Remember when Maria sang “Let’s start at the very beginning, it’s a very good place to start”?  Well, that seems to be what federal circuit courts are doing with their arbitration decisions recently.  This post will run through some Do Re Mis of arbitration law, as articulated by those decisions (and will close with some arbitration cases on SCOTUS’s docket).

  • In most circuits, arbitrators cannot subpoena documents in advance of an in-person hearing.  The 9th Circuit affirmed that applies within its jurisdiction as well.  CVS Health Corp. v. Vividus, __ F.3d __, 2017 WL 6519942 (9th Cir. Dec. 21, 2017).
  • When an arbitration agreement calls for application of arbitral rules, and those rules give the arbitrator power to rule on her own jurisdiction, then the district court should send any dispute over arbitrability to the arbitrator.  The 4th Circuit confirmed that holding applies to JAMS rules, just as it does to AAA rules.  Simply Wireless, Inc. v. T-Mobile US, Inc., __ F.3d __, 2017 WL 6374105 (4th Cir. Dec. 13, 2017).
  • Claims under the Fair Labor Standards Act are subject to arbitrationRodriguez-Depena v. Parts Authority, Inc., __ F.3d __, 2017 WL 6327827 (2d Cir. Dec. 12, 2017).  (The Second Circuit is at least the third federal circuit to reach that conclusion.)
  • An arbitration agreement that carves out injunctive relief means what it saysArcher & White Sales v. Henry Schein, Inc., __ F.3d __, 2017 WL 6523680 (Dec. 21, 2017).  The arbitration agreement called for arbitration of any dispute under the agreement “except for actions seeking injunctive relief and disputes related to [intellectual property].”  Plaintiff brought an antitrust action seeking damages and injunctive relief. Applying the exception, the district court denied the motion to compel arbitration and the appellate court affirmed.
  • Independent contractors are not “agents” that can be bound as a non-signatory to arbitration clauseOudani v. TF Final Mile, LLC, __ F.3d __, 2017 WL 5587648 (1st Cir. Nov. 21, 2017) (refusing to compel arbitration of class action brought by independent contractors for wage-and-hour claims).
  • Ambiguous awards can be sent back to the arbitrator.  Herll v. Auto-Owners Ins. Co., __ F.3d __, 2018 WL 296870 (8th Cir. Jan. 5, 2018)  (sending ambiguous “appraisal award” back to arbitrator under Minnesota’s Revised Uniform Arbitration Act.)
  • If the losing party failed to raise an argument in arbitration, it can’t use that argument to vacate the arbitration awardLaborers’ Pension Fund v. W.R. Weis Co., __ F.3d __, 2018 WL 316555 (7th Cir. Jan. 8, 2018) (finding in an ERISA dispute that one party “waived its statutory-interpretation argument by failing to raise it in the arbitration.”)
  • First Amendment arguments will not get a putative class out of arbitration with a private party.  Okay, this is not an arbitration law “basic” point, but instead one that confirms the ingenuity of plaintiffs’ class action lawyers. These plaintiffs opposed arbitration “on First Amendment grounds” and asserted there was state action because the FAA and judicial interpretations of it encourage arbitration to the point that AT&T’s actions are attributable to the state.  Roberts v. AT&T Mobility, __ F.3d __, 2017 WL 6275537 (9th Cir. Dec. 11, 2017).  The 9th Circuit found no state action, and noted that plaintiffs’ arguments that the FAA violates consumers’ constitutional rights are incompatible with the Supreme Court’s decisions on arbitration.

_________________________________________________

Now that we’ve run through those reminders on issues that arise frequently in arbitration law, let’s talk about some unsettled issues.  SCOTUS today is considering two cases involving delegation clauses and how lower courts should put its Rent-a-Center, West decision into practice:

  • New Prime, Inc. v. Oliveira — this case comes from the First Circuit and raises the question whether the court should determine that the FAA applies before enforcing a delegation clause.  Why does that matter?   In this case a worker successfully argued the FAA did not govern, because he was an exempt transportation worker, and therefore the court refused to compel arbitration.  [Jan. 22 update: SCOTUS’s order list today does not include this as a grant or deny, so it will likely be considered again in February.]
  • Applied Underwriters Captive Risk Assurance Co. v. Minnieland Private Day School — this case comes from the Fourth Circuit and raises this question: Can a defense to arbitration that applies to the arbitration agreement as a whole ever be specific to the delegation clause?   [Disclosure: I was involved with this petition.] [ Jan. 22 update: SCOTUS denied cert.]

