Amicus Curiae Brief — Epic Sys. Corp. v. Lewis, 138 S. Ct. 42 (2017) (No. 16-285)

5

° AND Nos. 16-285, 16-300, and 16-307

BRIEFS 5 the Supreme Court of the United States

EPIc SYSTEMS CORPORATION

Vv.

JACOB LEWIS

ERNST & YOUNG LLP, ET AL.

Vv.

STEPHEN MORRIS, ET AL.

NATIONAL LABOR RELATIONS BOARD

Vv.

MurpuHy OIL USA, INC., ET AL.

On Writs of Certiorari to the

United States Courts of Appeals

for the Fifth, Seventh, and Ninth Circuits

BRIEF OF AMERICAN ASSOCIATION FOR JUSTICE

AS AMICUS CURIAE SUPPORTING RESPONDENTS IN

NOS. 16-285 & 16-300 AND PETITIONER IN NO. 16-307

JEFFREY R. WHITE DEEPAK GUPTA

AMERICAN ASSOCIATION Counsel of Record

FOR JUSTICE MATTHEW WESSLER

777 6th Street, NW GUPTA WESSLER PLLC

Washington, DC 20001 1900 L Street, NW

(202) 944-2839 Washington, DC 20036

(202) 888-1741

deepak@guptawessler.com

Counsel for Amicus Curiae

August 16, 2017

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TABLE OF CONTENTS

iene all nl O nti atemiinmmnmencnenaamnts

Introduction and summary of argument.......................0-00 2

I. Decades of federal agency regulations governing

arbitration have engendered reliance across a

range Of industries. .................rccrecsesssssrsssecsscensssssoseeess 4

A. The SEC has shaped the securities

industry’s expectations through its broad

authority to limit and regulate arbitration. ..... 4

B. Many other federal agencies have solidified

industry expectations by acting on

their broad authority to limit and regulate

BIEN, cncececerstasnnnmensnenemsnennianmmmmnes Ss

©. A lack of agency action has also prompted

Congress, in some cases, to specifically

mandate limits on arbitration. ............................ 14

II. The employers’ novel reading of the FAA cannot be

reconciled with McMahon and decades of agency

prumbeemaltbeng’, ....220.c<sccecsnsecssesecesescsesssscoscsscssesnsavosesorssenensocess 15

A. McMahon held that the FAA does not

interfere with an agency’s broad authority

to regulate arbitration under a genera!

grant of rulemaking authority.......................... 16

B. CompuCredit does not undermine

I, ccctcrinsctsumenesiiinciainiatainmiiamienmantennmantiaannts 18

C. Respect for statutory stare decisis and

settled reliance weigh against adoption

of the employers’ sweeping reading of

Oy I, cesicccccsccenercncnsccmevtscinditstnansstenmtanmanesnncstie 19

Sp a ee a

-ji-

TABLE OF AUTHORITIES

Cases

Charles Schwab & Co. v. FINRA,

861 F. Supp. 2d 1063 (N.D. Cal. 2012)... 21

City of Arlington v. FCC,

SETTLE ITA RA 2, 22

CompuCredit Corp. v. Greenwood,

Ee 2

Fiero v. FINRA, Inc.,

ee i)

In re Department of Enforcement v. Charles

Schwab & Co.,

2014 WL 1665738

| Ne 21

Kimble v. Marvel Entertainment, Inc.,

8 24

Michigan v. Bay Mills Indian Community,

AS EE SE 23

Natural Resources Defense Council v.

Nuclear Regulatory Commission,

ee eee 10

Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220 (1987).............cccceceeeee passim

Statutes

0 ERE SECC NEN =

i eae 15

| 8 SC aE ee een ane I 18

res UIT ieiceienshncentnesiniscictisenesenlesiieiiptnininiandanndliiaies 19

Se I cctintcninncideiiaincientntaitnneniinesieesiniivanndadl 6

ee sin interrrincenintcmmsischatatbicneeaingnimnicidarns 11

ee I ictiiticiinnen-convenataensiontinnesiioticentinainininsinl 13

NN iisericicssenisipuantiiicaneptinecastiasiniaadnieaeaiiaiiiiia’ 16

ss cterntiiennninnemenmnssaninnninnsitintisateaniaiadl 14

eR cericicicnncctnsscintensnscqusiniipiasinniiniattaisin 16

te a ccensssissstnsientineinsnenininginesnaiins 16

8 ee eS 12

Regulations

40 Fed. Reg. 60168 (Dec. 31, 1975)...........cccccccccceeceeeceneerees 9

44 Fed. Reg. 43377 (July 24, 1979) .............cccscccesseseseeeerene

44 Fed. Reg. 43378 (July 24, 1979)........c0.cc0:ceseeereneesenerened

44 Fed. Reg. 75255 (Dec. 19, 1979).................cceccssceeeseeeereee

57 Fed. Reg. 30519 (July 9, 1992).............sccscescecceseeseseeeeres 7

57 Fed. Reg. 52659 (Nov. 4, 1992) ..........cccssessessessreessseneeee 7

58 Fed. Reg. 42588 (Aug. 10, 1998) ......2......2-cccccceccsesseseseene

58 Fed. Reg. 48680 (Sept. 17, 1998) ............cceeceseeseseeeseeeees 7

59 Fed. Reg. 4299 (Jan. 31, 1994).............c.ceccsecsorersessossees see 7

aeavewens i)

