutionally required to apply the higher standards of consent (knowing consent) found in the caselaw governing jury-waiver clauses. This article responds to these commentators and argues that the FAA's contract-law standards of consent are constitutional.

Saturday, October 12, 2013

The Effects of Gilmer: Empirical and Other Approaches to the Study of Employment Arbitration

The Effects of Gilmer: Empirical and Other Approaches to the Study of Employment Arbitration

An article by Christine Jolls, Accommodation Mandates, 53 Stanford Law Review 223 (2000), provides a framework for analyzing the effects of employment discrimination statutes. This article extends that framework to employment arbitration to describe the effects of enforcement of employees' pre-dispute arbitration agreements. The article also critically reviews empirical studies of these effects.

Sunday, September 29, 2013

Arbitration and Assimilation

Arbitration and Assimilation

Arbitration is not necessarily antithetical to the assimilation of different groups. While intra-group arbitration allows for various groups to separate into their own cocoons, general arbitration can be the handmaiden of assimilation. Both types of arbitration deserve to flourish.

Saturday, September 28, 2013

Privatizing Law Through Arbitration

Default Rules from Mandatory Rules: Privatizing Law Through Arbitration

This Article considers the extent to which the creation of law has been privatized through arbitration. It suggests that, under Supreme Court cases and other current legal doctrine, vast areas of law are privatizable and that this degree of privatization is possible only through arbitration. The implications of this point are separated along the familiar line between mandatory rules of law and default rules. The first implication is that arbitration jeopardizes mandatory rules of law. To preserve the mandatory effect of these rules, the Supreme Court must make a choice. The Court must either reverse its decisions that claims arising under otherwise mandatory rules are arbitrable, or require de novo judicial review of arbitrators' legal rulings on such claims. The second implication is that claims arising under default rules should be arbitrable and completely free from judicial review for errors of law. The arbitration of claims arising under default rules presents an opportunity to privatize the creation of vast areas of law. It is an opportunity to create private legal systems of unwritten norms, written rules, and the precedents of private courts.

Friday, September 27, 2013

Consumer Arbitration as Exceptional Consumer Law

Consumer Arbitration as Exceptional Consumer Law.  This article (part of a symposium on arbitration held by the McGeorge School of Law) defends the contractual approach to arbitration law.

Saturday, September 21, 2013

Arbitration and Unconscionability

Wake Forest Law Review.

This article advocates the contractual approach over competing approaches to issues of unconscionability in arbitration.

Tuesday, September 17, 2013

Punitive Damages in Arbitration

A contractualist approach to the question of whether arbitrators may award punitive damages. Addresses choice-of-law clauses and constitutional issues.

Fordham Law Review Vol. 63, No. 529, 1994

Tuesday, September 10, 2013