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.

In a first indication of the Trump Administration’s stance on consumer arbitration, the Centers for Medicare & Medicaid Services (CMS) this week issued a new proposed rule that rolls back the Obama Administration’s regulation, which precluded pre-dispute arbitration agreements in nursing homes.  (Too many negatives in that sentence… in other words, the Trump Administration wants to ensure that nursing homes can have arbitration agreements in their admission documents.) For context, CMS just issued the regulation it is now retracting in October of 2016.  The 2016 rule applied to any new agreements between residents and long-term care facilities that receive dollars through Medicare or Medicaid, and prohibited the centers from requiring residents to sign arbitration agreements as a condition of admission.  Before the 2016 rule could even take effect, though, its legality was challenged and a federal court stayed implementation of the new regulation during the case. Seven months and a new president later, the agency is changing course.  Why?  The announcement suggests it is for three reasons.  First, because a federal court found merit to the challenges to the rule.  Second, because President Trump’s January 30, 2017 Executive Order “Reducing Regulation and Controlling Regulatory Costs” encouraged all agencies to repeal two existing regulations for every new regulation.  And finally, “[u]pon reconsideration, we believe that arbitration agreements are, in fact, advantageous to both providers and beneficiaries because they allow for the expeditious resolution of claims without the costs and expense of litigation.”  Those second and third points could support the roll back of most, if not all, of the Obama Administration’s regulations relating to arbitration. The new proposed CMS rule offers an olive branch to those who lobbied for the 2016 rule.  It proposes to require that arbitration agreements be written in plain language, explained clearly to prospective residents of long term care facilities, and that the resident acknowledge his/her understanding.  The new rule also prohibits any language that would discourage a resident from contacting governmental authorities, and requires facilities to keep copies of arbitration awards for five years (suggesting CMS may request inspection).   The announcement summarizes that the new rule “would . . . strengthen requirements regarding the transparency of arbitration agreements in LTC facilities. This proposal would support the resident’s right to make informed choices about important aspects of his or her health care. In addition, this proposal is consistent with our approach to eliminating unnecessary burden on providers.” If you are curious how other arbitration rules proposed or passed during the Obama Administration have fared so far, Bloomberg BNA has done a great summary of where things stand.  (Short answer: most are on hold.) **Many thanks to Mark Kantor for alerting me to this development.

Just as I predicted, SCOTUS reversed the Kentucky Supreme Court’s decision in Kindred this morning.  The interesting piece, though, is that the seven member majority went out of its way to cut off some of the “on trend” methods that state courts have been using to avoid arbitration clauses.

The Kentucky decision can be summarized easily.  The case  involved nursing homes attempting to compel arbitration of wrongful death and personal injury claims by estates of deceased residents.  In each case, a relative with power of attorney had signed an admission document that included arbitration when the resident entered the nursing home.  However, the Kentucky court refused to infer the agent’s “authority to waive his principal’s constitutional right to access the courts and to trial by jury” unless that power is “unambiguously expressed” in the power-of -attorney document.  (You may recall this is the decision that analogized entering into an arbitration agreement to: putting a child up for adoption, aborting a pregnancy, and entering into personal servitude.  If that doesn’t cry out “judicial hostility to arbitration,” I don’t know what does.)

Justice Kagan, writing for the seven-member majority, found Kentucky’s “clear statement rule” preempted by the Federal Arbitration Act.  “[T]he 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.”  In response to Kentucky’s attempt to paint its rule as broader than arbitration, the Court said No Kentucky court, so far as we know, has ever before demanded that a power of attorney explicitly confer authority to enter into contracts implicating constitutional guarantees.”

That preemption aspect of the decision seems to confirm what I have been saying about the impact of DirecTV: states are in much better position to defend their anti-arbitration “general contract rule” if they can point to at least one non-arbitration circumstance in which it has been applied.  (The decision added a footnote to clarify this isn’t an absolute necessity: “We do not suggest that a state court is precluded from announcing a new, generally applicable rule of law in an arbitration case.” But that’s like saying it is conceivable that your mother will appreciate a new vacuum for mothers day, but we don’t recommend it.)

The Court’s decision to clearly state that courts cannot invalidate arbitration agreements based on their (necessary) waiver of the right to a jury trial also cuts off a trendy argument in state courts.  New Jersey courts, for example, have invalidated arbitration agreements in recent years based on their failure to clearly advise consumers they are waiving their rights to jury trials (SCOTUS denied cert in the key NJ case, Atalese.)  Those NJ decisions are now shaky precedent, IMHO.

The decision then went beyond the basic preemption analysis.  Respondents had argued the FAA had no application to contract formation, that only state law controlled that question.  SCOTUS quickly disabused the respondents, and all state courts, of that notion, reasoning that the purpose of the FAA would be completely undercut by the rule: “If the respondents were right, States could just as easily declare everyone incompetent to sign arbitration agreements.  (That rule too would address only formation.)” In doing so, the Court cut off another avenue for avoiding the FAA.  (In my view, though, the slippery slope argument relied on by SCOTUS also cuts against the formation/validity  distinction used to separate which issues are decided in court and which by arbitrators.)

[As usual, Justice Thomas dissented based on his position that the FAA does not apply in state courts.]

If I had drafted this annual summary post on November 7, 2016, it would have looked different. At that point, the year had produced numerous (final or proposed) federal regulations that significantly restricted the use of arbitration with consumers in large industries.  In addition, Justice Scalia’s death, along with the prospective election of Secretary Clinton, appeared poised to alter the make-up of the U.S. Supreme Court, which has voted 5-4 in many of the critical arbitration decisions in the last decade.

