Business Conflict Blog
We have previously noted the New Jersey Supreme Court’s somewhat radical view of arbitration agreements — including the proposition that, to be enforceable, each party to the contract needs to understand what arbitration means. This principle has been applied to a subsequent dispute before the State Supreme Court, resulting in the holding that a provision of an arbitration agreement in a student enrollment contract delegating the authority to determine arbitrability to the arbitrator is invalid where the students were not put on notice that (a) a court would not determine arbitrability, or (b) a court would not determine anything whatsoever inasmuch as the students had irrevocably waived their right to judicial access.
In Morgan v. Sanford Brown Institute, a complaint was brought in state court by students alleging fraud against Sanford Brown Institute (a for-profit educational institution offering medical ultrasound training). Defendant Sanford Brown unsuccessfully argued a motion to compel arbitration, implicitly acknowledging that the court had authority to grant such relief. The school neither relied upon the delegation clause in the arbitration agreement (empowering an arbitrator, not a court, to determine arbitrability of claims), nor cited any law with respect to the validity of such delegation provisions. The trial court denied the motion but the school prevailed before the Appellate Division, which reversed the trial court, dismissed the students’ complaint, and directed that the claims be sent to arbitration. Here, for the first time, the court held that “the parties ‘clearly and unmistakably’ agreed an arbitrator would determine issues of arbitrability.” The trial court’s error, therefore, consisted of its not submitting the issue of arbitrability to an arbitrator.
Ignoring its own holding, the Appellate Division panel nevertheless made certain legal findings with respect to the arbitration agreement, determining inter alia that the arbitration agreement’s limitation on the award of statutory damages and exclusion of other protections of the New Jersey Consumer Fraud Act were unconscionable and unenforceable.
The Supreme Court reversed, holding the entire arbitration agreement unenforceable and remanded to the trial court for (presumably) reinstatement of the students’ claim. The rationale for the Supreme Court’s action was consistent with, but an extension of, its previous holding in Atalese v. U.S. Legal Services Group. That case, in turn, was founded on the proposition that, pursuant to the Federal Arbitration Act, the enforceability of agreements to arbitrate was to be determined by generally applicable state law principles of contract, which (in New Jersey) meant that “a consumer had to have some understanding that, by accepting arbitration, she is surrendering her common-law and constitutional right of access to the courthouse.” Because, in the court’s view, “state law governs not only whether the parties formed a contract to arbitrate their disputes, but also whether the parties formed an agreement to delegate the issue of arbitrability to an arbitrator,” those state law principles — such as the requirement of mutual assent and a common understanding of the contract terms — defeat this agreement. The court held that a waiver of a constitutionally guaranteed right must be clear and unmistakable — and, under New Jersey law, explained “in sufficiently broad terms” in the agreement itself. The agreement at issue “[did] not explain, in broadly worded language or any other manner, that plaintiffs are waiving their right to seek relief in court for breach of the enrollment agreement or for a statutory violation,” and thus did not satisfy the elements necessary for the formation of a contract.
Several concerns are raised by this decision. First, it seems to be restricted to consumers who enter into arbitration agreements. That is, could General Motors rely on Atalese or Sanford Brown to argue that its arbitration agreement with DuPont is unenforceable because the contract did not explain the consequences of arbitration or delegation with respect to waiver of constitutionally guaranteed access to the courts? Indeed, could any party to any contract contest its validity on the ground that the party did not understand the consequences of its agreement to certain of its provisions? If General Motors is presumed to understand the meaning of an arbitration agreement, and students enrolled in an ultrasound technician training course are presumed not to understand it and require it to be explained to them, then where do I fall in the continuum? And where do you?
In addition, there is the issue of futility. The court itself noted that the arbitration provision in the 4-page enrollment agreement was in 9-point type, single-spaced, and therefore difficult to read. Would the insertion of a definition of arbitration, waiver, and delegation have cured the defect that the court complained of? And would certain prospective students reconsider their intention to enroll in Sanford Brown Institute because of an additional inserted phrase in the arbitration clause of the enrollment agreement?
