Ninth Circuit, FINRA Arbitration and Exchange Act Commands

Last week, the Court of Appeals for the Ninth Circuit decided two issues important in the field of securities arbitration — one of which I believe flatly ignores the Securities Exchange Act of 1934, as amended by Dodd-Frank. The case, Goldman, Sachs & Co. v. City of Reno, __ F.3d __, 2014 WL 1272784 (9th Cir. Mar. 31, 2014), arose out of Goldman’s underwriting and advising services for the City of Reno’s issuance of auction-rate securities (ARS) in 2005 and 2006.  When the market for ARS and thus Reno’s ARS collapsed, Reno initiated a FINRA arbitration against Goldman alleging a whole host of common law and statutory claims.

Goldman resisted arbitration in the courts, and the case went up to the Ninth Circuit. First, the Court ruled that the City of Reno was a “customer” of Goldman  within the meaning of Rule 12200 of FINRA’s Code of Arbitration Procedure for Customer Disputes, and thus Goldman had a duty to arbitrate disputes upon the demand of a “customer.”  However, the Court also ruled that forum selection clauses (District of Nevada) in the relevant agreements trumped Goldman’s duty to arbitrate.  Thus, the case could proceed in federal court.

The Court’s conclusion that Reno is a “customer” of Goldman is not all that controversial in my view, as the court adopted the Second Circuit’s definition from UBS v. WVUH, 660 F.3d 643 (2d Cir. 2011) (“a ‘customer’ is a non-broker and non-dealer who purchases commodities or services from a FINRA member in the course of the member’s FINRA-regulated business activities, i.e., the member’s investment banking and securities business activities”).   I blogged about that Second Circuit case here.

The second holding troubles me.  Sec. 29(A) of the Exchange Act voids “any condition, stipulation, or provision binding any person to waive compliance … with any provision of the Exchange Act or its rules.” Prior to Dodd-Frank (2010), the statute also applied to rules issued by securities exchanges; Dodd-Frank amended § 29(a) to include rules issued by all SROs.  Thus, for the first time, § 29(A) explicitly invalidates provisions in brokerage agreements that require customers to waive compliance with FINRA rules.  To the extent courts have held in the past that parties could contract around FINRA rules, that line of cases seems to be vitiated by amended § 29(A).

It seems to me that this recently amended provision of the ’34 Act voids the parties’ forum selection clause.  I wonder why the City of Reno did not pursue this argument (I saw no mention of it either in the district court’s or Court of Appeal’s decision)?  I also wonder why FINRA’s Enforcement Division did not pursue Goldman; FINRA IM-12000 states that it “may be deemed conduct inconsistent with just and equitable principles of trade and a violation of [FINRA Conduct] Rule 2010 for a member… to…(a) fail to submit a dispute to arbitration under the [FINRA Arbitration] Code.”

This issue is similar, although not identical to, the issues raised in the FINRA v. Schwab disciplinary case (whether FINRA rules void a class action waiver in an arbitration clause in a brokerage firm’s customer agreement), which is still pending on appeal to FINRA’s National Adjudicatory Council.  See here, hereherehere and here.

The issue also brings to mind a larger question raised a decade ago by Prof. Barbara Black:  why do brokerage firms shun FINRA arbitration when institutional investors sue them, but mandate arbitration when individual investors sue them??  See Barbara Black, The Irony of Securities Arbitration Today: Why Do Brokerage Firms Need Judicial Protection?, 72 U. Cinc. L. Rev. 415 (2003).

 

Arizona State Law Wins ABA Representation in Mediation Competition

Congratulations to students Alden Anderson and Chelsea Hesla from the Sandra Day O’Connor College of Law at Arizona State University, who won the 2014 American Bar Association Section of Dispute Resolution Representation in Mediation Competition.  The National Finals took place this past week at the Section’s Annual Conference in Miami.

As the ABA reported, over 100 teams from 50 law schools competed for the right to advance to the National Finals. Ten teams were invited to compete at Nationals: Emory Law, Fordham University School of Law, Marquette University Law School, Sandra Day O’Connor College of Law at Arizona State University, South Texas College of Law, Southwestern Law School, The Ohio State University Moritz College of Law, University of Idaho College of Law, University of Maryland Francis King Carey School of Law, and William & Mary Law School.

After two preliminary rounds on April 2nd the teams from Sandra Day O’Connor College of Law at Arizona State University, South Texas College of Law, The Ohio State University Moritz College of Law, and University of Maryland Francis King Carey School of Law advanced to the Semi-Final Round on April 3rd. The teams from Sandra Day O’Connor College of Law at Arizona State University and The Ohio State University Moritz College of Law advanced to the Championship Round where Arizona State University students  prevailed.

 

Profs. Frenkel and Stark Win CPR Outstanding Scholarly Article Award

Profs. Doug Frenkel’s (UPenn) and Jim Stark’s (UConn) recent article Changing Minds: The Work of Mediators and Empirical Studies of Persuasion, 28 Ohio State J. Dispute Resol. 263-352 (2013), has been selected as the outstanding scholarly article of 2013 by the International Institute for Conflict Prevention and Resolution (CPR).  CPR, an organization of executives and counsel from the world’s largest companies and global law firms, government officials, retired judges, highly experienced neutrals, and leading academics, was founded in 1979 and has been dedicated to the growth and development of dispute resolution practice and policy ever since.

