Petitioner's brief is due February 25.

Respondent's brief is due March 25.

Question presented:

Is the district court required in all cases to determine claims that an arbitration agreement subject to the Federal Arbitration Act ("FAA") is unconscionable, even when the parties to the contract have clearly and unmistakably assigned this "gateway" issue to the arbitrator for decision?

[Details]

Jackson sued under 42 USC Section 1981, claiming race discrimination and retaliation. The trial court granted the employer's motion to dismiss and to compel arbitration. The 9th Circuit (2-1) reversed. 

When he was hired, Jackson signed an agreement to arbitrate all future disputes. That agreement provided: 

"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." 

Jackson argued that the arbitration agreement was unconscionable, and that the issue of unconscionability must be decided by a court rather than an arbitrator. 

The 9th Circuit held that "where, as here, a party challenges an arbitration agreement as unconscionable, and thus asserts that he could not meaningfully assent to the agreement, the threshold question of unconscionability is for the court." 

Case below: Jackson v. Rent-A-Center West (9th Cir 09/09/2009)

Official docket sheet 

Certiorari granted January 15, 2010.

Oral argument:  Not yet scheduled. 

Question presented:   

Is the district court required in all cases to determine claims that an arbitration agreement subject to the Federal Arbitration Act ("FAA") is unconscionable, even when the parties to the contract have clearly and unmistakably assigned this "gateway" issue to the arbitrator for decision?

Certiorari Documents:

• Petition for certiorari
   
  
• Brief in opposition
   
  
• Brief for Amicus Curiae of Pacific Legal Foundation in Support of Petitioner 

• For Petitioner: Robert F. Friedman; Littler Mendelson, P.C.; 2001 Ross Avenue, Suite 1500; Dallas, TX  75201; (214) 880-8100.


• For Respondent: Ian E. Silverberg; Hardy Law Group; 96 Winter Street; Reno, NV  89503; (775)-322-7422.
  

The parties in this case are parties to international maritime contracts that contain arbitration clauses. The contracts are silent as to whether arbitration is permissible on behalf of a class of contracting parties. A panel of arbitrators, tasked with deciding whether that silence permitted or precluded class arbitration, received evidence and briefing from both sides. The arbitrators issued an award deciding that the contracts permit class arbitration.

Stolt-Nielsen petitioned the United States District Court to vacate the award. That court did vacate the award on the ground that the award was made in manifest disregard of the law.

The 2nd Circuit reversed. The 2nd Circuit applied the rule that courts vacate arbitration awards in the rare instances in which "the arbitrator knew of the relevant [legal] principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it." Using this principle, the court found that the arbitration panel did not manifestly disregard a rule of federal maritime law, and did not manifestly disregard New York State law.

The official "Question Presented" is:

In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), this Court granted certiorari to decide a question that had divided the lower courts: whether the Federal Arbitration Act permits the imposition of class arbitration when the parties’ agreement is silent regarding class arbitration. The Court was unable to reach that question, however, because a plurality concluded that the arbitrator first needed to address whether the agreement there was in fact "silent." That threshold obstacle is not present in this case, and the question presented here--which continues to divide the lower courts--is the same one presented in Bazzle:

Whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.

The briefs are collected here.

A press release from the law firm filing the complaint:

New York, NY — September 15, 2009 — The law firm of Milberg LLP has filed a class action lawsuit in the United States District Court for the Central District of California on behalf of all persons who used NAF's arbitration services during the period from June 1, 2006 to the present, inclusive (the “Class Period”). The complaint is available from the Court or can be viewed at Milberg LLP’s website at www.milberg.com.

Until recently, NAF held itself out as a leading forum for consumer arbitrations, which is how many consumer debt disputes are resolved. An arbitration forum must above all be impartial, so that consumers can be confident that their disputes with creditors (e.g., banks, credit card companies, phone companies, etc.) will be heard fairly, as would be the case if the dispute was resolved by a court of law. The class action lawsuit filed against NAF and related parties alleges that NAF has misled consumers for years in this regard because it was owned by and/or beholden to a debt collection agency and debt collection law firm, such that in reality it was a debt collector, not a neutral forum for resolving disputes by the debt collection industry against consumers. The result of these alliances was near perfect success rates by debt collectors against consumers in NAF arbitrations.

