Before I can sum up 2015 in arbitration (next post!), I need to report on some new cases coming out of the federal and state appellate courts in recent weeks.  Two are just good reminders of basic arbitration law, but the third addresses an interesting question of double recovery.

Our first “reminder” case comes from New York’s highest court.  In Cusimano v. Schnurr, 2015 WL 8787554 (N.Y. Dec. 16, 2015), that court held that the Federal Arbitration Act applies, even to intrafamily transactions among New York residents (sing: “it’s a family affaaaair…”), and even when defendants argue their family business is “passive” and has no impact on interstate commerce.  The court basically said family shmamily, look at the type of business you have and what it owns.  “The idea that the intrafamilial nature of the agreements has some bearing on whether the FAA is applicable finds no support in the caselaw.”  Instead, the fact that the family business owned commercial properties inside and outside New York was key.  (But, the plaintiffs waived their right to arbitrate by litigating aggressively for a year.)

The second “reminder” comes from the Eleventh Circuit and relates to appeal timing.  In the Wise Alloys case, 2015 WL 8119326 (11th Cir. Dec. 8, 2015), that court held that the defendant did not appeal the district court order compelling arbitration within the allowed deadline.  (The court had fun with this one, quoting Carole King to say “it’s too late…”)  Critically, the entire complaint related to the union’s effort to compel the defendant company to arbitration.  The district court compelled arbitration in June of 2012, but the company did not appeal until after the arbitration was complete and the award had been confirmed in late 2014 (well beyond the 30-day deadline in the federal rules).  The lesson from this case is that while Section 16 of the FAA commands that “interlocutory” orders compelling arbitration are not immediately appealable, not all orders compelling arbitration are interlocutory: if the only relief a complaint seeks is an order compelling arbitration, then the order granting that relief is final and immediately appealable.

The most interesting outcome in this group comes from the Ninth Circuit (with Judge Shira Scheindlin from SDNY sitting by designation on the opposite coast).  In Uthe Technology Corp. v. Aetrium, Inc., 2015 8538090 (9th Cir. Nov. 19, 2015), the plaintiff had already been awarded millions of dollars against related defendants in an arbitration and then brought a RICO claim for treble damages in U.S. federal court for the same conspiracy.  The question was whether that RICO claim was precluded by the “one satisfaction” rule that avoids double recovery.  (P.s. That arbitration lasted two decades.  Score one for litigation.)   The Ninth Circuit found the RICO claims were not precluded, largely because the arbitration claim was against a different set of defendants, and RICO provides remedies that were not available to Uthe in the arbitration, and the arbitration award specifically noted that it was made without prejudice to Uthe’s right to bring further claims in federal court.  The 9th Circuit did note that any damages in the RICO case must be offset by the sums paid as a result of the arbitral award

Just under the wire, SCOTUS released an arbitration opinion today, ensuring that 2015 would continue the string of years with cases interpreting the Federal Arbitration Act.  In DIRECTV v. Imburgia, the Supreme Court found that California’s interpretation of an arbitration clause was preempted by the FAA.  DIRECTV is a 6-3 decision, with Justice Kagan (who vociferously dissented in Italian Colors) joining the majority, and it appears to make it even harder for courts to apply state contract doctrines to find arbitration agreements unenforceable.

The issue in DIRECTV was primarily how to interpret the poison pill in the parties’ arbitration agreement, which stated that if the “law of your state” made the waiver of class arbitration unenforceable, then the entire arbitration agreement was unenforceable.  The California Court of Appeal found the phrase’s meaning ambiguous, but relied on two doctrines of contract interpretation to conclude that it referred to California’s contract law, without consideration of any federal preemption.  In other words, it meant California law before, or without respect to, Concepcion, which found California’s refusal to enforce class action waivers was preempted by the FAA.  Therefore, the California court used the poison pill to blow up the arbitration agreement altogether.  The California Supreme Court denied review, but SCOTUS took up the case.  (And disposed of it quickly — the argument was just about two months ago.)

