California Mediation and Arbitration

News: Dropbox Is Adding An Arbitration Clause To Its Terms Of Service

Dispute Resolution Terms Incorporate Provisions Popularized By AT&T v. Concepcion

     Dropbox, that marvelous tool allowing you to share folders with your other computers, as well as with third parties, has notified its users that it is updating its terms of service, effective March 24, 2014.  One change will be the addition of arbitration clauses to Terms of Service and to the Dropbox for Business online agreement. 

     Here are features of the dispute resolution mechanism: 

• Begin with informal dispute resolution before bringing a formal proceeding.
• Both sides agree to arbitrate to resolve any claims relating to the Terms or the Services through final and binding arbitration – except as set forth under Exceptions to Agreement to arbitrate.
• Parties may opt-out of the agreement to arbitrate by submitting an opt-out form.
• Arbitration will be administered by the AAA under the Commercial Arbitration Rules and the Supplementary Procedures for Consumer Related Disputes. 
• Arbitration will be held in the US in the county where you live or work, San Francisco (where Dropbox is headquartered) or any other location the parties agree to.
• Dropbox will pay arbitration fees for claims less than $75,000.  If you receive a more favorable award than what Dropbox offers to pay, you get a bonus of $1,000, in addition to the award.  Dropbox won’t seek fees and costs in arbitration – unless the arbitrator determines your claim is frivolous.
• Exceptions to the arbitration requirement include small claims, or injunctive relief for certain claims.
• There is a class action waiver:  “You may only resolve disputes with us on an individual basis, and may not bring a claim as a plaintiff or a class member in a class, consolidated, or representative action.”
• Additionally:  “Class arbitrations, class actions, private attorney general actions, and consolidation with other arbitration aren’t allowed.” 
• The judicial forum for disputes to which the agreement to arbitrate is found not to apply, other than for small claims actions, will be in federal or state courts in San Francisco.
• The Terms are governed by California law except for conflicts of law principles.

     As I read through the terms, I wondered what clauses were covered by the opt-out form.  The opt-out form provides:  “[Y]ou are opting out of the agreement to arbitrate Dropbox’s Terms of services (“Terms”).  This opt-out doesn’t affect any other parts of the Terms, including, for example, the controlling law provision or the requirements about in which courts legal disputes may be brought.”  The “no class actions” waiver, read literally, applies to more than arbitration, and the opt-out form, read literally, seems to say that even if you opt out of arbitration, you can’t file a class action. 

     Additionally, if you opt out, and bring a claim in court for greater than $75,000, you (or at least, your attorney) is going to get to see San Francisco – a great city to visit.

     Obviously, Dropbox’s attorneys have read AT&T v. Concepcion, and they have drafted the arbitration provisions with the intention that they pass judicial muster. For now, I am going to suspend judgment as to whether every one of the provisions will be enforceable.  If you use Dropbox, I urge you to also read the new provisions that will go into effect concerning permissions the user gives to Dropbox, and concerning privacy.

In the News: Bank Burned By Boilerplate

Read the Fine Print

     As readers of this website will know, arbitration provisions are often located in boilerplate, found in take-it-or-leave-it contracts, raising procedural  unconscionability issues in California.  Our next case does not involve arbitration – though it does involve arbitration’s beloved mate, boilerplate.

     So what happens when a bank fails to read doctored boilerplate?

     Cory Doctorow posts on BoingBoing about a “wily Russian fellow” who “crossed out the fine-print on an unsolicited credit-card application . . . and wrote in his own terms, giving himself unlimited, interest-free credit and exemption from all fees, with a 3MM ruble fee [$91,000] should the bank change the terms and a 1MM ruble fee should they cancel his card.”  He even crossed out the URL giving the terms and conditions, and wrote in his own URL ! 

     Tinkoff Credit Systems, which provided the wily Russian with an unsolicited credit-card application, sued the customer.  “However, the court held that his amendments were binding since the bank accepted them, whether it looked at them or not.”

