[Ed. note: Following find interesting comments about AT&T v. Concepcion, a case pending before the U.S. Supreme Court. Read more about the case here. These comments were first posted at Paul Lurie’s excellent listserv and we are reprinting them with the author’s permission.] By James M. Gaitis Ultimately, we are faced with at least four different possible outcomes for consumer arbitration provisions containing class preclusion clauses. These potential outcomes depend both on what the Supreme Court does and, perhaps, on what lower courts might to on a case-by-case basis: Class preclusion clauses are deemed unenforceable (e.g., are unconscionable, violate public policy, etc.) and the remaining arbitration provision is deemed severable and enforceable (the result here is a class arbitration); Class preclusion clauses are deemed unenforceable and the remaining arbitration provision is not severable and thus, also, is unenforceable (the result here is no arbitration without a post-dispute agreement to arbitrate) (this, by the way, was what it appears the Federal District Court for the Northern District of California recently decided and then affirmed in a post-Stolt-Nielsen ruling in McArdle v. AT&T Mobility, 2010 WL 1875812 (May 10, 2010)) ; Class preclusion clauses are deemed enforceable but that makes the remaining arbitration provision unconscionable and thus unenforceable (the result here is no arbitration without a post-dispute agreement to arbitrate); and Class preclusion clauses are deemed enforceable as is the remaining arbitration provision (the result here is a standard, non-class arbitration). At this point in time, it is less than likely that the Supreme Court would resolve all of these issues. Rather, at most I would think we can expect the Court to possibly make a sweeping ruling on the enforceability of class preclusion clauses but not on associated issues regarding severability of the remainder of the arbitration clause or generic issues regarding the unconscionability of general consumer arbitration provisions. I think the correct balancing of federal preemption considerations in consumer cases (and by that I mean balancing both sides of the issue–e.g., the Casarotto type cases and the AT&T Mobility type cases) should, in the abstract, most often result in No. 3, above–i.e., that class preclusion clauses are, indeed, enforceable because they plainly evidence a party’s unwillingness to engage in a particular type of arbitration, but that the remaining consumer arbitration provision in many if not most cases will be (on a case-by-case basis) unconscionable because, in the absence of a class arbitration, it does not afford a realistic remedy. Having said that, I would guess (as Jim Madison suggests as a possibility) that when all the dust clears (whenever that might be) the present composition of the Court is likely to lead us toward result No. 4. One observation about preemption and the class preclusion clause: I believe that the application and enforcement of a type of federal substantive contract law (a concept I believe Tom Stipanowich and perhaps others have addressed) in the context of FAA preemption is not only appropriate but, also, necessary. I say that because in the absence of such a federal omnipresence, states could too easily circumvent the primary objective of the FAA–i.e., to enforce “agreements” to arbitrate. That is what the Montana legislature and then the Montana Supreme Court did in Casarotto. And, on the flipside of the analysis, that is what any state legislature or court could attempt to do in the context of unconscionability issues. Indeed, the Montana legislature easily could have stated that any arbitration contract that does not contain 20 point bold lettering in Red type, warning consumers of the presence of an arbitration provision, “is deemed unconscionable, per se.” The point here is that while state contract interpretation law understandably should determine what the parties intended when they signed an arbitration agreement, that law should not be used, or permitted, to subvert the primary rule that the parties must literally and freely agree to resolve their disputes through a specific dispute resolution procedure. As heinous as a class preclusion clause may be, the one thing that cannot be said about it is that it evidences an agreement to resolve disputes through class arbitration. Hence my view that result No. 3., above, is the most consistent with the precepts underlying the FAA and with the Court’s decisions to date. Technorati Tags: law, ADR, arbitration James M. Gaitis is the former Director of the International Dispute Management Programme at the Centre for Energy, Petroleum & Mineral Law & Policy, University of Dundee, Scotland, where he remains a member of the Global Faculty. He is the Editor-in-Chief of the second edition of The College of Commercial Arbitrators Guide to Best Practices in Commercial Arbitration (J. Gaitis, C. von Kann, R. Wachsmuth forthcoming Fall 2010) and the author of numerous law review articles on the topic of arbitration, several of which have been repeatedly cited to the United States Supreme Court and lower state and federal appellate courts. Over the past twenty years he has served on a diverse array of arbitration rosters, including as a Fellow of the College of Commercial Arbitrators, a Fellow of the Chartered Institute of Arbitrators, and as a panelist on the AAA Complex Case Panel and the Energy/Oil & Gas Panels of the AAA and CPR. He received his BA from the University of Notre Dame and his JD from the College of Law at the University of Iowa where he was an editor of the Iowa Law Review. He is also the author of two published novels. He may be reached via email at: gaitis1@aol.com.

Today, the U.S. Supreme Court denied certiorari to R.J. Reynolds Tobacco Company v. Montana, No. 09-911. The question presented was whether the Montana Supreme Court violated the Federal Arbitration Act by refusing to compel arbitration of a dispute between tobacco companies and settling states that courts of other states and territories have held arbitrable under the plain terms of the nationwide Master Settlement Agreement. Links to the case briefs and documents courtesy of the SCOTUS Blog: Opinion below Petition for certiorari Brief in opposition Petitioners’ reply Technorati Tags: ADR, law, arbitration

