“Have We Lost A Constitutional Right In The Fine Print?”
On the November 12, 2015 edition of Fresh Air, Dave Davies interviews New York Times reporter Jessica Silver-Greenberg, co-author of the New York Times Special Report on arbitration. I have blogged about the series, as well as the retort by the U.S. Chamber of Commerce, in November 1, 2 and 5, 2015 posts. Now you can learn the gist of the report by listening to the interview with Jessica Silver-Greenberg.
On November 1 and 2, I reported on the NYT Special Report about arbitration – articles highly critical of the spread of arbitration. While the report is one-sided in its approach, it does serve to highlight the revolution that is quietly occurring in our legal system, as arbitration clauses become increasingly widespread – and enforceable – in employment law, and consumer law.
Predictably, the U.S. Chamber of Commerce has not taken the attack on arbitration lying down. In a spirited defense of arbitration, the U.S. Chamber describes the NYT investigation as “little more than an opinion piece masquerading as fact. . . . incomplete, misleading, and one-sided . . . underscored by the article’s resort to innuendo about the ethics of a Supreme Court Justice . . . “
COMMENT: U.S. Chamber of Commerce v. NYT is only the latest sign that the role to be played by arbitration in the American legal system is now highly politicized. The fault lines are apparent in the liberal/conservative split in SCOTUS arbitration decisions, and the polarization in the statements of labor and consumer versus business interests.
We have posted before about the “Berman hearing”, named after Congressman Howard Berman, and providing workers with a procedure intended to provide “a speedy, informal, and affordable method of resolving wage claims” with the California Labor Commissioner. Under California law, it cannot be waived. However, if there is an arbitration clause governed by the Federal Arbitration Act, which preempts state law, then employers may use the arbitration clause to preempt the state Berman hearing. That is what ultimately happened in Performance Team Freight Systems, Inc. v. Garcia, B259146 (2/2 Nov. 2, 2015) (Boren, Ashmann-Gerst, Chavez) (published), where a trucking company, prior to commencement of Berman hearings, petitioned to compel arbitration with truck drivers filing wage claims.
The trial court had denied the petition, ruling that the agreements fell under an FAA exemption for transportation workers engaged in interstate commerce. Section 1 of the FAA exempts from FAA coverage “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” – and it has been held that transportation workers are included in this exemption. Without determining whether the truckers, who may have been involved mostly in intrastate short-hauls were truly involved in interstate commerce, the Court of Appeal concluded that they had not met their burden of establishing that the the subject agreements were “contracts of employment.”
And that leads us to the burden of proof. The party opposing arbitration bears the burden of demonstrating the exemption to FAA coverage applies. The agreements under which the truckers worked were labeled “Independent Contractor Agreements”. The Court of Appeal stuck with the label “independent contractor” because “only minimal evidence was presented to the trial court relevant to the issue of whether the subject agreements were contracts of employment.”
The Court also had little trouble finding that the clause was broad enough to cover the dispute. Reversed.
COMMENT: The law respects form less than substance. However, labels, light as they may be, are not weightless. When minimal evidence is presented on whether a worker is a contractor or an employee, the label may tip the balance, as it did here.
Yesterday I reported that the New York Times has kicked off its special report on arbitration with Part I, an article entitled “Arbitration Everywhere, Stacking the Deck of Justice.” The NYT has now moved on with Part II, “Privatizing Justice,” and Part III, “In Religious Arbitration, Scripture Is The Rule Of Law.”
The article on privatizing justice presents a litany of problems with arbitration. Though the article does not exactly describe what “privatizing justice” means, it circles around certain aspects of arbitration: the loss of judges and juries, the secretive nature of arbitration in a system where cases need not be reported and proceedings are confidential, the common perception that unlike judges, arbitrators are “beholden to companies” that are their real clients, and the inability to effectively appeal bad awards. The authors’ point of view appears to be that if sunlight is the best disinfectant, then arbitration is a black hole.
The article on religious arbitration presents some interesting examples involving Christian arbitration, as well as Scientology arbitration. The article points out that in addition to the usual inability to review arbitration awards for mistakes of law or fact, judges will not review religious arbitration awards for fear of church-state entanglement issues.
The Article Is Critical of Enforcement Of Individual Arbitration In Situations Where Only A Class Action Can Be Economically Prosecuted.
Jessica Silver Greenberg and Robert Gebeloff have authored a special report appearing in the New York Times online edition on October 31 and November 1, 2015, under the title: “Arbitration Everywhere, Stacking the Deck of Justice.”
The article promises to be “the first part in a series examining how clauses buried in tens of millions of contracts have deprived Americans of one of their most fundamental constitutional rights: their day in court.”
