« May 2005 | Main | July 2005 »
En banc hearing on who decides unconsionability
June 29, 2005 by Ross Runkel at LawMemo
The 9th Circuit will rehear en banc (11 judges!) the issue of whether it was for an arbitrator, rather than a court, to decide whether a contact is unconscionable. Nagrampa v. MailCoups, Inc (9th Cir 03/21/2005) was the original 3-judge panel decision holding that the arbitrator decides this question. The order for a rehearing, issued June 29, 2005, is [here].
I'll repeat a little of what I said earlier [here]. In Nagrampa there was a francise agreement which contained an arbitration agreement within it. Nagrampa claimed that both the arbitration agreement and the whole agreement were unconscionable. The 9th Circuit panel applied Prima Paint v. Flood & Conklin, 388 US 395 (1967), and made its own decision on the unconsionability of the arbitration agreement, but held that it was for the arbitrator to decide whether the contract as a whole was unconscionable.
My view:
- As I said before [here], the 9th Circuit panel got it right.
- So why a rehearing en banc? Probably because the US Supreme Court has granted certiorari to review a Florida case, Cardegna v. Buckeye Check Cashing, Inc. (Florida 01/20/2005) which held that it is for the court to decide whether an entire contract is void due to a violation of state usury laws. Previously blogged [here].
Bill to exclude employment contracts from FAA
June 29, 2005 by Ross Runkel at LawMemo
House Democrats have introduced a bill to exclude all employment contracts from coverage of the Federal Arbitration Act. The bill would not apply to collective bargaining agreements, and would not apply to post-dispute agreements.
Here is the bill:
Preservation of Civil Rights Protections Act of 2005 (Introduced in House) - HR 2969 - 109th CONGRESS, 1st SessionTo amend title 9 of the United States Code to exclude all employment contracts from the arbitration provisions of chapter 1 of such title; and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
June 17, 2005. Mr. KUCINICH (for himself, Mr. GEORGE MILLER of California, Mr. CONYERS, Mr. FRANK of Massachusetts, Mr. MARKEY, and Mr. ANDREWS) introduced the following bill; which was referred to the Committee on the Judiciary, and in addition to the Committee on Education and the Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned
A BILL
To amend title 9 of the United States Code to exclude all employment contracts from the arbitration provisions of chapter 1 of such title; and for other purposes.Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the 'Preservation of Civil Rights Protections Act of 2005'.
SEC. 2. AMENDMENT TO FEDERAL ARBITRATION ACT.
Section 1 of title 9, United States Code, is amended by striking `of seamen' and all that follows through `commerce'.
SEC. 3. UNENFORCEABILITY OF ARBITRATION CLAUSES IN EMPLOYMENT CONTRACTS.
(a) Protection of Employee Rights- Notwithstanding any other provision of law, any clause of any agreement between an employer and an employee that requires arbitration of a claim arising under the Constitution or laws of the United States shall not be enforceable.
(b) Exceptions-
(1) WAIVER OR CONSENT AFTER CLAIM ARISES- Subsection (a) shall not apply with respect to any claim if, after such claim arises, the parties involved voluntarily consent to submit such claim to arbitration.
(2) COLLECTIVE BARGAINING AGREEMENTS- Subsection (a) shall not preclude an employee or union from enforcing any of the rights or terms of a valid collective bargaining agreement.
SEC. 4. APPLICATION OF AMENDMENTS.
This Act and the amendment made by section 2 shall apply with respect to all employment contracts in force before, on, or after the date of the enactment of this Act.
My view: Dead on arrival. There is not now, nor will there soon be, majority support for this bill in the House or in the Senate.
Anti-class-action clause was unconscionable
June 27, 2005 by Ross Runkel at LawMemo
A bank-customer agreement's arbitration provision had a clause forbidding classwide arbitrations. The California Supreme Court (4-3) says that was unconscionable and unenforceable. Discover Bank v. Superior Court (California 06/27/2005).
