Business Conflict Blog
The artist has taken the complete text of the iTunes Terms and Conditions and set them to graphic comics form. Moreover, each page of the book is an homage to a particular classic comic. So the legalese of the click-through user agreement promulgated by Apple is adorned by exciting, often iconic, comics such as Peanuts, Donald Duck, Green Lantern, Rex Morgan and Barney Google. Each page has been modified so that the leading male character is a mock-up of Steve Jobs, complete with black turtleneck and a scruffy beard.
Needless to say, as a student of consumer arbitration jurisprudence I immediately sought the portions of the book addressing dispute resolution. I expected to find both an arbitration agreement and a class action waiver. I found neither.
The agreement provisions from the iTunes Store are based on Beetle Bailey, and call for application of California law and resolution in the courts of California. So does the App Store agreement (based on the Japanese manga artist Katsuhiro Otomo), and so does the provision from the Apple Music contract (based on Brenda Starr). No arbitration, no class action restrictions.
One feature will never die, though — the one that says that Apple can change any of these terms unilaterally, and that continued use of the product will constitute the consumer’s agreement to that change.
I get nostalgic for classic comics, and even more nostalgic for contracts where both parties are aware of what they’re agreeing to.
Many are the contracts contemplating cross-border purchases, but still sporting conventional forum selection clauses. Many clients’ businesses are running ahead of their attorneys’ experience, resulting in contracts like a Florida company shipping to Bolivia, but calling for litigation in Tampa.
Ever try to translate a judgment issued a Florida state court into one of Bolivia’s 38 official languages and have it enforced against a local business by a court in Sucre?
The International Centre for Dispute Resolution has joined with New York Law School to offer a down-and-dirty, two-day “Boot Camp” to convey the fundamentals of cross-border commercial contract enforcement. Taking place in London on June 14-16 at the Institute of Advanced Legal Studies, the “Boot Camp” offers 17.5 CLE credits to meet leading UK ADR figures discussing how to negotiate a cross-border dispute clause; how to identify appropriate commercial mediators outside the U.S.; the difference between arbitration pursuant to LCIA, CIETAC, ICDR, ICC and other arbitration rules; and how to enforce an arbitration award (even in Sucre). The program even includes an hour of ethics, and costs less than $900.
Information, including links to a timed agenda, list of speakers, and registration, is available here.
Parties who are displeased with an arbitration award have been known set off a post-award investigation of the arbitrator, in search of facts (or innuendo) to support a vacatur motion, seeking to set aside the award on the basis of arbitral bias. These motions are usually couched as failures by the arbitrator to disclose a fact that, if known to the losing party, would have dissuaded that party from engaging the arbitrator.
An article appeared in the February 23, 2017, issue of the New Jersey Law Journal that puts a different spin on a losing party seeking to nullify the effect of an adverse arbitration award. Rather than seeking to overturn the award, the disputant seeks to recover in a civil suit brought against the arbitrator and the service provider organization, JAMS, alleging that the arbitrator’s qualifications were fraudulent and that the party was misled to rely upon them, to his detriment.
Kevin Kinsella used JAMS to resolve the terms of his divorce, and claims that he engaged JAMS arbitrator former Judge Sheila Prell Sonenshine, based on her JAMS bio setting forth her experience co-founding an investment bank and a private equity fund. After Sonenshine awarded Kinsella’s spouse temporary support, Kinsella hired a private investigator and discovered that Sonenshine’s equity fund invested only her own family’s funds, and that the bank had settled a class action claim.
JAMS and Sonenshine seek summary judgment based on judicial immunity and other theories that would bar recovery against an arbitrator-cum-private-judge.
Yet another instance — old meat in a new wrapper if you will — of a disputant accepting a neutral after due diligence, but starting up a whole different brand of diligence after losing a claim. Only this time, it’s not vacatur we’re looking at — it’s personal liability and, in the case of JAMS, perhaps a new, less straightforward and more cautious way of doing business.
(A tip of the hat to Robert Margulies, Ted Cheng, and the Garibaldi ADR Inns of Court)
As has been widely reported, the Supreme Court has granted certiorari to review three conflicting decisions among the circuits on the enforceability of an employer’s unilaterally promulgated waiver of employees’ right to participate in collective redress.
Despite reports to the contrary, it seems prudent to remember that this is not an arbitration question. The challenge does not implicate the F.A.A. The question presented to the Court is whether an employer’s unilateral ban on employee’s participating in class actions violates Section 7 of the N.R.L.A., which provides in part that “Employees shall have the right to… engage in… concerted activities for the purpose of… mutual aid or protection….”
