By George H. Friedman*
Chairman of the Board – Arbitration Resolution Service
Toward the end of last year, I authored a blog post, Consumer and Employment Arbitration: Six Things to look for in 2017. I updated my prognostications around Inauguration Day in Trump in Charge – What Does It Mean for Arbitration? Later, I did an interim review in A Midyear Assessment of My 2017 Arbitration Predictions: Look, Mom. Mostly “A” Grades So Far! As I’ve said many times before, one of the nice things about predicting future events is that, while people can disagree with you, they cannot state categorically that you are wrong, unless they claim to be time travelers. Also, it takes dedication and a good memory to wait a long time and then go check to see how the predictions turned out. But, sooner or later one must confront how reality treated one’s predictions, so here we are.
Some Big and Bold Predictions
Here were my arbitration predictions from a year ago on what was coming in 2017, and how they turned out. How did I do? As Larry David says, “Pretty, pretty, pretty, pretty good.” Core arbitration predictions are in bold/italic:
- We Will Have a President Who Likes and Uses Arbitration!
What I wrote: As I’ve blogged before, President Trump believes in arbitration and uses the process. In 2012, he won $5 million in a dispute with a former Miss USA contestant who defamed the pageant, which he owned. President Trump in 2015 filed an arbitration claim against NBC after the network cancelled a contract to televise the Miss USA and Miss Universe pageants. He also won an Internet domain name arbitration, back in 2011. And I read in the Indisputably blog that even Mr. Trump’s agreement with campaign volunteers had a PDAA giving the campaign the unilateral right to require arbitration of disputes.
What I Predicted: Look for Executive Orders expanding use of arbitration by the federal government, and EOs undoing President Obama’s anti-arbitration directives. For example, President Obama in July 2014 signed Executive Order 13673, barring companies with federal contracts valued at over $1 million from mandating arbitration of Title VII or sexual harassment or assault claims. That one is a goner for sure.
What happened: Spot on prediction! I cover separately the Consumer Financial Protection Bureau (“CFPB”) and other regulators, but let’s start with that Obama-era Title VII Regulation referenced above. What happened? Gone! Exercising its authority under the Congressional Review Act (“CRA”), 5 USC §§ 801-808, the House of Representatives in February passed House Joint Resolution 37, invalidating the Fair Pay & Safe Workplaces rule issued in August 2016. It was then passed by the Senate and signed by President Trump on March 27th, along with several other nullifications. The rule is now rescinded and a like regulation in “substantially the same form” cannot be promulgated thereafter unless specifically authorized by Congress.
The Trump Administration Department of Justice has been switching sides in some court cases, taking pro-arbitration positions against those taken by federal agencies. In PHH Corporation v. Consumer Financial Protection Bureau, 839 F.3d 1 (D.C. Cir. 2016) – discussed in more detail below – the DOJ’s Amicus Brief filed last March ahead of the en banc oral argument held May 24th took a position against the Bureau. Also, the Acting Solicitor General on June 15th filed an Amicus Brief siding with the employers and against the National Labor Relations Board (“NLRB”) in Epic Systems Corp. v. Lewis, 137 S. Ct. 809 (2017), three cases pending at the Supreme Court involving whether the Federal Arbitration Act prevails over the National Labor Relations Act when it comes to enforcing class action waivers in employment arbitration agreements. The case was heard October 2nd, with the DOJ arguing against its own federal agency.
- All the Anti-Arbitration Legislation is DOA
What I predicted: These anti-arbitration bills will die when this Congress fades to black the end of this year. And there is zero chance they will be enacted in the new Congress. And if any of them are reintroduced and by some miracle enacted, President Trump will surely veto the legislation, with no chance at an override.