More specifically, the complaint alleges that NAF, National Arbitration Forum, LLC (“NAF LLC”), Mann Bracken, LLP (“Mann Bracken”), Accretive LLC (“Accretive”), Agora Fund I GP, LLC, Axiant, LLC, and Forthright Solutions (collectively “Defendants”), falsely held NAF out to be independent and unaffiliated with any persons or entities within or outside the collections industry and falsely presented its arbitration services as neutral. According to the complaint, Mann Bracken is a law firm that claims to specialize in consumer debt collection matters, but is a debt collector in its own right. NAF and Mann Bracken are both owned by Defendant Accretive who owns and controls both NAF and Mann Bracken, and their related entities. According to the complaint, NAF is now “under siege by local and state prosecutors for working alongside creditors, rubber-stamping illegitimate arbitration awards against consumers, deceiving the courts and the public, and undermining the integrity of the arbitration system.”

The complaint specifically alleges that NAF maintained a near perfect success rate -- ruling in favor of business entities -- by engaging in improper, deceptive and corrupt acts, including: (a) establishing incentives for arbitrators to favor debt collectors over consumers; (b) disregarding consumers’ evidence and/or arguments; (c) overlooking and violating its own Code of Procedure to benefit debt collectors, and ultimately, large creditors; (d) disregarding creditors’ lack of evidence; and (e) failing to provide the bona fide arbitration services it promised to consumers. The complaint also alleges that NAF breached its contractual obligation to provide arbitration services to consumers, and that NAF directly benefitted from, and was unjustly enriched by the contractual breaches.

Thanks to Disputing, where you can find more interesting background.

Mary Jacksteit, Chair, Federal Service Impasses Panel – Federal Labor Relations Authority
Mary Jacksteit has over 20 years of experience in mediation, facilitation and negotiation working for non-profit organizations, government agencies and community organizations. Jacksteit previously served on the Federal Service Impasses Panel for seven years during the Clinton Administration. She began her legal career as a labor attorney for the American Federation of Government Employees, AFL-CIO, where she later served as Deputy General Counsel. In the late 1980’s she began practicing as a labor arbitrator in the public and private sectors, serving on panels of the American Arbitration Association, Federal Mediation and Conciliation Service, and U.S. Postal Service. For 10 years, she worked at Search for Common Ground - a conflict resolution organization. Since 2007 she has been associated with the Public Conversations Project in Watertown, Massachusetts and has maintained a private practice focused on community, public policy, organizational planning, and conflict management. Jacksteit has a law degree from Georgetown Law School, an M.S. from George Mason University’s Institute for Conflict Analysis and Resolution, and a B.A. from the University of Pittsburgh.

Martin H. Malin, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Martin H. Malin is a Professor of Law and the Director of the Institute for Law and the Workplace at Chicago-Kent College of Law, Illinois Institute of Technology. He teaches courses in labor law, collective bargaining, arbitration, public sector labor law, employment law, contracts and jurisprudence. Malin has published five books, including Public Sector Employment: Cases and Materials (West 2004), the leading law school casebook on public sector labor law; and more than 60 articles on labor law and dispute resolution. An active arbitrator and mediator since 1984, Malin just completed a three-year term on the Board of Governors of the National Academy of Arbitrators and is a fellow of the College of Labor and Employment Lawyers. He also serves on the Executive Committee of The Labor Law Group and is a past chair of the Association of American Law Schools Section on Labor Relations and Employment Law. From 2004 - 2008, Malin served as Reporter for the Association of Labor Relations Agencies’ Neutrality Project. He was the principal drafter of ALRA’s Neutrality Report, a mini-treatise on labor board and mediation agency impartiality. During the mid 1980s, he served as a consultant to Illinois’ public employment labor boards and drafted the regulations implementing Illinois’ newly-enacted public sector labor relations acts. Malin joined the Chicago-Kent faculty in 1980, after teaching at Ohio State University and serving as Law Clerk to U.S. District Judge Robert DeMascio in Detroit. He holds a J.D. from George Washington University and a B.A. from Michigan State University.

