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ABA Section of Dispute Resolution
April 19-27, 2017 |
Hyatt Regency San Francisco, CA
San Francisco, CA
Courts, Not Arbitrators, Decide Gateway Issue of Class Proceedings
Who should decide the gateway issue of whether an arbitration agreement permits class proceedings? Courts, not arbitrators, the U.S. Court of Appeals for the Fifth Circuit has concluded, joining the Fourth, Sixth, Seventh, Eighth, Ninth and Eleventh Circuits.
Employees at 20/20 Communications, a national direct sales and marketing company, were required as a condition of employment to sign the company's Mutual Arbitration Agreement. Among other provisions, the agreement contained a class arbitration bar under which employees agreed to bring only individual actions, and not class or collective actions, to arbitration.
Several field sales managers filed separate individual arbitration claims, later amending them to assert identical class claims. In response, 20/20 sought a declaration in federal court that the issue of class arbitrability is a gateway issue for the court-rather than the arbitrator-to decide, and that the class arbitration bar found in the agreements did in fact foreclose class arbitration.
After consolidating the action with a separate 20/20 appeal of an arbitrator's decision that the class arbitration ban was unenforceable, the Fifth Circuit ruled in favor of the employer.
Ordinarily, courts must refrain from interfering with arbitration proceedings, the federal appellate panel wrote. However, certain threshold questions-such as if the parties dispute whether they in fact agreed to arbitrate at all-are considered "gateway" issues that presumptively must be decided by courts, not arbitrators.
While the U.S. Supreme Court has yet to weigh in on whether class arbitrability is such a gateway issue, every other federal circuit to consider the issue has answered in the affirmative, the Fifth Circuit said.
"We agree with our sister circuits and hold today that class arbitrability is a gateway issue for courts, not arbitrators, to decide, absent clear and unmistakable language to the contrary," the panel wrote. "Like our sister circuits, we regard the decision to arbitrate a dispute as a class, rather than on an individual basis, as a threshold question of arbitrability, because class arbitrations differ from individual arbitrations in fundamental ways."
A class action no longer purports to bind just the named parties, but adjudicates the rights of absent parties as well, the court explained; class actions also "dramatically increase not only the size but also the complexity of the dispute," with implications for due process and the privacy and confidentiality of the parties involved.
Having determined that class arbitration is a gateway issue that must be presumptively decided by courts, not arbitrators, the Fifth Circuit then examined the arbitration agreement at issue to decide whether the parties clearly and unmistakably agreed to allow the arbitrator to determine that issue.
The agreement provided: "[T]he parties agree that this Agreement prohibits the arbitrator from consolidating the claims of others into one proceeding, to the maximum extent permitted by law. This means that an arbitrator will hear only individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group of employees in one proceeding, to the maximum extent permitted by law."
This language not only operated to bar class arbitration to the maximum extent permitted by law, "but also to foreclose any suggestion that the parties meant to disrupt the presumption that questions of class arbitration are decided by courts rather than arbitrators," the panel said. "After all, it is difficult for us to imagine why parties would categorically prohibit class arbitrations to the maximum extent permitted by law, only to then take the time and effort to vest the arbitrator with the authority to decide whether class arbitrations shall be available."
Although the employees pointed to three different provisions in the agreement that they argued vested the arbitrator with various general powers, the court rejected each as lacking "the requisite clear and unmistakable language that arbitrators, rather than courts, shall decide questions of class arbitrability."
"That language is, at best, in substantial tension with-and in any event, not clear and unmistakable support for-the notion that the parties authorized the arbitrator to decide the gateway issue of class arbitration," the panel said, reversing and remanding the case.
To read the opinion in 20/20 Communications, Inc. v. Crawford, click
Why it matters: The Fifth Circuit joined every other circuit to consider the issue and held that class arbitration is a gateway issue that must be decided by courts and not arbitrators, absent clear and unmistakable language in the arbitration agreement to the contrary. As the panel was unable to find such clear and unmistakable intent in the agreement at issue, it remanded the case for the district court to answer the question of whether the employees can proceed as a class.
