Spotify Payola Case to Arbitrate

Spotify was sued in federal court by a user alleging playlists and recommendations are shaped by undisclosed pay-for-play arrangements and hidden commercial incentives. The streaming service moved to compel arbitration because it provided a conspicuous notice of its current terms of service by email and by an in app pop-up, both of which contained a hyperlink with the opportunity to review the applicable arbitration agreement. Spotify's terms of use contained a mandatory arbitration clause and class action waiver. Spotify's terms also said it may make changes and that,“[i]n some cases, we will notify you in advance, and your continued use of [Spotify] after the changes have been made will constitute your acceptance of the changes.” Terms further provided that “[i]f Spotify makes any material change to the Arbitration Agreement..., you may reject any such change by sending us a personally signed, written notice of your decision to opt out of those changes” by email within 30 days. Plaintiff continued to use Spotify after receiving both notices and did not opt out of changes to the arbitration agreement. Plaintiff then upgraded her Spotify account to the paid subscription service and began receiving downloadable receipts that contained hyperlinks to the operative Terms of Use each billing cycle. The presiding judge found that under the Federal Arbitration Act (FAA), 9 U.S.C. § 4, “a district court must enter an order to arbitrate upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue.” A court considering whether to compel arbitration pursuant to a purported arbitration agreement must decide: “(1) whether there exists a valid agreement to arbitrate at all under the contract in question and if so, (2) whether the particular dispute sought to be arbitrated falls within the scope of the arbitration agreement.” Applying ordinary contract law principles, courts routinely uphold “‘clickwrap’ (or‘clickthrough’) agreements, which require users to click an ‘I agree’ box after being presented with a list of terms and condi-tions of use” “for the principal reason that the user has affirmatively assented to the terms of agreement by clicking ‘I agree.’” Therefore, Judge John G. Koeltl of the Southern District of New York issued an order granting Spotify’s motion to compel arbitration and dismissing the class allegations with prejudice. See more here-- https://tinyurl.com/bddrkhf2 and https://tinyurl.com/m98eu8na

No Prime Day For Amazon and Arbitration

The U.S. Supreme Court decided today not to consider whether drivers for Amazon’s Flex delivery service are interstate transportation workers who can avoid arbitration as part of a proposed class claim. Amazon.com Inc. had urged the high Court to review a federal appellate decision allowing a Flex driver to avoid arbitrating proposed class claims that he and others are misclassified as independent contractors because they’re interstate transportation workers exempt from the Federal Arbitration Act (FAA). The First Circuit Court of Appeals held last summer that those workers making local deliveries to Amazon customers qualify for the FAA exemption, even though they don’t cross state lines, because their work involves transporting goods in the flow of interstate commerce. Flex drivers, therefore, aren’t bound by arbitration agreements that would prevent them from litigating their state law wage claims. In recent years, Amazon used independent contractors to deliver goods through its Flex smartphone app. Flex contractors could sign up for shifts and use their own car while adhering to Amazon’s standards to deliver packages. However, if a contractor takes longer than their shift to complete their deliveries, they are not compensated for extra time, nor reimbursed for gas, vehicle maintenance, or cell phone data costs for the job. Working with Flex, an individual agrees to its terms of service, which requires settling disputes through arbitration governed by the FAA. Interestingly, earlier this month, the company changed its terms allowing people to bring individual or class action lawsuits against it. Amazon made the change in response to more than 75,000 pending arbitration demands on behalf of its Echo device users that would have required it to ante up tens of millions of dollars in filing fees in those cases. It now faces several class actions, including one alleging that it improperly recorded and preserved conversations through its Echo Dot Kids devices. See more here-- https://bit.ly/3vRYhzW and https://bit.ly/3qgc95x and https://bit.ly/2SKw54w