The issues discussed in the article will be familiar with readers who have followed arbitration decisions of the Roberts Court. Still, without offering too many spoilers, here are a few interesting tidbits:
“More than a decade in the making, the move to block class actions was engineered by a Wall Street-led coalition of credit card companies and retailers, according to interviews with coalition members and court records.”
Attorney John G. Roberts Jr. – now Chief Justice Roberts - represented Discover Bank when it unsuccessfully petitioned the Supreme Court to hear a case involving class-action bans.
The NYT studied 1,179 federal class actions filed between 2010 and 2014 that companies sought to push into arbitration, and found that judges ruled in their favor in four out of every five cases.
Though there is no central database for arbitration, the NYT concluded that between 2010 and 2014, only 505 consumers went to arbitration over a dispute of $2,500 or less.
Verizon and Times Warner have arbitration clauses in their consumer contracts, and from 2010 to 2014, “Verizon, which has more than 125 million subscribers, faced 65 consumer arbitrations . . . . Time Warner Cable, which has 15 million customers, faced seven.”
“One federal judge remarked in an opinion that ‘only a lunatic or a fanatic sues for $30.’”
Andrew J. Pincus of Mayer Brown, succinctly states one of corporate America’s economic arguments for arbitration: “Arbitration provides a way for people to hold companies accountable without spending a lot of money.”
Last year, “attorneys general in 16 states warned that ‘unlawful business practices’ could flourish with the proliferation of class-action bans.”
Examples of companies that now have arbitration clauses in their consumer contracts include Netflix, at&t, TimeWarner, T Mobile, ebay, Expedia, Budget, Discovery, Starbucks, and Electronic Arts.
I posted about SingerLewak v. Gantman on July 31, August 31, and September 1, 2015. This is an interesting case discussing the so-called “public policy exception” that will sometimes justify review of an arbitral award by the superior court – though in the end, not in this case.
Previously, the Court of Appeal had ordered the case published in the morning, only to revoke the publication order in the afternoon, when it realized that the time to order publication had expired. The Justices then wrote a letter to the Supreme Court asking for publication. Yesterday, the Supreme Court ordered publication.
Ted Bacon, Mike Hensley, and Matt Hansen, my colleagues at AlvaradoSmith, represented SingerLewak, the appellant/plaintiff prevailing on the appeal. I was pleased to see publication was ordered, as I had written the letter to the Court of Appeal requesting publication.
California Law Revision Commission Revisits Mediation Confidentiality At Its October 8, 2015 Meeting.
I have previously posted about efforts to permit the introduction of evidence currently protected by mediation confidentiality. See my posts of August 30, 2015, and September 11, 2015.
The California Law Revision Commission met on October 8, 2015, to address the issue again. As of the date of this post, I have not been able to find minutes or a video recording of the meeting. However, I am informed that the CLRC has decided to proceed with drafting legislation to remove current confidentiality protections when misconduct is alleged as to a lawyer acting in the role of advocate (as opposed to a lawyer acting as a mediator). An earlier decision to draft legislation allowing in mediation communications when attorney mediator misconduct is alleged has apparently been reversed. The ongoing proceedings of the CLRC on mediation confidentiality may be followed at: http://www.clrc.ca.gov/K402.html
Another Look at Mediation Confidentiality: Does It Serve Its Intended Purpose?
Eric van Ginkel, mediator, arbitrator, and adjunct professor for the Strauss Institute for Dispute Resolution, has published an article in Vol. 32, No. 8, September 2014, Alternatives to the High Cost of Litigation, a monthly publication of the International Institute for Conflict Prevention and Resolution. The article provides a framework for analyzing the purpose of mediation confidentiality by considering the varieties of mediation confidentiality, the interests of the mediator, the parties, and non-parties in preserving confidentiality, and the need for confidentiality before and after a settlement is reached. Prof. van Ginkel is a fan of the Uniform Mediation Act, which he describes as “approaching Nirvana” compared to the California mediation statute. A summary of his article is available on-line at pages 4 to 7 of a recent memo prepared by the CLRC.
COMMENT: Much of the debate concerning whether to legislate exceptions to mediation confidentiality circles around whether a bright-line confidentiality rule that may be harsh in an individual case by excluding evidence of malpractice or duress nevertheless offers widespread and beneficial effects by facilitating candor, trust, and low transaction costs.
When things good sideways in mediation, we are tempted to look only backwards at the confidentiality rules, and ask ourselves how a different confidentiality rule could right the wrong. When we ask ourselves about the beneficial effects of mediation confidentiality, we generally have a different perspective: we are looking at the benefits of candor, trust, and low transaction costs before the problem occurs in the individual case. “The practical challenge is to learn to see [ex ante] argument every time it’s available: to learn to think the ex ante way when a case is full of cues tempting everyone to only look backwards.” See Ward Farnsworth, The Legal Analyst: A Toolkit for Thinking About the Law (University of Chicago Press 2007), p. 6. Interestingly, Prof. van Ginkel notes: “To date, no study has been undertaken that would give us the empirical data that connects success in mediation proceedings with the availablity of a form of confidentiality protection.” We have insights into the value of mediation confidentiality, and a dearth of empirical evidence.
