The Supreme Court’s arbitration jurisprudence in the last five years represents the culmination of a three-decade long expansion of the use of private arbitration as an alternative to court adjudication in the resolution of disputes of virtually every type of justiciable claim. As scholars have traced, privatizing disputes that would otherwise be public may well erode public confidence in public institutions and the judicial process. Accordingly, many observers have linked this decades-long privatization of dispute resolution to an erosion of the public realm. In this piece I argue that the Court’s recent arbitration jurisprudence undermines the public law itself.
Indeed, whereas the shift from dispute resolution in courts — the public realm — to dispute resolution in arbitration — the private realm — initially undermined values of adjudication, the shift from public lawsuits to private arbitration now also threatens values of lawmaking. This new threat to the lawmaking function stems from the Court’s authorization of mandatory private arbitration clauses as a way for private parties to construct procedural rules that have the foreseeable — indeed, possibly intended — consequence of rendering those claims a nullity. The Court’s recent arbitration jurisprudence thus threatens the values of public dispute resolution in a fundamentally new and more dramatic way. Through the procedural device of private arbitration, private parties can effectively rewrite substantive law by precluding or severely impeding the assertion of certain types of civil claims. And they can do so almost entirely outside of public view, through commercial (and sometimes) confidential contracts subject to virtually no public scrutiny or regulatory oversight. In short, the Court has handed private parties the power to recalibrate substantive legal obligations, and because this power is largely unchecked, there is currently little to stop this erosion of public law.
Alan Kaplinsky and Mark Levin, Ballard Spahr attorneys writing on their CFPB Monitor blog, have offered their initial thoughts on the study of consumer understanding of arbitration agreements that my St. John’s colleagues and I recently posted.
My colleague Jeff Sovern has posted a full response at the Consumer Law & Policy Blog. I’ll just add that, in my view, Levin and Kaplinsky don’t actually address the core problem we address in our article–that citizens are being unwittingly and unwillingly forced to give up important (and constitutionally guaranteed) procedural rights. Their point–and it is the point arbitration advocates almost invariably make–is that arbitration can be better for consumers than litigation. That may very well be true, at least some of the time. (See my post on the benefits of limited consumer arbitration here.) But it doesn’t answer the right question.
The constitution guarantees a right to a jury trial in civil disputes. More broadly, the rule of law depends on access to public adjudication to enforce private rights. Citizens cannot be forced into alternative processes simply because someone has made a determination that they would in fact be better served by the alternatives. It is certainly true that citizens can choose to give up their adjudicative rights, but those choices have legitimacy only if they are knowing and voluntary. Our research suggests that consent to arbitration is seldom knowing and voluntary.
Led by Professor Ron Aronovsky, Southwestern Law School did a first-class job of hosting the AALS Dispute Resolution Section’s Works-in-Progress Conference this weekend. The conference is always one of the highlights of the Dispute Resolution community’s academic year, offering a unique opportunity for scholars in the field to congregate and share ideas. This year’s conference featured a very broad range of topics, presented by scholars from around the country and the world, made all the better by the location at Southwestern’s stunning art deco campus in Los Angeles. Many thanks to Ron, Dean Susan Westerberg Prager, and Southwestern’s many faculty and students who worked together to make the conference a success.
Be on the lookout for information about submitting proposals to host next year’s WIP conference. A call for proposals will go out shortly after the Annual Meeting in January. Southwestern has set a high bar!
Arbitration critics often make assertions about the impact of arbitration clauses hidden in the fine print of employment and consumer contracts. In the short film Lost in the Fine Print, for example, Robert Reich bases much of his critique of what the movie calls “forced arbitration” on the lack of meaningful consumer understanding of—and therefore consent to—arbitration. The movie relies on anecdotal evidence of arbitration harms while assuming that arbitration agreements are neither wanted nor understood by most consumers.
Jeff Sovern, Elayne Greenberg, Yuxiang Liu, and I recently completed a study of consumer understanding of arbitration agreements to test the widespread assumption that consumers are the unwitting and unwilling beneficiaries of arbitration agreements. We have posted a draft of the resulting article, titled “Whimsy Little Contracts” with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements, on SSRN. Here’s the abstract:
Arbitration clauses have become ubiquitous in consumer contracts. These arbitration clauses require consumers to waive the constitutional right to a civil jury, access to court, and, increasingly, the procedural remedy of class representation. Because those rights cannot be divested without consent, the validity of arbitration agreements rests on the premise of consent. Consumers who do not want to arbitrate or waive their class rights can simply decline to purchase the products or services covered by an arbitration agreement. But the premise of consent is undermined if consumers do not understand the effect on their procedural rights of clicking a box or accepting a product.
This article reports on an empirical study exploring the extent to which consumers are aware of and understand the effect of arbitration clauses in consumer contracts. We conducted an online survey of 668 consumers, approximately reflecting the population of adult Americans with respect to race/ethnicity, level of education, amount of family income, and age. Respondents were shown a typical credit card contract with an arbitration clause containing a class action waiver and printed in bold and with portions in italics and ALLCAPS. Respondents were then asked questions about the sample contract as well as about a hypothetical contract containing what was described as a “properly-worded” arbitration clause. Finally, respondents were asked about their own experiences with actual consumer contracts.