What Happened? As predicted, all these bills went nowhere and died when the last Congress adjourned. As also predicted, the Democrats have introduced several anti-arbitration bills in the new Congress, as described in my blog post, Baseball Season is Here! You Can’t Tell the Anti-Arbitration Bills Without a Scorecard. They have predictably gone nowhere. However, in the wake of seemingly daily accusations of workplace sexual harassment, bipartisan bills were introduced December 6th in both Houses of Congress that would amend the Federal Arbitration Act to ban predispute arbitration agreements covering sexual discrimination disputes. The Ending Forced Arbitration of Sexual Harassment Act was introduced in the Senate by Sen. Kirsten Gillibrand (D-NY) and in the House by Rep. Cheri Bustos (D-IL). The Bills, which have bipartisan support in both Houses, would ban PDAAs for “a dispute between an employer and employee arising out of conduct that would form the basis of a claim based on sex under title VII of the Civil Rights Act of 1964 (42 U.S.C.2000e et seq.) if the employment were employment as defined in section 701(b) of that title regardless of whether a violation of title VII is alleged…”
- SCOTUS’ Support for Arbitration Will Continue Unabated
What I wrote: With the current Supreme Court vacancy and because some of the major cases involving arbitration were 5-4 decisions, a Clinton victory might have portended a shift away from the Court’s long-standing support of arbitration and the FAA. For example, potential Clinton nominee Senator Elizabeth Warren has been a long-term critic of mandatory arbitration. Any Warren nomination is now off the table, as is Judge Merrick Garland’s.
What I Predicted: While at this point it’s hard to suggest a single name – who may or may not come from the list compiled by candidate Trump – it’s a safe assumption in my view that whoever it is will be supportive of arbitration. Also, it’s a sure bet SCOTUS will grant certiorari in one of the four cases involving whether the Federal Arbitration Act trumps (sorry) the National Labor Relations Act when it comes to enforcing arbitration agreements. Also, the Court in late October granted certiorari in another preemption case, this one involving an arbitration agreement in a nursing home admission agreement signed by an attorney-in-fact. The case on appeal is Extendicare Homes, Inc. v. Whisman, 478 S.W.3d 306 (Ky. 2015), reh. den. (2016). The petition for cert. was granted without explanation in an Order dated October 28th (see case no. 16-32, sub nom. Kindred Nursing Centers v. Clark, page 1). I predict that SCOTUS will reaffirm the preemptive effect of the FAA over state laws limiting arbitration.
What Happened? Bingo! 1) President Trump nominated, and the Senate confirmed, the pro-arbitration Justice Neil Gorsuch; 2) SCOTUS granted certiorari in Lewis; and 3) in May the Supreme Court held 7 – 1 in Kindred that a Kentucky rule of law requiring that a power of attorney specifically authorize nursing home agreements to arbitrate was preempted by the Federal Arbitration Act. The first real test of Justice Gorsuch’s arbitration views will be in Epic Systems, discussed above, which was argued after he joined the Court.
- Expect Dodd-Frank to be Repealed and Replaced
What I Wrote: On September 9 , Financial Services Committee Chairman Jeb Hensarling (R-TX) introduced the Financial CHOICE Act, H.R. 5983. If enacted, the 513-page legislation would have had far-ranging impact. Dodd-Frank would have been essentially repealed and replaced.
What I Predicted: While this bill will not be enacted in 2016 because of the certainty of a presidential veto, look for something like it to reintroduced in 2017 and likely enacted. Dodd-Frank’s authority for SEC and CFPB to possibly develop regulations banning, limiting, or conditioning predispute arbitration clauses will not make the cut, in my view… On balance, I think President-elect Trump will fulfill his campaign promise to repeal Dodd-Frank and replace it with another statute that will incorporate some features of Dodd-Frank.
What Happened: This prediction gets an “incomplete.” On June 8th the House of Representatives by a 233–186 strictly party-line vote approved the reintroduced Financial CHOICE Act. Not a single Democrat voted “Yea” and only one Republican – Rep. Walter Jones (NC) – voted “Nay.” To review, among other things, the 602-page Act (H.R. 10) would repeal and replace Dodd-Frank, and would eliminate the authority granted to both the CFPB and SEC to limit or eliminate predispute arbitration agreements, or set conditions for their use. Also, the Act would rename the Consumer Financial Protection Bureau the Consumer Law Enforcement Agency and transform it into an executive agency with a Director terminable at will by the President. The Senate has yet to act.
- Expect Less Regulation – Starting with the CFPB
What I Wrote: President-elect Trump promised there will be less regulation, starting on January 20 when he intends to issue Executive Orders rolling back many of President Obama’s EOs, and declaring a temporary moratorium on new regulations. Regulatory burdens not assailable by EOs will be addressed by orders to the new agency heads to initiate corrective rulemaking.
What I Predicted and What Happened:
- Consumer Financial Protection Bureau: Dodd-Frank section 1028 directs the CFPB to study the use of PDAAs in contracts for consumer financial products and services and later report to Congress, and to ban, limit or impose conditions on their use if such action “is in the public interest and for the protection of consumers.” What would be covered? Any regulation “would apply generally to the consumer financial products and services that the Bureau oversees, including credit cards, checking and deposit accounts, certain auto loans, small-dollar or payday loans, private student loans, and some other products and services as well.”
