Arbitration: Should It Be Sought Rather Than Fought?

by Roger L. Mandel

Mr. Mandel is an attorney at Stanley, Mandel and Iola of Dallas, Texas. CL&P invited him to discuss the following original and provocative proposal, which he presented at a panel on class actions & arbitration at the NCLC Class Action Symposium in Miami last month. This post is the second in a series based on that panel; in the first post, Mike Quirk discussed judicial decisions striking down class arbitration bans.

Plaintiffs’ class action lawyers have long fought tooth and nail against mandatory arbitration clauses. Today, in some instances they may be advised to file arbitrations rather than fight the arbitration clauses in court.

Class Arbitration Rules

Many arbitration clauses specify or allow use of the American Arbitration Association (“AAA”) or JAMS as arbitration providers. Both of those providers have specifically enacted class arbitration rules, which are available on their websites, www.adr.org and www.jamsadr.com, respectively. Both sets of rules provide for a three-step process in class arbitration:

1. A clause construction phase during which the arbitrator decides whether the arbitration clause in question allows for class arbitration;

2. If the arbitrator finds that class arbitration is allowable under the arbitration clause, a class certification phase pursuant to standards identical to Federal Rule of Civil Procedure 23; and

3. Decision on the merits of either the classwide or individual claims.

At the end of both phase 1 and phase 2, the arbitrator enters interim awards and is required to stay the proceedings for thirty (30) days to allow either party to appeal the interim award in court. If an interim award is appealed, the arbitration remains stayed during the pendency of the appeal.

In addition to its class action rules, AAA has a class arbitration policy. Under that policy, it will place on its class arbitration docket any claim involving an arbitration clause that is silent as to class arbitration. It will refuse, however, to place on its class arbitration docket a case that contains an explicit class arbitration ban. JAMS does not have such a policy and will place on its class arbitration docket any claim that is filed as a class action, regardless of the contents of the arbitration clause.

Both providers maintain special national panels of class action arbitrators. Based on my review of those panels, most plaintiffs’ lawyers would prefer the JAMS panel, although there are a number of acceptable choices on the AAA panel.

Running the Numbers: The Role of the Arbitrator's Incentives

AAA maintains on its website its entire class arbitration docket, which is extensive. It posts the claims (complaints) and all of the interim and final awards entered by the arbitrators. This allows research into trends in AAA class arbitration.

Report By NCLC and CFA: Refund Anticipation Loans With A Twist

     The National Consumer Law Center and the Consumer Federation of America have just issued a report exposing new forms of tax refund anticipation loans (RALs), called "pay stub" and "holiday" RALs. The report and the groups' press release explains that consumers now have the opportunity for crushing debt at triple-digit interest rates well before tax season arrives.  The report's conclusion is blunt:  "Pay stub and holiday RALs represent a new and more insidious threat to the tax refunds and Earned Income Tax Credits of low-income taxpayers."  Definitely worth reading.

"Tort Reform"/Prop. 64

    by Brian Wolfman

    Today, over at Point of Law, Ted Frank has this post on a number of "tort reform" items, including the American Tort Reform Association's new report on what it views as class action abuse.  ATRA's basic claim is that consumer class actions today are largely driven by lawyer greed and left-leaning interest group politics and not by a desire to compensate people who have been harmed.  For a different point of view on the movement to "reform" consumer class actions, see Ira Rheingold's earlier post on this blog.

    Also in today's Point of Law post is a discussion of the current litigation before the California Supreme Court presenting the question whether California's Proposition 64 silently amended the state's consumer protection statutes to require consumer reliance at the same time that it expressly added stricter standing requirements.  The Point of Law discussion links to previous posts on this blog on that important litigation.

