This is my 290th post at ArbitrationNation and today I celebrate six years of blogging. Woo hoo — that’s longer than most celebrity marriages! In honor of the occasion, here are updates on six of the hottest issues in arbitration law so far this year.
- Agency regulation of arbitration agreements. On the one hand, the CFPB issued a rule that will preclude financial institutions from using class action waivers in arbitration agreements. To understand how “yuge” this is, remember that the CFPB’s initial study showed there are likely over 100 million arbitration agreements impacted by this rule. (And there does not seem to be the necessarily political willpower to stop it.) On the other hand, agencies headed by Trump appointees have moved to roll back Obama-era consumer-friendly regulations of arbitration agreements in nursing homes and educational institutions.
- NLRB. While the CFPB attacks class action waivers in the financial industry, the NLRB has been attacking those waivers in the employment context, taking the position that such waivers violate the National Labor Relations Act. A circuit split developed, with the 6th, 7th, and 9th circuits on NLRB’s side, and the 2nd, 5th and 8th circuits siding with the employers. The Supreme Court will hear arguments on October 2.
- Wholly Groundless. When considering whether to enforce delegation clauses, some federal court have developed a carve-out for claims they think are nothing but hot air. [Remember delegation clauses are those portions of arbitration agreements that authorize arbitrators to determine even arbitrability — whether the arbitration agreement is valid and encompasses the claims — issues usually decided by courts.] That carve-out has been called the “wholly groundless” exception, and it is coming up with greater frequency. Currently there is a circuit split: the 5th, 6th and federal circuits are in favor of spot-checking claims of arbitrability (e.g. Evans v. Building Materials Corp. of Am., 2017 WL 2407857 (Fed. Cir. June 5, 2017)), while the 10th and 11th Circuits believe SCOTUS’s precedent leaves no room for conducting a smell test (e.g. Jones v. Waffle House, Inc., 2017 WL 3381100 (11th Cir. Aug. 7, 2017)).
- Formation. SCOTUS decided the Kindred case in May, confirming that state law on contract formation is also subject to preemption by the Federal Arbitration Act. That was timely, given that plaintiffs appear to be placing their bets on challenging formation as the most effective way around an arbitration agreement. They might be right. See James v. Global Tellink Corp., 852 F.3d 262 (3d Cir. Mar. 29, 2017); Noble v. Samsung Electronics America, Inc., 2017 WL 838269 (3d Cir. March 3, 2017); King v. Bryant, 795 S.E.2d 340 (N.C. Jan. 27, 2017).
- Small Claims Court. If a company starts a small claims court action to collect a debt, does that waive the company’s right to compel arbitration years later in response to a suit by the consumer? This is a question multiple courts are facing, with differing results. E.g., Cain v. Midland Funding, LLC, 156 A.3d 807 (Md. Mar. 24, 2017) (waiver); Hudson v. Citibank, 387 P.3d 42 (Alaska Dec. 16, 2016) (no waiver); Citibank, N.A. v. Perry, 797 S.E.2d 803 (W. Va. Nov. 10, 2016) (no waiver). It is important because many consumer arbitration agreements exempt small claims from arbitrable claims, but may reconsider if that is considered a waiver of everything else.
- Statutory Preclusion. The Federal Arbitration Act generally requires courts to enforce arbitration agreements. But, if there is a contrary congressional command entitling the litigant to a court trial, it can override the FAA. That issue has already come up multiple times this year, with the FAA generally winning its battles with other statutes. E.g., McLeod v. General Mills, Inc., 854 F.3d 420 (8th Cir. Apr. 14, 2017).
Thanks to all of you for providing great feedback, leads on cases and topics, client referrals, and a warm community of fellow arbitration geeks. I look forward to another year of blogging.