Legal Docket: Arbitration contracts

MARY REICHARD, HOST: It’s Monday morning, start of a new work week for The World and Everything in It. Today is the 5th of November, 2018. Good morning. I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. The U.S. Supreme Court announced on Friday that it will hear a case involving a cross-shaped war memorial in Bladensburg, Maryland.

The American Humanist Association sued over the 1925 memorial, arguing it unconstitutionally establishes a state religion.

Now, this is the first high-profile church-state case added this term, and could affect thousands of other similar monuments around the country.

REICHARD: Alright, today’s oral arguments are pretty technical and I’ve done my best to simplify. But they are important, as they have to do with your right to an effective legal defense, as well as how much leverage you have in arbitration cases.

That is a growing area of the law and you’re probably more likely to wind up in an arbitration than you are in a traditional lawsuit.

That said, I have a hunch why these cases are a little dry: I think it may be because the justices who chose a lot of these cases were waiting around to see when that 9th justice was going to be seated to replace retired Justice Anthony Kennedy. I think they wanted some assurance that if for whatever reason they found themselves with eight justices for awhile, that they’d be able to resolve these cases and not risk a 4-to-4 split.

Just my theory. No way to know for sure.

EICHER: All right. Let’s dive in. The question presented in the first case asks whether a lawyer is presumed ineffective because he didn’t file an appeal for his client.

Gilberto Garza Jr. entered into plea deal on two separate criminal matters in Idaho. Among other provisions of the deal was Garza’s agreement to waive his right to appeal.

After signing off on all this, including the appeal waiver, Garza told his lawyer to appeal the convictions anyway.

His lawyer explained again, Garza had waived the right to do that. And based on that reasoning, the lawyer didn’t appeal and didn’t consult Garza any further.

REICHARD: So Garza got a new lawyer who came up with a new argument that the client had had his constitutional rights violated. In other words, that Garza’s trial lawyer failed him by not following his instruction.

The new lawyer Amir Ali argued at the Supreme Court the original counsel had no business acting against his client’s interest.

ALI: His state-appointed attorney, his agent, has no place substituting his own view that his client should simply cede and go off to prison.

REICHARD: The Supreme Court has ruled, after all, that criminal defendants have a Sixth Amendment right to what is called “reasonably effective” legal assistance.

The court’s ruling laid out the proof required to show ineffective lawyering: a deficient act or omission by the lawyer that hurt the case.

Garza says that’s exactly what happened to him.

But the other side points out that Supreme Court opinion wasn’t so open and shut as Garza claims. Here’s what then-Justice Sandra Day O’Connor said about it back in the year 2000:

O’CONNOR: We cannot say, as a constitutional matter, that in every case counsel’s failure to consult is necessarily unreasonable and therefore deficient.

So Idaho’s lawyer, Kenneth Jorgensen, ran with that.

There’s just no bright line rule that counsel always must consult with the defendant about an appeal. Garza’s trial lawyer had every reason to think once a right is waived, it’s waived for good.

Which sounds reasonable, but the justices didn’t seem to think so.

Idaho’s Jorgensen got lots of push back from justices both liberal and conservative.  

Listen to this exchange with Justices Elena Kagan and Neil Gorsuch addressing Jorgensen. When you hear the word “presumption” it means assuming the lawyer did wrong without evidence to the contrary.

KAGAN: You’re saying that even if the client makes a kind of generalized ‘go file an appeal for me. I leave it to you… I don’t know the law, you go do it,’ and the attorney doesn’t file anything, even then you would say there’s no presumption?

JORGENSEN: Yes….

GORSUCH: But doesn’t that run counter to our normal division of labor between clients and lawyers? Don’t clients generally specify the end, ‘I wish to appeal,’ and leave it to the lawyer to determine the means? And doesn’t it become incumbent at that stage upon the lawyer to identify whether there are any viable issues for appeal and come back to the client and say there are some or there are not some? And a failure to do that, why isn’t the failure to do that presumptively prejudicial?

JORGENSEN: I would suggest that the end is not the filing of the notice of appeal but the ultimate goal of the client.

REICHARD: That didn’t seem to convince Justice Brett Kavanaugh, who just came off 12 years as an appellate judge.

Jorgensen tried his best to highlight that a criminal defendant is better off just living with his plea deal. That comes with lots of benefits. Besides, a win for this guy would only encourage a bunch of frivolous appeals, and clog up the courts even more than they already are.

KAVANAUGH: What practical harm has there been in those jurisdictions, those areas, that have applied the presumption? Because I haven’t seen much evidence of practical problems from the presumption… And if there’s no evidence of a problem, why complicate the law, as Justice Breyer says?