Consumer Law Classic: Testimony of a Predatory Lender

by Jeff Sovern

Though many of the postings on this blog concern breaking developments, sometimes it's uesful to bring to light something that, even though not a new development, may not be well known and still bears on an issue of today.  In that spirit, let me call your attention to the testimony of "Jim Dough," (the pseudonym of a self-described former employee of a finance company) taken during a hearing before the Senate Special Committee on Aging on March 16, 1998, titled “Equity Predators: Stripping, Flipping and Packing Their Way to Profits.”  The testimony helps explain how predatory lenders persuade consumers to agree to terms that are not in their best interests.  Unfortunately, the link connects only to the prepared testimony, and interesting points were also made during "Mr. Dough's" discussion with Senator Breux.  For that reason, and fot those who don't want to read the entire statement, I'm going to paste in here some of the highlights of the testimony, drawn from both the prepared statement and the colloquoy:

Finance companies try to do business with blue-collar workers, people who haven't gone to college, older people who are on fixed incomes, non English-speaking people and people who have significant equity in their homes. In fact, my perfect customer would be an uneducated widow who is on a fixed income -- hopefully from her deceased husband's pension and social security -- who has her house paid off, is living off of credit cards, but having a difficult time keeping up her payments, and who must make a car payment in addition to her credit card payments.

* * * [W]e were trained to sell the monthly "savings," that is, how much less per month the customer would be paying if we flipped the loan. In reality, the "savings" that we were trained to sell to customers were just an illusion. The uneducated customer would jump for the "savings," thinking that he would have more money to buy other things.

Thoughts on the Preemption Arguments from Around the Blogosphere

In today's Washington Post, Tomoeh Tse has a report on yesterday's oral arguments in the Watters v. Wachovia predatory lending preemption case.  A snippet:

[Chief Justice] Roberts said it seemed that banks wanted to be viewed as federally governed on regulation issues but state-based to shelter themselves from liability issues. "You are really trying to have your cake and eat it too," he said.

Justice John Paul Stevens questioned whether the OCC had the manpower to handle the increased responsibility it took when it preempted state law in 2001. He asked specifically how many additional investigators the OCC had hired when it took over this responsibility.

"Well, I don't have an empirical answer to that question," said Sri Srinivasan, assistant to the solicitor general of the Justice Department.

James Rosen, reporting for the McClatchy newspapers, boils the whole thing down this way:

Justices Anthony Kennedy, David Souter and Stephen Breyer seemed most receptive to Wachovia's arguments, while Justices Roberts, John Paul Stevens and Ruth Bader Ginsburg appeared to lean toward Michigan's claims. Justice Antonin Scalia grilled both sides relentlessly. Justice Clarence Thomas had recused himself from the case and didn't participate.

While justices' questions don't always predict their eventual rulings, several appeared to tip their hands in the Wachovia case.

"This is just a standard (federal) pre-emption case," Kennedy said in apparent agreement with the bank.

The Wall Street Journal, in an article titled "The Power to Destroy," suggests that the question in the case goes all the way back to McCulloch v. Maryland.  The Bank Lawyer's Blog tries to read the tea leaves based on yesterday's argument.  Ideoblog discusses the possible implications of Watters for securities law.

Via C-SPAN, you can a watch a video of the American Enterprise Institute panel on the case.  The panel featured George Mason University law professor Todd Zywicki, a member of a group of economists, scholars, and law professors who filed an amicus brief; Columbia law professor Thomas W. Merrill, who represents the Center for State Enforcement of Antitrust and Consumer Protection Laws as amicus in this case; attorney Amy Quester, who represents the Center for Responsible Lending as amicus in this case; and O’Melveny & Myers LLP partner Brian Brooks, an attorney who represents banks in class action defenses in court. Ted Frank, director of AEI’s Liability Project, moderated.

Court Blasts FEMA

by Deepak Gupta

In a landmark victory for victims of Hurricanes Katrina and Rita, a federal judge today granted Public Citizen’s request for a preliminary injunction against the Federal Emergency Management Agency (FEMA) to prevent the agency from terminating housing benefits for hurricane survivors without first adequately explaining its decisions.  To read the decision, click here.

Judge Richard J. Leon of the U.S. District Court for the District of Columbia ordered the agency to restore short-term housing assistance to all evacuees whom FEMA found ineligible since Aug. 31, 2006, until they receive adequate explanation for the decision and time to appeal. In a further rebuke, FEMA was also required to pay the short-term housing assistance benefits that evacuees would have received between Sept. 1 and Nov. 30.