Finally, and perhaps of greatest concern, is the prospect that, in order to be enforceable in New Jersey, arbitration agreements now must feature certain provisions that arbitration agreements in the neighboring states of Pennsylvania, New York and Delaware need not. The Sanford Brown court saw no difficulty here — “no greater burden is placed on an arbitration agreement than other agreements waiving constitutional or statutory rights.” It refers to cases cited in Atalese that require notice when a consumer or employee agrees to waive appeals of the denial of a license and other administrative acts. This somehow doesn’t hold water. It is the very nature of agreements to arbitrate that the parties mutually waive access to the courts. One could argue that there is nothing of substance in an arbitration agreement other than a waiver of access to the courts.
It seems apparent that the driving force behind this opinion is hostility to judicial arbitration, at least in the consumer context. The court is deeply skeptical that courts should be carved out of claims of consumer fraud by private contracts of adhesion unilaterally promulgated by the stronger party. So are many of us — but as a matter of policy, not common law, and not because we think judges are any better equipped to decide fraud claims than arbitrators are. Forcing all these claims to be asserted in New Jersey Superior Court does no favor to the students or to the courts.
I invite readers to articulate the broad legal contract principles that render unenforceable, as to students and consumers, contracts that are perfectly enforceable between businesses, and that render unenforceable in New Jersey arbitration agreements that are enforceable in every other state.
Prof. Marjorie Silver of Touro Law Center has sent me the proofs of a book that she is editing, scheduled to be released in January 2017 by Carolina Academic Press. Titled Transforming Justice, Lawyers and the Practice of Law, the volume collects brave and insightful essays on the sometimes uncomfortable juxtaposition between teaching and practicing law on the one hand, and being a spiritually congruent human being on the other.
The publisher’s advance note provides:
Transforming Justice, Lawyers and the Practice of Law is a forthcoming anthology compiled by the editor of The Affective Assistance of Counsel: Practicing Law as a Healing Profession (Carolina Academic Press 2007). This new work is a collection of writings by participants in the Project for Integrating Spirituality, Law and Politics (PISLAP) and others actively engaged in transforming law, legal education and social justice into something that is collaborative rather than adversarial, that seeks to heal brokenness rather than merely resolve disputes, and that moves us toward The Beloved Community envisioned by the Reverend Martin Luther King, Jr. more than fifty years ago. The book will showcase the abundant ways in which lawyers, judges, law professors and others are employing more communitarian, peaceful and healing ways to resolve conflicts and achieve justice. It is written for those who share similar goals and are eager to learn new ways to practice law and create a legal system that fosters empathy, compassion and constructive change.
PISLAP, referred to in the description, is part-community, part-movement that seeks to “develop a new spiritually-informed approach to law and social change.” It is a far-sighted and ambitious group of devoted and capable practitioners and academics whose work merits being on the radar screen of the legal community, and especially those of us who seek to practice in the field of resolving conflicts.
I am proud to be a chapter contributor to this volume and hope that it has a wide readership.
I was honored to address the 4th Conference of the Asian Mediation Association in Beijing, held 20-21 October, 2016, as a keynote speaker. My remarks appear below.
* * *
What the West Can Learn from Chinese Mediation
I first visited China almost 15 years ago as a representative of the CPR Institute in New York. The Institute is a coalition of corporations, and their law firms, who seek ways to resolve disputes with each other that do not involve entering American courts. Over the course of five or six years, I worked with CCPIT on a project that eventually became known as the US-China Business Mediation Center.
Although I was very proud of the work that my Chinese friends and I were able to accomplish, I value our personal friendships even more. During my brief visit for this conference I have been meeting some of my friends and I find my life enriched by their kindness, loyalty and happiness.
