House Judiciary Committee Subcommittee Holds Hearing on “Forced Arbitration.” Proposed Fair Act is Gaining Strength
Posted on Categories Arbitration, Arbitration Agreements, Class Action/Collective Waivers, LegislationTags , , , , ,

The House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law held a May 16 hearing titled “Justice Denied: Forced Arbitration and the Erosion of our Legal System.” The Senate Judiciary Committee held a similar hearing in April.

The nearly two-hour hearing consisted of taking testimony from this panel (ed: links are to prepared remarks): Gretchen Carlson, Journalist and Advocate; Professor Myriam Gilles, Professor of Law - Benjamin N. Cardozo School of Law (Yeshiva University); Phil Goldberg, Managing Partner, Shook, Hardy & Bacon L.L.P.; Deepak Gupta, Founding Principal, Gupta Wessler PLLC; Andrew Pincus, Partner, Mayer Brown L.L.P. (on behalf of the U.S. Chamber Institute for Legal Reform); and Lieutenant Commander Kevin Ziober, Navy Reservist. The panel was not balanced; four of the six witnesses were anti-mandatory arbitration; only Messrs. Goldberg and Pincus were PDAA supporters. Like the Senate Judiciary Committee hearing held April 2nd, the focus was clearly on mandatory or “forced” arbitration and ensuring fairness in consumer, employment, and civil rights matters (ed: see our Senate hearing analysis in SAA 2019-13 (Apr. 3)). Speaking of the Senate hearing, Prof. Giles and Lt. Cmdr. Ziober were repeat witnesses. 

Arbitration Legislation Focus

We reported in SAA 2019-12 (Mar. 20) that House and Senate Democrats introduced several anti-mandatory arbitration bills in late February and early March. The new bills seek to amend the Federal Arbitration Act (“FAA”), specific statutes like Dodd-Frank, or both. The hearing officially focused on the Forced Arbitration Injustice Repeal (FAIR) Act of 2019 (H.R. 1423 and S. 610), which would amend the FAA to eliminate mandatory predispute arbitration agreements for disputes involving “consumer, civil rights, employment, and antitrust.” It would definitely cover brokers and investment advisers; bars class action/collective action waivers in or out of a predispute arbitration agreement (“PDAA”); extends to “digital technology” disputes; reserves for court determination any arbitrability or delegation issues “irrespective of whether the agreement purports to delegate such determinations to an arbitrator;” and clearly affects sexual harassment claims. The FAIR Act would be applied to any claims made after the effective date. While this Bill was officially the hearing’s focus, the Committee’s discussion spilled over to other anti-mandatory arbitration Bills as well. 

Change Coming?

Chairman David N. Cicilline (D-RI) said in his opening remarks that there has been “a corporate takeover of our nation’s laws. It’s time to act.” Several commenters said that the FAA was meant to apply to disputes between businesses of relatively equal strength, and that SCOTUS has improperly expanded the Act’s reach to consumer and employment disputes. Mentioned several times was the need for legislative reversal of Epic Systems Corp. v. Lewis, 137 S.Ct. 809 (2018), a 5-4 ruling that the FAA permits employers to use arbitration clauses containing class action waivers, notwithstanding the National Labor Relations Act’s protections of workers’ rights to act collectively. As we’ve said before, we had thought the FAIR Act had no chance of enactment, but based on the Senate hearing testimony, comments, and questions at that hearing from Republican Committee members, and the virtual certainty of House passage (ed: there are already 207 co-sponsors – all Democrat), we are not as certain. To be sure, there were also pro-arbitration and anti-litigation/class action comments from Subcommittee members on both sides of the aisle and there were also bipartisan expressions of support to improve the FAA to better protect weaker parties.

Industry Groups Weigh In

Several industry groups wrote to the entire House of Representatives, challenging the legislative efforts to curb arbitration clause use. The two-page May 16 letter states: “The undersigned organizations strongly oppose the onslaught of anti-arbitration bills and provisions that have been introduced or proposed in the 116th Congress. Arbitration has been used to amicably resolve disputes since the enactment of the Federal Arbitration Act in 1925. Unfortunately, there is an organized effort underway to dismantle the arbitration system in favor of bringing claims in the broken class action litigation system. Arbitration is an efficient, effective, and less expensive means of resolving disputes for parties to a dispute including consumers, employees, servicemembers, and businesses. Multiple empirical studies have concluded that those bringing claims in arbitration do just as well, or in many circumstances, better in arbitration as in court.”

(ed: *The hearing video is at: **Rep. Cicilline on May 15th introduced H.R. 2750, the purpose of which is to “amend title 9 of the United States Code to prohibit predispute arbitration agreements that force arbitration of certain disputes arising from claims of servicemembers and veterans.” The Bill is not yet named or published. ***The industry letter is signed by ACA International, the American Financial Services Association, CTIA, Innovative Payments Association, National Association of Mutual Insurance Companies, Professional, Association for Customer Engagement, U.S. Chamber of Commerce and USTelecom.) (SAC Ref. No. 2019-20-01)

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