An Uncertain Future In California: The Arbitrability Of Statutory Representative Actions Brought For The Benefit Of The Public.
Thanks to the generous permission of California Litigation, The Journal of The Litigation Section, State Bar of California, my article “Can Private Attorney General Actions Be Forced Into Arbitration?” is now available on my website by clicking here. The article appeared in the latest issue of California Litigation, Vol. 28, No. 2, 2015.
Daily Journal Publishes My April 17, 2015 Article On The Perils Of Blogging
Published by The Daily Journal on April 17, 2015, my article on the legal perils of blogging will interest those of you who blog, or who are considering blogging. With the permission of the Daily Journal, I am making it available to my readers. Click here if you wish to read it. Note you may have to rotate the article in your viewer or enlarge the text to make it easier to read.
Article By Mediator/Arbitrator Paul Dubow Anticipates Arbitration Issues Arising From California AB 2617 And Proposes Solutions.
Paul J. Dubow’s article, “ADR Update: Dealing with AB 2617”, appearing in California Litigation, volume 28, No. 1, 2015, anticipates FAA preemption issues arising from AB 2617, passed by the California Legislature in 2014, and amending Civil Code sections 51.7, 52, and 52.1.
By way of background, The Ralph Civil Rights Act of 1976, Civil Code section 51.7, prohibits violence or threats of violence based on an individual’s race, color, religion, ancestry, age, disability, sex, sexual orientation, political affiliation, or position in a labor dispute. Civil Code section 52.1, part of the Tom Bane Civil Rights Act of 1987, provides plaintiffs may sue those interfering by “threats, intimidation or coercion” with the plaintiff’s exercise or enjoyment of any state or federal constitutional or legal right.
AB 2617 declares its legislative intent: “It is the purpose of this act to ensure that a contract to waive any of the rights, penalties, remedies, forums, or procedures under the Ralph Civil Rights Act or the Tom Bane Civil Rights Act, including any provision that has the effect of limiting the full application or enforcement of any right, remedy, forum, or procedure available under the Ralph Civil Rights Act or the Tom Bane Civil Rights Act, is a matter of voluntary consent, not coercion.” (italics added for emphasis).
Dubow anticipates that AB 2617’s assurance that any contract to waive rights under sections 51.7 and 52.1 must be a matter of voluntary consent will spawn disputes over arbitrability. While at first blush, AB 2617 is silent about arbitration, Dubow points out that the legislative history “makes clear that the bill was directed at arbitration provisions” – raising the specter of Federal Arbitration Act preemption. Thus, to the extent that contracts for goods and services will now contain waivers of the right to sue in court under sections 51.7, and 52.1, and will contain provisions for binding arbitration, issues will invariably arise as to whether the waivers are involuntary and unenforceable under AB 2617, or enforceable under the FAA, which will preempt state law where interstate commerce is involved.
Without arguing for or against preemption, Dubow offers drafting solutions for those who want to draft an arbitration waiver that will stick. Those suggestions include: (1) provide that arbitration is to be conducted under the FAA; (2) state that the court may not refuse to enforce the arbitration agreement and may not stay arbitration under Cal. Code of Civ. Proc., section 1281.2; (3) make the arbitration provisions prominent; (4) explain the consequences – e.g., that a jury trial is waived; (5) get the provision initialed; (6) include a prominent opt-out provision; (7) draft a fair agreement.
Dubow’s tips for drafting enforceable arbitration provisions are generally useful advice for employer-employee and consumer contract situations.
California Attorney’s Fees has a short post dated February 18, 2015, with tips for successful enforcement of arbitration clauses in fee retainers found in a recent article in the Daily Report, authored by Randy Evans and Shari Klevens of McKenna Long.
Lawrence Wright has written a fascinating book about the thirteen days of intense negotiations at Camp David in 1979 leading to a peace agreement between Egypt and Israel. Earlier, Wright earned a Pulitzer Prize for his book The Looming Tower about events leading up to 9/11.
Thirteen Days in September can be read as a background briefing about the political, historical, and religious obstacles to peace in the Mideast, as a collection of vignettes of the leaders and their entourages, as a meditation on war and peace, and as a detailed account of the procedural and psychological dynamics of immensely complicated negotiations.
