Diversity (or the lack thereof) in ADR

Posted on February 24, 2015 06:08 by Anandhi S. Rajan

I recently read an excellent article called “Why Bringing Diversity to ADR is a Necessity” by David H. Burt and Laura A. Kaster, which appeared in the October 2013 issue of the Association of Corporate Counsel’s publication, ACC Docket.  This article was of particular interest to me since I have been a mediator with BAY Mediation in Atlanta, GA since September 2013 and I am a woman of color.  It has not been lost on me that in my practice locality mediators who are diverse are few and far between and most cases are still mediated by the “tried and true” bunch of mediators at the few mediation outfits in town. 

This article drives home the point that just as corporate retention of outside counsel has required a deliberate and conscious push by corporations to ensure outside counsel reflect the diverse customer base of many corporations in this country, neutrals who are selected to mediate such disputes should likewise be reflective of the diverse population of this country.  The article discusses some ways in which this inequity can be addressed.  Traditionally, the way in which mediators/arbitrators have been selected has been left up to the outside counsel handling the litigation file, which may be responsible for perpetuating homogeneity in the selection process.  The article tackles three ways in which this may be addressed.  First, ADR providers should increase their neutral panels by recruiting more qualified women, racial minorities, and other diverse neutrals to serve on their panels.  Second, neutrals should be identified based upon the diversity characteristics they can bring to the table.  Third, private law firms should enhance the value associated with their partners and associates serving as neutrals/arbitrators so that more private practitioners embrace ADR as a possible career avenue.

In the context of employment cases, the value of diversity in the neutral/arbitrator cannot be overstated since often the thrust of the employee’s claim is centered on claims of unfair treatment based on their protected status.  So, a neutral who may share that same protected status with the claimant/litigant may serve to advance the prospect of resolution.  While there is no one solution which will fit all to address this issue, outside counsel can make a conscious effort and commitment to seek out and utilize diverse neutrals/arbitrators to resolve their matters, as appropriate, all the while meeting the diversity initiatives of the corporate interests they serve.

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The California budget cuts have led to the elimination of court-sponsored mediation programs in many counties in California.  For example, effective March 11, 2013, the Los Angeles County Superior Court (“LASC”), which is the largest county court in the world, has eliminated the ADR program and all court connected mediation that went along with it (with the exception of certain family law related matters).  

The court-directed free mediation programs were intended to promote efficient resolution of cases with smaller amounts in dispute.  Such cases make up a large percentage of the cases filed in California state courts.  When parties attended a Case Management Conference in California state courts, the judge would often refer willing parties to the court-directed mediation programs that were minimal or no cost to the participants.  The resource of affordable and automated mediation programs led to the efficient resolution of many lawsuits in Los Angeles County.    

Now that the LASC has eliminated the ADR program, it is a common experience for lawsuits in Los Angeles to take longer to resolve.  The reality is that, without the pressure of the deadlines of the court-directed mediation programs, some cases might fade out of the parties’ minds until the parties revive the litigation proceedings, which can sometimes take several months (not to mention the long waiting times for parties to schedule hearings on any motions).  In addition, the elimination of the free court mediation programs leads to much higher litigation costs for the parties as well as for the court.  

There is nothing comparable to the former free court-sponsored mediation program for small claim proceedings in California.  The only alternative to court-directed free mediation programs would be a private mediation proceeding.  However, given the high fees for private mediators, who charge approximately $200 to $1,000 per hour (plus the administrative fees charged by mediation services), private mediations are often not a worthwhile alternative in smaller civil matters, given the low amounts in dispute.

As a consequence, the increased costs, time pressure, and the lack of economically viable alternatives to court-sponsored mediation programs may eventually force clients into making decisions about their small claims cases that have nothing to do with the legal merits, but solely with time and money.  Attorneys representing parties in small claims proceedings are now left with the challenge to reevaluate their case strategy to compensate for the negative impact California budget cuts have on the defense of their clients’ interests.  Inevitably, even more efficient case management deadlines and increased collaboration with opposing counsel are required from attorneys practicing in Los Angeles.  

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Mediation – Past is Prologue

Posted on February 28, 2014 03:08 by Joseph A. Kaufman


Contemporary mediation defined by Black’s Law Dictionary as “a method of nonbinding dispute resolution involving a neutral third party who tries to help the disputing parties reach a mutually agreeable solution,” can trace its roots back to ancient civilizations.  As a method of dispute resolution mediation has been used in a variety of cultures for more than 3,000 years. The historical record includes references to the use of mediators in commercial cases in Phoenicia and Babylon, and ancient Greek and Roman civilizations were known to resolve disputes through mediation as well.  