The survey results suggest a profound lack of understanding about the existence and effect of arbitration agreements among consumers. While 43% of the respondents recognized that the sample contract included an arbitration clause, 61% of those believed that consumers would, nevertheless, have a right to have a court decide a dispute too large for a small claims court. Less than 9% realized both that the contract had an arbitration clause and that it would prevent consumers from proceeding in court. With respect to the class waiver, four times as many respondents thought the contract did not block them from participating in a class action as realized that it did, even though the class action waiver was printed twice in bold in the sample contract, including one time in italics and ALLCAPS. Overall, of the more than 5,000 answers we recorded to questions offering right and wrong answers, only a quarter were correct.
Turning to respondents’ own lives, the survey asked if they had ever entered into contracts with arbitration clauses. Of the 303 respondents who claimed never to have done so and who also answered a question asking whether they had accounts with certain companies that include arbitration clauses in their contracts, 264, or 87%, did indeed have at least one account subject to an arbitration clause.
These and other findings reported in this Article should cause concern among judges and policy-makers considering mandatory pre-dispute consumer arbitration agreements. Our results suggest that many citizens assume that they have a right to judicial process that they cannot lose as a result of their acquiescence in a form consumer contract. They believe that this right to judicial process will outweigh what one respondent referred to as a “whimsy little contract.” Our results suggest further that citizens are giving up these rights unknowingly, either because they do not realize they have entered into an arbitration agreement or because they do not understand the legal consequences of doing so. Given the degree of misunderstanding the results demonstrate, we question whether meaningful consent is possible in the consumer arbitration context.
On October 6, the Alliance for Justice will release Lost in the Fine Print, a short documentary featuring Robert Reich criticizing “forced arbitration.” (A description and trailer for the movie, plus information about teaching resources and a petition, are available here.) AFJ uses the term “forced arbitration” to refer to what is more commonly known in the ADR community as mandatory pre-dispute arbitration, focusing on arbitration agreements in consumer and employment contracts. The movie apparently will highlight three cases in which individuals were negatively impacted by arbitration, and describe the recent Supreme Court cases validating mandatory arbitration–and class waivers–in the consumer context.
Without seeing the film, I can’t comment on its merits, but I am encouraged that the issue of mandatory pre-dispute arbitration is making its way into the public consciousness. Whether individuals are treated fairly in arbitration with corporations is a hotly contested question. Regardless of where one stands on that question, however, the expansion of mandatory arbitration has significant consequences for our legal system–both for the continuing vitality of the right to a civil jury and for the efficacy of class actions as a deterrent to corporate wrongdoing. So far, there has been little public recognition of or dialog on those issues. If this film helps provoke greater awareness of the prevalence of consumer and employment arbitration, it will serve an important function.
This is a final reminder that the deadline to register as a presenter for the Eighth Annual AALS ADR Works-in-Progress conference is next Monday, October 6. The Conference will take place in early November at Southwestern Law School in Los Angeles. The Conference will begin with a welcoming reception on Thursday evening, November 6, followed by a full day of presentations on Friday, November 7 and a half day of presentations on Saturday morning, November 8.
The WIP Conference provides a fine opportunity for junior and senior ADR scholars to workshop their current research – from ideas for future articles to full draft papers. It provides an excellent forum for exchanging ideas, developing new mentoring or collaborative relationships and reconnecting with colleagues.
To register as a presenter or attendee, or to get more information, please go to www.swlaw.edu/adrwip. There is no registration fee; presenters and attendees are responsible for their own travel and lodging expenses.
Southwestern has reserved a block of hotel rooms for registered conference attendees at the Millennium Biltmore Hotel (506 S. Grand Ave. in downtown Los Angeles). The reduced conference rate is $159 per night, plus tax. To book a room at this rate, call (800) 245-8673 and mention “Southwestern Law School ADR Conference, November 6-8.” Please note that reservations at the conference rate will only be available until October 7, 2014, or when room block availability is exhausted, whichever occurs first. Transportation to and from the Conference will be provided each day between Southwestern and the Biltmore.
A final reminder that there is still time to register as a presenter at Eighth Annual AALS ADR Section Works-in-Progress Conference, which will take place in November at Southwestern Law School in Los Angeles.
The WIP Conference has traditionally provided a fine opportunity for junior and senior ADR scholars to workshop their current research. WIP Conference presentation topics range from ideas for a future article to full draft papers. This year’s Conference will begin with a welcoming reception on Thursday evening, November 6, followed by a full day of presentations on Friday, November 7 and a half-day of presentations on Saturday morning, November 8 in Southwestern’s art deco landmark Bullocks Wilshire Building.
The deadline to register as a presenter is Monday, October 6. As with past WIP Conferences there is no registration fee; presenters and attendees are responsible for their own transportation and lodging expenses. To register as a presenter or attendee, or to get more information about the Conference, please go to www.swlaw.edu/adrwip.
Thanks to Sarah Cole for pointing out a recent decision of the Ohio Supreme Court addressing the thorny question of when a court may vacate an arbitral award on the grounds that the arbitrators exceeded their powers by interpreting the underlying contract to allow a remedy not normally allowed under state law.