     We can only guess that, if Tinkoff Credit Systems, Russia’s largest on-line bank, had sued in California, it would have had an uphill battle arguing it was the feckless victim of procedural unconscionability. 

     On August 14, 2013, RT [previously Russia Today] reported that both parties had agreed to call off legal action:

“The conflict is unconstructive, this is why we decided to resolve it in a gentlemanly way, by lifting the mutual claims,” Tinkoff Credit Systems cites its President Oliver Hughes as saying.

“In 2008 it was just a joke, when I tailored my own form and produced that to the bank instead of the official form. But the joke has gone too far,” RIA Novosti cites the small print scribe Dmitry Agarkov as saying.

      HAT TIP to attorney Colin Alexander, an avid reader of BoingBoing, who brought this story to my attention.

News: NY Times Reports Supreme Court Unsympathetic To Argument That Arbitration Agreement Can Be Invalidated Because It Does Not Permit Class Arbitration Of Federal-Law Claim

The Case Argued On February 27 Is American Express Company v. Italian Colors Restaurant

     On November 20, 2012, I posted about American Express Company v. Italian Colors Restaurant, the case now before the Supreme Court in which merchants have challenged American Express’s practice requiring them to accept its credit cards as a condition to accepting its charge cards.  (Charge cards amounts must be paid off each month, while credit cards can run a balance).  The merchants’ problem is that their agreements with American Express are subject to arbitration and a class action waiver, and it is prohibitively expensive to challenge American Express’s business practices in arbitration, when the upside for a typical claimant might be only $5,000.

      On February 27, 2013, Binyamin Appelbaum reports in the New York Times that the oral argument does not augur well for the merchants.  A majority seems to be leaning toward requiring the merchants resolve their complaints through arbitration, though it may be prohibitively expensive to do so.  Justice Breyer, who in the past has favored limiting arbitration, is quoted as saying, “It is an odd doctrine that just says, plaintiff by plaintiff, you can ignore an arbitration clause if you can get a case that’s expensive enough.” 

Augur holding lituus.  Wikimedia.

      So is the flip side to such an “odd doctrine” that you can have a right to complain about an antitrust violation, without a practical remedy, if you are a party to an arbitration clause with a class action waiver?   

     Scotusblog also posted about the case on February 22, 2013.

Good News: Harbor Clerks and Management Reach Tentative Deal Just As Federal Mediators Are Called In

Deal Affecting Ports of Los Angeles and Long Beach Requires Approval of ILWU Rank and File

Above:  Free Harbor Jubilee.  Los Angeles and San Pedro.  1899.  Library of Congress.

     Only yesterday, we read that federal mediators were being called in to assist in settlement negotiations between the International Longshore and Warehouse Workers (ILWU) Local 63 and management.  The costly strike has disrupted cargo traffic at the ports of Los Angeles and Long Beach.  In fact, this morning we heard a person on NPR describing an aerial photograph of the scene as resembling the Normandy invasion!

     Today the Los Angeles Times reports a tentative settlement has been reached, subject to ratification by union members.  And that is good news.

      Did the federal mediators make the difference?  Dan Whitecomb and Steve Gorman report on December 5 in the LA Times:  “Federal mediators called in to join negotiations at the mayor's behest earlier in the day showed up just as the settlement was being reached.”

News: Cost Effectiveness of Mediation and Arbitration Mulled Over In California Attorney’s Fees

    A November 7, 2012 post in California Attorney’s Fees discusses:  “Arbitration/Mediation: The Debate Goes On ... Are They Cost Effective?”  Summarizing a recent article authored by Victoria Paal, Randall Block, and Steven Roland in the most recent 2012 edition of the California Real Property Journal, the post suggests that mediation is widely perceived to be a more cost-effective approach than arbitration.  Hat Tip to Mike Hensley, my co-contributor to our blawg, California Attorney’s Fees.