Mediation can be thought of as an innately human activity that civilizes us and keeps the peace.  In a deeper sense, forms of mediation can be found in religions across the globe.  In that religious context, Paul directed the Corinthians to appoint people from their own community for the purpose of resolving disputes rather than submitting disputes to the court for resolution. (I Corinthians 6:1-4). Buddha encouraged adoption of the middle way or middle path as the means to achieve calm, vision, insight and, indeed, enlightenment. Additionally, Native Americans employed their own non-violent dispute resolution techniques long before the arrival of Europeans on the Continent.  Some similar dispute resolution processes can still be observed today in the tribal councils in the Pashtun areas of Afghanistan and Pakistan.  

Recognizing the long historical use of mediation as a means of peacefully resolving disputes is worth remembering the next time you find yourself mediating a case.  The historical roots of mediation are also worth acknowledging as societies continue to embrace new technologies that can potentially change the way contemporary civil disputes are resolved.  

Contemporary mediation has its roots in dissatisfaction with the civil litigation process.  In addition to sometimes being less than civil, litigation can be and often is extremely expensive, both to the parties and the state.  Supreme Court Chief Justice Warren Burger remarked upon the problem: “We may well be on our way to a society overrun by hordes of lawyers, hungry as locusts, and brigades of judges in numbers never before contemplated. We have reached the point where our systems of justice—both state and federal—may literally break down before the end of the century.”  Remarks at the American Bar Association Minor Disputes Resolution Conference (May 27, 1977).  “For many [civil] claims, trial by adversarial contest must go the way of ancient trial by battle and blood…”  Warren E. Burger, 70 A.B.A.J. 62, 66 (1984).  In light of the inherent burdens litigation places upon those involved, in 1976 Chief Justice Warren Burger invited Professor Frank E. A. Sander of Harvard Law School to present a paper at the Roscoe Pound Conference of 1976.  This historic gathering of legal scholars and jurists discussed ways to address dissatisfaction with the American legal system and to reform the administration and delivery of justice.

Professor Sander’s paper Perspectives on Justice in the Future urged a widespread adoption of non-litigious forms of dispute resolution, not least of which was mediation.  State legislatures took up the call and became focused on the development of mediation, and law and business schools joined in the research.  In 1979, the CPR (Conflict Prevention and Resolution) Institute was founded, backed by companies and professional firms, and began to explain the idea of mediation.  Getting To Yes by Harvard Law School Professors Roger Fisher and William Ury was published in 1981.  In 1983, Harvard Law School, MIT and Tufts founded the Program on Negotiation.  Two years later came Pepperdine’s Straus Institute for Dispute Resolution.  By the late 1980s, the Association for Conflict Resolution and the ABA Section of Dispute Resolution were established. Mediation rules were then codified and amended throughout the United States.  Consequently, mediation as an integral part of the civil litigation process developed and virtually all litigators are now as familiar with mediations as they are the court room.    

Over the years, lawyers and non-lawyers have found numerous benefits to mediation over trial.  First and foremost for the non-lawyers is the cost.  While mediators and mediation facilities charge fees (in addition to the fees charged by the lawyers for each party), the mediation process is generally much quicker and much less expensive than litigating a case through trial. Perhaps most importantly is the fact that mediations are completely confidential.  This confidentiality allows parties to discuss the true strengths and weaknesses of their respective cases in a truly open and honest manner without the risk of educating the other side.  Another benefit is control.  A party can mediate and control the outcome or go to trial and give control to 12 complete strangers – who can never truly know as much about the case as do the parties – and who certainly do not care about the outcome of the case (at least not to the degree as do the parties).  

As the development of mediation and other forms of alternative dispute resolution has changed the way cases are litigated and resolved, technological advances may now bring changes to the way we mediate those cases.  Online Dispute Resolution (ODR) is a form of alternative dispute resolution which brings technology to the table to facilitate the resolution of disputes between parties.  Moving the mediations online and with the assistance of software developed specifically for the purpose can potentially change the way mediations are conducted in the future. Processes that were once assisted by the Court or third parties can now be moved online, from the initial filing of a claim, the appointment of a neutral, the sharing of evidence, to real time hearings and the ultimate resolution of a matter.     

