The ABA Journal released its Web 100 awards recently, and I am happy to announce that ArbitrationNation is still in the Blawg Hall of Fame!  ArbitrationNation was inducted into the Hall of Fame last year, after multiple years on the Top 100 list, for being “consistently outstanding,” which is embarrassingly high praise.    There are now 60 blogs in the Blawg Hall of Fame, but Arbitration Nation remains the only blog on the list about arbitration (and the only one authored by a Minnesotan).

I must say that as December approached, I got a bit anxious about Arbitration Nation’s place in the Blawg Hall of Fame.  Does the ABA Journal follow the example of the Hollywood Walk of Fame, that once you have a star you can’t be removed??  (Looks like pro sports Hall of Fames are similarly permanent.)  What if I published a couple fewer posts this year?  What if I wasn’t sufficiently witty??!  Thankfully, at least this year, my performance was sufficient to stay.

Thanks to all of you for continuing to visit the blog, send me ideas for posts, and geek out about arbitration with me!

You know what rarely rises to the top of my “to do” list?  Reading scholarly articles and studies about arbitration.  Blech.  But, since I haven’t seen any good court decisions lately, it is time to visit the neglected pile of articles.  Turns out, I should have read some of them right away.  Below are summaries of five new-ish articles that have crossed my desk.  A few offer peeks into arbitration data that is generally not available and some conclusions to chew on over this Thanksgiving holiday.

First is “Arbitration Nation,” an empirical study of 40,775 consumer, employment and tort cases filed with four different arbitration providers between 2010 – 2016 (AAA, JAMS, ADR Services and Kaiser).*   The data came from two sources: public data that the State of California requires arbitration providers to file, as well as a cache of data  gathered by the New York Times.  After reviewing the data, the authors conclude: 1) arbitration is faster that court litigation and generally more affordable for plaintiffs; 2) there was no surge in arbitration filings after the Concepcion decision, but there is evidence of at least a few mass-individual filings (same law firm filing 200 – 1300 individual arbitrations against the same defendant in the same time period); 3) plaintiffs win at a lower rate in arbitration than in court, and pro se plaintiffs “struggle mightily” in arbitration; and 4) the concerns about “repeat-player bias” are “well-founded” — but those repeat players are both defendants who appear often, as well as plaintiffs-side law firms who appear often.  For example, within the JAMS set of data, the authors report that a consumer’s probability of winning increased 79.9% if it was represented by a “super repeat-player” law firm (as compared to appearing pro se), and an employee’s probability of winning increased 55.1% if he was represented by a “high-level” repeat player firm.  (See pp. 42-43.)  Read this article if you: want to compare JAMS and AAA (on cost and speed); want to see data on how Concepcion affected arbitration filings; or want to see statistical evidence of “repeat player” bias.

Second, “Inside the Black Box” reflects findings from surveys of construction arbitrators, advocates, and industry representatives.  Although some of the survey findings just confirmed what most people would expect (like party-appointed arbitrators are not always neutral), there are some unexpected nuggets.  For example, I found it interesting that 68.5% of construction arbitrators report allowing depositions in “regular” sized cases, and 88.9% of arbitrators report allowing them in large, complex cases.  And 75% of arbitrators allow prehearing subpoenas.  Furthermore “advocates prefer more discovery than arbitrators are allowing in … cases in which claims are below $1 million.”  (p. 59)  Furthermore, the authors say “summary judgment motions in construction arbitrations perhaps have been over-criticized.  If a healthy majority of 63.7% of arbitrators found they were useful half the time or more..it is hard to argue their use should be constrained.” (p. 65)  I also like this one: 44.6% of the arbitrators who responded said that evidentiary objections have no impact on their view of the evidence or their deliberations.  So, stop shouting “Objection: hearsay” in arbitration! Read this article if you: are a construction litigator and want to understand the norms in this industry’s arbitration practice.

Third, “Arbitration in the Americas” reports findings from surveys of arbitration “practitioners” across the Americas.  Amusingly, of the 212 U.S. respondents, 60.45% describe legislators as “having a Low or Very Low understanding of arbitration.”  In keeping with the “Arbitration Nation” study above, “U.S. respondents reported that arbitration in the United States is faster than litigation, with 44.32% describing it as Slightly Faster, and a further 43.24% describing it as Much Faster.” (p. 60)  More surprisingly, “U.S. respondents overwhelmingly described arbitration as on average cheaper than litigation, with 49.19% describing it as Slightly Cheaper and a further 22.70% describing it as Much Cheaper.” (61).  Read this article if you want to compare perceptions of how well arbitration works and is supported in this country with perceptions in other countries.