At some point during the creation of the US-China Mediation Center, it was made clear to me that many Chinese lawyers, judges, arbitrators and business people wanted to learn how American businesses mediate. This was a little bit of a surprise to me, because I thought that I had come to China so that I may learn from the Chinese, not to teach them. But an American professor, Dwight Golann, and I conducted a 3-day training session to explain how America companies mediate.
The training session did not go as we had planned. Many Chinese judges and very experienced CIETAC arbitrators attended the event, and they were seriously confused. For one thing, they were accustomed to listening to the professor lecture. In America, mediators learn, not through lecture, but instead by doing exercises and practicing. Professor Golann and I were teaching the way you might buy a suit, or ride a bicycle – by trying it and learning what fits. This process made some of our Chinese friends uncomfortable – they were used to writing notes while someone talked.
The other, more serious, miscommunication was more substantive. It had to do with what mediation was for – what the very purpose of it was. The Professor and I were teaching a process where companies who had a dispute went into a private room and hammered out a solution that worked for them, usually by offering some money and also a change to the contract going forward. One very esteemed Chinese participant found this approach to be completely useless. He said that he had conciliated over 10,000 cases in his court, and he explained his process. He said that he told them to stop lying and explain what really happened. Then he consulted the civil code to determine what the correct outcome would be. Then he called the parties into his office and told them that Party One owed Party Two 50,000 RMB, and should pay. He added that he could not force Party One to pay Party Two, but if it did not pay 50,000 RMB, then he would continue the trial and at the end, in front of family, neighbors, and the community, he would order Party One to pay Party Two 50,000 RMB. “Every one of my cases settled,” he said.
“And they settled on the right terms,” he added.
It was this idea – that the terms of mediation should be “right” – that began the process of learning from my Chinese friends that I sought in the first place.
Young people often scoff that their parents do not understand them or the world – that because they are old, they are ignorant. A famous American writer, Mark Twain, once wrote “when I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much the old man had learned in seven years.”
So it is, too often, with young America and the older, wiser, more sophisticated Asian countries. I do not mean to suggest that Americans are stupid. Rather, they are so eager to teach what they think they know that they often underestimate the lessons that they can learn from older cultures such as China. This is especially true in fields like conciliation, where centuries of experience have developed a different approach to dispute resolution – one that deserves respect.
Western culture emphasizes individual liberty. Indeed, one of my great heroes, Thomas Jefferson, wrote that the only reason governments exist at all is to protect the liberty of individual people, and the only authority that governments have is the authority that the people grant to it. This sounds like an appealing idea, and of course it is. But it can result in a nation that sometimes goes off-course. As an example, I point you to the election that will take place in three weeks, in which Americans will choose between two presidential candidates that most Americans do not want to be president in the first place.
This emphasis on individuals, and individual liberty, is reflected in the way Americans mediate. When I learned to mediate, I was trained to listen closely to individual disputants, and probe to find out as much as I could about what they wanted to gain, or to avoid, in this conflict. I was trained to seek out areas in which their individual desires might be shared without their recognizing it, and how to identify the distinct areas in which they differed. I was trained to help parties to measure the risk of failing to agree – the risk of going to an American court and losing money, time and reputation in a public and uncertain forum. I was trained to be alert to possible trade-offs or exchanges or compromises, so that each party to the dispute got the things that were most important to them, by offering to exchange things that were less important to them. And I was trained that a “successful” mediation was one in which the parties privately agreed to a solution that each thought was the best for them – the best under the circumstances they were faced with, and better than going to court.
But I was never trained to counsel them in what the law was. That was for their personal lawyers to help with, not for the neutral and unbiased mediator. Indeed, I was trained never, never to express an opinion about anything other than what might be best for the specific parties in front of me – and even then, always to defer to their own business judgment.