Barbara B. Franklin, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Barbara B. Franklin is an arbitrator and mediator in Washington, D.C. She serves on arbitration rosters administered by the Federal Mediation and Conciliation Service, the American Arbitration Association and the Financial Industry Regulatory Authority. She is a mediator for the U.S. Court of Appeals and District Court for the District of Columbia. Since 1999, she has served as a Public Member of the D.C. Police and Firefighters Retirement Board, a position that is appointed by the Mayor of D.C. Prior to her retirement from the Federal Government in 1997, Ms. Franklin was Chief Counsel to Members Pamela Talkin and Donald S. Wasserman of the Federal Labor Relations Authority. From 1977 to 1989, she served as a staff attorney and then supervisory attorney for the National Labor Relations Board in the Office of General Counsel (Division of Advice). Franklin received her J.D. from The Catholic University of America’s Columbus School of Law, where she was Associate Editor of the Law Review, and her B.A. from Northwestern University.

Marvin E. Johnson, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Marvin E. Johnson is a nationally recognized mediator and arbitrator of public and private disputes. Johnson serves on the rosters of the JAMS Resolution Experts, the International Institute for Conflict Prevention and Resolution, the American Arbitration Association, and Accormend Associates. He served 16 years as Assistant and Associate Professor of Labor Relations, Business Law and Conflict Management at Bowie State University where he founded the Center for Alternative Dispute Resolution. Johnson’s previous appointment to the Federal Service Impasses Panel by a Democratic President and his appointment to the Foreign Service Grievance Board by a Republican Secretary of State are testaments to his impartiality and his dispute resolution expertise. In addition, he was appointed by the Governor of Maryland to serve on the Maryland State Labor Relations Board and by the Chief Judge of the Maryland Court of Appeals to serve on the Maryland Alternative Dispute Resolution Commission. Johnson is a member of the International Academy of Mediators, the ABA Section of Dispute Resolution, the Association for Conflict Resolution, the American College of Civil Trial Mediators, the Society of Labor and Employee Relations Professionals and Mediators Beyond Borders. He received his J.D. degree from Catholic University, his M.S. degree in Industrial Relations from the University of Wisconsin, and his B.B.A. degree from Kent State University.

Thomas E. Angelo, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Thomas Angelo began his career as an attorney with the Solicitor’s Office at the U.S. Department of Labor, in Washington D.C. He joined the National Treasury Employees Union in 1972, serving as Associate General Counsel in Washington D.C. and San Francisco. In 1981, he was named Regional Attorney for the San Francisco Region of the Federal Labor Relations Authority. Angelo became a full time arbitrator in 1983 and is a member of the National Academy of Arbitrators. He serves as a panel arbitrator for many private and public sector parties. Angelo is a graduate of Willamette University and Willamette University College of Law.

Edward F. Hartfield, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Edward F. Hartfield is the Executive Director of the National Center for Dispute Settlement (NCDS). He has devoted his entire 36-year career to serving as an impartial party as mediator, arbitrator, facilitator, election administrator, trainer, neutral convener, and ombudsman. Hartfield has served as Commissioner with the Federal Mediation and Conciliation Service and State Mediator for the New Jersey Office of Dispute Settlement. He was previously appointed by President Clinton to the Federal Service Impasses Panel, a seven-person panel established to resolve disputes in the Federal Government. Hartfield has also served as the International President of the Society of Professionals in Dispute Resolution (SPIDR) and currently is Vice President of the Detroit Chapter of the Labor and Employment Research Association (LERA). Hartfield serves on the Michigan State Court Administrative Office Task Force on Mediation Confidentiality and previously served on the Michigan Supreme Court Task Force on Mediation. He received a Masters in International Relations from the University of Detroit and B.A. from Oberlin College.

Don Wasserman, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Don Wasserman has been a labor relations professional his entire career. Since 2001, he has been an arbitrator/mediator, specializing in all levels of the public sector. He is a Member of the D.C. Public Employee Relations Board (DC PERB) and the Metropolitan Washington Airports Authority Employee Relations Council (MWAA-ERC). Wasserman is also on the labor rosters of the American Arbitration Association, Federal Mediation and Conciliation Service and National Mediation Board. In December 1995, he was appointed by former President Clinton as a Member and then as Chairman of the Federal Labor Relations Authority (FLRA), where he served until 2001. Wasserman began his career at the Communications Workers of America and then the International Association of Machinists. From 1967 until his appointment to FLRA, Wasserman held various top positions at the American Federation of State, County and Municipal Employees where he served as Director of the Department of Collective Bargaining and Assistant to the President. His major responsibilities included serving as chief negotiator in establishing initial collective bargaining agreements with several state governments and large local governments. He frequently testified before legislative bodies on key collective bargaining issues such as bargaining unit structure and impasse resolution procedures, as well as matters including government reinvention/redesign and civil service reform. Wasserman received an M.B.A from the University of Pennsylvania and a B.S. from Temple University.

