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Posts Tagged ‘Federal Arbitration Act’

Stop Calling It an Arbitration Agreement—Employers Are Forcing Workers to Give Up Their Rights

Thursday, May 24th, 2018

Trump-appointee Justice Neil Gorsuch begins his decision for the majority in Epic Systems v. Lewis, the landmark arbitration case decided Monday at the Supreme Court, with a simple set of questions: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?” Justice Gorsuch and the rest of the five-Justice conservative majority answered the first question in the affirmative and the second question in the negative. In so doing, the Supreme Court has ushered in a future where almost all non-union private sector workers—nearly 94 percent of the private sector workforce—will be barred from joining together to litigate most workplace issues, including wage theft, sexual harassment and discrimination.

The decision incorrectly holds that because the Federal Arbitration Act requires courts to treat arbitration agreements on equal footing with other contracts, the National Labor Relations Act, which explicitly protects workers who engage in concerted activity for mutual aid or benefit, does not protect workers’ rights to litigate claims at work. But the problem with the ruling goes much further: The entire decision is premised upon a massive fiction: that these arbitration agreements, wherein the worker loses all access to court to bring a collective action with her fellow workers, are the result of an agreement between the workers and the employer. In reality, arbitration agreements are mandatory rules imposed unilaterally by the employer—not two-sided agreements.

On April 2, 2014, Jacob Lewis, who was a technical writer for Epic Systems, received an email from his employer with a document titled “Mutual Arbitration Agreement Regarding Wages and Hours.” The document stated that the employee and the employer waive their rights to go to court and instead agreed to take all wage and hour claims to arbitration. Furthermore, unlike in court, the employee agreed that any arbitration would be one-on-one. This “agreement” did not provide any opportunity to negotiate, and it had no place to sign or refuse to sign. Instead, it stated, “I understand that if I continue to work at Epic, I will be deemed to have accepted this Agreement.” The workers had two choices: immediately quit or accept the agreement. This is not the hallmark of an agreement; it is the hallmark of a mandatory rule that is unilaterally imposed.

When Lewis tried to take Epic Systems to court for misclassifying him and his fellow workers as independent contractors and depriving them of overtime pay, he realized that by opening the email and continuing to work, he waved his right to bring a collective action or go to court. It is estimated that approximately 60 million Americans have already been forced to sign such individual arbitration agreements, and with Monday’s decision, they are certain to spread rapidly.

From the opening questions of the decision to the subsequent analysis, Justice Gorsuch and the conservative majority completely paper over the forced nature of these “agreements.” Gorsuch describes the facts of this case thusly: “The parties before us contracted for arbitration. They proceeded to specify the rules that would govern their arbitrations, indicating their intention to use individualized rather than class or collective action procedures.” In addressing why it is necessary to honor the waiver of class or collective action, he writes, “Not only did Congress require courts to respect and enforce agreements to arbitrate; it also specifically directed them to respect and enforce the parties’ chosen arbitration procedures.”

But the workers in this case had no meaningful input or opportunity to negotiate the issue of arbitration. Describing the worker’s decision to open an email and not quit his job immediately in this manner is at best delusional and at worst deceitful.

The entire structure of the Supreme Court’s modern jurisprudence on arbitration agreements and class-action waivers is built on the idea that it is proper, appropriate and preferred for those in power to force others to waive their rights. But it wasn’t always this way. In 1925, Congress passed the Federal Arbitration Act (FAA), which sought to address the animosity some judges had towards arbitration, by requiring judges to treat arbitration agreements like other contracts. A 2015 Economic Policy Institute report describes the FAA as something that was  originally intended to be applied “to a narrow set of cases—commercial cases involving federal law that were brought in federal courts on an independent federal ground.” In essence, the FAA was designed so that businesses that negotiate contracts with each other can choose have their claims heard by an arbitrator of their choosing. “But,” the report explains, “in the 1980s, the U.S. Supreme Court turned the FAA upside-down through a series of surprising decisions. These decisions set in motion a major overhaul of the civil justice system. It is no exaggeration to call the Supreme Court’s arbitration decisions in the 1980s the hidden revolution of the Reagan Court.”

The modern case that opened the door to the flood of arbitration agreements was a 2011 Supreme Court case involving a couple that wanted to bring a consumer class action against AT&T to challenge a practice where cell phone companies offered “free” phones, but then charged customers the sales tax on the full value of the phones. Justice Scalia, writing for the five-Justice majority, treated the cell phone contract as something negotiated by the parties. He extolls the virtues of allowing these types of agreements because “affording parties discretion in designing arbitration processes is to allow for efficient, streamlined procedures tailored to the type of dispute.” Scalia finds no issue with the fact that only one party here had power, and that it can be said with certainty that in the history of the world, no one has ever negotiated a cell phone contract with a carrier.

Now, to engage in most activities, from signing on to social media to buying a phone or airline ticket to putting a relative in a nursing home, one is provided a forced contract with an individual arbitration clause hiding inside. After Monday’s decision, it will be unlikely that many will be able to accept or remain at their jobs in the private sector without similarly waiving their right to go to court or act collectively to redress their rights.

This piece was originally published at In These Times on May 23, 2018. Reprinted with permission.

About the Author: Moshe Z. Marvit is an attorney and fellow with The Century Foundation and the co-author (with Richard Kahlenberg) of the book Why Labor Organizing Should be a Civil Right.

The sinister history underlying Neil Gorsuch’s decision lashing out at American workers

Wednesday, May 23rd, 2018

The ink was barely dry on Neil Gorsuch’s opinion in Epic Systems v. Morris before Ogletree Deakins — a management-side employment law firm that earned nearly three-quarters of a million dollars in profits per equity partner last year — started hawking an “innovative new product” that would enable employers to enrich themselves at the expense of their most vulnerable workers.

Epic Systems held that employers may force their employees, under pain of termination, to sign away their right to bring a class action lawsuit against their employers. It is an invitation — if not an incentive — for wage theft, as class actions are often the only recourse available to someone robbed of a few hundred, or even a few thousand, dollars by their boss.

Employment lawyers have known this decision was coming for months. And many of them are going to cash in.

Yet, while this Epic Systems decision became inevitable the minute Gorsuch claimed ownership of a Supreme Court seat that Senate Republicans held open more than a year until Donald Trump could fill it, the Court’s decision would shock the lawmakers who actually enacted the laws at issue in this case.

Gorsuch’s opinion is a mix of willful historical ignorance, ideological blindness, and a smug insistence that he has a special window into the law that many of his more experienced colleagues lack. Now, it threatens to revive one of the Supreme Court’s most disgraceful chapters.

The new Lochnerism

The conceit of Gorsuch’s Epic Systems opinion is that workers and their bosses sit down like equal bargaining partners to hash out their terms of employment. “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?” Gorsuch begins his opinion with a question framed as if it could only have one answer. “Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?”

In reality, the facts of Epic Systems bear little resemblance to the civilized negotiation presented by Gorsuch. Workers at one of the companies at issue in this case received an email one day informing them that they must give up their right to bring class actions. Employees who “continue[d] to work at Epic,” according to the email, would “be deemed to have accepted” this agreement. A similar email was sent to the employees of one of the other companies that prevailed in Epic Systems.

These employees, in other words, only “agreed” to the terms proposed by their bosses in the same sense that a person accosted by a gunman in a dark alley “agrees” to give up their wallet. Their choice was to give up their rights or to immediately lose their jobs.

This is not the first time the Supreme Court ignored the fairly basic fact that employers typically have far more bargaining power than their workers — and can use this greater share of power to exploit their employees.

In its anti-canonical decision in Lochner v. New York, the Supreme Court struck down a late nineteenth century law prohibiting bakeries from overworking their bakers. Such a law, Justice Rufus Peckham wrote for the Court, “interferes with the right of contract between the employer and employes [sic],” adding that “there is no contention that” bakery workers were unable “to assert their rights and care for themselves without the protecting arm of the State.”

In reality, bakers faced horrific working environments before the “protecting arm of the State” intervened to improve these conditions.

At the time, the overwhelming majority of New York City bakeries were basement operations located in the same tenements in which their customers lived. “’Filth, cobwebs and vermin’ filled these basements,” according to a city inspector’s report. Sewer pipes ran through many such bakeries, leaking their raw contents onto the workers, their workplaces, and the dough. In one such bakery, “’the water closet walls were literally black’ with roaches from floor to ceiling.”

Bakeries often had no windows and little ventilation, filling the air with irritating flour dust and fumes. Ovens heated the workplaces into infernos. Low ceilings required many workers to crouch, and the floors were typically either dirt or rotten wood filled with rat holes.

The average bakery worker labored at least 13 hours a day in these conditions, though some worked as much as 126-hours a week. Workers, moreover, were often required to sleep on the very same tables where they prepared the dough, and the cost of these makeshift beds were then deducted from their wages.