Justice Breyer wrote the decision for the majority.  He focused heavily on the states’ obligation to abide by federal law and the Court’s interpretation of those federal laws.  Recognizing that interpreting contracts is “ordinarily a matter of state law,” the Court framed this case as an issue of whether California’s interpretation of “law of your state” to mean “invalid California law” “is consistent with the [FAA].”  As usual, the way the Court frames the issue gives away the ending.  Indeed, the Court goes on to essentially accuse the California Court of Appeals of being results-oriented.  (The dissent calls this “demeaning”)  The Court “conclude[s] that California courts would not interpret contracts other than arbitration contracts the same way.”  Why? Because, the opinion argues, state law normally means “valid” state law, and California criminal pleas are presumed to incorporate the state’s ability to amend the law, and SCOTUS’ esteemed law clerks could not find any California case that interpreted “law of your state” to mean state laws that had been preempted by any federal statute.  Finally, the majority addressed one of the two doctrines relied on by the California court: contra proferentem , which allows ambiguous terms to be construed against the drafter.  The Court found the doctrine does not apply in this case, because the phrase is not ambiguous, and in any case using the doctrine here was stretching it too far: “the reach of the canon construing contract language against the drafter must have limits”.

There are two dissents.  Justice Thomas dissented, as usual, because he believes the FAA does not apply in state court.  Justice Ginsburg (joined by Sotomayor) dissented because she will “take no further step to disarm consumers, leaving them without effective access to justice.”  Her dissent largely focuses on the appropriate use of the contra proferentem doctrine in this case.  But she also points out that this is the first time in 25 years that SCOTUS has “reversed a state-court decision on the ground that the state court misapplied state contract law.”  (The recipient of the reversal 25 years ago, in Volt Information Sciences, was also California.)  She points out that parties can agree on any law to apply to their arbitration, so providing for pre-Concepcion law in California is not beyond the pale.  And finally, Justice Ginsburg engages in a broader attack on the state of arbitration law, citing the recent NYTimes series and articles by Prof. Resnik to argue that the Court’s interpretation of the FAA no longer has any connection to the legislative intent behind the statute and goes too far in “insulat[ing] powerful economic interests from liability for violations of consumer protection laws.”

Here are some first-day impressions:

  • The Court should not have taken this case.  The majority seems to anticipate that reaction by noting that the Ninth Circuit reached the opposite result from the California Court of Appeals on how to interpret this version of DIRECTV’s poison pill.  But, that could have resolved over time.  And even if it didn’t, I doubt there are many arbitration agreements out there with this uniquely worded poison pill, so this particular elucidation on its meaning does not help very many parties.  This is pure and simple error-correction, which SCOTUS generally avoids.
  • Plus, California has largely turned the corner; its recent arbitration jurisprudence is generally in line with the FAA.  So, there is no reason to continue focusing exclusively on California in SCOTUS’ game of arbitration whack-a-mole.
  • What broader impacts might there be?  Well, one is that future state courts will have to think carefully before construing ambiguous language against the drafter in the context of an arbitration clause.  Another is that transactional attorneys should re-think any use of the phrase “law of your state” or any variations thereof.
  • But the most significant impact is that this decision calls into question any state’s ability to defend their arbitration decisions.  The preemption test articulated in  Concepcion was imprecise and has been hard for lower courts to apply.  (When does a state rule really stand as “an obstacle” to the Congressional intent behind the FAA?  Almost every contract defense is an obstacle of some sort.  But the language of Concepcion does not help distinguish between run-of-the-mill obstacles and true preemption.)  In this first post-Concepcion example of how the highest court in the land interprets that test, it seems to require that a state anti-arbitration ruling meet an impossible burden: show us cases in which you (the state) have done exactly the same thing, with the same phrase, in a non-arbitration context.  A lot of the phrases and clauses used in arbitration agreements are unique, there may not be a perfect comparison to draw on in non-arbitration decisions from the same state’s courts.  This decision, if read broadly, may provide precedential authority to overturn almost any state court’s invalidation of an arbitration agreement.  Which brings me back to point number one — this case was improvidently granted.

