Arbitration, Enforceability, Consumers: MarketWatch Reports Trump University Could Be Sued In Court Because It Didn’t Have Arbitration Clause With Students
Obama Administration Has Sought Change In Law To Prevent Educational Institutions Getting Federal Funds From Requiring Students To Sign Pre-Dispute Arbitration Clauses.
Jillian Berman reports on July 22, 2016 in MarketWatch that students were able to sue Trump University in the courts because the students were not required to sign pre-dispute arbitration clauses.
In contrast to Trump University, Berman reports: “ About 98% of students enrolled in for-profit colleges receiving federal financial aid were subject to an arbitration clause, according to a report published earlier this year by the Century Foundation, a progressive think tank.”
Meanwhile, the Obama Administration has pushed to finalize rules to prevent colleges that receive federal financial aid from requiring students to sign pre-dispute arbitration clauses as a condition for enrollment. The rules are scheduled to take effect in 2016.
QUERY: How easily can the executive branch undo this change in rules after January 20, 2017?
Mediation and Arbitration Confidentiality: Acquaint Yourself With The EU-U.S. Privacy Shield If You Are Involved With Data Transfers From The EU To The US
The European Commission Has Deemed The Privacy Shield Framework Adequate To Enable Data Transfers To US Under EU Law.
On July 12, 2016, the European Commission adopted the EU-U.S. Privacy Shield. I am blogging about this because it relates to transfer of data from the EU to the U.S., and this impacts legal matters affecting the privacy rights of EU citizens, including mediations, arbitrations, and litigation in which a data transfer from the EU to the U.S. is required. Also, the Privacy Shield provides for binding arbitration as one of several dispute resolution mechanisms for resolving privacy issues.
The International Trade Administration of the US Department of Commerce has created a website with information about the EU-U.S. Privacy Shield Program, intended to protect data flows from the EU to the US, and thus to protect the privacy of EU persons. The protections offered by the Privacy Shield Program are more stringent than protections offered by an earlier Safe Harbor program. Click here for a link to FAQs about the Privacy Shield program.
United States companies that join the Privacy Shield Framework can benefit from an “adequacy determination”, meaning a determination that they have joined and committed to a framework deemed adequate by the European Commission to comply with EU data protection requirements when transferring personal data (e.g., names, addresses, telephone numbers) from the EU to the US.
No doubt the push to satisfy EU concerns about the privacy of EU citizens was motivated, at least in part, by Edward Snowden’s revelations concerning the NSA surveillance of intelligence available in Internet communications. Snowden’s choice to disclose secret information about US surveillance triggered a debate on privacy and surveillance.
The EU-U.S. Privacy Shield provides a number of dispute resolution routes, in case a citizen of the EU believes his or her privacy rights have been violated. These routes include contacting the company directly, going to an independent dispute resolution provider, submitting to EU Data Protection Authorities (DPAs), and binding arbitration. In the case of national security issues, an ombudsman independent from US intelligence services is to be available.
Arbitration “is available to an individual to determine . . . whether a Privacy Shield organization has violated its obligations under the Principles as to that individual, and whether any such violation remains fully or partially unremedied.” In short, the purpose of arbitration is to provide an equitable, rather than a monetary remedy, for an individual whose privacy rights have been violated. “Once invoked, the individual forgoes the option to seek relief for the same claimed violation in another forum, except that if non-monetary equitable relief does not fully remedy the claimed violation, the individual’s invocation of arbitration will not preclude a claim for damages that is otherwise available in the courts.” See Arbitral Model, Annex II, pp. 12 to 16 of 128.
Because the binding arbitration dispute resolution mechanism exists to protect privacy, it would make little sense if the Privacy Shield did not protect the confidentiality of the arbitration proceeding itself. In fact, “Materials submitted to arbitrators will be treated confidentially and will only be used in connection with the arbitration.” Furthermore, individual-specific discovery “will be treated confidentially by the parties and will only be used in connection with the arbitration.”
Recommended Reading: The High Cost Of An Inexpensive Forum: An Empirical Analysis Of Employment Discrimination Claims Heard In Arbitration And Civil Litigation
Mark D. Gough’s Study Seeks To Correct For Systematic Differences In Case Characteristics Between Arbitral And Court Forums.
Back on August 19, 2014, I posted about Mark D. Gough’s study of arbitration outcomes arising from his research comparing employment discrimination cases heard in arbitration and civil litigation. At the time, I couldn’t find his study on-line. Good news: it is now available on-line. And here’s a citation: Mark D. Gough, The High Costs of an Inexpensive Forum: An Empirical Analysis of Employment Discrimination Claims Heard in Arbitration and Civil Litigation, 35 Berkeley J. Emp. & Lab. L. (2015).
I was most curious to see how Dr. Gough compared cases in litigation with cases in arbitration, because there are a lot of variables to take into account: “claim amount, award amount, winning party, employee salary, alleged discriminatory action, whether a motion for summary judgment was filed, defendant size, and the attorney’s fee arrangement, among other variables.”
