"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.

   

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.

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.

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:

Leslie Overton

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

Alan Carlson

Owner
Italian Colors Restaurant
Oakland, CA

Myriam Gilles

Professor of Law
Benjamin N. Cardozo School of Law

Vildan Teske

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

Archis A. Parasharami

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

Peter Bowman Rutledge

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.

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.

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.
 

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.

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.

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.

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."

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.

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."