Amicus Curiae Brief — MHN Gov't Servs., Inc. v. Zaborowski, 136 S. Ct. 27 (2015) (No. 14-1458)

No. 14-1458

3n The

Supreme Court of the Anited States

e

4

MHN GOVERNMENT SERVICES, INC.,

AND MANAGED HEALTH NETWORK, INC.,

Petitioners,

Vv.

THOMAS ZABOROWSKI, ET AL.,

Respondents.

—

4

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

®

-

BRIEF OF MARY A. BEDIKIAN, DANIEL

BARNHIZER AND GEORGE T. ROUMELL, JR.

AS AMICI CURIAE IN SUPPORT OF PETITIONERS

&

-

THOMAS M. PETERSON

Counsel of Record

MoRGAN Lewis & Bockrus LLP

One Market Street, Spear Tower

San Francisco, CA 94105

Telephone No. (415) 442-1000

Facsimile No. (415) 442-1001

Email: tmpeterson@morganlewis.com

Attorneys for Amici Curiae

COCKLE LEGAL BRIEFS (800) 225-6964

WWW COCKLELEGALBRIEFS COM

i

QUESTION PRESENTED

For over thirty years, this Court has made clear

that in enacting the Federal Arbitration Act (“FAA”),

the goal of Congress was to equalize arbitration

agreements with all other contracts by ensuring their

enforceability in the face of hostile state law. South-

land Corp. v. Keating, 465 U.S. 1 (1984); Perry v.

Thomas, 482 U.S. 483 (1987); Volt Info. Scis., Inc. v.

Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S.

468 (1989); Allied-Bruce Terminix Cos. v. Dobson, 513

U.S. 265 (1995); Doctor’s Assocs., Inc. v. Casarotto, 517

U.S. 681 (1996); AT&T Mobility LLC v. Concepcion,

131 S. Ct. 1740 (2011). Thus, state laws cannot single

out arbitration agreements for different treatment

without contravening the letter and spirit of the FAA.

Here, the Ninth Circuit failed to apply a clear

and unambiguous contract severability clause. If

that clause had been applied, problematic parts of the

contract could have been severed while preserving the

remainder. Instead of proceeding in this fashion, the

courts below employed a standard to assess contract

unconscionability that differs from the standard used

when arbitration is not at issue. On that basis, the

parties’ clear agreement to arbitrate was defeated.

The result here circumvents the mandate of the

FAA, which has been construed broadly by this Court

to ensure that arbitration remains a viable alterna-

tive to the judicial process. Moses H. Cone Mem’

Hosp. v. Mercury Constr. Co., 460 U.S. 1 (1983) (de-

claring a liberal federal policy favoring arbitration).

ii

QUESTION PRESENTED - Continued

The rationale which drove the decision below will

have a recurring, detrimental impact on rights guar-

anteed by the FAA unless this Court intervenes.

The question presented is whether California’s

arbitration-only severability rule is preempted by the

FAA.

ill

TABLE OF CONTENTS

Page

QUESTION PRESENTED...................cccccsssseeeeeees i

TABLE OF CONTENTS .......::ccccccccsoscoccccsscsscoosees ili

TABLE OF AUTHORITIES ...............cccececeeeeeeeeeee vi

INTEREST OF AMICI CURIAE ..............0...000000 1

INTRODUCTION AND SUMMARY OF

_____,, SET LT I 3

REASONS TO GRANT THE WRIT...................... 6

I. The Ninth Circuit’s Decision Not To

Sever Purportedly | Unconscionable

Provisions From An Otherwise Valid

Arbitration Clause Is Antithetical To This

Court’s Precedent Favoring Arbitration.... 6

Il. The Rules of the American Arbitration

Association (“AAA”) Provide A Due

Process-Compliant Framework For

Adjudication And An Effective Way To

Address Unconscionable Contract

PED ccrccvenicnincnstinnenandiidiisiinmidanaiainaiidanes 10

A. AAA’s Rules Can Remedy Any Poten-

tially Serious Contractual Defects...... 10

1. Six-Months Limitation Period........ 11

2. Arbitrator Selection Process........... 13

3. Cost And Fee Shifting Clause ........ 14

4. Filing Fees And Punitive Damages... 14

iv

TABLE OF CONTENTS -— Continued

Page

B. AAA’s Rules Offer Other Significant

ii anes rnmngniimengnemssnnee 15

in 17

APPENDIX

Appendix A—Excerpts from American Arbi-

tration Association, Commercial Arbitration

Rules & Mediation Procedures (2013)

Rule R-7: Jurisdiction .................ccccccceeeeeeeeeeee App. 1

Rule R-12: Appointment from National

ere App. 1

EE App. 3

Rule R-22: Pre-Hearing Exchange and Pro-

duction of Information .........................cccc00000 App. 3

Rule R-26: Representation..................:ccc0s00 App. 5

Rule R-32: Conduct of Proceedings .................. App. 5

Rule R-33: Dispositive Motions ....................... App. 6

ID cccnicstinnensnnnssnsessesecsnsenneseeees App. 7

Rule R-37: Interim Measures .......................... App. 7

Rule R-39: Closing of Hearing......................... App. 8

Rule R-40: Reopening of Hearing..................... App. 9

Rule R-47: Scope of Award ..................c..cccce008 App. 9

Rule R-50: Modification of Award.................. App. 10

a

TABLE OF CONTENTS -— Continued

Appendix B—Excerpts from American Arbi-

tration Association, Employment Arbitration

Rules & Mediation Procedures (2009)

Rule 1: Applicable Rules of Arbitration......... App. 11

ee cccecttncrencnccennscnsvcenisennsnsieds App. 12

vi

TABLE OF AUTHORITIES

Page

CASES

Allied-Bruce Terminix Cos. v. Dobson, 513 U.S.