Given that employees win less often and obtain smaller awards in arbitration than in litigation, might this be explained by the fact that the arbitration cases are weaker, that summary judgment is used more often in litigation to winnow out weak cases, that arbitration claims are smaller, that the arbitration clauses are less likely to be individually negotiated, or some combination of factors?
After making heroic efforts to compare apples to apples, Dr. Gough’s bottom line is that in contemporary employment discrimination cases, arbitration outcomes “are starkly inferior to outcomes reported in litigation.” After taking into consideration whether cases survived summary judgment, how the plaintiff’s attorney evaluated the case, plaintiffs’ salaries, employer size, and the discriminatory claims, Gough concludes that inferior outcomes in arbitration cannot be explained by systematic differences in case characteristics between the two forums. Thus, the difference is not in the cases, but in the forums. While the arbitral forum may be relatively “inexpensive”, Dr. Gough’s study concludes that mandatory arbitration in employment discrimination cases costs employees dearly.
Judges, arbitrators, employers, and employees can draw their conclusions. Employers who have embraced arbitration and employees who have challenged mandatory employment arbitration clauses in courts have already drawn their conclusions.
International Arbitration And Confidentiality: What Confidentiality Should One Expect In International Arbitration?
Confidentiality May Seem A Self-Evident Feature Of International Arbitration – In Which Case, You May Be Surprised.
At the 41st Annual IP Conference held in Santa Barbara, I was asked an excellent question yesterday about dealing with confidentiality in international arbitrations. Unfortunately, this is not a subject about which I had devoted enough thought. However, Camilla Mickelson Lous, an attorney with the Norwegian law firm Steenstrup Stordrange, has obviously thought long and hard about this. It is the subject of her excellent April 14, 2014 on-line article entitled: “Hush! Let’s Arbitrate – Discourse And Practice On The Question Of Confidentiality In International Commercial Arbitration.” While I recommend reading the article in its entirety to anyone interested in the subject, I will give you a few of the highlights.
Ms. Lous points out that there is “a notable presumption that confidentiality is a self-evident feature of international arbitration.” However, as important as confidentiality may be to the parties, it shouldn’t be taken for granted.
Preliminarily, there is a difference between confidentiality and privacy. While arbitral hearings may generally be “private”, i.e., they are not open to the public, it cannot be said that confidentiality, as a state of secrecy, necessarily permeates the arbitral process. Participants could be free to communicate outside the arbitration about the existence of the arbitration, communications in the arbitration, and the arbitration award, absent well-defined confidentiality safeguards.
Looking for examples of confidentiality protection in England, Australia, the US and Sweden, Ms. Lous identifies different approaches
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England: Arbitral matters are presumed to be confidential.
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Australia: Confidentiality is not an essential attribute of arbitration, especially where matters of public interest are concerned, though the parties may contract for confidentiality.
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US: Neither the Federal Arbitration Act nor the Uniform Arbitration Act contain confidentiality provisions. The parties may contract for confidentiality.
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Sweden: No obligation of confidentiality exists, though a “duty of loyalty” may exist between the parties to an arbitration. If the parties want confidentiality, they must contract.
Though the rules of international arbitral institutions may regulate confidentiality, there is no uniform approach. WIPO Arbitration Rules 75 to 77, address confidentiality of the existence of the arbitration, disclosures made during the arbitration, and maintenance of confidentiality by the arbitration center and the arbitrator. It makes perfect sense that WIPO would have rules addressing confidentiality, because the “World Intellectual Property Organization” exists to protect the “IP” in “WIPO”, and intellectual property is often valuable because it is confidential.
The UNCITRAL Model Law on International Commercial Arbitration leaves the question of confidentiality to the parties and the arbitration rules they choose.
While confidentiality cannot be taken for granted in international arbitration, there are some things a party can do: (1) include a confidentiality clause in the original contract; (2) get individual confidentiality agreements from third parties; (3) if confidentiality is a concern, pay attention to the choice of law and seat of arbitration; (4) request protective orders from the arbitrator; (6) go to national courts to enforce protective orders (sometimes a self-defeating option).
Bottom line: do not take the obligation to maintain confidentiality for granted in international commercial arbitration.
While I found Ms. Lous’ article to be genuinely illuminating, I can’t help but remember Laurel and Hardy’s immortal words: “Well, here’s another nice mess you’ve gotten me into.”
HAT TIP to the attorney in the audience who asked me about confidentiality in international arbitration yesterday!
Miscellany: Panel On IP And ADR At 41st Annual IP Institute In Santa Barbara
Fellow Mediators Erica Bristol, Phyllis G. Pollack, and I Participated On Panel.
Above: President Roosevelt and party visiting Old Franciscan Mission in Santa Barbara. 1903. Library of Congress.
On November 10, 2016, I had the pleasure of participating in a panel with fellow mediators Erica Bristol and Phyllis G. Pollack in Santa Barbara.