SCOTUS is also being asked to review a decision of the California Court of Appeal that refused to compel arbitration based on a state statute.  That California statute gives courts the discretion to deny enforcement of an arbitration provision when there is a possibility of conflicting rulings in pending litigation with third parties.  The cert petition asks whether the FAA preempts that California statute and will be considered in February.

Last month, SCOTUS  denied cert in another California arbitration case.  That petition, Betancourt v. Prudential Overall Supply, challenged California’s rule that private attorney general disputes cannot be arbitrated.  (SCOTUS passed on the same issue in 2015.)

Here’s hoping that in 2018 SCOTUS sticks with its recent practice of deciding at least one arbitration case per year!  And, here’s hoping the Vikings get in the Super Bowl!

Whenever people ask me why I choose arbitration law to write and talk about, one of the reasons I give is that the law is in flux, creating a demand for information and analysis.  Despite the fact that the Federal Arbitration Act has been around for over 90 years, there are constantly new developments in its interpretation.  Especially in the past two decades, with the Supreme Court highly engaged in the enforcement of arbitration agreements, the pace of legal development has quickened.  That pace means that litigants, advocates, arbitrators and judges are struggling to keep up.  It also means that even on recurring issues, there is still a lack of consensus on how to apply the rules that have been developed.

To demonstrate this point, I went back through the important cases from 2017.  I found multiple instances where two cases with very similar facts received opposite results.  And I am not talking about circuit splits over novel issues like the NLRB and “wholly groundless” exception.  I am talking about issues like formation, waiver, and non-signatories, where the “rules” have ostensibly been settled for some time.

Two Tales of Non-Signatories

These two cases involve a bank teaming up with a retail entity to issue branded credit cards that offered rewards.  The credit card agreement, which called for arbitration of disputes, was only between the consumers and the banks, however. In each case, plaintiffs sued the retail entity regarding the card and the retail entity moved to compel arbitration as a non-signatory to the credit card agreement.  In one case, White v. Sunoco, Inc., 2017 WL 3864616 (3d Cir. Sept. 5, 2017), the retail entity’s motion was denied.  In the other, Bluestem Brands, Inc. v. Shade, 2017 WL 4507090 (W. Va. Oct. 6, 2017), the retail entity’s motion was granted.  While these cases depend on the laws of different states, the courts were applying the same general estoppel rules, but reaching opposite results.

Two Tales of Waiver

Whether a party has waived its contractual right to arbitrate is an issue that comes up regularly.  Yet it remains surprisingly hard to predict whether a court will find waiver or not on any set of circumstances.

These two cases involve lenders bringing collection actions in state court for credit card debts.  In both, they were granted a default judgment.  And in both, the credit card holder later sued for problems with the collection efforts.  In response to that suit, the lenders moved to compel arbitration.  In one case, Cain v. Midland Funding, LLC, 156 A.3d 807 (Md. Mar. 24, 2017), the court denied the motion to compel, finding the lender had waived its rights.  In the other, Hudson v. Citibank, 387 P.3d 42 (Alaska Dec. 16, 2016), the court granted the motion to compel, finding the lender did not waive its rights.  In both cases, the analysis turned on whether the default action and later action were sufficiently related.

Two Tales of Formation

All of us do more and more of our business over mobile devices and the internet, where we don’t physically sign our name to contracts, and in fact we generally don’t read the terms and conditions.  That leads to hard legal questions over when a contract is validly formed and what terms the parties agreed to.

In these two cases, consumers have little or no choice between providers.  In order to sign up for the service, they receive one message.  In the first case, the message is “your account…[is] governed by the terms of use at [defendant’s website].”  In the second case, the message is “by creating an [] account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.”  The consumers did not have to take any affirmative act to consent to the terms other than proceeding to set up their account.  In both cases, consumers later sued the provider and the providers moved to compel arbitration based on the terms available at their websites.  The consumers responded by arguing the parties had not validly formed any arbitration agreement.

In the first case, the provider was not successful in compelling arbitration.  James v. Global Tellink Corp., 852 F.3d 262 (3d Cir. Mar. 29, 2017).  In the second case, the provider was successful in compelling arbitration.  Meyer v. Uber Technologies, Inc., 868 F.3d 66 (2d Cir. Aug. 17, 2017).  Can it be that the wording difference between “your account.. is governed” and “by creating an account, you agree” explains the outcomes?  Or the fact that the consumers in the Uber case could have just clicked on the terms from the same device they were using to set up the account, while the prisoners in the first case would have had to hang up their telephones, find a computer and find the website?  The cases really give us no assistance in figuring that out.

