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July 22, 2018 Articles

Ten Arbitration Trends Of 2017

2017 was a big year in arbitration law. We went from a country that seemed on the verge of banning arbitration in most consumer and employee contracts to a country whose federal policy embraces arbitration in nearly every context. It was the first year where my extended family saw my "obscure" legal topic showing up in the general news, resulting in Thanksgiving topics like: "Hey, isn't arbitration what you write about? Is it as horrible as they say?"

So, let's look back on how arbitration reached that level of notoriety. Here are the ten top developments from 2017.

  1. Regulation reversal. At the end of 2016, federal agencies were proposing rules to ban arbitration in various settings (student loans, nursing home agreements, consumer financial contracts). Today, all of those have been reversed. Most were reversed by the agencies themselves, such as when the Center for Medicare and Medicaid Services reversed its own regulation on arbitration in nursing home contracts and the Department of Education "delayed" its own regulation on arbitration in student loans agreements. However, in the case of the Consumer Financial Protection Bureau (CFPB), the agency had a director who was not appointed by President Trump and went full speed ahead with its plan to ban class action waivers from arbitration agreements in consumer financial products (credit cards, checking accounts, etc.). At the 11th hour, it was Congress that reversed the CFPB rule. The huge amount of lobbying—by consumer groups and Democrats for the rule, and by the financial industry against it—ensured that the general public got wind of the issue.

  2. New preemption case from SCOTUS: Kindred Nursing Ctrs v. Clark, 137 S. Ct. 1421 (May 15, 2017). The U.S. Supreme Court (SCOTUS) found that Kentucky had developed a rule for analyzing “power of attorney” documents that stood as an obstacle to arbitration and was therefore preempted. Kentucky's Supreme Court had found that the right to a jury trial is so important that for a person with power of attorney to have authority to agree to arbitration, the power of attorney document must unambiguously express that specific authority. In its decision, Kentucky criticized SCOTUS's arbitration jurisprudence. On review, SCOTUS found that by focusing on jury rights, Kentucky's rule hinged on a primary characteristic of arbitration, and noted that Kentucky could not cite any other constitutional right that it had treated similarly. What should state supreme courts learn from this decision? To avoid Federal Arbitration Act preemption, don’t insult SCOTUS, don’t worship the jury, and you really should be able to cite to a case where you’ve applied the same rule outside the arbitration context.

  3. Arbitration on trial. The public discourse in 2017 was hostile to arbitration. Arbitration was literally on trial in a case against JAMS (for an arbitrator’s alleged resume-padding), but also was figuratively on trial as a contributor to the problem for sexual harassment victims and an obstacle for consumers impacted by the fake accounts at Wells Fargo and Equifax data breaches. However, the level of public interest in this issue does not seem high enough to capture the interest of Congress (see vote on CFPB in #1), and one primary arbitration critic in the Senate, Al Franken, has resigned.

  4. Waiting for the NLRB. This fight between the National Labor Relations Board (NLRB) and the courts has been brewing for years. During the Obama administration, the NLRB held that class action waivers in employment agreements violated the federal labor laws. The federal courts had generally disagreed and reversed those decisions of the NLRB. In 2017, the drama heated up as not only did SCOTUS take cases involving this dispute and hear argument in October, but the Dept. of Justice shifted its support from one side to the other shortly before the argument. However, in recent months, appointments by President Trump have given Republicans the majority on the NLRB board. Therefore, the board would likely have changed its position soon on this issue (like other agencies, see #1). SCOTUS will be deciding an issue that was effectively mooted.

  5. Circuit split on “wholly groundless.” Should courts do any spot check on arbitrability before enforcing a delegation clause? Until this year, the only answer was yes, and that came from three circuits (Federal, 5th, 6th). Those circuits generally find it distasteful to send a case to an arbitrator to decide whether the substantive dispute is arbitrable if it is clear from the fact of the dispute that it is not arbitrable (because the issue falls well outside the scope of the arbitration clause, for example). But in 2017, two circuits refused to conduct a spot check, finding that it would violate SCOTUS’s precedent in Rent-A-Center, West (10th, 11th). This circuit split could end up on SCOTUS’s docket soon.

  6. Small claims court confusion. A number of cases took up the issue of whether a company’s effort to collect a debt in small claims court (usually pursuant to a carve-out in the arbitration clause) waived its right to later enforce arbitration when that consumer sued about the debt collection effort. E.g., Cain v. Midland Funding, LLC, 156 A.3d 807 (Md. Mar. 24, 2017). The case outcomes were inconsistent, showing that financial institutions need to clarify their drafting on this issue and courts need to reach a consensus on the waiver issue.

  7. Statutory preclusion. Attempting to avoid arbitration by holding up a statute that appears to require a claim to be heard in court is always a solid argument (but usually unavailable). This year it came up often, but not successfully. See McLeod v. General Mills, Inc., 854 F.3d 420 (8th Cir. 2017) (reversing a district court's finding that part of a federal statute protecting older workers required a court hearing).

  8. Non-signatories get divergent results. Another perennial favorite topic is defendants who want to compel the arbitration clause in a plaintiff’s contract with someone else. This came up often again this year, but with notable losses (such as Uber's unsuccessful attempt to move its dispute with a Google subsidiary into arbitration, based on an employee's arbitration clause) and generally inconsistent results. For example, there were two cases where banks teamed up with a retailer to issue branded credit cards that offered rewards. The credit card agreements were between the consumer and the bank and provided for arbitration. When the consumers sued the retailers, those retailers attempted to compel arbitration. In one case, the motion was denied (White v. Sunoco, Inc., 2017 WL 3864616 (3d Cir. Sept. 5, 2017). In the other, the motion was granted (Bluestem Brands, Inc. v. Shade, 2017 WL 4507090 (W. Va. Oct. 6, 2017).

  9. Clarifying that awards don’t get vacated for trivial or old relationships. One area of law that courts seem to be trying to clean up (instead of further muddy) this year is the standard for what types of relationships are significant enough that the award could be vacated. What’s not enough? Having decided a different matter with the same expert, and having been colleagues with counsel for one party 15 years before are two examples.

  10. Are there exceptions to the three-month window for vacating awards? The Ninth Circuit said yes (in the case of fraud), but the Nebraska Supreme Court found no exceptions available. Given that this statute has been in place since 1925, this seems like the kind of thing that would have been settled by now.

 

Liz Kramer is a partner with Stinson Leonard Street in Minneapolis, Minnesota.


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