As we close out 2018, it is a good time to reflect on the year in arbitration law.  Overall, I would characterize the year as another in which everyone was mildly obsessed with class actions, the U.S. Supreme Court again showed its willingness to enforce arbitration agreements of all kinds, and lower courts and groups of citizens attempted to resist the high court’s blind faith in arbitration with some success.  Here are my thoughts on the biggest stories of the year:

  • Decision With Biggest Impact: SCOTUS’s ruling in Epic Systems Groups of employees argued that the National Labor Relations Act gave them the right to join class actions and no arbitration agreement could overcome that statutory right.  But the Court emphatically rejected that argument, holding that employees are bound to the agreements they sign and nothing in the NLRA contradicts that result.  The outcome of this case was not unexpected, but the fallout was dramatic.  Many class actions dried up almost immediately, while others took a few months.  Yet other employees decided to give mass individual arbitration a go, filing hundreds of arbitration demands against the same employer simultaneously.
  • Circuit Split Most Likely To Go To SCOTUS: The split over who — judges or arbitrators — should decide whether the parties’ arbitration agreement allows class arbitration.   Seven federal circuits have looked at this issue.  Four have concluded that the issue of class arbitration is a big enough deal that it is presumptively for courts to decide, even when the parties have incorporated arbitration rules that authorize an arbitrator to decide jurisdictional questions.  Three circuits disagree.  Given the Supreme Court’s attraction to everything class arbitration, this seems likely to pique the Justices’ interest.  (Indeed, a cert petition has been filed in the 11th Circuit case, which is on the minority side of this circuit split, and the Justices have asked the winning party to respond.)
  • Best Evidence That Arbitration Law Is Still In Its Infancy: The conflicting cases over whether Uber’s arbitration agreement is enforceable.  Nothing says “This is a developing area of law” like having the First Circuit refuse to enforce the same arbitration agreement that the Second Circuit had just agreed to enforce.  Even better — the difference turned on the color of the hyperlink.  [Runner up in this category are the conflicting cases over whether the arbitration agreements printed on the outside of roofing shingle packages are enforceable.]
  • Most Successful Political Attack on Arbitration: The #MeToo movement successfully brought public attention to  concerns that having arbitration agreements in employment contracts may exacerbate a discriminatory workplace.  As a result, legislation declaring arbitration agreements invalid in cases of sexual assault or harassment was introduced at the federal level and many states.  To date, I am aware of it passing in only New York and Washington.  But, those state statutes are likely preempted by the Federal Arbitration Act.  More effective may be the public pronouncements by many major corporations that they will not enforce arbitration agreements in cases of sexual assault or harassment.
  • New Face of the Resistance: Kentucky.  First place had to go to Kentucky, after this decision, in which it just ignored the fact that the U.S. Supreme Court had schooled it on arbitration law last year.  But there are many runners-up in this category, frequently consisting of courts who are using the flexibility inherent in state contract law to find ways around arbitration.  For example, the courts who have recently decided that if the parties either did not choose an entity to administer the arbitration, or chose one that is no longer available, that voids the entire arbitration agreement. (See postscript on this entry.)  Or the courts who found that, despite the federal presumption in favor of arbitrability, the parties’ disagreement was outside the scope of their arbitration agreement.
  • Most Outrageous Motion To Compel: There are moments you just want to say “What were you thinking??” to counsel for the defense.  This year, this case stood out to me for outrageous conduct, as the plaintiffs did not originally have an arbitration agreement but apparently were duped into signing one a year into the class action litigation.  But, this case was a close second (where the defense argued that blind plaintiffs should be bound by the arbitration agreement, despite no evidence they were made aware of its existence).

Turning our sights forward, what can we expect in 2019?  Well, SCOTUS owes us three arbitration decisions (Henry Schein, Lamps Plus, and New Prime).  None of those are likely to have broad impact on arbitration law, as they each deal with fairly narrow issues.  So, big stories will likely come from elsewhere.  Maybe the new Democratic majority in the House will have more interest (and success) in passing federal arbitration legislation?   Maybe mass individual arbitration filings will change the cost-benefit-analysis of class action waivers for corporations?  I look forward to watching it unfold with all of you!  Happy New Year.

