By S.I. Strong   Interestingly, it is the dissent, rather than the majority, that takes Stolt-Nielsen’s lesson of intent fully into account. Thus, Justice Breyer states that earlier Supreme Court precedent “cautioned against thinking that Congress’ primary objective was to guarantee . . . particular procedural advantages. Rather, that primary objective [of the FAA] was to secure the ‘enforcement’ of agreements to arbitrate.” AT&T, 131 S.Ct. at 1758 (Breyer, J., dissenting). Justice Scalia sidesteps the issue of intent to a large degree because he does not consider class arbitration to be “arbitration.” Instead, he replaces a discussion of intent with a litany of attributes that he finds to be inconsistent with his definition of arbitration, claiming that these characteristics could not have been in the contemplation of the parties at the time of contracting because the various elements (formality of proceedings, amount in dispute, etc.) are allegedly so atypical of arbitration. Justice Scalia, unfortunately, is factually incorrect on this point. As discussed in the First Principles article coming out in the Harvard NLR, many of the attributes that Justice Scalia finds most disturbing are already common features in multiparty arbitration, a point that is also made by Justice Breyer. See id. at 1758-60 (Breyer, J., dissenting). Furthermore, class arbitration has been in existence for approximately thirty years and cannot come as a surprise to the parties. See id. at 1758 (Breyer, J., dissenting) (noting that “class arbitration is consistent with the use of arbitration” and “is a form of arbitration that is well known in California and followed elsewhere”). This is not to say that concerns such as the ones expressed by Justice Scalia have never been raised. However, they are perhaps more reflective of the kind of vestigial judicial hostility to arbitration that was recently condemned by the Supreme Court in 14 Penn Plaza LLC v. Pyett, 129 S.Ct. 1456, 1470-72 (2009). Furthermore, many of the majority’s specific worries were addressed in the mid-1980s, when Mitsubishi rejected the view that “antitrust issues, prone to complication, require sophisticated legal and economic analysis, and thus are ‘ill-adapted to strengths of the arbitral process, i.e., expedition, minimal requirements of written rationale, simplicity, resort to basic concepts of common sense and simple equity.’” Mitsubishi Motors, 473 U.S. at 633 (noting also that “potential complexity alone does not persuade us that an arbitral tribunal could not properly handle an antitrust matter”); see also id. at 626-27 (stating “we are well past the time when judicial suspicion of the desirability of arbitration and of the competence of arbitral tribunals inhibited the development of arbitration as an alternative means of dispute resolution” (quoted also in Pyett, 129 S.Ct. at 1470)) Justice Scalia also indicated that he found it “at the very least odd to think that an arbitrator would be entrusted with ensuring that third parties’ due process rights are satisfied.” AT&T, 131 S.Ct. 1752. However, the Supreme Court has had several opportunities to strike class arbitration as being inherently improper and has refused to do so on every occasion. See Stolt-Nielsen, 130 S.Ct. at 1768-69, 1774-75 (suggesting no problems with class arbitration arise in cases of express consent and dealing only with issues involving silence or ambiguity regarding class treatment); Green Tree Financial Corporation v. Bazzle, 539 U.S. 444, 454-55 (2003) (Stevens, J., concurring) (stating the “Supreme Court of South Carolina has held as a matter of state law that class-action arbitrations are permissible if not prohibited by the applicable arbitration agreement, and that the agreement between these parties is silent on the issue. There is nothing in the Federal Arbitration Act that precludes either of these determinations by the Supreme Court of South Carolina”) (citations omitted); see also id. at 452-53 (Breyer, J.) (stating “the relevant question here is what kind of arbitration proceeding the parties agreed to. That question does not concern a state statute or judicial procedures. It concerns contract interpretation and arbitration procedures. Arbitrators are well situated to answer that question”) (citation omitted; emphasis in original); Southland Corp. v. Keating, 465 U.S. 1, 9, 17 (1984) (declining to address the class arbitration issue under federal law). Thus the suggestion that there is something inappropriate or odd about class arbitration is contrary to U.S. law and policy. Indeed, the Supreme Court itself has stated that courts that agree to allow certain complex claims to go to arbitration pursuant to the parties’ express agreement