ScotusBlog Analyzes Oral Argument Under Caption, “Justices have scorching criticism for California court’s refusal to enforce arbitration agreement, but debate their authority to correct it.”
Columbia Law Professor Ronald Mann has authored both an October 2, 2015 preview of arguments in DIRECTV v. Imburgia and an October 7, 2015 analysis of the oral arguments.
In his preview, Professor Mann leads: “If I start by telling you that DIRECTV includes an arbitration clause in agreements with its customers and that the California Court of Appeal in this case declined to order arbitration, it would be understandable if you immediately stopped reading and clicked back to look for another post: how far do you have to read to expect that my post is going to tell you that the Court is likely to reverse the California court and hold the agreement enforceable?”
In DIRECTV, the arbitration provisions contain a poison pill: “if the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration provision] is unenforceable.” What does “law of your state” mean?
The parties entered into the agreement when the Discover Bank rule applied in California, invalidating class action waivers, and before that rule had been overturned by AT&T v. Concepcion.
The question, as presented by DIRECTV’s petition for writ of certiorari to the Supreme Court is: “Whether the California Court of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act requires the application of state law preempted by the Federal Arbitration Act.”
Thus, DIRECTV’s position is simply that the California courts flaunt federal law and preemption.
In contrast, Imburgia argues that this is a simple matter of contract interpretation: whether the reference to “the law of your state” refers to the rule in Discover Bank, or to the state of the law in California after Concepcion. Imburgia argues that contract interpretation should be left to state judges, and if the contract drafted by DIRECTV is ambiguous, then the well-known rule that ambiguous contracts are interpreted against the drafter must apply.
Prof. Mann concludes, “[I]t seems unlikely that five of the Justices will vote to affirm the California decision. But do we know exactly how they’ll explain their decision? For that I suppose we’ll have to wait a few months yet.”
Panel Holds the Federal Arbitration Act Did Not Preempt The California Rule Announced In Iskanian.
By a 2-1 majority, a Ninth Circuit panel has reversed a district court’s order that had granted an employer’s motion to compel arbitration of claims and dismissed claims for civil penalties under the Private Attorney General Act of 2004 (PAGA). Sakkab v. Luxottica Retail North America, Inc., No. 13-55184 (9th Cir. Sept. 28, 2015). Thus, the majority agreed with the rule in Iskanian v. CLS Transportation Los Angeles, LALC, 59 Cal.4th 348 (2014), barring the waiver of representative claims under PAGA. The majority reasoned that the Federal Arbitration Act and Concepcion do not preempt the rule in Iskanian, because the California rule barring waiver of PAGA claims is a “generally applicable” contract defense preserved by the FAA’s section 2 savings clause. Waiver of PAGA claims is barred, “regardless of whether the waiver appears in an arbitration agreement or a non-arbitration agreement.”
However, the majority noted: “The California Supreme Court’s decision in Iskanian expresses no preference regarding whether individual PAGA claims are litigated or arbitrated.” Thus, while reversing the order below, the Ninth Circuit panel also remanded to the district court to decide where the plaintiff’s representative PAGA claims should be resolved.
Judge N.R. Smith, dissenting, believes that Concepcion/FAA preemption should apply, that the FAA’s “liberal federal policy favoring arbitration” should have been followed, and that not enforcing the PAGA waiver provision crimps the parties’ ability to contract to the arbitration provision chosen.
COMMENT: In Concepcion, a Supreme Court majority has accepted an arbitration provision that results in waiver of class actions. In Sakkab, the Ninth Circuit panel majority distinguishes between class actions and PAGA actions that are representative actions akin to qui tam actions in which the plaintiff acts as a proxy for the state. Whereas class actions are not necessarily well-suited to arbitration, because an arbitrator may not be troubled to deal with the due process rights of third parties, a PAGA representative action involves obtaining penalties for the benefit of the state and the plaintiff, making it unnecessary to protect absent employees’ due process rights.
I recently authored an article entitled, “Can Private Attorney General Actions Be Forced Into Arbitration?” that appeared in California Litigation, Vol. 28, No. 2, 2015. You can find it here. By remanding to the district court to decide whether the PAGA claims should be litigated or arbitrated, Sakkab clarifies that whether PAGA claims can be forced into arbitration is not the same question as whether PAGA claims can be waived. Sakkab only holds the PAGA claims can’t be waived, leaving it to the district court to decide how the claims will be tried.
Mediator Jill Switzer Comments On The Recent Proposal Before The California Law Revision Commission To Loosen Mediation Confidentiality Statutes.