64 Fed. Reg. 19700 (Apr. 22, 1999)............ooo

-jv-

64 Fed. Reg. 25096 (May 10, 1999)..............cscccesssesereeesers 7

65 Fed. Reg. 70246 (Nov. 21, 2000) ............::.cssc:sceceeeseeeees 12

69 Fed. Reg. 48652 (Aug. 10, 2004) ...........cccceecceeereeesenenen 12

72 Fed. Reg. 4574 (Jan. 31, 2007).........ssssesssereceesereesenserses 7

76 Fed. Reg. 23110 (Apr. 25, 2011)............ccssercssseseerenenes 10

76 Fed. Reg. 40779 (July 12, 2011)............ccescesseeesereeeeeee L4

76 Fed. Reg. 41375 (July 14, 2011)............ccccesccssccssnneerens 14

T? Fed. Reg. 22374 (Apr. 18, 2012)..........0.:...cccsssseseessseseerees 7

80 Fed. Reg. 42710 (July 20, 2015).............ccsscsessererereeeees 9

80 Fed. Reg. 43560 (July 22, 2015).........ccsseceseeseesceeneeenees 15

81 Fed. Reg. 21002 (Apr. 8, 2016)............cccsessseeseeeseenenenees 13

81 Fed. Reg. 23360 (Apr. 20, 2016)...............s0ccssenseresseeeees 12

81 Fed. Reg. 32830 (May 24, 2016)............sccsecseeeserssneeeees 15

81 Fed. Reg. 68688 (Oct. 4, 2016) ...........csseseceerssseceenersene 13

81 Fed. Reg. 75926 (Nov. 1, 2016) .............:ccecccersereeceseeenees 11

81 Fed. Reg. 87274 (Dec. 2, 2016).............sss:ssssesssssssseeees 12

82 Fed. Reg. 26649 (June 8, 2017)...........:cccsessseserenrseneeeees 13

Other Authorities

Attention! Military Lending Act

Compliance, Microbilt (2016) ................:ccsseeeeseeeenees 15

-V-

Barbara Black & Jill 1. Gross,

Investor Protection Meets the Federal

Arbitration Act,

1 Stan. J. Complex Litig. 1 (2012) ............cccceeceeees

Christopher Lewis Peterson & Steve Graves,

Predatory Lending and the Military: The

Law and Geography of ‘Payday’ Loans in

Military Towns,

66 Ohio State L.J. 653 (20US) ...........ccceeccscessenseeees

Contract of Carriage,

JetBlue Airways (May 16, 2017)...

Contract of Carriage Document,

United Airlines (June 23, 2017) ..............cc0.00 cee

Daniel Victor & Christopher Drew,

United Airlines Reaches Settlement With

Passenger Who Was Dragged Off Plane,

New York Times (Apr. 27, 2017). .........00c0scesseeees

David S. Schwartz,

Enforcing Small Print to Protect Big

Business: Employee and Consumer

Rights Claims in an Age of Compelled

Arbitration,

SST T TA TEA

Domestic General Rules Tariff,

a

For Profit Higher Education: The Failure to

Safeguard the Federal Investment and

Ensure Student Success,

Health, Education, Labor and Pensions

Committee (July 30, 2012)...........cccccccceceseseseereers

—_ 10

-vi-

International General Rules,

American Airlines (2017)................cs<cccccvcessss00s00000:

Jean R. Sternlight,

As Mandatory Binding Arbitration

Meets the Class Action, Will the Class

Action Survive?,

42 Wm. & Mary L. Rev. 1 (2000). ..............000-.0000

Jill I. Gross,

Historical Basis of Securities Arbitration

as an Investor Protection Mechanism,

1 J. Dispute Resolution 171 (2016).....................

Marc Winermar, 2015 Audit of BBB Auto

Line, Better Business Bureau 2 (2016)...............

Military Lending Law

Developments,

Utah Bankers Association (Oct. 25, 2016)..................

National Center for Dispute Settlement

(Automobile Warranty Arbitration

Program) 2015 Audit, U.S. Federal Trade

I csiianiesesoe

National Center for Dispute Settlement

(Automobile Warranty Arbitration

Program) 2008 Audit, U.S. Federal Trade

RR IT

Philip A. Loomis, Jr., Commissioner, Sec. &

Exch. Comm’n, Address at the Joint

Securities Conference: The Securities

Acts Amendments of 1975, Self-

Regulation and the National Market

SEE GIES GI MII crrecenescccennscacsescssscencucecsscesee

a 5

-Vll-

Press Release, FJ NRA, NASD and NYSE

Member Regulation Combine to Form the

Financial Industry Regulatory

Authority, Financial Industry Regulatory

Authority (July 30, 2007), .............:cccescceesereeeerees

Report On Predatory Lending Practices

Directed at Members of the Armed Forces

and Their Dependents, Department of

a iG i tretnececscctctcntnccsccescnecnscossscosess

SEC Approves Arbitration Summaries,

Other Revisions to Industry Programs,

21 Sec. Reg. & L. Rep. (BNA) 683 (May

By BIG ceteeesencecsncesssncncemetarsnmsnsentnnaceietemnseens stein

Securities Industry and Financial Markets

Association, White Paper on Arbitration

in the Securities Industry 11 (Oct. 2007)............

Stephen Wagner,

The Department of Education lays out

new borrower defense to repayment

regulations, University Risk Management

& Insurance Association (Jan. 2017). .................

Tony Hadley, Must-Know Details About the

Military Lending Act in 2016, Experian

ie i ee ctecccnccessencenensmssesnsesstaetnescovecerscese

Worker and Consumer Advocates Call on

Congress to Pass the Arbitration

Fairness Act and Stop Forced

Arbitration, Public Citizen (May 7, 2013)...........

jensiiiie 7

seesnens 11

ce

INTEREST OF AMICUS CURIAE'

The American Association for Justice (AAJ), former-

ly known as the Association of Trial Lawyers of America,

was established in 1946 to safeguard victims’ rights,

strengthen the civil-justice system, and protect access to

the courts. With members in the United States, Canada,

and abroad, AAJ is the world’s largest trial bar.