I heard them present a summary of the article at the ADR Works-in-Progress Conference in the fall and it is truly a fascinating and ambitious empirical study.  Congratulations to them both on this well-deserved award!

Dropbox adds Arbitration Clause to its Terms of Service

I have a Dropbox account and use it to store a lot of my cloud-based documents. Dropbox emailed its users late last week, announcing changes to its Terms of Service, including the addition of an arbitration clause.  Notably, the clause included submission of disputes to the AAA for arbitration, a right to opt out within 30 days, an agreement that Dropbox will pay all arbitration fees for claims of less than $75,000, a “bonus” payment of $1,000 if the award is greater than any Dropbox offer of settlement, and, of course, a class action waiver.  I have reproduced the clause in its entirety below.

I wonder whether Dropbox adopted the few consumer-friendly features of the clause simply to please its users, to forestall any finding of unconscionability based on the class action waiver, or to try to retain users who might object.  The Dropbox Blog has a more complete announcement of the changes, including quite a few comments from users who object to the arbitration provision and have chosen to drop Dropbox as a result.  At least this is a service for which consumers have a choice: they can sign up for an alternative cloud storage service not subject to arbitration of disputes.

Resolving Disputes

Let’s Try To Sort Things Out First. We want to address your concerns without needing a formal legal case. Before filing a claim against Dropbox, you agree to try to resolve the dispute informally by contacting dispute-notice@dropbox.com. We’ll try to resolve the dispute informally by contacting you via email. If a dispute is not resolved within 15 days of submission, you or Dropbox may bring a formal proceeding.

We Both Agree To Arbitrate. You and Dropbox agree to resolve any claims relating to these Terms or the Services through final and binding arbitration, except as set forth under Exceptions to Agreement to Arbitrate below.

Opt-out of Agreement to Arbitrate. You can decline this agreement to arbitrate by clicking here and submitting the opt-out form within 30 days of first accepting these Terms.

Arbitration Procedures. The American Arbitration Association (AAA) will administer the arbitration under its Commercial Arbitration Rules and the Supplementary Procedures for Consumer Related Disputes. The arbitration will be held in the United States county where you live or work, San Francisco (CA), or any other location we agree to.

Arbitration Fees and Incentives. The AAA rules will govern payment of all arbitration fees. Dropbox will pay all arbitration fees for claims less than $75,000. If you receive an arbitration award that is more favorable than any offer we make to resolve the claim, we will pay you $1,000 in addition to the award. Dropbox will not seek its attorneys’ fees and costs in arbitration unless the arbitrator determines that your claim is frivolous.

Exceptions to Agreement to Arbitrate. Either you or Dropbox may assert claims, if they qualify, in small claims court in San Francisco (CA) or any United States county where you live or work. Either party may bring a lawsuit solely for injunctive relief to stop unauthorized use or abuse of the Services, or intellectual property infringement (for example, trademark, trade secret, copyright, or patent rights) without first engaging in arbitration or the informal dispute-resolution process described above.

No Class Actions. You may only resolve disputes with us on an individual basis, and may not bring a claim as a plaintiff or a class member in a class, consolidated, or representative action. Class arbitrations, class actions, private attorney general actions, and consolidation with other arbitrations aren’t allowed.

Judicial forum for disputes. In the event that the agreement to arbitrate is found not to apply to you or your claim, you and Dropbox agree that any judicial proceeding (other than small claims actions) will be brought in the federal or state courts of San Francisco County (CA). Both you and Dropbox consent to venue and personal jurisdiction there.

Notable AAA Arbitration Rule Revisions in 2013

As others are reflecting on notable events in the past year, I think about the American Arbitration Association’s 2013 revisions to its arbitration rules, and what those revisions mean to arbitration.

First, effective October 1, the AAA’s revised Commercial Arbitration Rules make several important changes to the arbitration process.  All of the changes are summarized on the AAA’s website, but a few notable ones include:

  • R-9: All arbitration claims exceeding $75,000 must be mediated concurrently with the arbitration, unless any party opts out.  Notable for one of the original arbitration service providers to recognize the value of mediation as a critical ADR step in most cases.
  • R-21: Arbitrators should schedule a preliminary hearing “as soon as practicable” after their appointment and related procedural rule P-1 provides a checklist of 19 items the arbitrators should cover during the preliminary hearing.  Notable for how explicit the directions are to the panel as to how to conduct the hearing, but cautions the panel and parties not to “import” court-like procedures into the arbitration.
  • R-22 now addresses discovery in more detail, and provides additional tools to the panel to manage the discovery process.  Notable for its explicit reference to e-discovery.
  • R-33 now expressly mentions the authority of the panel to decide pre-hearing motions.   Notable because the old rules were silent as to pre-hearing motions.
  • Revised Rule 58 (and rule 23) authorizes the arbitrators to impose sanctions for failure of a party to comply with an order of the panel or any of the AAA rules. Notable, just notable.