Class Arbitration Attacked Again

Recent rulings from the U.S. Supreme Court have supported the underlying concept codified in the Federal Arbitration Act (FAA), but have demanded clarity in the drafting of agreements seeking implementation of an arbitration process through which to dispose of disputes. Recently, in Lamps Plus, Inc. v. Varela, the Court found neither silence nor ambiguity in an arbitration agreement regarding the permissibility of class arbitration enables a court to find that the parties agreed to permit class arbitration. According to the Court, consent is fundamental to arbitration. Arbitration agreements must be express and unambiguous because it would so drastically alter the nature of the proceeding from the simple bilateral process that was envisioned in the FAA. Rules of ADR organizations such as JAMS or AAA incorporated by reference into the agreement that contain ancillary rules under which arbitrators could conduct class proceedings had no effect on the Court’s decision. This implies that mere incorporation of other procedural rules is not a sufficient basis to infer an agreement to permit class arbitration either. The Court emphasized that class arbitration proceedings are fundamentally different in nature from bilateral arbitrations envisioned by the FAA. Class arbitrations sacrifice the informality of the contemplated bilateral process, as well as its speed, simplicity, and relative inexpensiveness, and instead produce a slower, more costly, and more complex process that looks like “the litigation it was meant to displace." See full analysis here-- https://bit.ly/2HlFvdW and opinion here-- https://bit.ly/2GvzOZm

More Arbitration Argument Before SCOTUS

Today, the U.S. Supreme Court (SCOTUS) has oral arguments in two arbitration cases. In the first matter, Henry Schein, Inc. v. Archer & White Sales, Inc., the justices consider if a judge or an arbitrator should decide if a particular dispute should be resolved in arbitration rather than in court. In the second case, Lamps Plus Inc. v. Varela, the issue is whether the Federal Arbitration Act (FAA) precludes state law interpretation of arbitration contracts allowing for class arbitration and who decides whether a particular dispute should be decided in arbitration rather than a court. SCOTUS has already recognized that arbitrators decide issues of arbitrability if the parties clearly and unmistakably agree the arbitrator can assess whether any particular dispute is sufficiently related to the contract to warrant arbitration. Apparently, the U.S. Court of Appeals for the 5th Circuit will not send a case to the arbitrator decide the question of arbitrability, even if the parties have agreed that the arbitrator should decide such questions, if the court finds the claim of arbitrability wholly groundless. The contract in the first case mentioned above provided for arbitration of any dispute arising under or related to the contract, except for actions seeking injunctive relief. The complaint sought damages for Sherman Act violations, as well as injunctive relief. The defendants sought arbitration, arguing the thrust of the complaint was to seek damages, and that injunctive relief could issue after the arbitrator ruled on the merits. Lower courts refused to send the matter to arbitration, finding the request for arbitration groundless because of the inclusion in the complaint of a count for injunctive relief. Because SCOTUS already decided parties can delegate issues of arbitrability to an arbitrator in precedents that do not include exceptions for cases in which courts regard the request for arbitration as groundless, a reversal is likely given recent trends in favor of arbitration. The second case hinges on whether the U.S. Court of Appeals for the 9th Circuit correctly held that an employer did consent to class arbitration when it included language in the arbitration contract that committed the parties to use arbitration in lieu of any and all lawsuits or other civil legal proceedings. This case too may find itself going back, but on procedural grounds as the FAA dictates that an appeal may not be taken from an interlocutory order directing arbitration to proceed. See more here-- https://bit.ly/2AzcN6e and https://bit.ly/2JodgdX and https://bit.ly/2w5K2O8

Half of Uber MDL to Arbitrate

A federal judge tossed half of the lawsuits concerning Uber's data breach after finding claimants were aware they signed arbitration agreements upon registering to use the app. Uber sought to compel arbitration in consumer class actions filed over the breach, which compromised the personal information of 57 million drivers and riders. This month, the presiding U.S. District Judge, Philip Gutierrez of California, granted such motions in separate orders in seven cases while seven other cases remain. The trial court relied on the U.S. Court of Appeal for the Second Circuit’s decision last year in Meyer v. Uber, finding a “reasonable user” of a smartphone would understand the process of agreeing to Uber’s terms of service. Of course, plaintiffs disagree with that holding and its reasoning. The judge wants further hearings to address whether there is going to be an MDL after this whole process of weeding out arbitrable cases is over with, or not. He noted, however, that all the cases are nationwide class actions that could go forward as a consolidated complaint, but that plaintiffs' lawyers are debating who should lead that action. Uber announced hackers breached its app in 2016 and also admitted paying them $100,000 to destroy the information in 2017. Last spring, the U.S. Judicial Panel on Multidistrict Litigation sent the class actions to this judge, whose first action was to decide Uber’s arbitration motions. Plaintiffs lawyers argued that data breaches fell outside the scope of Uber’s agreement. The current judge was not persuaded and instead found that an arbitrator must decide that issue. He cited the U.S. Court of Appeals for the Ninth Circuit’s 2016 decision in Mohammed v. Uber, which had a “nearly identical Uber delegation provision.” Plaintiffs also cited this summer's decision by the U.S. Court of Appeals for the First Circuit in Cullinane v. Uber and U.S. District Judge Richard Seeborg’s decision last year in Metter v. Uber, both finding Uber’s arbitration agreement unconscionable because a pop-up keyboard obscured text. But Judge Gutierrez found those cases, unlike the Second Circuit’s Meyer case, involved different devices or different versions of Uber’s app, stating he agreed with defendants "that the Cullinane decision departs dramatically both from what other courts have found regarding Uber’s registration process, and from the overall legal landscape regarding assent to online agreements." The court found rather that "Clickable buttons come in all shapes and sizes.” It is clear there is a split of authority in these cases likely to continue affecting arbitrability. See full story here-- https://bit.ly/2NqLmDK