The Supreme Court of Hawaii ruled recently that if a neutral arbitrator fails to meet disclosure requirements, it constitutes “evident partiality” as a matter of law, and requires the vacatur of the arbitrator’s award.  Furthermore, Hawaii interpreted its disclosure requirements broadly, and in this case found an arbitrator’s failure to disclose the “concrete possibility” of his attorney-client relationship with the claimant’s counsel was enough to create a reasonable impression of partiality and demand vacatur.  Noel Madamba Contracting, LLC v. Romero, __ P.3d __, 2015 WL 7573420 (Haw. Nov. 25, 2015).
The underlying dispute involved homeowners who claimed their contractor had abandoned the construction of their new home.  After the homeowners demanded arbitration and the parties filed their ranked lists of neutrals, a retired judge, Patrick Yim, was appointed as the arbitrator in May of 2011.  The hearing took place in November of 2012, and Yim issued a partial award for the homeowners of about $155,000 on January 26, 2012.  In April of 2012, Yim also awarded the homeowners $42,000 in attorneys’ fees.  The homeowners were represented by lawyers from Cades Schutte LLP.

During that same time period, Yim’s retirement accounts needed some legal attention.  He used a third party (PSC) to manage his retirement accounts, and PSC decided it was time for an attorney to ensure those accounts complied with ERISA (and other laws).  In May of 2011, Yim was told that either Cades or another firm would be chosen to handle that review.  In December of 2011, PSC told Yim the approximate cost for the review and that his file was being sent to an unspecified law firm.  At the end of January, just days before the partial award was issued, PSC told Yim that Cades would likely do the work.  Yim first spoke with a Cades attorney in February of 2012, but Cades had not yet done any work for him and there was no engagement letter.

Within a day or so of the February meeting, which was a month after the partial award for the homeowners, Yim first disclosed his potential client relationship with Cades to the parties in the arbitration.  The contractor objected and requested more information, which resulted in two further supplemental disclosures.  In those disclosures, Yim said he had not yet actually engaged Cades and instead had instructed PSC to send his file to another firm.  The contractor was not satisfied, but the administrator affirmed Yim’s role.  The contractor then moved to vacate the award, arguing evident partiality under the Hawaii Uniform Arbitration Act.  Both the trial court and the intermediate appellate court refused to vacate the award, largely due to their analysis that arbitrators only have to disclose current or past relationships, not potential future relationships.

The Supreme Court of Hawaii remanded the case with instructions to vacate the arbitration award.  It concluded that “Yim’s failure to disclose his relationship with Cades created a reasonable impression of partiality, and as such, resulted in a violation of the disclosure requirements” in the Uniform Arbitration Act, necessitating vacatur of the award.  In its analysis, the court noted that while one subsection of the UAA requires disclosure of an arbitrator’s “past or present relationships,” the more general rule in the UAA is that arbitrators must disclose “any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator.”  The court cited to Ninth Circuit case law holding that the failure to disclose a “concrete possibility” of a connection between an arbitrator and a party or a party’s law firm can result in a reasonable impression of partiality.  Therefore, Yim’s failure to  disclose his anticipated relationship with Cades constituted evident partiality, even without any showing that Yim was “actually biased.”  The court grounded its decision in policy: “because review of an arbitration award is limited, an arbitrator’s impartiality and appearance of impartiality is paramount.”

This is an interesting opinion for many reasons, but here are a few.

  • Why is this entire case decided under the Hawaii Uniform Arbitration Act?  Was that written into the parties’ contract?  The arbitration agreement is not quoted and there is no analysis in this decision of whether the parties’ transaction involved interstate commerce.  That could have been dispositive, as many federal cases require actual proof of bias.
  • The high court did not reach the issue of whether the trial court should have allowed the contractor’s attorney to depose Yim about his contacts with the Cades firm.  However, it did say that Yim was “not immune” from testifying under the UAA, because the contractor had established prima facie grounds to vacate the award.  I would have liked to see the Hawaii court tackle this issue because there is little good analysis of that issue.
  • Yim’s status as a 24-year member of the Hawaii state courts is likely a critical, but unaddressed, factor in how this decision came out.  Did the lower courts not want to embarrass their former colleague by finding that he failed to disclose?  Conversely, did the high court want to be especially firm with former judges, to avoid any allegation that it was soft on them?  This is not unique to Hawaii — many retired judges become active arbitrators, making it awkward when their former judicial colleagues have to pass on the soundness of their decisions as arbitrators.  Maybe the rule should be that the arbitrator is never named in motions to vacate?  (Ironic…worrying about “evident partiality” by the judges who are considering whether the arbitrator showed “evident partiality.”)

