The Future of Class Arbitration Part III

The Future of Class Action Arbitration Part III

Part I | Part II

By: Adam Prom

The future debate surrounding class arbitration

In addition to a lack of clarity regarding the avenues through which class arbitration may survive, debate surrounding class arbitration will likely continue, which will fuel uncertainty about class arbitration’s future.  Several areas of debate seem to be especially contentious.

A. The nature of arbitration

As mentioned, in Concepcion, Stolt-Nielsen, and Italian Colors, the majority declares that class arbitration is inconsistent with bilateral arbitration.[i]  Stolt-Nielsen and Concepcion most clearly describe the Supreme Court’s current view on the nature of arbitration by emphasizing how the shift from individual to class proceedings introduces changes that are “fundamental,” including the introduction of absent parties, different procedures, and higher stakes.[ii]  Is the Supreme Court correct or is it misconstruing the true nature of arbitration?

Commentary admits that class arbitration does not resemble the traditional view of arbitration as a bilateral procedure with few witnesses, documents, or formalities.[iii]  Yet, perhaps it is not clear that this traditional model still holds true or should hold true.[iv]  First, commentary argues that Stolt-Nielsen and Concepcion’s conclusion that class arbitration changes the nature of arbitration is questionable because of the flexibility inherent in arbitration.[v]  Second, other commentators reveal there is no support at all in the legislative history of the FAA for the idea that the Act was intended to prohibit state laws that preserve the right of claimants to arbitrate collectively.[vi]  Third, commentary points out that multiparty proceedings have been arbitrated for decades.[vii]  Fourth, although class arbitration may be more formal, the presence of court-like procedures has never made an arbitration proceeding illegitimate except with respect to class arbitration.[viii]  Fifth, despite the complexities involved in class arbitration, it is perhaps disingenuous to suggest that arbitrators are unable to handle such procedures.[ix]  Sixth, although class arbitration makes use of representative relief, the formalism of arbitration, itself, perhaps allows all parties to be heard.[x]  For these and other reasons, commentators oppose the Supreme Court’s idea that class arbitration changes the nature of traditional, bilateral arbitration.  The debate on this topic surely will continue and may affect how class arbitration is perceived and interpreted under the FAA.

 B. Ethical problems

Some commentators believe that class arbitration creates ethical problems for arbitrators through conflicts of interest.[xi]  Do these problems actually exist?

At the beginning of class arbitration, it is alleged that there is no standard to keep arbitrators neutral and their class counsel selections unbiased from financial and social influence.[xii]  Commentators speculate that bias is created when an arbitrator chooses as class counsel the original counsel who participated in the selection of the arbitrator, filed the claim, and/or advanced fees to the arbitrator.[xiii]  Yet, the FAA allows for vacatur of an arbitral award “where the award was procured by corruption, fraud, or undue means; or where there was evident partiality or corruption in the arbitrators.”[xiv]  Whether these grounds for vacatur adequately curb bias in arbitrators or whether additional standards could be beneficial may be valid questions in this debate; however, it appears that a standard does, in fact, exist.

At the end of class arbitration, commentators contend that there is a strong financial incentive for the arbitrator to be more concerned with the interests of class counsel than with class members due to their receipt of payment for their services.[xv]  This alleged ethical issue is made worse, the commentators argue, because the arbitrators’ final awards can contain amounts for their own fees.[xvi]  Nonetheless, the AAA, which is currently conducting class arbitrations, has a code of ethics for its neutrals.[xvii]  Canon I within the code specifically addresses how an arbitrator should only accept payment if he or she can serve impartially and independently of the parties, witnesses, and other arbitrators.[xviii]  And, Canon VII addresses how arbitrators should adhere to integrity and fairness when making arrangements for compensation.[xix]  Therefore, it may be worthwhile to inquire to what extent the AAA’s code of ethics is being complied with or whether specific canons should be developed with respect to class arbitration.  Yet, it does appear that current codes of ethics for arbitrators address commentators’ ethical concerns.

 C. Procedural issues

Issues may also arise in the future depending on whether the AAA or JAMS is administering class arbitration due to differences in the rules published by each.  First, under the AAA, the arbitrator decides whether class arbitration may proceed, unless otherwise ordered by the court; yet, under JAMS the court decides whether a class arbitration waiver should be enforced or waived.[xx]  Second, the AAA dictates that at least one of the arbitrators must be appointed from its roster of arbitrators while the JAMS rules neither have qualifications for the arbitrator nor a requirement as to the number of arbitrators.[xxi]  These differences, among others, have the potential to create variety in class arbitration proceedings.  Whether these differences are creating problems in the class arbitrations currently being conducted is unknown, but insight along those lines could shape how class arbitration is conducted in the future.  Furthermore, commentary reveals open questions in the AAA and JAMS rules that could be addressed in the future: how the procedure in selecting the arbitrator will work if there are multiple class representatives and/or lawyers, whether bifurcation of liability and damages issues should be required, and whether discovery and information exchange rules should be modified.[xxii]

D.  Arbitration Fairness Act

The Arbitration Fairness Act (AFA) also has potential to shape the future of class arbitration.  Although it does not mention class arbitration, the AFA partially seeks to legislatively overrule Supreme Court jurisprudence that the AFA’s proponents believe changed the meaning of the FAA.[xxiii]  In other words, the AFA has the potential to overrule any case—namely, Concepcion, Stolt-Nielsen, and Italian Colors—in which the Court has substituted its own policy preferences for Congress’s by reading into the FAA its opposition to class actions.[xxiv]  The current version of the bill is not expected to be adopted;[xxv] however, Congress has enacted mini-AFA regulations[xxvi] that are viewed as counterweights to the Supreme Court’s jurisprudence.[xxvii]  Any future regulation that acts as a counterweight to the Court’s class arbitration jurisprudence would surely shape the future of class arbitration.

Conclusion

Some aspects of class arbitration’s future are clear: (1) the Supreme Court’s hostility to such proceedings is consistently making its way into recent case law and (2) the very limited avenues for class arbitration’s survival under the Court’s jurisprudence are becoming more defined.  Other aspects are less clear.  In particular, although additional paths to class arbitration’s survival exist, they are either in serious doubt or just beginning to be defined.  Indeed, class arbitration may even take on alternate forms.  Regardless of its future form and status, the battle over class arbitration “will likely continue for some time, reflecting the bitter debate that has been waged for years with respect to judicial class actions.”[xxviii]