After issuing the required Report to Congress in March 2015, the CFPB in May 2016 issued a proposed rule that would: 1) ban class action waivers in predispute arbitration agreements in contracts for consumer financial goods and services; and 2) require regulated financial institutions to file customer claims and awards data with the CFPB, which the Bureau may choose to publish.
What I Predicted: I believe President Trump will terminate Director Cordray, acting under authority of the PHH case. The new CFPB Director I suspect will be much more arbitration-friendly, and I believe the reg will go back to the drawing board. I added at my mid-year update: We’ll see what the rest of the year brings, but of this I am certain: if the CFPB issues its final arbitration rule, it will be subjected to Congressional disapproval and nullification.
What Happened: So many developments, all of which I correctly predicted:
- The Bureau’s Final Arbitration Rule was published July 19th in the Federal Register and went into effect as scheduled on September 18th, with “mandatory compliance for pre-dispute arbitration agreements entered into on or after March 19, 2018.” The Final Rule mirrored the proposed one.
- As predicted, the Rule was retroactively nullified November 1, when President Trump signed into law a Joint Disapproval and Nullification Resolution. The Rule is no more. CFPB on November 22nd officially removed the now-defunct Rule from the Code of Federal Regulations by publishing a brief notice in the Federal Register. I actually liked some of the CFPB’s Rule, as I blogged in Let’s Not Toss Out the Data-gathering Baby with the CFPB Arbitration Rule Bathwater.
- Before he could be fired by the President, Director Cordray announced via a November 15th email to staff that he would be departing the Bureau by the end of the month. Later, Mr. Cordray suddenly announced that his last day was November 24.
- This immediately led to conjecture that the President would name as Acting Director the current head of Office of Management and Budget, Mick Mulvaney. On November 24th, President Trump issued a Statement making official Mr. Mulvaney’s designation as Acting Director.
- However, before he left Mr. Cordray named as Deputy Director staffer Leandra English, touching off an ugly power struggle over who was in charge of the agency. How ugly? Some highlights are offered below, but for chapter and verse, see my blog post, Richard, Here’s Another Nice Mess You’ve Gotten Us Into!
- On November 26, Ms. English sued President Trump and Mr. Mulvaney, seeking both an emergency temporary restraining order and declaratory relief recognizing her as the Bureau’s Acting Director (see complaint in English v. Trump and Mulvaney, 1:17-cv-02534 (D.D.C.)), but on November 28, Judge Timothy J. Kelly denied the request for an emergency TRO, ruling from the bench.
- English then filed a motion for a preliminary injunction on December 6. The Government’s proposed briefing schedule shows that DOJ is planning to file a motion to dismiss in January.
- A new legal challenge emerged on December 5, with the filing of Lower East Side People’s Federal Credit Union v. Trump and Mulvaney, No. 17 Civ. 9536 (S.D.N.Y.). The Complaint asks the Court to declare Mr. Mulvaney’s appointment unlawful and to designate Ms. English as Acting Director, but does not seek injunctive relief. Says the Plaintiff, “President Trump has attempted an illegal hostile takeover of the CFPB, throwing the Credit Union and other credit unions and banks into a state of regulatory chaos.”
- In the meantime, Mr. Mulvaney has consolidated power. On November 27, he conducted a 20-minute press conference at which he announced 30-day freezes on hiring, rules, regulations, and guidance. Later that day, the CFPB Website and org chart were updated to show Mr. Mulvaney as Acting Director. On November 28, Mr. Mulvaney established a Twitter account, @CFPBDirector. His first tweet was: “Busy day at the @CFPB. Digging into the details,” accompanied by a photo of the Acting Director sitting at his desk. Mr. Mulvaney named as senior advisor Brian Johnson, the House Financial Services Committee’s Senior Counsel. Mr. Mulvaney also gave a brief interview December 1st on “Lou Dobbs Tonight,” where he criticized the CFPB: “The structure of the CFPB is just fundamentally flawed. The authority I have now as the acting director really should frighten people. You can sit down in a room with three or four people, and say, well, let’s go off and do this, and there is no accountability to Congress.”
