Arbitration And Class Action Waivers Presentation

ARBITRATION AND CLASS ACTION WAIVERS Presenters Michael Dommermuth McGloin, Davenport, Severson and Snow, P.C. 1600 Stout Street, Suite 1600 Denver, CO 80202 720.536.3550 [email_address] Shawn Mercer Bass Sox Mercer 9104 Falls of Neuse Road, Suite 200 Raleigh, NC 27615 919.847.8632 [email_address] Christian Scali Arent Fox LLP 555 West Fifth Street, 48 th Floor Los Angeles, CA 90013 213.443.7621 [email_address]

Federal Arbitration Act Courts reluctant to enforce for many years Supreme Court embraces FAA STATUTORY HISTORY

Under FAA class arbitration requires express contractual agreement STOLT-NEILSEN v. ANIMALFEEDS

Reversed Discover Bank Broadly applied preemption analysis State laws that prohibit arbitration State laws applied in a fashion that disfavors arbitration State public policy concerns are irrelevant AT&T MOBILITY v. CONCEPCION

Upheld use of a class waiver “ Switch to class arbitration makes process slower, more costly and more likely to generate procedural morass.” Class arbitration requires procedural formality Class arbitration increases risk to defendants – no review forces “ in terrorem ” settlement Arbitration is poorly suited to high stakes class litigation AT&T MOBILITY v. CONCEPCION

Supreme Court will decide Kentucky Supreme Court struck down under Kentucky law a no class action arbitration clause The plaintiffs in that case are arguing that Concepcion does not apply in state court APPLICATION IN STATE COURT?

Judicial hostility toward arbitration, generally, and toward class action waivers specifically. Tests for enforcement of class action waivers: Unconscionability Unwaivable statutory rights Federal courts favored arbitration

To arbitrate injunctive relief claims brought under the CLRA and UCL To suggest (without holding) that Gentry Rule is also preempted by the FAA To preempt California’s CLRA anti-waiver provision CA FEDERAL COURT RESPONSE

Mixed bag Applying Gentry Rule without holding whether Gentry Rule is preempted Declining to extend AT&T Mobility to preempt all California law regarding unconscionability, yet enforcing arbitration agreement CA STATE COURT RESPONSE

Confusing and vague agreements will still be invalidated (PA, NJ) New Jersey case authority holding that class action waivers are unconscionable is preempted(NJ) Any unconscionability defense against a class action waiver is preempted (FL) RESPONSE IN OTHER STATES

But federal court held AT&T Mobility does not preclude all unconscionability defenses; it only narrows permissible factors to consider (FL) Adhesion contracts not per se unconscionable. Individual claims substantial enough to be pursued under state deceptive practices act because of fee shifting provision (CO) RESPONSE IN OTHER STATES (con’t)

Arbitration a top priority for certain consumer groups Arbitration Fairness Act of 2011 CFPB to study arbitration agreements § 1028 Dodd-Frank Act Requires Bureau to report to Congress CFPB, by regulation, may prohibit or impose conditions or limitations on use of arbitration in agreements for consumer financial products or services SHORT-LIVED VICTORY?

SHORT-LIVED VICTORY? Direct impact on BHPH operators Indirect impact for other dealers May depend on future face of CFPB Multi-member Commission pushed by industry and supported by Republicans May not restrict a consumer from entering into voluntary arbitration after dispute arises Much like dealer exemption from FAA

SHORT-LIVED VICTORY? Enhanced FTC rule-making authority FTC likely to wait for CFPB study/action Could impact R/O arbitration agreements, etc.

Jury trial waivers Class Action Fairness Act (CAFA) CLASS ACTION WAIVERS

ARBITRATION GENERALLY Pros Cons Deterrence Less expensive than lawsuits Faster and more efficient Class waiver Less formal – less adversarial Can be done pro se Limited appeal rights Split baby (Rule 43 – fair and equitable) Arbitrator expense No rules of evidence in play

Stand-alone? Stand alone class action waiver? Arbitrators – specialized How many arbitrators Forum Division of costs? DRAFTING CONSIDERATIONS

What types of disputes Procedural rules Rules of Evidence? Appeal rights Consistency with other documents Whether to sell if customer refuses to sign Severability DRAFTING CONSIDERATIONS

Arbitration And Class Action Waivers Presentation

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