REICHARD: Idaho’s Supreme Court is the odd man out among the courts on this matter. It’s likely that Garza will indeed be able to have his cake and eat it too: appeal his convictions, despite waiving his right to do so as part of an agreement that lessens the severity of his punishment.

Now, these next two cases have to do with the FAA. I don’t mean Federal Aviation Administration. I mean the Federal Arbitration Act.

Arbitration is a way to resolve disputes outside the court system. It’s common for a contract to have a provision that says parties must resolve disputes this way.

To sue in court, one side would need the other side’s consent.

Employers tend to prefer arbitration because it’s cheaper and faster than going through the courts. No judges, no juries. It might take 6 months to arbitrate a dispute, versus years in the court system. And the arbitrator’s decision is binding.

In this case, it’s the employee of a lamp retailer who wants to arbitrate. But warehouse worker Frank Varela wants to arbitrate not just for himself. He wants to do so on behalf of a lot of fellow employees whose personal information got hacked from their work computers.

Problem is, his arbitration agreement says nothing about arbitrating as a class.

Still, Justice Ruth Bader Ginsburg seemed sympathetic to him. The agreement says nothing about prohibiting arbitration as a class, either.

She puts it this way to Michele Vercoski, Varela’s lawyer.

GINSBURG: So, here, where the concern is lawyers that are less than the best and didn’t put in a class action waiver, those contracts, in those cases, class arbitration will be permitted?

VERCOSKI:  Well, it depends on the language of the — of the actual agreement.

REICHARD: The language of the actual agreement is what the employer’s lawyer came back to: that if resolution of disputes as a class isn’t mentioned, it’s not permitted.

So Varela needs to resolve his problem just for himself. One fight at a time.

Each side argues the FAA favors it, and if it doesn’t, then state law or court rulings supports it.

Justice Kagan used an analogy to clarify the matter, leaning again in favor of Varela, against the employer:

KAGAN: Well we would never say that in general. A general clause usually speaks to the things inside it.  If I say all furniture, it usually means tables and chairs. If I say all clothing, it usually means pants and shirts. And we don’t insist that everybody lay out all the subcategories of things. So this question is here you have an overall, you know, term, “disputes, claims, or  controversies.” Why wouldn’t you include class disputes, claims or controversies unless there’s some kind of special contractual rule coming in.

REICHARD: This case has big ramifications for management and labor.

My guess is the court will rule narrowly to hand Varela a win. The justices are split on arbitration because of the power differential between employees and their employers. Given that the Chief Justice doesn’t like to decide more than the court absolutely must, a narrow ruling seems likely.

This last arbitration case asks: who decides whether a certain issue can even be arbitrated? What if the demand for arbitration is just a ridiculous ruse?

Here, a dental equipment distributor called Archer and White sued competitors, alleging an anticompetitive conspiracy in the industry.

One side wants arbitration, the other side does not. So who decides?

Archer and White’s lawyer, Kannon Shanmugam, argued federal law makes this crystal clear.

SHANMUGAM: The Federal Arbitration Act requires courts to enforce arbitration agreements according to their terms. Where the parties have so agreed, the Arbitration Act requires a court to honor that agreement. A court does not have the power to decide the issue of arbitrability for itself and to short-circuit the arbitrator’s ability to do so.

REICHARD: The parties here agreed the arbitrator gets to decide, Shanmugam argued. The contract spells out in lawyer language when to use arbitration: “any dispute arising under or related to the contact, except for actions seeking injunctive relief…”

Here, his clients do seek an injunction to stop the other side from doing something,  but the main thing they want is damages. So, just ignore that word “except.”

Off to the arbitrator!

But Justice Kagan wasn’t so sure.

KAGAN: And there was an idea that people don’t really think about, the question of who decides, and so we’re going to hold parties to this higher standard, the clear and unmistakable intent standard. And wouldn’t the same kind of argument be true here, that the parties never really considered who was going to decide these groundless claims of arbitrability, or maybe, if they did consider it, they would have thought that it was a pretty strange system to send it to an arbitrator just so that the arbitrator could send it back to the court?

Justice Stephen Breyer spun out a weird hypothetical about a being from Mars demanding to arbitrate some frivolous claim.

Justice Ruth Bader Ginsburg brought it all back to regular Earthlings and the basic question before the Court.

GINSBURG: But the court has to decide wholly groundless.  So where do you draw the line between merely incorrect, groundless, and wholly groundless?

GORSUCH: Good question.

REICHARD: In recent years, the conservative majority has endorsed arbitration and tried to curb class-action claims. Critics of arbitration though say it makes it tougher for employees to root out company problems, like sexual harassment.

But in this case, the worry is how to figure out when a demand for arbitration is just silly in the first place.

And that’s this week’s Legal Docket.

(AP Photo/J. Scott Applewhite) The Supreme Court is seen in Washington, Sunday, Sept. 23, 2018. 

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