Throughout its history, AAJ has served as a leading

advocate for the right to trial by jury.

AAJ files this brief to demonstrate how the extreme

view of the Federal Arbitration Act urged by the em-

ployers in this case would, if adopted by this Court, upset

decades of settled expectations about the role of arbitra-

tion across the economy. This brief draws on AAJ’s

expertise to inform the Court of the forty years of

regulatory actions—by over a dozen federal agencies,

under every modern presidential administration—

limiting arbitration to protect federal statutory rights.

Because AAJ has taken part in many of these rule-

makings through the notice-and-comment prccess, it has

considerable expertise when it comes to federal agency

regulations on arbitration.

' No counsel for a party authored this brief in whole or in part

and no person other than amicus and its counsel made a monetary

contribution to its preparation or submission. The parties’ letters

consenting to the filing of amicus briefs are on file with the Clerk.

2.

INTRODUCTION AND

SUMMARY OF ARGUMENT

For over forty years, federal agencies have written

rules limiting or regulating the use of arbitration. Over a

dozen agencies have done so, under presidential admin-

istrations led by both political parties, to protect the

statutory rights of investors, military servicemembers,

farmers, airline passengers, nursing-home patients, and

others. Some of these agencies have deployed their

statutory authority to craft broad, generally applicable

rules, while others have r'aced conditions on the receipt

of federal funds or other voluntary decisions by regulat-

ed entities. These rules have engendered considerable

reliance across all sectors of our economy.

Thirty years ago, this Court unanimously recognized

that a federal agency may employ its delegated statutory

authority—even if that authority says nothing specific

about arbitration—to adopt “rules it deems necessary to

ensure that arbitration procedures adequately protect

statutory rights.” Shearson/Am. Express, Inc. v.

McMahon, 482 U.S. 220, 233-34 (1987); see also City of

Arlington v. FCC, 133 S. Ct. 1863, 1884 (2013) (explain-

ing that, when Congress delegates to an agency a “gen-

eral conferral of rulemaking authority,” the “whole

includes all of its parts”). This Court’s later FAA deci-

sions have in no way undercut that recognition or other-

wise addressed the interplay between agencies and the

FAA. But cf CompuCredit Corp. v. Greenwood, 565 U.S.

95, 103 (2012) (addressing the markedly different ques-

tion whether Congress itself has decided to prohibit

arbitration).

Although this case does not involve a direct challenge

to any federal regulation, this Court should nonetheless

be mindful of the many agency regulations—and the

3.

reliance that they have fostered—in reaching its deci-

sion. In these three consolidated cases, the question

presented is whether employers may require their

employees to sign binding agreements waiving their

rights to pursue any employment claim in any forum—

judicial or arbitral—on a class basis. More specifically: Is

the enforcement of a binding arbitration agreement that

bars employees from pursuing claims on a collective

basis mandated by the Federal Arbitration Act, even if

that agreement violates substantive protections? And

relatedly: Should the FAA be read to displace limits on

arbitratior that are necessary to protect statutory

rights? The employers’ answer: yes, to all of the above.

But there is no support, either in this Court’s cases or

in Congress’s enactments, for the employers’ position.

They seek to rewrite this Court’s precedents by crafting

a new test for ascertaining the existence of a conflict

between a statute and arbitration. Under their test, a

conflict exists unless there is an express textual refer-

ence to arbitration in the statute. Without that reference,

they effectively argue, no agency action regulating,

defining, or limiting arbitration is permissible. But,

following its enactment in 1925, the FAA has never been

read to alter the established view that a general delega-

tion of authority may empower an agency to write rules

limiting or conditioning arbitration.

The employers’ contrary view threatens dozens of

vital and lawful regulations as well as the settled view of

the FAA. In light of statutory stare decisis principles,

this Court should exercise caution, adhere to its prior

precedent, and leave room for federal agencies to contin-

ue to regulate arbitration where expert regulators

conclude that doing so is necessary to protect substan-

tive rights.

-4-

ARGUMENT

I. Decades of federal agency regulations governing

arbitration have engendered reliance across a

range of industries.

The employers urge this Court to adopt a new, un-

forgiving understanding of how the FAA interacts with

agency authority: Unless the text of a federal statute

specifically and expressly delegates regulatory authority

to the agency over arbitration, no regulation of arbitral

procedures is permitted. That unprecedented theory

would reach far beyond the boundaries of this case,

upsetting the reliance interests of industries regulated

under general congressional delegations to numerous

federal agencies—including the Departments of Agricul-

ture, Commerce, Education, Health and Human Ser-

vices, Labor, Transportation, and Treasury, as well as

independent agencies such as the Federal Trade Com-

mission and the Securities and Exchange Commission.

As this Court first explained in McMahon, an agen-

cy’s general delegated authority may include the “expan-

sive power” to “mandate the adoption of any rules it

deems necessary to ensure that arbitration procedures

adequately protect statutory rights.” 482 U.S. at 233-34.

That rule holds true even where—as with the SEC—the

agency’s substantive statute does not contain any textual

reference to arbitration. As a result, agencies have long

regulated on the settled understanding that arbitra-

tion—no less than any other topic—is subject to an

agency's delegated regulatory authority.