- As discussed above, the PHH case was reheard en banc in late May. In that now-vacated original decision, a divided D.C. Circuit had held that the CFPB’s structure, which has a single Director with virtually unlimited, unchecked authority, was unconstitutional. The Court had directed that the CFPB be restructured to make the director terminable-at-will by the President. The Court has not yet ruled, but I’m sticking to my guns with my prediction that the Court will eventually rule against the Bureau.
- Congressional Members have also weighed in. Several current and past Democratic Members of Congress filed a November 27 Amicus Brief in support of Ms. English. Senators Brown (D-OH) and Warren (D-MA) sent a December 1 letter to Mr. Mulvaney and Ms. English asserting that the latter was the rightful Acting Director and posing several questions to both. On December 4th, 44 members of the Senate Democratic Caucus sent a letter to the President objecting to Mr. Mulvaney’s appointment: “Assigning leadership of the CFPB to someone who already has a full-time job reporting to the White House and who does not believe in the CFPB’s mission jeopardizes the agency’s independence and effectiveness.”
- Department of Labor – Fiduciary Standards: The Department in April 2016 approved a Fiduciary Standard Rule for those providing investment advice in connection with retirement accounts. The regulation allows for use of a Best Interests Contract (“BIC”) with investors containing a predispute arbitration agreement, but class action waivers are not
What I Predicted: Hard to see where President Trump will land on this one, but the Reg is viewed as anti-business, so I don’t think it’s long for this world.
What Happened: Lots of activity on this one!
- President Trump on February 3rd ordered the Secretary of Labor to undertake a review of the DOL’s fiduciary rule, that had been scheduled to go into effect in phases starting April 10 for those offering advice on retirement accounts.
- The DOL announced on April 4th that it was delaying for 60 days the rule’s implementation. However, the first phase of the fiduciary standard rule went into effect starting June 9th for those offering retirement investment advice. A second Phase was to be implemented January 2018.
- DOL later filed a proposal to delay until July 2019 the planned January 2018 implementation of Phase II of its Fiduciary Standard Rule (“18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption; Class Exemption for Principal Transactions; PTE 84-24”). The delay became official on November 29 when Notice was published in the Federal Register.
- The Department is defendant in Thrivent Financial for Lutherans v. Acosta, 0:16-cv-03289, a challenge to the anti-class action waiver part of the rule that was filed September 2016 in the District of Minnesota. On November 3rd, the Court issued an injunction, finding both the likelihood of success on the merits and irreparable injury. District Judge Susan Richard Nelson writes in her 21-page Opinion and Order: “DOL now concedes that the BIC Exemption’s anti-arbitration condition contravenes the FAA, and asserts that it will not enforce violations of that condition against Thrivent… Here, because DOL concedes that the anti-arbitration condition violates the FAA, the Court finds that Thrivent is likely to succeed on the merits” (internal citations omitted).
- The SEC has taken the first steps on moving ahead with its own rule, as authorized by Dodd-Frank section 913(g)(1). Chairman Jay Clayton’s June 1 Statement, announcing that the SEC is seeking public comments on developing a consistent approach to investment advice standards, expressed the Commission’s willingness to work with DOL on a consistent approach. And, the day after the DOL officially delayed implementation of Phase II of its Fiduciary Rule, SEC Chairman Clayton said that the SEC would be moving ahead with its own Rule.
- Department of Education: The DOE in late October issued final regulations that would have banned mandatory predispute arbitration agreements and class action waivers in college enrollment agreements for schools receiving federal financial aid for student borrowers.
What I Predicted: I see the reg going back to the drawing board.
What Happened: The Department of Education published a Notice on June 16 announcing that it was postponing indefinitely the planned July 1 effective date of the regulation.
- Centers for Medicare and Medicaid Services: The agency issued a final regulation on September 28th banning nursing homes and long-term care facilities receiving federal funds from using mandatory predispute arbitration agreements.
What I Predicted: This regulation has already been enjoined, and now comes word that CMS is appealing. The very brief January 5th Notice of Appeal states that the agency and individual representative Defendants “hereby appeal to the United States Court of Appeals for the Fifth Circuit from this Court’s Order of November 7, 2016 (Docket No. 44), which granted the plaintiffs’ motion for a preliminary injunction.” No matter; one can bet that President Trump will direct the agency to drop its opposition.
What Happened: Spot on prediction. On June 2nd, CMS dropped its appeal and on June 5 published in the Federal Register an amended regulation eliminating the ban on predispute arbitration agreements and establishing fairness requirements for PDAA use.
