A Final Assessment of My 2018 Consumer and Employment Arbitration Predictions – Part I

[This blog post was originally published in the Securities Arbitration Commentator blog. Republished with permission of and thanks to SAC!]

SAC Contributing Legal Editor and Board of Editors Member

Toward the end of last year, I authored a blog post, Consumer and Employment Arbitration: Six Things to look for in 2018. Below were my views on what was coming in 2018, and how these predictions have turned out as we hit the year’s end What are the results? As Larry David says, “Pretty, pretty, pretty, pretty good.”

Predictions made a Year Ago:

• President Trump Still Likes Arbitration
• The Anti-Arbitration Legislation is Still (Mostly) Dead
• SCOTUS’ Support for Arbitration Will Still Continue Unabated
• Still Expect Dodd-Frank to be Repealed and Replaced
• Say Goodbye to the Department of Labor’s Fiduciary Rule
• The President Eventually Will Win the War over CFPB’s Leadership

I cover below the first three predictions. The last three will be the subject of my next blog post.

1. President Trump Still Likes Arbitration

What I wrote: As I detailed in last year’s “report card” ^[1] it is at this point undisputed that President Trump believes in the arbitration process, and will defend it when the need arises. Also, candidate Trump in 2016 promised that there would be less regulation, and that certainly proved to be the truth in 2017 with President Trump. Several anti-arbitration Obama-era regulations were rolled back either by Executive Order or Congressional nullification, and various federal agencies have done an about-face on predispute arbitration agreements.

What I predicted: Any anti-arbitration bills that somehow reach the President’s desk will almost invariably^[2] be vetoed, and any Congressional Nullification Resolutions involving rollbacks of anti-arbitration regulations will be signed. Also look for more Executive Orders from Mr. Trump expanding use of arbitration by the federal government, and undoing any remaining anti-arbitration directives issued by his predecessor. And, we shouldn’t be surprised if the Department of Justice switches sides again in other court cases involving arbitration.

 What happened? Spot on. Since becoming President, Mr. Trump has demonstrated unwavering support for arbitration.  Here are just a few examples:

• In June 2017, the Centers for Medicare and Medicaid Serviceseliminated its regulation banning predispute arbitration agreements in nursing home admission agreements, and has dropped its appeal of a District Court preliminary injunction banning implementation of the original rule. The amended regulation was published in the Federal Register in June 2017. A CMS Factsheet leads with news that the prohibition on PDAAs is out, and then states the proposed regulation adds several requirements for PDAA use, all focused on clear notice and fairness.
• The Department of Education published a Notice in June 2017 announcing that it was postponing indefinitely the planned July 1, 2017 effective date of another Obama-era regulation, that would have banned mandatory predispute arbitration agreements and class action waivers in college enrollment agreements for schools receiving federal financial aid for student borrowers. The other shoe dropped on this one last summer. The Trump DOE followed through with a proposed Regulation officially killing the old Obama-era Rule and replacing it with a proposal allowing predispute arbitration agreements and class action waivers in college enrollment agreements and requiring robust disclosures. The 89-page proposed Rule, Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program, was^[3] in the Federal Register on July 31. It cites the Supreme Court’s May 2018 decision in Epic Systems Corp. v. Lewis, 137 S. Ct. 809 (2017) (more on that later), and the Congressionally nullified CFPB anti-class action waiver Rule as a rationale for the new proposal.
• President Trump nominated to the Supreme Court Justice Neil Gorsuch, who as predicted has been pro-arbitration (more on that later).
• The Trump Administration Department of Justice has been switching sides in some court cases, taking pro-arbitration positions againstthose taken by federal agencies. For example, the Acting Solicitor General filed an Amicus Brief siding with the employers and against the National Labor Relations Board (“NLRB”) in Epic Systems, three cases that were pending at the Supreme Court involving whether the Federal Arbitration Act prevails over the National Labor Relations Act when it comes to enforcing class action waivers in employment arbitration agreements. The NLRB had to represent itself,^[4] which reminded me of a scene^[5] from “Blazing Saddles.”
• What ultimately happened in Epic Systems? In a narrow 5-4 decision splitalong ideological lines, the Supreme Court on May 21^st 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. And who wrote the majority Opinion? None other than Justice Gorsuch.
• President Trump on July 9^th nominated, and the Senate later confirmed, Judge Brett M. Kavanaugh to fill the open Supreme Court seat created by the retirement of Justice Anthony Kennedy. Based on a review of the new Justice’s cases^[6] involving arbitration, it’s pretty clear he is pro-arbitration.