cannot later claim that those matters are “inherently insusceptible to resolution by arbitration.” See Mitsubishi, 473 U.S. at 633. Since the Supreme Court has indicated that it has no problems with class arbitration in cases involving explicit consent, it cannot object to the procedure as a general matter now. In some ways, the immediate effect of AT&T Mobility is quite easy to predict: corporations will increase the use of class waivers in certain types of arbitration agreements. However, these efforts will not eliminate class arbitration, nor will they limit litigation in this area of law. To the contrary, more suits will likely end up in court as parties test the outer boundaries of permissible waivers. Furthermore, a recent decision out of the Second Circuit suggests that class waivers may still be struck on grounds other than unconscionability. See In re American Express Merchants’ Litigation, 634 F.3d 187, 194, 199 (2d Cir. 2011) (stating that “Stolt-Nielsen states that parties cannot be forced to engage in a class arbitration absent a contractual agreement to do so. It does not follow, as Amex urges, that a contractual clause barring class arbitration is per se enforceable” and concluding that the waiver was void for public policy as a matter of federal law). This suggests that future class arbitrations may still arise after a waiver has been struck. There will also likely be additional class arbitrations in cases where parties have failed to adopt a waiver. Thus, the business community’s perceived victory in AT&T may be narrower and more short-lived than might appear at first glance. For example, in addition to the limitations within […]

By S.I. Strong In an opinion that was seen as a victory for corporate America, the Supreme Court upheld the waiver on the grounds that the California law was inconsistent with the FAA. As a result, the Concepcions could not initiate class proceedings and were required to have their dispute heard in individual arbitration. On its face, the opinion presents itself as a run-of-the-mill statutory analysis. However, the underlying sense is that the justices in the majority view arbitration in an entirely different manner than the justices in the dissent. This is a critical issue for the arbitration community and one that I discuss at length in an upcoming article entitled “Does Class Arbitration ‘Change the Nature’ of Arbitration? Stolt-Nielsen, AT&T and a Return to First Principles,” which will be published in volume 17 of the Harvard Negotiation Law Review (a working draft is currently available on SSRN). The majority opinion begins by focusing on its claim that the purpose of the FAA “is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.” AT&T Mobility, 131 S.Ct. at 1748. However, the last portion of the majority’s sentence – “so as to facilitate streamlined proceedings” – is highly problematic, since it suggests that speedy and simplistic procedures are in some way necessary to the arbitral process. Indeed, Justice Breyer himself notes that the majority’s view “rests primarily upon its claims that the Discover Bank rule increases the complexity of arbitration procedures, thereby discouraging parties from entering into arbitration agreements, and to that extent discriminating in practice against arbitration.” Id. at 1758 (Breyer, J., dissenting). However, there is nothing in the FAA or in nearly a century’s worth of Supreme Court precedent to support that reading of the statute or that understanding of the nature of arbitration. See id. at 1761 (Breyer, J., dissenting). Instead, parties have long been permitted to agree to a wide variety of procedures in arbitration, even if that will result in the slow, costly or inefficient resolution of disputes. This interchange reflects two different views of arbitration: one that believes that “arbitration,” properly understood, can only mean one thing – simple, informal, bilateral proceedings – and one that recognizes the procedural flexibility inherent in arbitration. This dichotomy was also reflected in Stolt-Nielsen SA v AnimalFeeds International Corp., 103 S.Ct. 1758 (2010), and is an issue that I discuss at length in the First Principles article to be published in the Harvard NLR. Although I will not outline all of the issues covered in that article here, I will note that one of the key points of that analysis is that “virtually all authorities would accept that arbitration is a process by which parties consensually submit a dispute to a non-governmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute in accordance with neutral, adjudicatory procedures affording the parties an opportunity to be heard.” Gary B. Born, International Commercial Arbitration 217 (2009). Notably, there