Maybe every area of law has similar issues regarding the predictability of decisions.  But arbitration law is rife with legal “rules” to guide decision making that are so flexible as to hardly constitute rules at all.  And courts have not yet applied those rules enough times to allow them to develop a systemic approach, with internal consistency between the decisions.  And I predict that will only get worse, not better, as consumers and employees find new and creative ways to challenge arbitration agreements.

2017 was a big year in arbitration law.  We went from a country that seemed on the verge of banning arbitration in most consumer and employee contracts to a country whose federal policy embraces arbitration in nearly every context.  From my vantage point, here are the ten top developments in the last twelve months:

  1. Regulation Reversal.  At the end of 2016, federal agencies were proposing rules to ban arbitration in various settings (student loans, nursing home agreements, consumer financial contracts).  Today, all of those have been reversed.  Most were reversed by the agencies themselves (CMS, Dept of Ed.), but in the big CFPB story, it was Congress that did the reversing.
  2. New Preemption Case from SCOTUS: Kindred Nursing Ctrs v. Clark, 137 S. Ct. 1421 (May 15, 2017).  This case found Kentucky had developed a rule for analyzing “power of attorney” documents that stood as an obstacle to arbitration.  What should state supreme courts learn from this decision?  To avoid FAA preemption, don’t insult SCOTUS, don’t worship the jury, and you really should be able to cite to a case where you’ve applied the same rule outside the arbitration context.  (Read the postscript.)
  3. Arbitration on Trial.  The public discourse in 2017 was hostile to arbitration.  Arbitration was literally on trial in a case against JAMS (for an arbitrator’s alleged resume-padding), but also was figuratively on trial as a contributor to the problem for sexual harassment victims and an obstacle for consumers impacted by the fake accounts at Wells Fargo and Equifax data breaches.  However, the level of public interest in this issue does not seem high enough to capture the interest of Congress (see vote on CFPB in #1), and one primary arbitration critic in the Senate, Al Franken, will resign shortly.
  4. Waiting for NLRB.  This fight between the NLRB and the courts has been brewing for so long!  My first post about the NLRB’s decision that class action waivers in employment agreements violated the federal labor laws, and the federal courts’ disagreement with that decision, was in 2013.  This year, the drama heated up as not only did SCOTUS take the case and hear argument in October, but the Dept. of Justice shifted its support from one side to the other shortly before the argument.
  5. Circuit Split on “Wholly Groundless.”  Should courts do any spot check on arbitrability before enforcing a delegation clause?  Until this year, the only answer was yes, and that came from three circuits (Fed, 5th, 6th), but in 2017, two circuits said “no way!” because it violates SCOTUS’s precedent (10th, 11th).  This could end up on SCOTUS’s docket soon.
  6. Small Claims Court Confusion.  A number of cases took up the issue of whether a company’s effort to collect a debt in small claims court (usually pursuant to a carve out in the arbitration clause) waived its right to later enforce arbitration when that consumer sued about the debt collection effort.  E.g., Cain v. Midland Funding, LLC, 156 A.3d 807 (Md. Mar. 24, 2017). The case outcomes were inconsistent.
  7. Statutory Preclusion.  Attempting to avoid arbitration by holding up a statute that appears to require a claim to be heard in court is always a solid argument (but usually unavailable).  This year it came up often, but not successfully.  See McLeod v. General Mills, Inc., 854 F.3d 420 (8th Cir. 2017).
  8. Non-Signatories Get Divergent Results.  Another perennial favorite topic is defendants who want to compel the arbitration clause in a plaintiff’s contract with someone else.  This came up often again this year, but with notable losses and generally inconsistent results.  (Teaser for an upcoming post…)
  9. Clarifying That Awards Don’t Get Vacated For Trivial or Old Relationships. One area of law that courts seem to be trying to clean up this year is the standard for what types of relationships are significant enough that the award could be vacated.  What’s not enough?  Having decided a different matter with the same expert, and having been colleagues with counsel for one party 15 years before are two examples of what is not enough.
  10. Are There Exceptions To The Three Month Window For Vacating Awards?  The Ninth Circuit said yes (in the case of fraud), but the Nebraska Supreme Court found no exceptions available.  Given that this statute has been in place since 1925, this seems like the kind of thing that would have been settled by now…

 

It’s the most wonderful time of the year!  Not just because of the chestnuts roasting and mistletoeing, but because it is when the ABA Journal names the best legal blogs.  Arbitration Nation made it to the Top 100 list for the sixth year running, and remains the only arbitration blog on the list.  Even more exciting, Arbitration Nation was one of five blogs added to the ABA Journal’s “Blawg Hall of Fame,” which recognizes the “very best law blogs, known for their untiring ability to craft high-quality, engaging posts sometimes on a daily basis.”