Basic facts: Discover Bank amended its agreement with credit cardholders by sending them a notice that added a requirement that disputes be resolved through arbitration, and that prohibited class action arbitrations. Cardholders accepted the new arbitration provision by continuing to use their cards. The contract provided that it was "governed by federal law and the law of Delaware."
Cardholders' suit claimed that the bank charged late fees (about $29) when payment was received after 1:00 p.m. on the due date, resulting in damages that were small as to individuals but large in the aggregate.
The bank sought an order compelling arbitration on an individual basis.
Basic holding of the California Supreme Court:
- The anti-class-action clause was unconscionable under California law.
- The Federal Arbitration Act (FAA) does not preempt California law on the unconsionability of class-action waivers.
- The whole case might be governed by Delaware law, so the court remanded for a lower court decision on that aspect.
The dissent (by three of the seven judges) agreed that the FAA did not preempt, but argued that the case should be decided under Delaware law which allows class action waivers. They saw no need to decide anything about unconsionability under California law.
My view:
- The unconsionability reasoning was quite narrow. The court said:
We do not hold that all class action waivers are necessarily unconscionable. But when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party “from responsibility for [its] own fraud, or willful injury to the person or property of another.” (Civ. Code, § 1668.) Under these circumstances, such waivers are unconscionable under California law and should not be enforced.
Questions:- What is a "consumer contract"?
- What are "small amounts of damages"?
- What is "a scheme to deliberately cheat large numbers of consumers"?
- Will a choice of law clause (e.g., providing that Delaware law applies) result in enforcement of a clause that is lawful in the other state but unconscionable in California?
- Pre-dispute arbitration clauses in employment agreements are left up in the air by this case.
- Most such cases will involve much more than $29 in damages.
- How many employment disputes can be characterized as "a scheme to deliberately cheat large numbers of consumers" or employees?
Ryan's certiorari petition
June 26, 2005 by Ross Runkel at LawMemo
The 6th Circuit refused to enforce a pre-dispute arbitration agreement signed by employees of Ryan's Family Steakhouses' multi-state restaurant chain. Walker v. Ryan's (6th Cir 03/09/2005). Ryan's has petitioned [here] the US Supreme Court for a writ a certiorari.
Ryan's lost on several issues, and the petition invites the Supreme Court to correct them. The formal "Questions Presented" section of the petition raises four main points, claiming that the Court of Appeals improperly:
- Used a heightened "knowing and voluntary" standard for waiver of a jury trial.
- Used extraordinary scrutiny to declare the agreements unconscionable under state law, thus showing hostility to arbitration agreements.
- Applied the law of Tennessee to agreements that were entered into in other states.
- Invalidated the agreements based on a perceived potential for structural bias in the arbitration system.
Lawyers on the petition: Michael S. Pitts (counsel of record) and E. Grantland Burns of Nexsen Pruet Adams Kleemeir; David E. Nagle of LeClair Ryan.
My view:
- The real question in a petition for a writ of certiorari is whether a case merits the precious time and attention of nine Supreme Court Justices. Let's assume the 6th Circuit was wrong on all four points raised in the petition. In order to win, Ryan's must prevail on all four of them. That makes this case somewhat cumbersome for the Court, which prefers to decide single-issue cases.
- The Court is usually looking for cases that involve a split of authority between the Circuits, and Ryan's does not make a good case for such a split.
- Perhaps the Court will see this as case as being important because the 6th Circuit used a variety of legal devices to circumvent the core policy of the Federal Arbitration Act, which was to eliminate judicial hostility toward arbitration agreements.
Prediction: NLRB will defer re information requests
June 22, 2005 by Ross Runkel at LawMemo
The NLRB has a long-standing doctrine of deferring to decisions by arbitrators. However, the Board does not defer when an employer denies a union's request for information relating to a grievance or arbitration. Postal Service, 302 NLRB 767 (1991).