The negotiations are an example of opposite sides dealing with seemingly intractable problems and “getting to yes”. In fact, President Carter and Secretary of State Cyrus Vance borrowed a concept from Harvard Law’s Roger Fisher, co-author of Getting to YES, by taking control of the negotiating document, and using it to narrow issues. The process did not start out that way, as Carter naively thought that bringing together Begin and Sadat would lead to an exchange of goodwill, and a mutual recognition of the shared interest in peace, but in fact, quite the opposite occurred, and it became necessary to separate Sadat and Begin.
Carter developed a rapport with Sadat, but not with Begin, whom Carter found to be legalistic and obstructionist. For Begin, the security of Israel was an existential problem, and he balked at exchanging the security buffer of the Sinai for the promise of peace.
On the brink of humiliating failure, Carter changed his role as facilitator and became more directive. The negotiation process evolved painfully, and at times dramatically, while the US draft progressed through 23 revisions. At several points, one side or the other threatened to walk out, and Carter played his trump card: you will destroy your relationship with the US, and you will be blamed for the failure of the peace talks.
Sadat and Begin each achieved important goals: a formal peace agreement between Egypt and Israel, and a continuing relationship for Egypt and Israel with the United States. Egypt regained control of the Sinai Desert. Since 1979, the peace Carter brokered between Israel and Egypt has lasted – between Israel and Egypt.
Carter hoped to successfully link the agreement between Israel and Egypt with an agreement to address UN Resolution 242 and the rights of the Palestinian people in Gaza and the West Bank. However, the Palestinians were not “present at the table”, and their issues were of secondary concern to Begin and Sadat. The agreement between Egypt and Israel was achieved by drafting “creative ambiguities” that imprecisely addressed the rights of Palestinians, without solving profound problems that were simply “papered over.” Thirty-five years later, the agreement between Israel and Egypt is still in place, and the issues presented by UN Resolution 242, Gaza, and the West Bank remain as open sores.
The Article Is About Two Extraordinary Cases In Which Judges Exercised The Summary Contempt Power.
Thanks to the generous permission of California Litigation, The Journal of The Litigation Section, State Bar of California, “Summary Contempt and Due Process: England, 1631, California, 1888” is now available on my website by clicking here.
An abbreviated version of this article appeared earlier as an August 6, 2014 post on California Attorney’s Fees, a blawg to which I co-contribute.
Paul J. Dubow, an arbitrator and mediator in San Francisco, asks whether post-award investigation can vacate arbitration awards in “ADR Update”, California Litigation (Vol. 27, No. 1 2014), p. 37. It is easy for an unhappy client’s attorney to do a Google search about an arbitrator after the arbitration award has already been made – and sometimes, facts relevant to arbitrator bias will be discovered. On January 26, 2014, I posted about the leading case in which, to quote Mr, Dubrow, “[t]he aggrieved attorney for plaintiffs . . . conjured internet magic.” Mt. Holyoke Homes LP v. Jeffer Mangels Butler & Mitchell LLP, 219 Cal.App.4th 1299 (2013) (arbitrator’s reliance on reference from name partner at defendant’s law firm raised reasonable suspicion of bias, resulting in vacation of arbitration award).
Of course, it may be just as easy to do the same Google search for information publicly available on the internet before commencing arbitration. And therein lies a dilemma, according to Mr. Dubrow. On the one hand, the integrity of the system would be undermined by an arbitrator who withholds information, hoping that the parties will not discover it. On the other hand, there is the possibility of abuse, if the party obtains information of bias before the disclosures are due, decides to retain the arbitrator, and then exploits the information the arbitrator failed to disclose only after receiving an adverse award.
Mediation Confidentiality Privilege.
Hanna B. Raanan, a litigation attorney and mediator, writes about exceptions to the confidentiality protection of mediation in “Things Your Mediator Didn’t Tell You About The Mediation Confidentiality Privilege,” Orange County Lawyer (April 2014), p. 36. She reminds us: 1) discoverable material doesn’t become confidential just because it is used in mediation; 2) execute confidentiality agreements before exchanging information – or else you may not be covered by mediation confidentiality; 3) mediation confidentiality will terminate if there are no communications with the mediator ten days following the mediation – unless you draft around this problem; 4) there are situations in which mediation confidentiality may be weighed against other policies, and found not to be absolute; and (5) if the ADR procedure is not within the definition of “mediation”, then mediation confidentiality may not exist. Her solutions: address the problem of confidentiality before engaging in mediation, and use a savvy mediator aware of the issues.
Ms. Raanan’s admonitions are a useful antidote for the mediator who announces: “Everything said here will be confidential.”
