Business Conflict Blog
For many years, a tempest has surrounded public policy approaches to consumer protection, largely implicating three utterly inapt legal constructs: FRCP 23, the Federal Arbitration Act, and traditional principles of contract formation. Accustomed to managing customer complaints but unwilling to expose themselves to the coercion of class actions, companies have sought to require consumers to waive rights to collective remedies. Courts have recognized the validity of contracts containing such waivers if they are embedded in agreements to arbitrate. And consumer agreements to arbitrate have been enforced despite widespread acknowledgement that consumers have no idea that they are agreeing to anything, what they are agreeing to, or what rights they are waiving.
So intractable has been the legal discourse that Congress, through Dodd-Frank, created an agency to promulgate rules protecting consumers of financial products from “forced arbitration and class action waivers.” And so vulnerable is our regulatory environment that once Congressional power shifted that promulgating agency (the Consumer Financial Protection Bureau) and its proposed rules are presumed to be dead before ever having come to life.
The whole thing has been a testament to the futility of the law to address a felt need in a way that conforms to our legitimate expectations.
Comes now Prof. Amy J. Schmitz of the University of Missouri and Colin Rule of Modria with an extra-legal, market-driven, empirically-based approach whose values reflect old-time America and yet whose execution relies upon cutting-edge technology.
Prof. Schmitz remembers when she would buy ears of corn from a local farm stand, hand the farmer a buck, and shake his hand. The dollar signified the market value of the corn. The handshake signified the farmer’s willingness, in the event that an ear was wormy, to replace it with a good one.
Harry Truman expressed his frustration with economic advisors who equivocated “On the one hand… but on the other hand…” by declaring that what this country needs is a one-armed economist. Schmitz and Rule suggest that what this country needs is a New Handshake. Their book of that name makes a compelling argument.
In a calm and informed voice, the authors explain the legitimate expectations of online retailers and their online customers. Both seek, and almost always realize, accuracy, satisfaction, efficiency and responsiveness. Retailers devise easy methods of product identification, ordering, payment and order fulfillment. Moreover, they compete with others in the marketplace to provide those experiences better than their customers’ alternative suppliers. Consumers want ease of use, quick delivery, conforming goods, and both privacy and safety with respect to the details of their financial transactions.
The question is, if 98-99% of those transactions go as contemplated, what do consumers expect with respect to the 1-2% that do not? And what are the market justifications for retailers’ trying to meet those customer expectations?
Rule and Schultz argue that the online nature of the transaction presents the opportunity for an online resolution of the disputes arising from this economy, and that management of disputes through the internet, arising from internet-based consumer transactions, presents opportunities for both customer satisfaction and enhanced business. Setting aside the concerns of third party advocates, regulators and lawyers, the authors propose that what customers really want is a dispute process that is as easy to access as the sale was; is online, like the sale was; is fair, quick, private, confidential, effective and direct. They do not want coupons, negotiations, arguments, excuses, or offers of discounts for future purchases, and they certainly do not want to have to pick up a telephone and have a recording tell them how important their call is.
Here comes the most compelling part of the study: based on a study of the buying behavior of millions of consumers on the retail site eBay, the authors conclude that consumers who are offered, and who initiate, online dispute processes concerning their purchases actually engage in more purchases – irrespective of the outcome of the dispute process they initiated. That is to say, the mere availability of a direct, simple online access to remedy boost customer loyalty with respect to that online merchant. The authors even call this phenomenon “Return on Resolution,” or RoR.
This can backfire if done badly, of course. If the online consumer redress protocol is perceived as unfair, or complaints get lost, or other adverse experiences lead customers to feel hoodwinked, things will change rapidly for the worse. But the empirically-based proposition is that the presence on a retail website of an online consumer dispute mechanism results in enhanced customer loyalty. It acts like a farmer’s handshake.
If you accept the validity of this behavior – and we’re talking about consumer behavior, not self-described consumer “satisfaction” – then a whole new world of online dispute resolution (ODR) presents itself, driven and enforced by the market rather than by legal theories or regulatory initiatives. The authors envision a global, uniform, multi-lingual, cross-cultural system of online consumer redress that possesses certain design criteria:
- The process is easy to access and to understand
- The system is highly automated
- User of the process are treated fairly and their privacy is respected
- The system identifies “bad guys” – fraudulent sellers and repeated claimants – and uses a “tripwire” system to exclude them from participation or notify appropriate authorities
- The process is sufficiently sophisticated to detect other efforts at “gaming”
- The process must yield benefit to the merchants who take part
- The system must self-improve through iterative lessons-learned
They go on to spell out in some detail how such a global network, www.newhandshake.org, might be built on a single platform. And they offer hypothetical case studies of how it would work in instances of buyer nonpayment, seller failure of delivery, dissatisfaction with quality of service, or other common B2C disputes.