Fourth, “The Black Hole of Mandatory Arbitration” argues that between 315,000 and 722,000 potential employment arbitrations are “missing in action”.   As the abstract states: “The great bulk of employment disputes that are subject to [mandatory arbitration agreements] simply evaporate before they are ever filed. They are “MIA,” or “missing in arbitration.” That conclusion emerges from a comparison of the tiny number of employment claims that are filed in arbitration with an estimated number of claims one would expect to see given the number of employees who are covered by MAAs and the volume of employment litigation by those who are free to litigate.”  Read this article if you like public policy and are concerned about current SCOTUS jurisprudence.

Fifth, “Running It Twice“, proposes new types of baseball arbitration, in which separate arbitrators (or panels) decide the same dispute to ensure no rogue result.  Read this article if you like shiny new things and sports analogies.

*You didn’t read that wrong; the article’s name is the same as this blog.  I gave them permission.

Happy Thanksgiving all!

Lots of folks are writing about the long-term impact of SCOTUS’s recent decision in Epic Systems, but it is also important to note that there has been immediate, short-term impact.

For example, a lead plaintiff agreed to take her sex discrimination case against a law firm  to individual arbitration, abandoning her putative class action, after the Epic decision was released.  A federal judge is ready to dismiss a separate class action against Epic Systems (regarding overtime pay) as a result of the new decision.  And a class action against Chipotle may get sliced and diced up, with about 30% of employees being sent to individual arbitration, while 70% of the class can proceed in court (because they started working for the chain before it instituted the arbitration program). There must be dozens (hundreds?) of similar employment class actions around the country.

Speaking of the trickle down effects of SCOTUS’s arbitration cases, last year’s Kindred decision is certainly a relevant headwater for the Supreme Court of West Virginia’s recent opinion upholding the arbitration agreement in nursing home admission documents.  Although West Virginia used to be reliably anti-arbitration, its recent decisions are pro-arbitration.  So, it’s not too surprising that in AMFM LLC v. Shanklin, 2018 WL 2467770 (W. Va. May 30, 2018), that court reversed a trial court’s ruling that the arbitration agreement signed by the resident’s daughter was not enforceable.  Careful not to interpret its statutes and common law regarding power of attorney in a way that stands as an obstacle to the FAA, West Virginia’s high court found that the daughter’s role as understudy in the POA document (fine, it says “successor” or “alternate”) was sufficient to bind her mother to the arbitration agreement.  The position drew a spirited dissent from one lone justice.

 

While I was busy writing deep thoughts about arbitration at the end of 2017 (see here and here), courts around the country rudely kept churning out new arbitration opinions.  Hmph.  So, I have some catching up to do.  I start with one that has most captured my attention, Snow v. Bernstein, Shur, Sawyer & Nelson, ___ A.3d ___, 2017 WL 6520900 (Me. Dec. 21, 2017).  It finds an arbitration agreement between a law firm and its client unenforceable, because the law firm did not specifically explain to the client that arbitration entails a loss of a jury trial, narrower appeal rights, and different evaluation of evidence.

Susan Snow hired the Bernstein firm to handle a civil action.  The opinion does not tell us anything about Snow or her level of sophistication.  But, it does tell us that she signed Bernstein’s standard terms of engagement, which included an arbitration clause.  The arbitration clause dealt specifically with arbitrability of “fee disputes,” and then said “any other dispute that arises out of or relates to this agreement or the services provided by the law firm shall also, at the election of either party, be subject to binding arbitration.”

Snow later sued the law firm for malpractice, and the firm moved to compel arbitration.  The district court denied that motion, and the high court of Maine affirmed that ruling.  Both courts found that the arbitration agreement was unenforceable because the law firm had not verbally discussed the arbitration clause with Snow and informed her of its “scope and effect”.

The Snow opinion used “public policy” to invalidate the arbitration agreement.  It largely relied on two bases for its public policy.  First, a 2002 formal opinion from the ABA Standing Committee on Ethics and Professional Responsibility, which found that because attorneys are fiduciaries, and arbitration “results in a client waiving significant rights,” an attorney must explain the implication of the proposed arbitration agreement so that the client can make an informed decision.  The ABA opinion requires an attorney to explain that the client is waiving a jury trial, waiving discovery, and losing a right to appeal.  Second, the Snow opinion relied on a 2011 opinion from Maine’s Professional Ethics Commission, requiring attorneys to obtain informed consent “as to the scope and effect of an arbitration requirement or a jury waiver clause.”