Ene ene eT 2

AT&T Mobility LLC v. Concepcion, 131 S. Ct.

iced rrnicstniceastiitatinis aida eerie emsantaaimitaeearinesl 8

Baker v. Osbourne, 159 Cal. App. 4th 884

Ee eee a ee ene ena i)

BG Grp. PLC v. Republic of Argentina, 143

1 GEESE AE ee eee: 2

Bruni v. Didion, 160 Cal. App. 4th 1272 (2008) .......... 8

Cole v. Burns Int'l Sec’y Servs., 105 F.3d 1465

SE CITED: SITET nnstchtiinininciiasiiaiaileiibincinmriitanaiainiariibcameuas 10

Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681

EIT tincihisincnerinniteisidnisanaitalilaestntsaamaieiiciletiiasmenniiaiel 2,5, 7

First Options of Chicago v. Kaplan, 514 U.S.

STITT incinstchivnseasiiaciieeitioecnieeithtensinnanienpasead igenapsbansasiinbaiasseas 12

Gilmer v. Interstate/Johnson Lane Corp., 500

SS eres 5, 7, 10, 17

Howsam v. Dean Witter Reynolds, Inc., 537

Ss RII scnicetaniisiasieenehiamatatiaeacabantinitindaiiidabiitnbeempaent 12

Mitsubishi Motors Corp v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985)............... 2, 5, 10

Moses H. Cone Mem'l Hosp. v. Mercury Constr.

i EEE 6

Perry v. Thomas, 482 U.S. 483 (1987)........................-- 6

vil

TABLE OF AUTHORITIES — Continued

Page

Pokorny v. Quixtar, Inc., 601 F.3d 987 (9th Cir.

ili eel li adeitald 5

Southland v. Keating, 465 U.S. 468 (1989).............. 5,7

Stolt-Nielsen S.A. v. Animal Feeds Int'l Corp.,

CS Soe 2

Volt Info. Scis., Inc. v. Bd. of Trs. of Leland

Stanford Junior Univ., 489 U.S. 468 (1989)........ 2,7

STATUTE

EL SS ae nS TEE, 6,7

RULES AND PROCEDURES

Commercial Arbitration Rules & Mediation

Procedures (2013)

TEL Le 12

Rule R-12: Appointment from National

TTT ssc tah inatinetialerehaescnnadiaih ionelaaaiis erthia biahbetenibiaiathidi 13

I ial 15

Rule R-22: Pre-Hearing Exchange and Pro-

duction of Information ....................ccccccccccesceeseeeeeeee 16

Rule R-26: Representation. ...................:ccccccceeseeeeeee 16

Rule R-32: Conduct of Proceedings ........................ 16

Rule R-33: Dispositive Motions .............................. 16

aii nical he 16

Rule R-37: Interim Measures ......................0000000000 16

Vill

TABLE OF AUTHORITIES — Continued

Page

Rule R-39: Closing of Hearing........................00000 17

Rule R-40: Reopening of Hearing........................... 17

Rule R-47: Scope of Award ................ccccccceeeeeees 14, 15

Rule R-50: Modification of Award......................000 17

Employment Arbitration Rules & Mediation

Procedures (2009)

Rule 1: Applicable Rules of Arbitration.................. 11

ee Rericncccensenmnnsenennnessennssenusecnseanssennie 12

OTHER AUTHORITIES

Steven A. Broome, An Unconscionable Applica-

tion of the Unconscionability Doctrine: How

the California Courts Are Circumventing The

Federal Arbitration Act, 3 HASTINGS Bus. L.

Stephen J. Ware, Paying the Price of Process:

Judicial Regulation of Consumer Arbitration

Agreements, 2001 J. Disp. RESOL. 89 ................00:0000 3

1

BRIEF OF MARY A. BEDIKIAN, ET AL.,

AS AMICI CURIAE IN SUPPORT

OF PETITIONERS

INTEREST OF AMICI CURIAE'

Mary A. Bedikian is a Professor of Law in Resi-

dence and Director of the ADR Program at Michigan

State University College of Law. She is also of coun-

sel to the National Center for Dispute Settlement

(“NCDS”) and a former Vice-President of the Ameri-

can Arbitration Association (“AAA”),’ both of which

are ADR service providers. She is joined in this amici

brief by Daniel Barnhizer, Professor of Law and

Bradford Stone Faculty Scholar, and George T.

Roumell, Jr., a member of the National Academy of

Arbitrators and Professor of Labor Arbitration, both

affiliated with Michigan State University College of

Law.

' Pursuant to Supreme Court Rule 37, amici curiae state

that this brief has not been authored in whole or in part by

counsel for a party in this case, and no entity other than the

amici and their counsel made a monetary contribution to the

preparation or submission of this brief. Avnici file this brief with

written consent from all parties and all parties received timely

notice.

* Formerly, Vice-President, American Arbitration Associa-

tion (1975-2003). Professor Bedikian served on the AAA's

Employment Task Force and the Labor Arbitration Task Force,

assisted in the promulgation of rules and due process protocols,

and trained both employment and commercial arbitrators

nationally.

2

The arbitration agreement invalidated by the

Ninth Circuit in this case is found in a standard

counseling services contract that explicitly references

the rules of the AAA. AAA is an independent, private

501(cX3) organization that provides domestic and

international dispute resolution services to parties in

conflict. Founded in 1926, one year after the passage

of the Federal Arbitration Act, AAA’s mandate in-

cludes: (a) administering informal dispute resolution

mechanisms; (b) training mediators and arbitrators;

(c) designing ADR systems; and (d) promoting the

responsible use of ADR.