I will add that this emphasis on personal self-interest has a peculiar and uncomfortable relationship to our personal values in America. As a child I was taught never to take the largest piece of pie, but instead to offer it to others first. I was taught to apologize and admit responsibility if, by mistake, I threw a baseball through my neighbor’s window while I was playing. And I was taught to be fair when playing with my schoolmates on the playground, not to bully others and not to take advantage of younger children. Yet when American businesses engage in litigation, and even mediation, they consistently deny responsibility and seek every advantage they can obtain – and they do so on the strict advice of their legal counsel.
Compare this approach to the practice in China. In 2009 I was given a copy of this book that I hold in my hand, which celebrated the 20th anniversary of the CCPIT Mediation Centers. It is a beautiful volume and I was honored to receive it. Many of my friends worked on it, including ZHUNG Rungao, CHENG Hui, and our host today WANG Fang. There is a lovely picture of WAN Jifei addressing the 2005 US-China Mediation Center Congress, with a (younger) me listening to his words. And here is a picture of the training session that Professor Golann conducted.
But the reason I treasure this book, and the reason I sometimes bring it down from the shelf to read it again, is because it seems to me to contain a different and valuable insight – the emphasis on social harmony. On page 143 there are several quotations on the idea of harmony from the sages, including Confucius’ teaching that harmony is the most valuable thing, and the selection from Zisi’s Doctrine of the Mean that “Harmony is the universal path.” I understand these teachings to be similar to those of Jefferson, in that they are aimed at how individuals should hope to act – but different because they emphasize balance, discretion and harmony rather than mere self-interest.
Our approach to mediation differs in the same way. The pages in the book that follow these quotations contain statements by CCPIT mediators. These statements are startling to a Western reader, because of the consistent emphasis on the idea of harmony. WANG Fang writes that, in China, “mediation should actively promote the spirits of harmony and cooperation.” LI Huanting understands the purpose of mediation to be “to promote business harmony.” LI Yong says, “Mediation is to develop the qualities of human nature so as to resolve contradictions, and pursue harmony which benefits the society and the individual.” Time and time again, these skilled Chinese mediators reveal that the reason they do their work is not only to get the parties what they want, but also with an eye to building what ZHAO Jie calls “a harmonious society.”
It is as if, when parties meet in a Western mediation room, they contemplate the concept of fa and seek ways to avoid it; while in a Chinese mediation room they contemplate the ideal of li and seek to embrace it.
I am not proposing that Western mediators become Chinese mediators. No one should become someone else. Americans mediate the way they do, primarily because that is what American companies expect them to do. This is of course one of the challenges of mediation that involves American and Chinese companies – they have different expectations of the process and of the people involved. Still, we have much to learn from our Chinese friends.
At the core of my concern is a lesson I learned from my grandmother. When, as a small child, a plate of sweets was passed around the dinner table, I took three. She leaned over and put two back on the plate, whispering to me, “There are others.” I wish that this concept would be considered more actively by Americans when they mediate – in addition to our own self-interest, and not ignoring it, to exhibit some sensitivity to the idea that “there are others,” who have their own legitimate self-interests, and who may be affected by our decisions. To be clear, I suggest this consideration of “others,” not as an exercise in virtue, but a practical way of improving our society as a whole. It is possible, as my older and wiser colleague explained in our Beijing training, that there is a “right way” for business mediations to conclude.
I speak this morning to urge us to listen better to each other. I especially voice the hope that Americans will listen more closely to our Chinese friends. Perhaps the time has come when our exchanges should not simply be Western mediators like Professor Golann and myself coming to Beijing to teach American styles of mediation. Perhaps it is time for Chinese mediators to visit America and train American mediators not only about Chinese mediation, but also about the Chinese outlook on conflict and harmony, and the service that mediation provides, not just to the people at the table, but more broadly to the society in which we live, the world we hope to create, and the lessons we offer to our children.
 F. Peter Phillips is an arbitrator and mediator who practices in the New York City area. He is Adjunct Professor and Director of the Alternative Dispute Resolution Skills Program at New York Law School, and can be reached at www.BusinessConflictManagement.com.