Because the law firm in this case did not dispute that it made no attempt to discuss the arbitration agreement with Ms. Snow before she signed it, and the court found the written arbitration agreement “was not sufficiently clear to inform her”, the court declared the arbitration agreement unenforceable.

So, what is required in Maine for an attorney to have a binding arbitration agreement with a client?  “The attorney must effectively communicate to the client that malpractice claims are covered under the agreement to arbitrate.  The attorney must also explain, or ensure that the client understands, the differences between the arbitral forum and the judicial forum, including the absence of a jury and such ‘procedural aspects of forum choice such as timing, costs, appealability, and the evaluation of evidence and credibility.'”  All of that should be done with regard to the particular client’s capacity to understand the information.

When’s the last time you heard a state supreme court espouse the importance of the right to a jury trial?  And pound on the importance of specifically and knowingly waiving that right?  Well, the Kindred case comes to mind for me.  And SCOTUS reversed Kentucky’s public policy rule in that case, finding it was preempted by the Federal Arbitration Act.  Kindred stated noted that the Kentucky “court did exactly what Concepcion barred: adopt a legal rule hinging on the primary characteristic of an arbitration agreement–namely, a waiver of the right to go to court and receive a jury trial.”  The Snow decision does not cite to the Kindred case, even though Kindred came out in May and Snow wasn’t argued until October of 2017.  Instead, the Snow decision gives a preemption analysis that defies logic.  It says its rule “that attorneys fully inform a client of the scope and effect” of an arbitration clause “does not ‘single out’ arbitration agreements.”  Say what?  The court goes on to say that it would apply to any client “decision to waive significant rights,” but does not offer any cites to Maine law requiring attorneys to give oral primers to clients on anything other than arbitration  Indeed, the Snow opinion’s emphasis on jury trial, appealability, and evidence show it’s rule hinges on primary characteristics of arbitration, just like Kentucky’s ill-fated rule.

Despite the similarities with Kindred, would SCOTUS treat this case differently because attorneys are held to a higher standard?  The Ninth Circuit has affirmed a decision finding the arbitration clause in an lawyer’s engagement letter unconscionable.  And the ABA favors the higher standard (but I am not aware it has reconsidered its opinion in light of recent preemption decisions).  But, I have a hard time distinguishing the rule in Snow from the one that was reversed in Kindred.

The Alabama Supreme Court has followed the Eighth Circuit’s lead, concluding that when the parties agree to arbitrate pursuant to the AAA Rules, they have clearly and unmistakably authorized the arbitrator to determine who is bound by that arbitration agreement.  Federal Ins. Co. v. Reedstrom, __ So. 3d __, 2015 WL 9264282 (Ala. Dec. 18, 2015).

The dispute in Reedstrom centered on whether an executive liability insurance policy covered a judgment against a former executive for misconduct.  The executive sued the insurance company for breach of contract, and the company moved to compel arbitration.  The trial court denied the motion without any rationale.

The Alabama Supreme Court reversed.  On appeal, two key issues were analyzed: whether the insurance company could compel arbitration with the executive, even though he did not sign the insurance policy (his former employer did); and whether the insurance company had waived its right to arbitrate.  The court noted that the default rule is that courts generally decide both those issues, unless the arbitration provision “clearly and unmistakably” delegates them to the arbitrator.  And in this case, the majority found the arbitration provision did exactly that by agreeing to arbitrate pursuant to the current AAA commercial rules, which allow the arbitrator to rule on his or her own jurisdiction.

Three justices dissented from the opinion, generally concluding that incorporating the AAA rules is not enough, by itself, to constitute clear and unmistakable evidence that parties intend to submit arbitrability to an arbitrator.

I am thrilled to announce that Arbitration Nation has been selected for the fourth year running to the ABA Journal’s Blawg 100 list.  Thank you to everyone who nominated this blog and to those who continue reading it, suggesting topics, and challenging my interpretations.

Happy Thanksgiving to you all!

Let’s say your client gets sued in court, the parties have an arbitration agreement, and you want to compel arbitration right away and not mess around with any other court proceedings. You already know you can make a motion to compel instead of an Answer, but you are stuck on this: what do you call the motion?