These were the sorts of conditions that the free market offered workers who, without the law to protect them, were forced to bargain alone with their employers. Perhaps, in some narrow sense, these workers “agreed” to work countless hours among the roaches, the heat, and the raw sewage. But only a judge blinded by their own ideology could conclude that these workers had any real choice in the matter.

“Concerted activities”

By the mid 1930s, Congress understood what men like Peckham and Gorsuch refused to see. As Justice Ruth Bader Ginsburg explains in her Epic Systemsdissenting opinion, Congress enacted the National Labor Relations Act (NLRA) on the premise that “employees must have the capacity to act collectively in order to match their employers’ clout in setting terms and conditions of employment.”

The law may not have the power to equalize bargaining power between workers and their bosses, but, by enabling those workers to join together, it could give them a fighting chance.

One provision of the NLRA — a provision that Gorsuch refused to honor in his Epic Systems opinion — provides that “employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Class actions are precisely this — a form of “concerted activity” that workers may use for their own “mutual aid or protection.”

The idea behind a class action is that multiple workers with the same legal claim against their employer can join together under a single lawsuit. Such concerted activity is necessary for the simple reason that litigation is often prohibitively expensive. As Ginsburg notes in her dissent, employers at one of the companies at issue in Epic Systems “would likely have to spend $200,000 to recover only $1,867.02 in overtime pay and an equivalent amount in liquidated damages.”

Only a truly fanatical worker — and one with very deep pockets — might be willing to spend such an exorbitant sum for such a small amount of money. The only real hope for such a worker is to join a class action lawsuit with colleagues who were also cheated out of their fair pay.

Except that workers will soon be unable to seek this remedy. An estimated “23.1% of nonunionized employees are now subject to express class-action waivers in mandatory arbitration agreements,” according to Ginsburg’s dissent. Now that the Supreme Court has endorsed such illegal agreements, this number will skyrocket. Law firms are already lining up to show employers how to draft such agreements, and workers throughout the country will soon be left powerless against wage theft.

Twisted commerce

Gorsuch concludes his Epic Systems opinion with a flourish. “The policy may be debatable but the law is clear,” Trump’s Supreme Court nominee claims. “Congress has instructed that arbitration agreements like those before us must be enforced as written.”

As it turns out, Gorsuch is half correct. The law is, indeed, clear. It just doesn’t say what he wants it to say.

The contracts at issue in Epic Systems are “forced arbitration” contracts, meaning that they not only strip employees of their right to bring a class action, they also require employment disputes to be resolved in a privatized arbitration system that tends to favor employers more than real courts of law. Though a law known as the Federal Arbitration Act protects arbitration agreements in certain contexts, that very same law explicitly exempts employment contracts.

Nevertheless, in its 2001 decision in Circuit City v. Adams, the Supreme Court wrote this safeguard for workers out of the law.

Circuit City turned on two interlocking provisions of the Federal Arbitration Act. The first provides that “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable” except under limited circumstances. The second exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

To understand the scope of these two provisions, it’s important to understand some of the history surrounding the Federal Arbitration Act, which was enacted in 1925.

In the late nineteenth and early twentieth century — the same period when the Court handed down Lochner — the Supreme Court also imposed strict limits on Congress’ constitutionally granted power to “regulate commerce with foreign nations, and among the several states.” During this period, the Court defined the word “commerce” narrowly, to encompass little more than the transit of goods across state lines. Manufacture of goods to be sold, mining of raw materials, and the farming of commodities were all deemed to be beyond Congress’ power to regulate.

Among other things, the Court relied on this stingy definition of the word “commerce” to strike down a federal law banning the interstate sale of goods manufactured by child labor.

In the 1930s, a little more than a decade after the Federal Arbitration Act became law, the Supreme Court abandoned this narrow understanding of Congress’ power to regulate commerce. Under modern precedents, Congress’ power over “commerce” now includes broad authority to regulate economic matters of nearly all kinds.

Which brings us back to the text of the Federal Arbitration Act. When Congress wrote this law, it understood phrases like “a transaction involving commerce” or “any other class of workers engaged in foreign or interstate commerce” to use the narrow, pre-New Deal understanding of the word “commerce.” As the law was originally understood, it only protected arbitration agreements involving the transit of goods for sale.

Contracts involving manufacture, mining, or agriculture were beyond the scope of Congress’ authority, according to the Supreme Court at the time, and therefore beyond the scope of the Arbitration Act. Similarly, when the Act exempts “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” Congress sought to exempt all employment contracts that it believed that it had the power to regulate at the time.

Of course, the Arbitration Act could also be read anachronistically. If the modern definition of the word “commerce” is inserted into the law, that would mean that nearly all contracts are governed by the law, but all employment contracts are exempt. Thus, under either plausible reading of the statute, contracts between workers and their employers are exempt.

Circuit City, however, read the statute a third way. It reads the phrase “a transaction involving commerce” using the modern definition, while reading the phrase “any other class of workers engaged in foreign or interstate commerce” using the 1925 definition. Thus, the policy favoring forced arbitration is given the broadest scope, while the exemption favoring workers is read exceedingly narrowly.

It’s a sick double-standard — the kind that should make anyone who reads the Court’s Circuit City opinion doubt the good faith of the justices in the majority.

Without Circuit City, there could not be a decision like Epic Systems. Gorsuch’s opinion builds upon Circuit City‘s holding that the word “commerce” can mean one thing in one provision of the law and something completely different in another provision of the same law. Circuit City is one of the Supreme Court’s greatest sins against the English language, and the text of the law itself is entirely at odds with Gorsuch’s claim in Epic Systems that “Congress has instructed that arbitration agreements like those before us must be enforced as written.”

So the law, as Gorsuch condescendingly asserts, is indeed clear. The Federal Arbitration Act exempts all employment contracts, and any claim to the contrary requires the Court to turn a blind eye to history.

Which, of course, is exactly what Gorsuch did in Epic Systems. He ignored the way the law was originally understood, ignored the text of the National Labor Relations Act, ignored the law’s hard-won understanding that employees and employers do not have equal bargaining power, and ignored Congress’ explicit efforts to strike a different balance of power between workers and their bosses.

It is a great day for law firms that profit off the exploitation of workers. And it is an even greater day for their clients.

The rest of us can either sign away our rights or lose our jobs.

About the Author: Ian Millhiser is the Justice Editor for ThinkProgress, and the author of Injustices: The Supreme Court’s History of Comforting the Comfortable and Afflicting the Afflicted.

This article was originally published at ThinkProgress on May 23, 2018. Reprinted with permission.

Divide and Conquer: Employers' Attempts to Prohibit Joint Legal Action Will be Tested in Court

Thursday, September 28th, 2017
On Monday, October 2, the U.S. Supreme Court will hear arguments in the most consequential labor law cases to come to the Court in a generation, which could fundamentally alter the balance of power between millions of American workers and the people who employ them.

So why are so few people paying attention?

At first glance, the cases may seem dry and complex, as they involve 80-year-old laws that most people have never heard of. But the issue at stake is actually quite simple: should your employer be able to force you to give up your right to join your coworkers in a lawsuit challenging working conditions as a condition of getting or keeping a job?

The federal courts of appeals for the Seventh and Ninth Circuits say the answer should be no. They point to the National Labor Relations Act (NLRA), a law passed by Congress in 1935 to end “industrial strife and unrest” and restore “equality of bargaining power between employers and employees.” The NLRA gives workers the right to join unions and to “engage in other concerted activities” for “mutual aid or protection,” and it makes it illegal for employers to “interfere with, restrain or coerce employees in the exercise” of those rights.

But in recent years, more and more employers are requiring their employees to agree, as a condition of working for that employer, that they must resolve any disputes that might come up in the future in a private arbitration proceeding, and not in court. Many of these so-called arbitration agreements also prohibit the arbitrator from hearing more than one employee’s claim at a time—in other words, they ban employees from taking legal action together, either in court or in arbitration. A recent study from the Economic Policy Institute found that 23.1% of private sector, non-union workers, or 24.7 million Americans, work for employers that impose such a concerted legal action ban.

Sheila Hobson was one such employee. She worked at a gas station in Calera, Alabama that was run by Murphy Oil. When she applied to work there, she had to sign an agreement stating that she would not participate in a class or collective action in court, “in arbitration or in any other forum” and that her claim could not be combined “with any other person or entity’s claim.” Two years later, she joined with three coworkers to file a lawsuit under the Fair Labor Standards Act. She and her coworkers claimed that they were routinely asked to clean the station, stock shelves, check prices at competitors’ stations and perform other tasks while “off the clock” and without pay. Murphy Oil moved to dismiss the lawsuit, pointing to their arbitration agreement and arguing that each employee had to pursue their claims individually.