Second, as of November 1, AAA adopted Optional Appellate Arbitration Rules.  Those rules allow for a “high-level review” of arbitral awards in large, complex cases on grounds not available in court for review of arbitral awards (i.e., errors of law) by consent of all parties.  The AAA will supply former federal or state judges, or “neturals with strong appellate backgrounds” as the appellate reviewers.  These rules are a direct response to disputants’ concerns that there are very limited grounds on which a court can vacate an arbitration award, and the Supreme Court ruled in 2008 that parties cannot contractually expand those grounds.  In large, complex cases, parties simply have too much at stake to yield that much authority and finality to the arbitration panel.  Notable as the AAA attempts to maintain arbitration as an attractive ADR mechanism for parties, yet offer court-like features to respond to criticism that arbitrators lack accountability.

I look forward to assessing ADR developments in 2014!

Congratulations to FOI Hiro Aragaki

Congratulations to Friend of Indisputably Prof. Hiro Aragaki (Loyola Law) on winning one of only two Honorable Mentions in the 2014 AALS Annual Scholarly Paper Competition for junior faculty for his paper “Contract” or “Procedure”? Reinterpreting the Federal Arbitration Act.  He presented a draft of the paper to the recent ADR Works-in-Progress Conference, and his presentation generated a lot of interesting discussion.

He will present his paper at the AALS Annual Meeting in New York on Saturday, January 4, 2014 from 2:00- 3:45 p.m. (conveniently just before the ADR’s section 4:00 program, “ADR and the Regulatory State”).   I am looking forward to both!

Report from Cardozo’s Wonderful ADR Works-in-Progress Conference

Now that I have had a day to catch my breath, I can share a few reflections about the wonderful ADR Works-in-Progress Conference that Cardozo Law School hosted this past Thursday evening through Saturday morning.  Prof. Lela Love, Director of Cardozo’s Kukin Program for Conflict Resolution, assisted by student editors of Cardozo’s Journal of Conflict Resolution, organized and coordinated presentations of papers and projects in various phases of progress on a wide variety of ADR-related topics from more than 25 ADR scholars.

First, due to limited travel budgets, this marks the first time I have been able to attend the ADR WIP conference, a conference conceptualized and founded about six years ago by co-blogger Andrea Schneider (yes, Andrea, yet another shout-out) and promoted by the ADR AALS Section.  Because the conference finally was in New York, I now know what I have been missing all these years.  In an intensive and short period of time, I absorbed the latest developments in the field, thought deeply about and responded to “baking” scholarship and generated ideas and nuances for my own work. [As an aside, those administrators who make seemingly unprincipled decisions about not funding academics to travel to more than one conference per year should take into account the value-added benefits to its faculty of attending these conferences and not putting academics in the unenviable position of having to choose which one to attend (or pay out-of-pocket).]

Second, I loved the format of the conference — or, should I say, the variety of formats. During the day and a half of presentations, the organizers used various mechanisms to permit attendees to provide feedback to presenters.  These included written feedback on postcards, circulating sheets, and post-its, as well as verbal feedback via small and large group discussion and responses to targeted questions.  By mixing up the formats, the conference organizers met the needs of a wider variety of styles of learners and teachers, kept us on our toes and thus generated more meaningful feedback to each presenter.

Finally, the themes that emerged from the conference reveal a proliferation of old and new mechanisms, overuse and underuse of ADR, problems in labeling of neutral styles, behaviors and approaches, and deep concerns among ADR scholars about the fairness of ADR mechanisms.  That being said, the group seemed energized to continue working to improve and promote ADR processes.

I look forward to next year’s WIP conference, no matter the location, and plan on attending regardless of budgetary constraints!

Happy Mediation Settlement Day!

NYS Governor Andrew M. Cuomo and NYC Mayor Michael R. Bloomberg
Proclaim Thursday, October 17 as Mediation Settlement Day

Everyone can benefit from learning about mediation and other Alternative Dispute Resolution resources to resolve conflicts and disputes peacefully.

Throughout the month of October, Mediation Settlement Day sponsors offer special programs to increase understanding about mediation as a means of resolving conflicts and disputes peacefully.

This year’s Mediation Settlement Day Honorary Chair is Kenneth R. Feinberg, Director of the One Boston Fund 2013, Special Master of the Federal September 11th Victim Compensation Fund 2001 and Founder and Managing Partner at Feinberg, Rozen, LLP.

For the third consecutive year, on Mediation Settlement Day at sundown, seven New York landmarks will be illuminated in blue in support of mediation:

- 7 World Trade Center
- Albany Law School
- Mid-Hudson Bridge – Poughkeepsie
- Niagara Falls, the American and Canadian sides (Niagara Falls Illumination Board)
- Peace Bridge Buffalo
- The Electric Tower of Buffalo
- The Staten Island Ferry Terminals in Manhattan/Whitehall display a message inviting the public to learn about mediation at www.nycourts.gov/adr.

CyberWeek 2013 eMediation Competition

Cornell University’s Scheinman Institute on Conflict Resolution, in conjunction with the Modria Mediation Room, is hosting the 2013 Cyberweek eMediation Competition.

WHEN: November 4-8, 2013

COMPETITORS:

1. Competitors must be a current student at a college or university.

2. Mediator – Individuals may register to participate in the competition as a mediator.

3. Parties – Individuals or teams of 2 may register to participate in the competition as a party to the conflict.

TYPES OF CASES INVOLVED: The competition will use cases involving workplace and/ or community disputes.