ODR has the potential to take the human element out of the process with technologies like automated negotiation and blind bidding.  Parties can submit several offers and if the bids of both parties come within a predetermined range or dollar amount, then the technology automatically settles the dispute in the midpoint of the offers. Using technology to settle the case encourages the parties to reveal their bottom line offers and demands, splitting the difference when the amounts are close.  In addition to letting the technology work for you, ODR mediations can be mediator assisted. As these technologies are embraced and the number of ODR companies offering these services continues to grow, it is possible that mediations of the future will look quite different than mediations of today.  Even so, the end result - the peaceable resolution of disputed claims – will remain the same.   

DRI’s ADR Committee is devoted to addressing issues of interest to ADR professionals, attorneys and their clients. The ADR Committee explores the practical implications of using arbitration, mediation and negotiation as cost effective and time-saving alternatives to litigation, and is a key resource on staying up to date with the latest trends and developments in the field of ADR.  For continued information on ADR, please consider joining the ADR Committee.   

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On October 31, 2012, lawyers representing thousands of former NFL players filed an opposition brief to the NFL’s current motion to dismiss pending in U.S. District Court in Pennsylvania, insisting that based on the gravity of the harm incurred, their lawsuit against the League must be allowed to move forward.  The brief rejected the NFL’s contention that the action was essentially a labor dispute that needed to be resolved under the league’s collective bargaining agreement.

The Plaintiffs accused the NFL of “orchestrat[ing] a disinformation campaign,” insisting that the League “knew that players were exposed to risks of severe neurological injuries yet did nothing to prevent them.”  However, the League has, time and again, publicly denied that it knew of any long-term dangers posed by concussions.  Further, the NFL insists that it did not intentionally lie to players about the potential side effects.  Instead, it stated that it delegated the decisions about players’ conditions and return-to-play decisions to individual team doctors and trainers.

At this point, U.S. District Judge Anita Brody must decide how to proceed with the extremely cumbersome litigation.  If a settlement is not reached and the case is not dismissed, it is possible that the individual cases could be returned to the multiple districts where they originated forcing the parties to proceed with separate trials.

Ex-players reply to NFL’s motion to dismiss cases

As orrignally posted on Sports Law Insider on November 14, 2012
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Two decisions within the past few days emphasize the limits on class action arbitration waivers, despite recent United States Supreme Court opinions that breathed new life into such provisions.  With these recent decisions, we see courts relying on both federal and state law concepts to invalidate arbitration provisions when the courts conclude that an individual plaintiff could not feasibly pursue arbitration. 

Vindication of Federal Rights.

The Second Circuit visited the issue for the third time in In re American Express Merchants’ Litigation, No. 06-1871-cv (2d Cir. Feb. 1, 2012).  Merchants there are pursuing Sherman Act antitrust claims against American Express, alleging that American Express improperly ties its non-premium credit cards to its premium charge card services.  Because charge card customers are much more desirable from the merchants’ perspective, American Express is able to charge higher processing fees for those transactions.  These plaintiffs allege that American Express forces merchants to also accept its credit cards and to pay higher processing fees for them even though the credit card customers tend to make smaller purchases.

In two earlier opinions, 554 F.3d 300 (2d Cir. 2009) and 634 F.3d 187 (2d Cir. 2011), the Second Circuit held that the arbitration provision in the merchants’ agreements with American Express was unenforceable.  Following the Supreme Court’s opinion in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Second Circuit asked for supplemental briefing on the topic.  Although Concepcion held that the Federal Arbitration Act preempts state law that imposes particular restrictions on arbitration provisions, the Second Circuit held for a third time that American Express’ arbitration clause is unenforceable because it prevents an aggrieved party from vindicating a federal statutory right.

In this third opinion, the Second Circuit concluded that Supreme Court authority “leaves open the question presented on this appeal: whether a mandatory class action waiver clause is enforceable even if the plaintiffs are able to demonstrate that the practical effect of enforcement would be to preclude their ability to bring federal antitrust claims.”  [Slip Op. at 15]  These plaintiffs satisfied the Second Circuit that they would be precluded from doing so in individual arbitrations because individual damages (a mean of $5,300 and a maximum of $39,000) could not compare to the several hundred thousands of dollars needed for an expert economic analysis of liability and damages.  [Id. at 22]  Thus, “the only economically feasible means for plaintiffs enforcing their statutory rights is via a class action.”  [Id.]  It is not enough that the Clayton Act, 15 U.S.C. § 15, allows for treble damages, attorneys’ fees, and expenses.  A plaintiff must advance the expert costs and then must assume the risk of losing—a significant deterrent to pursuing civil antitrust claims in the court’s mind.  [Id. at 23]