is nothing in this definition of arbitration – which appears to be the one adopted by Justice Breyer and the other dissenting justices, see AT&T Mobility, 131 S.Ct. at 1759 (Breyer, J., dissenting) – that requires speed, simplicity or a particular procedure. Therefore, the question of the fundamental nature of arbitration is not just an academic issue. Instead, it is central to the outcome of AT&T Mobility. If class arbitration is viewed as a legitimate type of arbitration, then the FAA is in no way thwarted by the California law deeming certain waivers unconscionable. Even if a California court were to strike a particular waiver as unconscionable, the decision would nevertheless still uphold “arbitration,” because individual and class arbitration are both equally valid forms of arbitration. Only those who believe that individual and class arbitration are in some way unequal have difficulty with the California provision, since the striking of the waiver could result in a class proceeding which is, of course, not considered “arbitration.” Although this is an extremely important point, very little has been written, academically or judicially, about the jurisprudential nature of class arbitration, an oversight that I attempt to cure in my upcoming First Principles article. The majority in AT&T does not engage with the issue, leading Justice Breyer to note that the majority does not explain how it arrives at the conclusion “that individual, rather than class, arbitration is a ‘fundamental attribut[e]’ of arbitration.” Id. at 1759 (Breyer, J., dissenting). Instead, the majority’s cursory and somewhat conclusory discussion relies simply on a number factual and legal allegations that appear, on closer inspection, to be either unsupported or unsupportable. For example, the majority suggests that it might have come out differently on certain issues if it could be established that “parties are willing to submit large claims before an arbitrator.” Id. at 1752 n.8. In fact, arbitration routinely handles very large disputes, as outlined in detail my First Principles article and noted by Justice Breyer. Id. at 1760 (Breyer, J., dissenting). Furthermore, Justice Scalia interprets several precedents in what can only be termed a highly unusual way. For example, he cites the seminal case of Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), to support the allegation that “parties may agree to limit the issues subject to arbitration,” AT&T, 131 S.Ct. at 1748, even though Mitsubishi has long been understood to have expanded, rather than restricted, the realm of arbitrable issues. See Mitsubishi, 473 U.S. at 625-26. Justice Scalia also demonstrates a fundamental misunderstanding of class arbitration when he suggests that class treatment arises when “any party to a consumer contract . . . demand[s] it ex post.” AT&T, 131 S.Ct. at 1750. As Stolt-Nielsen indicated just last term, class arbitration requires all parties to have consented to the procedure (i.e., in cases where “the parties agreed to authorize class arbitration,” Stolt-Nielsen, 130 S.Ct. at 1776), although that consent may be demonstrated implicitly. Thus, when the parties have not “reached any [explicit] agreement […]

By S.I. Strong AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), always promised to be an interesting case. Not only did the dispute concern class arbitration, one of the most controversial procedural devices to develop in recent years, it did so in a way that set corporate interests squarely against states’ rights. Given that several Supreme Court Justices who are perceived as supporting big business also appear to favor federalist causes, AT&T Mobility appeared likely to require some intricate jurisprudential machinations if those members of the Court were to remain true to their previously espoused legal principles. In the end, little or no attempt to balance the competing interests was apparently made. Instead, five justices signed onto a majority opinion written by Justice Scalia that gave full effect to large corporations’ desire to limit or even eliminate the possibility of class suits, and it was left to the four dissenting justices, led by Justice Breyer, to give voice to the interests of states in matters touching on arbitration. Indeed, the closing phrases of Justice Breyer’s dissenting opinion could have been penned by any number of the members of the majority in different circumstances. See id. at 1762 (Breyer, J., dissenting) (stating “federalism is as much a question of deeds as words. . . . Here, recognition of that federalist ideal . . . should lead us to uphold California’s law, not strike it down. We do not honor federalist principles in their breach”). (Although Justice Thomas