Symposium on Labor and Employment Arbitration

Jaime Fell and everyone at #PennStateLaw organized this symposium as well as any I’ve seen. I learned a ton from Mark Gough’s data, and the abilities of each of the other speakers--Jill Gross, Rick Bales, and Ted St. Antoine—to draw on their experiences in the trenches of arbitration as well as their broader perspectives as prolific scholars.

9:30 AM — Professor Theodore J. St. Antoine's Presentation on "Making Arbitration a Fair and Accessible Remedial Process"

10:00 AM — Professor Stephen Ware's Presentation on "Labor Arbitration's Differences"

10:30 AM — Professor Richard Bales' Presentation on "What Makes a 'Reasoned' Arbitration Award?"

11:15 AM — Lunch

12:00 PM — Professor Jill I. Gross' Presentation on "The Final Frontier: Are Class Action Waivers in Arbitration Clauses in Broker-Dealer Employment Agreements Enforceable?"

12:30 PM — Professor Mark Gough's Presentation on "Employment Disputes in Mandatory Arbitration and Civil Litigation: Comparing Outcomes and Stakeholder Perceptions."

Arbitration Clauses in Corporate Charters to Prevent Investor Class Actions?

The Securities and Exchange Commission, as I noted a few months ago, is considering whether to start allowing arbitration clauses in corporate charters, so investor-company disputes would go to individual arbitration rather than class-action litigation.

Opposing this reform is Secure Our Savings (SOS), which recently submitted a letter to SEC Chairman Jay Clayton. SOS wants the Chair "to reaffirm the SEC’s longstanding position that forced

arbitration provisions that prevent investors from bringing or participating in class actions

violate Section 29(A) of the Exchange Act." 

Criticizing SOS is Alan Kaplinsky, leader of the effort to enforce consumer-finance arbitration agreements with class waivers.

Shareholders Bound by Arbitration Clauses in Corporate Charters and By Laws?

Zachary D. Clopton of Cornell Law School and Verity Winship of the University of Illinois College of Law have published A Cooperative Federalism Approach to Shareholder Arbitration
128 Yale L.J.F. 169 (2018).

The abstract:
Arbitration dominates private law across an ever-expanding range of fields. Its latest target, however, may not be a new field as much as a new form: mandatory arbitration provisions built into corporate charters and bylaws. Recent developments in corporate law coupled with signals from the Securities and Exchange Commission suggest that regulators may be newly receptive to shareholder arbitration. What they do next may have dramatic consequences for whether and how corporate and securities laws are enforced.

The debate about the merits of arbitration is well worn, but its application to shareholder claims opens the door to a different set of responses. In particular, the overlapping authority of federal and state actors with respect to corporate law calls for approaches that sound in cooperative federalism. Yet cooperative-federalist approaches have been absent from recent debates about shareholder arbitration. This Essay explains why cooperative federalism is a natural fit for addressing these issues. Moreover, we marshal specific examples of cooperative solutions in this area that could help frame federal-state coordination going forward. Such a cooperative response would avoid unnecessary federal-state conflict and allow policymakers to approach shareholder arbitration with expertise, accountability, and mutual respect.

Will Securities Exchange Comm'n Permit Arbitration Clauses in Initial Public Offerings?

As Skadden explains, "Historically, the SEC has not permitted forced arbitration clauses in IPOs. The issue last arose in the context of an IPO of a U.S. company in 2012, when the Division of Corporation Finance took the position that it would not use its delegated authority to accelerate the effective date of the company’s registration statement because it was unable to conclude that such mandatory arbitration provisions were consistent with 'the public interest and protection of investors' as required by Securities Act Section 8(a)."

Various commentators weigh in:

IPO-Related Securities Litigation and the Idea of Shareholder Claim Mandatory Arbitration
By Kevin LaCroix

The Uncertain Role of IPOs in Future Securities Class Actions, by Jeff Lubitz, Institutional Shareholder Services,

SEC Weighs a Big Gift to Companies: Blocking Investor Lawsuits
By Benjamin Bain

Shareholders Lawsuits and Arbitration Clauses in Corporate Charters

Should the Securities and Exchange Commission permit arbitration clauses in a public company's charter? A member of the SEC recently said yes.

"For shareholder lawsuits, companies can come to us to ask for relief to put in mandatory arbitration into their charters," said Michael Piwowar. "I would encourage companies to come and talk to us about that."

As Reuters reports, "The issue garnered attention in 2012, when the SEC pressured private equity firm Carlyle Group L.P. to drop a mandatory arbitration requirement before the regulator would sign off on its IPO plans."

Piwowar's use of the word "mandatory" cuts against his position because, as the saying goes, "arbitration is a matter of contract," and contracts are consensual, not mandatory. Piwowar's position should rest of the view that a corporate charter is contractual so becoming a shareholder is consent to (agreeing to a contract that provides for) arbitration of disputes. In contrast, making arbitration "mandatory" sounds like "forcing" shareholders to arbitrate, which is likely what Piwowar's opponents will argue.

Securities Arbitration

Cincinnati Law Professor Barbara Black continues to do good writing on securities arbitration.  Her latest:
The Past, Present and Future of Securities Arbitration between Customers and Brokerage Firms.

Class Waiver Voided in Securities Arbitration

Since the Supreme Court's Concepcion and Italian Colors cases, courts have generally enforced arbitration agreement provisions requiring individual, rather than classwide, adjudication.  In contrast, the Financial Industry Regulatory Authority (FINRA) ruled otherwise for securities arbitration.

Good lawyering by Pace Law Professor Jill Gross and Cincinnati Law Professor Barbara Black, who argued for this result in their article,  Investor Protection Meets the Federal Arbitration Act, 1 Stan. J. Complex Litig. 1 ­­(2012).

As Professor Gross explains at ADR Prof Blog, FINRA held that the Securities Exchange Act constituted a sufficient Congressional command to overcome the FAA’s mandate to courts to enforce arbitration agreements as written.  Since the Exchange Act delegated to the SEC, which in turn delegated to FINRA, the authority to regulate broker-dealers’ arbitration agreements for the protection of investors, FINRA’s rules barring class action waivers and mandating that investors be able to bring class claims in court were enforceable [notwithstanding the FAA].

Arbitration and Ombuds of Consumer Financial and Securities Disputes

This interesting paper by Shahla F. Ali of the University of Hong Kong Faculty of Law contains a useful global perspective on US arbitration of consumer financial and securities claims and one alternative to it, an ombudsman.  A big question about ombuds is what power they have over the parties and how it compares to the arbitrator’s power to issue a legally-binding ruling.

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.