I am very grateful to the ABA Journal for highlighting this “new” way of lawyering and marketing for the past ten years.  I am also grateful to all of you for reading the posts, for sending me cases to blog about, and for recommending me to clients!  No time to rest on any laurels, there are new arbitration cases coming out every day and now I have lots of new law blogs to check out…

 

Pencils down.  (Is the modern equivalent “cursors down”?)  All the attorneys who were drafting new form consumer agreements to comply with the CFPB rule prohibiting class action waivers can now trash those documents.  Pursuant to the Congressional Review Act, the Senate voted 51-50 last night (with the VP as tie-breaker) to nullify the CFPB’s rule.  (The House of Representatives had cast a similar vote earlier this summer.)  And President Trump has signaled he will sign the bill.  But you already know all that.  The news came out last night.

So, what’s next?

After deleting all the new draft agreement, of course.  And I’m not being facetious about that.  The rule required that new agreements be in effect by March 2018 and it takes large companies significant time to approve and roll out new consumer agreements, so many were already in the works.  Especially since the Senate waited until almost the end of its 60 session day deadline to act.  But, most large institutions would rather eat those attorneys’ fees than be the subject of new class action lawsuits, so they won’t complain.

There are many constituencies that are very unhappy with the U.S. Supreme Court’s interpretations of the Federal Arbitration Act.  They are not going to give up just because 50 Senators disagree.  Those constituencies had been largely unsuccessful in the federal courts in the last dozen years, but more successful in federal agencies in the last few years. Under the Obama administration, multiple agencies had issued rules limiting the use of arbitration with consumers and employers.  All of those have been reversed in the first ten months of the Trump administration.  Which leaves those who are still concerned about arbitration with a dilemma — how can they make change?  Do they push for smaller legislative victories, adding riders to federal statutes so that claims brought under them must be heard in a court of law?  That’s not a terrible idea, since the slimmest majority voided the CFPB rule.  Or do they develop new, creative legal theories in state and federal courts?  Theories like “wholly groundless” and that the FAA does not apply to motions to vacate in state court that nip at the edges of FAA jurisprudence?  I think that is the most likely result.

What about those who are happy with this outcome, what’s next for them?  I predict more companies will make use of class action waivers.  In the last few years, with the proposed (and then actual) rule-making by various agencies, any move to add a class action waiver carried with it some risk that it would be soon made ineffective.  But now, the Supreme Court and its conservative majority are firmly in favor of enforcing those class action waivers.  And the federal agencies are also supportive of class action waivers.  So, some of those companies who were kept on the fence by administrative action are likely to jump off and land on the side of adding class action waivers to their arbitration agreements.

I’d love to hear what you think may happen in arbitration law as a result of the Senate vote to trump the CFPB.  Send me a line.

 

 

This is my 290th post at ArbitrationNation and today I celebrate six years of blogging.  Woo hoo — that’s longer than most celebrity marriages!  In honor of the occasion, here are updates on six of the hottest issues in arbitration law so far this year.