Here is the AAA press release:

Contact: Wayne Kessler, Vice President, Corporate Communications American Arbitration Association (212) 716-3975 kesslerw@adr.org

The American Arbitration Association® Calls For
Reform of Debt Collection Arbitration

Largest Arbitration Services Provider Will Decline to Administer Consumer Debt Arbitrations until Fairness Standards are Established

New York, NY– (July 23, 2009) – The American Arbitration Association (AAA), the world’s largest conflict management and dispute resolution services organization, today recommended in a House subcommittee hearing that the process surrounding consumer debt collection arbitration needs major reform and recommended a national policy committee to identify and research solutions. AAA said it will not administer any consumer debt collection programs until those solutions are determined.

AAA senior vice president Richard Naimark told the Domestic Policy Subcommittee of the House Oversight and Government Reform Committee that the AAA “has not administered significant numbers of debt collection arbitrations relative to some other organizations,” and has not handled any since June after it concluded a single high-volume program. However, he said that AAA had independently reviewed areas of the process and concluded that it had some weaknesses. As a result of that review, it is evident to the AAA that “a series of important fairness and due process concerns must be addressed and resolved before we will proceed with the administration of any consumer debt collection programs.” According to Mr. Naimark, areas needing attention from the national policy committee include consumer notification, arbitrator neutrality, pleading and evidentiary standards, respondents’ defenses and counterclaims, and arbitrator training and recruitment.

“AAA has been working with the Domestic Policy Subcommittee to review potential improvements in consumer debt collection arbitration procedures for some time. We believe that arbitration can play a major role in consumer debt collection disputes. A national policy committee dedicated to meaningful reform can enhance an array of due process elements so that there is deeper fairness and transparency. Consumers deserve an alternative to litigation, but they also need to be able to trust that option. Our goal will be to achieve that trust,” Mr. Naimark said after the hearing.

“We have been studying this issue for some time. We made our decision to impose a moratorium on administering consumer debt arbitration independently and not at the behest of any outside entity as has been claimed. We commend the Domestic Policy Subcommittee for its initiatives to protect consumers in debt collection cases, and we will continue to work with it willingly and enthusiastically,” Mr. Naimark said.

NEWS RELEASE
For Immediate Release

About the American Arbitration Association
The global leader in conflict management since 1926, the American Arbitration Association is a not-for-profit, public service organization committed to the resolution of disputes through the use of arbitration, mediation, conciliation, negotiation, democratic elections and other voluntary procedures. In 2008, 138,447 cases were filed with the Association in a full range of matters including commercial, construction, labor, employment, insurance, international and claims program disputes. Through 30 offices in the United States, Ireland, Mexico, and Singapore, the AAA provides a forum for the hearing of disputes, rules and procedures and a roster of impartial experts to resolve cases. Find more information online at www.adr.org.

###

The Wall Street Journal quotes an unnamed AAA official as saying that AAA will stop taking these cases "until some standards or safeguards are established."

This announcement comes on the heels of a lawsuit against the National Arbitration Forum (NAF) and a decision by NAF to stop taking similar cases.

Both organizations have recently posted self-laudatory statements on their web sites, praising the fairness and effectiveness of arbitration proceedings between consumers and corporations.

These two organizations are quite different from each other. NAF is a for-profit close-held company. AAA is non-profit of long standing.

My view:

The two organizations seem to have different reasons for their actions. NAF has been hit with law suits, the most recent claiming undisclosed overlaps in ownership between NAF and some of its corporate customers, and it looks like they spend more on defense than they earn on the arbitrations. AAA is now suggesting there is a actually a fairness issue in these cases, citing the need for "some standards or safeguards."

Whatever the reasons, this is a major development. Many phone companies and credit-card issuers insert arbitration clauses in their contracts. So what will happen now?

NAF announced yesterday that it will "voluntarily cease to administer consumer arbitration disputes as of Friday, July 24, 2009."

This follows a law suit by the Minnesota Attorney General, alleging violation of state consumer fraud, deceptive trade practices and false advertising laws by hiding financial ties to collection agencies and credit card companies.