A. The SEC has shaped the securities industry’s

expectations through its broad authority to

limit and regulate arbitration.

The SEC, a product of the New Deal, began its over-

sight of securities arbitration in 1934. See, e.g., Sec. &

-5-

Exch. Comm'n, Opinion Letter, Release No. 34-131, 1935

WL 29028 (Mar. 21, 1935). The Maloney Act of 1938 gave

the SEC “fairly pervasive authority” to govern entirely

new organizations, “in large measure creations of the

Congress,” whose sole purpose was to provide a mecha-

nism for industry self-regulation.’ Today, the largest of

these self-regulatory organizations (SROs) is the Fiinan-

cial Industry Regulatory Authority (FINRA).’

The SEC’s active role in the SROs’ self-regulation

has significantly increased over the past eighty years.

Without specifically mentioning arbitration, the 1975

amendments to the Securities and Exchange Act effec-

tively gave the SEC even broader authority to regulate

securities arbitration. Congress mandated that “[n]o

proposed rule change shall take effect” without the

SEC’s approval, 15 U.S.C. § 78s(b)(1), and the SEC was

authorized to “abrogate, add to, and delete from ... the

rules of a self-regulatory organization,” id. § 78s(c). As

this Court later recognized, this general rulemaking

authority gave the SEC an “expansive power to ensure

the adequacy of the arbitration procedures employed by

the SROs.” McMahon, 482 U.S. at 233.

Over the following years, the SEC took an even more

active role in overseeing and approving the SROs’ rules

governing arbitral procedures. The SEC, deploying this

® Philip A. Loomis, Jr., Commissioner, Sec. & Exch. Comm'n,

Address at the Joint Securities Conference: The Securities Acts

Amendments of 1976, Self-Regulation and the National Market

System (Nov. 18, 1975), https://perma.cc/9U8X-U2G2.

* In 2007, the New York Stock Exchange merged its regulatory

and arbitration functions with the National Association of Securities

Dealers, which was founded in 1989—-forming FINRA. See Press

Release, FINRA, NASD and NYSE Member Regulation Combine

to Form the Financial Industry Regulatory Authority, Fin. Indus.

Reg. Auth. (July 30, 2007), https://perma.cc/MG2P-JCCY.

-§-

newly delegated authority, helped form the Securities

Industry Conference on Arbitration (SICA)* to develop

uniform arbitration rules.° These efforts resulted in the

adoption of a Uniform Arbitration Code by all SROs in

1979,° and solidified securities arbitration procedures.

The SEC’s authority to regulate arbitration has long

included regulation designed to protect investors right to

seek classwide relief. The SEC was among the first

federal agencies to regulate arbitration to preserve the

availability of class action lawsuits.’ In 1989, the SEC

sought a uniform industry position on the proposal that

class actions be directed to the courts.* And, in January

1992, the Commission approved rules to that end devel-

oped by SICA for the Uniform Arbitration Code. See 57

Fed. Reg. 52659, 52660 (Nov. 4, 1992). The SEC then

endorsed a rule prohibiting FINRA members from

* SICA was formed by a majority of representatives of the in-

vesting public (including claimants’ lawyers), a securities industry

representative, and representatives of various securities regulators.

See White Paper on Arbitration in the Securities Industry, Sec.

Indus. & Fin. Mkts. Ass’n 11 (Oct. 2007), https://perma.ce/K NG8-

NRWQ.

* Jill 1. Gross, Historical Basis of Securities Arbitration as an

Investor Protection Mechanism, 1 J. Dispute Resolution 171, 175-

182 (2016).

* See, eg., 44 Fed. Reg. 43377 (July 24, 1979) (Midwest Stock

Exchange); 44 Fed. Reg. 43378 (July 24, 1979) (New York Stock

Exchange); 44 Fed. Reg. 75255 (Dec. 19, 1979) (National Association

of Securities Dealers, Inc.).

" Jean R. Sternlight, As Mandatory Binding Arbitration Meets

the Class Action, Will the Class Action Survive?, 42 Wm. & Mary L.

Rev. 1, 45 (2000).

® SEC Approves Arbitration Summaries, Other Revisions to

Industry Programs, 21 Sec. Reg. & L. Rep. (BNA) 683, 684 (May

12, 1989).

-7-

compelling arbitration against members of certified or

putative class actions. 57 Fed. Reg. 30519, 30520 (July 9,

1992). Under that rule, any arbitration agreement must

“clearly state that class action claims are specifically

outside the scope of arbitration contracts.” Jd. Following

that rulemaking, the SEC reviewed and approved

parallel changes to the other SROs’ internal rules.’

In the thirty years since McMahon first embraced

the SEC’s power to regulate the role of arbitration, the

agency has engaged in multiple rounds of arbitration-

related rulemakings. In 1999, for example, the Pacific

Stock Exchange made arbitration for certain employ-

ment-related claims subject to the parties’ continued

agreement to arbitrate. See 64 Fed. Reg. 25096, 25097

(May 10, 1999). More recently, FINRA revised and

rewrote in plain English the Uniform Arbitration Code.

See 72 Fed. Reg. 4574, 4580 (Jan. 31, 2007). And, in 2012,

the SEC approved a rule change to clarify that collective

actions brought by employees of member firms under

the Fair Labor Standards Act, the Age Discrimination in

Employment Act, or the Equal Pay Act may not be

arbitrated. See 77 Fed. Reg. 22374 (Apr. 13, 2012).