 

Recent decisions from the 3d and 11th Circuits drive home this point: an arbitration award is final and should not be revisited.

In Robinson v. Littlefield, 2015 WL 5520017 (3d Cir. Sept. 17, 2015), the parties arbitrated their dispute over the quality of a new RV.  The arbitrator ruled for the RV buyers, awarding them about $85,000.  The seller made an untimely motion with the AAA to modify or correct the award, and the arbitrator ignored it.

After the buyers entered their judgment in state court, the seller removed to federal court and moved to strike the judgment as not final (because the motion to modify had not been ruled upon).  The district court asked the arbitrator to indicate whether the case was active, and the arbitrator clarified that he would not amend the previous award and it remained in full effect.   The district court concluded that the arbitration award was not final until the arbitrator responded to the court, and so struck the entry of judgment.  The Third Circuit un-vacated the arbitration award in no time, noting that arbitration awards are final when it is clear the arbitrator intends the award to be a complete determination of all submitted claims (including damages).  In this case, the final award was the award for $85,000, and the motion to modify it “does nothing to change that conclusion.”

In IBEW, Local Union 824 v. Verizon Florida, 2015 WL 5827517 (11th Cir. Oct. 7, 2015), the court found the arbitrator exceeded his power by issuing a substituted award in a labor arbitration.  The arbitrator had issued the original award, interpreting a clause in the parties CBA and applying it to particular employees.  Two days later, the union asked the arbitrator to clarify the award (saying that applying the arbitrator’s rationale, more employees should have benefitted).  In response, the company asked for a reconsideration of the entire award, asserting that a significant topic of the award had not been properly before the arbitrator.  The arbitrator agreed with the company and issued a substituted award, eliminating the topic in question.

The union then sought to confirm the original award and vacated the substituted award.  The district court ruled in favor of the union and the appellate court affirmed.  It analyzed the union’s grievance and found it was broad enough to encompass all the issues addressed in the original award.  “Where — as here–the parties refuse to stipulate to the issues at arbitration, the arbitrator is ’empowered’ to frame and decide all the issues in the grievance as he sees them.”

Furthermore, the 11th Circuit concluded the arbitrator lacked authority to revisit his original award.  Importantly, the court noted that the governing AAA rules preclude an arbitrator from “redetermin[ing] the merits of any claim already decided.”  The hardest issue for the court was the company’s argument that the union had “open[ed] the door” to a full reconsideration by asking for a clarification.  The court agreed that contracting parties can authorize an arbitrator to reconsider his decision by mutual agreement, but said the parties did not mutually consent in this case, because the union sought much narrower relief than that sought by the company.  The arbitrator’s original award stands.

The lesson from these cases?  The parties should not seek reconsideration of the merits of a final award, and arbitrators should not grant a reconsideration of the merits.  Final means final.

Today’s post is a good one for all those defendants/ respondents who are convinced that they have a slam-dunk case and want to recover their attorneys’ fees.  Because while these particular respondents were not successful, they paved a path that may lead others to collect attorneys’ fees after defeating claims in arbitration.

The case involved an owner’s negligence claims against an architect arising out of a condominium project.  WPH Architecture, Inc. v. Vegas VP, __ P.3d __, 2015 WL 6750051 (Nev. Nov. 5, 2015).  “Prior to arbitration”, the architect made offers of judgment under Nevada’s Rule 68 (and a related statute).  That rule allows a defendant to offer to accept judgment against it in a certain amount, and provides that if the plaintiff does not “obtain a more favorable judgment,” the plaintiff “shall pay” the defendant’s costs, interest, “and reasonable attorney’s fees, if any be allowed” from the date of the offer.   (An appropriate betting mechanism for litigation over this Las Vegas condo project…)  The owner rejected the offers and then lost at arbitration.  However, when the architect filed a motion to recover its costs, fees, and interest under Rule 68, the arbitrators denied the motion, noting that there was no express authority finding offers of judgment are available in arbitration.