ONLINE COMPETITION: Each mediation will be asynchronous using Modria’s platform and last four days. The competition will consist of one round.

COMPETITOR EVALUATION: Each pre-determined criterion will be judged on a scale of 1-5 by ADR professionals, allowing for a combined highest score of 40. The scores for each team will be considered a final score. A ranked listing of the top five scoring mediators and the top ten scoring parties will be announced.

REGISTRATION: Competitors must registers by Thursday, October 31. The competition will begin on November 4 and end on November 8. Competitors can register for Cyberweek at:  https://cyberweek2013.eventbrite.com/

After registering for Cyberweek, you can register for the eMediation competition at: http://www.ilr.cornell.edu/conflictRes/eMediationCompetitionRegistration.html

Please contact Richard Todd at Richard.Todd@creighton.edu or Katrina Nobles at kn64@cornell.edu with any questions.

George Friedman’s Prolific Retirement

As I blogged here, at the end of 2012, George Friedman retired as Executive Vice President and Director of Dispute Resolution of FINRA Dispute Resolution after many years in a top role there.  (He remains an Adjunct Professor at Fordham where he has taught Arbitration Law for many years.)

However, since his so-called retirement, he has been a very prolific author and blogger in the area of securities arbitration and arbitration law generally. Among other topics, he has analyzed the Supreme Court’s most recent arbitration decisions, critiqued the most recent iteration of the Arbitration Fairness Act, and more openly addressed critics of FINRA’s forum.  His unique perspective as a former top administrator of a critical mediation and arbitration forum that was subject to regulatory oversight provides an important new voice in the public discussion of securities arbitration, and I welcome his contributions.  You can access most of his writings either on his website, here, or through his blog entries on the Arbitration Resolution Services blog (he is on the ARS Board), here.

Cyberweek 2013 and Call for Proposals

I am passing along an annoucement from FOI Noam Ebner:

It is time once again to prepare for the annual conference on Online Dispute Resolution, Cyberweek 2013. This online conference provides a week of activities and dialogue about the world of Online Dispute Resolution and how it relates to our work as conflict specialists. Cyberweek 2013 will take place Monday, November 4th through Friday, November 8th.

We are currently in the process of identifying potential activities for the conference.  Are you working on an interesting area in ODR, which you’d like to give a live webinar on? Are you interesting in facilitating a discussion forum on a topic of expertise? Do you have an ODR related product you would like to Demo? Do you have other ideas for activities (simulations, competitions, or anything else?)

If you would like to propose any type of  learning experience for Cyberweek 2013, please contact Bryan Hanson at bryanhanson@creighton.edu, or Noam Ebner at Noamebner@creighton.edu by September 15th.

** Once again Cyberweek will have a Spanish and Italian track. To propose activities in theselanguages please contact Alberto Elisavetsky by email at Elisavetsky@gmail.com **

This will be the 16th Cyberweek. Since 2010, the Werner Institute has been assisting in the facilitation of Cyberweek by hosting it on the website www.ADRHub.com. Via this platform, thousands of participants have engaged in conversations with students, faculty members, and practitioners interested in the integration of technology into our dispute resolution processes. Once again, Cyberweek will be packed with engaging discussion forums, webinars, podcasts, demonstrations, simulations, and contests. We are also planning to integrate many of the latest innovations in social media to create an environment that will bring us all closer together for the week.

One wonderful aspect of an online conference is that it all remains archived for reflection following the live events. You may click on the following links wants to view the archives for Cyberweek 2010, Cyberweek 2011, or Cyberweek 2012. We are looking forward to building on the success from the past three years of Cyberweek on the ADRHub and creating another vibrant environment that inspires the same energy and participation that has been consistent throughout all of the Cyberweek conferences thus far.

Please pass on this message to anyone who may be interested in proposing a learning experience, or participating in Cyberweek 2013. If you have any questions, please feel free to contact bryanhanson@creighton.edu.

In addition to the call for proposals, let me recommend you consider noting the dates (Monday, November 4th through Friday, November 8th), and incorporating the conference into your courses this fall in one way or another. Cyberweek is a fully-online conference offering a unique experience of exposure to the world of online dispute resolution and other interfaces between dispute resolution and technology. Cyberweek is hosted on ADRHub.com, the web portal that the Werner Institute at Creighton Law has set up for the ADR community as a source for material and ideas as well as a professional and academic networking. ADRHub has over 2,000 members, and over 1,000 participants generally participate in Cyberweek, so exposing them to the conference might help them open doors and make connections in addition to gaining or enhancing awareness of this cutting edge area in ADR.  Conference activities, in  addition to discussion forums and live webinars led by experts in the field, the include demos and test-drives of ODR programs and platforms, an online mediation and mediation advocacy competition, the ABA – Dispute Resolution Section’s ethics competition that Susan announced a few days ago and much, much more. We’d love to see you and your students participating in this special event.