I write from Beijing, where the two-day Conference of the Asian Mediation Association has been held, organized by the China Council for Promotion of International Trade (CCPIT) Mediation Centers. I was very excited to return to Beijing after nine years’ absence and to meet so many like-minded, but differently-situated, colleagues.
The Conference, held by the AMA every two years, attracted over 300 participants from 16 countries. A total of 42 speakers shared fascinating perspectives on commercial mediation, including legislative and court-annexed systems as well as private provision of business dispute resolution.
Many of the themes articulated by the first morning’s speakers resonated throughout the conference. Several speakers used the term “non-confrontational” when describing the central utility of business mediation. The concept was that face-to-face accusations are unhelpful in resolving problems and affirmatively harmful in maintaining business relationships, so the intervention of a mediator to keep talks positive and forward-looking was highly valued.
ZHOU Quaing, President of the Supreme People’s Count of the People’s Republic of China, emphasized the beneficial consequences of such an approach to society as a whole: Mediation, he proposed, was not just a private agreement, and the social consequences of dispute resolution were so great that it has become recognized as an important component of the Chinese legal system, with consequent concerns that it be performed professionally by trained mediators.
Andrew PHANG Boon Leong, Judge of Appeal of the Supreme Court of Singapore, suggested that formulations of “rights and entitlements” do not give sufficient weight to equally important societal virtues such as “compassion, duty and economic relationships.” He suggested that the purpose of separate caucuses in mediation was not, as often supposed in America, to determine the underlying interests of a disputant, but rather “to unearth issues that may cause one party embarrassment.”
LONG Fei, Director of the Supreme People’s Court’s Judicial Reform Office, linked gradations of mediation expertise with the challenges that the process is designed to address. “people’s mediators” give way to “industrial mediators,” “commercial mediators,” “invited [i.e., specialized] mediators” and finally “professional mediators. She also observed that dispute resolution outside of adjudicative judicial processes is a matter in which public resources ought to be directed, inasmuch as the process is inexplicably intertwined with the same matters of public concern that justify public maintenance of the court systems.
TANG Weijian, of the Chinese People’s Political Consultative Conference, expressed an underlying theme of the event by suggesting that “power, interest and self-realization” are virtues that are secondary to harmony, the sustenance of which is essential to society.
Each of the many panels and keynote speakers at the Conference contributed fresh and interesting perspectives, especially to this Western student of dispute resolution. Among the many other speakers at the Conference were:
LU Pengqi, Vice-Chairman of CCPIT
JAING Zengwei, Chairman of CCPIT/CCIOC
Richard WAGNER, of the American firm Steptoe & Johnson LLP
David LIM, Court Mediator of the State Court in Singapore
Danny McFADDEN of CEDR
Laurence BOULLE, Director of the Mediator Standards Board in Australia
Robert RHODES QC, Outer Temple Chambers in London
Francis LAW Wai Hung, President of the Hong Kong Mediation Centre
Fahmi SHAHAB, Executive Director of the Idonesian Mediation Center
LOONG Seng Onn, Executive Director of the Singapore Mediation Centre
Judge Suthatip Jullamon TASANACHAIKUL, Judge of Office of the President of the Supreme Court of Thailand
Shane PICKERING, Mediator at the Ministry of Employment, Fiji
The hero of the event was WANG Fang, Deputy Director of the Secretariat of the CCPIT Mediation Center and current Secretary-General of AMA. Her leadership of her staff and vision of the conference were exceptional and resulted in one of the finest and most intellectually robust international mediation events I have ever attended.
In considering the debates raging about the enforceability of class action waiver provisions in arbitration clauses, I have always assumed that the arbitration clause was there just as a vessel to hold the class action provision. That is, I thought that there was no vehicle to waive class actions outright. Indeed, I once wasted a good portion of my not-much-remaining youth trying to find any instance where a party to a contract included a waiver of FRCP 23 while contemplating litigation, and I couldn’t find one.