AAA is the largest provider of alternative dispute

resolution services in the world. Each year, AAA

processes hundreds of thousands of international,

labor, employment, construction and commercial

cases. Its rules are time-tested and due process-

compliant. This Court has relied on the expertise and

reputation of the AAA through amicus filings in

numerous arbitration cases that have been decided in

favor of arbitration over the last twenty years.

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614 (1985); Volt Info. Scis., Inc. v. Bd. of

Trs. of Leland Stanford Junior Univ., 489 U.S. 468

(1989); Allied-Bruce Terminix Cos. v. Dobson, 513

U.S. 265 (1995); Doctor’s Assocs., Inc. v. Casarotto,

517 U.S. 681 (1996); Stolt-Nielsen S.A. v. Animal

Feeds Int'l Corp., 559 U.S. 662 (2010); BG Grp. PLC v.

Republic of Argentina, 143 S. Ct. 1198 (2014).

The Ninth Circuit’s decision here seriously un-

dercuts enforcement of arbitration agreements by

3

refusing to apply the state law contract severability

principles that govern when arbitration is not at

issue. It is imperative that this Court grant the writ

to assure that arbitration contracts are treated with

equal dignity by state contract law, as Congress

intended by the FAA.

.

¥

INTRODUCTION AND

SUMMARY OF ARGUMENT

It is commonplace today for virtually every

industry in the United States to employ some form of

ADR, notably arbitration. “The proliferation of

arbitration agreements in employment and commer-

cial contracts has increased exponentially over the

past century as employers and businesses, intent on

avoiding the judicial system for resolving disputes,

have incorporated arbitration clauses into virtually

all of the standardized form contracts.” Stephen A.

Broome, An Unconscionable Application of the

Unconscionability Doctrine: How the California

Courts Are Circumventing the Federal Arbitration

Act, 3 Hastincs Bus. L.J. 39, 41 (2006); see also

Stephen J. Ware, Paying the Price of Process: Judicial

Regulation of Consumer Arbitration Agreements, 2001

J. Disp. RESOL. 89 (“Arbitration clauses now appear in

many of the form contracts through which consumers

obtain goods, services and credit.”). Thus, this case

has broad implications for all United States business-

es and industries that use arbitration, and for all

major service providers that promulgate rules and

4

procedures under which civil disputes subject to

arbitration clauses are administered. These organi-

zations include the American Arbitration Association,

the International Centre for Dispute Resolution [the

international arm of AAA], JAMS/Endispute, Inter-

national Center for Public Resources (formerly, Cen-

ter for Public Resources], and the National Center for

Dispute Settlement.

The decision below and its rationale jeopardize

widely-employed dispute resolution clauses. The

Ninth Circuit repudiates the strong public policy in

favor of arbitration by invalidating an unambiguous,

bilateral arbitration agreement under the guise of

declaring it procedurally and substantively uncon-

scionable. In doing so, the court applied principles of

California contract law that discriminate against

arbitration agreements by subjecting them to a

contract law analysis that disfavors the severance of

unconscionable provisions in otherwise enforceable

contracts.

The Ninth Circuit’s decision not to sever purport-

edly unconscionable terms or provisions undermines

the strong federal policy promoting arbitration. The

provisions declared unconscionable here do not affect

the central purpose of the contract. Most important-

ly, their elimination as unconscionable would not

contravene the parties’ remaining, intended contract

terms or prevent arbitration from moving forward in

an effective manner. Consequently, contract sever-

ance principles should apply just as they would if

arbitration was not at issue. This Court has repeatedly

5

upheld the enforcement of arbitration arising out of

both voluntary and mandatory arbitration clauses

when the claimant is able to achieve equal treatment

in the arbitral forum. Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985);

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20

(1991). The Ninth Circuit’s failure to apply the

contract’s severability clause violates the FAA's

mandate that arbitration agreements should be

placed on the same footing as all other contracts.

Southland v. Keating, 465 U.S. 1 (1984); Doctor’s

Assocs., Inc. vy. Casarotto, 517 U.S. 681 (1996).

Even assuming the existence of substantively

unconscionable provisions in the contract here, the

proper remedy would have been to sever the offensive

provisions, and permit arbitration to take place.

Although the decision to sever is left to trial court

discretion, in exercising that discretion courts must

look to the central purpose of the contract to deter-

mine whether it is tainted with illegality or whether

the illegality is collateral to the contract’s main

purpose. Pokorny v. Quixtar, Inc., 601 F.3d 987, 1005

(9th Cir. 2010). In this case, two factors favor sever-

ance. First, the parties explicitly incorporated the

AAA rules into their contract. If substantive defects

exist in the drafted arbitration agreement, AAA rules

can correct or supplant those deficiencies without

impairing the purpose of the contract or the effective-

ness of its arbitration provision. Second, AAA’s rules,

designed to function independently of each other,

6

offer additional protections to ensure that all parties

in arbitration operate on an equal playing field.

Se

-

REASONS TO GRANT THE WRIT

I. The Ninth Circuit’s Decision Not To Sever

Purportedly Unconscionable Provisions

From An Otherwise Valid Arbitration

Clause Is Antithetical To This Court’s

Precedent Favoring Arbitration

The FAA “is a congressional declaration of a

liberal federal policy favoring arbitration agreements,

notwithstanding any state substantive or procedural

policies to the contrary.” Moses H. Cone Mem’ Hosp.

v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The

Federal Arbitration Act, 9 U.S.C. §§ 1-16, provides

that “a written provision in any maritime transaction

or a contract evidencing a transaction involving

commerce * ** shall be valid, irrevocable, and en-

forceable, save upon such grounds as exist at law or in

equity for the revocation of any contract.” 9 U.S.C. § 2

(emphasis supplied).