Here is the NAF's press release:

National Arbitration Forum to Cease Administering All Consumer Arbitrations in Response to Mounting Legal and Legislative Challenges

MINNEAPOLIS, July 19, 2009

American Consumers to Lose Affordable Access to Justice through Nation's Largest Administrator of Consumer Arbitration Disputes

BusinessWire -- The National Arbitration Forum (FORUM), the largest U.S. administrator of consumer arbitrations, today announced that it will voluntarily cease to administer consumer arbitration disputes as of Friday, July 24, 2009, as part of a settlement agreement with the Minnesota Attorney General.

"The National Arbitration Forum remains committed to consumer arbitration as the best and most affordable option for consumers to resolve disputes quickly and efficiently. However, the FORUM lacks the necessary resources to defend against increasing challenges to arbitration on all fronts, including from state Attorneys General and the class action trial bar," said Forthright CEO Mike Kelly. "Mounting legal costs, a challenging economic climate, and increased legislative uncertainty surrounding the future of arbitration have prompted the FORUM to exit the consumer arbitration arena. At this time, the costs of providing consumer arbitration services far exceed the revenue generated. Until Congress resolves the legal and legislative uncertainty the cost is simply too high for users and providers of consumer arbitration."

Legislative proposals pending in both houses of Congress threaten to eliminate pre-dispute arbitration as an effective means of alternative dispute resolution. The Arbitration Fairness Act of 2009 (S. 931/H.R. 1020) would invalidate every pre-dispute contractual arbitration agreement that is part of a consumer, financial or franchise dispute – in effect, every contract. The Fairness in Nursing Home Arbitration Act (S. 512/H.R. 1237) would eliminate pre-dispute mandatory arbitration in all nursing home contracts. Legislation before the House to create a new Consumer Financial Protection Agency (H.R. 3126) addresses arbitration and would give broad regulatory authority to restrict or eliminate all consumer arbitrations.

"The National Arbitration Forum provides fair and affordable access to justice to American consumers regardless of size of their claims. Without access to arbitration, consumer disputes will now be forced into an overcrowded and underfunded legal system, where many consumers who cannot afford attorneys will have to navigate complex court procedures," continued Kelly. "The consequence to American consumers is that there will be no meaningful alternative to costly and unpredictable litigation."

Notably, nothing in the Minnesota Attorney General’s complaint alleges that arbitration proceedings administered by the FORUM are unfair; the fairness of arbitration is ensured by the independence of the neutral arbitrators.

National Arbitration Forum consumer arbitration claims are decided by an independent panel of more than 1,600 highly experienced and impartial legal professionals, including former judges and experienced attorneys. FORUM neutrals are bound to a code of professional ethics, and decide cases outside of any influence from the FORUM or the other parties.

About the National Arbitration Forum (FORUM)
Founded in 1986, the National Arbitration Forum (FORUM) is a world leader in arbitration and mediation services. The FORUM provides accessible civil justice through the recruitment, selection, and management of a highly experienced and distinguished panel of over 1,600 former judges and seasoned lawyers. Now optimized by Forthright, the FORUM is the faster, lower cost, and superior alternative to litigation, that ensures parties receive the same outcomes they would in court. www.adrforum.com

Media Contact
Christina Doucet
952-516-6486
media@adrforum.com

The title of the hearing gives you an easy way to predict the outcome: “Arbitration or ‘Arbitrary’: The Misuse of Arbitration to Collect Consumer Debts”

Text of the House press release:

For Immediate Release:
Contact: Nathan White (202)225-5871

 

Hearing: “Arbitration or ‘Arbitrary’: The Misuse of Arbitration to Collect Consumer Debts”

Date: July 22, 2009, 2:00 p.m.

Location: Rayburn House Office Building, Room 2154

On Wednesday, July 22, 2009, at 2:00 p.m. in room 2154 of the Rayburn House Office Building, the Domestic Policy Subcommittee will hold a hearing entitled, “Arbitration or ‘Arbitrary’: The Misuse of Arbitration to Collect Consumer Debts.”

The purpose of this hearing is to evaluate contractually-mandated arbitration of disputes between businesses and consumers in the context in which the vast majority of those disputes occur—the collection of debts from consumers. The hearing will evaluate whether consumer debt collection arbitration, as currently administered, produces results that are fair and legitimate.

Experts invited to testify:

Mr. Michael Kelly, Chief Operating Officer, National Arbitration Forum

Mr. Richard W. Naimark, Senior Vice-President, International Centre for Dispute Resolution, a division of the American Arbitration Association

Mr. F. Paul Bland, Staff Attorney, Public Justice

Professor Christopher R. Drahozal, John M. Rounds Professor of Law, University of Kansas

The Honorable Lori Swanson, Attorney General, State of Minnesota.