Pointing to conclusions of the preliminary report that “larger institutions are more likely to use arbitration clauses, arbitration clauses in account agreements can often be complex, and the agreements often contain class-action waivers,” Mr. Zeisel comments that the CFPB’s preliminary report may leave a misleading impression that arbitration clauses disadvantage consumers.
He concludes, “we are pleased the CFPB now says it will compare the costs and benefits to consumers from arbitration with those derived from individual and class action litigation.” Indeed, such a result would be an excellent outcome, because it is devilishly difficult to compare litigation and arbitration costs and benefits, and such a comparison would be of great benefit to consumers, corporations, and legislators.
However, some of Mr. Zeisel’s comments deserve scrutiny:
He says that for nearly 90 years, arbitration has been a valuable means for consumers to quickly and easily resolve disputes in an efficient and affordable manner. Ninety years – that’s almost the exact age of the Federal Arbitration Act of 1925. But as Prof. Imre Szalai convincingly shows in his historical study of arbitration in the United States, the Federal Arbitration Act was created with an intent to provide an efficient and affordable dispute mechanism for merchants of equal bargaining power. See my February 19, 2014 review of Outsourcing Justice. Whether consumer arbitration is cost efficient is precisely the subject that deserves further study by the CFPB.
Mr. Zeisel comments, “Congress recognized the importance of arbitration as a means of resolving consumer disputes when it enacted the Federal Arbitration Act in 1925.” But “resolving consumer disputes” played a very minor part, if any, in the enactment of the Federal Arbitration Act. And that is precisely why the fairness and efficiency of consumer arbitration deserve further attention by Congress.
In support of the argument that consumer arbitration is cost efficient, Mr. Zeisel states that studies show: “the upfront cost to the consumer was far less than the fee required to file a complaint in the federal courts.” But that’s not a simple comparison. The fee for filing a complaint in federal court is $350. Given the restrictive requirements of federal jurisdiction, the cases filed in federal court are not going to be small claims cases. If the matter is a consumer class action, a $350 filing fee is not an excessive entry cost. Consumer advocates argue that class actions provide economies of scale. On the other hand, most consumer disputes are much smaller than class action disputes, and the litigation alternative is not federal court, but small claims court, where filing fees will be less than $350. (And in fact, many consumer arbitration clauses have a “carve-out” provision allowing for the filing of small claims.).
Now if the CFPB is able to methodically compare costs and benefits to consumers of arbitration versus litigation, that may help to answer the question we started with: whether consumer arbitration is really fair and efficient.
Arbitration Is The Product Of The Reform Era – And The Need For Reform Is Not Over
The book cover of Outsourcing Justice, Professor Imre Szalai's history of arbitration in the United States, might lead one to believe that the author will fire a broadside against arbitration today. First, there is the red, white, and blue carton of French fries, with fine print at the bottom: "BY READING THIS LABEL YOU AGREE TO ARBITRATION." That's just enough to recall and conjure up James v. McDonald's Corporation, 417 F.3d 672 (7th Cir. 2003), in which the plaintiff, disappointed purchaser of a game ticket, discovered after-the-fact that she was bound by an arbitration clause. That clause was contained in the rules for the "Who Wants to be a Millionaire" game ("Official Rules"); and, the French fry cartons to which game cards were affixed had language directing participants to see the Official Rules for details. Second, the title, Outsourcing Justice, has a somewhat pejorative ring to it, in a world where “outsourcing” connotes heartless cost cutting.
In fact, Outsourcing Justice is clearheaded, well written, balanced, and scholarly. Prof. Szalai places the development of arbitration within its historical and social context, while also looking at the important role played by individuals who lobbied to expand the role of arbitration in the 20th century.
Before the passage of modern arbitration statutes, arbitration was severely encumbered in the United States, because arbitration agreements could be disavowed before judgment was entered. But the increasing development of interstate and global commerce required that merchants be able to rely with certainty on the validity, irrevocability, and enforceability of arbitration agreements. Also, the sudden end of World War I resulted in a spate of government contract cancellations, making it necessary to find fast and efficient means to resolve contract disputes.
In particular, Prof. Szalai explores the remarkable role played by Charles Bernheimer, the "Father of Commercial Arbitration." Deeply disturbed by the unethical practice of merchants during the Panic of 1907, a time of economic shock in the country, Bernheimer made it his life's passion to promote arbitration as an alternative to burdensome litigation. A successful cotton merchant himself, Bernheimer gave generously of his own time and money to promote arbitration. He appears to have pushed for reform out of altruistic motives, rather than for "any selfish or evil motives to strip away rights from unknowing individuals." (p. 91). Bernheimer was a pragmatic idealist.