The National Labor Relations Board, a federal agency created by Congress to enforce the NLRA, stepped in to defend Ms. Hobson and her coworkers. The NLRB ruled that Murphy Oil’s arbitration agreement interfered with its employees’ right to engage in concerted activity for their mutual aid or protection in violation of the NLRA. But the Court of Appeals for the Fifth Circuit agreed with Murphy Oil, leading to this showdown before the Supreme Court.

The crux of Murphy Oil’s position, which is shared by the employers in the cases out of the Seventh and Ninth Circuits that are also being argued on Monday, is that the employers’ bans have to be enforced because of the Federal Arbitration Act. This law, passed back in 1925 at the request of businesses who wanted to be able to resolve commercial disputes privately under specialized rules, says that agreements to arbitrate should be treated the same as any other contracts. And because their concerted action bans are found in arbitration agreements, the employers argue, the FAA requires their enforcement.

But the FAA includes a “saving clause” that allows arbitration agreements to be invalidated on any “grounds as exist at law or in equity for the revocation of any contract.” One such ground for revoking a contract is that it is illegal, and the Seventh and Ninth Circuit opinions pointed out that a contract that interferes with employees’ rights under the NLRA is illegal and thus unenforceable under the FAA’s saving clause. Moreover, as the NLRB explained, the Supreme Court has repeatedly held that the FAA cannot take away anyone’s substantive rights; it merely allows those rights to be pursued in arbitration rather than in court. But the concerted action bans in these cases, and those like them that other employers force employees to sign, do take away the very substantive right to join with coworkers that the NLRA guarantees. By preventing workers from banding together in court or in arbitration, these agreements deprive employees of the ability to pursue their concerted action rights in any forum whatsoever.

Given the high stakes these cases present, both employer and employee positions have garnered a large number of friend-of-the-court briefs before the Supreme Court. The Chamber of Commerce has weighed in on the employers’ side, as have other groups representing industry and the defense bar. The Justice Department, which had originally represented the NLRB, switched sides with the change in presidential administration and is also supporting the employers.

Meanwhile a group of ten labor unions pointed out that given the economic power employers wield over employees who need jobs to support their families, “few workers are willing to put a target on their back by bringing legal claims against their employer on an individual basis.” The NAACP Legal Defense Fund and more than 30 other civil rights groups, including Public Justice, explained how joint legal action has unearthed patterns of discrimination and brought about systemic changes in workplace policies that individual cases could never have achieved, listing 118 concerted legal actions challenging discrimination based on race, gender, age, disability and sexual orientation that would not have been possible under concerted action bans like Murphy Oil’s. The National Academy of Arbitrators disputed the employers’ premise that joint or collective claims can’t proceed in the more streamlined forum of arbitration, noting that labor arbitrators have been resolving group claims in unionized workplaces for decades and that requiring each case against the same employer – with the same evidence – to proceed separately would actually be far less efficient and more costly. Finally, the Main Street Alliance argued that concerted action bans reduce enforcement of minimum wage and employment discrimination laws, which disadvantages responsible businesses relative to corporations that mistreat employees and break the law.

With nearly a quarter of U.S. non-union employees already subject to concerted action bans, a green light from the Supreme Court telling employers to continue this practice will no doubt cause that figure to soar. But Public Justice is hopeful that the Court will follow the plain meaning of the NLRA and find these bans to be the illegal acts that they are—attempts to coerce employees into giving up their right to join forces to increase their bargaining power. That right applies equally whether employees want to join a union, join a lawsuit or join a boycott or picket line. The Supreme Court should stop this employer power grab and reaffirm the right to concerted activity, which is just as important for workers now as it was when Congress established it over 80 years ago.

This article was originally published at Public Justice on September 28, 2017. Reprinted with permission.

About the Author: Karla Gilbride joined Public Justice in October 2014 as a Cartwright-Baron staff attorney. Her work focuses on fighting mandatory arbitration provisions imposed on consumers and workers to prevent them from holding corporations accountable for their wrongdoing in court.

Supreme Court opens its new term with a direct attack on workers’ rights

Monday, September 25th, 2017

The Supreme Court returns next Monday from its summer vacation for the first full term where Neil Gorsuch will occupy a seat at the far end of the Court’s bench. And the Court will open this term with a trio of cases that are very likely to immunize many employers from consequences for their illegal actions.

The three cases — National Labor Relations Board v. Murphy Oil USAErnst & Young LLP v. Morris, and Epic Systems v. Lewis — all involve employment contracts cutting off employee’s rights to sue their employer for legal violations.

In at least one case, employees were required to sign the contract as a condition of beginning work. In another, employees were forced to give up their rights as a condition of keeping their job. These contracts contained two restrictions on the employees: 1) a “forced arbitration” provision, which requires any legal disputes between the employer and the employee to be resolved in a privatized arbitration system; and 2) a provision prohibiting employees from bringing class actions or other collective suits against their employers.

Requiring private arbitration favors employers over employees. As an Economic Policy Institute study determined, employees are less likely to prevail before an arbitrator than before a court, and they typically receive less money from an arbitrator when they do prevail.

Banning class action suits, meanwhile, effectively permits employers to violate the law with impunity, so long as they do not do too much harm to any individual employee.

If an employer cheats one employee out of $300,000 worth of wages, for example, that employee is likely to be able to find a lawyer who will take his case on a contingency basis — meaning that the lawyer gets a percentage of what the employee collects from the employer if they win. If the same employer cheats 10,000 employees out of $30 each, however, no lawyer is going to represent any one of these workers on a contingency basis. Plus, few employees are likely to bother with a $30 suit. It’s too much hassle, and too expensive to hire a lawyer who won’t work on contingency. The solution to this problem is a class action suit, which allows the 10,000 employees to join together in a single case litigated by a single legal team.

Banning such class actions effectively leaves these employees without remedy. As one federal judge explained, “the realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

The employer’s claim that they can combine a forced arbitration clause with a class action ban arises out of two previous Supreme Court cases that took an extraordinarily creative view of a nearly 100-year-old law.

In 1925, Congress enacted the Federal Arbitration Act to allow, as Justice Ruth Bader Ginsburg once explained, “merchants with relatively equal bargaining power” to agree to resolve their disputes through arbitration. Beginning in the 1980s, however, the Court started to read this law expansively to permit forced arbitration between businesses and relatively powerless consumers and employees.

Then, the Court got even more aggressive. By its own terms, the Federal Arbitration Act exempts “workers engaged in foreign or interstate commerce.” Nevertheless, in its 5-4 decision in Circuit City v. Adams, the Supreme Court held that the Act applies to most workers engaged in foreign or interstate commerce. Thus, forced arbitration clauses in employment contracts were given special protected status, even though the federal law governing these clauses says otherwise.

Similarly, Justice Antonin Scalia wrote for a 5-4 Court in AT&T Mobility v. Concepcion that the Federal Arbitration Act has penumbras, formed by emanations from its guarantees that give it life and substance. The right of businesses to insert class action bans, Scalia claimed, is one of these penumbras contained in the 1925 law. And so businesses gained the power to add no class action clauses to their forced arbitration agreements, even if a ban on class actions violates state law — and despite the fact that the Federal Arbitration Act says nothing about class actions.

Nevertheless, the employees in Murphy Oil and its companion cases hope that another provision of law will protect them from signing away their right to join a class action.

A provision of the National Labor Relations Act (NLRA) provides that “employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Several lower courts have held that an employee’s right to engage in “concerted activities” protects their right to join class actions, and they cite multiple previous Supreme Court decisions which lend credibility to this claim.

In a world governed by the text of the law, employees would have a strong case that they cannot be forced to give up their right to bring class action litigation. But we live in a world governed by Circuit City and Concepcion — both of which demonstrate the Supreme Court’s willingness to take liberties with the law in forced arbitration cases.

This article was originally published at ThinkProgress on September 25, 2017. Reprinted with permission.
About the Author: Ian Millhiser is the Justice Editor for ThinkProgress, and the author of Injustices: The Supreme Court’s History of Comforting the Comfortable and Afflicting the Afflicted.

Gelernter on In re Wal-Mart Wage and Hour Litigation FAA Case

Sunday, January 26th, 2014

Paul SecundaThanks to Lise Gelernter (Teaching Faculty and Director, Externship Programs at SUNY Buffalo Law School) for bringing to my attention this interesting arbitration case decided by the Ninth Circuit on December 17th of last year and providing some commentary.

The case is In Re Wal-Mart Wage and Hour Litigation or Carolyn Burton v. Class Counsel.  The Ninth Circuit’s summarizes the case thusly:

[T]he panel held that a non-appealability clause in an arbitration agreement that eliminates all federal court review of arbitration awards, including review under § 10 of the Federal Arbitration Act, is not enforceable.