Bill Banning Predispute Arbitration Clauses in Broker-Dealers’ Customer Agreements Introduced into Congress

Last Friday, Rep. Keith Ellison (D-Minn) introduced the “Investor Choice Act” into the House of Representatives, a bill that proposes to ban broker-dealers, investment advisers, funding portals and municipal securities dealers from including mandatory arbitration clauses in their customer and client agreements. While Dodd-Frank explicitly authorized the Securities and Exchange Commission to ban such arbitration clauses to protect investors, fhe SEC has not yet acted on its authority and Commisssioner Walter recently stated publicly that the SEC was unlikely to do so in 2013. While I suspect this bill has little to no chance of getting passed, it may prompt the SEC to act in 2014.

SEC Seeks Public Comment on Arbitrator Selection Rule Proposal

The SEC has published for public comment a rule change proposal filed by FINRA to alter the arbitrator selection method in three-arbitrator customer cases.   Comments are due by July 11, 2013.

Currently, customers must elect a panel composition method at the beginning of a case, with the default method being the Majority Public Panel option that results in one non-public (i.e. securities industry-affiliated) arbitrator sitting on a three-arbitrator panel.  Currently , customers can opt out of that default by choosing the All Public Panel option, giving them the ability to strike all arbitrators on the non-public list if they choose.

Recent statistics have shown that, since the advent of the All Public Panel option in 2011, customers prevailed 49% of the time in cases decided by all public panels but only 34% of the time in cases decided by majority public panels.  Additionally, customers were not electing the All Public Panel method 25% of the time (by default 77% of that 25%), perhaps out of lack of clarity or understanding of the panel composition options.

In light of these statistics, FINRA wisely moved quickly to simplify the panel selection methods and remove the step of requiring customers to elect the All Public Panel option and instead just implementing it as the only method.  Customers who want a non-public arbitrator can have one; customers who do not are not forced to.  Seems like a no-brainer to me.

What is more concerning to me is the large differential between customer success with an all public panel versus a majority public panel (49% vs. 34%).  I used to believe that industry arbitrators added value to some panels and were not inherently biased against customers merely by virtue of their classification.  I now need to revisit that belief in the face of this damning evidence.

Looking for law textbooks that incorporate problem-solving teaching

As many of our readers know, the ABA Dispute Resolution Section, LEAPS project sponsors a website that includes resources for teaching practical problem-solving and professional skills.  To faciliate being a resource for professors who would like to move away from lecture-based formats in teaching “doctrinal” courses, the LEAPS executive committee is developing a list of textbooks that incorporate practical problem-solving and professional skills into the teaching of subject areas that have traditionally been taught in a lecture-based, case analysis format.  Note that books focused on ADR, clinical education, and legal writing are not included because nearly all of those books incorporate practical problem-solving and skills.

I have reproduced the current draft of the list below.  Feel free to take a look at this list, and circulate it to your colleagues, as you select coursebooks for next year.  In addition, if you would like to recommend additional books for this list, please forward the information to Deborah T. Eisenberg at Deisenberg@law.umaryland.edu.

She will post an updated list to the LEAPS website in mid-July.

 Legal Texts that Incorporate Practical Problem-Solving and
Professional Skills Development

This list identifies texts that incorporate practical problem-solving and professional skills into the teaching of doctrinal areas that traditionally have been taught through lecture and appellate case analysis.  It does not include texts focused on clinical education, legal writing, legal methods, trial practice, or dispute resolution, because most of the texts in those areas incorporate practical
problem-solving and practical skills.  (Some of the descriptions below are copied from the publisher’s websites.)

TEXTBOOK SERIES

Several publishers have series that incorporate exercises designed to build practical problem-solving and professional skills.  These include:

Carolina Academic Press

Context and Practice Series

Series designed to make it easy for professors to incorporate multiple methods of instruction, problem-solving and simulation
exercises, and context-based instruction into their teaching.  Subject areas include legal research, torts, business, civil procedure, criminal law, juvenile justice, disability rights, energy law, federal taxation, intellectual property, international law,
products liability, property, remedies, wills, trusts and estates, and workers’ compensation.

LexisNexis

Skills & Values Series

Texts cover a variety of subject areas, including administrative law, alternative dispute resolution, civil procedure, constitutional
law, contracts, evidence, discovery practice, evidence, federal income taxation, intellectual property, negotiation, and trusts and estates.

West Academic

Developing Professional Skills Series

Supplemental books with exercises designed to build professional skills.  Subject areas include business associations, property, civil procedure, and contracts.

Bridge to Practice Series

Books that include simulation exercises to teach how doctrine and rules work in realistic settings. Subject areas include evidence, property, civil procedure, and criminal procedure.

The Learning Series

Case books that encourage active student involvement in the learning process.  Subject areas include evidence and civil procedure, with more to come.

Experiencing Law Series

These primary coursebooks cover the doctrine traditionally covered in the classroom while simultaneously offering experiential exercises to illustrate the concepts of the subject being taught. The books feature the key cases and cover the doctrine in much the same fashion as other standard casebooks. The books in this series will help support a course that balances traditional case analysis with statutory and rule analysis and experiential education.

INDIVIDUAL TEXTBOOKS

Some publishers have individual case books and texts that incorporate practical-problem-solving, simulation exercises, and skills
development.