Well, I wan’t looking in the right places.
Many thanks to Karl Bayer, whose indispensable blog Disputing.com has alerted us to an appeal before the Fifth Circuit Court of Appeals that was argued earlier this week. In Convergys Corporation (363 NLRB No. 51, Nov. 30, 2015), an employer was found to have violated Section 8(a)(1) of the National Labor Relations Act by requiring employees, as a condition of employment, “to agree that they would not pursue any claim or lawsuit relating to their employment on an individual basis.” The rule was found unlawful because it explicitly restricts activities protected by Section 7 of the Act. Noted the Board:
The Board has long and consistently held, with uniform judicial approval, that the Act protects the right of employees to join together to improve their terms and conditions of employment through litigation. Accordingly, by requiring employees to waive their right to engage in class or group litigation as a condition of employment, the Respondent has interfered with their Section 7 right and violated Section 8(a)(1) of the Act.
Two things spring to mind. The first is that the NLRB’s rulings in previous cases such as D.R. Horton were in the context of class action waivers embedded in arbitration clauses, and judicial challenges to the Board’s findings were couched in terms of federal support for agreements to arbitrate (assuming, arguendo, that these are agreements rather than unilaterally promulgated policies of employment, and assuming further that the employer’s policy was intended to ensure arbitration rather than to prohibit class actions). Without the decades-old pro-arbitration judicial policy to rely upon, the employer here may be less protected from challenge.
The other issue is that, in the event the NLRB’s Decision and Order is upheld, it will necessarily be restricted to agreements of employment. Other efforts to restrict individual protections afforded by Rule 23, such as consumer, financial, nursing home, and other “agreements,” would of course remain unaffected by the Fifth Circuit’s actions.
The CFPB is acting to eliminate class action waivers in arbitration clauses in consumer financial transactions, and recent word has it that the Obama administration is acting to make entire arbitration provisions unenforceable in nursing home contexts. Maybe the game of inserting class action waivers, with or without arbitration clauses, has about run its course?
A group of very prominent stakeholders on commercial dispute resolution met at Cardozo Law School on September 12, 2016, to conduct the New York City session of the Global Pound Conference. Of all the many institutions and volunteers who were responsible for this success, the International Mediation Institute takes the foremost position in realizing the vision of its founder, Michael Leathes.
The New York participants included representatives of users of ADR (companies and individuals), advisers to those users (lawyers and law firms), providers of adjudicative or non-adjudicative services (ADR organizations and solo practitioners), and other “influencers” (including academics and other experts). These people participated, not just attended, because they periodically responded to “core questions” (posed to participants in all 40 conferences in 32 countries) and other more local and specific questions. These responses were made available to the participants in real time, and in the aggregate will yield robust data reflecting regional as well as global insight into where we are and where we might progress.
This conference addressed the resolution of business disputes. Specifically excluded were family, consumer, criminal or other types of disputes.
Among the welcoming speakers, Laurence Shore of Herbert Smith Freehills cautioned humility and modesty both from advocates (who may obstruct resolution through behavior they defend as “zealous”), and neutral mediators and arbitrators (who do well to remember that they almost always understand less than they think they do — indeed, in my own experience, less than anyone else in the room — about the disputes).
The first two panels sought perceptions of the current status of ADR choices and use by end-user parties. The first panel addressed the participants’ understanding of party needs and expectations in commercial dispute resolution – on whose advice ADR is chosen, with what expectations and with what business goals in mind. Two outcomes of participant voting particularly caught my eye. When asked whether concern for attorneys’ own fees had an influence on their advice that their clients engage in ADR processes, only 23% of users and 17% of attorneys – that is, those actually giving and getting the advice – responded that it was. By contrast, 44% of mediators, 44% of academics, and 37% of arbitrators thought that attorneys’ advice was colored by a concern for their fees. This seems to suggest that ADR participants other than counsel and their clients harbor skepticism of whether parties are being advised in a disinterested, professional manner. It also seems peculiar that folks who neither gave nor received confidential legal advice had such a sure view as to what that advice reflected.