Here is Lise’s commentary:

The court reasoned that if the grounds for vacatur of an award cannot be expanded by contract beyond what is permitted by the FAA §§10-11 (per Hall Street), a contract cannot eliminate the federal judicial review of arbitration awards that is available under the FAA.  The Ninth Circuit cited to a Second Circuit case that had a similar holding:

Since federal courts are not rubber stamps, parties may not, by private agreement, relieve them of their obligation to review arbitration awards for compliance with § 10(a)” of the FAA.  Hoeft v. MVL Grp., Inc., 343 F.3d 57, 63–64 (2d Cir.2003), overruled on other grounds by Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008).

This creates some tension with the United States Supreme Court’s strong push for honoring almost any term of an arbitration agreement, but since these holdings are grounded in the specific terms of the FAA, perhaps they are a bit more safe from reversal or even disagreement among other circuits.

Lise points out that you can obtain this Ninth Circuit case by using the following link and selecting the Carolyn Burton case.

This article was originally printed on Workplace Prof Blog on January 20, 2014.  Reprinted with permission.

About the Author: Paul Secunda is a professor of law at Marquette University Law School.  Professor Secunda is the author of nearly three dozen books, treatises, articles, and shorter writings. He co-authored the treatise Understanding Employment Law and the case book Global Issues in Employee Benefits Law.  Professor Secunda is a frequent commentator on labor and employment law issues in the national media.  He co-edits with Rick Bales and Jeffrey Hirsch the Workplace Prof Blog, recently named one of the top law professor blogs in the country.

WORST SUPREME COURT ARBITRATION DECISION EVER

Thursday, June 20th, 2013

PaulBlandWeb-172So, today, in American Express v. Italian Colors, the U.S. Supreme Court said that a take-it-or-leave-it arbitration clause could be used to prevent small businesses from actually pursuing their claims for abuse of monopoly power under the antitrust laws. Essentially, the Court said today that their favorite statute in the entire code is the Federal Arbitration Act, and it can be used to wipe away nearly any other statute.

As Justice Kagan said in a bang-on, accurate and clear-sighted dissent, this is a “BETRAYAL” (strong word, eh?) of the Court’s prior arbitration decisions. You see, until now, the Supreme Court has said that courts should only enforce arbitration clauses where a party could “effectively vindicate its statutory rights.” Today, in a sleight of hand, the five conservative justices said that this means that arbitration clauses should be enforced even when they make it impossible for parties to actually vindicate their statutory rights, so long as they have a theoretical “right” to pursue that remedy.

The plaintiffs in this case, restaurants and other small merchants, claim that American Express uses its monopoly power over its charge card to force them to accept American Express’s credit cards and pay higher rates than they would for other credit cards. This is called a “tying arrangement” under the antitrust laws — American Express is alleged to be using its monopoly power over one product to jack up the price of another product to higher rates than it could charge in a competitive market.

For plaintiffs to prove this kind of case, they have to come up with hard evidence — economic proof — that costs hundreds of thousands of dollars. And each individual merchant has only lost, and thus can only hope to recover, a small fraction of that amount. The U.S. Court of Appeals for the Second Circuit recognized that if American Express’s arbitration clause (and particularly its ban on class actions) was enforced, that would mean that none of the small business plaintiffs could enforce their rights under the antitrust laws. And under a long line of Supreme Court cases, arbitration clauses are only enforceable when they permit the parties to effectively vindicate their statutory rights.

Today’s decision turns that rule on its head. According to Justice Scalia’s majority opinion, even if an arbitration clause would mean that no individual would ever actually be able to pursue an antitrust claim on an individual basis, the arbitration clause still has to be enforced. The law has changed dramatically — parties no longer have a right to “effectively” vindicate their statutory rights; they are left with the meaningless but formal right to pursue economically irrational claims if they choose to do so.

The decision is catastrophic for the antitrust laws, as well as for civil rights, consumer rights, and many other statutory rights. The decision is an unmitigated disaster, replacing adhesive contracts for an idea of actual law. The drafters of the FAA would not recognize what it has turned into.

Justice Kagan went on to state: “As a result, Amex’s contract will succeed in depriving Italian Colors of any effective opportunity to challenge monopolistic conduct allegedly in violation of the Sherman Act. … In the hands of today’s majority, arbitration threatens to become … a mechanism easily made to block the vindication of meritorious federal claims and insulate wrongdoers from liability.” Justice Kagan gets this one completely right. The entire point of the majority opinion is to use arbitration to insulate companies from any possibility of class action liability.

We used to have something called “The Federal Arbitration Act.” The Court today might as well have amended its real title to “The Federal Corporate Immunity Act.”

This article was originally printed on Public Justice on June 20, 2013.  Reprinted with permission.

About the Author: Paul Bland is a Senior Attorney at Public Justice.  He has argued and won more than 30 cases that led to reported decisions for consumers, employees or whistleblowers in four of the U.S. Courts of Appeals and the high courts of nine different states.

Will the Supreme Court Issue a Wildly Activist Decision in AT&T Mobility v. Concepcion?

Friday, August 6th, 2010

6a00d83451b7a769e20133f2de36e3970b-500wiThe consumer and civil rights communities are closely watching AT&T Mobility v. Concepcion, a case that will be argued in the Supreme Court this November.  Depending on how broadly the Court reads the question presented in Concepcion, the case could decide the fate of consumer and employee class actions for years to come.

The Corporate Abuse at the Heart of Concepcion

The Concepcion case involves the widespread corporate practice of using standard-form contracts to ban class actions.  Many state courts have held such class-action bans unenforceable, but AT&T Mobility (“ATTM”) has asked the Supreme Court to find that at least some of that state law is preempted by the Federal Arbitration Act (“FAA”).  To understand why the Court’s holding in Concepcion could be so significant, it is important to understand how class-action bans come to be and why they are often disastrous for consumers and employees.

Class-action bans are contract terms that purport to prevent consumers and employees from ever participating in class proceedings.  As in Concepcion, they are often buried in companies’ standardized arbitration clauses.  Class-action bans favor companies at consumers’ and employees’ expense, but companies can impose them unilaterally because they draft the contracts.  Consumers and employees rarely have time to read the lengthy agreements companies send them, let alone the ability to understand their dense legalese.  And even if they did, few consumers or employees could negotiate the contracts’ terms.

Companies love imposing class-action bans because they dramatically undermine enforcement of consumer- and employee-protection laws.  Unlike European countries which mostly rely on large and powerful government agencies to enforce consumer protection and civil rights laws, the U.S. has relatively small government agencies which handle relatively few cases.  Most enforcement of these laws in the U.S. is done by private parties.  We rely upon individual consumers or employees who’ve been cheated or discriminated against to bring cases enforcing these laws.  Many types of illegal behavior can be addressed through individual cases by a single consumer.  But the reality is that many types of illegal behavior that harm very large numbers of people – thousands, sometimes hundreds of thousands of individuals – can only be meaningfully addressed through class actions.

In many circumstances, very few individuals would ever bring a claim (in court, or in a small claims court, or in arbitration) when their rights are violated.  For a huge percentage of the population, for many types of illegal activities there are realistic barriers to individuals bringing cases on their own.  Many people never realize when their rights are violated, for example, and many people do not have the knowledge or skills to begin to pursue a case to protect their rights.  For those who know to seek out a lawyer, very few lawyers will handle cases that are quite small, and few if any lawyers will handle fairly complex cases that involve only a few thousand dollars.  These are only a few examples of situations where the realistic situation is that a case will either be handled on a class action basis or it will never be brought at all.

This is why large corporations are hoping that the Concepcion case will wipe away most class actions – because they want to make it impossible for the vast majority of cheated consumers and employees who’ve suffered discrimination to bring any kind of case, in any forum.  The idea is to atomize individuals, to prevent them from grouping together in a way that lets them enforce these rights.

WILL CONCEPCION BE SIGNIFICANT?

In the worst case scenario, Concepcion could wipe away the vast majority of consumer and employee class actions for years to come.  But that result is far from inevitable.  For one thing, ATTM submitted a narrow question in its petition for certiorari, and if the Court sticks to the question presented (as it should), then the decision may not have much significance.  On the merits, if the Court agrees with the overwhelming majority of lower courts, which have held that state law in this area is not preempted, then the decision should not have much significance.  Indeed, if the Court simply applies the language of the FAA, and doesn’t invent new rules of federal law for the purpose of wiping away state law, then the decision should not be significant at all.

If many members of the corporate defense bar get the Court to use this case to grant their fondest wishes for immunity from consumer protection and civil rights laws granted, however, then this case could have the kind of impact on class actions that an asteroid landing in Mexico millions of years ago had on dinosaurs.

For the Court to Wipe Away Consumer and Employee Class Actions, It Will Have to Ignore ATTM’s Question Presented.

Most cases, including Concepcion, get to the Supreme Court because the party that lost below files a petition for certiorari, presenting specific questions for the Court to review.  In Concepcion, ATTM took care to draft a narrowly worded question.  Essentially ATTM asked: does the FAA preempt state law prohibiting class-action bans in those cases where class actions are unnecessary for the effective vindication of consumer and employee rights?