The primary goal of Congress in enacting the

FAA was to equalize arbitration agreements with all

other contracts by ensuring their enforceability in the

face of hostile state law. Perry v. Thomas, 482 U.S.

483, 493 (1987) (“A state-law principle that takes its

meaning precisely from the fact that a contract to

arbitrate is at issue does not comport with [section]

2”.).

7

Section 2’s expression of public policy favoring

arbitration has been repeatedly validated by this

Court. Southland v. Keating, 465 U.S. 1, 10 (1984)

(“In enacting § 2 of the [Flederal Act, Congress de-

clared a national policy favoring arbitration and

withdrew the power of the states to require a judicial

forum for the resolution of claims which the contract-

ing parties agreed to resolve by arbitration.”); Volt

Info. Scis., Inc. v. Leland Stanford Junior Univ., 489

U.S. 468, 477 (1989) (“[E]ven when Congress has not

completely displaced state regulation in an area,

state law may nonetheless be pre-empted to the

extent that it actually conflicts with federal law—that

is to the extent that it ‘stands as an obstacle to the

accomplishment and execution of the full purposes

and objectives of Congress.” (citation omitted));

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

24 (1991) (“[T]he FAA’s purpose [was] to reverse the

longstanding judicial hostility to arbitration * * * and

to place arbitration agreements upon the same foot-

ing as other contracts.”); Doctor’s Assocs., Inc. v.

Casarotto, 517 U.S. 681, 687 (1996) (“By enacting § 2,

we have several times said, Congress precluded

States from singling out arbitration provisions for

suspect status, requiring instead that such provisions

be placed ‘upon the same footing as other contracts.’”

(citation omitted)).

Despite §2’s directive that arbitration agree-

ments be free from the effects of state laws that

discriminate against them, California law continues

to display its hostility toward arbitration by applying

8

to arbitration a totally different test of procedural and

substantive unconscionability. AT&T Mobility LLC v.

Concepcion, 131 S. Ct. 1740 (2011); see also similar

manifestations of ingrained bias by California state

courts illustrated by two decisions: Bruni v. Didion,

160 Cal. App. 4th 1272 (2008) and Baker v. Osbourne

Dev. Corp., 159 Cal. App. 4th 884 (2008).* In stark

contrast to how it addresses severability when other

contract terms are potentially unenforceable, Califor-

nia greatly restricts access to severance when arbi-

tration rights are at issue.‘ Such discrimination is

* Baker v. Osborne Dev. Corp., 159 Cal. App. 4th 884 (2008),

found unconscionability in an arbitration clause because it was

one-sided, meaning that one party would have reason to insti-

tute legal proceedings. Shortly after Baker, a different panel of

California’s Fourth District Court of Appeal decided Bruni v.

Didion, 160 Cal. App. 4th 1272 (2008). Bruni holds that an

arbitration clause could be invalidated because it covered all

disputes that might arise between the parties. Between Bruni

and Baker, it is unclear how arbitration clauses of any scope in

California can survive—one seeks the broadest scope of dispute

coverage and full bilateral application while the other limits the

scope of disputes that can be subjected to arbitration. Given this

incompatibility, it is difficult to see how a party could navigate

between this arbitral Scylla and Caribdis.

* Petition (“Pet.”) 12-16; see also Steven A. Broome, An

Unconscionable Application of the Unconscionability Doctrine:

How The California Courts Are Circumventing The Federal

Arbitration Act, 3 HasTINGs Bus. L. J. 39 (2006) (concluding from

an extensive empirical review of California Court of Appeal

cases from 1982 to 2006 that unconscionability challenges

succeed with far greater frequency when the disputed term is an

arbitration provision). This analysis strongly suggests an

ingrained California bias against arbitration. In 47% of the

cases where arbitration was involved, the agreement was found

(Continued on following page)

9

even more egregious where—as here—the contract

itself provides for severance of unenforceable terms

and provisions.

This discrimination will curtail access to arbitra-

tion. Most arbitration clauses today, in both stand-

ardized and non-standardized contracts, are broad

and intended to cover all disputes, including statuto-

ry claims, that might arise between contracting

parties. The majority of such clauses, including the

arbitration clause in this case, explicitly incorporate

AAA rules and procedures. The breadth of such

clauses represents a conscious decision by parties to

maximize the benefits of arbitration under an estab-

lished ADR service provider. The Ninth Circuit’s

decision frustrates these efforts because severance of

unenforceable contract provisions is greatly restricted

when arbitration rights are involved. Any misstep in

contract drafting threatens the parties’ ability to

enforce perfectly lawful parts of their dispute resolu-

tion agreements.

unconscionable, as compared to 11% of cases addressing

unconscionability as to a contract provision that did not relate to

arbitration. In only 11% of the arbitration cases was the uncon-

scionable provision severed. The sample involved 114 cases.

10

Il. The Rules of the American Arbitration

Association (“AAA”) Provide A Due Process-

Compliant Framework For Adjudication

And An Effective Way To Address Uncon-

scionable Contract Provisions

This Court has recognized, time and time again,

the importance of providing parties with a fair forum

in arbitration. Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614 (1985); Gilmer

v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1911).

Although certainly not a requirement of arbitration,

when parties incorporate AAA rules—employment,

labor, commercial, construction, international—there

is a heightened judicial tendency to find the underly-

ing arbitration process fair and due process-compliant.