also wrote a concurrence, that opinion falls largely by the legal wayside, since he explicitly joined the majority opinion.) The somewhat predictable 5-4 split may lead some observers to claim that AT&T reflects yet another example of purposive judicial interpretation and the increasing politicization of the Supreme Court. However, other interpretations are also possible. For example, some readers may see the opinion as one in a continuing line of decisions reflecting the federalization of arbitration law. See Philip J. Loree, Jr., Stolt-Nielsen Delivers A New FAA Rule – And Then Federalizes the Law of Contracts, 28 Alt. High Cost Lit. 121 (June 2010). Alternatively, the decision can be read as reflecting (and unfortunately perpetuating) several misconceptions about arbitration in both the class and the bilateral context. This is perhaps the most interesting of the various interpretations, since it explains a number of recent Supreme Court opinions that not only suggest a lack of understanding of the nature, use and benefits of arbitration but that result in a somewhat tortured reading of the Federal Arbitration Act (FAA) that does little to clarify the issues for future litigants. See S.I. Strong, Opening More Doors Than It Closes: Stolt-Nielsen SA v. AnimalFeeds International Corp., 2010 Lloyd’s Mar. & Comm. L.Q. 565; S.I. Strong, Non-signatories’ Right to Appeal the Denial of a Stay of Litigation: Arthur Andersen LLP v. Carlisle, 28 J. Int’l Arb. 81 (2011). This last option will be the one explored in this discussion. However, before parsing through specific issues, it is necessary to provide some background information on the case itself, although the question presented to the Supreme Court was in many ways relatively straightforward. A dispute had arisen in the context of a consumer arbitration, and the consumers wanted to go forward as a class despite the existence of a waiver of class proceedings in the arbitration agreement. AT&T, the corporate respondent, took the view that the waiver meant that only bilateral arbitration was appropriate. However, the California federal district courts had struck the waiver, based on California precedent regarding the unconscionability of any waiver of class proceedings that: is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money. AT&T, 131 S.Ct. at 1746 (quoting Discover Bank v. Superior Court, 113 P.3d 1108 (Cal. 2005)). After losing its case in the Ninth Circuit, AT&T asked the U.S. Supreme Court to review the California law. AT&T took the view that the waiver could not be unconscionable because it provided numerous benefits to the consumer and made bilateral arbitration an economically viable alternative to class suits. The waiver in question: provide[d] that customers may initiate dispute proceedings by completing a one-page Notice of Dispute form available on AT&T’s Web site. AT&T may then offer to settle the claim; if it does not, or if the dispute is not resolved within 30 days, the customer may invoke arbitration by filing a separate Demand for Arbitration, also available on AT&T’s Web site. In the event the parties proceed to arbitration, the agreement specifie[d] that AT&T must pay all costs for nonfrivolous claims; that arbitration must take place in the county in which the customer is billed; that, for claims of $10,000 or less, the customer may choose whether the arbitration proceeds in person, by telephone, or based only on submissions; that either party may bring a claim in small claims court in lieu of arbitration; and that the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages. The agreement, moreover, denie[d] AT&T any ability to seek reimbursement of its attorney’s fees, and, in the event that a customer receives an arbitration award greater than AT&T’s last written settlement offer, require[d]s AT&T to pay a $7,500 minimum recovery and twice the amount of the claimant’s attorney’s fees. AT&T Mobility,131 S.Ct. at 1744. The waiver also contained language stating that “the arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class proceeding” and that claims must be brought in the parties’ “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” Id. [This is the first installment in a three-part series on the Guest-Post: States’ Rights, Big Business […]