Bernheimer's efforts to promote arbitration, beginning in 1907, encountering a major victory with the passage of New York’s arbitration statute in 1920, and culminating with the creation of the Federal Arbitration Act in 1925, belong to the Progressive Era. Prof. Szalai tells the story of Bernheimer's intensive lobbying efforts, in the Chamber of Commerce, the New York State Legislature, the American Bar Association, and the United States Congress. While the narrative of lobbying efforts may be a bit of a slog at times, it is also very revealing in its details about how lobbying could once, at its best, be a constructive source of reform, and about how, once upon a time, lawyers and politicians with different opinions could listen to one another's arguments, and cooperate to produce useful legislation. It is also a story about how one dedicated man, Bernheimer, could make a difference by being persistent, passionate, knowledgeable, and responsive to the concerns of others who would today be called “stakeholders.” For two decades, the resourceful Bernheimer was indefatigable in his commitment, yet found time for summer archeological expeditions, exploring the Southwest.
Placing the development of arbitration in the context of the Progressive Era, Prof. Szalai notes that consent, efficiency, and faith in a bureaucratic approach were all hallmarks of the Progressive Era – as well as of the movement to spread arbitration. The Federal Arbitration Act created a loose, malleable framework, intended to be a work in progress, and an exemplar of consent, efficiency, and bureaucratic expertise.
Prof. Szalai argues, however, that the "work in progress" is not yet complete. In the case of arbitration, consent, especially in consumer transactions, is usually a legal fiction. Efficiency is often an elusive goal. And blind faith in a loose procedure may be misplaced – is the system neutral, or does it disadvantage the consumer, the employee, and the class member? Arbitration is not defined in the Federal Arbitration Act. Congress or perhaps the judiciary "should clearly define what is meant by arbitration covered by the law, and address several minimum procedural guarantees in arbitration, and what types of parties or claims should be covered by an arbitration law." (p. 201).
Outsourcing Justice shows that the development of arbitration case law has strayed from the intent of some of arbitration’s Progressive Era proponents. In the congressional history of the Federal Arbitration Act, early proponents of arbitration intended that it apply to arms-length agreements between merchants, and that small disputes with consumers and employment disputes might not be covered. As case law has developed, however, arbitration has increasingly colonized the areas of consumer and employment law.
Of course, judges will always look first to the plain language of the Federal Arbitration Act and state statutes, and will only delve deeper into legislative history if they cannot find the answers they want in the language of the statutes. While the legislative history is very interesting, it is often ambiguous, with its meaning contested and elusive.
Outsourcing Justice also argues that "progressive measures often failed to provide clarity or guidance regarding how to balance [consent and efficiency]." (p. 200). However, on calibrating the balance, Prof. Szalai does not offer much guidance.
Andrew J. Pincus, the lead attorney for AT&T in AT&T v. Concepcion, 563 U.S. 321 (2011) has said, “Our courts are expensive, overburdened and virtually impossible for nonlawyers to navigate. For these claims, it is arbitration or nothing.” See my June 4, 2012 post. Prof. Szalai has not written a book to engage with this argument, because the province of his book is law and history, not law and economics.
On a note of optimism – or at least hope – Prof. Szalai concludes, “I hope America’s arbitration laws are about to go through another period of reform.” (p. 202). That’s the progressive spirit of Charles Leopold Bernheimer, from a time long ago, channeled through the medium of Prof. Imre Szalai.
Article Offers Statistical Analysis Of What Works In Mediation
UCLA School of Law offered a program today presented by Daniel and Lisa Klerman, entitled “Inside the Caucus: An Empirical Analysis of Mediation from Within”, based on an article of the same name. Poking around on the Internet, I found that the article is available online by clicking here. It provides interesting statistical analysis of 414 mediations. Some of the findings: a very high success rate was achieved with mediator’s offers – used in 90% of the cases here, it was 99% effective in this data set; the gender of the lawyers and the plaintiff mattered little to outcome; and cases settled closer to defendant’s first offer than to plaintiff’s. Daniel Klerman is a professor of law and history at USC Law School. Lisa Klerman is a mediator and lecturer at USC Law School.