SCOTUS Upholds Employer Arbitration Requirement

This month, in a 5-4 decision, the U.S. Supreme Court ruled that an employer can lawfully require employees to arbitrate as a condition of employment any related disputes on an individual basis and to waive their right to participate in a class action suit or class arbitration. The case involved an effort by workers to file a class action suit against an employer for violating the federal minimum wage law. The employer sought to dismiss the case because it insisted as a condition of employment that the employees waive their ability to go to court or be part of any class action. Rather, any dispute had to be resolved out of court in a private arbitration. The case, Epic Systems v. Lewis, arose from the U.S. Court of Appeals for the Seventh Circuit. Companion cases, Ernst & Young v. Morris, from the Ninth Circuit and National Labor Relations Board v. Murphy Oil, from the Fifth Circuit were argued as a trio before the Supreme Court which decided they differed only in detail, not substance. The Federal Arbitration Act (FAA) requires courts to enforce arbitration agreements between employers and employees according to their terms, even when the agreements provide only for arbitration through “individualized proceedings” rather than a class. In this holding, the Court refused to read the National Labor Relations Act (NLRA) to prohibit arbitration agreements requiring individualized arbitration as an impermissible restriction on employee rights under the NLRA to “engage in … concerted activities for the purpose of … mutual aid or protection,” 29 U.S.C. § 157, holding that Section 7 of the act “focuses on the right to organize unions and bargain collectively” and “does not even hint at a wish to displace" the FAA. The Court stated the FAA and the NLRA have long coexisted (since 1925 and 1935 respectively) and found the suggestion they might conflict something quite new. The Court reasoned that the employees’ theory ran “afoul of the usual rule that Congress does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions..." See more in article here-- https://bit.ly/2Jk3e04 and read full opinion here-- https://bit.ly/2rWzAE8

CFPB Arb Rule Appears Dead

Last night, Vice President Pence broke a 50-50 tie vote in the U.S. Senate, narrowly approving repeal of a rule that blocked financial companies from requiring consumers to resolve disputes with individual arbitration proceedings. The Senate vote followed earlier House approval and now goes to President Trump for his expected signature into law. The action is a defeat to the Consumer Financial Protection Bureau (CFPB), the federal financial industry watchdog group created under President Obama that approved the rule last summer with an effective date of March 19, 2018. It allowed consumer class actions against credit card companies and other financial institutions. The CFPB rule would have required sending a notice or to amend an arbitration agreement if entered into on or after March 19th and offered variable examples of language to use for agreements applying to multiple products or services, if not all were covered by the rule. According to the CFPB, there were two main parts: First, the final rule prohibited covered providers of certain consumer financial products and services from using an agreement with a consumer that provided for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action concerning the covered consumer financial product or service. Second, the final rule required covered providers involved in an arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the Bureau and also to submit specified court records. The bureau also adopted official interpretations to the proposed regulation. See full story here-- https://usat.ly/2h6FFIz and final rule language here-- http://bit.ly/2yKBRak

