In reviewing the scope of an arbitration agreement that was part of a supply agreement, the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s decision, determining that the defendant’s breach of contract counterclaims were related to the plaintiff’s patent infringement claims and thus were exempt from compulsory arbitration under the supply agreement, reports Andrea Coronado for McDermott Will & Emery.

She discussed Verinata Health, Inc., v. Ariosa Diagnostics, Inc., Case No. 15-1970 (Fed. Cir., July 26, 2016) in an article published by The National Law Review.

“The Court reasoned that the national policy favoring arbitration when parties contract for that mode of dispute resolution under the Federal Arbitration Act applies only in circumstances where the scope of the agreement is ambiguous as to the dispute at hand, and only where the presumption in favor of arbitration cannot be rebutted,” Coronado wrote.

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Ernst & Young LLP cannot require its employees to give up their rights to pursue work-related claims together, a federal appeals court has ruled, giving a major boost to the U.S. National Labor Relations Board’s campaign against so-called class action waivers, reports Reuters.

“Companies have increasingly included provisions in employment contracts forcing workers to arbitrate claims individually as a way to avoid the cost of litigating class actions,” writes Robert Iafolla. “The NLRB has struck down such requirements imposed by dozens of companies, including American Express Co, Citigroup Inc and Domino’s Pizza Inc.”

The court found that the arbitration agreement violated the National Labor Relations Act by making workers arbitrate work-related claims as individuals in separate proceedings.

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The advantages and disadvantages of arbitration versus litigation have been long debated, writes Kirk Watkins of Womble Carlyle Sandridge & Rice, LLP.

“Because arbitration is a matter of contract, parties are free to adopt existing procedural and substantive rules or invent their own. This freedom can complicate comparisons. For example, the parties can include or exclude discovery, permit or prohibit direct testimony, and require prompt and detailed rulings – or not. Arbitrations have one advantage that is unquestioned – treaties make the international enforcement of arbitration awards easier and more likely than the informant of state judgments.” he explains.

He adds that, “if parties to a license or industry dispute resolution agreement devote appropriate time and effort to preparing an arbitration provision to meet their specific objectives, arbitration can be a valuable tool in resolving patent disputes.”

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A California appellate court closely parsed the language in an arbitration clause and reversed an order compelling arbitration of a dispute between a lawyer and his client-turned-business-partner, reports Karen Rubin in Thompson Hine’s blog, The Law for Lawyers Today.

She writes that the lawyer must now defend against a $1.5 million claim based on malpractice and breach of the operating agreement that he had drafted in connection with his real estate venture with the former client.

“Of course, it is no news that a case can turn on contract interpretation,” Rubin writes. “But this one emphasizes the small drafting choices that can send a case to a full-blown jury trial or keep it in arbitration.  That’s of special concern to lawyers and their clients at the front end of a relationship — pre-dispute agreements to arbitrate are increasingly included in retainer agreements.”

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Edward F. Donohue III of Hinshaw & Culbertson LLP has published the third installment in his series on client arbitration agreements for lawyers.

“Many attorneys have been using the same engagement agreements for decades designating standard commercial providers such as the American Arbitration Association to resolve client disputes,” he writes. “In recent years some have learned the hard way that their agreements do not comply with consumer protection rules that have developed in recent years. The failure to incorporate new standards into fee agreements means not only that non-conforming provisions will be deemed unenforceable.  In some cases attorneys will find that their arbitration agreements are wholly unenforceable.”

This installment has subheadings titled “Guess What? Your Fee Agreement is Non-Compliant,” “If Your Wealthiest Client is a “Consumer” Should You Abandon Arbitration Clauses?,” and “If You Still Want to Arbitrate Catch Up With the Rules.”

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A New Hampshire court has issued a decision on the duty to defend arising from an indemnity obligation in a design contract, distinguishing between the duty to defend often invoked for insurance coverage, from a duty to defend expressed in a contractual indemnity, writes Stan Martin of Commonsense Construction Law LLC.

The court found that an engineering firm owed a duty to defend the New Hampshire town that had hired the firm to design a wastewater treatment plant, from claims arising from the design against the town made by the contractor.

Martin describes the case and the arguments made by the parties. He concludes: “An explicit contractual duty to defend against allegations of negligence or breach by the indemnitor may well be construed to require such a defense from the outset, even when parties are still arguing over ultimate liability. And an indemnitor who has not been in breach of its contract up to that point may yet breach its contract by refusing to defend when required.:

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Kevin Perry and Joanne Elieli of of Cooley offer some insight for American general counsel on the drafting of international arbitration clauses, covering preliminary considerations and specific drafting issues.

The article is posted in the Cooley blog Cooley M&A.