For twenty-five years, every FINRA member has

complied with and relied upon this regime." Thanks to

the SEC’s oversight, financial markets have long operat-

ed under this dispute-resolution framework: class actions

* See, ¢.g., 58 Fed. Reg. 48680 (Sept. 17, 1993) (American Stock

Exchange); 68 Fed. Reg. 42588 (Aug. 10, 1993) (Pacific Stock

Exchange); see also 59 Fed. Reg. 4299 (Jan. 31, 1994) (clarifying that

the exclusion of class action claims from FINRA arbitration applies

to actions brought by employees as well as by customers).

” See Barbara Black & Jill |. Gross, Investor Protection Meets

the Federal Arbitration Act, 1 Stan. J. Complex Litig. 1, 24-29

(2012).

-8-

in courts, individual actions in arbitration. Because, “[a]s

a practical matter, all securities firms dealing with the

public must be members of FINRA,” Fiero v. FINRA,

Inc., 660 F.3d 569, 571 (2d Cir. 2011), the entire securi-

ties industry abides by the FINRA rules—including its

arbitration regulations and its rules preserving the right

to sue on a class basis, see FINRA By-Laws, Art. IV.

But the SEC’s regulation in this area, and the securities

industry’s reliance on it, represents just a fraction of the

agency arbitration rules threatened by an unnecessarily

expansive ruling in this case.

B. Many other federal agencies have solidified

industry expectations by acting on their broad

authority to limit and regulate arbitration.

When it comes to arbitration, the SEC is far from

alone. In rules designed to protect farmers, students,

airline passengers, workers, and nursing-home patients,

among others, dozens of federal agencies have long

regulated arbitration within the statutory schemes that

they oversee. Their goal has been to ensure fulfillment of

their congressional mandates by securing fair dealing

among industry participants and meaningful forms of

redress for aggrieved parties. Some agencies have

regulated arbitration in general terms. And others have

made the availability of benefits or funding conditional

on specific limits on arbitration, such as preserving the

right to bring class actions.

Like their counterparts in the securities sector, these

regulators have relied on the understanding that arbitra-

tion falls comfortably within an agency’s general con-

gressional delegation. Even if an agency’s substantive

statute says nothing about arbitration, a general con-

gressional delegation constitutes “sufficient statutory

authority” to adopt any rules “necessary to ensure that

-9-

arbitration procedures adequately protect statutory

rights.” McMahon, 482 U.S. at 234, 238.

Since McMahon, these regulations have been neither

controversial nor novel: From Ford to Obama, agencies

under every administration have promulgated rules

designed to regulate the use of arbitration across a broad

range of industries. And these decades of tailored regu-

latory action have solidified the “reliance interests of

regulatees who conform[led] their conduct to thlosje

regulations.” Natural Res. Def. Council v. Nuclear

Regulatory Comm'n, 666 F.2d 595, 602 (D.C. Cir. 1981).

1. To start, various federal agencies have regulated

arbitration by relying on their general authority to

protect statutory rights of various parties.

Car Buyers. The Federal Trade Commission has for

twenty years written rules restricting the use of pre-

dispute forced arbitration clauses in auto warranty

agreements, invoking its statutory authority under the

Magnuson-Moss Warranty Act to “prescribe rules

setting forth minimum requirements for any informal

dispute settlement procedure.” See 15 USC. §

2310(a)(2); see also 40 Fed. Reg. 60168, 60190 (Dec. 31,

1975); 64 Fed. Reg. 19700, 19708 (Apr. 22, 1999); 80 Fed.

Reg. 42710 (July 20, 2015). This limitation has engen-

dered vast reliance across the auto industry, which has

relied on non-binding arbitration for at least a decade.”

" See, e.g., National Center for Dispute Settlement (Automobile

Warranty Arbitration Program) 2015 Audit, U.S. Fed. Trade

Comm’n 4 (2016) (finding arbitration of Chrysler, Honda,

Mitsubishi, Suzuki, Tesla, and Toyota in compliance with FTC

rules), https://perma.cc/RR38-KG6M; National Center for Dispute

Settlement (Automobile Warranty Arbitration Program) 2008

Audit, U.S. Fed. Trade Comm'n 4 (2009), https://perma.cc/32XKZ-

KMMH (same).

-10-

And car manufacturers have embraced the goals of the

FTC’s regulation to the point of voluntarily exceeding its

baseline requirements and making arbitration binding

on manufacturers.”

Airline Passengers. Consumer-protection rules have

also allowed domestic air travelers—such as David Dao,

the passenger recently dragged off an overbooked

United Airlines jet—to obtain legal recourse against the

airlines.” The Department of Transportation, relying on

its broad authority to prohibit “unfair or deceptive

practice[s],” 49 U.S.C. § 41712(a), has banned any re-

striction on passengers’ right to sue airline carriers, 76

Fed. Reg. 23110, 23155 (Apr. 25, 2011). And because the

industry has been drafting its carriage contracts accord-

ingly,‘ passengers have been able to vindicate their legal

rights in court.

Students. Recognizing that unscrupulous and

fraudulent for-profit educational institutions have

See supra 2009 Audit at 28 (noting that arbitration is “binding

on participating manufacturers but not on the consumer”); Marc

Winermar, 2015 Audit of BBB Auto Line, Better Bus. Bureau 2,

https://perma.cc/QD9F-QJEC (2016) (“Manufacturers participating

in BBB Auto Line [including Bentley, Ford, General Motors,

Hyundai, Kia, Mazda, Nissan, and Volkswagen] exceed Federal (and

some state) requirements in a profoundly important way: although

the consumer isn’t bound by the results of arbitration, manufactur-

ers are bound so long as consumers accept those results.”).