Thanks to Disputing, U.S. Congress Hearing on the Misuse of Arbitration to Collect Consumer Debt, for the heads up and the links.

The case: Stolt-Nielsen S.A. v. AnimalFeeds International (certiorari granted 06/15/2009) [Details, Briefs]

The parties in this case are parties to international maritime contracts that contain arbitration clauses. The contracts are silent as to whether arbitration is permissible on behalf of a class of contracting parties.

A panel of arbitrators, tasked with deciding whether that silence permitted or precluded class arbitration, received evidence and briefing from both sides. The arbitrators issued an award deciding that the contracts permit class arbitration.

Stolt-Nielsen petitioned the United States District Court to vacate the award. That court did vacate the award on the ground that the award was made in manifest disregard of the law.

The 2nd Circuit reversed, and applied the rule that courts vacate arbitration awards in the rare instances in which "the arbitrator knew of the relevant [legal] principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it." Using this principle, the court found that the arbitration panel did not manifestly disregard a rule of federal maritime law, and did not manifestly disregard New York State law.

The US Supreme Court granted certiorari on June 15, 2009 to review the 2nd Circuit judgment. I expect the Court will hear oral arguments some time in October, November, or December.

The question to be decided by the Court in this case was left open in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), and there appears to be split of authority among the federal Circuit Courts.

My view: This case presents a tug-of-war between two fundamental principles of arbitration law.

First, It is for the arbitrator to decide matters of arbitration procedure. Following this principle, the argument is that the arbitrators simply interpreted the contract (that is, the silence of the contract) as permitting class arbitration, and the courts must enforce the arbitrators' interpretation.

Second, Arbitration agreements must be enforced according to their terms. Following this principle, the argument is that neither a court nor an arbitrator has the authority to "re-write" the silent arbitration agreement so as to require class arbitration.

(As an aside, it is noteworthy that many courts, applying state law relating to unconscionability or public policy, have held that many arbitration agreements that forbid class arbitrations are unlawful.)

14 Penn Plaza v. Pyett (US Supreme Court 04/01/2009)

The relevant collective bargaining agreement requires union members to submit all claims of employment discrimination to binding arbitration under the CBA’s grievance and dispute resolution procedures.

A number of employees asked the union to file grievances alleging, among other things, that the employers violated the CBA’s ban on workplace discrimination by reassigning them on the basis of their age in violation of Age Discrimination in Employment Act of 1967 (ADEA). The union requested arbitration under the CBA, but later withdrew the age-discrimination claims.

The employees then filed suit claiming a violation of the ADEA; the district court denied the employers' motion to compel arbitration; the 2nd Circuit affirmed.

The US Supreme Court reversed, holding that a provision in a collective bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law.

The Court found that employment-related discrimination claims are "conditions of employment" under the National Labor Relations Act and thus subject to mandatory bargaining. The CBA's arbitration provision must be honored unless the ADEA itself removes this class of grievances from the NLRA's broad sweep. The Court has already held (Gilmer v. Interstate/Johnson Lane (1991)) that the ADEA does not preclude arbitration of ADEA claims.

The Court rejected the argument that Alexander v. Gardner-Denver (1974) held that a CBA arbitration clause cannot waive an individual employee's right to litigate.

The DISSENT relied on Alexander v. Gardner-Denver, saying that that case held that rights conferred by Title VII cannot be waived as part of the collective bargaining process. This applies equally to the ADEA, and includes the right to a judicial forum.

But wait, there's more: The employees argued that the CBA allows the union to block arbitration of these claims altogether, thus operating as an unlawful substantive waiver of federal civil rights claims. The employers countered by arguing that the union has allowed employees to continue with the arbitration even though the union declined to participate. The Court specifically avoided reaching this issue because it was not fully briefed and was not fairly within the question presented to the Court. This clearly leaves a lot to be decided.

It could be that if the union retains total control over the arbitration process (which is normal in most cases), and if the union declines to arbitrate the individuals' statutory claims, then the employees would be able to proceed in litigation.

Later, Herbergers mailed out a notice (known as a "bill stuffer") in Kortum-Managhan's monthly bill. This document contained various changes in the terms of the agreement including the addition of an arbitration clause.