The National Labor Relations Board, which is charged with the interpretation of this statute, found that an employer violates this section by purporting to deny employees the right to seek collective redress. Arbitration is, technically, merely the cup that holds the coffee. Whether the denial of the right to “engage in concerted activities” is found as a provision of an arbitration agreement, or is set forth in some other part of the employer’s policies and practices, is a matter of indifference to the NLRB.
We are accustomed to seeing this question arise in the context of arbitration provisions, and it is therefore easy to conflate the two issues, and to assume that federal policy favoring arbitration will be brought to bear. And, indeed, the fact that courts enforce such denials if they are ensconced in arbitration agreements (though they presumably would not enforce them if they were, say, in an employee handbook) prompts employers to draft arbitration provisions, not in order to provide private means of redress, but in order to eliminate class actions. And many of us who seek to preserve the integrity of arbitration find that practice offensive.
Here, however, the Court will not need to balance the sanctity of arbitration clauses in order to focus on the neater, and more tantalizing, question: Is a class action waiver, however housed in an agreement, a violation of workers’ well-established rights to engaged in concerted activities for the purpose of mutual aid and protection? Or may an employer, by its own unilateral action, exempt itself from the scope of the National Labor Relations Act?
And are the findings of the agency charged to make such determinations owed deference?
Those who know me, know that I am an avid enthusiast of Richard Wagner’s theatre works. This year alone I have attended a Ring Cycle in Washington, a performance of Das Rheingold in Chicago, a new productions of Tristan und Isolde at the Metropolitan Opera, another Tristan at the English National Opera in London, and a performance of Die Meistersinger at the Glyndebourne Festival in England.
I was lurking around the web site of the Wagner Festival in Bayreuth tonight, nursing my disappointment that I apparently have yet again been unsuccessful in my ticket application (last time I attended was 2012, c’mon, guys, my turn…) when I noticed the legend “ODR” on the top banner of the tickets web page. And behold, the following is posted:
The Bayreuther Festspiele GmbH draws attention to the link to the online platform of the European Commission for Online Dispute Resolution (so-called Odr platform) for out of court settlement http://ec.europa.eu/consumers/odr/, which is set on the homepage of the Bayreuther Festspiele GmbH; furthermore, attention is drawn to the fact that the Platform for Online Dispute Resolution – according to its own statement – will not be operational until 15/02/2016.
The e-mail of the Bayreuther Festspiele GmbH is as follows: [email protected]
Now how cool is that? Here I am wasting time whinging because I won’t have the opportunity to spend money I don’t have seeing operas I already know, and I am unexpectedly treated to Colin-Rule-In-A-Can!
Does life get any more coherent than this, I ask you?
We have previously noted the series of convenings under the auspices of the International Mediation Institute, Herbert Smith Freehills, and others, under the title “Global Pound Conference.” The first was held in Singapore in March of this year, and a formal report on the proceedings, as well as a analysis of the data produced at the Conference, have been publicly posted.
The report is available here. Reports of ensuing Conferences will be forthcoming.
On the front page of today’s New York Times there appears an article reporting on a legal argument that is purportedly being advanced by Wells Fargo in response to claims brought on behalf of thousands of customers in whose name, and without whose knowledge, over 2,000,000 “sham” accounts were established.
The bank is reported to be arguing that the accounts that the customers did not authorize contained agreements that the customers did not see, containing provisions that the customers did not understand, pursuant to which judicial class actions were barred. These provisions — drafted by the bank — apparently also unilaterally decreed that customers seeking redress were required to avail themselves of private arbitration as their exclusive method of redress. The bank wants these provisions enforced and the judicial claims dismissed in favor of thousands of individual arbitrations.
In the fourth graf of this article, “arbitration” is defined as “a secretive legal process that often favors corporations.”
Will someone who gives a damn about dispute resolution in this country please take care of this? I don’t mean teaching the Times reporters what arbitration is. I mean unilaterally promulgating provisions in consumer contracts that are secretive and often favor corporations.
We have previously noted the New Jersey Supreme Court’s somewhat radical view of arbitration agreements — including the proposition that, to be enforceable, each party to the contract needs to understand what arbitration means. This principle has been applied to a subsequent dispute before the State Supreme Court, resulting in the holding that a provision of an arbitration agreement in a student enrollment contract delegating the authority to determine arbitrability to the arbitrator is invalid where the students were not put on notice that (a) a court would not determine arbitrability, or (b) a court would not determine anything whatsoever inasmuch as the students had irrevocably waived their right to judicial access.