Mark your calendars! Don Philbin, contributor of this blog, will host next week an interesting Webcast entitled “Deal or No Deal: Leveraging Information to Overcome Psychological Barriers to Efficient Deals.” Following is the program description: Using newly-developed computer animation models and traditional decision trees, we will explore the interactive use of outcome scenarios as a means to overcome barriers to settlement. By eliciting party narratives and outcome expectations, “what if” testing those assumptions, and reaching the frontal cortex through verbal and visual channels, we incrementally reduce the “fight or flight” response that often impedes settlement. Since at least the first Kennedy-Nixon Debate, we’ve known that people process the “same” information differently – often with different outcomes depending on how it is conveyed. Educational psychologists recognize that we process verbal and visual information on different brain circuits – complete with different working memories. And pictures not only communicate information, they increase our motivation to study accompanying text. We use pictures, and even video presentations, in mediation. But we use them less frequently when negotiations get serious and it’s time to test offers against realistic alternatives. Animated outcome scenarios, together with graphed offer patterns, help us process improving information in a more rational way. “In my role as the Executive Vice President, General Counsel of JAMS I see and participate in many programs all over the world. Don Philbin is clearly head and shoulders above the rest and presents one of the most entertaining and most informative programs on risk analysis I have ever seen. Drop whatever you are doing and try to see him in action.” – Jay Welsh, Executive Vice President, General Counsel, JAMS Find out more about this live Webcast here.

By Kent B. Scott and Cody W. Wilson Clients always want to know the advantages and disadvantages of mediation. Without this information it would be difficult to decide whether to mediate. Here is a brief list of mediation’s main advantages. Little discovery is needed. Mediation can take place without having to complete the time-consuming and expensive “discovery process” associated with litigation. (In discovery, the parties can ask each other to produce any document or information that could be relevant to the dispute.) In mediation, the parties agree to exchange the important documents that support each side’s case. Therefore, this process is also more cooperative than litigation. There are no motions. Motions are not filed in mediation. This means that the lawyers need not spend time writing legal memoranda in support of motions. This makes mediation much less expensive than litigation or arbitration. Mediation is private. Mediation is considered a private process. This means that the dispute can remain out of the public eye. It can be embarrassing and disruptive of business when customers or suppliers learn that a company is involved in litigation. So keeping disputes a private matter can be very important to a company. Mediation is easier to schedule. The scheduling of mediation is not dependent on the court’s calendar. As a result, mediation can take place whenever the parties are ready and the attorneys and the mediator have the time available. Mediation produces a faster result. Mediation is usually the fastest way to resolve a dispute because procedures associated with litigation are not imported into the process. This enables the parties to more quickly put the dispute behind them and get on with their business and their lives. Mediation makes more productive use of resources. In mediation, the client’s resources are focused on resolving the dispute as opposed to building armaments of evidence to buttress legal and factual positions. Mediation can preserve business relationships. Mediation is less adversarial than litigation or arbitration, so the parties often can salvage their relationships. Often the parties to mediation find themselves doing business again. Mediation allows the parties to vent and tell their stories. Mediation is the only process in which each party has an opportunity to tell the adversary its side of the story. The parties can also vent their true feelings to the mediator in private sessions. Disadvantages of Mediation Are there disadvantages to mediation? We think it is fair to say that any disadvantages are minor. One concern some clients have is that if mediation fails to resolve the dispute, they will have wasted time and resources. But the counter-argument to this is that mediation has a very high success rate (said to be around 80%), so the risk is usually worth taking. Also countering this concern is the fact that mediation can be worthwhile even when it does not result in a complete settlement. The reasons are that during mediation the parties can see the other side’s point of view, learn the strengths and weaknesses of both sides’ case, narrow the issues in dispute, or even reach a partial settlement. Mediation can also help counsel identify the discovery that needs to be undertaken. One day of mediation can save counsel days of probing deposition time. Some attorneys and clients express concern that mediation provides too much discovery to the adversary or that the adversary is willing to mediate only because it can obtain “free discovery.” We believe this concern is largely unfounded because the information voluntarily shared in mediation usually would be produced in response to a discovery request in litigation. Finally, attorneys who have little or no experience with mediation fear that their litigation or arbitration strategy will be compromised by mediation. This is where it helps to have an attorney who is experienced in mediation. The mediator is not empowered to require the disclosure of any facts, law or legal strategy. And a litigator experienced in mediation will know how much, if any, strategy to share, since that is in the attorney’s control. In general, the advantages of mediation outweigh these perceived disadvantages. Mediation has the most upside potential for both sides than any other dispute resolution process (except possibly unassisted negotiation) because it is the only one that puts the outcome in the parties’ hands. Part III will discuss mediation confidentiality. Stay tuned. [Ed. note: the contents of this post were first published on a different form in the May/July 2008 Edition of the AAA Dispute Resolution Journal.] Kent B. Scott is a shareholder in the law firm of Babcock Scott & Babcock in Salt Lake City whose practice focuses on the prevention and resolution of construction disputes. As a mediator and arbitrator, Mr. Scott currently serves on the AAA’s panel of mediators and the AAA’s Large Complex Construction Case Panel. He also serves on the arbitration and mediation panels for the U.S. District Courts (District of Utah), State District Court (Utah) and Utah Dispute Resolution. Mr. Scott is a founding member of the Dispute Resolution Section of the Utah Bar and a Trustee for the Utah Council on Conflict Resolution. Cody W. Wilson is an associate in the law firm of Babcock Scott & Babcock, concentrating his practice in the area of construction law, is licensed in all courts in the State of Utah, the U.S. District Court of Utah, the 10th Circuit Court of Appeals, the U.S. Court of Federal Claims and is a member of the ABA Forum on the Construction Industry. They can be reached at kent@babcockscott.com and cody@babcockscott.com.