This is timely, innovative, creative stuff. And it is a refreshing reminder that the law follows, and seldom incites, human endeavors. New developments in trade relationships come from the felt needs of the market, and when the market undergoes fundamental reshaping – such as the multi-jurisdictional, multi-legal, cross-cultural, click-able world of contemporary online retailing – we lawyers are fortunate to have people like Amy Schultz and Colin Rule to point us to the leaders, and encourage us to follow.
Many of the presentations at the ABA Dispute Resolution Section Meeting introduced new books in the field. A notable example was Prof. Lela Love and her co-editor Glen Parker explaining the ongoing effort to open up mediation to people around the world who have may not have experienced it by compiling of “Stories Mediators Tell” — now supplemented by “The World Edition.”
The volume is purposely anecdotal. The idea is to “popularize” mediation by telling stories. Prof. Love explained that stories educate and inspire, educate and entertain people. We are more eager to hear stories than to be taught. The volume perfectly vindicates her proposition.
The hour-long panel consisted, suitably, of a group of internationally-based mediators who told their stories.
- Thierry Garby of France told the story of a Parisian theatre that, 100 years after its construction, was remodeled and provoked neighborhood complaints because of noise. Five expert reports, 13 parties and 12 years of litigation yielded no acceptable outcome. The remedy would cost $8,000,000 but, Garby discovered, the building was worth $250,000. It settled in two hours. Once he discovered this anomaly,
- Maria Camelino of Argentina said that she uses media to resolve conflict. In her country, in 2002, there was dramatic political upheaval and economic crisis. She initiated a conflict resolution on Argentine TV, offering advice from social workers and others on a particular case. Lawyers could bring cases to the panel and viewers could learn from them. Subsequent mediation parties would be invited to watch clips from the show, changing their perspectives.
- Jarwad Sarwana of Pakistan related an instance of a trademark mediation that was interrupted with the afternoon prayer towards Mecca, including the invocation by an imam to pray for peace. The mediation was about to re-commence after afternoon prayers but first one party asked to speak. He reported having been moved by prayer, and proposed that he and his chief adversary discuss directly an incident that had occurred in Frankfurt years before. Clarity was thereby achieved by means seemingly unrelated to, but likely possible only through, mediation.
- Judge Srdan Simac of Croatia told a Christmas story. As chief of the mediation service in his court, he received a request from a party on December 23 to conduct a mediation the next day, so it would be done before Christmas. He agreed and conducted a Christmas Eve mediation that proved successful. The grateful parties arranged for the delivery of two boxes of cakes for the court. The Judge explained that he was obligated to refuse it and asked if it could be re-delivered to the local orphanage. All agreed. Later in the afternoon he found one of the attorneys at the end of a corridor, crying. It transpired that the lawyer had spent World War II in that very orphanage as a child, and was moved by the unexpected turn of fate by which he himself had been an agent of the very kindness he had so yearned for.
Prof. Love noted that there is a tendency for mediators to tell inspiring and successful experiences, not dull, boring, tedious or unsuccessful ones. That’s okay with me. Inspiration is in short enough supply in our business that no one is well advised to turn it down when it’s offered.
Lincoln famously wrote: “As a peacemaker the lawyer has a superior opportunity of being a good man.” Without challenging this proposition, I have often wondered to what extent lawyers are uniquely positioned to achieve “goodness,” or to do “good” for others. Don’t teachers also have a “superior opportunity” to do good? Landscapers? Artists? Butchers?
Kim Wright, Eileen Barker and Ann Marie Puente conducted a panel at the 2017 ABA Dispute Resolution Section Meeting investigating “expanding what is possible for lawyers.” The panel sought to show “how we can lead as peacemakers and changemakers in the current social and political environment.”
Kim Wright’s most recent book is “Lawyers as Changemakers.” She described the “Integrative Law Movement” as part of rapid change in a broad swath of professional society, including shifting corporate governance paradigms and re-emergence of holistic medical practice. She cited factors such as public disrespect for lawyers, lawyers’ disrespect for each other, and lawyers’ frequently reported personal distress and dissatisfaction, as incentives for professionals to self-reflect and critically assess. One outcome, she proposes, is a re-adoption of ancient and fundamental values of individual purpose and worth – unfashionable though those terms may be to some. She cited a trust and estate lawyer who stated that his firm’s mission was “helping clients to express their love for those most important to them.” She seeks to “reunite law and love,” in recognition that all of law deals, in one way or the other, with relationships. And the incorporation of these fundamental values into the individual legal practice may render one’s self a “changemaker” – in principle movingly illustrated by a remarkable 4-minute film on the consequence of the re-introduction of wolves to the Yellowstone National Park.
Eileen Barker described the process whereby she left litigation and opened a mediation practice as an intentional choice to conform her professional life with her personal desire to foster relationships and wrestle with the challenges of forgiveness. She wanted to use her legal training to “help people to heal, and be at peace.” She found, moreover, that helping people resolve a particular conflict was frequently only the tip of the iceberg, merely the first step of transforming and liberating people away from other-directed blame and towards self-directed nurturing and growth. She noted Ken Cloke’s observation that, “in every conflict, forgiveness, like revenge, is always possible.” She insists that there is a fundamental human impulse to forgive, an impulse towards empathy, that can either be encouraged or dissuaded by facilitation. She made it seem obvious: “Most people want peace.” Pressed on the fact that most people also want moral vindication, she noted that forgiveness can also include acknowledgement of harm, accountability, restitution and other elements of moral suasion.