This question may sound convoluted, and it is.  The last part asks the Court to assume that individual consumers and employees can vindicate their legal rights without a class action.  It’s striking that ATTM asks the Court to begin with this assumption as though it were an uncontroversial and obvious abstract legal principle instead of a factual issue to be resolved on a case-by-case basis in light of actual admissible.2 In any event, if the Court limits its holding in Concepcion to the question presented, then whatever that holding is, it should not apply whenever class actions are necessary for the effective vindication of statutes aimed at protecting consumer and employee rights.

But notwithstanding ATTM’s narrowly worded question, some of its corporate allies (and particularly the U.S. Chamber of Commerce) are claiming that Concepcion raises the issue of whether the FAA preempts any and all state law that would limit class-action bans embedded in arbitration clauses—regardless of whether consumers and employees have other adequate avenues for vindicating their rights.  These ATTM allies argue that it does not matter what the evidence in a case would show, that it does not matter what the state law at issue says, and that there is simply a federal right for any corporation to put in any contract a term that bans class actions (so long as the contract includes an arbitration clause).

It’s unlikely that the Supreme Court will be tempted to take such an extreme position.  But at this point, it is clear that advocates for unlimited corporate power hope and imagine that the U.S. Supreme Court will strip state law in this way.  And it’s clear that a lot of corporate defense lawyers privately believe that the Court is so definitively in their clients’ collective pocket that companies can get whatever they want from this case.  I’ve heard several defense lawyers privately predict a 5-4 ruling that wipes away the vast majority of class actions in America, and I know of several cases that had been in mediation, where the evidence of liability is overwhelming and the only barrier to a recovery for the consumers was a class action ban that’s unenforceable or probably unenforceable under state law, where defendants have walked away from the settlement table because they suddenly believe that the Court will uphold class-action bans in all cases and immunize them from any meaningful liability.

You have to hand it to the tort reforming corporate apologists:  they are asking the Court to issue a decision that would be an immediate candidate for Most Activist Decision Ever

For the Court to Rule for ATTM, It will Have to Sweep Aside a Widespread Consensus of State Supreme Courts and Federal Appellate Courts

More than 100 reported cases have considered the enforceability of class-action bans embedded in arbitration clauses.  While their holdings on enforceability vary, more than 90% have agreed that state law governs the enforceability issue—that courts are free to apply to state law to determine whether a class action ban in an arbitration clause is enforceable.

Many corporate defendants have argued (like ATTM) that the FAA preempts state law limiting the enforcement of class bans embedded in arbitration clauses, but scores of courts have strongly disagreed.  A typical example is a 2007 Washington Supreme Court case called Scott v. Cingular Wireless, where ATTM was also the defendant.  ATTM argued that even if a ban on class actions would be illegal in other contexts as a matter of Washington law, the FAA preempted Washington law in Scott because the company had put its class-action ban in its arbitration clause.  Like most courts, the Washington Supreme Court rejected the argument, concluding that the FAA only preempts state laws that are aimed at arbitration, and that the state’s law against contract terms that gut the state’s consumer protection laws are not aimed at arbitration:

[C]ontracts that effectively exculpate their drafter from liability under the [Consumer Protection Act] for broad categories of liability are not enforceable in Washington, even if they are embedded in arbitration clause . . . .  Class action waivers have very little to do with arbitration.3

A large number of other courts have articulated this same conclusion in very similar ways.4

State Supreme Courts all agree on this issue.  Every single state supreme court to consider the enforceability of a class-action ban embedded in an arbitration clause has resolved the question of enforceability as a matter of state law.5 The last eight state supreme courts to consider the validity of class bans also happen to have struck them down, but even courts that have upheld class bans have done so by applying state law.6 In addition to state supreme courts, intermediate courts of appeal in a number of states have struck down class action bans under state law,7 as have federal circuit courts, which have examined the issue as one of state law.8 Given this settled nationwide consensus, it is puzzling that the U.S. Supreme Court decided to grant certiorari in Concepcion.

FOR THE COURT TO ADOPT THE  CHAMBER OF COMMERCE’S FANTASY SCENARIO, It WILL HAVE TO INVENT ALL NEW FEDERAL LAW

The corporatist idea that the FAA preempts all state law limiting class-action bans hasn’t caught on in the lower courts because there is no serious legal or intellectual basis for it.  If the Supreme Court decides to completely federalize the law in this area, it will have to invent from whole cloth new federal law that is not supported by anything in the language of the FAA or in its history.9

During their confirmation hearings, conservatives like Chief Justice Roberts and Justice Alito solemnly assured the Senate Judiciary Committee that they would bring a very humble approach to their jurisprudence if they were confirmed to the Supreme Court.  They weren’t the kind of guys to throw out precedents, make up new laws, or ignore history.

But if a majority of the Court plays Santa Claus for lawbreaking corporations in the way the Chamber wants, it will have done so only by tossing all of those promises overboard.

Consider these facts:

  • Because the FAA does not contain any express preemption provision, and does not preempt the field of arbitration, it preempts state laws only if they conflict with the purposes of the Act.10 This is important because the latter type of preemption is called implied conflict preemption, and Justice Thomas is on record as saying that the Court should be extremely reluctant to find implied conflict preemption based upon frustration of purpose.11 In light of Justice Thomas’s strong principled stand on this point, it is puzzling that a number of corporate defense lawyers privately claim to be so certain that Justice Thomas will vote for a broad FAA preemption position in Concepcion.
  • The only language in the FAA that relates to the question presented in Concepcion strongly supports the idea that the statute does not preempt state law.  The FAA’s key provision, section 2, provides that agreements to arbitrate will be enforceable only if three criteria are met:  (1) there is an agreement to arbitrate; (2) the agreement falls within interstate commerce; and (3) the agreement is not counter to laws that would lead to revocability of any contract.  9 U.S.C. § 2.  This last criterion necessarily refers to state law because contract law is generally comprised of state law and has been for a very long time.  What corporate defense lawyers want is for the court to cross out this last requirement, whenever it would apply to a contract term banning class actions that is inserted into an arbitration clause.  In other words, the corporate defense bar can only get what it wants from this case if the Court invents some rule to cross out that language whenever a class action is involved.  This is a pretty activist proposal, to put it mildly.
  • When the FAA was passed in 1924, there were no such things as class actions.  Congress could hardly have intended to preempt a body of state law relating to something that didn’t exist.12 And if the class procedure created some conflict with the FAA, one would have expected Congress to mention it in 1967, when it approved Federal Rule of Civil Procedure 23 and expressly authorized class actions.
  • Another line of case law leads to the same conclusion.  When a statute does not address a topic, the U.S. Supreme Court normally has held that there is no preemption with respect to that topic.13 Here, we know that the FAA does not address class actions because the Supreme Court has said so:  “the FAA itself contains no provision designed to deal with the special practical problems that arise in multi-party contractual disputes when some or all of the contracts at issue include agreements to arbitrate.”14
  • The state laws that corporate defense lawyers want the Court to strike down in Concepcion are well-established laws of general application.  They are laws and common-law doctrines, like the rule that exculpatory get-out-of-jail-contract-terms that undermine statutes are unconscionable, that do not mention arbitration, do not target arbitration, and have nothing to do with arbitration—all of which makes it hard to explain why they might conflict with the Federal “Arbitration” Act.
  • A few examples help to make this point.  In pretty much every state, an employer would be prohibited from writing a contract with an employee that says “we can fire you because of your race or gender, or pay you less if you’re a woman or African American, and none of the civil rights laws apply to you.”  Similarly, a corporation would be prohibited from writing a consumer contract that says “we can violate the Truth-in-Lending Act, your state consumer protection act, and other consumer laws.”  These provisions have nothing to do with arbitration, but they would be held unenforceable under the same set of state contract laws that courts have applied to class-action bans—laws that prohibit unfair and exculpatory contracts (i.e., contracts that immunize defendants from basic laws protecting civil or consumer rights).  Similarly, the law from around the nation demonstrates that a number of states have case law striking down class action bans in cases that do not involve arbitration clauses.15
  • State contract laws prohibiting exculpatory contract terms existed for many years before the FAA passed, and the roots of these doctrines track back to the British common law.  No one in the 1924 Congress ever suggested that the FAA was intended to preempt this body of state law and that Congress would have been shocked to hear that it was tossing these laws overboard.  The 1924 Congress intended the FAA to make arbitration clauses as enforceable as other contracts, not as a means of “laundering” otherwise illegal contract terms.16
  • Some corporate defense lawyers argue that class action bans are different from other contract terms that can have an exculpatory effect, because the class action is only a “procedural” device.  The idea here is that a contract term might be illegal if it openly says that it’s exculpatory, but it’s okay if it reaches the same exculpatory end through an indirect and “procedural” path.  Most state courts laugh off this formalism and hold that state laws also strike down contract terms that are effectively exculpatory, even if not explicitly so.  Consider another example:  if an employer’s contract said “you can bring a discrimination claim but only if you pay $1 million to an arbitrator, travel to New Zealand, and arbitrate on Leap Day” no reasonable court would uphold the contract because these effectively exculpatory requirements are arguably merely “procedural.”
  • The Supreme Court has said a number of times that arbitration clauses are only enforceable under the FAA if they let people “effectively vindicate their statutory legal rights.”17 The Court will have to re-write or ignore those decisions if it’s going to find that the FAA preempts state contract laws that insist that contract terms may not bar individuals from effectively vindicating their rights.  For the Chamber what it wants, the Court will have to manufacture a conflict between state law and one of the core principles the Court itself has repeatedly found to be a central premise of the FAA.  It will have to say something that amounts to the equivalent of “the FAA requires that parties must be accorded the formal power to theoretically vindicate their individual rights, but corporations have a newly minted federal right to gut any laws protecting against widespread violations of civil or consumer rights.”
  • State law recognizing the importance of class actions for vindicating consumer and employee rights is also entirely consistent with the decisions of the U.S. Supreme Court.18 It’s hard to see how a state contract-law doctrine is in conflict with federal law when the doctrine, as applied to class-action bans, recognizes something that’s set forth in a number of the Supreme Court’s decisions.