Those plaintiffs relied on an economist’s declaration to establish the likely cost of the necessary analysis.  The court concluded that American Express did not seriously challenge that evidence, which amounted to a concession that an individual plaintiff could not reasonably pursue the claims, whether in court or arbitration.  [Id.]  Just as notable, the court’s “decision in no way relies upon the status of plaintiffs as ‘small’ merchants.  We rely instead on the need for plaintiffs to have the opportunity to vindicate their statutory rights.”  [Id. at 24]

Other courts, particular lower courts in the Second Circuit, have applied this vindication of federal right approach to other statutory claims, such as Title VII employment discrimination suits.  E.g., Chen-Oster v. Goldman, Sachs & Co., 2011 WL 2671813 (S.D.N.Y. July 7, 2011).  With the Second Circuit’s most recent opinion, expect such attacks on arbitration provisions to increase.  It will become more important to challenge the validity of an expert’s assertion of the costs of proceeding with individual arbitration—perhaps to the point of seeking Daubert hearings as part of this process.  While Concepcion and other Supreme Court opinions strengthen defendants’ positions regarding enforcing arbitration provisions, the law is by no means settled. 

Traditional Unconscionability.

On the other side of the country one day earlier, the Northern District of California relied on traditional unconscionability principles to invalidate an arbitration provision in Lau v. Mercedes-Benz USA, LLC, No. CV 11-1940-MEJ (N.D. Cal. Jan. 31, 2012).  That plaintiff bought a luxury car but had numerous mechanical problems with it.  Mercedes sought to compel arbitration when the plaintiff filed suit.  The court found the provision procedurally and substantively unconscionable. 

The contract contained paragraph in capital letters noting the plaintiff’s ability to take the contract to review it and that it contained an arbitration provision on the back.  The arbitration provision had a bold font heading and also was in capital letter.  [Slip Op. at 2]  The court found that procedural unconscionability existed because the dealership presented the contract on a take-it-or-leave-it basis.  It did not matter that the plaintiff signed next to a paragraph mentioning the arbitration provision on the back of the contract.  While the plaintiff negotiated the price (apparently exceeding $100,000), he “was never offered the opportunity to negotiate the inclusion or exclusion of specific pre-printed terms.”  [Id. at 12]

The court found substantive unconscionability because the plaintiff faced substantial expenses in arbitration that do not exist in litigation.  Those expenses include the arbitrator’s hourly fee and the administrative body’s fees.  [Id. at 13]  The provision also was unbalanced because it allowed for a de novo appeal to a three-member panel only if the award was $0 or in excess of $100,000.  The practical effect was to deny plaintiff an appeal right if he recovered less than his full reimbursement right of more than $100,000 but allowed Mercedes to appeal if plaintiff received that full recovery.  Of course, plaintiff also faced advancing more costs if he appealed any award.  [Id. at 14]

Courts frequently undertake this traditional unconscionability analysis to invalidate arbitration provisions.  Plaintiffs’ counsel are being more aggressive in attacking provisions on those grounds, including seeking discovery about a corporation’s experience in arbitration in hopes of showing that the deck is stacked against the consumer.  Thus, it is crucial to take care in drafting an arbitration provision, presenting it to the consumer/employee, and documenting those efforts well before the threat of suit arises.  Consider having the business advance the costs of the arbitration, forgoing seeking its fees (unless the claim against it is frivolous), and ensure that the clause treats the parties equally.    

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In CompuCredit Corp. v. Greenwood, 10-948, the Court held that pre-dispute agreements to arbitrate claims under the Credit Repair Organizations Act (CROA) are valid and enforceable.  Although the CROA requires that consumers be informed of their “right to sue,” the Court held that this is simply “a colloquial method of communicating to consumers that they have the legal right, enforceable in court, to recover damages from credit repair organizations that violate the CROA.”  These provisions do not require that the action proceed in court, as opposed to in a arbitration.  Furthermore, the statute’s use of terms such as “action” and “court” in its liability provision do not require a judicial forum either.  The Court recognized that it was “utterly commonplace” for statutes to use such language.  In light of these points, the CROA’s non-waiver provision does not preclude arbitration.