When Kortum-Managhan brought suit alleging violation of federal and state statutes, the store moved to compel arbitration. The trial court entered an order compelling arbitration, but the Montana Supreme Court reversed.

Kortum-Managhan v. Herbergers (Montana 03/17/2009) (5-1 vote).

The court cited a Montana constitutional provision protecting the rights to trial by jury and access to courts, and labeled these "fundamental constitutional rights that deserve the highest level of court scrutiny and protection." The court said "the waiver of a fundamental constitutional right must be proved to have been made voluntarily, knowingly and intelligently."

The court held that the store failed to show that the cardholder had "deliberately, understandingly and intelligently waived [her] fundamental constitutional rights to trial by jury and access to the courts."

The court said that the bill stuffer "is ambiguous and misleading because it seeks to waive the cardholder’s fundamental constitutional rights with a clause blended into the end of a document when bold type, capital letters and larger fonts are used to draw attention to other clauses."

"Based on the foregoing, we conclude that making a change in a credit agreement by way of a “bill stuffer” does not provide sufficient notice to the consumer on which acceptance of the unilateral change to a contract can be expressly or implicitly found."

The DISSENT said, "people should read their mail - especially when it comes from their credit card companies."

Can the loser in arbitration get the arbitrator's award vacated on the ground that the arbitrator acted in "manifest disregard of the law"?

It would seem that the answer has to be "no" even though many courts have said "yes." The answer has to be "no" because the Federal Arbitration Act contains an exclusive list of legal grounds for overturning arbitration awards. And the US Supreme Court in Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S.Ct. 1396 (2008) repeatedly stated that the statutory grounds are exclusive. That means non-statutory grounds such as "manifest disregard of the law" cannot be used.

Citigroup Global Markets v. Debra Bacon (5th Cir 03/05/2009) squarely holds:

Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S.Ct. 1396, 1403 (2008) "restricts the grounds for vacatur to those set forth in § 10 of the Federal Arbitration Act (FAA or Act), 9 U.S.C. § 1 et seq., and consequently, manifest disregard of the law is no longer an independent ground for vacating arbitration awards under the FAA."

But wait. Maybe you can wrap "manifest disregard of the law" up in new clothes, and jam it into the list of statutory grounds. As I have said previously [Hall Street: Non-statutory grounds for review],

The Supreme Court has never said (and I believe never will say) that "manifest disregard" exists as a ground separate from the FAA. In Hall Street the Court referred to the concept as "a supposed judicial expansion by interpretation," and mused that it might refer to the §10 grounds collectively, or might be "shorthand" for §10(a)(3) (“guilty of misconduct”) or §10(a)(4) (“exceeded their powers").

And so, when the 5th Circuit remanded the Citigroup Global Markets case, it should be an invitation to the lawyers to make the facts fit the statute.

Other comments on the 5th Circuit case:

5th Circuit Nixes Manifest Disregard as Ground for Vacatur of Arbitration Awards

"Manifest Disregard of Law" Now History in 5th Circuit

The Unconscionability Game: Strategic Judging and the Evolution of Federal Arbitration Law, 83 New York University Law Review 1420 (2008). [PDF, 71 pages]

We are seeing a lot of court cases in which individual employees resist having their claims sent to arbitration. One of the doctrines used by employees is unconscionability. For example, just yesterday a California Court of Appeal held that an arbitration agreement waiving class-wide arbitration was unconscionable as to meal and rest period claims. Franco v. Athens Disposal (California Ct App 03/10/2009).

Here is the abstract of the article:

This Article uses recent developments in the enforcement of arbitration agreements to illustrate one way in which strategic dynamics can drive doctrinal change. In a fairly short period of time, arbitration has grown from a method of resolving disputes between sophisticated business entities into a phenomenon that pervades the contemporary economy. The United States Supreme Court has encouraged this transformation through expansive interpretations of the Federal Arbitration Act. But not all courts have embraced arbitration so fervently, and therefore case law in this area is marked by tension and conflict.

The thesis of this Article is that we can better understand developments in arbitration doctrine by viewing the case law as the product of an ongoing strategic interaction between courts with differing preferences regarding the spread of arbitration. As the Supreme Court has shut off most other means of resisting arbitration, the state law doctrine of unconscionability has in the last several years become a surprisingly attractive and successful tool for striking down arbitration agreements. The nature of unconscionability analysis is that it is flexible, which provides opportunities for courts skeptical of arbitration to use the doctrine to evade the Supreme Court's pro-arbitration directives while simultaneously insulating their rulings from Supreme Court review. Sophisticated resistance to arbitration is just one side of the story, however.