Cedar Fair, LLP v. Falfas involved an employment dispute in which the employee, Falfas, claimed in arbitration that he had been terminated without cause, while Cedar Fair claimed he had resigned. Having found that Falfas had been terminated without cause, the arbitration panel considered the appropriate remedy. The arbitration clause in the employment contract authorized the arbitration panel to grant “any remedy or relief that an Ohio or federal court in Ohio could grant.” But the agreement also included specific remedies for termination without cause, specifically base salary for one year plus certain other benefits. The panel ordered him reinstated, and Cedar Fair moved to vacate, arguing that the panel had exceeded its powers under a provision in Ohio’s arbitration act functionally equivalent to FAA section 10(a)(4).
The Ohio Supreme Court agreed with Cedar Fair. As interpreted by the courts of Ohio, the vacatur provision empowers courts to vacate an award where “(1) the award conflicts with the express terms of the agreement, and/or (2) the award is without rational support or cannot be rationally derived from the terms of the agreement.” After an extensive legal analysis, the Ohio Supreme Court found that under Ohio law, reinstatement is normally not available as a remedy for breach of an employment agreement absent clear and unambiguous language in the contract providing for specific performance, and that the panel exceeded its authority by granting reinstatement. In the Court’s words, “We simply cannot hold that the arbitration panel acted within its authority in disregarding the general rule against reinstatement when the employment agreement here lacks the ‘clear and unambiguous terms’ authorizing reinstatement.”
Although couched in the familiar terms of FAA section 10(a)(4), the Ohio Supreme Court’s holding comes perilously close to a finding that the arbitration panel erred as a matter of law. The language in the arbitration agreement allowing for “any relief” that an Ohio court could grant would appear to create at least some ambiguity in the remedies available under the contract. Under standard arbitration jurisprudence, arbitrators have nearly unreviewable power to interpret ambiguous contract language. In vacating the award, the Court effectively held that the panel had misinterpreted Ohio law to allow for reinstatement where the contractual language was ambiguous. The case is thus an unusual example of a court interfering with an arbitral award because the panel interpreted the agreement contrary to a rule of state law. Does it open the door, at least in Ohio, to arguments that the “exceeding powers” ground for relief from an award could encompass errors of law?
John Lande continues to build out the DRLE website with useful information. The most recent addition is a section of the website devoted to multi-stage simulations, with classroom exercises, role plays, and a variety of other materials for those interested in incorporating or expanding their use of multi-stage simulations.
Probably most of us use a lot of single-stage simulations, where students enact one part of a process, such as the negotiation or mediation of the ultimate issues in a case. Single-stage simulations provide multiple opportunities for students to enact different roles and focus on different issues. A disadvantage is that these simulations usually are fairly brief and thus students may have a hard time getting into their roles and simulating realistic dynamics.
Multi-stage simulations make it easier for students to get into their roles, enable them to deal with more complex situations, focus on specific stages in a process, see the connections between various stages, and generally have a more realistic experience. In my classes, the quality of the interactions and student learning seemed to be exponentially higher than in the single-stage simulations. Of course, they take more time and there haven’t been many multi-stage simulations available.
There are advantages and disadvantages to both types of simulations and there is value in using both types in a course.
As you plan your courses for the fall, you might take a look at the material on the website and consider whether you want to use these materials and ideas in your courses. There is no standard format of these materials and you may want to read descriptions of various simulations even if you aren’t interested in the particular subject. For example, Susan Exon’s material includes detailed instructions for a student assignment, Lauren Newell’s material describes several variations she is considering, and Andrea Schneider’s material includes debriefing questions.
There are virtually an infinite number of ways you could do this, depending on the subjects of the cases, the skills you want to focus on, and the logistics, among other things. For example, some of these simulations involve client interviewing, developing relationships with counterpart lawyers, planning for discovery, legal research, planning for and conducting negotiation or mediation, and writing settlement agreements, among others. Some simulations have only two stages and others have more. Students can do some of the activities outside of class, thus preserving valuable class time.
I am very grateful to our colleagues who wrote the following descriptions of their simulations. If you want to get their materials or advice, please get in touch with them using the emails in each document. I would like to add more material to the website, so if you use a multi-stage simulation, I invite you to write up your description and advice to post on the website. As you will see, these are pretty brief, so it shouldn’t take a lot of time to read them.
Suggestions for Using Multi-Stage Simulations in Law School Courses – John Lande, University of Missouri
Various Multi-Stage Simulations – Alyson Carrel, Northwestern University
Probate Dispute Simulation – Sarah Cole, Ohio State University
Employment Dispute Simulation (whistleblower retaliation) – Ellen E. Deason, Ohio State University
Employment Mediation Simulation (constructive discharge) – Susan Nauss Exon, University of La Verne
Negotiation and Drafting Simulations – Paul F. Kirgis, St. John’s University
Dispute System Design (court rule requiring good faith in mediation) – John Lande, University of Missouri
Divorce Simulation (property and child support) – John Lande, University of Missouri
Divorce Simulation (domestic violence) – John Lande, University of Missouri
Employment Discrimination Simulation (national origin) – John Lande, University of Missouri
Partnership Agreement Negotiation Simulation – John Lande, University of Missouri
Probate Dispute Simulation – John Lande, University of Missouri
“DONS” Simulation – Lauren A. Newell, Ohio Northern University
Generic Mediation Simulation – Bob Randolph, Carr, Swanson and Randolph, LLC
Divorce Simulation (parent relocation) – Andrea Schneider, Marquette University
Labor-Management Collective Bargaining Simulation – Sandra Sellers and Jane Juliano, Georgetown University
Registration is now open for the AALS ADR Section’s Eighth Annual Works-in-Progress Conference, which will take place this November at Southwestern Law School in Los Angeles. The Conference will begin with a welcoming reception hosted by Southwestern on the evening of Thursday,November 6. Friday, November 7 will feature a full day of presentations, along with continental breakfast, luncheon and dinner hosted by Southwestern. The Conference will conclude on Saturday, November 8 with a half-day of presentations, as well as continental breakfast and lunch hosted by Southwestern.