Perhaps most significantly, the Court’s opinion emphasizes that if Congress had meant to prohibit arbitration agreements, it would have spoken much more clearly.  Citing several other federal statutes that expressly precluded predispute arbitration agreements, the Court found it “unlikely” that the use of “right to sue” and “action” signaled an intent to do the same in this context.


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These days, many depositions are videotaped.  If a deposition is being videotaped, is there still a need for a court reporter?  Is a stenographic (“hard copy”) transcript necessary?  This issue is currently the subject of debate in Texas and across the country, with interest groups taking positions on both sides.

On one hand, hard copy transcripts have practical advantages over video depositions.  First, hard copies allow attorneys to take part in their favorite pastime – copious amounts of highlighting and tabbing.  Additionally, most cases require careful attention to the facts, and hard copy transcripts make it easier to cite to the record.  In short, whether it is due to personal preference or the manner in which people learn, some people will probably always prefer working with hard copies.

At the same time, video depositions have unique advantages over hard copy transcripts.  In the era of C.S.I., jurors expect attorneys to use technology.  And video evidence is often more compelling and entertaining than a transcript.  Video depositions capture mannerisms, body language, and attitudes that would otherwise go unnoticed.  Because of this, adverse witnesses and opposing counsel are more likely to mind their manners when being videotaped.  Of course, there are exceptions to every rule, and video footage of a witness losing control can be pure gold.  For example, when the witness in the infamous Texas Style Deposition told the examining attorney that he had “a case of incipient verbal diarrhea,” a paper transcript would never have done it justice. 

As other commentators have noted, both video depositions and traditional hard copy transcripts have their place.  When used correctly, each form of “transcript” compliments the other.  Because of the limitations of videotape-only depositions, however, traditional hard copies (and court reporters) are here to stay . . .  for now.


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Recently, a federal magistrate allowed a putative class action plaintiff to serve discovery regarding a defendant’s consumer arbitrations as part of an effort to invalidate a class waiver in an arbitration clause.  In Newton v. Clearwire Corp., No. 2011-CV-00783-WBS-DAD (E.D. Cal. Sept. 23, 2011), the plaintiff is pursuing California consumer fraud, contract, unjust enrichment, and injunctive relief claims based on the internet service provider illegally throttling customers’ internet connection speeds.  The defendant moved to compel arbitration, but the court allowed the plaintiff “limited” discovery regarding the defendant’s arbitration and litigation experience with customers.  At issue were interrogatories seeking information regarding the number of instances of Clearwire or customers initiating arbitration or non-arbitration proceedings and the outcomes of those proceedings.  Slip Op. at 2-3.  Note that the magistrate refused to compel production of all documents relating to Clearwire’s policies and procedures for arbitration disputes.      

The magistrate granted the plaintiff’s motion to compel, accepting arguments that such information relates to the plaintiff’s substantive unconscionability argument.  The plaintiff urged that such information may show the provision is unconscionable because it produces “overly harsh or one-sided results.”  Id. at 5.  It is not clear from the decision how plaintiff intends to use the information she receives.  It seems very likely that she may contend that arbitration is “one-sided” if consumers frequently or overwhelmingly lose in those proceedings.  Alternatively, she may argue that the results are unduly harsh if arbitrators award Clearwire fees and costs at some level that plaintiff believes is excessive.  If this interpretation is accurate, this decision presents a departure from unconscionability jurisprudence in a manner that allows plaintiffs to inflate discovery expenses while trying to circumvent the straightforward application of AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).

The traditional notion of one-sided provisions truly considers whether one party receives benefits the other does not.  For example, does the provision require a consumer to pursue arbitration but excuses the business from it?  Does the provision require arbitration of claims an employee would bring (e.g., discrimination, unpaid overtime) but allow court proceedings for an employer’s typical claims (e.g., trade secret misappropriation)?  May the business seek repayment of fees if the consumer’s claim is frivolous but the provision is silent as to the consumer’s ability to recover fees?  If your client’s arbitration provision contains these types of one-sided provisions, you should modify their agreement.  

