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Litigation | TUESDAY, JULY 5, 2016 | S9

inancial goods merchant, broker dealers who While the proposed Rules prevent provid- that the company’s arbitration agreement, tration agreements, and that the agreements

are already subject to restrictions on the use ers from relying on the arbitration provision which prohibits employees from participat- are procedurally and substantively uncon-
of pre-dispute arbitration agreements in class in defense of a class action, they do not pre- ing in “any class, collective or representative scionable. As of the time of the writing, that
litigation, and governments and their afili- vent the provider from requiring arbitration in proceeding,” violated the employees’ right motion is pending.
ates, but generally speaking, these products individual complaints. Arbitration proceedings to engage in concerted activity under the The opposition to mandatory pre-dispute
and services are either directly offered or are therefore likely to proceed. However, the National Labor Relations Act (NLRA). The arbitration is particularly strenuous in connec-
provided to consumers for personal use, or proposed Rules require the provider to submit Seventh Circuit became the irst circuit court tion with nursing home agreements. On July
they are provided in connection with these certain arbitration records to the CFPB about to agree with the NLRB that engaging in class, 16, 2015, the Centers for Medicare & Medicaid
products and services.
these proceedings in order to further study collective, or representative proceedings is Services (CMS) announced a proposed regula-
The proposal prevents any of the covered the impacts on consumers of arbitration and
“concerted activity” and a protected right tion restricting the use of binding arbitration

providers from using a pre-dispute arbitra- under §7 of the NLRA; and that it would be agreements by nursing homes, and they cur-
tion agreement in a class action litigation in an unfair labor practice under §8 of the NLRA rently are working on the inal rules. The pro-
broad strokes:
for an employer “to interfere with, restrain, posed rules require nursing homes to explain
A provider shall not seek to rely in any Private attorneys are trying to or coerce employees in the exercise” of this the arbitration agreement; the resident must
way on a pre-dispute arbitration agree- chip away at the mandatory right. The decision therefore creates a Circuit acknowledge understanding the agreement; the
ment . with respect to any aspect of a split, and given the importance of the issue, agreement must be entered into voluntarily;
class action that is related to any of the pre-dispute arbitration and sets the stage for potential Supreme Court and the arbitration session must be conduct-
review. Opining that the Epic-Systems deci- ed by a neutral arbitrator in a location that is
consumer inancial products or services class action ban in diferent
covered by [the proposed Rules] .5
ways, particularly by arguing sion went contrary to the previous trend to convenient to both parties. Beyond that, the
ind in favor of arbitration in the context of rules propose that admission to the nursing
Speciically, this would prevent a provider that the consumer has not employment, Benjamin Sachs, a professor of home cannot be conditioned on signing a bind-
from moving to stay or dismiss a class action labor law at Harvard Law School, was quoted ing arbitration agreement. The nursing home
based on the existence of a pre-dispute arbi- agreed to the terms of the by the New York Times8 as saying: “This is a industry opposed these proposed regulations,
tration agreement, seeking a protective order contract.
major move in the opposite direction.”
contending that they exceed CMS’ statutory
against the production of discovery, and il- Private attorneys are trying to chip away authority; they are not necessary to protect
ing an offensive arbitration claim against a at the mandatory pre-dispute arbitration and resident health and safety; and many of the
class plaintiff. However, an arbitration pro- arbitration agreements. Under the proposed class action ban in different ways, particularly stated factual and legal grounds for the propos-

ceeding can continue if it begins prior to the Rules, a provider must submit, within 60 days by arguing that the consumer has not agreed als are wrong. The attorneys general of 15 states
consumer’s iling a class action. A defendant of iling with an arbitrator: (1) the initial claim to the terms of the contract. In one case and the District of Columbia issued a letter to
cannot raise the agreement until the court form and any counterclaim; (2) the pre-dispute against the activity-tracking monitor company CMS supporting the proposed restrictions and
determines that the case may not proceed arbitration agreement iled with the arbitrator Fitbit, the third amended complaint iled in asking for a ban on arbitration agreements that
as a class (i.e., class certiication is denied), or administrator; (3) the judgment or award, the Northern District of California alleges that are presented to nursing home residents on a
including any interlocutory appeals.
if any, issued by the arbitrator or arbitration Fitbit devices work properly only when users take-it-or-leave-it basis.
The proposed Rules adhere to agreements administrator; (4) if an arbitrator or arbitra- register them at the company’s website. To Proponents of mandatory arbitration con-
that are “entered into” after 180 days from tion administrator refuses to administer or register, users must agree to terms of service tend that arbitration beneits consumers.
the effective date, which is a phrase that dismisses a claim due to the provider’s failure in which they submit to arbitration and waive Perhaps the competing interests regarding