The Works-in-Progress Conference has traditionally provided a welcoming and interactive forum where ADR scholars from across the country can share their current research, obtain feedback, exchange ideas, reconnect with colleagues and build new collaborative working relationships. At the Conference, junior and senior ADR scholars present their current work-in-progress, ranging from research ideas for a future article to full draft papers. Conference attendees share their insights about the presentation topic and offer constructive feedback to the presenter.
To register as a presenter or attendee, or to get more information about the Conference, please go to www.swlaw.edu/adrwip. There is no registration fee (presenters and attendees are responsible for their own travel and lodging expenses). We hope to see you at the Conference in November.
In a new article published as part of DePaul Law School’s excellent annual Clifford Symposium on Tort Law & Social Policy, Miriam Gilles and Tony Sebok take up the subject of Crowd-Classing Individual Arbitrations in a Post-Class Action Era. They suggest that enterprising plaintiffs’ attorneys have two potentially viable avenues for making it financially viable to pursue multiple small claims in the teeth of widespread arbitral class waivers. First, arbitration-free plaintiffs could be recruited to litigate test-cases, with favorable judgments used to support future arbitrations. (The authors suggest that the major arbitration providers will have to modify their rules to provide for some degree of issue preclusion and/or precedent-recognition in the face of large numbers of individually-brought claims.) Second, “arbitration entrepreneurs” could purchase numerous small claims and bring them as separate claims, but in a single arbitration proceeding. (Again, the authors suggest the providers will have to provide for some mechanism of consolidation of claims if they begin to see large numbers of small claims brought.)
The limitation on crowd-classing will be finding claimants. I was recently speaking with a partner at a New York City firm that represents AT&T, among other companies that have used arbitration agreements to stifle class action litigation. He told me that they are starting to see efforts by plaintiffs’ attorneys to collect lots of individual small claims and pursue them as separate arbitrations. So far, however, the strategy is just a ripple on the surface of the claims pool, because of the difficulty plaintiffs’ attorneys have in identifying and recruiting genuine, live human beings as claimants. He told me that when they actually looked into the claims, they often found problems with the claimants (dead, unaware of the claim, etc.).
Perhaps the magic of social media will make it possible to identify and recruit claimants on a scale large enough to make crowd-classing viable. But given the reality that many people who are entitled to a benefit as a result of class action litigation never bother to claim it, it seems unlikely that large numbers of people will consistently respond to calls to pursue or assign claims, even if some small benefit is offered.
The AALS Section on Alternative Dispute Resolution is delighted to announce that Southwestern Law School will host the Eighth Annual ADR Section Works-in-Progress conference. The conference will take place at Southwestern’s campus in Los Angeles on Friday, November 7 and Saturday, November 8, with a welcoming reception on Thursday night, November 6 for early arrivals.
Details about conference registration and submission logistics will be provided soon.
Adam Zimmerman has been doing ground-breaking work on mass settlements for several years now, and he has two new articles, one done with Dana Remus, that extend those investigations into new areas. The first is titled Presidential Settlements, 163 U. Pa. L. Rev. _ (forthcoming 2015) (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414748). Here’s the abstract:
Large groups repeatedly turn to the White House to collectively resolve complex disputes, much like a class action. Such presidential settlements go back at least as far as the early republic, as well as the Progressive Era, when Teddy Roosevelt famously brokered settlements among private groups following a rash of accidental injuries and deaths in mining, rail, and even, football. More modern variants include mass compensation schemes like the Holocaust Victim Settlement, Pan Am Flight 103 Settlement, and the BP Oil Spill Settlement brokered by Presidents Clinton, Bush and Obama. In each case, the President helped resolve a sprawling class action-like dispute among warring parties, while also advancing a broader executive agenda. Just as the President has extended power over the administrative state, presidential settlements demonstrate the growth of executive authority in mass dispute resolution to provide restitution for widespread harm.
But this use of executive power creates problems for victims purportedly served by presidential settlements. When the President settles massive private disputes, he resolves them like other forms of complex litigation, but without the judicial review, transparency, and participation thought necessary to resolve potential conflicts of interests among the victims. The Presidents’ other duties as the Chief Executive also aggravate conflicts with groups who may rely entirely on such settlements for relief.
This Article recommends that the President adopt complex litigation principles to reduce conflicts of interests, to increase transparency, and to improve public participation in White House driven settlements. Envisioning the President as the “Settler-In-Chief,” this Article also raises new questions about how the coordinate branches of government, as well as actors inside the White House, may regulate executive settlement practice consistent with the Separation of Powers.