For the U.S. Supreme Court to say, in effect, “the usual longstanding rules barring exculpatory clauses are erased by federal law if the contract term that is exculpatory is a class action ban embedded in an arbitration clause” would be a pretty radical ruling.  Almost every court in the U.S. has blinked and stepped away from that abyss.  Will the Supreme Court be the first to go the other way?

THE STAKES IN CONCEPCION

The Supreme Court’s decision in Concepcion probably won’t be that significant.  There are a number of ways that the Court could decide this case narrowly and make law that doesn’t change the legal landscape one way or the other.  The stakes in the case might be enormous, however.

There are some powerful corporations who are sick and tired of occasionally being taken to task when they get caught violating civil rights and consumer protection laws on a widespread basis.  These corporations want a new federal right to strip their employees and customers of their rights to ever bring class actions, no matter what state law provides or no matter how egregious the facts.

If these corporations get what they want – a very huge “if” – then America will experience the biggest contraction of private enforcement of consumer protection and civil rights laws since those laws were enacted.

Will the majority of the Court abandon the humble role of umpire to invent sweeping and radical new law?  Will scores of state and federal appellate cases be disregarded?  Will the FAA be re-written, widely expanded, and put on an inevitable collision course with congressional intent?  Or will the Court step back and do the right thing?  No one will know for sure until the Court decides Concepcion next spring.

End Notes:

1. Author’s: Paul Bland and Claire Prestel are Attorneys at Public Justice.  Melanie Hirsch is the Brayton-Baron Fellow at Public Justice.

2.    The precise question presented in Concepcion is as follows:

Whether the Federal Arbitration Act preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures – here, class-wide arbitration – when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.

Pet. for a Writ of Cert. at i, Concepcion, No. 09-893 (U.S. Jan 25, 2010).

3.   Scott v. Cingular Wireless, 161 P.3d 1000, 1008 (Wash. 2007).

4.   Homa v. Am. Express Co., 558 F.3d 225, 230 (3d Cir. 2009) (“the defense [New Jersey law] provides is a general contract defense, one that applies to all waivers of class-wide actions, not simply those that also compel arbitration.  Therefore, there are no grounds for FAA preemption.”); Kinkel v. Cingular Wireless, 857 N.E. 2d 250, 263 (Ill. 2006) (the “FAA neither expressly nor implied preempts a state court from holding that an arbitration clause or specific provision within an arbitration clause is unenforceable”).

5.   See, e.g., Discover Bank v. Super. Ct., 113 P.3d 1000 (Cal. 2005); Kinkel, 857 N.E.2d 250; Feeney v. Dell Inc., 908 N.E. 2d 753 (Mass 2009); Tillman v. Commercial Credit Loans, Inc., 655 S.E. 2d 362 (N.C. 2008); Muhammad v. County Bank, 912 A.2d 88 (N.J. 2006); Fiser v. Dell Computer Corp., 188 P.3d 1215 (N.M. 2008); Scott, 161 P.3d 1000; Herron v. Century BMW, 693 S.E. 2d 394 (S.C. 2010); Leonard v. Terminix Int’l Co., 854 So.2d 529 (Ala. 2002); West Virginia ex rel. Dunlap v. Berger, 567 S.E. 2d 265 (W. Va. 549 2002).

6.   See, e.g., Forrest v. Verizon Comm.’s, Inc., 805 A.2d 1007, 1013 (D.C. 2002) (upholding class action ban under D.C. law); Walther v. Sovereign Bank, 872 A.2d 735, 70 (Md. 2005) (same, with Maryland law); Stenzel v. Dell, Inc., 870 A.2d 133 (Me. 2005) (class action ban in arbitration clause not unconscionable under Texas law).

7.   See, e.g., S.D.S. Autos, Inc. v. Chrzanowski, 976 So.2d 600 (Fla. Dist. Ct. App. 2007); Vasquez-Lopez v. Beneficial Oregon, Inc., 152 P.3d 940 (Or. Ct. App. 2007); Thibodeau v. Comcast Corp., 912 A.2d 874 (Pa. Super. Ct. 2006); Coady v. Cross Country Bank, 729 N.W. 2d 732 (Wis. Ct. App. 2007); Eagle v. Fred Martin Motor, 809 N.E. 2d 1161 (Ohio Ct. App. 2004); Whitney v. Alltel Communics., Inc., 173 S.W. 3d 300 (Mo. Ct. App. 2005; Woods v. QC Fin. Servs, Inc., 280 S.W. 3d 90 (Mo. Ct. App. 2008).

8.   This has been true in cases where the federal courts have struck down class action bans.  See, e.g., Skirchak v. Dynamics Research Corp., 508 F.3d 49 (1st Cir. 2007) (class action ban in arbitration clause unconscionable under Massachusetts law); Fensterstock v. Edn. Fin. Partners, __ F.3d __, 2010 WL 2729759 (2d Cir. July 12, 2010); Chalk v. T-Mobile USA, Inc., 560 F.3d 1087 (9th Cir. 2009); Homa, 558 F.3d 225; Dale v. Comcast Corp., 498 F.3d 1216 (11th Cir. 2007).  This has also been true, however, for courts that have upheld bans on class actions embedded in arbitration clauses.  Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1377-79 (11th Cir. 2005) (upholding class action ban and other terms in arbitration clause under Georgia law); Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 174-75 (5th Cir. 2004) (upholding class action ban as consistent with Louisiana law); Snowden v. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir. 2002) (same, with Maryland law); Pleasants v. Am. Express, 541 F.3d 853 (8th Cir. 2008) (same, with Missouri law).

9.   Of course, it has been widely observed that quite a few of U.S. Supreme Court decisions in this area are not readily traced to the language of the statute itself.  In one case, Sandra Day O’Connor wrote that “the Court has abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act, building instead, case by case, an edifice of its own creation.”  Allied-Bruce Terminix (Co.s, Inc. v. Dobson, 513 U.S. 265, 283 (1995) (O’Connor, J., concurring).  See also Rent-a-Center, West, Inc. v. Jackson, __ U.S. __, 2010 WL 2471058 at * 12 (U.S. June 21, 2010) (dissent of Justice Stevens) (in holding that arbitrator should decide challenge that an arbitration clause is unconscionable, the Court has extended a “fantastic” and likely erroneous decision).

10.  Volt Info. Sciences, Inc. v. Bd. Of Trustees of Standford Univ., 489 U.S. 468, 477-78 (1989).

11.  Wyeth v. Levine, 129 S. Ct. 1187, 1194-95 (2009).  (Thomas, J., concurring in the judgment.).

12.  See Discover Bank, 30 Cal. Rptr. 3d at 88-89 (“class action litigation for damages was for the most part unknown in federal jurisdictions at the time the FAA was enacted in 1925. . . .  The Congress that enacted the FAA therefore cannot be said to have contemplated the issues before us.”).

13.  E.g., Freightliner Corp. v. Myrick, 514 U.S. 280, 289-90 (1995) (“A finding of liability against petitioners would undermine no objectives or purposes with respect to ABS devices since none exist.”).

14.  Volt, 489 U.S. at 476 n. 5.

15.  See, e.g., Dix v. ICT Group, Inc., 161 P.3d 1016 (Wash. 2007); America Online, Inc. v. Pasieka, 870 So.2d 170 (Fla. Dist. Ct. App. 2004); America Online, Inc. v. Superior Court, 90 Cal. App. 4th 1 (2001).