The architect then asked the courts to modify the arbitration award to include its attorneys’ fees, costs and interest, arguing that the arbitrators had “manifestly disregarded the law” in refusing to follow Rule 68 and Nev. Statute 17.115.  The court went through the following analysis:

  • The parties’ contract called for the AAA’s Construction Arbitration Rules to govern the arbitration, but Nevada law to govern the contract.  Applying Mastrobuono, the court held “that the arbitration was substantively governed by Nevada law and procedurally governed by the AAA rules.”
  • The court held that Rule 68 and the similar Nevada statutes “are substantive laws that apply to the arbitration proceedings in the current case.”
  • However, because those rules and statutes do not reference arbitration or arbitrators, they “do not require an arbitrator to award attorney fees or costs.”  (The court noted that California’s offer of judgment statutes explicitly applies to court and arbitration proceedings.)  “Furthermore, no Nevada caselaw exists holding that those statutes apply to arbitration proceedings.”
  • Therefore, because the rules and statutes did not explicitly apply to arbitration, and no case law had reached that issue, the architect “failed to demonstrate that the arbitrator manifestly disregarded Nevada law.”

Going forward, of course, the analysis will be different.  Thanks to this case, there now is binding case law in Nevada that Rule 68 is a substantive law that applies in arbitration.  This gives anyone whose contract is governed by Nevada law new potential leverage in defending against arbitrable claims.  If you make an early offer of judgment on a winning claim, you have the ability to later tax your costs and interest against your opponent (and a statutory basis to seek fees).  Because many states have a similar offer of judgment statute, and the analysis that the rule is substantive is based on federal cases, this same analysis should be available in many jurisdictions.

Some arbitration topics just never die.  This post strings together new cases on three of those topics: 1) whether arbitration agreements that call for the now-defunct National Arbitration Forum (NAF) are enforceable; 2) formation fights in nursing home agreements; and 3) the continuing fight between the NLRB and the courts over class action waivers in employment agreements .

In a 3-2 decision, the Supreme Court of Pennsylvania refused to enforce an arbitration agreement that called for administration by the NAF.  Wert v. Manorcare of Carlisle PA, 2015 WL 6499141 (Pa. October 27, 2015).  In the context of a wrongful death claim against a nursing home, the parties disputed the enforceability of an arbitration agreement in the admission paperwork.  Pennsylvania’s highest court adopted a 2010 decision from its intermediate appellate court finding that the incorporation of the National Arbitration Forum Code was an essential term, such that if the NAF was unavailable, the entire arbitration agreement was unenforceable. The court found the subjective intent of the Appellee (who admitted she did not read the agreement) was irrelevant.  Relying on its analysis of the NAF rules, the court found “the provision integral and non-severable.”  For good measure, the court also noted that its result was not preempted by federal law because it was “based on settled Pennsylvania contract law principles that stand independent of arbitration.”  State courts, as well as federal courts, are now split on how to handle arbitration clauses incorporating NAF rules.

In another nursing home case, the Alabama Supreme Court found an arbitration agreement was not validly formed because the person who signed it did not have proper authority.  Diversicare Leasing Corp v. Hubbard, 2015 WL 5725116 (Ala. Sept. 30, 2015), involved a mother’s claim about the wrongful death of her son in a long-term care facility. When the adult son, whose mental capacity had not progressed beyond that of a toddler, was admitted, his mother signed the admission agreement as the “responsible party” and “resident’s representative.”  After she brought suit, the nursing home moved to compel arbitration.  However, the Alabama trial and appellate courts found that no valid arbitration agreement had been formed.  Critically, the son had never been mentally competent to authorize his mother to act on his behalf, and she had never been given his power of attorney, or health care decision-making rights, or been appointed his legal guardian after his 18th birthday.  Therefore, the mother’s signature did not bind the son.  The Alabama decision is in line with other state court decisions that have strictly interpreted the legal authority of relatives who sign arbitration agreements in nursing home contracts.