News/FINRA: Morgan Stanley and Facebook Investor Are Not Friends

Lead Underwriter in Facebook IPO Seeks to Avoid FINRA Arbitration With Facebook Investor

     On November 6, 2012, Suzanne Barlyn reported for Reuters that Morgan Stanley, a lead underwriter for the Facebook IPO, has filed a complaint in federal court in Manhattan seeking an order to stop FINRA arbitration initiated by a Facebook investor who alleges she took a financial drubbing in the recent Facebook IPO.  Morgan Stanley asserts that the investor, who ordered shares through Vanguard Financial Group Inc., was not Morgan Stanley’s customer. 

     The investor, a widow and retired schoolteacher (but of course!), alleges that Morgan Stanley “informed their own privileged clients” it was downgrading its outlook for the stock, while issuing more shares at the same time.

News: Gerard I. Nierenberg, Founder of The Negotiation Institute, Dies at 89

     The website of The Negotiation Institute describes the institute as “the longest running negotiation skills training organization in the world.”  Its founder, Gerard J. Nierenberg, died on September 19, 2012, as reported in a September 24, 2012 NY Times obituary.  Mr. Nierenberg authored several books, including one entitled “How to Read a Person Like a Book”  -- advice on reading body language.  We liked his wife’s observation that he practiced what he preached at home:  “’I could always rely on reminding him, or he would remind me, about the principles of negotiation,’ she said.”

News: Cowabunga: City of Half Moon Bay Wins $10 Million In Arbitration

Arbitrator Finds Insurance Coverage For Land Use Fiasco

     Famous for its big wave surfing, the City of Half Moon Bay got hit with a big one a while back, when it committed to pay $18M as a legal settlement to a private developer.  That’s a “big wave” for a city reported to have a population of 11,324 in the 2010 census.  Finding coverage for at least part of the problem, retired Supreme Court Justice, Edward Panelli, acting as arbitrator, has now awarded $10M to the City against Insurance Company of the West.  So reports Aaron Kinney on September 21, 2012, in the San Mateo County Times.

News: Federal District Court Strikes Down Delaware Chancery Court Experiment In Private Arbitration

Lost Opportunity to Use Outstanding Sitting Judges in Private Arbitration?

"Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman." – Louis D. Brandeis

     Steven M. Davidoff reports on August 31, 2012 in the New York Times, about “The Life and Death of Delaware’s Arbitration Experiment.”  Thanks to the Delaware legislature’s amendment of its laws, the Delaware Chancery Court, acknowledged by many to be an excellent forum for adjudicating corporate disputes, was empowered to engage in private arbitration.

     The idea was that private companies, never eager to air their dirty linen in public, would seek out the expertise of the Chancery Court in private arbitration.  Arbitrations would also generate arbitration fees ($6,000 a day) and a $12,000 filing fee.  However, the secrecy of the proceedings was challenged in federal district court.  As described by Mr. Davidoff, “the federal court found that the arbitration proceedings were effectively a civil trial” and thus “required to be open.”

     An appeal to the Third Circuit is likely to follow.

News: Roger D. Fisher, Co-Author of “Getting to Yes,” Dies at 90

Mediation Approach Addressed Mutual Interests

     On August 27, 2012, Leslie Kaufman reported in the New York Times, that Harvard law professor Roger D. Fisher died at the age of 90.  Professor Fisher was a co-author with William Ury and Bruce Patton, of the mediation ur-text, “Getting to Yes.”  Professor Fisher also co-founded the Harvard Negotiation Project.  He also advised on resolving conflicts around the globe.

     His New York Times obituary included the following:

“His emphasis was always on addressing the mutual interests of the disputing parties instead of what separated them.”

      And, on the occasion of his 80th birthday, his colleague John Kenneth Galbraith toasted him:

“Whenever I thought ‘Someone should do something about this,’ it eased my conscience to learn that Roger was already working on it.”