Cole v. Burns Int'l Sec’y Servs., 105 F.3d 1465 (D.C.

Cir. 1997).

A. AAA’s Rules Can Remedy Any Poten-

tially Serious Contractual Defects

In this case, the district court and the Ninth

Circuit found flawed several provisions of the parties’

contract. However, irrespective of whether these

provisions are severed, AAA’s Commercial Arbitration

Rules serve as effective gap-fillers, to be used when

needed to replace an unconscionable contract term or

restore to the arbitral process even-handed treatment

of the parties. If the Employment Arbitration and

Mediation Rules of AAA apply, they would completely

trump offending provisions in the parties’ contract

11

and remove all traces of unconscionability. For

example, Rule 1 of the Employment Rules provides:

The parties shall be deemed to have made

these rules a part of their arbitration agree-

ment whenever they have provided for arbi-

tration by the American Arbitration

Association (hereinafter “AAA”) or under its

Employment Arbitration Rules and Media-

tion Procedures or for arbitration by the AAA

of an employment dispute without specifying

particular rules.* /f a party establishes that

an adverse material inconsistency exists be-

tween the arbitration agreement and these

rules, the arbitrator shall apply these rules.

American Arbitration Association, Employment

Arbitration Rules & Mediation Procedures, Rule 1

(2009) (emphasis added); Brief of Amici Curiae

(“BAC”) App. 11.

Irrespective of whether the Commercial or Em-

ployment rules are applied to the contract here, AAA’s

procedures provide fairness to all parties. They mean

that, if normal contract severance rules are applied,

an even-handed and carefully-considered set of rules

will govern. These rules can be applied to preserve

the parties’ agreement to arbitrate. A few examples

are illustrative.

1. Six-Months Limitation Period

The courts below found unconscionable a provi-

sion that required plaintiffs to initiate arbitration

12

within six months of the time a claim or controversy

arose. Pet. Appendix A-3a, 21a. In so concluding, the

courts failed to consider that, whether or not the six

month provision remains in effect, the AAA’s Com-

mercial and Employment Rules give the arbitrator

the authority to decide whether or not a claim is

timely filed. Commercial Arbitration Rule, R-7(a)

(Jurisdiction) states: “The arbitrator shall have the

power to rule on his or her own jurisdiction, including

any objections with respect to the existence, scope, or

validity of the arbitration agreement or to the

arbitrability of any claim or counterclaim.” American

Arbitration Association, Commercial Arbitration

Rules & Mediation Procedures, Rule R-7 (2013)

(emphasis added); BAC App. 1.°

This rule is consistent with the recognized prin-

ciple that procedural issues are usually reserved for

arbitrators to determine, not courts. First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995); Howsam

v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)

(reaffirming the policy favoring the enforceability of

arbitration clauses and holding that arbitrators must

decide gateway procedural issues such as whether a

claim is time-barred or has been waived).

* Rule 6 (Jurisdiction) is the parallel provision in the

Employment Arbitration and Mediation Rules of the American

Arbitration Association, as amended and effective November,

2009.

13

The basic point is simple: whether the contract’s

six-month limitations provision is severed or not, the

arbitrator is authorized under AAA rules to decide

the timeliness of a claim. In assessing timeliness, the

arbitrator could take into account any exigent cir-

cumstances, equitable considerations and factors like

delayed discovery or continuing contract violations.

The right of the claimant to obtain appropriate relief

may remain intact despite the contract’s six-month

claim submission provision based on the operation of

AAA rules.

2. Arbitrator Selection Process

The courts below found the arbitral selection

process flawed because it placed the right of selection

in the hands of only one party. Pet. Appendix A-3a,

22a. AAA rules rectify this imbalance by allowing

each party an opportunity to participate in selecting

the arbitrator. Under R-12 (Appointment From

National Roster), the AAA prepares and submits a list

of neutrals with subject matter experience. BAC App.

2. Each party is given ten days to rank their ac-

ceptable choices. From the lists returned to the AAA,

the parties’ mutual choice is invited to serve and

adjudicate the case. In the event the parties cannot

agree, the AAA will make the final appointment,

subject to disqualification for cause. AAA makes

every effort to ensure that the parties’ mutual choice

is ready, willing, and able to serve.

14

3. Cost And Fee Shifting Clause

The contract here awards fees and costs to the

prevailing or “substantially prevailing” party. Pet.

Appendix A-57a. According to the district court, this

provision is objectionable because it could mean that

even if the plaintiffs in arbitration prevailed on some

of their claims, they may still be subject to absorbing

defendants’ attorneys’ fees. Pet. Appendix A-25a.

If the court were to sever this provision, R-47

(Scope of Award) of AAA’s Commercial Arbitration

Rules would fill the gap. This rule gives the arbitra-

tor the authority to grant any remedy or relief the

arbitrator deems just and equitable and within the

scope of the parties’ agreement. Subsection (b) states

that an arbitrator may assess and apportion the fees

and expenses as the arbitrator determines appropri-

ate.

4. Filing Fees And Punitive Damages

AAA’s rules also address responsibility for pay-

ment of filing fees and the availability of punitive

damages. Those AAA rules permit the arbitrator to

decide exactly how such fees will be allocated and to

set forth such amounts when rendering the final

award. BAC App. 9.

With respect to punitive damages, R-47 (Scope of

Award) clearly indicates that an arbitrator can render

any award deemed just and equitable. This rule

means an arbitrator could award punitive damages in

15

a case where the right to them is established. The

provision in the parties’ contract that precludes the

arbitrator from making material errors of law is

exactly the kind of provision that could confer on the

arbitrator authority to award punitive damages if the

evidence warranted them. Again, the AAA’s Commer-

cial Arbitration Rules would embed into the contract,

as though the purportedly unconscionable provision

were non-existent.