Let’s face it, neither the federal or state rules of civil procedure line up perfectly with the FAA (for example, Rule 12 does not list “motion to compel arbitration” as a potential responsive pleading). Today’s post is designed to help you figure out what subsection of Rule 12 to identify when you make your motion to compel arbitration straight out of the box. In short, not all federal appellate courts have spoken on this issue, and the ones that have are divided on whether a motion to compel arbitration should be made under Federal Rule 12(b)(1), 12(b)(3), or 12(b)(6).

Federal courts in six circuits have treated motions to compel arbitration as motions to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1). A district court in the Eleventh Circuit is the only court to expressly state that motions to compel arbitration should be brought under Rule 12(b)(1). MRI Scan Ctr., L.L.C. v. Nat’l Imaging Assocs., Inc., No. 13–60051–CIV, 2013 WL 1899689, at *2 (S.D. Fla. May 7, 2013). However, in the Second, Sixth, Eighth, Ninth, and Federal Circuits litigants have been permitted to bring motions to compel under the 12(b)(1) standard. See, e.g., Geographic Expeditions, Inc. v. Estate of Lhotka, 599 F.3d. 1102, 1106–07 (9th Cir. 2010); U.S. ex rel. Lighting & Power Servs., Inc. v. Inferface Constr. Corp., 553 F.3d 1150, 1152 (8th Cir. 2009); Harris v. United States, 841 F.2d 1097, 1099 (Fed. Cir. 1988); Multiband Corp. v. Block, No. 11–15006, 2012 WL 1843261, at *5 (E.D. Mich. May 21, 2012); Orange Cnty. Choppers, Inc. v. Goen Techs. Corp., 374 F. Supp. 2d 372, 373 (S.D.N.Y. 2005).

Other circuits take a different position asserting that motions to compel arbitration should be brought under Rule 12(b)(3) for improper venue. The Fourth and Seventh Circuits adopt this approach. These circuits reason that because arbitration clauses are a type of forum selection clause and therefore concern venue, motions to compel arbitration should be brought under Rule 12(b)(3). Gratsy v. Colo. Technical Univ., 599 Fed. App’x 596, 597 (7th Cir. 2015); Hayes v. Delbert Servs. Corp., No. 3:14:–cv–258, 2015 WL 269483, at *4 n.1 (E.D. Va. Jan. 21, 2015).

Only one circuit adopts Rule 12(b)(6) — failure to state a claim upon which relief can be granted — as the proper subpart for a motion to compel arbitration. The Third Circuit explicitly rejects the practice of bringing motions to compel arbitration under 12(b)(3) and requires that motions to compel arbitration should be made under Rule 12(b)(6). Palko v. Airborne Express, Inc., 372 F.3d 588, 597–98 (3rd Cir. 2004); Lomax v. Meracord L.L.C., No. 13–1945 (SRC), 2013 WL 5674249, at *6 n.3 (D.N.J. Oct. 16, 2013).

The First, Fifth, Tenth, and D.C. Circuits have yet to address the issue.

The following chart summarizes the federal appellate courts’ treatment of motions to compel arbitration:

  12(b)(1)   Subject Matter Jurisdiction 12(b)(3) Improper Venue 12(b)(6)   Failure to State a Claim Unanswered
1st Circuit Unanswered
2nd Circuit Permitted
3rd Circuit Express
4th Circuit Express
5th Circuit Unanswered
6th Circuit Permitted
7th Circuit Express
8th Circuit Permitted
9th Circuit Permitted
10th Circuit Unanswered
11th Circuit Express
Fed. Circuit Permitted
D.C. Circuit Unanswered

ArbitrationNation thanks Mary-Kaitlin Rigney, a student at American University Washington College of Law, for researching and drafting this post.

Parties who ask a court to compel arbitration of all the plaintiff’s claims have a decision to make: should they ask the court to stay the claims or dismiss them (if it finds them arbitrable)?   After noting that the federal courts of appeal are “about evenly divided” on that question, the Second Circuit held that in its circuit, a stay of the proceedings is required “after all claims have been referred to arbitration and a stay requested.”  Katz v. Cellco Partnership, __ F.3d__, 2015 WL 4528658 (2d Cir. July 28, 2015).