16.  See Dunlap, 567 S.E. 2d at 280 (FAA does not allow a party to evade state contract law “merely because the prohibiting or limiting provisions are part of or tied to provisions in the contract relating to arbitration”); Scott, 161 P.3d at 1008 (contract terms “do not change their character merely because they are found within a clause labeled ‘Arbitration’.”).

17.  See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614, 637 (1985) (arbitration clauses are enforceable “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum”); Equal Employment Opportunity Comm’n v. Waffle House, Inc., 534 U.S. 279, 295 n. 10 (2002); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991); Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 81 (2000).

18.  See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997) (“The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights.  A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s (usually an attorney’s) labor.”); Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 161 (1974) (“A critical fact . . . is that petitioner’s individual stake . . . is only $70.  No competent attorney would undertake this complex antitrust action to recover so inconsequential an amount.  Economic reality dictates that petitioner’s suit proceed as a class action or not at all.”); Deposit Guaranty Nat’l Bank v. Roper, 445 U.S. 326, 338 n. 9 (1980) (to same effect).

Forced Arbitration and the Kagan Hearings

Monday, July 5th, 2010

Deepak GuptaThe forced arbitration of claims arising out of statutory protections for consumers and employees has become a hot topic at the Kagan hearings. The parade of comments by Senators started even before the hearings began, with a written statement by Senator Leahy criticizing the Supreme Court’s 5-4 decision in Rent-a-Center v. Jackson, and similar remarks on the Senator floor by Senator Franken (video of which we’ve already posted here). The topic was raised again in Senator Whitehouse’s opening statement on Monday and in an extended colloquy between Franken and Kagan this morning.

In his statement, Leahy called the Rent-a-Center decision “a blow to our nation’s civil rights laws and the protections that American workers have long enjoyed under those laws.” He noted that “more than one hundred million Americans work under binding mandatory arbitration agreements” and that “most Americans are not even aware that they have waived their constitutional right to a jury trial when they accept a job to provide for their families.”

Congress worked for years on a bipartisan basis to pass laws to protect workers from race discrimination, gender discrimination and age discrimination.  . . . Rent-a-Center is unfortunately just the latest in a line of divisive and devastating Supreme Court decisions where five justices have, in effect, gutted those statutory protections. … Congress should now take a closer look at the way in which binding mandatory arbitration is creating a legal underground where American workers are left without protection.

There is no rule of law in arbitration. There are no juries or independent judges in the arbitration industry. There is no appellate review. There is no transparency. And as a result of today’s divisive ruling, there will likely be no justice for millions of American workers and their families.  The courthouse doors have simply been closed to them.  Today’s opinion also gives big business a disincentive to treat their employees fairly and will no doubt lead to virtually all companies requiring their employees to sign one-sided arbitration agreements as a condition of employment.

Senator Whitehouse’s opening statement at the Kagan hearings struck a similar chord:

Unfortunately, the conservative wing of the current Supreme Court has departed from [the Court’s] great institutional traditions. Precedents, whether of old or recent vintage, have been discarded at a startling rate. Statutes passed by Congress have been tossed aside with little hesitation, and constitutional questions of enormous import have been taken up hastily and needlessly. Only last week, the Rent-A-Center decision concluded that an employee who challenges as unconscionable an arbitration demand must have that challenge decided by the arbitrator. And the Citizens United decision — yet another 5-4 decision — created a constitutional right for corporations to spend unlimited money in American elections, opening our democratic system to a massive new threat of corruption and corporate control. There is an unmistakable pattern. For all the talk of umpires and balls and strikes at the Supreme Court, the strike zone for corporations gets better every day.

Finally, Senator Franken this morning used the hearings as an opportunity to sharply critique not only the recent Rent-a-Center decision, but also the Court’s 2001 decision in Circuit City v. Adams, which rewrote the Federal Arbitration Act to include most employee claims.  The relevant portion of the transcript form this morning’s hearings is available after the jump.

Sen. Franken: I want to discuss something that is denying more and more working Americans that precious day in court, that fair shake, and that’s mandatory arbitration. Now, arbitration has its place. I’m talking about mandatory arbitration. Chances are if you have a cell phone or credit card or if you work, you’re likely to have signed a contract with a mandatory arbitration clause. These clauses basically say if we violate your rights, you can’t take us to court. You have to take it to an arbitrator. But then the fine print essentially says an arbitrator that we pay who depends on us for work and who makes decisions in secret. So a lot of people are denying their opportunity to come before the court.

Circuit City v. Adams

Unfortunately, we’ve seen a series of decisions from the Supreme Court that have made it even harder for people to get that fair shake, as you put it. In 2001 in a case called Circuit City, the Court was asked to decide whether workers’ employment, employment contracts could be subject to mandatory arbitration. This really should have been a no-brainer, because the Federal Arbitration Act of 1925, the law that says that arbitration agreements should be enforced — specifically exempts, quote, “contracts of employment of seamen, railroad employees or any other class of workers engaged in foreign or interstate commerce.”

Organized labor had asked for this specific language to be included to make sure the act would not apply to workers’ employment contracts. In fact, then commerce secretary Herbert Hoover said during a Senate hearing, quote, “if the objection appears to be inclusion of workers’ contracts in the law’s scheme, it might well be amended by states but nothing herein contained shall apply to the contracts of seamen, railroad employees or any other class of workers engaged in interstate commerce.”

Secretary Hoover was saying that if congress wanted to make clear that the Federal Arbitration Act did not apply to employment contracts, Congress should put this language in the statute. So Congress put the language in the statute. But when Justice Kennedy wrote the majority opinion in circuit city, he ignored the history. He wrote, and I quote, “we need not assess the legislative history of the exclusion provision.” Let me repeat that. “We need not assess the legislative history of the exclusion provision.” And based on a strained reading of the law he decided that the exception only applied to workers in the transportation business. Not any class of workers.

This means that instead of all workers getting their day in court in Congress . . . like Congress clearly intended, only transportation workers would get it, and that excludes the vast majority of american workers. General Kagan, I really disagree with this case and the way the court ignored Congress’ intent. That why I was glad to hear your response to one of Senator Schumer’s questions about how the court should interpret statutes. You said that among other things, quote, I think a judge should look to the history of the statute in order to determine Congress’ will. General Kagan, we spent a lot of time in hearings and on the floor debating legislation. How much weight do you think a judge should give to the deliberations of congress and the reasons why we pass the law in the first place?

EK: Senator Franken, the most important thing in interpreting any statute, in fact, the only thing that matters is Congress’ intent. Congress gets to make the laws under Article One of the Constitution. And what the Court should be doing in applying those laws is trying to figure out what Congress meant and how Congress wanted the laws to be applied. That is the only thing that the Court should be doing. Now, sometimes that can be a difficult task. New situations come up. The statutory language is not clear how it applies to those new situations or sometimes congress might simply not have thought of particular situations. Language is by necessity an exact, and so there are going to be cases which —

Sen. Franken: Do you agree with Justice Kennedy, “we need not assess the legislative history” of something?

EK: I would say this. I would say where the text is clear, a court should go with the text. Where the the text clearly covers some situation, the court should do that. The court shouldn’t be writing law.

Sen. Franken: Should the court assess that and make an assessment there?

EK: I think if the text is clear, the court should not rewrite the law. But where the text is ambiguous, which often happens —

Sen. Franken: Wouldn’t you have to assess whether it is ambiguous?

EK: Yes.

Sen. Franken: What Justice Kennedy said doesn’t stand up to that, does that? Let us me move on on that. We in Congress, we want to make sure all of us intentions are clear so 75 years from now the Supreme Court doesn’t just ignore the purpose behind the laws we’re passing. How can we do that? How do we do that? How do we make it clear to future Justices?

EK: Well, the courts surely would be helped if Congress spoke as precisely and exactly and as comprehensively as it could in all situations. You know, there are some instances where the Court just has legitimate difficulty trying to figure out what congress intended and where judges all of whom agree what they should be doing is doing what Congress intended, have difficulty determining that or disagree about what that means. Certainly to the extent Congress can make its intentions clear in legislation and can specifically spell out how it intends for the law to operate, congress ought to do so. To the extent that the court gets something wrong with respect to a statute, and this has happened many times in recent years and in prior years as well. To the extent that the court gets something wrong, of course Congress can come back and change it and make clear that the court got it wrong and also use it as an opportunity even to make clear its intentions with respect to a general area of law.

Sen. Franken: Okay. It’s hard to do 78 years from now, but we’ll try. Circuit City was a Rehnquist court decision.

Rent-a-Center v. Jackson

Just last week the Roberts Court did something better to keep workers out of court and in arbitration. Rent-a-Center has 21,000 workers and hundreds of milions of dollars in annual profits. It forces its workers to sind a mandatory arbitration agreement as a condition of employment. Antonio Jackson, an African-American account manager in nevada had been working for Rent-a-Center for years, but he was frustrated because he watched his company pass him over for promotions again and again. Instead they promoted workers who had less experience and who weren’t black. Although Jackson signed an employment contract agreeing to arbitrate all employment claims, this seemed blatantly unfair and he sued Rent-a-Center.