The Supreme Court heard arguments in AmEx III today, the case that presents the question whether an arbitration agreement precluding class actions can be invalid if it makes it impossible for plaintiffs to vindicate federal statutory rights (in this case, because individual antitrust cases would be prohibitively expensive).  The full transcript is available here.

After a first read of the transcripts, here is what grabbed my attention:

  • • Appellant’s primary arguments were that the Second Circuit’s opinion in AmEx is contrary to Concepcion, and that affirming it would create an enforcement nightmare for district courts.  (“I don’t think we can expand Mitsubishi into a free-floating inquiry for district courts into the costs and benefits of each case.”)
  • • Appellant’s counsel (taking the pro-arbitration position here) was immediately asked a series of questions by Justice Ginsburg about the high costs of pursuing antitrust claims, and whether those could be shared among individual plaintiffs.  After the fourth question, the attorney responded pointedly “there is no guarantee in the law that every claim has a procedural path to its effective vindication.”
  • • Justice Kagan then asked a series of hypothetical questions of the Appellant’s counsel, centered on whether Appellant’s position is that under substantive federal law a valid arbitration agreement can explicitly prohibit someone from presenting economic evidence in arbitration.  When the Appellant took the position that federal law would allow that (although state law may declare it unconscionable), Justice Kagan was incredulous: “you’re going to read Mitsubishi and Randolph in such a way that it allows an arbitration clause to 100 percent effectively absolutely frustrate your ability to bring a Sherman Act suit”?
  • • Justices Kennedy and Breyer suggested that maybe the cost-effectiveness problem could be solved by having antitrust experts sitting as arbitrators, thereby reducing the need for the parties to have their own experts.  Kennedy also asked: “why do you need a $300,000 [expert] report?”  To which Respondent’s counsel noted that American Express had not made any showing in the district court that a less expensive alternative was available.
  • • Justices Kagan and Alito asked questions about whether the plaintiffs had been coerced into the arbitration agreements at issue, which the Appellant said is not an issue properly before the Court.
  • • Justice Scalia repeatedly asked the lawyers to consider what would have happened before Rule 23 and without an arbitration clause, noting that in the normal litigation context, parties do not bring small value claims.  “I don’t see how a Federal statute is frustrated or is unable to be vindicated if it’s too expensive to bring a Federal suit. That happened for years before there was such a thing as class action in Federal courts. Nobody thought the Sherman Act was a dead letter, that it couldn’t be vindicated.” (Scalia even said it earlier, and fancier, in Latin: “De minimis non curate lex.”)
  • • The Respondent’s counsel responded to Scalia by saying “With respect, Justice Scalia, you don’t have to make that comparison [costs to arbitrate versus to litigate] part of the test, because the cases that can’t be vindicated in either place won’t show up at the courthouse door. So once you show up at the courthouse door, you’ve got a plaintiff’s lawyer. They may be crazy, but you have a plaintiff’s lawyer that thinks ‘I can do this in the litigation system. . . . the only thing that’s precluding me from doing it is this arbitration agreement’ — so this arbitration agreement is not operating as a real arbitration agreement, it’s operating as a de facto as-applied exculpatory clause.”
  • • Justice Roberts and others suggested it would be possible for multiple plaintiffs, with individual arbitrations, to pool their resources and hire a joint expert to provide a report.
  • • Justice Breyer expressed concern about embroiling the district courts in assessing whether a federal claim could be effectively pursued in arbitration, and about incentivizing plaintiffs to dream up expensive claims to avoid arbitration agreements.
  • • There was also significant discussion of whether the Appellant had changed its theory of the case– asking for cert on one question, but largely arguing something else.  Justice Kagan suggested that “the premise on which this case was presented to us was not quite right.”

After reading this transcript, I sense that the Justices are frustrated with having to decide this important rule of law on this particular set of facts.  They may remand for further consideration (seriously?  AmEx IV?), or say cert was improvidently granted.  Or they may affirm, but strike a compromise position in their reasoning.