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Legislation: Arb Fairness Act Delayed, but CAFA Changes Move Along (June 24).

There’s more Washington arbitration news than just the two Supreme Cout opinions this week (for details on those, go here and here). 

Legislative action is heating up, too, with moves to either restrict arbitration, or to protect its users, depending on your perspective.

It was also a bit of a false start.  The House Committee on the Judiciary met yesterday, and two closely watched bills with potentially major ramifications for arbitration practice were on the agenda.  

But the committee didn’t reach the two proposals, H.R. 1020, the Arbitration Fairness Act of 2009; and H.R. 1237, the Fairness in Nursing Home Arbitration Act of 2009.

A committee staffer reports that the bills will be back on the agenda, for full committee consideration, at the next mark-up session.  The staff member says that the date of that session could be announced next week.

The current text of the Arbitration Fairness Act–which would prohibit predispute arbitration agreements in consumer and employment contracts–is copied below.  The Fairness in Nursing Home Arbitration Act, which prohibits predispute arbitration agreements between a long-term care facility and residents or anyone acting on a resident's behalf, can be found by searching on H.R. 1237 here.

Meantime, there was movement yesterday on another bill that will be of interest to many in the business dispute resolution community.

After a heated debate, H.R. 5503, the “Securing Protections for the Injured from Limitations on Liability Act,” (also available at was reported favorably out of the House Judiciary Committee by a 16-11 vote.  This bill–designed to provide relief to victims of the BP oil disaster in the Gulf of Mexico--contains a provision amending the Class Action Fairness Act, which appears in 28 U.S.C. Sections 1332(d), 1453, and 1711-1715. 

CAFA increases the federal courts’ jurisdiction over class action cases, in order to prevent forum shopping. 

The proposed CAFA amendments in the so-called SPILL bill would apply to certain types of cases where state attorney generals are involved; the cases would be exempt from CAFA jurisdiction.

The U.S. Chamber of Commerce, which along with other tort reformers, was a driving force behind the bill’s 2005 passage, warned in a letter to the committee that the amendment was counter to the law’s purposes.  

The letter, and more on yesterday's contentious hearing, can be found here.


–Jan-Krzysztof Dunin-Wasowicz, CPR Intern



To amend chapter 1 of title 9 of United States Code with respect to arbitration.

      Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,


      This Act may be cited as the `Arbitration Fairness Act of 2009'.


      The Congress finds the following:

            (1) The Federal Arbitration Act (now enacted as chapter 1 of title 9 of the United States Code) was intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power.

            (2) A series of United States Supreme Court decisions have changed the meaning of the Act so that it now extends to disputes between parties of greatly disparate economic power, such as consumer disputes and employment disputes. As a result, a large and rapidly growing number of corporations are requiring millions of consumers and employees to give up their right to have disputes resolved by a judge or jury, and instead submit their claims to binding arbitration.

            (3) Most consumers and employees have little or no meaningful option whether to submit their claims to arbitration. Few people realize, or understand the importance of the deliberately fine print that strips them of rights; and because entire industries are adopting these clauses, people increasingly have no choice but to accept them. They must often give up their rights as a condition of having a job, getting necessary medical care, buying a car, opening a bank account, getting a credit card, and the like. Often times, they are not even aware that they have given up their rights.

            (4) Private arbitration companies are sometimes under great pressure to devise systems that favor the corporate repeat players who decide whether those companies will receive their lucrative business.

            (5) Mandatory arbitration undermines the development of public law for civil rights and consumer rights, because there is no meaningful judicial review of arbitrators' decisions. With the knowledge that their rulings will not be seriously examined by a court applying current law, arbitrators enjoy near complete freedom to ignore the law and even their own rules.

            (6) Mandatory arbitration is a poor system for protecting civil rights and consumer rights because it is not transparent. While the American civil justice system features publicly accountable decision makers who generally issue written decisions that are widely available to the public, arbitration offers none of these features.

            (7) Many corporations add to their arbitration clauses unfair provisions that deliberately tilt the systems against individuals, including provisions that strip individuals of substantive statutory rights, ban class actions, and force people to arbitrate their claims hundreds of miles from their homes. While some courts have been protective of individuals, too many courts have upheld even egregiously unfair mandatory arbitration clauses in deference to a supposed Federal policy favoring arbitration over the constitutional rights of individuals.


      Section 1 of title 9, United States Code, is amended--

            (1) by amending the heading to read as follows:

`Sec. 1. Definitions';

            (2) by inserting before `Maritime' the following:

            `As used in this chapter--';

            (3) by striking `Maritime transactions' and inserting the following:

            `(1) `maritime transactions';';

            (4) by striking `commerce' and inserting the following:

            `(2) `commerce';

            (5) by striking `, but nothing' and all that follows through the period at the end, and inserting a semicolon; and

            (6) by adding at the end the following:

            `(3) `employment dispute', as herein defined, means a dispute between an employer and employee arising out of the relationship of employer and employee as defined by the Fair Labor Standards Act;

            `(4) `consumer dispute', as herein defined, means a dispute between a person other than an organization who seeks or acquires real or personal property, services, money, or credit for personal, family, or household purposes and the seller or provider of such property, services, money, or credit;

            `(5) `franchise dispute', as herein defined, means a dispute between a franchisor and franchisee arising out of or relating to contract or agreement by which--

                  `(A) a franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor;

                  `(B) the operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and

                  `(C) the franchisee is required to pay, directly or indirectly, a franchise fee; and

            `(6) `pre-dispute arbitration agreement', as herein defined, means any agreement to arbitrate disputes that had not yet arisen at the time of the making of the agreement.'.


      Section 2 of title 9, United States Code, is amended--

            (1) by amending the heading to read as follows:

`Sec. 2. Validity and enforceability',

            (2) by inserting `(a)' before `A written';

            (3) by striking `, save' and all that follows through `contract', and inserting `to the same extent as contracts generally, except as otherwise provided in the title'; and

            (4) by adding at the end the following:

      `(b) No predispute arbitration agreement shall be valid or enforceable if it requires arbitration of--

            `(1) an employment, consumer, or franchise dispute; or

            `(2) a dispute arising under any statute intended to protect civil rights.

      `(c) An issue as to whether this chapter applies to an arbitration agreement shall be determined by Federal law. Except as otherwise provided in this chapter, the validity or enforceability of an agreement to arbitrate shall be determined by the court, rather than the arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement.

      `(d) Nothing in this chapter shall apply to any arbitration provision in a collective bargaining agreement.'.


      This Act, and the amendments made by this Act, shall take effect on the date of the enactment of this Act and shall apply with respect to any dispute or claim that arises on or after such date.