Accounting

Matthew J. Barrett & David Richard Herwitz, Accounting for Lawyers (Foundation Press) (uses actual financial statements from big companies to illustrate concepts and uses comprehensive problems to teach the accounting topics and issues most likely to confront lawyers).

Bankruptcy

Linda J. Rusch & Stephen L. Sepinuck, Problems and Materials on Bankruptcy (West) (“designed to give students experience with bankruptcy practice, providing more than 125 problems designed to facilitate learning, focus class discussion, and test understanding.”)

Civil Procedure

John, T. Cross, et al., Civil Procedure: Cases, Problems and Exercises (West) (uses “an extensive set of problems and exercises, which helps students become accustomed to reading and using the rule itself, rather than relying on a court’s paraphrasing of that rule. The book uses cases decided in the last decade, underscoring that civil procedure is a subject in constant flux, and
incorporates the 2007 complete revision of the Federal Rules.”)

Contracts

David Zarfes and Michael Bloom, Contracts and Commercial Transactions (Wolters Kluwer) (“text that immerses the reader in real agreements made between sophisticated parties—so the reader can develop the ability to read, understand, and draft contracts effectively.”)  

Corporations

Lee Harris, Cases and Materials on Corporations and Other Business Entities (Aspen) (uses skills-driven exercises from actual disputes and questions to simulate what lawyers do).

Environmental Law

Environmental Law Practice: Problems and Exercises for Skills Development, (Carolina Academic Press 3d ed. 2010) (teaches
environmental law through problems and exercises the place the student in key roles played by environmental lawyers)

Family Law

Douglas Abrams, et al., Contemporary Family Law (West) (supplements family law with chapters on lawyering, private ordering, and alternative dispute resolution and “emphasized the importance of legal practice issues by placing the lawyering chapter at the beginning of the book, and by using problems that enable students to apply doctrine.”).

Krause, Elrod and Oldham’s Family Law: Cases, Comments and Questions, (West 7th ed) (emphasizes “practical skills and comparative material”)

Professional Responsibility

Lisa G. Lerman & Philip G. Schrag, Ethical Problems in the Practice of Law (Aspen) (places student in the role of lawyer in analyzing problems that are based on real cases and real-life situations that lawyers are likely to experience during their first few years of practice).

Property

R. Wilson Freyermuth, et al., Property and Lawyering (West 2010) (combines “the theory and analysis of a traditional casebook with reality-based lawyering exercises that reinforce doctrinal knowledge, develop lawyering skills and introduce professional values”).

Sales

Linda J. Rusch & Stephen L. Sepinuck, Sales and Leases:  A Problem-Solving Approach (West) (keeps “students focused on understanding and applying the relevant provisions of the Uniform Commercial Code and other related statutes” by using primarily text and problems, with few cases).

Tax

Samuel A. Donaldson, Federal Income Taxation of Individuals:  Cases, Problems and Materials (West) (uses a “building-block” format and “over 90 detailed problems” that require readers “to research the Code and Regulations and apply complex rules to basic fact patterns.”)

FINRA to conduct background checks on arbitrators

BNA has reported that FINRA has implemented a new policy and will now conduct annual background checks as well as an additional review of arbitrators before appointing them to new cases.  This change in policy was prompted by FINRA’s discovery last year that one of its arbitrators had been indicted for the uanuthorized practice of law.

It’s too bad that the forum needs to implement measures such as these to make sure the parties have neutral and ethical arbitrators; the arbitrator’s disclosure obligations should have taken care of this without the need for a case-by-case background check.

Reflections on 2013 Supreme Court Arbitration Decisions

I have had a few days to digest the Supreme Court’s most recent opinions interpreting the Federal Arbitration Act (Oxford Health Plans LLC v. Sutter, see blog post here; and American Express Co. v. Italian Colors Restaurant, see blog posts here and here) and offer the following reflections:

Sutter affirmed the broad power of the arbitrators to decide issues properly submitted to them even if the resulting decision seems implausible.   Italian Colors affirmed the power of parties entering into a valid arbitration agreement to eliminate procedural devices in the forum (such as class arbitration) even if they are the only devices through which a party can effectively vindicate federal statutory rights.  Both of these decisions continue along the same path the Court has been on for 35 years: converting arbitration agreements from disfavored status to super-status – and creating what I picture to be a bubble-like model of arbitration.

What do I mean by bubble-like?  For years I have envisioned the ironclad arbitration agreement (i.e. an agreement that thwarts all attacks to contractual validity) as creating an impenetrable and opaque bubble – once disputing parties are inside the bubble and have submitted their disputes to an arbitration panel, nothing – no court, no doctrine, no judge — can question what happened inside.  The arbitration process is safe from scrutiny; arbitrators’ decision-making is immune from challenge.

That image is all the more clear to me now, as Italian Colors drew what could be seen as a puzzling distinction between affording access to a forum and affording the ability to prove a claim.  Thus, Justice Scalia, in the majority opinion, wrote:

The “effective vindication” exception to which respondents allude originated as dictum in Mitsubishi Motors, where we expressed a willingness to invalidate, on “public policy” grounds, arbitration agreements that “operat [e] … as a prospective waiver of a party’s right to pursue statutory remedies.” 473 U.S., at 637, n. 19, 105 S.Ct. 3346 (emphasis added). Dismissing concerns that the arbitral forum was inadequate, we said that “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function. …”

As we have described, the exception finds its origin in the desire to prevent “prospective waiver of a party’s right to pursue statutory remedies,” Mitsubishi Motors, supra, at 637, n. 19, 105 S.Ct. 3346 (emphasis added). That would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights.
And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable. See Green Tree Financial Corp.–Ala. v. Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) (“It may well be that the existence of large arbitration costs could preclude a litigant … from effectively vindicating her federal statutory rights”). But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.

