Senate Judiciary Committee Holds Hearing on “Arbitration in America.” Are Changes Coming to the FAA?
Posted on Categories Arbitration, Arbitration Agreements, Legislation, News, Non-Securities ArbitrationTags , , ,

The full Senate Judiciary Committee held an April 2 hearing titled “Arbitration in America.” Based on the comments and questions from Committee members, it seems there will be bipartisan support for changes.

The two-hour hearing consisted of a panel who presented in this order (ed: links are to prepared remarks): Kevin Ziober Navy Reservist; Professor Myriam Gilles, Professor of Law - Benjamin N. Cardozo School of Law (Yeshiva University); Alan S. Kaplinsky, Partner - Ballard Spahr LLP; F. Paul Bland, Jr., Executive Director - Public Justice (ed: no written remarks posted); Alan Carlson, Italian Colors Restaurant; and Victor E. Schwartz, Co-Chair, Public Policy Practice Group - Shook, Hardy, & Bacon LLP (on behalf of the U.S. Chamber Institute for Legal Reform). The panel was not balanced; four of the six witnesses were anti-mandatory arbitration; only Mr. Kaplinsky and Mr. Schwartz were PDAA supporters. The focus was clearly mandatory or “forced” arbitration and ensuring fairness.

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. These are more fully described by SAC Contributing Legal Editor and Board Member and Fordham Law Professor George H. Friedman, who wrote a guest SAC Blog post we published in March, Democrats Introduce Several Anti-Mandatory Arbitration Bills. What You Need To Know. 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 extends to sexual harassment claims. The FAIR Act would be retroactive, applying to 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?

We had thought the FAIR Act had no chance of Senate approval, but based on the testimony, comments, and questions at the hearing, we are not so sure. Why? Assuming every Democrat would be in favor of enactment, we focused on the Republican members’ comments which to us indicate some bipartisan support for FAA amendments focused on procedural fairness. Here are just a few representative remarks:

Chairman Lindsey Graham (R-SC): “The problems we will hear about today bother me…. What’s good for business is not necessarily good for individuals…. It bothers me that when you sign up for a product or service you are giving away your rights. For the rest of this year this Committee will take a long and hard look at how arbitration can be improved. We will try to find some middle ground. We will find a way forward…. There have to be fairness standards.”

Charles Grassley (R-IA): Expressed his concerns about fairness and transparency for consumers, patients, and employees. Asked if due process required a consumer/employee choice to opt out of a PDAA. But, is concerned about potential cost to employees and consumers if PDAAs are banned.

 Joni Ernst (R-IA): Questioned whether certain individual rights are better protected in federal court, based mostly on access, cost, and transparency issues.

Joshua D. Hawley (R-MO): Asked Professor Giles what improvements might be made to better protect individual rights in employment and sexual harassment disputes.

Names Seem Familiar?

Two names on the witness lists should jump out to Alert readers: Ziober and Italian Colors Restaurant. We reported most recently in SAA 2017-21 (May 31) on Ziober v. BLB Resources, Inc., 839 F.3d 814 (2016), Cert. denied 137 S.Ct. 2274 (2017), where the Supreme Court joined the Fifth, Sixth, and Eleventh Circuits in concluding that neither the Uniformed Services Employment and Reemployment Rights Act of 1994’s (“USERRA”) express language nor its legislative history evidenced Congressional intent to preclude enforcement of the PDAA in a returning serviceperson’s employment agreement. The Court also observed that the USERRA was passed in 1994, well after several SCOTUS cases supporting the Federal Arbitration Act, including Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991). And of course in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), the Court’s 5-3 decision rejected an argument that the high cost of an economic analysis needed to prove an individual’s antitrust claim in arbitration meant that the arbitration clause was not enforceable (See SAA 2013-23).

Our Take

To be sure, there were also pro-arbitration and anti-litigation/class action comments from Committee members on both sides of the aisle, but also several expressions of bipartisan support to improve the process to better protect weaker parties. Still, we think there’s a good chance that the FAA will be amended, not necessarily to ban PDAAs, but to provide consumer protections like the right to opt out and due process fairness standards. On the odds of Republican support, an April 1st blog post, Alan Kaplinsky to testify before Senate Judiciary Committee on April 2, states: “It bears noting that the Senate passed the [CFPB Rule disapproval] resolution by a vote of 51 to 50, with Judiciary Committee Chairman Lindsey Graham and Committee member John Kennedy having voted against the resolution.” Of course, what President Trump will do if the FAIR Act passes both houses of Congress remains to be seen.

 

(ed: *The hearing video is at: https://www.judiciary.senate.gov/meetings/arbitration-in-america. **The panel was asked whether there should be national standards for what could and could not be in PDAAs, but no one talked about SCOTUS decisions mandating fairness or FINRA Rule 2268’s PDAA requirements. ***Kudos for being prescient to SAC Board Member and Contributing Legal Editor and Fordham Law prof George Friedman, who suggested in a March 2015 guest SAC blog post titled, The Proposed Arbitration Fairness Act: Still a Well-intended but Potentially Dangerous Overreaction to a Legitimate Concern: “Establish procedural fairness criteria: the new AFA should also require that any consumer arbitration system adhere to basic standards of procedural fairness. As I’ve already stated, FINRA’s program is that model.”)

Like what you see here?

Twice a week we present blog posts consisting of one write-up from each of our two flagship weekly online Alert services. Consider a subscription to these publications to receive the full array of coverage right on your desktop every week. Give it a try and sign up for a free trial to the Securities Arbitration Alert and the Securities Litigation Alert.

Read Our Recent Blog