'S See Daniel Victor & Christopher Drew, United Airlines

Reaches Settlement With Passenger Who Was Dragged Off Plane,

N.Y. Times (Apr. 27, 2017), http//nyti.ms/2qbJcsn.

“* See, eg., International General Rules, Am. Airlines (2017),

https://perma.cc/ZNS8-NQZ9; Domestic General Rules Tariff,

Delta (June 21, 2017), https://perma.cc/U365-NW3S; Contract of

Carriage, JetBlue Airways (May 16, 2017), https://perma.cc/5HQN-

YU28; Contract of Carriage Document, United Airlines (June 23,

2017), https://perma.ce/JJV4-UMGC.

-ll1-

drained tens of billions of dollars in taxpayer money,

the Department of Education has recently streamlined

its borrower-defense rules and procedures. Under its

broad authority to define defenses against the repay-

ment of a loan, 20 U.S.C. § 1087e(h), the Department has

prohibited schools participating in its direct loan pro-

gram from entering into pre-dispute agreements that

mandate arbitration or waive students’ right to partici-

pate in class actions lawsuits, 81 Fed. Reg. 75926 (Nov. 1,

2016). And following the promulgation of the rule, lend-

ers have adjusted their practices accordingly.”

Employee Benefits. Regulators have also stepped in

where they have seen a risk that stronger parties will

impose unfair procedures.’ The Department of Labor,

for example, has issued a rule under ERISA to ensure

“full and fair review” of an adverse-benefit decision. 29

U.S.C. § 1133(2). Workers who are denied benefits under

plans covered by Title I of ERISA may nct be subjected

to mandatory arbitration unless they are allowed to

challenge the arbitral decision. 65 Fed. Reg. 70246, 70253

(Nov. 21, 2000).

Farmer’s Insurance. To ensure a fair and efficient

insurance marketplace, the Department of Agriculture

* See For Profit Higher Education: The Failure to Safeguard

the Federal Investment and Ensure Student Success, Health,

Education, Labor and Pensions Committee (July 30, 2012),

https://perma.ce/4PY2-9HTZ.

© See, e.g., Stephen Wagner, The Department of Education lays

out new borrower defense to repayment regulations, University

Risk Mgmt. & Insurance Ass’n (Jan. 10, 2017), https://perma.cc/

CTP9-LK79.

™ David S. Schwartz, Enforcing Small Print to Protect Big

Business: Employee and Consumer Rights Claims in an Age of

Arbitration, 1 Wis. L. Rev. 33 (1997) (discussing the

procedural disadvantages of compelled arbitration for employees).

-12-

relied on its general authority to interpret its substantive

statute’s provision of a right to appeal a denial of a claim,

7 U.S.C. § 1508(j), and clarified that arbitration between

insurers and farmers is non-binding, 69 Fed. Reg. 48652,

48654 (Aug. 10, 2004).

Broadband Customers. Other agencies have also

begun considering similar rules under their longstanding

general rulemaking authority. In December 2016, the

Federal Communications Commission stated that it

would seek comments on a rule to prohibit broadband

internet access service providers from compelling arbi-

tration in their contracts with customers. See 81 Fed.

Reg. 87274, 87318 (Dec. 2, 2016); see also 81 Fed. Reg.

23360, 23393 (Apr. 20, 2016).

2. In recent years, agencies have also increasingly

limited arbitration through conditional rules.

Nursing-Home Residents. The Department of

Health and Human Services has issued regulations

designed to help the families of those, like Richard

Embry, who suffered from fatal neglect and were unable

to obtain legal recourse.” In acting to limit arbitration in

nursing homes, HHS invoked its general delegated

authority to require that a facility “meets” certain

“requirements” in order to receive Medicare or Medicaid

funds. 42 U.S.C. § 1396r(a)(3). As a result of the Nursing

Home Reform Act, a nursing facility receiving federal

funds “must” agree to “protect and promote the rights of

each resident” by complying with a list of substantive

and procedural “Residents’ Rights.” 42 U.S.C. §

1396r(c)(1)(A). The agency decided that, to qualify for

‘8 Worker and Consumer Advocates Call on Congress to Pass

the Arbitration Fairness Act and Stop Forced Arbitration, Public

Citizen (May 7, 2013), https://perma.cc/BB U8-RLRW.

-13-

federal funds, a nursing facility may enter into an arbi-

tration agreement with residents only after a dispute has

arisen. See 81 Fed. Reg. 68688 (Oct. 4, 2016).””

Retirement Investors. Similarly, Congress gave

general authority to the Department of Labor, through

ERISA, to “grant a conditional or unconditional exemp-

tion of any fiduciary or transaction.” 29 U.S.C. § 1108(a).

To be eligible for an exemption from a rule regarding

conflicts of interest in retirement advice, investment

advisors and others covered by the rule may not limit

their customers’ “right to participate in a class action in

court” but may otherwise require arbitration. See 81

Fed. Reg. 21002, 21020 (Apr. 8, 2016). In enacting this

rule, the agency concluded that the “ability to bar inves-

tors from bringing or participating” in a class action

“would undermine important investor rights and incen-

tives for Advisers to act in accordance with the Best

Interest standard.” Jd. at 21043.”

Foreign Exchange Customers. Agencies have also

promulgated conditional rules to ensure the efficiency of

the financial markets. Following the enactment of the

Dodd-Frank Act, the Treasury Department limited the

arbitration of disputes arising out of foreign-currency

off-exchange transactions with retail customers. Con-

gress authorized the agency to allow off-exchange

transactions only if subject to certain restrictions of its

choosing. 7 U.S.C. § 2(c)(2)(E)(Gi)(1). Even though the

statutory authority was silent on arbitration, the Federal

Deposit Insurance Corporation allowed these transac-

'® The Department has recently proposed revisions to the rule.

