Arbitration And Class Action Waivers Presentation


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Presentation at National Association of Dealer Counsel in Chicago, IL on October 10, 2011

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Arbitration And Class Action Waivers Presentation

  1. 1. ARBITRATION AND CLASS ACTION WAIVERS Presenters Michael Dommermuth McGloin, Davenport, Severson and Snow, P.C. 1600 Stout Street, Suite 1600 Denver, CO 80202 720.536.3550 [email_address] Shawn Mercer Bass Sox Mercer 9104 Falls of Neuse Road, Suite 200 Raleigh, NC 27615 919.847.8632 [email_address] Christian Scali Arent Fox LLP 555 West Fifth Street, 48 th Floor Los Angeles, CA 90013 213.443.7621 [email_address]
  2. 2. <ul><li>Federal Arbitration Act </li></ul><ul><ul><li>Courts reluctant to enforce for many years </li></ul></ul><ul><ul><li>Supreme Court embraces FAA </li></ul></ul>STATUTORY HISTORY
  3. 3. <ul><li>Under FAA class arbitration requires express contractual agreement </li></ul>STOLT-NEILSEN v. ANIMALFEEDS
  4. 4. <ul><li>Reversed Discover Bank </li></ul><ul><li>Broadly applied preemption analysis </li></ul><ul><ul><li>State laws that prohibit arbitration </li></ul></ul><ul><ul><li>State laws applied in a fashion that disfavors arbitration </li></ul></ul><ul><ul><li>State public policy </li></ul></ul><ul><ul><li>concerns are </li></ul></ul><ul><ul><li>irrelevant </li></ul></ul>AT&T MOBILITY v. CONCEPCION
  5. 5. <ul><li>  Upheld use of a class waiver </li></ul><ul><ul><li>“ Switch to class arbitration makes process slower, more costly and more likely to generate procedural morass.” </li></ul></ul><ul><ul><li>Class arbitration requires procedural formality </li></ul></ul><ul><ul><li>Class arbitration increases risk to defendants – no review forces “ in terrorem ” settlement </li></ul></ul><ul><ul><li>Arbitration is poorly suited to high stakes class litigation </li></ul></ul>AT&T MOBILITY v. CONCEPCION
  6. 6. <ul><li>Supreme Court will decide </li></ul><ul><ul><li>Kentucky Supreme Court struck down under Kentucky law a no class action arbitration clause </li></ul></ul><ul><ul><li>The plaintiffs in that case are arguing that Concepcion does not apply in state court </li></ul></ul>APPLICATION IN STATE COURT?
  7. 7. <ul><li>Judicial hostility toward arbitration, generally, and toward class action waivers specifically.     </li></ul><ul><li>Tests for enforcement of class action waivers: </li></ul><ul><ul><li>Unconscionability </li></ul></ul><ul><ul><li>Unwaivable statutory rights   </li></ul></ul><ul><li>Federal courts favored arbitration </li></ul>
  8. 8. <ul><ul><li>To arbitrate injunctive relief claims brought under the CLRA and UCL </li></ul></ul><ul><ul><li>To suggest (without holding) that Gentry Rule is also preempted by the FAA </li></ul></ul><ul><ul><li>To preempt California’s CLRA anti-waiver provision </li></ul></ul>CA FEDERAL COURT RESPONSE
  9. 9. <ul><li>Mixed bag </li></ul><ul><ul><li>Applying Gentry Rule without holding whether Gentry Rule is preempted </li></ul></ul><ul><ul><li>Declining to extend AT&T Mobility to preempt all California law regarding unconscionability, yet enforcing arbitration agreement </li></ul></ul>CA STATE COURT RESPONSE
  10. 10. <ul><li>Confusing and vague agreements will still be invalidated (PA, NJ)  </li></ul><ul><li>New Jersey case authority holding that class action waivers are unconscionable is preempted(NJ) </li></ul><ul><li>Any unconscionability defense against a class action waiver is preempted (FL) </li></ul>RESPONSE IN OTHER STATES
  11. 11. <ul><li>But federal court held AT&T Mobility does not preclude all unconscionability defenses; it only narrows permissible factors to consider (FL) </li></ul><ul><li>Adhesion contracts not per se unconscionable. Individual claims substantial enough to be pursued under state deceptive practices act because of fee shifting provision (CO) </li></ul>RESPONSE IN OTHER STATES (con’t)
  12. 12. <ul><li>Arbitration a top priority for certain consumer groups </li></ul><ul><li>Arbitration Fairness Act of 2011 </li></ul><ul><li>CFPB to study arbitration agreements </li></ul><ul><ul><li>§ 1028 Dodd-Frank Act </li></ul></ul><ul><ul><li>Requires Bureau to report to Congress </li></ul></ul><ul><ul><li>CFPB, by regulation, may prohibit or impose conditions or limitations on use of arbitration in agreements for consumer financial products or services </li></ul></ul>SHORT-LIVED VICTORY?
  13. 13. SHORT-LIVED VICTORY? <ul><ul><li>Direct impact on BHPH operators </li></ul></ul><ul><ul><li>Indirect impact for other dealers </li></ul></ul><ul><ul><li>May depend on future face of CFPB </li></ul></ul><ul><ul><li>Multi-member Commission pushed by industry and supported by Republicans </li></ul></ul><ul><ul><li>May not restrict a consumer from entering into voluntary arbitration after dispute arises </li></ul></ul><ul><ul><li>Much like dealer exemption from FAA </li></ul></ul>
  14. 14. SHORT-LIVED VICTORY? <ul><ul><li>Enhanced FTC rule-making authority </li></ul></ul><ul><ul><li>FTC likely to wait for CFPB study/action </li></ul></ul><ul><ul><li>Could impact R/O arbitration agreements, etc. </li></ul></ul>
  15. 15. <ul><li>Jury trial waivers </li></ul><ul><li>Class Action Fairness Act (CAFA) </li></ul>CLASS ACTION WAIVERS
  16. 16. ARBITRATION GENERALLY Pros   Cons <ul><li>Deterrence </li></ul><ul><li>Less expensive than lawsuits </li></ul><ul><li>Faster and more efficient </li></ul><ul><li>Class waiver </li></ul><ul><li>Less formal – less adversarial </li></ul><ul><li>Can be done pro se </li></ul><ul><li>  </li></ul>  <ul><li>Limited appeal rights </li></ul><ul><li>Split baby (Rule 43 – fair and equitable) </li></ul><ul><li>Arbitrator expense </li></ul><ul><li>No rules of evidence in play </li></ul>
  17. 17. <ul><li>Stand-alone? </li></ul><ul><li>Stand alone class action waiver? </li></ul><ul><li>Arbitrators – specialized </li></ul><ul><li>How many arbitrators </li></ul><ul><li>Forum </li></ul><ul><li>Division of costs? </li></ul>DRAFTING CONSIDERATIONS
  18. 18. <ul><li>What types of disputes </li></ul><ul><li>Procedural rules </li></ul><ul><li>Rules of Evidence? </li></ul><ul><li>Appeal rights </li></ul><ul><li>Consistency with other documents </li></ul><ul><li>Whether to sell if customer refuses to sign </li></ul><ul><li>Severability </li></ul>DRAFTING CONSIDERATIONS