Page 3 - Arbitration

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Arbitration | MONDAY, JULY 18, 2016 | S3

ties to appeal judgments. Arbitration awards

BY JOSEPH HANNA
can be appealed, but only in a very limited
Tnumber of situations. New York courts have
here is no denying that alternative dis- increasingly gravitated toward applying FAA
pute resolution (ADR) is on the rise. standards for review or arbitration decisions,
Whether it takes the form of media- which are historically less stringent than New
tion, arbitration, or something else entirely, York’s standards, yet are still extremely nar-
ADR has become an increasingly prevalent row. Section 10 of the FAA lists four grounds
tool in our legal system. In recent years, the where arbitration awards can be vacated,
Western District of New York has even made which generally involve corruption, fraud,

ADR mandatory for all civil cases iled in its and other misconduct. This is in stark con-
courts, and it is not alone.
trast to the wide breadth of bases for appeal
The immediate appeal of ADR is not dif- in ordinary litigation.
icult to see. Compared to litigation, it is gen- Not surprisingly, the potential issues
erally quicker, more eficient, less expensive, with MAAs have not remained hidden in
and more convenient for the parties involved. the shadows. In late 2015, the New York
According to statistics from the U.S. Depart- Times published “Beware the Fine Print,” a
ment of Justice, voluntary ADR proceedings three-part series on arbitration. The articles

Mandatory in the United States had a 71 percent resolu- focused primarily on the alleged pitfalls
The tion rate in 2015. In New York, some type of of MAAs, in part by looking at stories of
dispute resolution service was used in more individuals who were purportedly slighted
than half of the cases brought each year from in some way by such an agreement. For
2002 until 2009. Further, in more than half of example, one piece stated that based on
Arbitration those cases, the ADR resulted in resolution. documents reviewed and interviews with
Perhaps unsurprisingly, the business world arbitrators, “[b]ig law irms [] bring repeat
has taken notice of the beneits of ADR, and as business to individual arbitrators.” Then,
a result, “mandatory arbitration agreements” quoting one man who lost a case in arbitra-

Clause Debate
(MAAs) now appear in the pages of all types tion, it echoed a sentiment shared by many:
of contracts.
“[i]t clearly appear[ed] that the arbitrator
The concept behind a MAA is simple was working for the company.”
enough: Parties to a contract agree to settle Not long after the release of the inal install-
any disputes arising out of that contract via ment of the series, however, Lisa A. Rickard,
arbitration, rather than ordinary litigation or President of the U.S. Chamber Institute for
some other avenue. The real world implica- Legal Reform, submitted to the Times a let-
tions of MAAs, however, are far more complex.
ter to the editor responding to the articles. CK
New York legislators have attempted to Rickard described the series as “a one-sided TO
IS
place limits on how mandatory arbitration view of arbitration and class-action lawsuits
clauses are used. New York General Business that parrots the plaintiffs’ lawyers’ talking
Law §399-c, for example, prohibits the inclu- tion Act] requires courts to honor parties’ is indeed enforceable. In other words, the points.” She then went on to cite statistics
sion of MAAs in written contracts for the sale expectations.” The Federal Arbitration Act of relatively minor size of the claim does not which seemingly illustrated a signiicant inefi-
or purchase of “consumer goods” where the 1925 preempts state laws that prohibit con- automatically confer upon the claimant a cacy of class action lawsuits, a topic the Times
consumer is a party to the contract. This, tracts from disallowing class-wide arbitration right to “pool claimants in a class action to series also discussed heavily, and suggested
however, is at odds with federal law. The Fed- in commercial contracts. California courts make the claim inancially feasible. The lan- that arbitration beneits consumers because
eral Arbitration Act (FAA), grounded in the had ruled that a class action suit could be guage in the contract regarding arbitration, it is a “fairer, simpler, cheaper and faster way