On August 30, 2015, I posted that on August 7, 2015, the California Law Revision Commission directed staff “to begin the process of preparing a draft of a tentative recommendation that would propose an exception to the mediation confidentiality statutes (Evid. Code sections 1115-1128) to address ‘attorney malpractice and other misconduct.’”
Jill Switzer, an experienced mediator who has been a member of the State Bar for nearly 40 years, has communicated her thoughts to the California Law Revision Commission about the recent proposal. She has graciously given me permission to publish her probing comments on my blog. Her comments reflect her personal views, and are not the views of any organization, committee, or business with which she may be affiliated. I welcome any comments that my readers have about this topic. Here are Jill Switzer’s comments:
1. The general concept is to propose an exception to the mediation confidentiality statutes that would address “attorney malpractice and other misconduct.” What other misconduct does this contemplate? What would that be? Since the attorney mediator is not acting as a lawyer for purposes of conducting the mediation, .e.g not giving legal advice, there’s no attorney-client relationship, what would the Commission see as misconduct by the attorney mediator?
2. The exception should apply “…regardless of whether the alleged misconduct occurred during a mediation.” So, does this mean that it would apply to the convening stage, any/all pre and or post mediation communications, telephone calls, etc.? How would that even arise, especially since the clients are not involved in the convening, the pre/post mediation communications that the lawyers and mediators may have?
3. I carry mediator malpractice insurance (in an abundance of caution), which, right now, is very reasonable because mediators don’t get sued. That will certainly change. Rates will go up and if mediators are indeed brought into litigation as defendants or cross-defendants, the rates may well skyrocket. So, I will have to raise my rates to cover the increased insurance costs. Great, try explaining that to parties and counsel who think my rates are too high as they are.
4. What if I have insurance and the defendant lawyer doesn’t? On the deep pocket theory, plaintiff’s counsel will either sue me at the outset, or the defendant will cross-complain against me for indemnity. I thus become the “deep pocket.” Will I need to ask the counsel participating in the mediation whether he/she carries insurance? Should I ask for a certificate of insurance to satisfy that inquiry? Since malpractice insurance is on a “claims made” basis, what if the attorney has insurance at the time of the mediation, but does not have it at the time the claim is made? What if my carrier decides to settle based on nuisance value, etc., costs of defense, etc? I have a deductible I have to pay, regardless of whether I’m in for a penny or in for a pound in the litigation.
Putting the mediator in the mix is going to prompt some mediators, such as me, to start looking for something else to do. I’m not going to go bare, but I’m also not going to be the “fall gal” for an attorney’s alleged malpractice. I refuse to be a guarantor.
5. Even if I know nothing, I wasn’t in any caucuses where counsel and client were discussing the pros and cons of resolution, which is where the claimed malpractice occurred, I’m going to get dragged in. I am going to have to prove a negative. No plaintiff’s counsel is necessarily going to take my word that I wasn’t present without my being deposed. Unless and until the plaintiff’s counsel then decides that there’s “no there there,” and defense counsel sees that there is no basis for a cross-complaint against me, I’m stuck.
6. Whose job will it be to advise the clients that there’s no mediation confidentiality? Shouldn’t that be the attorneys’ job? If they don’t advise in advance of the mediation, does it then become my job to advise the clients in the mediation that there’s no confidentiality? Do I demand proof from the attorneys that they have so advised? How many cases would settle without mediation confidentiality?
7. After the mediation, unless I’m continuing my efforts to resolve the matter, I shred all notes, briefs, and/or any correspondence post-mediation. If there’s now the possibility of being sued, how long do I have to keep those? Do I have to keep them at least one year post legal malpractice possibility? When does that statute start running? If I don’t, am I liable for spoliation? How do I determine whether I think the resolution (or non-resolution as the case may be) may lead to a malpractice claim and thus require document retention?
8. This proposal is only going to increase litigation and its attendant costs, which is what mediation is supposed to alleviate. Mediation is a voluntary process, so the parties can leave at any time, and I’ve had that happen. Mediation is supposed to be a way to resolve disputes in an efficient, cost-effective manner. Why is there the assumption that the client got hosed by its lawyer in mediation and was forced to settle? There are going to be many cases of "settlor’s remorse,” clients who think that they can leverage a better deal by suing for malpractice.
9. If we lose mediation confidentiality, then there’s no point to mediating. Just have everything handled as an early settlement conference, MSC, or ENE by a judicial officer and ditch mediation altogether. Given the sorry financial state of the courts these days, I’m sure that they’ll be delighted to have even more work than they already have.
This proposal takes the sledgehammer to the gnat approach. If the clients don’t want to be bound by confidentiality and thus retain the option of a potential legal malpractice claim, then they shouldn’t mediate, but please don't eviscerate what works for a great many to satisfy just a few.