“It is unfortunate, if not incredible, that FEMA and its counsel could not devise a sufficient notice system to spare these beleaguered evacuees the added burden of federal litigation to vindicate their constitutional rights,” Judge Leon wrote in the decision.

The judge found that the Katrina evacuees’ “interest in continued housing assistance… could not be more fundamental and overarching than it is here” and that FEMA’s procedures for notifying evacuees of the reasons for denying them assistance fell short of constitutionally minimal standards.  He concluded that FEMA’s notice procedures were “unconstitutionally vague and uninformative,” and even went so far as to describe them as “Kafkaesque” and “cryptic.”

Watters v. Wachovia

Thanks to the Roberts Court's new and improved same-day service, here's the transcript of this morning's oral argument in the Watters v. Wachovia banking preemption case.   I haven't had time to read it yet.  If you do, and you have some thoughts about it, please let us know.

The Precydent Search Engine and the Web of Law

My colleague at USD Tom Smith has a fascinating study on lately legal citation networks. In his paper The Web of Law he researches the structure of citation of nearly four million American legal precedents to shed light on how the legal system evolves, demonstrating that the American case law network has the overall structure that network theory predicts it would, with clusters, node and patterned aging.

Now Tom and his co-author Antonio Tomarchio, a mathematics graduate student at the Polytechnic of Milan and the Ecole Centrale Paris, have launched http://www.precydent.com. Tom desribes it as “a new kind of legal search engine…Unlike the search engines at Westlaw, Lexis and other legal research services, the Precydent search engine is based on the legal citation network and various Web 3.0 technologies.  Like Google's PageRank algorithm, Precydent's algorithm traces its intellectual ancestry to important discoveries about networks made by Cornell computer scientist Jon Kleinberg, who also generously assisted Antonio in his academic research on the legal citation network.  The algorithm and its many innovative features are the creations of the Precydent team. The search engine does use sophisticated techniques to analyze click streams in order to adapt to users' individual and collective preferences.  While I do not think this raises any privacy concerns, I should at least note this feature of the technology.  Analyzing user behavior is an important part of Web 3.0 technology.” When the founders compared the performance of the Precydent search engine to that of the natural language search engines of Westlaw and Lexis, they found that “Precydent does a much better job in returning relevant and authoritative US Supreme Court cases (as judged by human experts) than do the natural language engines of Westlaw and Lexis.”

(cross posted on Prawfsblawg)

Yet More on Today's Watters v. Wachovia Arguments

Tom Goldstein's SCOTUSblog has posted this informative and detailed preview of this morning's argument .

Two Quick Supreme Court Notes

1.  The States and the Feds square off tomorrow morning before the Supreme Court on the extent to which federal agencies can preempt state law by regulation.  The case is Watters v. Wachovia Bank.  For you preemption/predatory lending/banking law/administrative law junkies, here's the recently-filed reply brief for petitioner Michigan.   More briefs at this link.  I participated in a moot court for Michigan's lawyer at Georgetown Law last week, but probably won't make it down to the Court tomorrow.  Either way, we hope to bring you a report on the arguments.  If you attend and want to offer your assessment, please email me.   I'm particularly interested to hear whether the Justices focus on the interaction between regulatory preemption and administrative deference--a subject of warring amicus briefs by professors Thomas Merrill and Richard Pierce (available here).

2.  Yesterday, the Supreme Court denied cert in Price v. Philip Morris, a case in which the Illinois Supreme Court held that Illinois law didn't support a Consumer Fraud Act claim against the tobacco company's marketing of light cigarettes because the company's conduct was purportedly done pursuant to FTC "regulation" concerning tar and nicotine testing--even though the Feds are actually suing Philip Morris over the very same conduct!  Although the Illinois court's decision was outrageously wrong and is arguably part of a larger pattern of the tobacco companies' use of the same FTC order as a shield, the U.S. Supreme Court's decision to deny cert was not a big surprise.  Among the likely obstacles to cert was the question whether the petition truly presented a federal question.   For those who are interested, here's the cert petition and here's the cert opp.