Even if 100% of arbitrated claims result in awards in favor of the business, however, that does not mean the results are “overly harsh or one-sided.”  It may be that the business operates fairly and only non-meritorous claims are arbitrated.  Likewise, the business may quickly pay reasonable claims—saving all involved the time and expense of arbitration—but chooses to fight frivolous claims.  In sum, the number of claims tried or arbitrated and a summary of the outcomes are not meaningful data alone.  That is akin to concluding that the American judicial system is unfair to plaintiffs because less than 5% of civil cases reach trial; by itself, that statistic is meaningless if you’re evaluating the system’s fairness.  Moreover, as we can imagine, a court embarking on this type of after-the-fact evaluation of arbitrated or tried claims puts itself in the untenable position of reviewing the entirety of those earlier proceedings, including the evidence presented and the arguments made.  
Unfortunately, we should expect more plaintiffs to serve and move to compel such discovery as they try to avoid the impact of Concepcion.  Typically, however, courts (even those applying California law) take a more reasonable approach when evaluating substantive unconscionability.  Rather than trying to dissect the results of past arbitrations, courts usually examine the arbitration provision and evaluate how it will apply to this dispute.  For example, the court in Saincome v. Truly Nolen of America, Inc., No. 3:11-CV-00825-JM-BGS (S.D. Cal. Aug. 3, 2011), rejected a variety of unconscionability arguments in an employment dispute.  It considered the provision’s language and the disputes it covered, eventually rejecting the plaintiff’s substantive unconscionability arguments (though it refused to rule that the plaintiff could not bring a collective FLSA arbitration).  Even more to the point, the court in Meyer v. T-Mobile USA Inc., No. C 10-05858 CRB (N.D. Cal. Sept. 23, 2011)—decided the same day as Newton—refused to allow discovery regarding prior arbitrations.  That plaintiff sought discovery relating to all of T-Mobile’s customer disputes for a seven-year period, even if the subject arbitration clause did not apply to them.  Unlike the magistrate in Newton, that district judge in Meyer agreed that evaluating the fairness of an arbitration provision involves a narrow inquiry: “[T]he only arbitration agreement at issue is the 2008 agreement, and the documents relevant to determining the validity of that arbitration agreement—the 2008 Service Agreement, T&C [terms and conditions] and arbitration agreement—are already accessible by the parties and the Court.”  
Defense lawyers know that we’ll encounter this type of discovery, so be prepared to explain to your judge, magistrate, or discovery master why it is irrelevant to determining if the provision is substantively unconscionable.  Focus the court on the arbitration provision’s language and how this plaintiff’s arbitration will proceed.  Before you reach that stage, this also is a good reminder to touch base with your clients about ensuring their arbitration clauses are not one-sided so that you’re not focusing the court’s attention on unhelpful language.  

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Following the Court’s recent opinion in AT&T Mobility LLC v. Concepion, 131 S. Ct. 1740 (2011), some commentators proclaimed the end of consumer class action whenever an arbitration clause existed.  While Concepion is a watershed opinion holding that the Federal Arbitration Act preempts many state law doctrines that would invalidate arbitration clause class action waivers, it is not the final word on the topic.  In prior articles, I noted the existence of the Arbitration Fairness Act of 2011 (H.R. 1873), which would exempt consumer, civil rights, and employment disputes from the FAA as well as reverse Rent-A-Center West, Inc. v. Jackson, 120 S. Ct. 2772 (2010).  Likewise, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. Law 111-203) calls on the bureau of Consumer Financial Protection and the SEC to consider administrative rules that could invalidate certain arbitration clauses in specified transactions.  Developments since the Court published Conception demonstrate that lower courts are splitting on how to interpret that authority, including in novel ways to continue invalidating class action waivers.  

Straightforward Applications of Concepcion to Enforce Class Action Waivers.  
Not surprisingly, many lower courts apply Conception to enforce arbitration provisions with class action waivers.  In Nelson v. AT&T Mobility LLC, 2011 U.S. Dist. LEXIS 92290 (N.D. Cal. Aug. 18, 2011), the court rejected arguments that a plaintiff seeking only “public” injunctive relief under California’s Unfair Competition Law (“UCL”) and Consumer Legal Remedies Act (“CLRA”) was not bound by an arbitration clause with a class action waiver.  That plaintiff argued that public injunctive relief addressed a public right, so allowing that plaintiff to proceed on a class basis would not conflict with the FAA.  That court also rejected the plaintiff’s arguments, based on California state court decisions following Concepcion, that claims under California’s Private Attorney General Act (“PAGA”) were not subject to Concepcion.  That plaintiff unsuccessfully analogized his UCL and CLRA claims to PAGA claims.
A few days after Nelson, the Third Circuit ruled that New Jersey common law imposing class arbitration despite an agreement’s prohibition of class/collective actions is inconsistent with, and preempted by, the FAA.  Litman v. Cellco P’Ship, 2011 U.S. App. LEXIS 17649 (3d Cir. Aug. 24, 2011).  The Third Circuit also noted that a New Jersey choice of law provision only applied to the agreement to the extent it was consistent with the FAA.  This dispels arguments that, by choosing a particular state’s substantive law, the parties necessarily choose that law to govern all aspects of interpreting the arbitration clause’s enforceability, too.  As a practice pointer, however, it probably is best to specify that the FAA governs interpretation of an arbitration provision in your agreement.      
Most recently, the court in Kaltwasser v. AT&T Mobility LLC, No. C07-00411 (N.D. Cal. Sept. 20, 2011), rejected arguments that an arbitration clause with a class waiver prevented the plaintiff from vindicating statutory rights.