And, last but by no means least, the Trump-Stormy Daniels settlement agreement^[7] contained an arbitration clause! Trust me, folks. President Trump is all-in on arbitration.^[8]

2. All the Anti-Arbitration Legislation is Still (Mostly) Dead

What I wrote: The Democrats in 2017 introduced several anti-arbitration Bills in the new Congress, that have predictably gone nowhere so far as described in my blog post, Baseball Season is Here! You Can’t Tell the Anti-Arbitration Bills Without a Scorecard.

What I predicted: For the most part, these Bills will continue to go nowhere; they are “mostly dead.”[9] Just as occurred in 2016… and 2015… and 2014. Why the “for the most part” qualification? In the wake of seemingly daily accusations of workplace sexual harassment, bipartisan Bills were introduced December 6^th [2017] in both Houses of Congress that would amend the Federal Arbitration Act to ban predispute arbitration agreements covering sexual discrimination disputes. Specifically, S. 2203 and H.R. 4570 — the Ending Forced Arbitration of Sexual Harassment Act — were introduced by Sen. Kirsten Gillibrand (D-NY) and Rep. Cheri Bustos (D-IL). The Bills, which have bipartisan support in both institutions, would ban PDAAs for “a dispute between an employer and employee arising out of conduct that would form the basis of a claim based on sex under title VII of the Civil Rights Act of 1964 (42 U.S.C.2000e et seq.) if the employment were employment as defined in section 701(b) of that title regardless of whether a violation of title VII is alleged…” I predict some iteration^[10]of the law will be passed by Congress, and I sense that the President will sign it.

What happened? As predicted, these Bills have gone nowhere and will expire January 3^rd when the 116^th Congress takes over (just as occurred many time before). I am a bit surprised that the Gillibrand-Bustos Bill did not advance. The other anti-arbitration Bills will undoubtedly be reintroduced in the next Congress, and some may pass the House. They will, however, be DOA in the Senate.

3. SCOTUS’ Support for Arbitration Will Still Continue Unabated

What I wrote: President Trump in 2017 nominated and the Senate confirmed the apparently pro-arbitration^[11] Justice Neil Gorsuch. The first real test of Justice Gorsuch’s arbitration views will be in Epic Systems Corp. v. Lewis, [137 S. Ct. 809 (2018)], three consolidated cases pending at the Supreme Court involving whether the Federal Arbitration Act prevails over the National Labor Relations Act when it comes to enforcing class action waivers in employment arbitration agreements. The case was heard October 2, with the Department of Justice arguing against its own federal agency.^[12]

What I predicted: I predict a close decision from SCOTUS in Epic Systems reaffirming the preemptive effect of the FAA over other federal laws that do not expressly preclude arbitration, with Justice Gorsuch voting with the pro-arbitration camp. Mind you, I wouldn’t be completely shocked by a narrow 5-4 decision in the opposite direction. Further, I think Justice Gorsuch will reaffirm this year that he is indeed pro-arbitration.