  1. Agency regulation of arbitration agreements.  On the one hand, the CFPB issued a rule that will preclude financial institutions from using class action waivers in arbitration agreements.  To understand how “yuge” this is, remember that the CFPB’s initial study showed there are likely over 100 million arbitration agreements impacted by this rule.  (And there does not seem to be the necessary political willpower to stop it.)  On the other hand, agencies headed by Trump appointees have moved to roll back Obama-era consumer-friendly regulations of arbitration agreements in nursing homes and educational institutions.
  2. NLRB.  While the CFPB attacks class action waivers in the financial industry, the NLRB has been attacking those waivers in the employment context, taking the position that such waivers violate the National Labor Relations Act.  A circuit split developed, with the 6th, 7th, and 9th circuits on NLRB’s side, and the 2nd, 5th and 8th circuits siding with the employers.  The Supreme Court will hear arguments on October 2.
  3. Wholly Groundless.  When considering whether to enforce delegation clauses, some federal court have developed a carve-out for claims they think are nothing but hot air.  [Remember delegation clauses are those portions of arbitration agreements that authorize arbitrators to determine even arbitrability — whether the arbitration agreement is valid and encompasses the claims — issues usually decided by courts.]  That carve-out has been called the “wholly groundless” exception, and it is coming up with greater frequency.  Currently there is a circuit split: the 5th, 6th and federal circuits are in favor of spot-checking claims of arbitrability (e.g. Evans v. Building Materials Corp. of Am., 2017 WL 2407857 (Fed. Cir. June 5, 2017)), while the 10th and 11th Circuits believe SCOTUS’s precedent leaves no room for conducting a smell test (e.g. Jones v. Waffle House, Inc., 2017 WL 3381100 (11th Cir. Aug. 7, 2017)).
  4. Formation.  SCOTUS decided the Kindred case in May, confirming that state law on contract formation is also subject to preemption by the Federal Arbitration Act.  That was timely, given that plaintiffs appear to be placing their bets on challenging formation as the most effective way around an arbitration agreement.  They might be right.  See James v. Global Tellink Corp., 852 F.3d 262 (3d Cir. Mar. 29, 2017); Noble v. Samsung Electronics America, Inc., 2017 WL 838269 (3d Cir. March 3, 2017); King v. Bryant, 795 S.E.2d 340 (N.C. Jan. 27, 2017).
  5. Small Claims Court.  If a company starts a small claims court action to collect a debt, does that waive the company’s right to compel arbitration years later in response to a suit by the consumer?  This is a question multiple courts are facing, with differing results.  E.g., Cain v. Midland Funding, LLC, 156 A.3d 807 (Md. Mar. 24, 2017) (waiver); Hudson v. Citibank, 387 P.3d 42 (Alaska Dec. 16, 2016) (no waiver); Citibank, N.A. v. Perry, 797 S.E.2d 803 (W. Va. Nov. 10, 2016) (no waiver).  It is important because many consumer arbitration agreements exempt small claims from arbitrable claims, but may reconsider if that is considered a waiver of everything else.
  6. Statutory Preclusion.  The Federal Arbitration Act generally requires courts to enforce arbitration agreements.  But, if there is a contrary congressional command entitling the litigant to a court trial, it can override the FAA.  That issue has already come up multiple times this year, with the FAA generally winning its battles with other statutes.  E.g., McLeod v. General Mills, Inc., 854 F.3d 420 (8th Cir. Apr. 14, 2017).

Thanks to all of you for providing great feedback, leads on cases and topics, client referrals, and a warm community of fellow arbitration geeks.  I look forward to another year of blogging.

I declare this the Summer of Arbitration. It’s not as sexy as the Summer of Love (which is celebrating its 50th anniversary, btw http://www.sftravel.com/summer-love-2017), but there has to be some recognition of the avalanche of arbitration cases on my desk (to say nothing of the regulation changes).

Today, I focus on the state supreme courts. In the last few months, ten separate state high courts have issued arbitration decisions.  Many of those have addressed whether arbitrators properly disclosed relationships with the parties, their counsel and their experts.  To keep things brief, I will report each state in alphabetical order, in roughly tweet length below (140 characters, not counting citation).  Put some flowers in your hair, turn up the 60s tunes, and read on.

Alabama: Fraudulent inducement of entire contract and conditions precedent are not relevant arguments on motion to compel arbitration; both for arbitrator to decide. Rainbow Cinemas, LLC v. Consolidated Constr. Co. of Alabama, 2017 WL 2610506 (Ala. June 16, 2017).

Alabama/2: Arbitration clause not invalid, even though lender (and not consumer) could bring some claims to court. Family Security Credit Union v. Etheridge, 2017 WL 2200364 (Ala. May 19, 2017).

Arkansas: Public policy is not a valid basis for vacating arbitration awards. Kilgore v. Mullenax, 2017 Ark. 204 (June 1, 2017).

Hawai’i: Arbitrator not obligated to disclose that 1 of respondent’s experts had appeared before her previously or that second expert was counsel in mediations and arbitrations she handled. Narayan v. Assoc. of Apt Owners of Kapalua Bay Condominium, 2017 WL 2591321 (Haw. June 15, 2017) (clarifying scope of relationships requiring disclosure)

Minnesota: Courts should stay an action after compelling arbitration, not dismiss it. City of Rochester v. Kottschade, 2017 WL 2464520 (June 7, 2017).