82 Fed. Reg. 26649 (June 8, 2017).

™ See also 82 Fed. Reg. 31278 (July 6, 2017) (seeking public in-

put on whether to delay in the January 1, 2018, applicability date of

the DOL fiduciary rule).

-14-

tions on the condition that there be no pre-dispute

arbitration agreements between customers and state

banks. 76 Fed. Reg. 40779, 40787 (July 12, 2011). Cf 76

Fed. Reg. 41375, 41381 (July 14, 2011) (Office of the

Comptroller of the Currency rule prohibiting national

banks and federal branches of foreign banks from

mandating arbitration).

C. A lack of agency action has also prompted

Congress, in some cases, to specifically

mandate limits on arbitration.

In addition to the actions described above, a lack of

agency regulation has in some cases led Congress to

explicitly mandate that agencies take steps to regulate

arbitration. In 2006, for example, Congress reacted to

reports finding that military servicemembers were being

targeted by predatory lenders to such an alarming

degree that their activities constituted a threat to na-

tional security.“ Congress’s response was the Military

Lending Act, which bans forced arbitration in consumer

loans to servicemembers. See 10 U.S.C. § 987(e).” Simi-

" See Report On Predatory Lending Practices Directed at

Members of the Armed Forces and Their Dependents, Dep't of

Defense (Aug. 9, 2006), https://perma.cc/UJ8Z-2SG9; see also

Christopher Lewis Peterson & Steve Graves, Predatory Lending

and the Military: The Law and Geography of ‘Payday’ Loans in

Military Towns, 66 Ohio State L.J. 653 (2005).

@ The Department of Defense has exercised its authority to is-

sue regulations expanding the scope of that ban, see 80 Fed. Reg.

43560 (July 22, 2015), and the lending industry has taken steps to

comply. See Military Lending Act: Great Expectations in Compli-

ance, Carolinas Credit Union League (2016), https///perma.cc/25CG-

HYSG (discussing the DOD’s rule); Military Lending Law Devel-

opments, Utah Bankers Association (Oct. 25, 2016), https://perma.cc/

T6YG-RYZ6 (same); Tony Hadley, Must-Know Details About the

Military Lending Act in 2016, Experian (Feb. 29, 2016),

https://perma.cc/7BJB-9JGD; Attention! Military Lending Act

-15-

larly, when Congress created the new Consumer Finan-

cial Protection Bureau, it responded to the lack of action

by existing financial regulators to halt the spread of

forced arbitration by requiring the new agency to study

the problem and, if warranted, to limit it.”

The lesson to be drawn from these more specific con-

gressional delegations is not that such delegations are

necessary (as opposed to sufficient) for agency action.

Agencies often already have the authority to act by

virtue of the substantive laws they administer. Rather, it

is when Congress seeks to mandate limits on arbitration

that it has “done so with a clarity that far exceeds” a

general statutory delegation. CompuCredit, 565 U.S. at

103 (addressing what statutory language is necessary to

discern an intent to “prohibit” arbitration agreements).

Il. The employers’ novel reading of the FAA cannot

be reconciled with McMahon and decades of

agency rulemaking.

The employers principally stake their case on the

theory that the National Labor Relations Act and Nor-

ris-LaGuardia Act’s do not grant employees a substan-

tive right to pursue employment-related claims on a

collective-action basis. That theory is unfounded for the

Compliance, Microbilt (2016), https://perma.cc/98SA-E38J; see also

Promissory Note, Discover 3 (May 2017), https://perma.cc/4M9R-

7S3D (“{Tyhis section, Arbitration of Disputes, does not apply if . . .

you are covered by the federal Military Lending Act.”).

™ See 12 U.S.C. § 5618 (mandating that the agency conducts a

study to assess the impact of arbitration on consumers and authoriz-

ing it to prohibit or limit arbitration if it found that doing so would

be “in the public interest and for the protection of consumers”); 81

Fed. Reg. 32830, 32830 (May 24, 2016) (adopting a rule to “prohibit

providers from using a pre-dispute arbitration agreement to block

consumer class actions in court” and require companies “to submit

certain records relating to arbitral proceedings to the Bureau”).

-16-

reasons set forth in the employees’ and NLRB’s briefs.

See AFLCIO Br. 9-28; Lewis Br. 9-25; Morris & McDan-

iel Br. 14-830; NLRB Br. 11-35.

But the challengers also press a second-line argu-

ment that is both broader and less precise. Under the

employers’ view, agencies that regulate under general

statutory grants of rulemaking authority would, in effect,

be categorically prohibited from promulgating rules that

regulate the role of arbitration. See Chamber of Com-

merce Br. 21, 31; Ernst & Young Br. 50; see also Murphy

Oil Br. 11. That theory, however, is squarely foreclosed

by this Court’s decision in McMahon.

A. McMahon held that the FAA does not interfere

with an agency’s broad authority to regulate

arbitration under a general grant of

rulemaking authority.

Thirty years ago, this Court recognized that a federal

agency does not run afoul of the FAA’s pro-arbitration

policies when it employs its general authority delegated

from Congress to regulate and restrict arbitration

procedures where “necessary or appropriate to further

the objectives” of a federal statute or to “protect statuto-

ry rights.” McMahon, 482 U.S. at 233-34. That recogni-

tion—which has never been overturned or called into

question by this Court—forecloses the employers’

unduly cramped view of agency authority here.