The topics they discuss in the article include: consider likely nature of the dispute, should the clause cover all disputes that could arise?, should you include a dispute escalation clause? could any dispute include more than two parties? will there be any enforcement issues? choice of law issues (the contract and the arbitration), institutional or ad hoc arbitration, confidentiality, the rules to be used, the number of arbitrators, the seat/place of arbitration, and the language of the arbitration.

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In an article posted on their firm’s website, Matthew T. Furton  and Julie L. Young, partners in Locke Lord, discuss some recent rulings on arbitration by the U.S. Supreme Court, particularly as they apply to insurance and reinsurance.

The questions and answers discuss why the court has taken on more cases involving arbitration, which arbitration cases are currently under consideration by the court, why it matters that the circuits are split as to whether to stay or dismiss an action after compelling arbitration, and what the current state of the “manifest disregard” standard is.

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The Consumer Financial Protection Bureau proposed a rule Thursday that would ban arbitration clauses, which would affect the entire financial industry and the hundreds of millions of bank accounts, credit cards and other financial services Americans use, reports the Associated Press.

“The CFPB’s proposal does have a significant limitation,” the report explains. “The ban would only apply when consumers want to create or join a class-action lawsuit. Financial companies will still be able to force individuals to settle disputes through arbitration; however cases where a lone customer wants to sue his or her bank are far less common.”

The financial industry claims that arbitration is a more efficient way for customers to resolve disputes, and a study commissioned by the CFPB in lends that claim some credence. “However, when large numbers of customers were negatively impacted by the same issue, the same study showed arbitration clauses hinder the ability for customers to seek relief,” the AP report says.

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As a result of the passage of the Dodd-Frank Act in 2010, the use of mandatory pre-dispute arbitration in consumer transactions has become tenuous, according to an article written by Maurice Shevin for Sirote & Permutt, PC.

He explains that the Consumer Financial Protection Bureau was instructed by law to study and evaluate the effect of such mandatory clauses, and it has been doing so almost since its inception.

“The CFPB holds yet another public forum on the subject in May. I won’t be surprised to see a Proposed Rule come out of this hearing that announces the intent of the CFPB to suppress the use of mandatory arbitration. If the CFPB stays true to form, it will give creditors a period of time to comply with any Rule that it may adopt, Shevin writes.”

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From two different courts in two different states on two very different claims come the same concept: an agreement to arbitrate may be binding even without a signed contract, according to a report by Stan Martin on the Commonsense Construction Law website.

“One comes via an unsigned law firm partnership agreement, and the other via an agreement placed on the wrapping of a bundle of roofing shingles, held to be binding on the property owner who hired the contractor who engaged, in turn, the subcontractor purchasing the shingles,” he writes.

“These cases serve as a reminder that (1) a person or company can be bound by a contract without signing that contract, based on other actions, and (2) if that (unsigned) contract calls for arbitration, the person/company is bound to arbitrate disputes that arise under the contract.”

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A fundamental principle of contract law is that a written contract is an agreement in writing that serves as proof of the parties’ obligations, writes Virginia Whitehill Guldi of Zuckerman Spaeder LLP. What happens, however, when the parties forget some of the niceties of formalizing a written contract?

For one answer, she offers the recent decision in the case of Shank v. Fiserv, Inc., in which the Eastern District of Pennsylvania addressed Fiserv’s motion to dismiss and compel arbitration at the outset of the case.

In that case, employee Shank had been dismissed after returning from a medical leave. The company cited a reorganization, but the plaintiff claimed proffered reason was pretextual and that she had been fired in violation of various federal laws, including the Americans with Disabilities Act, the Family Medical Leave Act, and Title VII.

“Fiserv sought to dismiss the case and force arbitration, citing a ‘Mutual Agreement to Arbitrate Claims’ that Ms. Shank had signed when she was hired and that would have contractually obligated her to arbitrate her claims. However, Fiserv’s argument had a flaw, said Ms. Shank, because it did not sign the agreement,” Guldi wrote.

The court agreed with the plaintiff.

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David Conaway of Shumaker, Loop & Kendrick LLP has posted an article describing the key provisions to address in international sales contracts, other than normal trade terms.

The article covers what law applies, where will disputes be resolved, arbitration of foreign disputes, who pays the costs of dispute resolution, and miscellaneous important contract provisions.

“Companies ideally would have bespoke contracts that address these differences. However, given that many companies do business in numerous foreign countries, it may be impractical to have a bespoke contract for every country. A reasonable approach would be to consider an over-arching ‘international’ sales or supply contract, and variations for key market countries, or material customer relationships,” he writes.

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The protracted time for a construction case to get to trial and the attendant cost and expense has led the construction bar away from the courthouse and into the arbitration room, writes Ira M. Schulman of Pepper Hamilton LLP.