In other words, once a disputing party can afford to get inside the bubble, the Court will not allow the judiciary to review, or even see, what actually happens inside the bubble.

Perhaps my vision of the Court’s arbitration jurisprudence is overly child-like; but perhaps the Court’s view of arbitration is overly simplistic.  How can it be that a party that cannot afford to prove a claim in a forum has any more effective vindication of statutory rights than a party that cannot afford to submit proof of a claim to that forum?  Congress needs to burst that bubble.

American Express Co. v. Italian Colors Restaurant Guts Enforcement of Federal Laws

This blog post is from FOI, Prof. Jean Sternlight:

On the theory that the worst Supreme Court arbitration ever is worth a second post, here is mine to supplement what Jill Gross has already posted.

The Supreme Court’s decision today in American Express v. Italian Colors is ghastly, at least from the perspective of those who believe that federal laws ought to be enforced.  In a 5-3 decision the Court (per Justice Scalia) held that it is perfectly acceptable for companies to use arbitration clauses to insulate themselves from federal claims that might be brought by potential adversaries.   Specifically, the Court found that it was fine for American Express to prevent restaurant owners from joining together in a class action to bring an antitrust claim, even though it was undisputed that absent collective action the restaurant owners could not feasibly bring the claim either in arbitration or litigation.

Many of you who have taught arbitration may wonder how this holding can be squared with the Supreme Court’s prior decisions stating that arbitration cannot be used to prevent the “effective vindication” of a federal statutory right.  See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. & Green Tree Financial Corp.-Ala. v. Randolph.

Perhaps the only positive thing I can say about this decision is that Justice Scalia is forthright about the fact that the decision spells doomsday for many consumer and small business claims.  The opinion states “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”  That is, the Court finds that it is fine for a company to use arbitration to effectively prevent persons from bringing claims, so long as the company does not altogether eliminate the right to pursue that claim in theory.  “[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”

With this decision the Court has also fully endorsed companies’ use of mandatory arbitration provisions to block access to justice rather than to provide an alternative means of obtaining access to justice.  There is no pretense in the decision that the restaurants would or could pursue their claims individually in arbitration.  As Justice Kagan aptly explains in dissent, “[t]he monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”   She therefore calls this decision a “betrayal” of the Court’s precedents.   Through its decision the Court has made clear that the FAA can be used not to redirect claims to an alternative streamlined forum, but rather to (in Justice Kagan’s words) “block the vindication of meritorious federal claims and insulate wrongdoers from liability.”

So now what?  One needs no crystal ball to predict that this decision will unleash a new rash of companies issuing arbitration clauses that preclude class actions.  These clauses will be designed to block consumer, employee and small business claims entirely rather than redirect those claims to arbitration.

Is this decision horrible enough that it will inspire Congress to take some action? If Congress cares to ensure the enforceability of its laws it could take any of several steps:  (1) passing the Arbitration Fairness Act to prevent companies from imposing arbitration on consumers, employees, or small businesses; (2) passing legislation (as Professor Sarah Cole has proposed) to  prevent companies from using arbitration to insulate themselves from class actions; or (3) set up and fund strong government agencies that are able to do all the enforcement that is needed of federal laws.  Alternatively, Congress may choose to do nothing and allow companies to violate federal laws at will.  Unfortunately my crystal ball is not good enough to know which way Congress will go.

Supreme Court Overturns Second Circuit in AMEX v Italian Colors

The Supreme Court released today its eagerly-awaited decision (at least in the ADR world) in AMEX v. Italian Colors.  In overturning the Second Circuit’s refusal to enforce a class action waiver on the ground that plaintiffs could not vindicate their statutory rights under the federal antitrust laws, the Court, in a 5-3 opinion authored by Justice Scalia (public enemy #1 of class arbitation), eliminated virtually the only viable doctrine remaining to litigants to challenge class action waivers in consumer contracts.

While the Court recognized the validity of the vindicating rights doctrine generally, it held that, in this case, the “fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”  Because the class action waiver in the merchants’ credit card services agreement with American Express did not eliminate the right to pursue individual claims under the antitrust laws, the Court deemed the waiver enforceable.  Of course, the right to pursue a remedy is meaningless and hollow if, as a practical matter, it is not financially possible to pursue.

More detailed analysis to follow, particularly of Justice Kagan’s scathing dissent.

SEC Won’t Have Time to Tackle Issue of Mandatory Securities Arbitration

Despite increasing pressure on the SEC to exercise its Dodd-Frank-granted explicit authority to ban mandatory securities arbitration, SEC Commissioner Elisse Walter stated earlier this week, according to a report in Reuters, that the Commission won’t have time to address the issue until 2014, in light of the other mandates of Dodd-Frank.  It’s a shame that the issue won’t get the regulatory attention it deserves due to lack of resources.