That plaintiff pursued claims based on California’s UCL, CLRA, and False Advertising Law (“FAL”) based on AT&T’s claim to have the fewest dropped calls.  The plaintiff argued that the costs of expert witnesses in an individual arbitration would prevent him from vindicating rights under those California statues.  The vindication of rights argument often is based on Green Tree Financial Corporation-Alabama v. Randolph, 531 U.S. 79 (2000).  There, the Court indicated that “large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum.”  Id. at 90.  The Kaltwasser court, however, indicated that it is not clear that Green Tree applies to the vindication of state, rather than federal, statutory rights.  Slip Op. at 8.  Even if Green Tree applies to state law claims, the “notion that arbitration must never prevent a plaintiff from vindicating a claim is inconsistent with Concepion.”  Id.  If the Concepion majority intended that plaintiffs could avoid class waivers by offering evidence of their individual costs of arbitration versus their potential recovery, one would have expected the majority to address that proposition as the dissent raised it.  Id. at 8-9.  It would be impractical to make a fact-specific comparison of a plaintiff’s potential award to potential costs in order to evaluate the enforceability of a class action waiver.  Id. at 9.  Last, the Kaltwasser court rejected the plaintiff’s argument that Concepion left intact California case law that claims for injunctive relief under the UCL, CLRA, and FAL cannot be arbitrated because the purpose of such relief is to remedy a public wrong that arbitration would frustrate.  Such a principle conflicts with the FAA because that amounts to a state law outright prohibiting arbitrating particular claims. Id. at 11.  

Novel Methods to Limit Concepcion’s Reach.
While those opinions enforcing class action waivers in arbitration provisions are useful to defendants, other courts find ways around Concepcion.  One of those opinions actually precedes Concepion but states a principle that other courts embrace.  In re American Express Merchant’s Litigation, 634 F.3d 187 (2d Cir. 2011), concluded that the costs of an economic analysis in a Sherman Act tying arrangement claim made the class waiver unenforceable.  Enforcing the arbitration clause would prevent individual plaintiffs from vindicating their federal statutory rights because no plaintiff would obtain an economic analysis that typically would be at least 10 times the size of its claimed damages.  Notably, the Second Circuit sua sponte stayed that matter for reconsideration in light of Concepion on August 1, 2011.  

Lower courts in the Second Circuit also have relied on the vindication of federal statutory rights doctrine.  For example, Chen-Oster v. Goldman, Sachs & Co., 2011 WL 2671813 (S.D.N.Y. July 7, 2011), the court ruled that a class waiver would prevent the plaintiff from effectively vindicating statutory rights under Title VII.  Circuit law made clear that such a plaintiff could only bring a “pattern or practice” discrimination claim in a collective action, so an arbitration class action waiver would make it impossible to pursue such federally-created, statutory claims.  
Moving beyond federal court, we also see state courts making considerable efforts to avoid Concepion.  In NAACP of Camden County East v. Thomas, 2011 N.J. Super. LEXIS 151 (N.J. Super. Ct. App. Div. Aug. 2, 2011), the court severed arbitration provisions as unenforceable under a traditional contract law analysis.  That litigation involved used automobile sales, and the plaintiff wanted to avoid an arbitration clause.  The court concluded that multiple documents provided to individual customers contained different, confusing, and vague language regarding arbitration.  Applying traditional legal doctrines regarding contract formation and interpretation, the court concluded that no mutual assent to the arbitration provisions existed because of those deficiencies.  Id. at *33-34. 

