NBC News reports that a class-action lawsuit filed against Wells Fargo might be hamstrung at the starting line, legal experts say.

Martha C. White writes that mandatory arbitration contract clauses may protect the bank from class-action suits brought by customers who had bank or credit card accounts opened in their names without their knowledge.

“Five years ago, a Supreme Court ruling said it was legal for companies to shield themselves from lawsuits by requiring that customers address grievances through a private arbitration system. Since then, consumers seeking redress from banks, even earlier cases against Wells Fargo in California, have been effectively stopped at the courthouse door,” according to the report.

“There’s no question that it’s very difficult to overturn an arbitration clause, although the facts in this case are pretty damning,” said Ed Mierzwinski, consumer program director for U.S. PIRG.

Read the article.

Having a mechanism for resolving disputes short of litigation is critical — particularly when working with foreign IT services providers. That’s why incorporating an effective arbitration clause into international outsourcing contracts is critical, writes Stephanie Overby for CIO magazine.

“Every international arbitration organization offers a standard clause IT service buyers can put into their contracts. Such clauses typically state that all disputes arising under or in connection with the agreement shall be resolved by arbitration under the rules of a specific international arbitration organization,” according to the article.

Overby quotes B. Ted Howes, partner and leader of Mayer Brown’s U.S. International Arbitration practice, “While such a standard clause is enforceable, more is required to make the arbitration clause workable and to minimize disagreements at the time of arbitration.”

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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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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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Financial services lawyers are predicting that efforts by the Consumer Financial Protection Bureau to prevent companies from keeping consumer complaints out of a courtroom will wind up being challenged in court, reports The Wall Street Journal.

A rule proposed by the agency Thursday would prohibit financial companies from using mandatory-arbitration clauses as a way to block class-action lawsuits, according to the report. “While companies would still be able to require consumers to enter arbitration to resolve individual disputes, the elimination of the no-class arbitration provisions would strip away incentives for companies to include arbitration clauses in their contracts. And many are predicting that as a result, companies would discontinue using them.”

But the CFPB counters that class actions are a “more effective means for consumers to challenge problematic practices by … companies” than arbitration, which it says gives financial service providers an unfair advantage over customers.

Read the report.

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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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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An article published on the Pepper Hamilton website considers the instance of an appeal of an arbitration award that involved the successful appeal by All-Pro Quarterback Tom Brady and the NFL Players Association of Brady’s four-game suspension based on accusations of complicity in a scheme to gain an unfair competitive advantage in an NFL playoff game.

Richard W. Foltz, Jr. and James M. Kwartnik, Jr. discuss whether members of the construction industry contemplating review of arbitration awards can draw any lessons from the Brady matter.

Based on the discussion of the case, “there are a few takeaways from this case for construction matters,” the write. “Most importantly, a party should not rely on the opinion as establishing expectations for review of arbitration awards.  It appears to be the zenith of aggressive appellate review, and unlikely to be closely followed in situations where it could be factually distinguished.”

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Some contracts, including insurance and reinsurance contracts, include provisions providing that the successful party’s damage award will include all costs of the suit or arbitration, including attorney fees, writes Larry P. Schiffer in Squire Patton Boggs’ Insurance and Reinsurance Law Blog.

“This type of clause modifies the traditional default American Rule of costs and fees, in which each litigant pays its own attorney fees, win or lose,” he explains. “What happens when this type of contract clause bumps up against the Federal Arbitration Act (‘FAA’) and the ability of a party to petition a court to seek to vacate an arbitration award? Is the prevailing party entitled to costs and attorney fees defending the vacatur proceeding?”

He describes a recent ruling in the 2nd U.S. Circuit Court of Appeals, in which the court was asked to review a district court order confirming an arbitration award and awarding costs and attorney fees to the prevailing party.

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Employers are advised to follow developments in the legislature and government agencies to curtail the use of arbitration agreements, writes James G. Ryan on the website of Cullen and Dykman LLP.

“Employers should also monitor decisions issued from federal agencies such as the NLRB and stay current with laws involving arbitration agreements in order to ensure compliance with both state and federal law,” according to the article.

The article also discusses a bill introduced by U.S. Senator Patrick Leahy, titled “Restoring Statutory Rights and Interests of the States Act of 2016,” that would limit the use of arbitration agreements in civil rights cases, employment disputes, and other lawsuits.

Read the article.