- To start, can you briefly introduce yourself and explain your role at CPR?
Thank you very much for the invitation Kiran. At CPR, I am responsible for our international activities, both in terms of thought-leadership initiatives and dispute resolution services. Our international activities currently primarily focus on Europe, Latin America and Canada. In each of these regions, we have advisory boards with representatives from our members who work collaboratively to carry out CPR's mission for efficiency and cost-effectiveness in their respective jurisdictions. I am also in charge of
, a program for young international dispute resolution practitioners, as well as the
CPR International Mediation Competition
which we launched three years ago out of Brazil.
Prior to my legal career, which I started at Shearman & Sterling, I led global projects at CA Technologies and Parametric Technology Corporation (PTC). I am a CPR and CEDR trained mediator, and studied law in France, Germany and in the U.S.
2. For readers who might be unfamiliar with CPR, can you explain the advantages CPR offers over the many other arbitration centers around the world?
CPR is unique because it was founded over 40 years ago by General Counsels at Fortune 100 companies who were concerned about efficiency and cost-effectiveness in commercial dispute resolution. As a result, we are user focused. The CPR Institute - the thought-leadership part of the organization - brings together all the stakeholders of the dispute resolution landscape, i.e.leading corporate counsel, outside attorneys, arbitrators, mediators, judges and academics, to collaboratively develop cutting-edge solutions in dispute prevention and resolution.
This 360° stakeholder engagement and dialogue informs CPR's dispute resolution services. Our rules, tools and protocols are responsive to the field's most pressing concerns. We offer the full spectrum of dispute resolution services a corporation may need to resolve its disputes, including mediation, arbitration, dispute resolution boards.
In terms of arbitration, CPR is the only institution to offer both administered and non-administered arbitration rules with an array of à la carte services, such as fundholding, which offers flexibility and enables the parties to customize their arbitration based on their needs. The CPR Panel of Distinguished Neutrals is comprised of around 550 rigorously vetted and highly respected arbitrators and mediators worldwide and includes over 30 specialty panels. Our New York based case management team is composed of highly experienced attorneys and has handled more than one trillion dollars in disputes over the years. The rules themselves are all about efficiency, avoiding any unnecessary steps. As a result, the average time for a CPR case is consistently below 12 months with tribunal appointment typically taking place in less than 3 to 4 weeks from the initial filing.
3. How can corporations and their counsel make use of CPR's services, and does this have to be decided at the time of entering their contract?
We encourage companies and their lawyers to be pro-active and thoughtful when it comes to drafting their dispute resolution clauses rather than using boilerplate language that might not be adaptable. They should consider the full spectrum of dispute resolution processes that exist and utilize the most appropriate processes for the type of disputes they anticipate, the nature of the deal, the relationship history of the parties and other factors. For certain types of contracts, it might make sense to utilize multi-step clauses that combine several dispute resolution processes - negotiation, mediation, arbitration or litigation.
This also means that counsel should be mindful of the rules and procedures they use and the differences there might be in terms of default tribunal selection mechanism, confidentiality and other procedural aspects. CPR provides a variety of guidelines and tools - such as the
CPR Dispute Resolution Clause Selection Tool
- that can help develop a clause that is adapted to parties' specific needs. Everything does not have to be decided in the dispute resolution clause - although it is always easier to agree on a clause before a dispute arises - and parties to an existing dispute should also consider modifying their dispute resolution process post-dispute through a submission agreement if a better process or set of rules would make more sense under the specific circumstances of an existing dispute.
CMS issues final rule on pre-dispute arbitration agreements with long-term care facilities
On July 18, 2019, CMS
published a rule
that finalized certain requirements for long-term care ("LTC") facilities using pre-dispute arbitration agreements with residents. The final rule is scheduled to go into effect on September 16, 2019.
Recent history on LTC arbitration agreements
As explained below, CMS's position on arbitration agreements between LTC facilities and residents has evolved over the past few years.