Mississippi: Tenant’s claim of assault on apartment premises is outside scope of arb agreement in lease. Doe v. Hallmark Partners, 2017 WL 2001163 (Miss. May 11, 2017).

Nevada: Arbitrator did not exceed power by disagreeing with employee’s interpretation of CBA; colorable justification for award. Unvacated.  Washoe County School District v. White, 2017 WL 2825902 (Nev. June 29, 2017).

Nevada/2: Fact that arbitrator had worked with counsel for claimant 15 years before disclosures, and mediated cases for same counsel 7 years before, did not merit vacatur. Eagle Jet Aviation v. Milton Woods, 2017 WL 2813985 (Nev. June 27, 2017).

North Dakota: Even though arbitrator not selected by method in contract, can’t be basis for vacatur when no objection until after award. Thompson v. Lithia ND Acquisition Corp., 2017 WL 2464536 (N.D. June 7, 2017).

Texas: $21 M arb award confirmed; arbitrator unaware of trivial fact not disclosed & damages within authority. Forest Oil Corp. v. El Rucio Land & Cattle Co., 2017 WL 1541086 (Tex. Apr. 28, 2017).

Vermont: Just bc defendant is compelling arbitration, doesn’t mean a court can make it initiate the arbitration (and pay the fee). That’s plaintiff’s job.  –Hermitage Inn Real Estate Holding Co. v. Extreme Contracting, 2017 WL 2391725 (Vt. June 2, 2017) (reversing default judgment for plaintiff).

Virgin Islands: Loser cannot vacate award based on lack of arb agmt, when it never raised issue in court and first raised on final day of arb hearing. Bashiti v. Tutu Park, 2017 WL 2333809 (May 26, 2017). [I can count this as a state, right??]

These decisions show that arbitrator disclosures are popular bases for attempting to vacate arbitration awards right now.  As those cases bubble up, state high courts are clarifying the narrow set of relationships that must be disclosed as well as those which will form a valid basis for objection.

The CFPB today issued a consumer-friendly rule that is likely to significantly curtail the use of arbitration in consumer financial agreements.  That rule has two major components.  First, it prohibits institutions from relying on arbitration clauses to avoid class actions.  And second, it mandates the submission of redacted data on consumer financial arbitrations that will be accessible on the internet.

The rule was originally proposed in May of 2016, roughly a year after the CFPB issued its report on the use of arbitration in the financial industry.  During the required 90-day period, the CFPB received around 110,000 public comments on its proposal.  Yet, the CFPB waited over a year to finalize and issue the rule.  During that time, President Trump took office and his administration reversed course on three previous arbitration-related rules/positions from the Obama Administration.  That context lead to speculation that the CFPB might weaken its proposed rule or otherwise take a safer course.

Yet today the rule was issued and it appears substantially the same as the initial proposal.  Maybe the CFPB wisely spent the past year gearing up for the challenges that similar pro-consumer arbitration rules have faced — like lawsuits challenging the rule’s validity or Congress using its ability to pull the plug on rules within the first 60 days.  Or maybe it just took a year to draft this 775 page behemoth of a rule with all its arguments in favor of its issuance (and responses to its detractors).  (Note that the Trump Administration has been trying to convince a federal court that the President has the authority to fire the CFPB director without cause, which probably did not help any negotiations over the proposed rule.)

In any case, the result is a very far-reaching rule that will likely lead to an uptick in class actions in the financial industry.  It applies to all consumer lending, credit card agreements, auto leases, debt management services, check cashing services, and debt collectors.  Starting six months after the effective date of the rule (assuming no court injunction), it will affect all new agreements within its scope.

The text of the key provisions of the rule follows:

(a) Use of pre-dispute arbitration agreements in class actions—(1) General rule. A

provider shall not rely in any way on a pre-dispute arbitration agreement entered into after the

date set forth in § 1040.5(a) with respect to any aspect of a class action that concerns any of the

consumer financial products or services covered by § 1040.3, including to seek a stay or

dismissal of particular claims or the entire action, unless and until the presiding court has ruled

that the case may not proceed as a class action and, if that ruling may be subject to appellate

review on an interlocutory basis, the time to seek such review has elapsed or such review has

been resolved such that the case cannot proceed as a class action.