The prudent negotiation of an arbitration clause is as important to an arbitration as jury selection and jury charges are to litigation, Schulman explains.

He offers 10 individual pieces of advice, covering such topics as who can demand arbitration?, where will the arbitration be held?, how much discovery will be permitted?, how much discovery will be permitted?, and modification of award.

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Arbitration agreements are evaluated on a case-by-case basis, writes Vanessa L. Goddard, of counsel with Steptoe & Johnson.

While many are still disfavored, they are more likely to be upheld if they are not unconscionable, she writes in an article posted on the firm’s website.

“The procedural component of the unconscionability analysis usually deals with the formation of the agreement itself. This includes the characteristics of the parties (e.g., age, literacy, sophistication), the manner and circumstances under which the contract was executed, and whether terms of the agreement are hidden or complex, among other things.  The substantive component looks at the unfairness of the agreement,” according to the article.

She provides some tips that make arbitration agreements more likely to be upheld by courts in the employment context.

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Encouraged by consumer groups and trial lawyers, federal regulators are pushing for limits on arbitration provisions in consumer contracts, writes George Calhoun in IfrahLaw’s FTC Beat.

“At its core, the debate is about whether companies may compel consumers to arbitrate rather than litigate disputes and – perhaps more significantly – bar consumers from class action remedies as part of the arbitration requirement,” he writes.

“We will not be surprised to see some companies restrict their consumer offerings or increase prices to account for these new rules.” the article continues. “If you work in American business, we urge you to take notice of these changes and review how to protect your company from undue litigation in future contracts.”

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An arbitration agreement is unenforceable where a party retains the right to make unilateral modifications effective upon notice to the other party, writes David Goodman of Greensfelder, Hemker & Gale, P.C.

“A starting point is to identify the transactional risks to be addressed in the contract and the entity’s needs that must be achieved, Goodman writes. “Often, drafters opt for a “belt and suspenders” approach, which is not only a terrible fashion faux pas but may result in an overreach nullifying the effectiveness of the risk management strategy.”

He discusses the example of the danger of how an attempt by an employer to get what it wanted in excess of what it needed is presented in Nelson v. Watch House Int’l, LLC, ___ F.3d ___ (5th Cir. March 2, 2016). Watch House Int’l is a March 2016 Fifth Circuit decision based on Texas law holding that the arbitration provision incorporated in a pre-employment agreement rested on illusory consideration.

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In a recent case out of California, Yeotis v. Warner Pacific Insurance Services Inc., No. B245770, the agreement in question was found to be unconscionable in places, but that didn’t doom the arbitration provision contained within it, writes Stacey Lantagne in ContractsProf Blog.

The court concluded that the contract was an adhesion contract, because the plaintiff was required to sign it in order to keep her job. There was, therefore, some procedural unconscionability attached to the formation of the contract,” she explains. “Additionally, there was some substantive unconscionability in the contract’s provisions that gave the court pause.”

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The hardest won rights are often the easiest to lose, and in the thickets of fine print surrounding every labor contract or credit card bill, all it takes is one careless signature to get roped into a deal with the devil — before you know it, you’ve already compromised your right to a fair trial or to speak out against an abusive boss, writes Michell Chen in The Nation.

“Despite American society’s reputation for litigiousness, there are as many things to sue over as there are ways to escape a lawsuit. In February, a coalition of lawmakers led by Senators Patrick Leahy and Al Franken introduced legislation to strengthen worker and consumer protections against binding arbitration — the obscure legal mechanism through which countless people have accidentally compromised their rights, by ensuring that a prospective future dispute with a company gets tracked into a separate legal system rigged with corporate impunity,” she writes.

In her article, Chen says the measure aims to shield access to the courts for workers and consumers by preventing corporations from trying to impose arbitration before any dispute even arises.

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A New Jersey court recently used the so-called contract “disclaimer” language in an employer’s handbook to preclude the employer from enforcing a mandatory arbitration program contained in that same handbook, reports Kevin C. Donovan in a Wilson Elser client alert.

He writes that employers who wish to enforce alternate dispute resolution procedures without falling into the same trap should consider the ruling. But, he wrote, the decision appears contrary to federal policy, enforced by a series of U.S. Supreme Court decisions that strongly favor enforcement of arbitration agreements.

In New Jersey, as in most states, employment is presumed to be “at will,” meaning that either the employer or the employee can freely terminate the employment relationship without a reason (cause) to do so. Under certain circumstances, however, express promises contained in an employer handbook can result in contractually binding terms and conditions of employment.

“While [the ruling] is a New Jersey decision, rulings in other states have also limited an employer’s ability to enforce an arbitration agreement in employee handbooks under some circumstances,” Donovan wrote.

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