- In October of 2016, CMS published a final rule that completely prohibited LTC pre-dispute binding arbitration agreements.
- Then, in December of 2016, after the U.S. District Court for the Northern District of Mississippi enjoined enforcement of this prohibition, CMS issued a nationwide instruction to State Survey Agency Directors that directed them not to enforce the 2016 final rule.
- Thereafter, in June of 2017, CMS issued a proposed rule to remove the prohibition on binding pre-dispute arbitration agreements.
Requirements for LTC arbitration agreements
The final rule contains the following specific requirements for LTC arbitration agreements:
- The agreement must state that neither the resident nor his or her representative is required to sign the agreement as a condition of admission to the LTC facility or to continue to receive care.
- The agreement must be explained to the resident (or his or her representative) in a form and manner that he or she understands.
- The agreement must provide for the selection of a neutral arbitrator agreed upon by both parties and a venue that is convenient to both parties.
- The agreement cannot contain any language that prohibits or discourages the resident or anyone else from communicating with federal, state or local officials.
- The agreement must explicitly grant the resident (or his or her representative) the right to rescind the agreement within 30 days of signing.
- The resident (or his or her representative) must acknowledge that he or she understands the agreement.
Next steps for LTC facilities
If an LTC facility chooses to use arbitration agreements with its residents, we recommend the following steps:
- Ensure that the language used in the arbitration agreement meets the requirements listed above. Because the final rule contains requirements that were not included in the proposed rule, the language of any currently-existing arbitration agreements will likely need to be changed.
- Train admissions staff on the new rules.
- Ensure the admission process aligns with the new rules.
ArbitrationNation Bookworm: Inaugural Post
I'm adding something new to our Blog experience, the ArbitrationNation Bookworm. Basically, once or twice a month, I'll provide a brief overview of an article or book that readers of the Blog might find interesting. I'm also going to add a sidebar that includes other stuff that we're reading related to arbitration.
For the inaugural post, I'm recommending an article from early 2019,
Arbitration Nation: Data from Four Providers
, by Andrea Cann Chandrasekher and David Horton. (Neither Liz nor I had any involvement in writing the article, despite its title, but the authors did secure permission from Liz to use the Arbitration Nation name.)
This article analyzes a huge data set on consumer, employee, and patient arbitration - 40,775 arbitrations filed between 2010 and 2016 and administered for four major institutions. I won't spoil all the fun of reviewing the findings, but the authors conclude that three points emerge:
First, arbitration has the capacity to facilitate access to justice. Cases move quickly through the system, and corporations pick up most of the tab. Second, arbitration is not currently living up to this potential. Although businesses are correct that more individuals are arbitrating after Concepcion, this uptick has been modest. Moreover, companies are wrong about who is bringing those claims. Plaintiffs' lawyers-not self- represented consumers, employees, or medical patients-have been taking advantage of arbitration's speed and relative affordability. In fact, some attorneys have tried to create a simulacrum of the class action by initiating dozens or even hundreds of two-party arbitrations against the same defendant. Third, concern that arbitration favors repeat-playing corporations is well founded. Indeed, businesses that arbitrate often in an institution perform particularly well within that institution. Nevertheless, this is just one-half of the repeat-player story. Arbitration favors repeat players on both sides. In a variety of different settings, serially arbitrating plaintiffs' law firms also fare particularly well.
For anyone thinking about the many sticky issues around consumer, employment, or patient arbitration clauses, this article warrants a close look.
The United States and its neighbor to the north, Canada, share the world's longest border, a common language, and similar values, resulting in one of the most stable and mutually beneficial international business relationships in the world. Indeed the United States is Canada's largest trading partner, and Canada is the United States' second largest trading partner. As Mr. Rogers eloquently put it, "
it's a beautiful day in the neighborhood
". However, even with the most stable business relationships, disputes inevitably arise.
The United States and Canada have incorporated arbitration into their legal regimes in similar manners, but a number of critical differences exist of which U.S. companies doing business in Canada and vice-versa should be aware. This article addresses several important issues that parties doing business between the United States and Canada should consider when drafting an arbitration clause to ensure that the clause meets their expectations.