B. AAA’s Rules Offer Other Significant

Protections

The AAA is an industry standard arbitration

provider in part because its arbitration rules incorpo-

rate extensive safeguards to ensure the neutrality

and fairness of its processes. An illustrative sample

of such rules includes:

* R-17 (Disclosure) (Protects the notion of

independent, impartial decision-making

by creating an affirmative duty to dis-

close conflicts of interest; the duty to dis-

close continues until the award is

rendered). BAC App. 3.

* R-22 (Pre-Hearing Exchange and Pro-

duction of Information) (Allows for am-

ple exchange of information without

compromising the economic and format

efficiencies associated with the arbitral

process). BAC App. 3-5.

* R-26 (Representation) (Assures the right

of counsel). BAC App. 5.

16

R-32 (Conduct of Proceedings) (Promotes

full and expeditious presentation of the

case by all parties). BAC App. 5-6.

R-33 (Dispositive Motions) (Recognizes

the growing complexity of arbitration by

authorizing arbitrators, in appropriate

cases, to hear and decide dispositive mo-

tions). BAC App. 6.

R-34 (Evidence) (Allows the parties to of-

fer such evidence as is relevant and ma-

terial to the controversy and grants

discretionary authority to the arbitrator

to obtain additional evidence if neces-

sary. The rule also permits the arbitra-

tor, if authorized by law, to subpoena

witnesses or documents). BAC App. 7.

R-37 (Interim Measures) (Equalizes ar-

bitration remedies with litigation reme-

dies by explicitly authorizing an

arbitrator to grant interim measures

based on a showing of need. Such

measures can include injunctive relief

and measures for the protection or con-

servation of property). BAC App. 7-8.

R-39 (Closing of Hearing) (Ensures that

hearings are not officially closed until

the arbitrator is satisfied that all evi-

dence has been presented). BAC App. 8.

R-40 (Reopening of Hearing) (Permits

additional deliberations upon a showing

of cause, before an award is rendered).

BAC App. 9.

17

* R-50 (Modification of Award) (To further

guard against adjudicative waste, this

internal mechanism permits either party

to request modification or clarification to

correct “typographical errors or ministe-

rial omissions or clarify the award to

eliminate internal inconsistence or am-

biguities”). BAC App. 10.

Each of these rules is independent. Each em-

braces a different aspect of the arbitral process.

Deleting offensive clauses in the parties’ arbitration

agreement would leave in place the AAA’s built-in

procedures and protections that promote the just and

efficient resolution of claims through arbitration.

,’

¥

CONCLUSION

The decision below constitutes a direct attack

against arbitration. “Such generalized attacks on

arbitration ‘res[t] on suspicion of arbitration as a

method of weakening the protections afforded in the

substantive law to would-be complainants,’” and as

such, they are “far out of step with our current strong

endorsement of the federal statutes favoring this

method of resolving disputes.” Gilmer v. Inter-

state/Johnson Lane Corp., 500 U.S. 20, 30 (1991),

quoting Rodriguez de Quijas v. Shearson/Am. Express,

Inc., 490 U.S. 477, 481 (1989) (alteration in original).

AAA is a national and well-recognized non-profit

ADR service provider. Under its rules, all parties

derive the same benefits and burdens. Arbitration

18

offers many benefits, including efficiency, economy,

and access to justice. The AAA’s rules provide an

even playing field for adjudication and are available

when it is necessary to sever unconscionable contract

provisions. The writ should issue to disapprove of

California’s rule denying equal treatment of arbitra-

tica under state law contract severance principles.

Respectfully submitted,

THOMAS M. PETERSON

Counsel of Record

MorGAN Lewis & Bockrus LLP

Attorneys for Amici Curiae

App. 1

APPENDIX A

Excerpts from American Arbitration

Association, Commercial Arbitration

Rules & Mediation Procedures (2013)

R-7. Jurisdiction

(a) The arbitrator shall have the power to rule on his

or her own jurisdiction, including any objections

with respect to the existence, scope, or validity of

the arbitration agreement or to the arbitrability

of any claim or counterclaim.

(b) The arbitrator shall have the power to determine

(ec)

the existence or validity of a contract of which an

arbitration clause forms a part. Such an arbitra-

tion clause shall be treated as an agreement in-

dependent of the other terms of the contract. A

decision by the arbitrator that the contract is null

and void shall not for that reason alone render

invalid the arbitration clause.

A party must object to the jurisdiction of the

arbitrator or to the arbitrability of a claim or

counterclaim no later than the filing of the an-

swering statement to the claim or counterclaim

that gives rise to the objection. The arbitrator

may rule on such objections as a preliminary

matter or as part of the final award.

R-12. Appointment from National Roster

If the parties have not appointed an arbitrator and

have not provided any other method of appointment,

App. 2

the arbitrator shall be appointed in the following

manner:

(a)

(b)

(c)

The AAA shall send simultaneously to each party

to the dispute an identical list of 10 (unless the

AAA decides that a different number is appropri-

ate) names of persons chosen from the National

Roster. The parties are encouraged to agree to

an arbitrator from the submitted list and to ad-

vise the AAA of their agreement.