appears in Dodd-Frank Act without deini- to pay required iling or administrative fees, the right to classwide dispute resolution. The arbitration are not so irreconcilable, as if arbi-
tion. To assist providers, the CFPB described any communication the provider receives complaint asserts, however, that the named tration in consumer contracts were required
several examples of when the requirements from the arbitrator or an arbitration admin- plaintiffs bought Fitbits from independent to be voluntary, all parties’ interests will be
would and would not apply. The provision istrator related to such a refusal; and (5) any retailers and did not agree to the company’s served. Then the only open item will be a big
obviously would apply when a provider determination that the provider’s pre-dispute terms of service before they made their pur- one: whether class actions may be banned
sells a new product to a consumer. It also arbitration agreement does not comply with chases. None of the plaintiffs, according to contractually by providers in their contracts
would apply when the provider purchased the arbitrator’s fairness principles, rules, or the complaint, realized from Fitbit advertising with consumers.
a product (such as in the acquisition of a requirements, such as the AAA Consumer Due or packaging that they would have to sign up
•••
company) that would be covered and the Process Protocol or JAMS Policy on Consumer at the Fitbit website—and submit to Fitbit’s ••••••••••••••••••••••••••
provider becomes a party to the agreement; Arbitrations Pursuant to Pre-Dispute Clauses terms of service—to use the devices. Plaintiffs 1. Jessica Silver-Greenberg & Robert Gebeloff,
if the acquiring provider does not become a Minimum Standards of Procedural Fairness. are thus challenging any attempt by Fitbit to “Arbitration Everywhere, Stacking the Deck of Jus- tice,” N.Y. Times, Oct. 31, 2015, http://www.nytimes.
party to the agreement, then the provision The proposal also allows the arbitrator to sub- force this class that excludes consumers who com/2015/11/01/business/dealbook/arbitration-every-
does not apply. If the provider updates or mit the materials to the CFPB, although the pro- purchased the product directly from Fitbit where-stacking-the-deck-of-justice.html.
amends the terms of a product or service that vider still has to ensure that they are sent. The into arbitration, contending that no agree- 2. AT&T Mobility v. Concepcion, 563 U.S. 333 (2011).
is subject to an agreement that was formed requirements also include any communication ment to limit any of their legal rights was 3. Am. Express Co. v. Italian Colors Rest., 133 S. Ct.
prior to the compliance date, this would not from the arbitrator regarding the nonpayment requested to complete the purchases, nor 2304 (2013).
4. Arbitration Agreements, 81 Fed. Reg. 32830, 32830
be considered a new agreement unless the of fees because the CFPB understands that was there any timely indication that such an (May 24, 2016).
5. Proposed 12 C.F.R. § 1040.4(a)(1).
changes are so great that it amounts to a new providers sometimes force consumers out of agreement would be necessary to make the 6. Arbitration Agreements, 81 Fed. Reg. 32830, 32925-
product or service.
court and into arbitration, but then prevent devices operational. As of the time of this 96 (May 24, 2016) (to be codiied at 12 C.F.R. § 1040.4(a) (2)(i)).
The Rules propose that any covered pre- the dispute from proceeding by not paying the writing, the motion to dismiss is pending.
7. Lewis v. Epic Sys., No. 15-2997, 2016 U.S. App. LEXIS
disputed arbitration agreement entered necessary fees. The CFPB also understands Notwithstanding the decision in Ameri- 9638 (7th Cir. May 26, 2016).
into after the compliance date must include that an arbitrator often sends a letter when can Express v. Italian Colors Restaurant, 8. Jessica Silver-Greenberg & Noam Scheiber, “Court
the following plain-English statement: “We the provider fails to pay its fees, which must plaintiff attorneys continue to challenge Rules Companies Cannot Impose Illegal Arbitration
agree that neither we nor anyone else will be submitted. Any personal information must American Express’ mandatory arbitration. Clauses,” N.Y. Times, May 26, 2016, http://www.nytimes. com/2016/05/27/business/dealbook/court-rules-compa-
use this agreement to stop you from being be redacted before it is submitted. Notably, In a case pending in the Northern District of nies-cannot-impose-illegal-arbitration-clauses.html.
part of a class action case in court. You may the list of materials to be submitted does not California against American Express among

ile a class action in court or you may be a currently include the responses to a claim or many other defendant banks and credit card Reach your peers to generate
member of a class action even if you do not any resolution of the arbitration other than an companies, plaintiff retailers contend that referral business
ile it.”6 The proposal provides for additional award, such as settlements or withdrawals by the defendants illegally conspired to make
language to clarify when multiple products or the consumer because the provider remedied the retailers responsible for chargebacks LAWYER
services are included in the agreement but the problem.
for fraudulent transactions if they failed to
only some are covered by the rule. Similarly, if Public comment on the proposed Rules get new payment card terminals that read TO
the provider becomes a party to a previously are due by Aug. 22, 2016.
cards with micro-chips installed and certi-
existing agreement, the agreement must be Bit by bit, the grip of mandatory arbitration ied by an allegedly unreasonable deadline of LAWYER

amended to include similar language or notice with class action waivers may be loosening. October 2015. The defendants contend that
provided to the consumer within 60 days of Arbitration clauses with class action bans the arbitration agreements they signed with For information, contact
entering into the agreement. Importantly, the also are being challenged in employment each merchant are valid and enforceable. In Michael Kalbfell at (212) 457-9533
proposal does not currently mandate that agreements. On May 26, 2016, the U.S. Court response to defendants’ motion to compel
covered entities should insert the provision of Appeals for the Seventh Circuit issued its arbitration, plaintiffs claim that the alleged or E-mail [email protected]
into their pre-dispute arbitration agreements.
decision in Lewis v. Epic-Systems,7 inding
conspiracy is outside the scope of the arbi-