But the company argued that only the arbitrator could decide whether the arbitration clause was unfair. Let me repeat that.  Rent-a-Center argued that only the arbrator could decide whether the arbitration clause was unfair. Last week the Roberts Court sided with Rent-a-Center.

Talk about not getting your day in court. Now you can’t get your day in court to get your day in court. Now, general Kagan, I know I probably can’t ask you whether I can ask you, but you won’t answer, whether this case was correctly decided, but I would like to ask you still agree with what you said yesterday to Senator Kyl, that one of the glorious things about courts is they provide a level playing field in all circumstances, and that we need to make sure that every single person gets the opportunity to come before the court and gets the opportunity to make his best case and gets a fair shake.

EK: Well, I do agree with that very strongly, Senator Franken. If I might just return to this question of statutory interpretation that you started off with, because I did want to make clear that when a text is ambiguous, which you know frequently happens, which frequently happens, then I think the job of the courts is to use whatever evidence is at hand to understand Congress’ intent. And that includes exploration of Congress’ purpose by way of looking at the structure of the statute, by way of looking at the title of the statute, by way of looking at when the statute was enacted and in what circumstances and by way of looking at legislative history. Now, I think the courts have to be careful about looking at legislative history and make sure that what they’re looking to is reliable, but courts shouldn’t at all exclude signs of congressional intent and should really search hard for congressional intent when the text of the statute itself is unclear.

Sen. Franken: Good. Then I think you and I agree that Justice Kennedy may have been in error when he said that — that the Court doesn’t have to assess the legislative history.

EK: Well, I suspect that — i don’t know the case very well. I suspect that Justice Kennedy may have meant he thought the text was clear, and therefore, the legislative history was not something that should appropriately be explored, but I’m just guessing on that.

Sen. Franken: Okay. I think you’re guessing wrong.

EK: Okay.

This article was originally posted on Consumer Law & Policy Blog

About The Author: Deepak Gupta is a staff attorney at Public Citizen Litigation Group, the litigating arm of the national, non-profit consumer advocacy organization Public Citizen. He also teaches a course in public interest law as an adjunct professor at Georgetown University Law Center, and he previously taught a course in appellate advocacy as an adjunct professor at the Washington College of Law at American University.

Cert Granted in AT&T Mobility v. Concepcion

Wednesday, May 26th, 2010

Image: Jean SternlightYesterday the Supreme Court granted certiorari in what could be an extremely important case addressing the intersection of mandatory arbitration and class actions.  AT & T Mobility v. Concepcion, 2010 WL 303962, Docked 09-893 (May 24, 2010) poses the following question:  “Whether the Federal Arbitration Act preempts States from conditioning the enforcement of an arbitration agreement on the availability of particular procedures — here, class-wide arbitration –  when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.”

The lawsuit, brought in the 9th Circuit, is a consumer class action contending that AT&T Mobility acted fraudulently when it offered a “free” phone to all who signed up for service, but then charged substantial sales tax ($30.22 for two phones to the named plaintiff) to each consumer.  When plaintiff sought to litigate the claim as a class action the defendant demanded individual arbitration, citing an arbitration clause that prohibited class actions.  Relying on California unconscionability law, specifically Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005) the District Court, 2008 WL 5216255, and Ninth Circuit, 584 F.3d 849 (9th Cir. 2009) both courts found the class action prohibition unconscionable.

AT&T Mobility’s cert petition recognizes that provisions in arbitration agreements can sometimes be held unconscionable, but argues that the decisions below are preempted because California courts are purportedly interpreting unconscionability law differently (and more strictly) when they review arbitral class action prohibitions than when they review other kinds of contracts.   In particular, the California Supreme Court’s Discover Bank decision states:

“when the [class] waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages. and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least, . . . the waiver becomes in practice the exemption of the party from responsibility for its own fraud, or willful injury to the person or property of another.  Under these circumstances, such waivers are unconscionable under California law and should not be enforced.”

The Ninth Circuit states that this specific test is not a new rule applicable only to arbitration agreements but rather merely a “refinement” of the “general sliding-scale approach to unconscionability in the specific  context of class action waivers.”

The arbitration clause at issue in Concepcion is highly unusual, because it includes a provision stating that if the arbitrator awards the customer an amount greater than the phone company’s last written settlement offer made before selection of an arbitrator then the consumer is entitled to a premium payment of $7,500.  The company argues that this “premium” provision is sufficiently generous  that a class action is not necessary to allow individual claimants to enforce their rights, and that it was wrong in this context to hold a class action prohibition unconscionable.  The plaintiffs respond (and the Ninth Circuit found) that “the premium payment does not transform a $30.22 case into a predictable $7,500 case.”  Instead, finds the Ninth Circuit, “predictably AT&T will simply pay the face value of the claim before the selection of an arbitrator to avoid potentially paying $7,500.  Thus, the maximum gain to a customer for the hassle of arbitrating a $30.22 dispute is still just $30.22.”  Normally, finds the Ninth Circuit, a person “will not find it worth the time or the hassle to try to recover such a small amount, even if that person spends no money to hire an attorney or to invoke the arbitration process.”

It seems that the Concepcion case will require the Court to walk a difficult line.  If the majority of the Court want to find that California’s approach to unconscionability in this context is preempted  it will have to find a way to do that without purporting to wade too far into state law.  While it may be easy for the Court to say that unconscionability law can’t be applied more strictly to arbitration agreements than to other kinds of contracts, it may be hard for the Supreme Court or lower courts to apply that test in particular situations.

The case will also be interesting because it raises the issue of the purpose of class actions and litigation more generally.  Is the accepted purpose of plaintiffs’ class action only to reimburse plaintiff for the cost of the phone or is an accepted purpose also to help other similarly situated consumers or to deter the defendant or other companies from engaging in such fraudulent behavior in the future?  Is it appropriate to find a class action prohibition unconscionable because it harms persons other than the named plaintiffs or prevents deterrence, and not merely because it prevents the particular named plaintiffs from recovering their loss?  Note that class actions serve a notice function — helping present claims of persons who did not even know they had claims.  Is it appropriate (not preempted by the FAA)  to find that eliminating that aspect of class actions is unconscionable?

The case will be watched extremely closely by both sides of the class action/arbitration debate.  Probably no one believes that  all class action prohibitions are per se unconscionable.  Equally, while some companies might want to eliminate unconscionability arguments altogether in all likelihood Section 2 of the FAA ensures that some types of arbitration clauses can be unconscionable.  Thus,  the question the Court will try to answer is are class action waivers contained in arbitration clauses somehow immune from unconscionability challenges and, assuming they are not, how should courts decide whether such waivers are unconscionable.    A broad decision in favor of AT&T Mobility could  potentially allow companies in a variety of contexts to insulate themselves from class action exposure by including class action waivers in their arbitration clauses.   This would be a huge deal in the world of consumer litigation, as many consumer challenges are only brought through class actions.  Such a ruling could also affect employment cases, particularly wage and hour claims, which are typically presented in class actions.   This type of ruling could spark legislative action on the proposed Arbitration Fairness Act (which would prohibit mandatory arbitration in the consumer and employment settings).  Alternatively a narrower decision in favor of AT&T could open a floodgate of future litigation to determine whether a lower court had issued a permissible or impermissble decision holding that a particular class action waiver was unconscionable.  A ruling in favor of the plaintiffs would reinforce existing law in many jurisdictions which provides that arbitral class action prohibitions are at risk of being held unconscionable.

Stay tuned for another exciting arbitration decision from the Supreme Court!

*This post originally appeared in Indisputably.org on May 25, 2010. Reprinted with permission from the author.

About the Author: Jean R. Sternlight is the Michael and Sonja Saltman Professor of Law and also Director of the Saltman Center for Conflict Resolution at the University of Nevada-Las Vegas Boyd School of Law.  She teaches courses on dispute resolution, including both litigation and alternatives thereto.  Frequently cited by courts and the media, Sternlight is co-author of Mediation Theory and Practice 2d ed. (LEXIS 2006), Arbitration Law in America: A Critical Assessment (Cambridge Univ. Press 2006), and Dispute Resolution: Beyond the Adversarial Model (Aspen 2004).  She has published articles in numerous well-respected journals including Stanford Law Review, University of Pennsylvania Law Review, Journal of Law & Contemporary Problems, William & Mary Law Review, and The Ohio State Journal of Dispute Resolution.  Sternlight received her B.A. (High Honors) from Swarthmore College, and her J.D. (cum laude) from Harvard Law School.   After practicing law in Philadelphia for eight years she began her academic career at Florida State University College of Law.  She subsequently moved to the University of Missouri-Columbia and has been at the University of Nevada-Las Vegas since the summer of 2003.

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