Finally, the third case taught me a new legal doctrine: nonacquiescence.  And who is not acquiescing to federal authority?  Well, the NLRB, at least according to the 5th Circuit.  In its D.R. Horton decision in 2013, the Fifth Circuit had rejected the NLRB’s analysis that federal labor laws override the FAA and preclude class action waivers.  Despite D.R. Horton, the NLRB applied its same analysis in Murphy Oil, just ten months later.  On review, the Fifth Circuit forcefully reaffirmed its earlier holding.  Murphy Oil USA v. NLRB, 2015 WL 6457613 (5th Cir. Oct. 26, 2015).  However, the court was not willing to hold the NLRB in contempt or otherwise penalize the Board. Because the Board only has to acquiesce to circuit court rulings when a case will be reviewed by that same circuit, and the Murphy Oil case could have been reviewed in multiple circuits, the court noted “[w]e do not celebrate the Board’s failure to follow our D.R. Horton reasoning, but neither do we condemn its nonacquiescence.”

Arbitration is having its 15 minutes of fame.  Thanks to a series in the New York Times, my inbox is full of links to the articles, questions about the information, and fascinating commentary.  [Next time I am in Oakland, I am totally having the “Scalia” cocktail at Italian Colors.]  With the far-reaching audience of the NYT, the policy questions surrounding waivers of class arbitration are no longer just a conversation among in-house counsel, advocates, and law professors, but reached the general water cooler set.  For anyone passionate about arbitration law, it’s like Christmas morning.  Jumping past the merits of the policy questions for a moment, what could happen if the public demands that its representatives take action?

One possibility is that there may be more cases like McLeod v. General Mills, Inc., Case No. 15-494 (D. Minn., October 23, 2015).  In that case, the Chief Judge of the District of Minnesota found that an employee collective action could go forward in court, despite a valid arbitration agreement that demanded individual actions.  Why?  Because language in the Older Workers Benefit Protection Act of 1990 (OWBPA) provides that any worker challenging the validity of a waiver of ADEA (Age Discrimination in Employment Act) rights “shall have the burden of proving in a court of competent jurisdiction that a waiver was knowing and voluntary.”  The court found that the statute’s use of “shall” along with “court” was sufficient to trump the earlier and more general requirement that courts enforce arbitration agreements (in the FAA).  [Some of the workers in the case are just 42, and 44 years old.  Could I really be that close to the definition of an “older worker”??]

Unless there is a wholesale rewriting of the FAA, which seems unlikely, any action to ensure the availability of class and collective actions in court will likely take place one industry or one specific statute at a time.   The CFPB may require that consumers of financial products can bring class actions in court.  And members of Congress may start inserting language like the text of the OWBPA into other statutes designed to protect certain classes of employees and consumers.  Although, in my experience, the most likely outcome is that arbitration’s 15 minutes will pass, and it will go back to something talked about only by lawyers, judges and professors, and nothing will change until the current SCOTUS majority becomes the minority.

Richard Cordray, Director of the Consumer Financial Protection Bureau, has positioned himself as the Boogeyman that financial companies fear this Halloween season.  Earlier this month, the CFPB outlined the proposals under consideration for regulating arbitration in the consumer financial industry.  The proposals address the availability of class actions — as was widely expected — but also express concern about individual financial arbitrations and suggest those will be monitored.  [I am late to the party on this topic.  But I had to consider it carefully over butterbeer in Orlando…]

To set the table, the CFPB describes its take-aways from the arbitration study it published in March.  In particular, the study led to two concerns:

  • “[T]he Bureau is concerned that arbitration agreements effectively prohibit class proceedings, including litigation, and that they prevent many consumers from obtaining remedies when they are harmed by their providers of consumer financial products or services” and
  • “The Bureau is concerned [] that pre-dispute arbitration agreements that require arbitration of individual claims may have in the recent past led to harms to many consumers and is further concerned that these types of harms may recur.”  “The Bureau is concerned that there is a potential for significant consumer harm if arbitration agreements were to be administered in biased or unfair ways.”  [Here CFPB cited the NAF example.]