Similarly, the California Court of Appeal ruled that a PAGA claim for civil penalties relating to overtime pay deficiencies is a law enforcement action protecting the pubic.  Because such an action is not one benefiting private parties, refusing to enforce the arbitration clause and its class action waiver does not frustrate the FAA.  Brown v. Ralphs Grocery Co., 197 Cal. App. 4th. 49 (2011).  It will not be surprising to see state courts be more creative in crafting principles limiting Concepcion.
Finally, an administrative action before the National Labor Relations Board reveals that the Department of Labor and Equal Employment Opportunity Commission believe that class/collective action waivers violate the National Labor Relations Act.  Section 7 of that act guarantees employees the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .”  Section 8(a)(1) prohibits employers from interfering with that or any other right guaranteed in § 7 of the act.  In D.R. Horton Inc. v. Cuda, NLRB No. 12-CA-25764 the Department of Labor and EEOC (as well as the NLRB’s acting general counsel and various amici) assert that such waivers interfere with that ability to pursue concerted actions for mutual benefit.  The NLRB has not yet issued its decision, but this issue undoubtedly will work its way through the courts following the conclusion of administrative proceedings.  

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On April 27, 2011, the United States Supreme Court released its opinion in AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011), holding that the Federal Arbitration Act preempts California’s near-prohibition on class action waivers in arbitration provisions of consumer transaction contracts.  The Court found that the rule in Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005), “stands as an obstacle to the accomplishment and execution of the full purposes of Congress” when it enacted the FAA.  Concepcion, slip op. at 18 (quotations omitted).  This opinion is very significant for anyone who defends clients against consumer claims or who drafts arbitration clauses for such clients.  This opinion greatly enhances the ability to enforce such arbitration clauses and avoid the “bet the company” risks of certain class actions.  

The Concepcions entered into a cell phone agreement with AT&T, which included free phones.  AT&T, however, charged $30.22 in sales tax based on the phones’ retail value.  The Concepcions brought a putative class action asserting false advertising and consumer fraud claims.  AT&T moved to compel arbitration under the terms of its contract, but the district court and the Ninth Circuit concluded that the arbitration provision was unconscionable and unenforceable because it disallowed classwide procedures.  Even the district court recognized that the process under AT&T’s provision was “‘quick, easy to use’ and likely to ‘promp[t] full or . . . even excess payment to the customer without the need to arbitrate or litigate’ . . . .”  Slip op. at 3.  “Indeed, the District Court concluded that the Concepcions were better off under their arbitration agreement with AT&T than they would have been as participants in a class action . . . .”  Slip op. at 18.   

The FAA permits a court to invalidate arbitration provisions based on “generally applicable contract defenses, such as fraud, duress, or unconscionability,” but not defenses applicable only to arbitration clauses.  9 U.S.C. § 2.  California’s Discover Bank rule held that class action waivers were unconscionable if they involved consumer adhesion contracts, predictably small damages, and allegations of a scheme to deliberately cheat many consumers out of small amounts of money.  Courts often relied on Discover Bank to invalidate arbitration agreements if a defendant did not assent to class treatment.  Slip op. at 5-6, 12.  But requiring a party to a contract to submit to class treatment interferes with “fundamental attributes of arbitration” (e.g., procedural informality, less expense) while greatly increasing risks to defendants in a single dispute without judicial review.  Slip op. at 9, 14-16.

For practitioners and businesses, Concepcion significantly alters the class action landscape.  Fair, well-crafted arbitration clauses should offer businesses a way to efficiently resolve consumer disputes while avoiding the risks of class actions.  Challenges to class waivers in arbitration clauses will continue, though.  For example, the Second Circuit recently ruled that an arbitration clause class waiver was unenforceable because it would effectively deny the plaintiffs an ability to enforce their rights under the Sherman Act due to the prohibitive costs of an antitrust economic analysis in individual actions.  In re Am. Express Merchants Litig., No. 06-1871 (2d Cir. Mar. 8, 2011).  While Concepcion offers a powerful argument rebutting such conclusions, practitioners should anticipate those challenges.  Legislative attempts to exclude consumer transactions from the scope of the FAA periodically arise, too.  E.g., Arbitration Fairness Act of 2009, H.R. 1020, 111th Cong. (2009).                          

Justice Scalia authored the opinion (joined by the Chief Justice and Justices Kennedy, Thomas, and Alito).  Justice Thomas also filed a concurring opinion.  Justice Breyer dissented, joined by Justices Ginsburg, Sotomayor, and Kagan.


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