What happened? Bingo! Justice Gorsuch, who asked no questions at the oral argument, wrote the majority Opinion in Epic Systems, reaffirming the supremacy of the FAA over conflicting federal statutes not expressly barring arbitration. This passage sums up his pro-arbitration bona fides:

“As a matter of policy these questions are surely debatable. But as a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms – including terms providing for individualized proceedings. Congress has likewise shown that it knows how to override the Arbitration Act when it wishes…. What all these textual and contextual clues indicate, our precedents confirm…. Throughout, we have made clear that even a statute’s express provision for collective legal actions does not necessarily mean that it precludes ‘individual attempts at conciliation’ through arbitration…. And we’ve stressed that the absence of any specific statutory discussion of arbitration or class actions is an important and telling clue that Congress has not displaced the Arbitration Act” (citations omitted).

Also, the Supreme Court in October heard three arbitration-centric cases in October, setting up the first arbitration “trilogy”^[13] in over fifty years:

• Certiorari granted February 26^th in New Prime, Inc. v. Oliveira, No. 17-340. The Petition defined the questions presented as: “1. Whether a dispute over applicability of the [Federal Arbitration Act] FAA’s Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause; and 2. Whether the FAA’s Section 1 exemption, which applies on its face only to ‘contracts of employment,’ is inapplicable to independent contractor agreements.”
• Certiorari granted April 26^th in Lamps Plus v. Varela, 17-988. As described in the Petition, the issue presented is: “Whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.”
• Petition for Certiorari granted June 25^th in Henry Schein, Inc. v. Archer & White Sales, Inc., 878 F.3d 488 (5th Cir. Dec. 21, 2017). The issue before the Court is: “Whether the Federal Arbitration Act permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is ‘wholly groundless.’”

Conclusion

Pretty good grades so far. I’ll discuss the status of my last three predictions in my next post.

_________________

*George H. Friedman, Chairman of the Board of Directors of Arbitration Resolution Services, Inc. and an ADR consultant, retired in 2013 as FINRA’s Executive Vice President and Director of Arbitration, a position he held from 1998. In his extensive career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He is an Adjunct Professor of Law at Fordham Law School. Mr. Friedman serves on the Board of Editors and is a Contributing Legal Editor of the Securities Arbitration Commentator.  He is also a member of the AAA’s national roster of arbitrators.  He holds a B.A. from Queens College, a J.D. from Rutgers Law School, and is a Certified Regulatory and Compliance Professional. His proud Mother, Gloria Friedman, undoubtedly has taped this blog post to the fridge.

[1] See Friedman, G., A Final Report Card on My 2017 Arbitration Predictions: “Pretty, Pretty, Pretty, Pretty Good!” (December 27, 2017).

[2] As described in Prediction # 2, there’s one proposed anti-arbitration law that has a reasonably good chance of being enacted.

[3] Vol. 83, No. 147, Page 37242.

[4] The NLRB issued a Statement reporting that the Acting Solicitor General had given the Agency authority to represent itself.

[5] No, not that scene!

[6] See Securities Arbitration Commentator, Supreme Court Nominee Kavanaugh Seems to Be Pro-Arbitration (or so We Think), Part I (July 13, 2018).

[7] See B. Farkas, Donald Trump and Stormy Daniels: An Arbitration Case Study, ABA DR Magazine p. 12 (Summer 2018)/

[8] Some of the NAFTA dispute resolution mechanisms did not survive in the new US-Mexico-Canada Agreement announced by President Trump on October 1, but on closer review this is not shocking. Why? Ceding authority to a foreign tribunal has elements of globalism, which this Administration clearly opposes

[9] No George Friedman blog post is complete without a video clip. This one is Billy Crystal’s classic “mostly dead” routine from The Princess Bride.

[10] Right now, the Bill is too broadly drafted. It will I’m sure be cleaned up before a vote.

[11] See Friedman, G., Supreme Court Nominee Gorsuch Seems to be Pro-Arbitration! (February 1, 2017).

[12] See for yourself by reading the oral argument transcript or listening to the audio recording.

[13] In 1960, the Court decided three landmark arbitration cases involving the United Steelworkers union. These decisions were later dubbed, the “Steelworkers Trilogy.” The Court has not since heard that many cases in the same Term.