In Morgan v. Sanford Brown Institute, a complaint was brought in state court by students alleging fraud against Sanford Brown Institute (a for-profit educational institution offering medical ultrasound training). Defendant Sanford Brown unsuccessfully argued a motion to compel arbitration, implicitly acknowledging that the court had authority to grant such relief. The school neither relied upon the delegation clause in the arbitration agreement (empowering an arbitrator, not a court, to determine arbitrability of claims), nor cited any law with respect to the validity of such delegation provisions. The trial court denied the motion but the school prevailed before the Appellate Division, which reversed the trial court, dismissed the students’ complaint, and directed that the claims be sent to arbitration. Here, for the first time, the court held that “the parties ‘clearly and unmistakably’ agreed an arbitrator would determine issues of arbitrability.” The trial court’s error, therefore, consisted of its not submitting the issue of arbitrability to an arbitrator.
Ignoring its own holding, the Appellate Division panel nevertheless made certain legal findings with respect to the arbitration agreement, determining inter alia that the arbitration agreement’s limitation on the award of statutory damages and exclusion of other protections of the New Jersey Consumer Fraud Act were unconscionable and unenforceable.
The Supreme Court reversed, holding the entire arbitration agreement unenforceable and remanded to the trial court for (presumably) reinstatement of the students’ claim. The rationale for the Supreme Court’s action was consistent with, but an extension of, its previous holding in Atalese v. U.S. Legal Services Group. That case, in turn, was founded on the proposition that, pursuant to the Federal Arbitration Act, the enforceability of agreements to arbitrate was to be determined by generally applicable state law principles of contract, which (in New Jersey) meant that “a consumer had to have some understanding that, by accepting arbitration, she is surrendering her common-law and constitutional right of access to the courthouse.” Because, in the court’s view, “state law governs not only whether the parties formed a contract to arbitrate their disputes, but also whether the parties formed an agreement to delegate the issue of arbitrability to an arbitrator,” those state law principles — such as the requirement of mutual assent and a common understanding of the contract terms — defeat this agreement. The court held that a waiver of a constitutionally guaranteed right must be clear and unmistakable — and, under New Jersey law, explained “in sufficiently broad terms” in the agreement itself. The agreement at issue “[did] not explain, in broadly worded language or any other manner, that plaintiffs are waiving their right to seek relief in court for breach of the enrollment agreement or for a statutory violation,” and thus did not satisfy the elements necessary for the formation of a contract.
Several concerns are raised by this decision. First, it seems to be restricted to consumers who enter into arbitration agreements. That is, could General Motors rely on Atalese or Sanford Brown to argue that its arbitration agreement with DuPont is unenforceable because the contract did not explain the consequences of arbitration or delegation with respect to waiver of constitutionally guaranteed access to the courts? Indeed, could any party to any contract contest its validity on the ground that the party did not understand the consequences of its agreement to certain of its provisions? If General Motors is presumed to understand the meaning of an arbitration agreement, and students enrolled in an ultrasound technician training course are presumed not to understand it and require it to be explained to them, then where do I fall in the continuum? And where do you?
In addition, there is the issue of futility. The court itself noted that the arbitration provision in the 4-page enrollment agreement was in 9-point type, single-spaced, and therefore difficult to read. Would the insertion of a definition of arbitration, waiver, and delegation have cured the defect that the court complained of? And would certain prospective students reconsider their intention to enroll in Sanford Brown Institute because of an additional inserted phrase in the arbitration clause of the enrollment agreement?
Finally, and perhaps of greatest concern, is the prospect that, in order to be enforceable in New Jersey, arbitration agreements now must feature certain provisions that arbitration agreements in the neighboring states of Pennsylvania, New York and Delaware need not. The Sanford Brown court saw no difficulty here — “no greater burden is placed on an arbitration agreement than other agreements waiving constitutional or statutory rights.” It refers to cases cited in Atalese that require notice when a consumer or employee agrees to waive appeals of the denial of a license and other administrative acts. This somehow doesn’t hold water. It is the very nature of agreements to arbitrate that the parties mutually waive access to the courts. One could argue that there is nothing of substance in an arbitration agreement other than a waiver of access to the courts.
It seems apparent that the driving force behind this opinion is hostility to judicial arbitration, at least in the consumer context. The court is deeply skeptical that courts should be carved out of claims of consumer fraud by private contracts of adhesion unilaterally promulgated by the stronger party. So are many of us — but as a matter of policy, not common law, and not because we think judges are any better equipped to decide fraud claims than arbitrators are. Forcing all these claims to be asserted in New Jersey Superior Court does no favor to the students or to the courts.
I invite readers to articulate the broad legal contract principles that render unenforceable, as to students and consumers, contracts that are perfectly enforceable between businesses, and that render unenforceable in New Jersey arbitration agreements that are enforceable in every other state.