Ann Marie Puente urged a design analysis to problems that lawyer often address. Regulation is a sign of design failure, she suggested – pollution is a flaw of systems design, as is injustice. Thus, design is admittedly intentional, value-laden and outcome-oriented. Were lawyers to follow a design of numerous informal face-to-face interactions, she argues, outcomes would be more attractive to those effected by them. She termed it a “culture of informality,” allowing porous and humane interactions that would yield progressive and enjoyable outcomes. This principle is particularly urgent in times that are violent, uncertain and insecure, as she suggests we find ourselves now. Humanity, not technology, will drive change.
To some degree, the concepts conveyed in this program are applicable to landscapers, butchers, and anyone who serves clients. Our job is to fix our client’s problems – the dripping faucet, the tasty portion of beef, the elegant outcome of a conflict. All of us who serve others express our caring for them, and are required therefore to bring our integrity and values – one of which is to refrain from saying “This is what you want” in favor of asking “What do you want?” Those who are uncomfortable doing so when practicing law may find themselves rightly confused.
At the same time, if the desire to be at peace and the desire to morally vanquish are both intuitive, one can still ask whether the lawyer the professional agent best qualified to respond to both needs.
There is so much to do, see, hear and learn at the ABA Dispute Resolution Spring Meeting that I frequently find myself at a loss how best to spend my time. If you find yourself in such a quandary, I urge you to consider, at 1:45 p.m. Friday, in Room Pacifica 1, a gentle and inspirational hour with three women of faith who have responded to a mission of mutual understanding and peace.
The panel, titled “Interfaith Efforts at Peacemaking,” features leaders of Christian and Muslim congregations in the San Francisco area who have devoted themselves to service in the conviction that people of faith have something unique to offer, through simple interfaith dialogue and intercultural cooperation. Speakers include Faith Ferde Ates of Pacifica Institute, Linda Crawford of Interfaith Center at the Presidio, and Rev. Susan Strouse of First United Lutheran Church.
Persecuted Coptic Christians; banned Muslim travelers, Jews subjected to newly awakened antisemitism — We are all too familiar with religion being used as a tool for division. I encourage you to consider meeting and speaking with three inspired women who are committed to its use as an agent of healing and peace.
In March 2017, New York Law School and the American Arbitration Association convened a discussion of “Hot Topics in Arbitration,” one of which involved third party funding. The event was taped and the provocative discussion can be viewed here.
The issue is also addressed in a terrific article appearing in the Spring 2017 issue of the New York Dispute Resolution Lawyer. Professor Elayne E. Greenberg of St. John’s Law School evokes circumstances “When the Empty ADR Chair is Occupied by a Litigation Funder,” and her succinct observations make dandy reading.
After reviewing the landscape of the legal and ethical status of what used to be called “champerty and maintenance,” Prof. Greenberg settles into a frame of discussion that I find very comfortable — analogizing to the insurer’s duty to defend, she refers to the settled ethical principles arising from a lawyer’s representation of a client when legal fees are paid by a third party with an interest in the progress of the defense. These principles boil down to two cautions — (1) A lawyer must take care not to impinge on the exercise of independent legal judgment on the client’s behalf, and (2) a lawyer must be aware of the risk of the loss of privilege to the extent that communications take place with the non-client funder.
Applying these ethical principles to arbitration and mediation, Prof. Greenberg concludes that “lawyers participating in dispute resolution should be ethically required to disclose the identity of litigation funders at the time that the lawyers and their clients consent to participate in dispute resolution.” More to the point, she postulates that “arbitrators and mediators must know the identity of litigation funders… if these neutrals are to conduct these dispute resolution procedures in accordance with their ethical mandates and maintain the integrity of the arbitration and mediation procedures.”
I confess this clear-cut statement is new to me, but makes perfect sense in the face of an increasing trend of non-parties with financial interests in the arbitration.
Prof. Greenberg gives five justifications for this bright-line rule, only two of which (it seems to me) relate to arbitration: (1) Disclosure is needed to ascertain conflicts between the neutral and the funder; and (2) disclosure is needed to ensure that all participants’ procedural justice expectations are satisfied.
The other three points seem to relate more specifically to mediation: (1) Disclosure is needed to enable the neutral to understand the interests that need to be addressed’ (2) disclosure is needed to “uncover all the invisible pulls that may be dictating settlement terms”; and (3) disclosure is needed to ensure that all interested parties agree to abide by confidentiality obligations.
Greenberg notes that disclosure does not address all of the ethical and procedural challenges that third-party funding addresses. But she has identified a salient part of any discussion of the issue, and her article is a contribution for that alone.
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?