(2) Provision required in covered pre-dispute arbitration agreements. Upon entering

into a pre-dispute arbitration agreement for a consumer financial product or service covered by

  • 1040.3 after the date set forth in § 1040.5(a):

(i) Except as provided elsewhere in this paragraph (a)(2) or in § 1040.5(b), a provider

shall ensure that any such pre-dispute arbitration agreement contains the following provision:

“We agree that neither we nor anyone else will rely on this agreement to stop you from being

part of a class action case in court. You may file a class action in court or you may be a member

of a class action filed by someone else.”

(ii) When the pre-dispute arbitration agreement applies to multiple products or services,

only some of which are covered by § 1040.3, the provider may include the following alternative

provision in place of the one required by paragraph (a)(2)(i) of this section: “We are providing

you with more than one product or service, only some of which are covered by the Arbitration

Agreements Rule issued by the Consumer Financial Protection Bureau. The following provision

applies only to class action claims concerning the products or services covered by that Rule: We

agree that neither we nor anyone else will rely on this agreement to stop you from being part of a

class action case in court. You may file a class action in court or you may be a member of a

class action filed by someone else.”

(iii) When the pre-dispute arbitration agreement existed previously between other parties

and does not contain either the provision required by paragraph (a)(2)(i) of this section or the

alternative permitted by paragraph (a)(2)(ii) of this section:

(A) The provider shall either ensure the pre-dispute arbitration agreement is amended to

contain the provision specified in paragraph (a)(2)(i) or (a)(2)(ii) of this section or provide any

consumer to whom the agreement applies with the following written notice: “We agree not to

rely on any pre-dispute arbitration agreement to stop you from being part of a class action case in

court. You may file a class action in court or you may be a member of a class action filed by

someone else.” When the pre-dispute arbitration agreement applies to multiple products or

services, only some of which are covered by § 1040.3, the provider may, in this written notice,

include the following optional additional language: “This notice applies only to class action

claims concerning the products or services covered by the Arbitration Agreements Rule issued

by the Consumer Financial Protection Bureau.”

(B) The provider shall ensure the pre-dispute arbitration agreement is amended or provide

the notice to consumers within 60 days of entering into the pre-dispute arbitration agreement.

***

(b) Submission of arbitral and court records. For any pre-dispute arbitration agreement

for a consumer financial product or service covered by § 1040.3 entered into after the date set

forth in § 1040.5(a), a provider shall comply with the requirements set forth below.

(1) Records to be submitted. A provider shall submit a copy of the following records to

the Bureau, in the form and manner specified by the Bureau:

(i) In connection with any claim filed in arbitration by or against the provider concerning

any of the consumer financial products or services covered by § 1040.3:

(A) The initial claim and any counterclaim;

(B) The answer to any initial claim and/or counterclaim, if any;

(C) The pre-dispute arbitration agreement filed with the arbitrator or arbitration

administrator;

(D) The judgment or award, if any, issued by the arbitrator or arbitration administrator;

and

(E) If an arbitrator or arbitration administrator refuses to administer or dismisses a claim

due to the provider’s failure to pay required filing or administrative fees, any communication the

provider receives from the arbitrator or an arbitration administrator related to such a refusal;

(ii) Any communication the provider receives from an arbitrator or an arbitration

administrator related to a determination that a pre-dispute arbitration agreement for a consumer

financial product or service covered by § 1040.3 does not comply with the administrator’s

fairness principles, rules, or similar requirements, if such a determination occurs; and

(iii) In connection with any case in court by or against the provider concerning any of the

consumer financial products or services covered by § 1040.3:

(A) Any submission to a court that relies on a pre-dispute arbitration agreement in

support of the provider’s attempt to seek dismissal, deferral, or stay of any aspect of a case; and

(B) The pre-dispute arbitration agreement relied upon in the motion or filing.

(2) Deadline for submission. A provider shall submit any record required pursuant to

paragraph (b)(1) of this section within 60 days of filing by the provider of any such record with

the arbitrator, arbitration administrator, or court, and within 60 days of receipt by the provider of

any such record filed or sent by someone other than the provider, such as the arbitration

administrator, the court, or the consumer.

(3) Redaction. Prior to submission of any records pursuant to paragraph (b)(1) of this

section, a provider shall redact the following information:

(i) Names of individuals, except for the name of the provider or the arbitrator where

either is an individual;

(ii) Addresses of individuals, excluding city, State, and zip code;

(iii) Email addresses of individuals;

(iv) Telephone numbers of individuals;

(v) Photographs of individuals;

(vi) Account numbers;

(vii) Social Security and tax identification numbers;

(viii) Driver’s license and other government identification numbers; and

(ix) Passport numbers.