If the parties are unable to agree upon an arbi-

trator, each party to the dispute shall have 14

calendar days from vhe transmittal date in which

to strike names objected to, number the remain-

ing names in order of preference, and return the

list to the AAA. The parties are not required to

exchange selection lists. If a party does not re-

turn the list within the time specified, all persons

named therein shall be deemed acceptable to that

party. From among the persons who have been

approved on both lists, and in accordance with

the designated order of mutual preference, the

AAA shall invite the acceptance of an arbitrator

to serve. If the parties fail to agree on any of the

persons named, or if acceptable arbitrators are

unable to act, or if for any other reason the ap-

pointment cannot be made from the submitted

lists, the AAA shall have the power to make the

appointment from among other members of the

National Roster without the submission of addi-

tional lists.

Unless the parties agree otherwise, when there are

two or more claimants or two or more respon-

dents, the AAA may appoint all the arbitrators.

App. 3

R-17. Disclosure

(a)

(b)

(c)

Any person appointed or to be appointed as an

arbitrator, as well as the parties and their repre-

sentatives, shall disclose to the AAA any circum-

stance likely to give rise to justifiable doubt as to

the arbitrator’s impartiality or independence, in-

cluding any bias or any financial or personal in-

terest in the result of the arbitration or any past

or present relationship with the parties or their

representatives. Such obligation shall remain in

effect throughout the arbitration. Failure on the

part of a party or a representative to comply with

the requirements of this rule may result in the

waiver of the right to object to an arbitrator in

accordance with Rule R-41.

Upon receipt of such information from the arbi-

trator or another source, the AAA shall commun-

icate the information to the parties and, if it

deems it appropriate to do so, to the arbitrator

and others.

Disclosure of information pursuant to this Sec-

tion R-17 is not an indication that the arbitrator

considers that the disclosed circumstance is likely

to affect impartiality or independence.

R-22. Pre-Hearing Exchange and Production of in-

formation

(a) Authority of arbitrator. The arbitrator shall man-

age any necessary exchange of information among

the parties with a view to achieving an efficient

and economical resolution of the dispute, while at

App. 4

the same time promoting equality of treatment

and safeguarding each party’s opportunity to

fairly present its claims and defenses.

(b) Documents. The arbitrator may, on application of

a party or on the arbitrator’s own initiative:

i.

iv.

require the parties to exchange documents in

their possession or custody on which they in-

tend to rely;

require the parties to update their exchanges

of the documents on which they intend to

rely as such documents become known to

them;

. require the parties, in response to reasonable

document requests, to make available to the

other party documents, in the responding

party's possession or custody, not otherwise

readily available to the party seeking the

documents, reasonably believed by the party

seeking the documents to exist and to be

relevant and material to the outcome of

disputed issues; and

require the parties, when documents to be

exchanged or produced are maintained in

electronic form, to make such documents

available in the form most convenient and

economical for the party in possession of such

documents, unless the arbitrator determines

that there is good cause for requiring the

documents to be produced in a different

form. The parties should attempt to agree in

advance upon, and the arbitrator may de-

termine, reasonable search parameters to

App. 5

balance the need for production of electroni-

cally stored documents relevant and material

to the outcome of disputed issues against the

cost of locating and producing them.

R-26. Representation

Any party may participate without representation

(pro se), or by counsel or any other representative of

the party’s choosing, unless such choice is prohibited

by applicable law. A party intending to be so repre-

sented shall notify the other party and the AAA of the

name, telephone number and address, and email ad-

dress if available, of the representative at least seven

calendar days prior to the date set for the hearing at

which that person is first to appear. When such a

representative initiates an arbitration or responds for

a party, notice is deemed to have been given.

R-32. Conduct of Proceedings

(a) The claimant shall present evidence to support

its claim. The respondent shall then present evi-

dence to support its defense. Witnesses for each

party shall also submit to questions from the ar-

bitrator and the adverse party. The arbitrator

has the discretion to vary this procedure, pro-

vided that the parties are treated with equality

and that each party has the right to be heard

and is given a fair opportunity to present its

case.

App. 6

(b) The arbitrator, exercising his or her discretion,

(c)

shall conduct the proceedings with a view to ex-

pediting the resolution of the dispute and may

direct the order of proof, bifurcate proceedings

and direct the parties to focus their presentations

on issues the decision of which could dispose of

all or part of the case.

When deemed appropriate, the arbitrator may

also allow for the presentation of evidence by al-

ternative means including video conferencing,

Internet communication, telephonic conferences

and means other than an in-person presentation.

Such alternative means must afford a full oppor-

tunity for all parties to present any evidence that

the arbitrator deems material and relevant to the

resolution of the dispute and, when involving

witnesses, provide an opportunity for cross-

examination.

(d) The parties may agree to waive oral hearings in

any case and may also agree to utilize the Proce-

dures for Resolution of Disputes Through Docu-

ment Submission, found in Rule E-6.

R.33. Dispositive Motions

The arbitrator may allow the filing of and make rul-

ings upon a dispositive motion only if the arbitrator

determines that the moving party has shown that the

motion is likely to succeed and dispose of or narrow

the issues in the case.

App. 7

R-34. Evidence

(a)

(b)

(c)

(d)

The parties may offer such evidence as is rele-

vant and material to the dispute and shall pro-

duce such evidence as the arbitrator may deem

necessary to an understanding and determina-

tion of the dispute. Conformity to legal rules of

evidence shall not be necessary. All evidence

shall be taken in the presence of all of the arbi-

trators and all of the parties, except where any of

the parties is absent, in default, or has waived

the right to be present.

The arbitrator shall determine the admissibility,

relevance, and materiality of the evidence offered

and may exclude evidence deemed by the arbi-

trator to be cumulative or irrelevant.

The arbitrator shall take into account applicable

principles of legal privilege, such as those in-

volving the confidentiality of communications

between a lawyer and client.

An arbitrator or other person authorized by law

to subpoena witnesses or documents may do so

upon the request of any party or independently.