The second is titled The Corporate Settlement Mill, 101 Va. L. Rev. _ (forthcoming 2015)(w/ Dana Remus) (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414754). Here’s the abstract:
From cases involving “robo-signed” mortgages to catastrophic oil spills, the United States legal system increasingly encourages corporate wrongdoers to design and implement their own high-volume settlement programs to compensate thousands of unrepresented victims. These private settlement systems rely on corporate economies of scale to resolve massive disputes as comprehensively as a class action, but entirely outside of the court system. We call these systems “corporate settlement mills.”
Like class action settlements and “no fault” insurance options, corporate settlement mills may ameliorate many of the most commonly criticized features of individualized litigation. They offer redress to people who often cannot afford counsel, handle large volumes of claims quickly and predictably, and reduce court congestion. For those reasons such programs are increasingly required by federal laws, regulatory bodies and as a matter of complex litigation practice.
But corporate settlement mills also have a dark side. When sophisticated corporate actors quietly settle large numbers of cases in assembly-line fashion, they threaten transparency, fair dealing, and the rule of law. We argue that this new category of dispute resolution is more dangerous than others because a single, self-interested party—the prospective defendant itself—designs and oversees the entire determination process. Corporate settlement mills thus raise fundamental questions about how far policymakers may go to privatize our public, and historically neutral, system of adjudication.
Drawing lessons from other movements to privatize government, we argue that corporate settlement mills can provide an appropriate alternative to public adjudication as long as they remain answerable to the regulators, courts, and claimants that rely on them. We therefore offer specific suggestions to make them more accountable—including targeted prospective regulation, judicial review, stakeholder participation, and ethical reform. In so doing, we broaden the debate over what constitutes mass litigation, in the hope that lawmakers realize the benefits of large private settlements, without frustrating administrative regulation or the judiciary’s authority to “say what the law is.”
It’s the season of student writing competitions, so I thought I would collect information here for those with students writing papers on ADR topics this spring. I’m aware of the following two competitions specifically devoted to ADR. Please feel free to add any I’ve missed in the comments.
ACR Student Writing Competition. Papers must be 10-20 pages on any topic; $500 prize.Winners of the writing competition will be invited to present their work at the the 2014 ACR-GNY Annual Conference, which is being held on June 19, 2014 at the Benjamin N. Cardozo School of Law in New York City. Entry deadline is April 30, 2014.
James R. Boskey Law Student Essay Contest on Dispute Resolution. Papers must be 15-25 pages on any topic; $1000 prize and posting of the winning essay and runner-up online. Entry deadline is June 13, 2014.
The Supreme Court has denied certiorari in Delaware Coalition for Open Government v. Strine, in which the Third Circuit struck down Delaware’s scheme allowing parties with cases before the Delaware Court of Chancery to pay an extra fee to have their matters heard by a Chancery judge sitting in the guise of an arbitrator.
The Third Circuit’s decision was based on the First Amendment right of public access to judicial proceedings. As I discussed in a previous post on the case, however, in my view the more important principle is that all litigants have access to the same justice at the same price. The chancery arbitration scheme would have allowed wealthy corporate litigants to buy a fast-tracked and private adjudicative process–before sitting state court judges–denied to those who could not afford the five-figure fees required. The denial of certiorari puts a welcome end to a misguided judicial experiment.
I’ll be presenting my article Bargaining with Consequences: Leverage and Coercion in Negotiation tomorrow (Friday, February 27, 2014) at the Quinnipiac-Yale Dispute Resolution Workshop at Quinnipiac University School of Law. Here’s the abstract to the article, which will be published later this spring in the Harvard Negotiation Law Review:
Leverage has been called “negotiation’s prime mover,” conferring power to reach agreement “on your terms.” This power, however, is not always benign. When a negotiator has sufficient power to compel a counterparty to accept a set of unfavorable terms, the use of leverage may cross a line into inappropriate or illegal coercion. While coercion has been the subject of rich philosophical investigation, the topic of coercive power has received only cursory treatment in the negotiation literature. This article seeks to fill that gap by analyzing the uses and limits of negotiating leverage, which I define as power rooted in consequences. I identify two types of leverage—positive and negative—and explore the legal and ethical implications of each type, drawing on the political theory of coercion as well as primary and secondary legal sources. I conclude by analyzing the contract doctrines of duress and unconscionability to show how an understanding of leverage can aid in the application of legal rules.
I welcome comments on the article and look forward to seeing colleagues who are able to attend the workshop.
Request for Proposals
Hosting the AALS Alternative Dispute Resolution Section
2014 Works-in-Progress Conference
The AALS Alternative Dispute Resolution Section is seeking a host for the 8th Annual Works-in-Progress Conference to take place in the fall of 2014. The WIP Conference has become one of the “must attends” in the ADR academic field. Previous hosts include Marquette, Arizona State, Harvard, Oregon, Creighton, Ohio State, and Cardozo.
The host institution is responsible for organizing all of the logistics for the conference, such as picking dates, lining up hotels, and scheduling receptions and presentations. Additionally, the conference host is responsible for choosing the papers to be presented.