(4) Internet posting of arbitral and court records. The Bureau shall establish and

maintain on its publicly available internet site a central repository of the records that providers

submit to it pursuant to paragraph (b)(1) of this section, and such records shall be easily

accessible and retrievable by the public on its internet site.

It was only a few weeks ago that this blog covered the reversal of the CMS regulation on arbitration in nursing homes.  Now, the Trump Administration has altered course on two other issues of arbitration policy.

First, the Department of Education has “delayed until further notice” its ban on pre-dispute arbitration agreements.  That regulation was final in November of 2016.  The notice cites litigation regarding the rule as the primary reason for the indefinite delay.

Second, the Solicitor General announced it would switch sides in the big SCOTUS showdown over class action waivers in employment agreements.  The administration had previously supported the NLRB, but now will oppose it.

These two actions probably do not bode well for CFPB’s ability to finalize its proposed rule banning pre-dispute regulation and have the rule remain in force…

**Special greetings to new subscribers that signed up after the ABA’s Arbitration Training Institute last week!

In National Labor Relations Board v. Alternative Entertainment, Inc., No. 16-1385, 2017 WL 2297620 (6th Cir. May 26, 2017), the Sixth Circuit joined the Seventh and Ninth Circuits in upholding the NLRB’s decision that barring an employee from pursuing class action or collective claims violates the NLRA. Already lined up on the other side of a growing Circuit split are the Second, Fifth, and Eighth Circuits.

In Alternative Entertainment, Inc., the NLRB claimed that language in both the employment contract and the employee handbook used by Alternative Entertainment, Inc. (“AEI”) “violated the NLRA by barring employees from pursuing class-action litigation or collective arbitration of work-related claims.” Alternative Entertainment, Inc., 2017 WL 2297620 at *1.

Joining the Seventh Circuit’s critique of the Fifth Circuit’s logic in D. R. Horton, the Sixth expressly takes on the Fifth stating “the Fifth Circuit started with the wrong question.” When the Sixth asks the question it believes is the right one–if the NLRA is compatible with the FAA–the Court finds them in “harmony” and holds the employer’s ban on concerted action violates the NLRA. As a result, the court found the ban is also unenforceable under the FAA’s saving clause. According to the Sixth, the NLRA bans contracts that interfere with “employees’ right to engage in concerted activity, not because they mandate arbitration.” Any contract provision that interfered in this way would be illegal, which is in full accord with the FAA’s rejection of any contract that “undermine[s] employees’ right to engage in concerted legal activity.”

The Sixth’s second disagreement with the Fifth Circuit is expressed by the Sixth’s use of Chevron deference (arguing in the alternative, after stating there is no statutory ambiguity). The Sixth accepts the NLRB’s permissible construction of the NLRA’s right to concerted activity as a substantive, not procedural right.

In a partial dissent, and referring to the “manifestation of hostility toward arbitration,” Justice Sutton references the history of judicial protection and support of arbitration agreements provided over time. Specifically, the dissent objects to the majority’s overreaching use of Chevron, and states the majority opinion ignores Concepcion’s rejection of similar arguments harmonizing the NLRA with the FAA. (The majority opinion, however, distinguishes the kind of arbitration provision used by AEI and the kind of arbitration provision used by the employer in Concepcion.)

One question here is why would the Sixth Circuit bother drafting and filing this opinion when SCOTUS has already accepted review of this issue? It is possible the Sixth decided to issue this opinion in an effort to intentionally level the sides of this split by adding its voice to the Seventh and Ninth Circuits. It is also possible that since arguments had been heard in November 2016, opinions had already been formed by the time SCOTUS granted cert. on the question in January 2017. Either way, SCOTUS is expected to opine later this year on cases consolidated as National Labor Relations Board v. Murphy Oil USA, Inc., which will resolve the growing divide among the circuits. In granting cert., SCOTUS acknowledged the extent of the Circuit split as it existed in January—and footnoted this Sixth circuit case along with four other potential cases from the Third, Fourth, Eleventh and the D.C. Circuits. SCOTUS saw this one coming their way. I look forward to reading the resolution of this split.

ArbitrationNation thanks Jaclyn Schroeder, a law student at Mitchell Hamline School of Law, for researching and drafting this post.