The following bills relating to alternative dispute resolution were introduced by the 82nd Texas legislative session. The last day of the regular session will be Monday, May 30, 2011. Click on the bill number to read its text and on the status link to find the bill’s legislative history. Stay tuned to Disputing for more legislative updates! SB 1216 provides that a court “may order arbitration only if the court determines that the contract containing the agreement to arbitrate is valid and enforceable against the party seeking to avoid arbitration.” Bill status. The bill analysis explains that: Where evidence can be produced demonstrating that a party was defrauded or forced into signing an arbitration clause, the courts refuse to compel arbitration. However, due to the questionable holding of the United States Supreme Court in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967), the foregoing is not true in cases where the arbitration clause is part of a larger contract. Under the holding of Prima Paint, if A holds a gun to B’s head and forces him to sign a contract with 15 terms, one of which is an arbitration agreement, the case will be referred to the arbitrator specified in the contract. The courts treat the contract as valid even though it was obtained at gunpoint. Worse, the issue of the contract’s validity must then be tried by the arbitrator specified by the invalid agreement, who is not likely to be impartial if B was enough of a bad actor to pull a gun on A in the first place. This is an illogical inversion of the entire theoretical underpinning of arbitration. If A did not agree to the entire contract, how can he be said to have agreed to a provision contained therein? A person who is tricked or forced into signing an arbitration agreement has not voluntarily surrendered his right to appear in court. HB 911 relates to the application of foreign laws and foreign forum selection in this state. The goal of HB 911 is to require a court in Texas to uphold and apply only the laws ordained by the constitutions and laws of the United States and the State of Texas with regard to family law matters, prohibiting any other interpretation by Texas courts. Bill status. Similar to HB 1240; bill status. HB 3087 relates to payment for services provided by certain physicians and health care providers to individuals covered by managed care plans.Bill status. HB 1150 relates to an affidavit required to be filed in a cause of action against a licensed attorney. Bill status. SB 562 relates to the waiver of sovereign immunity for certain claims arising under written contracts with state agencies. Bill status. HB 3794 relates to disputes under insurance policies. Bill status. HB 3444 relates to required disclosure for appointment of certain impartial third parties. Bill status. SB 1508 relates to the right of certain debtors to elect to mediate a dispute before the debt is accelerated or a contract lien on real property is foreclosed. Bill status. SB 218 relates to procedures in certain suits affecting the parent-child relationship and the operation of the child protective services and foster care systems. The bill would affect mediated agreements in family law cases. Bill status. SB 1432 relates to the operation of the Texas Windstorm Insurance Association and to the resolution of certain disputes concerning claims made to that association. The bill would require in bold face type, a conspicuous notice concerning the mandatory arbitration of coverage and claim disputes. Bill status. Similar to HB 272; bill status. HB 1887 relates to tax administration of and procedures for property tax protests and appeals. The bill requires the district court, on motion by a party to an appeal, to enter an order requiring the parties to attend mediation and authorizes the court to enter an order requiring the parties to attend mediation on its own motion. Bill status. SB 1328 relates to optional dispute resolution methods for school districts and parents of students seeking or receiving special education services. Bill status. SB 529 relates to the regulation of motor vehicle dealers, manufacturers, and distributors. The bill would require the board of the Texas Department of Motor Vehicles, in an action brought against a manufacturer or distributor by a franchised dealer whose franchise provides for arbitration, to order the parties to submit the dispute to mediation. Bill status. Similar to HB 2293; bill status. HB 3024 relates to the Fair Access to Insurance Requirements (FAIR) Plan. The bill would required a person who holds a policy issued by the association may not serve as an arbitrator or judge in an arbitration or judicial or administrative proceeding in which the association is a party. Bill status. Bills related to Health Care: SB 8 seeks to establish a Texas Institute of Health Care Quality and Efficiency. The purpose of the bill is to improve health care quality, accountability, and cost containment in this state by encouraging health care provider collaboration, effective health care delivery models, and coordination of health care services. Bill status. Similar bill: SB 7; status. Technorati Tags: arbitration, ADR, law