Schwab removes class action waiver from customer agreements

Responding to substantial pressure from regulators and the investing public, the brokerage firm Charles Schwab reversed itself and eliminated the class action waiver clause from its pre-dispute arbitration clause in its customer account agreements. See news coverage here. Readers of this blog know from my previous posts that in early 2012 FINRA brought a disciplinary action against Schwab for violating its rules that bar class action waivers in customer agreements. A hearing panel concluded that, while Schwab’s actions did in fact violate FINRA conduct rules, the Federal Arbitration Act precluded enforcement of those rules. That ruling is currently on appeal before FINRA’s National Adjudicatory Council with a decision not expected until late this year. Professor Barbara and I recently filed an amicus brief in that appeal in support of FINRA Enforcement arguing the hearing panel wrongly decided that the FAA bars enforcement of FINRA rules.

Because the ruling threatens to cripple the ability of FINRA to regulate securities arbitration and thus weaken investor protection, federal legislators, state securities regulators, and investor advocacy groups have once again urged the SEC to exercise its authority to eliminate mandatory securities arbitration. Schwab’s strategic misstep may end up being the straw that broke the camel’s back.

Stay tuned for the next installment of FINRA v. Schwab!

Arbitration Fairness Act of 2013 introduced in Congress

Once again, a bill to ban mandatory arbitration of consumer, employment and civil rights disputes has been introduced into both houses of Congress. It is sponsored by Sen. Al Franken (D-MN) and Rep. Hank Johnson (D-GA). The text is not yet available, but the press release states the following:

“What the Arbitration Fairness Act Does:

• Restores the original intent of the FAA by clarifying the scope of its application.
• Amends the FAA by adding a new chapter invalidating agreements that require the arbitration of employment, consumer, or civil rights disputes made before the dispute arises.
• Restores the rights of workers and consumers to seek justice in our courts.
• Ensures transparency in civil litigation.
• Protects the integrity of the Civil Rights Act, the Equal Pay Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act, among others.”

See Rep. Johnson’s press release.

Tennessee court invalidates brokerage firm’s arbitration clause as unconscionable

Yesterday I blogged about stepped-up political pressures on the Securities and Exchange Commission to outlaw mandatory arbitration agreements in customers’ account agreements with their brokerage firms.  The pressures are not coming just from politicians.  Last week, a Tennessee appellate court refused to enforce a pre-dispute arbitration clause in a brokerage firms’ account agreement with a customer on the grounds that the customer did not sign the arbitration agreement, and, in any event, it was unconscionable under Tennessee law.  (See Webb v. First Tenn. Brokerage, Inc., 2013 Tenn. App. LEXIS 276 (Apr. 23, 2013))  The court also affirmed the trial court’s finding that the customer was fraudulently induced to enter into the customer agreement which contained the arbitration clause.

Most courts that have previously considered similar challenges to arbitration agreements in broker-dealers’ customer agreements have rejected claims of unconscionability in part because FINRA’s arbitration rules are subject to regulatory approval.  SEC oversight of the arbitration process helps to ensure that the process is fair to investors.  If courts increase their reliance on the applicable state law of unconscionability to invalidate these clauses, the securities industry will have to rebuff attacks on its arbitration process from several fronts.

Whether the industry can survive this multi-front assault remains to be seen.

(H/T to Ed Pekarek for alerting me to this decision.)

Added Pressure on SEC to Eliminate Mandatory Securities Arbitration

In the wake of a FINRA disciplinary hearing panel decision not to enforce its own rules against broker-dealer Charles Schwab barring class action waivers in customer-broker account agreements because of the Federal Arbitration Act (see my previous blog posts about that decision here and here), investor rights advocates have stepped up their efforts to press the Securities and Exchange Commission to exercise its powers under Dodd-Frank to ban mandatory arbitration.

First, a few weeks ago, SEC Commissioner Luis Aguilar, in opening remarks to the North American Securities Administrators Association’s Annual NASAA/SEC 19(d) Conference, in the section entitled “Pre-Dispute Mandatory Arbitration Weakens Investor Protection,” reiterated his long-standing opposition to mandatory arbitration, but added a level of focus and detail to his arguments I had not seen previously.

Second, a group of 37 Senators led by Sen. Al Franken (D-Minn) today wrote a letter to SEC Chair Mary Jo White and issued a press release urging the SEC to eliminate mandatory securities arbitration.  The Senators’ letter expressly referenced the FINRA hearing panel decision in the Schwab case.

Schwab’s controversial move to insert a class action waiver in its customer account agreement seems to have backfired – by generating political momentum opposing mandatory securities arbitration.  One must question Schwab’s strategic decision-making.

Rick Bales named Dean at Ohio Northern’s Law School

Following closely on the heels of Quinnipiac’s very wise decision to name ADR Law Prof Jen Brown the next Dean of its law school, Ohio Northern University announced it appointed Richard Bales, currently at Northern Kentucky Chase College of Law, the next Dean of its Pettit College of Law. Congratulations to Rick on this accomplishment, and to Ohio Northern in selecting such a great candidate, whose ADR sensitivities will serve him quite well when negotiating with faculty!