(Percentages reflect weighted choices of importance, with 1st choice getting three points, second two, and 3d one – so things don’t add up to 100%.)
Another interesting result of this “user behavior” panel dealt with the relative importance that preserving relationships had in user choice of ADR. Parties and attorneys rated it the lowest of the six available selections, at 7-8%. By contrast, mediators thought that users valued relationship preservation much higher, at 20%. The conclusion might be that mediators think they are doing something that (a) they’re not doing; (b) the users themselves don’t seek; and (c) neither the users nor their legal advisers value.
The second panel addressed party expectations and current practice – what outcomes users value the most in the process and outcomes of ADR. Here a surprising level of unanimity of perception was revealed in certain propositions. Pretty much everyone understood that the responsibility for advising a party of the options and consequences of resolution processes lay with inside and outside counsel. Similarly, pretty much everyone (including users, happily) understood that the main things that users get from mediation are control of the outcome and a reduction of cost.
More nuanced results arose when the group was asked how they understood outcomes were determined. Both parties (79%) and mediators (77%) said that outcomes reflected consensus, a voluntary shared decision. By contrast, attorneys relegated that idea to a far lower raking (37%) and thought that outcomes reflected a concern for the rule of law (76%). Parties acknowledged that legal concerns were important (63%) but mediators seemed not fully to appreciate the role that legal concerns take in framing commercial outcomes (49%). And remember that we’re talking here about the mediators’ own customers.
Perhaps the most helpful perception I got from the whole conference was a better understanding of the ways in which what mediators think they’re doing, contrasted to what users experience them doing and expect them to do.
The third panel looked forward, asking which stakeholders were most likely to obstruct, or to bring about, change in commercial dispute resolution. Two outcomes of the voting were particularly noteworthy. First, external lawyers for the parties were uniformly identified as the main source of obstruction. This was contrary to my experience; I have regularly found counsel for parties in mediation to be highly competent and supportive. They also, of course, are the ones who employ me, exemplifying profoundly astute powers of observation. <G> I’m loathe to join this condemnation, which in any event I have not personally observed.
Various stakeholders were identified as likely to prompt positive change in methods of resolving party disputes — except for the parties themselves! The parties were the only group who placed themselves in the primary position; everyone else had widely divergent views, none of them prominently naming the parties. That is to say, the people who had the disputes were the only ones who thought that they were best positioned to improve ways to resolve them. That outcome seemed either humorous or patronizing. Or both?
The organizers of this fabulously successful program are to be congratulated, particularly the global project manager Jeremy Lack. I have never understood why the conference series was subtitled “Access to Justice,” inasmuch as ADR is an attempt to circumvent — not to access — formal, public systems of justice. Nor have I have thought of ADR as particularly accessible in any event. Mediation and arbitration are for parties with the money to buy them, whereas the courts are supported by the taxpayer and access is (relatively) free. And, in practice, very little of the discourse at the actual conference related to this topic.
But quibbles be damned. Many, many more conferences are scheduled around America and around the world over the next several months. See the schedule here and hie you to an entirely unique, captivating day of discussion and insight.
Larson Frisby of the American Bar Association recently prepared an informative memo updating the pending federal legislation and regulations that pertain to mediation and arbitration. The memo was presented at the ABA Dispute Resolution Section Council meeting in August and is well worth serious study. It is posted on the Section’s web site, here.