Once the NLRB resumes its full strength of five Members, this probably will change. In Daimler Chrysler Corp, 344 NLRB No. 94 (05/31/2005), The Board held that the employer violated NLRA Section 8(a)(5) by refusing to provide a union with relevant information in connection with grievances.
The employer asserted that the union's request for information should be deferred to the parties' contractual grievance-arbitration procedures. Chairman Battista and Member Schaumber said they would defer if not bound by precedent. However, in the absence of a three-member Board majority to overrule current Board law, they found that the judge correctly applied the Board's policy of nondeferral in information request cases.
My view:
- Full deferral of information requests is a good idea for grievances that have reached the arbitration stage because the arbitrator has control of the case and can act quickly to grant or deny the request.
- For grievances that have not reached the arbitration stage, full deferral will leave the parties with no place to go for a decision. They will get help from an arbitrator only if the grievance is moved to that stage.
Who decides legality of the contract?
June 20, 2005 by Ross Runkel at LawMemo
The US Supreme Court has agreed to take up a Florida case to decide whether it is for an arbitrator - or for a court - to decide whether or not a contract containing an arbitration clause is illegal.
The case: Buckeye Check Cashing, Inc. v. Cardegna (Docket No. 04-1264), certiorari granted 06/20/2005.
The Florida case: Cardegna v. Buckeye Check Cashing, Inc. (Florida 01/20/2005).
Cardegna claimed that Buckeye made illegal usurious loans disguised as check cashing transactions in violation of Florida law. The agreement Cardegna signed contained an arbitration clause, so Buckeye filed a motion to compel arbitration.
Buckeye argued from Prima Paint Corp v. Flood & Conklin, 388 US 395 (1967), in which the US Supreme Court said that it was up to the arbitrator - not the court - to decide whether the underlying contract was subject to a defense of fraud in the inducement.
The Florida Supreme Court distinguished Prima Paint, saying that case dealt with whether the contract was voidable. In Cardegna's case the issue was whether the contract was void under Florida law. Therefore, said the Florida court, since a void contract would mean the arbitration clause could not be enforced, the issue was to be decided by a court.
My view: I don't see Prima Paint as being limited to voidable as opposed to void contracts. Prima Paint stands for the proposition that a court decides whether the arbitration clause is legal and, if it is, an arbitrator decides whether the contract as a whole is legal.
Resources relating to the Florida Supreme Court proceedings:
- Initial Brief of Appellants Cardegna et al.
- Answer Brief of Respondent Buckeye Check Cashing, Inc.
- Reply Brief of Appellants Cardegna et al.
- Amicus Curiae Brief of the Check Cashing Store, Inc.
- Brief Amici Curiae of AARP, Consumer Federation of America and National Consumer Law Center
- Transcript of oral arguments
Class action waivers
June 09, 2005 by Ross Runkel at LawMemo
For a useful discussion of arbitration agreements containing waivers of class actions, see today's Labor & Employment Law Blog - New Decision About Class Action Waivers In Arbitration Agreements.
The question of whether such waivers are unconscionable is pending in the California Supreme Court.
Teamsters v. Continental: Certiorari?
June 07, 2005 by Ross Runkel at LawMemo
I have previously criticized [here] the 5th Circuit's decision in Continental Airlines v. Teamsters (5th Cir 11/15/2004) because that court intends to continue being a renegade - correctly reciting the rules on judicial review of arbitrator awards and then refusing to apply them.
Teamsters filed [here] a petition for certiorari in the US Supreme Court, and Continental has filed [here] its reply. The issue now is whether the Supreme Court will consider this case worthy of its time and attention.
My view: The 5th Circuit was spanked in Paperworkers v. Misco, 484 US 29 (1987), and it's time for another one.
The Supreme Court will get excellent lawyering on both sides:
For Continental: Teresa Valderrama and Jarod D. Bonine of Baker Botts.For Teamsters: Roland P. Wilder Jr. and William R. Wilder of Baptiste & Wilder