commerce clause, governs arbitration at the brought under California law despite the fact having been mutually agreed upon, must be of resolving disputes, and one with greater
federal level and, as a general rule, heavily that AT&T’s contract with customers required enforced.”
potential beneit to individual customers.”
favors the use of arbitration. As a result, on that disputes be settled in individual arbitra- However, the issue continues to roil at the Clearly the public disagrees. In its 2014
multiple occasions, state laws and judiciaries tion. The Ninth Circuit upheld the California federal level. On May 5, 2016, the Consumer National Poll on the Civil Justice System, the
have clashed with their federal counterparts.
court decision and the appeal then went to Financial Protection Bureau (CFPB) proposed Defense Research Institute found the public
In a decision issued last year, for example, the Supreme Court. Writing for the majority, a rule that would prohibit arbitration clauses lopsidedly resistant to mandatory arbitration.
New York’s Second Department reversed a Justice Antonin Scalia asserted: “We ind it in contracts for certain consumer inancial Just 25 percent say they’d ind it acceptable
lower court’s ruling and held that with the hard to believe that defendants would bet the products (e.g., credit cards) disallowing il- for a company to require them to agree in
facts of that case, GBL §399-c was pre-empted company with no effective means of review ing or participating in class action law suits. advance to arbitration before purchasing its

by the FAA.
(under class arbitration), and even harder to For authorization of this action, the CFPB is products. Three times as many—74 percent—
The foundation for the validity and enforce- believe that Congress would have intended drawing on language in the Dodd-Frank Wall call it unacceptable.
ability of mandatory arbitration rests primar- to allow state courts to force a decision.” Street Reform and Consumer Protection Act.
And the opposition to mandatory arbi-
ily on two landmark decisions of the U.S. Writing in dissent, Justice Stephen Breyer Despite the undeniable beneits of ADR, tration is broad-based. Hefty majorities of
Supreme Court: AT&T Mobility v. Concepcion, wrote that the decision left victims of minor MAAs have also come under ire in recent Democrats, Republicans, liberals and con-
decided in 2011, and American Express v. Ital- frauds without a remedy. “What rational law- years for a number of reasons. First and servatives oppose mandatory arbitration. In
ian Colors Restaurant, decided in 2013.
yer would have signed on to represent the foremost, many consumer rights advocates fact, a majority feel that a customer should
In AT&T v. Concepcion, a 5-4 split decision, Concepcions in litigation for the possibility claim that the seemingly incontrovertible still be allowed to sue even if they agreed to
the high court reversed a Ninth Circuit ruling of fees stemming from a $30.22 claim?” The enforceability of MAAs under U.S. Supreme mandatory arbitration when they purchased

which had found unconscionable a contrac- Supreme Court reaffirmed its position in Court jurisprudence is inconsistent with the the product.
tual provision requiring claims brought by Concepcion last year in DIRECTV v. Imburgia.
Seventh Amendment right to a trial by jury. Attorneys, their clients, and anyone who
either party to be brought in an individual In American Express v. Italian Colors Res- Yet jury-trial-waiver clauses have long been might become bound by a MAA must be mind-
capacity and not as part of a class. (The Cali- taurant, the Supreme Court overturned a Sec- held to be enforceable. For example, the New ful of these issues before drafting or enter-
fornia case was brought against AT&T for false ond Circuit decision, declaring that courts York Arbitration Act of 1920—the irst of its ing into such agreements. Arbitration—even
advertising in stating that free cell phones must “rigorously enforce arbitration agree- kind—made MAAs both valid and enforce- when compelled by a MAA—is a tool that can
were included in their wireless plans.) There, ments according to their terms.” The central able absent some overriding consideration. In be immensely beneicial to both the seller
the Supreme Court opined “[a]rbitration is a issue according to the court was “whether 1925, the New York Appellate Division opted and the consumer, both the business and the

matter of contract, and the [Federal Arbitra-
a contractual waiver of class arbitration is to enforce a jury-trial waiver clause because individual. MAAs may have their shortcom-
enforceable under the Federal Arbitration the parties had agreed to it.
ings, but with time, cooperation, and discus-
Act when the plaintiff’s cost of individually Another highly controversial issue sur- sion, the legislature and the judiciary have
JOSEPH M. HANNA is a partner at Goldberg Segalla, arbitrating a federal statutory claim exceeds rounding MAAs is that the use of binding the power to change and deine how they are
where he leads the irm’s sports and entertainment the potential recovery.” The Supreme Court arbitration for dispute resolution also places used, and perhaps more importantly, how the
practice group and is chair of its diversity task force.
majority held that the class arbitration waiver
considerable limitations on the parties’ abili-
arbitration process as a whole is perceived.