- Department of Labor – Employment Contracts: Former President Obama signed the Fair Pay and Safe Workplaces Executive Order 13673 in July 2014 barring companies with federal contracts valued at over $1 million from mandating arbitration of Title VII or sexual harassment or assault claims; a slightly revised Order was issued last August. The Department of Labor issued Final Guidance and the Federal Acquisition Regulatory Council published the Final Rule a day later. In late October, implementation of the rule was enjoined.
Prediction: Look for the Obama EOs to be rescinded and the agency to drop its opposition to the injunction.
What Happened: As discussed above, exercising its authority under the CRA, Congress passed a joint Resolution nullifying the Rule and President Trump signed it in March. Moreover, disapproval under the CRA is retroactive; subsection (d) provides: “Any rule that takes effect and later is made of no force or effect by enactment of a joint resolution … shall be treated as though such rule had never taken effect.”
- Financial Arbitration – New Love for FINRA Arbitration?
What I Wrote: The [usually anti-arbitration Obama] DOL acted favorably – at least neutrally – about PDAAs in Best Interest Contracts for ERISA accounts when all these other federal regulatory agencies were taking hostile action. Perhaps the Department sees the securities business as a case apart? Right now, CFPB, DOL, and SEC/FINRA have a consistent approach to the financial arbitration area: PDAAs are OK but class action waivers are not.
What I Predicted: I’ve said for years FINRA has very consumer-friendly rules. Given the new political landscape, I believe opponents of arbitration will give up the anti-arbitration ghost and instead focus on ensuring a fair process incorporating the many consumer protections in FINRA’s arbitration rules [examples provided]. I now think that the Commission probably will finally act in 2017 by doing a study of FINRA arbitration using FINRA’s follow-up activity on the Dispute Resolution Task Force’s 51 recommendations to improve the process. On the other hand, it may be just as likely that the SEC will not act on section 921 in 2017 until the Republicans move ahead on their plans to repeal and replace Dodd-Frank.
What Happened: Not much. The anti-arbitration forces introduced a flurry of anti-arbitration bills, but of interest is that some bills focus on fairness, rather than outright PDAA bans. Now that the Financial CHOICE Act has been passed by the House, I suspect the SEC will hang on and see what transpires.
Not bad! As I wrote last year, the arbitration world is constantly changing, and will no doubt evolve yet again next year. Look for my 2018 arbitration predictions here soon. In the meantime, see you in the future!
*George H. Friedman, Chairman of the Board of Directors of Arbitration Resolution Services, Inc. and an ADR consultant, retired in 2013 as FINRA’s Executive Vice President and Director of Arbitration, a position he held from 1998. In his extensive career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He is an Adjunct Professor of Law at Fordham Law School. Mr. Friedman serves on the Board of Editors and is a Contributing Legal Editor of the Securities Arbitration Commentator. He is also a member of the AAA’s national roster of arbitrators. He holds a B.A. from Queens College, a J.D. from Rutgers Law School, and is a Certified Regulatory and Compliance Professional.
 Based on a very limited sampling, Chief Judge Garland seemed to be pro-arbitration.
 See Friedman, G., Supreme Court Nominee Gorsuch Seems to be Pro-Arbitration! (February 2017).
 82 FR 55500 (Vol. 82, No. 224, P. 55500, November 22, 2017).
 On December 5, Mr. Cordray announced he was running for Ohio Governor.
 One wonders what’s taking so long? It’s been seven months since the case was argued. SCOTUS took just four months to decide Kindred.
 82 FR 56545 (Vol. 82, No. 228, P. 56545, November 29, 2017)
 See American Health Care Association v. Centers for Medicare, No. 3:16-CV-00233 (N.D. Miss. Oct. 17, 2016), which sought an injunction, asserted that CMS exceeded its statutory authority and that the regulation runs afoul of the Federal Arbitration Act. On November 7th Judge Michael Mills issued a 40-page decision granting the request for an injunction.
 I also pointed out that this is precisely the approach FINRA has taken for years in Rule 2268(d), and Rule 12204(d). The latter provides that an industry party “may not enforce any arbitration agreement against a member of a certified or putative class action with respect to any claim that is the subject of the certified or putative class action until: the class certification is denied; the class is decertified; the member of the certified or putative class is excluded from the class by the court; [or] the member of the certified or putative class elects not to participate in the class or withdraws from the class …”