The Second Circuit reasoned that the text and policy of the FAA “command this result.”  It found that efficient docket management (an incentive to dismiss the claims) “cannot trump a statutory mandate.”  In requiring that arbitrable claims be stayed, the Second Circuit notes that it joins the 7th, 3d, 10th and 11th circuits.  However, cases from the 80s and 90s in the 1st, 5th and 9th circuits appear to allow dismissal of the action.

Given that there are now more courts of appeal in the “stay” column than the “dismiss” column, and their decisions are more recent, this decision may be the one that turns the tide and resolves the circuit split on this issue.

Arbitration has a brand recognition problem. Not enough people know what it is.

The recent CFPB report summarized studies showing that even among consumers who know they have an arbitration clause, the majority do not realize they cannot go to court or have their claims decided by a jury. One explanation is that those consumers are not aware what it means to sign an arbitration clause.

Often when I present to groups of sophisticated business people about arbitration, their questions make clear they think I am talking about mediation. I find many law students are also confused between arbitration and mediation, as are plenty of practicing lawyers.

Confusing arbitration and mediation is understandable, by the way. Arbitration and mediation rhyme. They are often taught together at law school under the “Alternative Dispute Resolution” umbrella, which ensures the concepts are forever linked in the minds of those lawyers. (Or included together in the same section of contracts.) And sure, they are both “alternatives” to litigation, but so are fistfights and “hugging it out” but we don’t teach those (and we would never confuse them).

Plus, arbitration does not come from a root word that most people recognize or can associate with a private system of dispute resolution. (At least mediation sounds a bit like middle-ation.) Instead, arbitration sounds like arbitrary. And that’s not a good connotation.

Does arbitration’s brand awareness matter? I think so. 80 million consumers are subject to arbitration agreements in their credit card agreements, and almost as many arbitrations are filed each year as new civil cases in the federal district courts. Tons of people are entering into arbitration agreements (as individuals and on behalf of companies). And, a good chunk of those people may have no idea what arbitration means. That undermines the primary rationale of arbitration acts – that contracting parties affirmatively chose to resolve disputes in a private arena with less formality and no government-paid decisionmaker and the courts are just enforcing those pre-dispute choices.

But, what can realistically be done? I suppose all the arbitral providers could form a marketing association and put out billboards and banner ads. And we could stop packaging arbitration and mediation together under an “ADR” banner.  Or we could just start calling arbitration something new. Like what… Disputation? Coolidgation (after the President who signed the FAA into law)? Scaliation (after the Justice whose opinions have strengthened enforcement of arbitration agreements)? Or even just simply litigation – instead of saying “they arbitrated their dispute” you could say “they litigated their dispute before the AAA.”

Something to ponder over your summer vacation… Send me your great ideas.

We haven’t had a good waiver case in a while.  The First Circuit served one up last week with a flourish, teaching me multiple new words in the process (not for the first time, either).  It found that a plaintiff had waived its right to arbitrate, not by bringing its claims to court in the first place, but by waiting nine months to compel arbitration, thereby seeming to “use [] an arbitration clause as a parachute when judicial winds blow unfavorably.”

In Joca-Roca Real Estate, LLC v. Brennan, __ F.3d __, 2014 WL 6737103 (1st Cir. Dec. 1. 2014), the plaintiff alleged fraud and breach of contract stemming from an asset purchase agreement.  The agreement required arbitration.  The parties conducted significant discovery, involved the court in discovery disputes, and were scheduled for trial on February 3, 2014.  On December 6, 2013, shortly before the summary judgment deadline, the plaintiff moved to stay proceedings pending arbitration.  (First big word: the court says the plaintiff did not explain its “cunctation” in invoking the arbitration provision.)  The district court found the plaintiff had waived its right to seek arbitration.

The First Circuit affirmed.  It reiterated the rule in its circuit that mere delay in seeking arbitration is insufficient to find waiver, there must be prejudice to the non-moving party.  To analyze prejudice, the court reviews a “salmagundi” of factors.  But the court admits the prejudice requirement is “tame” and can be inferred from a long delay accompanied by significant activity in the courts. In this case, the court focused on: the fact that the parties engaged in significant discovery, that the plaintiff waited until close to trial to seek arbitration, and that the change in forum would have delayed final disposition of the case and “nullify one of the primary benefits of arbitration.”

So we know at least two things: first, if you’re appearing before the First Circuit, you should use some fifty cent words in your briefs; and second, if you are on the eve of trial, it is probably too late to compel arbitration of the claim.