As I draft this post on January 4, 2017, it is still true that 2016 produced multiple federal regulations and some significant decisions that move away from the rigid arbitration-enforcement world view that Justice Scalia professed, but the election of Donald Trump, and the opening on the U.S. Supreme Court, may undo those pro-consumer changes.

Here were the big arbitration developments I saw in 2016:

  • The death of Justice Antonin Scalia in February. He authored arbitration blockbusters like Buckeye Check Cashing v. Cardegna (2006); Rent-A-Center, West v. Jackson (2010); AT&T Mobility v Concepcion (2011); American Express Co. v. Italian Colors Restaurant (2013).
  • Courts created uncertainty for the enforcement of delegation clauses. Enforced in Mohamed v. Uber Technologies, Inc., __ F.3d __, 2016 WL 4651409 (9th Cir. Sept. 7, 2016) and Regions Bank v. Rice, 2016 WL 3031357 (Ala. May 27, 2016). Rejected in Morgan v. Sanford Brown Institute, 2016 WL 3248016 (N.J. June 14, 2016) and Smith v. D.R. Horton, Inc., 2016 WL 3660720 (S.C. July 6, 2016).
  • Courts also created uncertainty regarding who decides availability of class arbitration. Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 2016 WL 53806 (3d Cir. Jan. 5, 2015) (parties’ incorporation of AAA rules is insufficient to delegate the availability of classwide arbitration to arbitrators); Sandquist v. Lebo Automotive, Inc., 376 P.3d 506 (Cal. July 28, 2016) (arbitrator decides); Dell Web Communities, Inc. v. Carlson, 2016 WL 1178829 (4th Cir. Mar. 28, 2016) (court decides).
  • FAA allows no special treatment for famous athletes. Arbitral awards against Tom Brady and Adrian Peterson, which had been vacated in federal district courts, were un-vacated by federal appellate courts.
  • Finn got under my skinn. The high court in New Hampshire got creative in Finn v. Ballentine Partners, LLC, __ A.3d __, 2016 WL 3268852 (NH June 14, 2016). After finding no avenue for vacating an arbitration award in the FAA, it concluded the FAA’s sections regarding confirming and vacating awards do not apply in state courts and vacated the award under its state arbitration act.  Threw me into a tizzy.
  • 7th Circuit supported NRLB on arbitration. The NLRB has ruled that arbitration agreements which prohibit class actions violate the federal labor laws. But, five federal circuit courts have disagreed with the Board. This year, the 7th Circuit stood up for the Board in Lewis v. Epic Systems Corp., 2016 WL 3029464 (7th Cir. May 26, 2016). Watch for SCOTUS to weigh in on this issue in the near future.

 

  • Agencies engaged in rule-making aimed at eliminating pre-dispute arbitration clauses in many types of contracts.
    • May 2016: CFPB proposed 2 arbitration rules for financial services industry and received almost 13,000 comments in 90 days. The rules would allow financial consumers to participate in class actions in court, even if the governing agreements call for arbitration generally, and would require providers of arbitration services to submit redacted copies of arbitration pleadings to the CFPB for its continuing monitoring. (The rule is rumored to be finalized just before president-elect Trump is inaugurated.)
    • September 2016: the Center for Medicare and Medicaid Services issued a rule that will prohibit the use of pre-dispute arbitration agreements in most long term care facilities.
    • October 2016: the Federal Communications Commission indicated that it was developing a proposed rule to address “mandatory arbitration agreements” in contracts between communication service providers and consumers.
    • October 2016: the U.S. Department of Education banned pre-dispute arbitration agreements for all “Direct Loan borrowers.”

Where does that leave us, after this year of significant change? And why do I say the election could undo much of what you just read?

I am no administrative law scholar (this blog is not called RegulationNation, thank goodness), but I do know that these agency rules can be rescinded more easily than an act of Congress or even a precedential holding from SCOTUS. (See http://www.wsj.com/articles/reversing-rule-by-regulation-1479342822.)  I predict the Trump Administration will act to roll back some or all of these regulations. (I have not seen any pronouncements from the President-elect, but base my prediction on my general Spidey sense, as well as Mr. Trump’s motions to compel arbitration in litigation against his companies, and his pro-business positions.)  I also predict that SCOTUS will again become a 5-4 majority in favor of strict enforcement of arbitration clauses.

And what will our feisty state courts do in reaction to more rigid enforcement of arbitration clauses by SCOTUS and federal agencies? I think they will again get creative with their interpretations of state contract laws and even their application of the Federal Arbitration Act in state courts (a la Finn), just like was happening before SCOTUS issued the Concepcion decision. There was less of a reason for the state courts to do that over the past year, as they saw the federal government regulation stepping in.  Watch this blog to see if my predictions are accurate… And feel free to send me your thoughts if you disagree!

 

Editors of the ABA Journal  have selected ArbitrationNation as one of the top 100 best “blawgs” for a legal audience.  This marks the fifth consecutive year that this blog has made the cut.  (See the full list here.)  It remains the only arbitration blog on the list.

Thank you to everyone who nominated Arbitration Nation and also to everyone who shares my passion for arbitration law.  Your feedback and nudges and comments often give me the energy I need to keep writing.

In a complete embarrassment of riches, I also received this award this week.

p.s. If this is your first time visiting ArbitrationNation – Welcome! If you want to know what it’s all about, these “listicles” are a good place to start: Five biggest surprises in arbitration law; Five states most hostile to arbitration; Five arbitration cases you should know; Five biggest surprises in the arbitration process; Five things that should really be in your arbitration agreement.