Sources of Law
United States: The
Federal Arbitration Act ("FAA")
regulates domestic and international arbitrations in which the underlying transaction involves "interstate commerce", such as transactions between the U.S. and Canada. The federal government has not adopted the UNCITRAL Model Law, but federal courts have interpreted the FAA consistently with the UNCITRAL Model Law. But where underlying transactions take place completely within one state, that state's arbitration acts govern. Most states have adopted some version of the Uniform Arbitration Act, and some have adopted variations of the UNCITRAL Model Law.
Canada: In contrast to the United States, the key legislation governing arbitration in Canada is found primarily at the provincial or territorial - rather than the federal - level. While a federal arbitration statute does exist, it applies only in limited circumstances where at least one of the parties to the arbitration is the Crown, a federal departmental corporation, or a Crown corporation. The legislation governing Canadian arbitrations is largely the realm of the provinces, which have enacted discrete statutes pertaining to both international and domestic arbitrations. With the exception of Quebec, each province and territory has adopted the UNCITRAL Model Law either wholesale or in modified form. In addition to international arbitration statutes, all provinces and territories have adopted separate legislation governing domestic arbitration.
United States: The FAA provides some foundational rules for arbitration proceedings such as requiring that arbitration agreements be in writing, but leaves much of the details to the parties. Regardless of the parties' agreement, the FAA allows parties to "
summon . . . any person to attend before them . . . as a witness
". In terms of review, the FAA allows courts to vacate an arbitral award only on limited grounds, including "
corruption, fraud, or undue means
". Parties have the option of conducting an ad hoc arbitration or administering an arbitration through any number of arbitration institutions, such as
, among others.
Canada: Legislation governing international arbitrations which incorporate the UNCITRAL Model Law typically require that a binding arbitration agreement be in writing and signed by the parties. The formal requirements for domestic arbitration agreements are found in provincial legislation, which differ between the provinces. As in the United States, parties to Canadian arbitrations have significant flexibility to choose their own arbitral procedure and may adopt a specific set of arbitration rules from an arbitral institution or create their own ad hoc procedural rules. Canada has a strong tradition of ad hoc domestic arbitration while institutes are becoming more established. The
ADR Institute of Canada
, based in Toronto, has adopted the National Arbitration Rules relating to domestic disputes, while the
British Columbia International Commercial Arbitration Centre
is often used for arbitrations centered in Vancouver.
Canada: Arbitration clauses are typically enforceable in the context of commercial contracts but may be unenforceable in the context of consumer contracts. Several Canadian provinces have amended their consumer protection statutes to limit the circumstances in which consumer disputes (including class actions) may be submitted to arbitration. Canadian courts have interpreted such legislation as permitting consumer class proceedings despite the existence of mandatory arbitration clauses in the underlying consumer contracts. While the use and permissible scope of arbitration clauses in employment contracts is the subject of ongoing litigation before the Supreme Court of Canada, parties should be mindful that such clauses may not be fully enforceable in the Canadian employment context by virtue of the governing employment legislation.
As it's not always a "beautiful day in the neighborhood", U.S. companies doing business in Canada and vice-versa should be aware of the similarities and notable differences between the U.S. and Canadian arbitration regimes. By properly understanding these similarities and differences, contract drafters can ensure that an arbitration clause fully meets the expectations of the parties.
In an effort to recognize the specialization in the ADR community, we are creating 3 separate newsletters broadly covering these areas: Mediation - Arbitration - International ADR.
A newsletter focused in one of those areas will be sent out bi-monthly. In order for you to subscribe to as many types of newsletters that fit your particular practice/interests, please click on the Update Profile/Email Address link at the bottom of this email. From there you will be able to select which newsletters you wish to receive or if you would like to opt out all together.
Thank you for reading my newsletter, and as always, if you have any questions on any of the articles listed, do not hesitate to contact me.
Thomas P. Valenti
350 W. Hubbard St.,
Chicago, IL 60654