By now I’ve attended or participated in quite a few task forces, speeches, conference panels and other occasions in which the issue of class action waivers in consumer arbitration clauses has been discussed. Just about each time, just about each speaker has been either smarter or better informed than I am — often both. Two more events are on the horizon: at the ABA Business Law Section Annual Meeting and at a CLE at New York Law School, where I teach. And perhaps it is an indication of my learning — or my not learning enough — that the kernel of the concern reduces itself to a few very simple propositions:
Arbitration Derives its Authority From Informed Consent. Just like Thomas Jefferson said about governments, arbitrators’ power is created and confined by the agreement of the parties. Folks who didn’t agree that an arbitrator should decide a particular dispute are not required to arbitrate that dispute. Almost without exception, “consumer arbitration” involves parties who didn’t agree to arbitrate, and didn’t even understand what agreeing to arbitrate means.
Class Actions Are Experienced as a Form of Threat, Not Redress. The AT&T dispute mechanism clause is a good example of a perfectly suited consumer redress mechanism. So are EBay and Paypal. Use the internet to advise the company that you believe you’re owed money, and the company pays 100% of the money owed, and assumes 100% of the transaction costs, or else risks harsh consequences for failing to do so. The fact that a lawyer in San Diego thought his client was not sufficiently covered by this policy, and initiated a class action instead, confirms what businesses fear: That class actions are being used for purposes other than consumer redress, by a self-interested bar.
Arbitration Clauses Are Distorted as Vehicles for Class Action Waivers. It would be unlikely that an agreement purporting to require purchasers of an iPhone to waive Rule 23 of the FRCP would be enforceable. Yet an identical provision of an arbitration agreement has been held to be enforceable. Therefore arbitration appears in many consumer “agreements,” not with the prospect that claims for redress will be arbitrated, but rather that claims asserted by class action lawyers will be dismissed.
The confluence of these three trends puts us where we are now, which is to say no one’s interest is being met. Rational consumer redress mechanisms are discouraged; businesses’ efforts to manage litigation risk are being regulated to the point of prohibition; and the process of arbitration — a mercantile method of centuries’ lineage and continuing utility — is being mangled and distorted.
How to fix it? As Viola says in Twelfth Night, “It is too hard a knot for me t’untie!”
The upcoming Annual Meeting of the ABA Business Law Section in Boston (Sept. 8-10) features two opportunities to understand the various perspectives on recently promulgated proposed rules of the Consumer Financial Protection Bureau. The rules, if they become effective, would (among other things) render unenforceable provisions of consumer agreements that purport to waive a right to assert claims as part of a class. The discourse that the Bureau’s promulgation has prompted implicates concerns in public policy, arbitration, consumer redress and class actions.
One panel will be held at 10:30 a.m. Friday September 9, and I have the privilege of moderating the discussion. Doug Eyre, Associate General Counsel of Flagstar Bank, will address the risk that CFPB’s proposals might pose to substantive review of arbitration awards. Eric Mogilnicki of Covington & Burling will outline some challenges that the proposed rule might face and issues arising with respect to class actions asserted or pending prior to the effectiveness of the rule. Mike Flynn of Goodwin Procter will voice concerns about the consequences of the possible abuse of the class action process.
We are particularly honored that the Chair of the ABA Dispute Resolution Section, Nancy Welsh, will travel to the Business Law Section to convey that Section’s concerns about the impact that class action waiver and other current practices have on the integrity of the arbitration processes. Finally, Amy Schmitz of the University of Missouri will offer a preview of her upcoming book — co-authored by Colin Rule — suggesting that as consumer transaction activities increasingly rely on online communications, so will consumer satisfaction efforts, including consumer dispute resolution. This panel is sponsored by the Dispute Resolution Committee and co-sponsored by the Consumer Financial Services Committee and the Business and Commercial Litigation Committee.
The second panel will be offered on Thursday September 8 at 3:30 p.m. Sponsored by the Consumer Financial Services Committee, the panel is chaired by renowned attorney Alan S. Kaplinksy and is titled “Arbitration: The CFPB’s Proposed Rule and Beyond.”