This presentation discusses the effects on securities arbitration of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Supreme Court cases including Rent-A-Center v. Jackson and Stolt-Nielsen v. AnimalFeeds Int’l Corp.

1. Recent Arbitration Cases
in the U.S. Supreme Court
Stephen J. Ware
Professor of Law
University of Kansas

2. Rent-A-Center v. Jackson,
130 S.Ct. 2772 (2010)
• Jackson signed an arbitration agreement as a condition
of his employment with Rent-A-Center.
• Jackson filed an employment discrimination claim
against Rent-A-Center in federal district court. Rent-ACenter moved to stay or dismiss and compel
arbitration.
• Jackson opposed the motion on the ground that the
arbitration agreement was unconscionable and, thus,
unenforceable.

3. Federal Arbitration Act § 2
"written provision . . . to settle by
arbitration a controversy thereafter
arising out of such contract or
transaction . . . shall be valid,
irrevocable, and enforceable, save
upon such grounds as exist at law
or in equity for the revocation of
any contract."

4. Prima Paint Corp. v. F&C Mfg.
Co., 388 U.S. 395 (1967)
•Arbitration clause in contract
between Prima and F&C.
•Prima did not make payments
required by contract with F&C.
•Prima alleged F&C fraudulently
induced Prima to sign contract.

5. Prima Paint Corp. v. F&C Mfg.
Co., 388 U.S. 395 (1967)
F&C sought arbitration and Prima sued
to rescind contract (due to fraud).
SCT: court may not address fraudulent
misrep. argument.
Result: Prima must arbitrate whether it
formed enforceable arb. agreement.

6. Prima Paint Case applied
“Separability Doctrine”
holding that
“arbitration clauses as a matter of federal
law are „separable‟ from the contracts in
which they are embedded, and that where
no claim is made that fraud was directed to
the arbitration clause itself, a broad
arbitration clause will be held to encompass
arbitration of the claim that the contract itself
was induced by fraud.”

7. After Prima Paint
Most challenges to arbitration agreements
go to arbitrators because these arguments
apply to the contract containing the arb.
clause.
Unconscionability is one of the few
challenges often directed specifically to
the arb. clause and thus heard by courts.

8. Rent-A-Center v. Jackson (2010)
Jackson argued that his employment arbitration
agreement was unconscionable because “it
contained one-sided coverage and discovery
provisions and a provision specifying that the
arbitrator's fee was to be equally shared by the
parties. Jackson also argued that the Agreement
was procedurally unconscionable because the
form contract was presented to him as a nonnegotiable condition of his employment.”

9. Rent-A-Center v. Jackson (2010)
“The Arbitrator, and not any federal, state,
or local court or agency, shall have
exclusive authority to resolve any dispute
relating to the interpretation, applicability,
enforceability or formation of this
Agreement including, but not limited to
any claim that all or any part of this
Agreement is void or voidable.”

10. Class Actions (outside the
securities context)
• Businesses (typically defendants) often argue
that, by agreeing to arbitrate, plaintiffs waived
their right to bring a class action in either
litigation or arbitration.
• However, many courts have held
unconscionable arbitration clauses prohibiting
class actions.
• So many businesses drafted clauses silent on
whether classwide relief is permitted or
prohibited.

11. Class Actions (non-securities), part 2
• Stolt-Nielsen v. AnimalFeeds Int’l Corp.,
2010 WL 1655826 (U.S. April 27, 2010),
which interpreted an arbitration clause
silent on whether class actions are
permitted as prohibiting them.
• Will courts hold silent clauses
unconscionable?

12. Class Actions (non-securities), part 3
AT&T Mobility LLC v. Concepcion, 584 F.3d 839
(9th Cir.), cert. granted, 2010 WL 303962 (U.S.
May 24, 2010).
Does the FAA “preempt*+ States from
conditioning the enforcement of an arbitration
agreement on the availability of particular
procedures – here, class-wide arbitration –
when those procedures are not necessary to
ensure that the parties to the arbitration
agreement are able to vindicate their claims.”?

13. Class Actions in the securities context
• FINRA Customer Rule 12204 prevents enforcement
of arbitration agreement “against a member of a
certified or putative class action . . .”. Accord FINRA
Industry Rule 13204.
• An earlier version of this rule (NASD Rule 10301) has
been interpreted to prevent enforcement of an
arbitration clause purporting to waive class actions.
Good v. Ameriprise , 2007 WL 628196, at *2 (D.
Minn.). See also Clark v. First Union, 64 Cal. Rptr. 3d
313 (Ct. App. 2007)(interpreting rule as agreement to
litigate, rather than arbitrate, class claims).

14. Will these recent SCT cases
impact securities arbitration?
From ADR BRIEFS, 28 Alternatives to High Cost Litig. 146 (2010):
If the Rent-a-Center and AT&T Mobility decisions cut off judicial
determinations of ADR fairness, there could be a backlash. The result would
be a boost to the chances of enactment for the Arbitration Fairness Act, a
2009 bill in committee that would outlaw mandatory predispute arbitration
agreements in consumer and employment contracts. See, e.g., Marcia
Coyle, “Arbitration Showdown Looms Between Congress, Supreme Court,”
Nat'l Law Journal (June 14, 2010).
“If they were to buy the most sweeping arguments,” predicts Deepak Gupta,
director of Public Citizen's consumer justice project, “then Congress would
step in.” Gupta represents respondent Concepcion.

15. Wall Street Reform and Consumer
Protection Act, Pub. L. No. 111-___ (2010)
§ 921 amends Section 15 of the Securities Exchange Act of 1934
(15 U.S.C. 78o), by adding:
“(o) AUTHORITY TO RESTRICT MANDATORY PREDISPUTE
ARBITRATION.—The Commission, by rule, may prohibit, or
impose conditions or limitations on the use of, agreements
that require customers or clients of any broker, dealer, or
municipal securities dealer to arbitrate any future dispute
between them arising under the Federal securities laws, the
rules and regulations thereunder, or the rules of a selfregulatory organization if it finds that such prohibition,
imposition of conditions, or limitations are in the public
interest and for the protection of investors.

16. Wall Street Reform and Consumer
Protection Act, Pub. L. No. 111-___ (2010)
§ 964 requires the Comptroller General of the
United States to submit “a report that includes
an evaluation of the oversight by the
Commission of national securities associations
. . . with respect to—
…
(4) the arbitration services provided by the
national securities associations;
…

17. Stephen J. Ware
Professor of Law
University of Kansas
ware@ku.edu
785-864-9209