The Section’s Executive Committee will consider several criteria in selecting the next host institution, including:
- Proximity to a major airport and reasonably-priced hotels
- Planned outreach to attract junior faculty
- Planned or demonstrated outreach to attract law faculty from regional law schools
- Demonstrated engagement with the ADR academic community
- Indications of institutional support for the conference (e.g., funds for meals, sufficient staffing)
- Planned mechanisms to enhance the rigorous yet collegial atmosphere of the program; factors to be considered include:
- Schedule and structure (number of days, length of presentations, one track or multiple tracks, etc.)
- Methods for ensuring that presenters receive quality feedback
- Demonstrated experience with hosting similar events
- Any special circumstances that support an institution’s application
Proposals should be sent electronically to Professor Paul Kirgis, 2014 Chair of the ADR Section, at firstname.lastname@example.org by March 1, 2013. In the transmittal e-mail subject matter line, please put “AALS ADR Section WIP Conference Proposal.” If you have any questions, please contact Paul Kirgis at the e-mail address listed above. We look forward to hearing from you!
The AALS Section on Dispute Resolution hosted a panel on ADR and the Regulatory State at the Annual Meeting in New York on January 4, 2014. I moderated the panel, which featured Jeffrey Lubbers (American), Maureen Weston (Pepperdine), and Nancy Welsh (Penn State). Adam Zimmerman and Dana Remus were selected to participate from a call for papers, but missed the conference because of the weather disruptions that kept so many from attending.
The panel addressed four themes involving the intersection of ADR and administrative law. Professor Lubbers discussed the ways in which administrative agencies use ADR in performing their regulatory functions. I then read remarks provided by Professors Zimmerman & Remus, who discussed the “outsourcing” of dispute resolution by agencies to private actors in the form of defense-side “settlement mills.” Professor Weston discussed preemption of agency decisionmaking involving arbitration. Professor Welsh considered the social justice and procedural justice issues that cut across ADR and agency decisionmaking.
I will serve as Chair of the Section on Dispute Resolution this year, taking over from the able hands of Jen Reynolds (Oregon). Sarah Cole (Ohio State) was elected Chair-Elect.
Our first order of business in the new year will be to solicit bids to host the 2014 Works-in-Progress Conference, hosted in 2013 at Cardozo. If you are interested in hosting, keep an eye out for the call for proposals, which will be issued in the coming weeks.
The Consumer Financial Products Board has issued preliminary findings from its study of arbitration clauses in consumer financial contracts. The results will not surprise anyone who follows this area. The CFPB found that large banks are much more likely than small banks to include arbitration clauses, but that because of their market share, around 50% of credit card loans and 44% of insured checking account deposits are covered by arbitration agreements. (The numbers would be far higher but for the NAF settlement, under which many issuers removed arbitration clauses from their contracts.) The percentages are much higher for prepaid cards.
Ninety percent of the arbitration agreements studied include class waivers. Most contain small-claims court carve outs. The banks are far more likely than the consumers to go to small claims court. That makes sense. For small debts, a collection action in a small claims court will usually lead to a default judgment, which is then immediately enforceable. Arbitration requires two steps, the arbitration proceeding and then the filing of the award.
Out of these millions of agreements, only about 300 arbitration claims have been filed by consumers per year over the last three years, and they were all for high dollar-value claims (more than $1,000). There are a number of possible explanations for the low figure. It is possible that market forces are sufficient incentive to keep banks from harming consumers, so there are very few claims to be pursued. It is also possible that banks are resolving small consumer claims informally, so consumers have no need to pursue arbitration when they have a claim. And it is possible that individual arbitration is simply not a viable way for consumers to pursue claims against banks.
Here’s the CFPB press release, with a link to the full report:
CONSUMER FINANCIAL PROTECTION BUREAU FINDS FEW CONSUMERS FILE ARBITRATION CASES
About 9 Out of 10 Arbitration Clauses Prevent Consumers from Participating in Class Actions
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau released preliminary research on the use of arbitration clauses in connection with consumer financial products and services. The research indicates that arbitration clauses are commonly used by large banks in credit card and checking account agreements and that roughly 9 out of 10 clauses allow banks to prevent consumers from participating in class actions. The research also shows that while tens of millions of consumers are subject to arbitration clauses in the markets the CFPB studied, on average, consumers filed 300 disputes in these markets each year between 2010 and 2012 with the leading arbitration association.
“Many contracts for consumer financial products and services contain arbitration clauses,” said CFPB Director Richard Cordray. “Today’s preliminary results help us better understand how these clauses are affecting consumers’ financial lives so that we can ultimately determine whether action should be taken for their greater protection.”
The results of today’s study are available at: http://files.consumerfinance.gov/f/201312_cfpb_arbitration-study-preliminary-results.pdf
Arbitration is a way to resolve disputes outside the court system. Many contracts for consumer financial products and services contain a “pre-dispute arbitration clause” stating that either party can require that disputes about that product or service be resolved through arbitration, rather than through the court system.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) mandates that the CFPB conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. The Bureau first launched a public inquiry on arbitration clauses in March 2012. The Dodd-Frank Act also gives the Bureau the power to issue regulations on the use of arbitration clauses if the Bureau finds that doing so is in the public interest and for the protection of consumers.