Phyllis G. Pollack is the principal of PGP Mediation and past chair of the California State Bar ADR Committee. Phyllis spoke about California Law Revision Commission activity aimed at revising mediation confidentiality in California. She recited the recent history of mediation confidentiality, beginning with Cassel v. Superior Court, 51 Cal.4th 113 (2011), the California Supreme Court case strictly enforcing mediation confidentiality. Phyllis discussed the Law Revision Commission’s in-depth study about creating an exception to mediation confidentiality for evidence proving or disproving professional misconduct or malpractice by an attorney advocate where the misconduct occurs in the context of the mediation.
Phyllis suggested that if mediation confidentiality is loosened up in California, lawyers who represent clients in mediation will be more exposed to malpractice claims arising out of mediation. If in fact this happens, we could see malpractice premiums for policies covering mediators become more expensive. She also suggests that courts could become burdened with new cases, new discovery disputes, new protective order procedures, and requests for in camera proceedings.
Erica Bristol is a mediator and intellectual property attorney. She is the current Chair of the State Bar’s Litigation Section’s ADR Committee, and a principal of EB Resources Group. Erica discussed differences between the federal and state mediation privileges. The privilege exists in California and is enshrined in our Evidence Code, but the privilege varies in federal jurisdictions. One solution to the uneven application of the mediation privilege courts would be to create a federal mediation privilege in the Federal Rules of Evidence. However, unless that happens, attorneys practicing in federal courts need to consider jurisdictional privileges, give consideration about what information they can safely disclose in mediation, and inform their clients about the application of mediation confidentiality.
I suggested that President Elect Trump will impact the use of arbitration through the likely nomination of conservative Supreme Court justices, because the conservative wing of SCOTUS has been very willing to enforce arbitration agreements, whereas the liberal wing of SCOTUS has been more critical of the use of arbitration to resolve disputes.
I spoke about arbitration in the context of IP disputes. I noted that IP patent, copyright, trademark, domain name/cybersquatting disputes, and license disputes may be susceptible to arbitration. Numerous arbitral bodies exist for arbitrating IP disputes, including WIPO (the World Intellectual Property Organization and Mediaiton Center), the Hong Kong International Arbitration Centre, and the organizations familiar to us here, including the AAA, ADR Services, JAMS, and JudicateWest.
I discussed the application of the Federal Arbitration Act, “gateway issues,” the application of delegation clauses that determine whether a judge or arbitrator decides arbitrability, class arbitration, stays, incorporation of arbitral rules in the arbitration agreement, and the use of click wraps to bind persons using the internet to arbitration agreements. While case law cannot be overlooked, the best way to begin to analyze most arbitration issues in a dispute is with copies of the arbitration agreement, the rules of the arbitral organization, the Federal Arbitration Act, and The Rutter Group treatise on ADR.
Arbitration, FINRA, FAA: Ninth Circuit Holds Arbitration Award Must Be Vacated Because The Arbitration Hearing Was Chaired By An Impostor
Ninth Circuit Allows Equitable Tolling For Claim To Vacate Award Brought More Than Four Years After Entry Of Award.
Fraud against Truth. Currier & Ives. 1872. Library of Congress.
Yikes! In 2009, Move, Inc. lost a multi-million dollar securities claim before a three-member FINRA (Financial Industry Regulatory Authority) arbitration panel. In 2014, Move learned that the panel chairperson, one James H. Frank, had lied about being licensed to practice law in California, New York, and Florida. “It is now undisputed that Mr. Frank, who is ‘James Hamilton Hardy Frank,’ was impersonating retired California attorney ‘James Hamilton Frank.’ FINRA later confirmed that Mr. Frank lied about his qualifications in his ADR and subsequently removed him from all cases and from its roster.” Move v. Citigroup Global Markets, No. 14-56650, slip op. *4 (9th Cir. 11/4/16) (J. Nelson, author).
Under the Federal Arbitration Act, a motion to vacate must be served within three months after the award is filed or delivered. Here, the district court held that equitable tolling applied, but then concluded that Mr. Frank’s misbehavior did not prejudice Move’s right to a fundamentally fair hearing.
The Ninth Circuit held “that the FAA is subject to the established doctrine of equitable tolling.” However, the panel rejected Citigroup’s argument that there was “no evidence that Mr. Frank influenced other members of the panel or that the outcome of the arbitration was affected by his participation.” Explained Judge Nelson, “[T]here is simply no way to determine that this was the case.” Arbitrators contribute by their qualifications, by their participation, and by their vote. In other words, being judged by an impostor is not a harmless error.
Move wanted a qualified arbitrator and had made that clear from the start. Here, however, the arbitrator was an impostor “who should have been disqualified from arbitrating the dispute in the first place.”
Equitable tolling is about fairness. So too is the provision in the FAA addressing arbitrator misconduct, section 10(a)(3), the basis for vacatur here. “[U]nder the unique set of facts of this case, we hold that Move was deprived of a fundamentally fair hearing and therefore was prejudiced by the fraudulent conduct of the panel’s chairperson, Mr. Frank.” Slip op., *13-14.
Of course, it is possible that a fair hearing would have resulted in an award against Move. But in a fair hearing, one’s legal fate would not be decided by an impostor.