The approach employed in this Article examines the judicial system as a whole, including the ways pro-arbitration courts respond, sometimes indirectly, to what they perceive as manipulation of unconscionability. The suspicion that some courts are disfavoring arbitration drives pro-arbitration courts to change their strategies, such as by establishing new doctrine that facilitates monitoring and shifts decisionmaking authority. This strategic framework can help us make sense of otherwise puzzling trends in arbitration doctrine and can help us predict what moves will be next. Although the specific subject matter is arbitration, this analysis is also aimed at those interested in more general problems of judicial federalism.

This was a unanimous decision on one point, and a 5-4 split decision on another point.

Facts:

Discover Bank sued Vaden in state court for nonpayment of her credit card balance. Vaden counterclaimed, raising state-law claims of breach of contract and violation of state statutes regulating credit card fees and charges. Discover Bank then petitioned a federal district court seeking to compel arbitration of Vaden's state-court counterclaims. The federal district court granted the motion to compel arbitration. The 4th Circuit affirmed (2-1).

The Federal Arbitration Act (FAA) itself does not create jurisdiction in the federal courts, and there must be a federal question or diversity of citizenship. The 4th Circuit held (2-1) that federal courts have jurisdiction because of the presence of a federal question in the underlying dispute. Because Discover Bank is a federally-insured bank, the Federal Deposit Insurance Act (FDIA) is implicated by Vaden's counterclaims. The court also found that Vaden's counterclaims are completely preempted by the FDIA. The DISSENT argued that the federal court should look no further than the face of the petition to compel arbitration to see whether a federal question exists; existence of a federal question does not depend on the nature of the underlying dispute to be arbitrated.

The US Supreme Court really decided two separate questions, one in favor of the bank, and one in favor of Vaden. The holding: A federal court may “look through” a §4 petition to determine whether it is predicated on a controversy that “arises under” federal law; in keeping with the well-pleaded complaint rule ..., however, a federal court may not entertain a §4 petition based on the contents of a counterclaim when the whole controversy between the parties does not qualify for federal-court adjudication.

First question: Can a federal court "look through" the petition to the parties' underlying controversy? Yes. All Justices concur on this point.

FAA §4’s text drives the conclusion that a federal court should determine its jurisdiction by “looking through” a §4 petition to the parties’ underlying substantive controversy. The phrase “save for [the arbitration] agreement” indicates that the district court should assume the absence of the agreement and determine whether it “would have jurisdiction under title 28” over “the controversy between the parties,” which is most straightforwardly read to mean the “underlying dispute” between the parties.

Second question: Can a federal court base its federal question jurisdiction on the contents of a counterclaim when the whole controversy between the parties does not qualify for federal court adjudication? No. 5-4 vote.

The majority reasoned: Because §4 does not enlarge federal-court jurisdiction, a party seeking to compel arbitration may gain such a court’s assistance only if, “save for” the agreement, the entire, actual “controversy between the parties,” as they have framed it, could be litigated in federal court. Here, the actual controversy is not amenable to federal-court adjudication. The “controversy between the parties” arose from Vaden’s “alleged debt,” a claim that plainly did not “arise under” federal law; nor did it qualify under any other head of federal-court jurisdiction.

The Fourth Circuit erred when it concluded that jurisdiction was proper because Vaden’s state-law counterclaims were completely preempted. Under the well-pleaded complaint rule, a completely preempted counterclaim remains a counterclaim, and thus does not provide a key capable of opening a federal court’s door.

The dissent argued that the majority's approach is "contrary to the language of §4, and sharply restricts the ability of federal courts to enforce agreements to arbitrate." In the dissent's view, "Discover’s petition does not seek to arbitrate its state-law debt-collection claims, but rather Vaden’s allegation that the fees Discover has been charging her (and other members of her proposed class) violate the FDIA."

My view: This decision will indeed limit the ability of federal courts to enforce arbitration agreements in some cases. However, there will be many cases in which it will be easy to demonstrate that a federal question exists or that there is diversity of citizenship.

Oh yes, I almost forgot. States still exist. State courts are still in operation. Discover Bank could have remained in state court (which is the court they originally selected) and filed a motion to compel arbitration.