The preliminary results of the study provided by the CFPB are based on a review of hundreds of consumer contracts, as well as on filings from the American Arbitration Association (AAA). Based on the CFPB’s research, the AAA is the predominant administrator of consumer financial arbitrations in the markets covered by the study to date. The CFPB looked at AAA filings about credit cards, checking accounts, payday loans and prepaid cards between 2010 and 2012. The CFPB observed that fewer than 1,250 consumer arbitrations about those four products were filed. Many of these concerned debt collection.
CFPB research indicates that consumers filed around 900 of these disputes. The remaining disputes are filed by companies or submitted by both sides together. In comparison, in that same three-year time period, over 3,000 cases were filed by consumers in federal court about credit card issues alone. More than 400 of these federal court cases were filed as class actions, whereas CFPB’s research found only two class filings in arbitration and neither was about credit cards.
Other preliminary results for the markets the CFPB has studied include:
- Larger institutions are most likely to use arbitration clauses. The CFPB’s preliminary results indicate that larger institutions are more likely than community banks or credit unions to include an arbitration clause in consumer contracts for credit cards or checking accounts. For example, while the CFPB estimates that only 7.7 percent of banks use arbitration clauses for their checking accounts, 62 percent of the top 50 banks have arbitration clauses in their checking account contracts. With respect to prepaid cards, however, arbitration clauses are seen more uniformly across almost every consumer contract.
- Arbitration clauses are more complex than the rest of the contract. The CFPB’s preliminary results indicate that, in credit card contracts, the arbitration clause section of the contract was almost always more complex and written at a higher grade level than the rest of the contract.
- Around 9 out of 10 arbitration clauses expressly bar consumers from filing class arbitration. In the contracts the Bureau studied, around 90 percent of the arbitration clauses specifically bar consumers from filing class arbitrations. The few clauses without this provision were in smaller bank contracts. This means that, for the products the CFPB studied, almost all of the market that is subject to arbitration is also subject to terms that effectively preclude class actions in court or in arbitration.
- Consumers do not choose arbitration over class action settlements. While its study of class actions remains ongoing, the Bureau has already identified a number of class actions involving credit cards, deposit accounts, or payday loans in which the contract allowed for arbitration before the AAA. More than 13 million class members made claims or received payments under these settlements, while 3,605 individuals opted out of participating in the settlements, which gave them the right to bring their own cases. At most, only a handful of these individuals chose instead to file an arbitration case.
- Consumers do not file arbitrations for small-dollar disputes. In looking at the data, the Bureau observed that almost no consumers filed arbitrations about disputes under $1,000. For arbitration filings involving debt disputes, the average amount of debt at issue was over $13,000. For other arbitration filings, the average consumer claim was for over $38,000.
- Few consumers file small claims court actions. A number of arbitration clauses allow a consumer, and sometimes the company, to use small claims courts rather than arbitration for dispute resolution. The CFPB’s preliminary analysis indicates that not many consumers initiate small claims court cases in credit-card disputes. Rather, the analysis shows that small claims court cases are much more likely to be brought by banks than by consumers. In the states and counties studied, the Bureau was able to identify at most 870 credit card cases brought by consumers in small claims court against large credit card issuers, but more than 41,000 cases brought by these banks against consumers in small claims court.
For the second phase of the Bureau’s study, the CFPB intends to look at a number of areas, like whether consumers are aware of the terms of arbitration clauses and whether arbitration clauses influence consumers’ decisions about which consumer products to purchase.
The Third Circuit has affirmed the District Court decision striking down Delaware’s Chancery Arbitration scheme in Delaware Coalition for Open Government v. Strine. Like the District Court, the Third Circuit applied the “experience and logic test” to conclude that the First Amendment confers a right of public access to the Chancery arbitrations because there has been “a traditional of accessibility” to that type of proceeding and because “access plays a significant positive role in the functioning of the particular process in question.”
While I agree that the First Amendment should be understood to require openness for the proceedings contemplated by the Chancery arbitration scheme, I see the case raising even more fundamental questions about the rule of law and access to justice. The Chancery arbitration program effectively allowed well-heeled corporate litigants to buy an improved version of the normal state-run dispute resolution process. For the modest sum of $12,000 up front and $6,000 per day, a corporation with a million-dollar claim could procure a decision by a sitting judge, but with a streamlined process and complete secrecy. The scheme thus created a two-track system of justice with a privileged place for wealthy corporate claimants.
Wealthy corporate litigants are and should be free to settle their disputes privately, employing private arbitrators. They should not be able to cloak the judicial process with an arbitration veneer in order to buy premium treatment behind a wall of secrecy.
Litigate (v.) – To resolve or avoid bureaucratic conflict. “We should cancel the speech, but I need to litigate that with the speaker’s office.”
Paul Bland has a compelling post on the Second Circuit’s recent decision in Duran v. The J. Hass Group, in which the court enforced an arbitration agreement requiring a consumer from New York, who alleged she was defrauded of almost $4000, to arbitrate in New Mexico.
This strategy worked pretty well for the defendants in this case. The Second Circuit required Ms. Duran to arbitrate her claim, and enforced the provision requiring it to take place in Arizona. They noted that there is a “logical flaw” and an “unusual” quality to the result, because if Ms. Duran’s only remedy is to argue to the arbitrator that it’s unfair and unconscionable to require her to arbitrate in Arizona, she first has to GO to Arizona to do it. Oh well, the Court explains, this is what the Supreme Court would have wanted.
