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Alternative Dispute Resolution | MONDAY, MARCH 31, 2014 | S9

to Hooters’ employees, the employees were See id.

given five days to review and then accept or Hooters and Walker exemplify how litigants
reject the agreement. The employees were have challenged arbitration agreements
not given a copy of the rules promulgated based on the terms of an arbitration clause
Promote Your
by the company.
being fundamentally unfair or unconsciona-
The rules promulgated by the company ble. Given the rise in the use of arbitration
included the following provisions: (1) the agreements and resulting litigation over the
NEW YORK employee must provide notice of their claim enforceability of those agreements, the courts
without requiring Hooters to file any respon- are likely to see an increasing number of these
sive pleadings or to notice its defenses; (2) the kinds of challenges.

employee must provide the company with a
Reverse Preemption and McCarran-

STATE BAR Courts have also refused to compel arbitration where the arbitra-
tion agreement is an unenforceable adhesion contract.

Ferguson.
list of fact witnesses and a summary of facts In addition to the contract-based
known to each and Hooters is not required to defenses, such as fairness and unconscio-
reciprocate; (3) both sides appoint an arbi- nability, in certain instances parties to an
TUTORIAL trator and the two arbitrators select a third arbitration agreement may be able to avoid
from a list created by Hooters; (4) members arbitration where state statutes bar enforce-
of Hooters’ management can serve as the ment of such agreements, notwithstanding
third arbitrator; (5) Hooters can move for the FAA. One such example of this is in the
summary dismissal, but an employee cannot context of insurance specific anti-arbitration
seek summary judgment; (6) Hooters has the statutes.

sole right to cancel the agreement to arbitrate; The McCarran-Ferguson Act declares that
PROGRAM
and (7) Hooters has the right to modify the “[n]o Act of Congress shall be construed to
rules whenever it wishes and “without notice” invalidate, impair, or supersede any law enact-
to the employee. See id. at 938-39.
ed by any state for the purpose of regulating
After the trial court denied Hooters’ efforts the business of insurance ... unless such Act
to compel arbitration, Hooters appealed. The specifically relates to the business of insur-
U.S. Court of Appeals for the Fourth Circuit, ance.” 15 U.S.C. §1012(b). The McCarran-
however, held that Hooters had materially Ferguson Act was an attempt to turn back
breached the arbitration agreement with its the clock from the Supreme Court’s decision

employee “by promulgating rules so egre- finding that insurance was a transaction of
COURSES & giously unfair as to constitute a complete commerce, to assure that the activities of
default of its contractual obligation to draft insurance companies in dealing with their
arbitration rules and to do so in good faith.” policyholders would remain subject to state
173 F.3d at 938.
regulation.” Sec. & Exch. Comm’n v. National
Courts have also refused to compel arbi- Sec., 393 U.S. 453, 459 (1969).
tration where the arbitration agreement is an Thus, the McCarran-Ferguson Act “reverse
SERVICES unenforceable adhesion contract. Walker v. preempts” a federal law to the extent a fed-

Ryan’s Family Steak Houses, 400 F.3d 370 (6th eral law invalidates, supersedes, or impairs
Cir. 2005). In Walker, the defendant restaurant the state law that regulates the business of
corporation required prospective employ- insurance. See, e.g., Riverview Health Insti-
IN THE
ees to complete an application packet. The tute v. Medical Mutual of Ohio, 601 F.3d 505,
application packet included an arbitration 513 (6th Cir. 2010). Therefore, “[i]f the state
agreement that the prospective employee has an anti-arbitration law enacted for the
was required to sign to be considered for purposes of regulating the business of insur-
a position. The notice was followed by five ance, and if enforcing, pursuant to the Federal
pages of single-spaced rules and procedures Arbitration Act, an arbitration clause would

governing the arbitration procedure. How- invalidate, impair, or supercede that state law,
ever, the hiring protocol was not always fol- a court should refuse to enforce the arbitra-
lowed properly and some of the employees, tion clause.” McKnight v. Chicago Title Ins.,
including certain plaintiffs in the suit, were 358 F.3d 854, 857 (11th Cir. 2004).
interviewed and hired without first executing Based on McCarran-Ferguson’s “reverse
their arbitration agreements. In fact, for such preemption,” both federal and state courts
employees, management would require them have held that state statutes that invalidate
to sign the agreements after they were hired.
or limit arbitration clauses in insurance con-
After a group of former employees filed tracts are indeed “enacted for the purpose

Michael Kalbfell
a class action seeking unpaid wages and of regulating the business of insurance” and
related penalties, the restaurant moved to thus not preempted by the FAA. See Stan-
enforce the arbitration agreements and com- dard Security Life Ins. v. West, 267 F.3d 821,
pel arbitration. The Sixth Circuit found that 823-24 (8th Cir. 2001) (holding that FAA was
(212) 457-9533
the employees at issue, who were hired with- reverse preempted under McCarran-Ferguson
out first executing their agreements, risked Act by provision of Missouri Arbitration Act
termination if they refused to sign. See id. at prohibiting arbitration clauses in insurance
[email protected]
385. Based upon this, the court held that the contracts); Stephens v. American Int’l Ins.,

restaurant had significantly more power over 66 F.3d 41, 45-46 (2d Cir. 1995) (holding that
these employees as “the threat of termina- anti-arbitration provision of Kentucky Liqui-
tion from one’s current employment would dation Act was exempt from preemption by
appear to be sufficient in itself to demonstrate FAA under McCarran-Ferguson Act); Mutual
‘absence of a meaningful choice’ for the party Reinsurance Bureau v. Great Plains Mutual
occupying the weaker bargaining position.”
Ins., 969 F.2d 931, 934-35 (10th » Page S11