R.-37. Interim Measures

(a)

The arbitrator may take whatever interim mea-

sures he or she deems necessary, including in-

junctive relief and measures for the protection or

conservation of property and disposition of per-

ishable goods.

(b)

(c)

App. 8

Such interim measures may take the form of an

interim award, and the arbitrator may require

security for the costs of such measures.

A request for interim measures addressed by a

party to a judicial authority shall not be deemed

incompatible with the agreement to arbitrate or

a waiver of the right to arbitrate.

R-39. Closing of Hearing

(a)

(b)

(c)

The arbitrator shall specifically inquire of all

parties whether they have any further proofs to

offer or witnesses to be heard. Upon receiving

negative replies or if satisfied that the record is

complete, the arbitrator shall declare the hearing

closed.

If documents or responses are to be filed as

provided in Rule R-35, or if briefs are to be filed,

the hearing shall be declared closed as of the fi-

nal date set by the arbitrator for the receipt of

briefs. If no documents, responses, or briefs are

to be filed, the arbitrator shall declare the hear-

ings closed as of the date of the last hearing (in-

cluding telephonic hearings). If the case was

heard without any oral hearings, the arbitrator

shall close the hearings upon the due date estab-

lished for receipt of the final submission.

The time limit within which the arbitrator is

required to make the award shall commence, in

the absence of other agreements by the parties,

upon the closing of the hearing. The AAA may

App. 9

extend the time limit for rendering of the award

only in unusual and extreme circumstances.

R-40. Reopening of Hearing

The hearing may be reopened on the arbitrator's

initiative, or by the direction of the arbitrator upon

application of a party, at any time before the award is

made. If reopening the hearing would prevent the

making of the award within the specific time agreed

to by the parties in the arbitration agreement, the

matter may not be reopened unless the parties agree

to an extension of time. When no specific date is

fixed by agreement of the parties, the arbitrator shall

have 30 calendar days from the closing of the re-

opened hearing within which to make an award (14

calendar days if the case is governed by the Expe-

dited Procedures).

R-47. Scope of Award

(a) The arbitrator may grant any remedy or relief

that the arbitrator deems just and equitable and

within the scope of the agreement of the parties,

including, but not limited to, specific performance

of a contract.

(b) In addition to a final award, the arbitrator may

make other decisions, including interim, inter-

locutory, or partial rulings, orders, and awards.

In any interim, interlocutory, or partial award,

the arbitrator may assess and apportion the fees,

App. 10

expenses, and compensation related to such award

as the arbitrator determines is appropriate.

(c) In the final award, the arbitrator shall assess the

fees, expenses, and compensation provided in

Sections R-53, R-54, and R-55. The arbitrator

may apportion such fees, expenses, and compen-

sation among the parties in such amounts as the

arbitrator determines is appropriate.

(d) The award of the arbitrator(s) may include:

i. interest at such rate and from such date as

the arbitrator(s) may deem appropriate; and

ii. an award of attorneys’ fees if all parties have

requested such an award or it is authorized

by law or their arbitration agreement.

R-50. Modification of Award

Within 20 calendar days after the transmittal of an

award, any party, upon notice to the other parties,

may request the arbitrator, through the AAA, to cor-

rect any clerical, typographical, or computational

errors in the award. The arbitrator is not empowered

to redetermine the merits of any claim already de-

cided. The other parties shall be given 10 calendar

days to respond to the request. The arbitrator shall

dispose of the request within 20 calendar days after

transmittal by the AAA to the arbitrator of the re-

quest and any response thereto.

App. 11

APPENDIX B

Excerpts from American Arbitration

Association, Employment Arbitration

Rules & Mediation Procedures (2009)

1. Applicable Rules of Arbitration

The parties shall be deemed to have made these rules

a part of their arbitration agreement whenever they

have provided for arbitration by the American Arbi-

tration Association (hereinafter “AAA”) or under its

Employment Arbitration Rules and Mediation Proce-

dures or for arbitration by the AAA of an employment

dispute without specifying particular rules*. If a

party establishes that an adverse material inconsis-

tency exists between the arbitration agreement and

these rules, the arbitrator shall apply these rules.

If, within 30 days after the AAA’s commencement of

administration, a party seeks judicial intervention

with respect to a pending arbitration and provides

the AAA with documentation that judicial interven-

tion has been sought, the AAA will suspend admin-

istration for 60 days to permit the party to obtain a

stay of arbitration from the court. These rules, and

any amendment of them, shall apply in the form in

* The National Rules for the Resolution of Employment

Disputes have been re-named the Employment Arbitration Rules

and Mediation Procedures. Any arbitration agreements provid-

ing for arbitration under its National Rules for the Resolution of

Employment Disputes shall be administered pursuant to these

Employment Arbitration Rules and Mediation Procedures.

App. 12

effect at the time the demand for arbitration or

submission is received by the AAA.

6. Jurisdiction

a. The arbitrator shall have the power to rule on his

or her own jurisdiction, including any objections

with respect to the existence, scope or validity of

the arbitration agreement.

b. The arbitrator shall have the power to determine

the existence or validity of a contract of which an

arbitration clause forms a part. Such an arbitra-

tion clause shall be treated as an agreement in-

dependent of the other terms of the contract. A

decision by the arbitrator that the contract is null

and void shall not for that reason alone render

invalid the arbitration clause.

c. A party must object to the jurisdiction of the

arbitrator or to the arbitrability of a claim or

counterclaim no later than the filing of the an-

swering statement to the claim or counterclaim

that gives rise to the objection. The arbitrator

may rule on such objections as a preliminary

matter or as part of the final award.