I think the decision is wrong, and that the better arguments are with the plaintiffs, and I’m very hopeful that a lot of other courts wouldn’t go with this conclusion.
But the case does show how the U.S. Supreme Court’s ongoing adventures in re-writing and expanding the Federal Arbitration Act have a cost. What will the next scam artist put in their arbitration clause? Is there any reason that the Second Circuit would not have enforced a clause requiring the arbitration to take place in New Zealand on Leap Day? After all, why couldn’t the New Zealand arbitrator figure out if that’s fair? What if the arbitration clause required that the arbitration take place on the newly non-planet Pluto?
Just a reminder that the deadline for responding to the call for papers for the AALS Section on Alternative Dispute Resolution program at the 2014 Annual Meeting in New York is September 5, 2013. The program topic is ADR and the Regulatory State. The author of the selected paper will join our esteemed colleagues Nancy Welsh and Maureen Weston as well as Jim Rossi and Jeffrey Lubbers from the Ad Law Section on the panel.
For more details of the program and the call for papers, see my earlier post here.
Submissions may be sent directly to me at email@example.com.
In May, the Third Circuit heard oral arguments in Delaware Coalition for Open Government v. Stine, the case challenging the constitutionality of Delaware’s chancery arbitration scheme (see my previous commentary on the program here, here, and here.) A federal court had found the scheme unconstitutional on grounds that it violated the public’s First Amendment right of access to court proceedings. Tom Stipanowich (Pepperdine) has now posted In Quest of the Arbitration Trifecta, or Closed Door Litigation?: The Delaware Arbitration Program on SSRN. He concludes that the scheme is unprecedented in its blending of the public judicial function and private process, and that striking down the program poses fewer risks than upholding it. Here’s the abstract:
The Delaware Arbitration Program established a procedure by which businesses can agree to have their disputes heard in an arbitration proceeding before a sitting judge of the state’s highly regarded Chancery Court. The Program arguably offers a veritable trifecta of procedural advantages for commercial parties, including expert adjudication, efficient case management and short cycle time and, above all, a proceeding cloaked in secrecy. It also may enhance the reputation of Delaware as the forum of choice for businesses. But the Program’s ambitious intermingling of public and private forums brings into play the longstanding tug-of-war between the traditional view of court litigation as a public venue for private dispute resolution and the and perception of courts as institutions that represent and are accountable to the public. A constitutional challenge based on third parties’ right of access to court proceedings resulted in a district court ruling that arbitration proceedings heard before sitting judges of the Delaware Chancery Court were “essentially” non-jury civil trials and thus were subject to public access. The case raises legitimate questions about the appropriateness of structuring a program in which sitting judges serve as arbitrators and preside over a procedure that is effectively shielded from public view. It also implicates issues regarding the use of public resources in ostensibly private disputes, and even the way our justice system is funded. This article explores the factors that provided the impetus for the Delaware Arbitration Program and analyzes the arguments and policy considerations for and against the district court’s decision.
CALL FOR PAPERS
ADR and the Regulatory State
Sponsored by the AALS Section on Alternative Dispute Resolution
2014 AALS Annual Meeting • January 2-5, 2014 • New York City
Private dispute resolution and agency decision-making are now prominent and permanent features of our legal landscape, either as substitutes for or alternatives to formal adjudication. In this new world of procedural variety, ADR and administrative law and procedure overlap across multiple dimensions. Agencies use ADR in their own regulatory work. Agencies use ADR in resolving inter-agency conflicts. Agencies increasingly regulate private arbitration in ways that arguably conflict with arbitration jurisprudence under the Federal Arbitration Act. And concerns about access to justice and procedural justice cut across the domains of private dispute resolution and administrative law.
The AALS Section on Alternative Dispute Resolution invites submissions on any topic exploring these intersections between ADR and administrative law. The author of the selected paper will be invited to participate in the Section’s program at the 2014 AALS Annual Meeting. Jeffrey Lubbers (American), Jim Rossi (Vanderbilt), Nancy Welsh (Penn State), and Maureen Weston (Pepperdine) are scheduled to participate on the panel.
- Only full-time faculty from AALS member institutions are eligible to submit papers.
- Both essay and article length papers are welcome, and we are happy to review non-traditional formats (e.g., photo essays).
- Papers already accepted for publication in a journal are eligible for submission as long as the paper will not be published prior to the Annual Meeting.
- The selected author will participate in the Section on Alternative Dispute Resolution program, which will take place at 4:00-5:45 on Saturday, January 4, 2014, in New York City.
- Authors will have to rely on their own institutions for funding to attend the conference.
The deadline to submit a draft paper is Friday, September 5, 2013. Late submissions will not be accepted. Please submit the draft paper to Professor Paul Kirgis, Chair-Elect of the Section on Alternative Dispute Resolution, as an attachment (Word or PDF) to an e-mail sent to firstname.lastname@example.org. An e-mail acknowledging the submission will be sent promptly to each author. Members of the ADR Section’s Executive Committee will review submissions and communicate decisions by late September 2013.
Any questions? Please do not hesitate to contact Paul Kirgis at email@example.com or (718) 990-6610.