Divided Supreme Court Considers Workplace Arbitration

This week, the Supreme Court attempted to determine how far companies can go in insisting that disputes be resolved in individual arbitrations, rather than in court. The Court considered whether to give employers a powerful tool to bar class actions over workplace issues. The decision on this matter could affect some 25 million employment contracts according to the New York Times. A ruling in favor of employers, Justice Breyer said, could cut out “the entire heart of the New Deal” and undo an understanding of labor relations since the administration of FDR. Earlier cases ruled that companies doing business with consumers may require arbitration and forbid class actions in their contracts. Arbitration clauses with class-action waivers are commonplace in contracts for things like smartphones, credit cards, rental cars and nursing homes. Prior arbitration decisions have been closely divided, with conservative members in the majority. The justices now consider whether they should use a different approach for employment contracts. The answer depends on the interaction of two federal laws: the Federal Arbitration Act, which favors arbitration and the National Labor Relations Act, which protects workers’ rights to engage in “concerted activities.” Workers seeking to sue their employers for overtime pay and the like say the second law prohibits arbitration clauses that require class-action waivers. Reportedly, Justice Kennedy seemed ready to side with employers. Justice Gorsuch asked no questions. Justice Ginsburg said arbitration law was concerned with agreements between merchants of relatively equal bargaining power. The employment contracts at issue in the case, she said, have been forced on workers with "no true liberty of contract." In an unusual fashion, many cases were consolidated for a single oral argument and lawyers for the federal government actually appeared on both sides. Some justices suggested that workers could band together in a limited sense by hiring the same lawyer and filing individual arbitration cases. Justice Kagan suggested that was not good enough. See full article here-- http://nyti.ms/2yTgLUa Watch for decisions in: Epic Systems Corporation v. Lewis, No. 16-285, Ernst & Young v. Morris, No. 16-300 and National Labor Relations Board v. Murphy Oil USA, No. 16-307 which will be available this term here-- http://bit.ly/2yuxv7k

Banks Sue to Stop CFPB Arb Rule

Over a dozen U.S. banks and business groups sued the Consumer Financial Protection Bureau (CFPB) yesterday in an effort to block a new arbitration rule which goes into effect March 19, 2018 allowing consumer class actions against credit card companies and other financial institutions. The rule requires sending a notice or to amend an arbitration agreement if entered into on or after March 19th and offers variable examples of language to use for agreements that apply to multiple products or services, if not all are covered by the rule. The lawsuit, filed in the Texas, calls the structure of the CFPB, a watchdog agency established in response to the 2008 financial crisis, unconstitutional. Filed on behalf of the U.S. Chamber of Commerce, American Bankers Association and other groups, the suit argues the rule to be imposed on U.S. businesses will not help consumers and the change would actually hurt consumers. According to the lawsuit, "Arbitration gives consumers the ability to bring claims that they could not realistically assert in court, including the small and individualized claims that they care the most about. In contrast, class-action litigation is significantly less effective than arbitration in addressing consumer claims." The CFPB has defended the rule as a necessary protection for consumers. Reportedly, the CFPB is also being criticized by another regulator, the Office of Comptroller of the Currency (OCC). The CFPB arbitration rule could cause the interest rates on credit cards to rise significantly — as much as 25%, according to the OCC, which oversees the banking sector. See full story here-- http://lat.ms/2yglm5G and http://bit.ly/2x2OIV3

CFPB Arbitration Rule Final

This week, new arbitration rules were finalized by the Consumer Financial Protection Bureau (CFPB). The right of parties to avoid court and arbitrate contractual disputes comes from the Federal Arbitration Act of 1925. It provides that agreements to arbitrate disputes are enforceable. Decades after becoming a standard form of alternative dispute resolution, arbitration clauses were employed as a method to defeat class action lawsuits. Where parties agreed to arbitrate disputes, claims could still be brought, but on an individual basis in arbitration. The new rules by CFPB allow class-action lawsuits by consumers. The CFPB aims to prohibit financial companies from using mandatory arbitration clauses as a way to block class-action lawsuits, in which a large number of plaintiffs with similar complaints band together. This could result in higher litigation costs for banks, which they may offset either by raising the costs of consumer loan products or reducing services. Arbitration clauses have become widespread in recent years, aided by a string of court rulings that have limited the ability of consumers to file lawsuits. The agency’s action is the first significant check on arbitration since recent U.S. Supreme Court decisions that affirmed its widespread use. The new rules restore the ability of groups of people to file or join group lawsuits. The rules apply to most banks and nonbank lenders, payment processing companies, consumer reporting agencies, debt collection agencies and certain automotive finance companies. If Congress soon passes legislation neutering or killing the CFPB via the Congressional Review Act, it won’t be the first reversal of financial regulation. Until then, August 10, 2017 is the effective date. Pursuant to the Dodd-Frank Act, the arbitration rules will only apply to agreements entered into 180-days after the effective date and it will become fully effective on February 10, 2018. See more here-- http://bit.ly/2u13Aks and http://bit.ly/2vjGWAJ and http://bit.ly/2ulrGpQ