Each of those concerns inspired a particular proposal for regulating consumer financial arbitration.  The proposal for addressing the concern about class proceedings is that any arbitration agreement included with consumer financial agreements must state that it is inapplicable to cases filed in court on behalf of a class “unless and until class certification is denied or the class claims are dismissed.”

The proposal for addressing the concern about potential bias in individual arbitrations is “to shed sunlight” on those proceedings by collecting consumer financial claims filed with private arbitration administrators (and potentially publishing them), and publishing the resulting arbitration awards (with redactions for privacy).  CFPB notes that FINRA already publishes all awards and the AAA publishes employment awards, so there is some precedent.

Opponents of the proposals take the position that the data in the CFPB study does not support these proposed regulations and that they will lead to higher prices for consumers as companies pass along their increased costs of defending class actions. There has also been a suggestion that these regulations by the CFPB go beyond the authority granted in the Dodd-Frank Act or are otherwise improperly broad.  On the other hand, consumer advocates urge the CFPB to go farther and ban pre-dispute arbitration agreement in all consumer financial transactions.

The proposals will now be the subject of a small business advisory review panel, and then after formal rules are proposed there will be a notice and comment period, so final regulation is not likely until late 2016.  However, I personally am interested to see whether the conversation over these proposals catches the public’s attention to the extent that it becomes a topic in the presidential election.  If so, it is possible that there could be even more changes in store for arbitration.

 

Two opinions came out recently in disputes over the arbitrability of putative class actions alleging that employees were not paid for overtime (and other labor violations). In one, the Nevada Supreme Court acknowledged that its 2011 ruling, finding class action waivers in arbitration were unconscionable, is preempted. In the second, the Ninth Circuit found that the California Supreme Court’s recent ruling in Iskanian, invalidating PAGA waivers in arbitration agreements, is not preempted.

The Nevada opinion relates to security guards who did not want to arbitrate their claims for unpaid work. Tallman v. Eighth Judicial Dist. Ct. of Nev., 2015 WL 5656981 (Nev. Sept. 24, 2015). One by one, the court disposed with each of the employee’s arguments for not enforcing their arbitration agreements with the employer. Importantly, the court acknowledged that its pre-Concepcion decision in Picardi, 251 P.3d 723 (2011), which found class action waivers in arbitration violated Nevada public policy and therefore were unconscionable, was abrogated by Concecpion. The court reasoned that Concepcion’s application could not be limited to consumer or federal cases. The court also concluded that the National Labor Relations Act did not invalidate the parties’ class action waiver. Siding with the many courts that have ganged up against the NLRB on that issue, it found the NLRB ruling “cannot be reconciled with the FAA as authoritatively interpreted by the Supreme Court.” In the course of its analysis, Nevada cited repeatedly to California’s recent opinion in Iskanian.

Iskanian itself was the subject of a recent 9th Circuit opinion in Sakkab v. Luxottica Retail N. Am., 2015 WL 5667912 (9th Cir. Sept. 28, 2015).   It was the first federal court to consider whether Iskanian’s rule — that California law will not enforce pre-dispute agreements to waive claims under California’s Private Attorneys General Act (PAGA) – is preempted by federal law. In that case, employees of Lenscrafters brought a putative class action alleging failures to pay overtime and other compensation. The only real issue on appeal was whether the waiver of class or collective claims in the arbitration clause was enforceable with respect to the employees’ PAGA claims. The court found the Iskanian rule is not preempted. In support of its conclusion it noted that the Iskanian rule applies to arbitration and non-arbitration contracts, that the rule is not “hostile” to arbitration, and that it “does not diminish parties’ freedom to select informal arbitration procedures.” The court also emphasized “PAGA’s central role in enforcing California’s labor laws” noting that states, and not the federal government, have authority to regulate employment. I am guessing SCOTUS’s refusal to accept cert in Iskanian emboldened the 9th Circuit to find the rule was not preempted.