Last Friday, we wrote about the latest U.S. Supreme Court case related to arbitration. As we re-read the lengthy opinion, one of the issues that caught our attention was the composition of the parties (fully described here) and the potential for conflicts of interest. As Justice Stevens‘ dissenting opinion points out, the majority noted “the problem of entrusting a union with certain arbitration decisions given the potential conflict between the collective interest and the interests of an individual employee seeking to assert his rights.” Both opinions comment extensively on Congressional intent, reaching different results. Justice Thomas, writing for the majority, explains that Congress has accounted for the conflict in several ways and provides a list of alternative avenues available to union members. Justice Stevens, on the contrary, concluded that the holding of 14 Penn Plaza departs from Congressional intent and case law precedent. The decision on 14 Penn Plaza might prompt Congress to pass “The Arbitration Fairness Act” (H.R. 1020) blogged here . This bill would ban mandatory arbitration of consumer and employment disputes. Can this opinion be added to the “series of United States Supreme Court decisions [that] have changed the meaning of the Act [FAA]” that H.R. 1020 is trying to address? See also a Wall Street Journal article here, Professor Ross Runkel’s analysis here, a Legal Times article here, and commentary from the ADR Prof Blog here. Technorati Tags: arbitration, ADR, law, U.S. Supreme Court, ADE waiver, Age Discrimination in Employment Act of 1967, National Labor Relations Act of 1935, 14 Penn Plaza LLC v. Pyett

This week, the U.S. Supreme Court decided (5-4) 14 Penn Plaza v. Pyett, No. 07-581, (U.S. Apr. 1, 2009). Justice Thomas delivered the opinion of the Court, joined by Chief Justice Roberts and Justices Scalia, Kennedy, and Alito. Justice Stevens filed a dissenting opinion. Justice Souter filed a dissenting opinion as well, joined by Justices Ginsburg and Breyer. Respondents are employed as night lobby watchmen and are members of the Service Employees International Union (Union) which, pursuant to the National Labor Relations Act (NLRA) has the exclusive authority to bargain for their “rates of pay, wages, hours of employment, or other conditions of employment.” Petitioner 14 Penn Plaza LLC owns and operates the New York City office where respondents worked and is a member of the Realty Advisory Board on Labor Relations, Inc. (RAB), a multiemployer bargaining association for the New York real-estate industry. Petitioner Temco Service Industries, Inc. (Temco) is a maintenance and cleaning contractor that employed the respondents directly. The agreement between the Union and the RAB requires union members to submit all claims of employment discrimination to binding arbitration. 14 Penn Plaza, with the Union’s consent, contracted with Temco for security guards for its building. However, Temco re-assigned respondents to jobs as night porters and cleaners. Based on this re-assignment of duties, respondents claim workplace discrimination on the basis of their age and sued in district court. The District Court denied petitioners’ motion to compel arbitration and petitioners appealed. The Second Circuit affirmed here and the U.S. Supreme Court granted certiorari. The issue resolved by the Court is whether a provision in a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate claims arising under the Age Discrimination in Employment Act (ADEA) is enforceable. Respondents argued that “the arbitration clause here is outside the permissible scope of the collective-bargain process because it affects the ’employees’ individual non-economic statutory rights.’ ” The Court reasoned that the agreement between the Union and the RAB “easily qualifies as a ‘condition of employment’ that is subject to mandatory bargaining” and stated that “Courts generally may not interfere in this bargain-for exchange.” The Court rejected respondents’ claim that “an individual employee must personally ‘waive a ‘(substantive right)’ to proceed in court for a waiver to be ‘knowing and voluntary’ under the ADEA.” The Court explained that the agreement to arbitrate ADEA claims is not a waiver. The Court affirmed that “the unsuccessful arbitration did not preclude the federal lawsuit. ” At the same time, the Court stated that “the decision to resolve ADEA claims by way of arbitration instead of litigation does not waive the statutory right to be free from workplace age discrimination; it waives only the right to seek relief from a court in the first instance.” The Court also tried to resolve the tension between the holdings in Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974) and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). It emphasized that Gardner-Denver and its progeny have “narrow holdings” and are of “narrow scope.” The Court explained that in that case, the Court had “reversed the judgment on the narrow ground that the arbitration was not preclusive because the collective-bargaining agreement did not cover statutory claims.” Next, the Court praised the benefits of arbitration and explained that the broad dicta in those cases “rested on a misconceived view of arbitration that this Court has since abandoned.” Finally, the Court held that the arbitration provision is enforceable as a matter of federal law. Technorati Tags:arbitration, ADR, law, U.S. Supreme Court, ADE waiver, Age Discrimination in Employment Act of 1967, National Labor Relations Act of 1935,

The Second Circuit ruled recently on the case Arbercheski v. Oracle Corp., No. 06-3472, 2009 U.S. App. LEXIS 5723 (2nd Cir. Mar. 18, 2009) that Oracle has waived its right to arbitration. The court concluded that the plaintiff showed sufficient prejudice from Oracle’s attempt to initiate arbitration proceedings. Some of the facts the court cited were: Oracle’s eleven-month delay between the commencement of litigation and the filing of the motion to compel arbitration, participation in discovery, a failed mediation, and a scheduling conference. Technorati Tags: arbitration, ADR, law,

In Chalk v. T-Mobile USA, Inc., No. 06-35909 (9th Cir. Mar. 27, 2009), the issue before the Ninth Circuit is whether a class action waiver in an agreement between T-Mobile and its customers is unconscionable under Oregon law. Steward and Chalk (plaintiffs) bought from T-Mobile a PC card manufactured by Sony. The card enables computers to connect wirelessly to the Internet. By signing the one-year service agreement with T-Mobile, the plaintiffs acknowledged that the agreement: REQUIRES MANDATORY ARBITRATION OF DISPUTES; REQUIRES MANDATORY WAIVER OF THE RIGHT TO JURY TRIAL AND WAIVER OF ANY ABILITY TO PARTICIPATE IN CLASS ACTION; The Terms and Conditions instructs purchasers to refrain from using the service should the purchaser disagree with the terms. It also provides for mandatory arbitration of all claims by the American Arbitration Association and states that each party agrees to pay its “own other fees, costs and expenses including those for counsel, experts, and witnesses.” Plaintiffs were not able to make the card to function properly, and after contacting Sony and T-Mobile several times without success, plaintiffs filed a class action suit. Plaintiffs alleged violation of federal and state law and alleged that the defendants knew or should have known that the card was not compatible. Defendants filed a motion to compel arbitration citing the arbitration clause and the district court granted it. The Ninth Circuit reviewed the validity of the agreement under Oregon law, in particular, the plaintiffs’ allegations of unconscionability: Procedural unconscionability: “oppression” and “surprise.” Here, the court agreed with the district court and held that the “take-it -or-leave-it” nature of the contract was not procedural unconscionable. Substantive unconscionability. The court analyzed whether the terms of the agreement are “unfairly one-sided.” It held that the class action waiver is substantively unconscionable and unenforceable. The court based its finding in two reasons: (a) the waiver is inherently one-sided when contained in a consumer contract and (b) it prevents individuals from vindicating their rights. Technorati Tags: arbitration, ADR, law, class action waiver, unconscionability, consumer arbitration agreement