Arbitration Attacked

The right of parties to avoid court and arbitrate contractual disputes comes from the Federal Arbitration Act of 1925. It provides that agreements to arbitrate disputes are enforceable. Decades after becoming a standard form of alternative dispute resolution, arbitration clauses were employed as a method to defeat class action lawsuits. Where parties agreed to arbitrate disputes, claims could still be brought, but on an individual basis in arbitration. New rules being promulgated by the Consumer Financial Protection Bureau or CFPB would allow class-action lawsuits, setting up the latest clash between the banking industry and consumers. The CFPB aims to prohibit financial companies from using mandatory arbitration clauses as a way to block class-action lawsuits, in which a large number of plaintiffs with similar complaints band together. Companies still would be able to require consumers to enter arbitration to resolve individual disputes. Critics maintain this will result in higher litigation costs for banks, which they will offset either by raising the costs of consumer loan products or reducing services. Arbitration clauses have become widespread in recent years, aided by a string of court rulings that have limited the ability of consumers to file lawsuits. The agency’s proposal would be the first significant check on arbitration since recent U.S. Supreme Court decisions that affirmed its widespread use. The landmark Supreme Court case, AT&T Mobility v. Concepcion, allowed businesses to enforce class-action waivers in contracts. The new rule is expected to take effect next year after a 90-day public comment period to federalregistercomments@cfpb.gov and drafting of the final rule. See more here-- http://on.wsj.com/24Cl284 and http://nyti.ms/1QSVNF0 and http://files.consumerfinance.gov/f/documents/CFPB_Arbitration_Agreements_Notice_of_Proposed_Rulemaking.pdf

Join me 1/19 for Arbitration Backlash CLE webinar

This month, the U.S. Supreme Court issued its third decision in the last four years upholding private-party contracts to arbitrate rather than to litigate disputes. Arbitration, however, continues to be attacked by media and government despite being an effective ADR method to resolve disputes and control the rising cost of trying lawsuits. Federal law supports and governs the practice through the Federal Arbitration Act. To be enforceable, a clause must provide a meaningful opportunity for redress, and courts review contractual provisions for fundamental fairness. Because the litigation system has become so expensive, arbitration is often the preferred forum for disputes involving amounts in controversy for which litigation of claims is uneconomical. Next month, UWWM will feature this topic in its complimentary webinar entitled, Arbitration Backlash. Arbitrators Lawrence Kolin and Brandon Peters, along with our guest Phil Calandrino, will explore the backlash against arbitration and remind attendees of the origins and benefits of this dispute resolution process. This content is designed for trial lawyers who represent clients in arbitration and for attorneys who use arbitration clauses in contracts. Attending our complimentary Webinar will entitle you to 1 hour of General CLE credit, pending with The Florida Bar. After registering, you will receive a confirmation email containing information about joining us Tuesday, January 19, 2016 from 12:00 PM - 1:00 PM EST We look forward to your attendance! See registration information here-- https://attendee.gotowebinar.com/register/5506879070378935041

Class Arbitration?

Recently, because of a split of authority, the U.S. Supreme Court heard argument on whether an arbitrator exceeded his powers under the Federal Arbitration Act in determining parties agreed to authorize class arbitration using broad contractual language. Justices apparently expressed an unwillingness to create a special standard for reviewing class arbitration decisions for this particular result. Cases like Stolt-Nielsen and Concepcion established a presumption of no consent to class arbitration without a clear meeting of the minds. However, the Court repeatedly gives a highly deferential standard of review to decisions by arbitrators, preventing most inquiries into the merits of an arbitrator’s award. There are generally very limited grounds for vacating an arbitration award. To argue the arbitrator exceeded his power requires manifest disregard of the law or clearly governing legal principle. Still, the Court appeared skeptical of the capability of arbitrators to handle class actions, even questioning incentive. In this case, the class involved some 20,000 doctors. Inquiries into arbitrator compensation and experience went unanswered, since that information is non-public. Congress passed the Federal Arbitration Act in 1925 to encourage litigants to settle disputes without resorting to litigation. Should the Court rule for business here, arbitration of class actions could squelch these cases before they become high stakes gambles. See docket- Oxford Health Plans v. Sutter http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/12-135.htm and discussion here- http://bit.ly/121VC1l and article here- http://onforb.es/14lln2A