Mandatory Arbitration & Class Actions: Changes Are Coming, by Paul Bland

Mandatory arbitration and class action lawsuits are much in the news lately. The recent disclosure of the hacking at Equifax has people thinking about these topics, and some class actions have already been filed. Paul Bland, Executive Director of Public Justice, discusses court cases and proposed legislation dealing with these important matters.

The Consumer Financial Protection Bureau has issued a rule that would prevent banks and others from using a mandatory arbitration clause to prevent consumers from taking part in class actions. These clauses, Bland says, “had the effect of gutting the consumer protection laws for a lot of consumers.” The CFPB looked at a number of cases and found that consumers had been able to recover over $2 billion from the offending companies as well as injunctive relief. When consumers could not proceed in class actions, they lost almost off of their claims, and in a typical year, that would be only about 400 consumers. In the class action cases, 13 million people got helped.

Paul Bland

Paul Bland

Not surprisingly, the rule has been opposed by banks and others. The value of the rule is apparent from the Wells Fargo case, Bland points out. The issue is whether a lot of consumers who were cheated in the same way can join together in a lawsuit for legal relief. The banks and payday lenders argue that allowing class actions will lead to frivolous lawsuits. Bland points out that the Supreme Court has, in recent years, made it increasingly difficult for anyone to bring a class action.

The US House of Representatives has passed a resolution that would repeal the rule, and the matter has now gone to the Senate. Bland says that Democratic Senators all appear to be pledged not to overturn the rule, and Republican Senator Graham has said he would also vote against the resolution. There has been a lot of pressure on legislators on this matter, and Bland says the outcome is not clear.

The House of Representatives has also passed HR 985, the Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2017. Bland says that there was a bill somewhat like this in the last session, but the new bill would eliminate 95% of all class actions. This is because the bill would require that each proposed class member suffered the same type and scope of injury as the named class representatives. The bill passed the House, although a number of Republicans voted against it. All the Democrats voted against. However, in the Senate, the bill might have a harder time. If there is a filibuster on it, 60 votes would be required to pass it. Unless the Senate eliminates the filibuster rule, passage of HR 985 in the Senate would be tough. Bland says he is uncertain how this effort will play out.

The Supreme Court is also considering arbitration clauses. The Court has agreed to decide whether companies can use employment contracts to prohibit workers from joining class action lawsuits. “This is probably the most significant set of employment and arbitration cases to come in front of the Supreme Court in close to twenty years.” Bland points out that the National Labor Relations Act passed in 1935 allows employees to “join together to bring concerted activity,” which would cover joining unions. The language has been expanded to include class actions.

The Court began to scale things back based on the Federal Arbitration Act (FAA), passed in 1925. In 2001, the Supreme Court decided in Circuit City v. Adams that the FAA applies in the employment setting. The 5-4 decision looked at the language of the Act rather than its legislative history. Then in 2011 in AT&T Mobility v. Concepcion, the Court held that federal law would preempt any state law that would interfere with the enforcement of an arbitration clause. Bland notes that the National Labor Relations Board has generally been pro-labor. However, the makeup of the Board will change during the Trump administration, and its outlook may change as well.

Bland has no prediction at the moment how the Supreme Court will rule on the cases before it. The decisions may turn on whether strict construction is applied or whether the Court decides the cases on policy considerations. There are justices who dislike class actions by employees and others who are sympathetic to employee complaints. Whatever the Court decides, its decision will effect employees for years to come.

F. Paul Bland, Jr., is the Executive Director of Public Justice. He has been a senior attorney at Public Justice since 1997. As Executive Director, he manages and leads a staff of nearly 30 attorneys and other staff, guiding the organization’s litigation docket and other advocacy. As staff and senior attorney, he was responsible for developing, handling, and helping Public Justice's cooperating attorneys litigate a diverse docket of public interest cases. He has argued and won more than 30 cases that led to reported decisions for consumers, employees or whistleblowers in six of the U.S. Courts of Appeals and the high courts of nine different states. The Legal Broadcast Network is a featured network of Sequence Media Group.