In McMahon, the SEC’s congressionally delegated

authority to regulate was general—it said nothing

specific about arbitration—and yet this Court definitive-

ly ruled that the congressional grant of authority none-

theless gave the SEC “expansive power” and “broad

authority” to regulate “arbitration procedures.” Jd. at

223. That authority, the Court explained, readily allowed

the agency to “mandate the adoption of any rules [the

-17-

SEC] deems necessary to ensure that arbitration proce-

dures adequately protect statutory rights.” /d. at 234

(concluding that Congress’s general-delegation clause

afforded the agency “sufficient statutory authority” for

this sort of regulation). And the Court blessed the SEC’s

authority in this respect notwithstanding the FAA’s

“federal policy favoring arbitration.” Jd. at 226.

Not surprisingly, then, FAA-based challenges to the

SEC’s rulemaking authority since McMahon have been

soundly rejected. See Charles Schwab & Co. v. FINRA,

861 F. Supp. 2d 1063 (N.D. Cal. 2012); In re Dep't of

Enforcement v. Charles Schwab & Co., 2014 WL 1665738

(FINRA Bd. Apr. 24, 2014). And this Court has never

suggested that a federal program offends the FAA

merely by encouraging participants in the program to

forgo arbitration or placing conditions on its use. Indeed,

as we explained in Part I, many agencies—no different

than the SEC—have long exercised similar regulatory

authority under general-delegation clauses that span the

US. Code.

In this respect, the Court’s decision in McMahon en-

shrined a basic (and still controlling) principal of agency

authority: that the question in every case involving an

agencys power to regulate “is, simply, whether the

statutory text forecloses the agency’s assertion of au-

thority, or not.” City of Arlington, 133 S. Ct. at 1871.

McMahon, in other words, recognized that, when it

comes to agency rulemaking, “the whole includes all of

its parts.” Jd. at 1874. A “general conferral of rulemaking

authority,” in other words, “validate[s] rules for all the

matters the agency is charged with administering.” /d.

Yet, embracing the employers’ broadside attack on

this settled and uncontroversial rule of administrative

law would unavoidably require overruling McMahon

-18-

and, in the process, upset four decades of agency prac-

tice.

B. CompuCredit does not undermine McMahon.

The employers rest their sweeping attack on the

longstanding framework governing agency regulation on

this Court’s decision in CompuCredit. That case, they

argue, established a new rule of agency law—that a

clear, arbitration-specific statutory grant of rulemaking

authority is required before an agency may engage in

rulemaking that addresses arbitration. See, e.g., Ernst &

Young Br. 50; Chamber of Commerce Br. 21, 31; Murphy

Oil Br. 11.

But CompuCredit erected no such rule for a simple

reason: the case did not implicate any agency regulation.

To the contrary, the only question CompuCredit ad-

dressed was how to discern when Congress has itself

decided to prohibit arbitration. Specifically, the case

addressed whether a statute—the Credit Repair Organi-

zations Act—contained a sufficiently clear “contrary

congressional command” to override the presumption

that CROA-related statutory claims may be validly

arbitrated. See 565 U.S. at 98. And, because nothing in

CROA’s text, legislative history, or underlying purposes

evinced a clear intent to bar claims from proceeding in

arbitration, the Court concluded that “the FAA requires

the arbitration agreement to be enforced according to its

terms.” Jd. at 104 (citing, without limitation, McMahon’s

test for determining whether a statute overrides the

FAA’s mandate). But what CompuCredit did not do was

announce a new and unprecedented rule of agency law.

-19-

C. Respect for statutory stare decisis and settled

reliance weigh against adoption of the employ-

ers’ sweeping reading of the FAA.

There are other reasons to reject the employers’ bid

for such a radical departure from settled precedent.

Stare decisis, the “foundation stone of the rule of law,”

Michigan v. Bay Millis Indian Cmty., 134 S. Ct. 2024,

2036 (2014), carries “enhanced force” in statutory inter-

pretation cases like this one. Kimble v. Marvel Entm’t,

Inc., 185 S. Ct. 2401, 2409 (2015). As this Court explained

just two Terms ago in Kimble, so long as there is a

“reasonable possibility that parties have structured their

business transactions” according to preexisting law, it

should be left to stand. Jd. at 2410. And that lesson is

particularly true, this Court stressed, in cases that

involve “contract rights.” /d. In this context, “considera-

tions favoring stare decisis are at their acme.” Jd. (inter-

nal quotation marks omitted). To trump this “superpow-

ered form of stare decisis” requires a “superspecial

justification.” Jd.

Here, overruling statutory precedents and replacing

the settled principles governing agency rulemaking

would spark profound confusion across industries.

Overnight, regulations promulgated by over a dozen

agencies under their general delegated statutory author-

ity could become infirm, jeopardizing the settled expec-

tations and reliance interests of farmers, students,

airline passengers, workers, and nursing-home patients

alike. Those stakeholders in the financial industry, too,

would be out to sea. As a matter of stare decisis, endors-

ing the employers’ sweeping view—and the real-world

consequences that would follow—would be unwarranted.

But, the employers’ invitation to do so in thie case is all

the more inappropriate given that the case before the

—

-20-

Court here does not involve a challenge to a regulation at

all.

Ultimately, the employers offer no reason at all—let

alone any “superspecial justification”’—to effectively

overrule either McMahon or decades of settled agency

practice and longstanding agency rules.

CONCLUSION

The judgments of the Seventh and Ninth Circuits in

Nos. 16-285 and 16-300 should be affirmed, and the

judgment of the Fifth Circuit in No. 16-307 should be

reversed,

Respectfully submitted,

DEEPAK GUPTA

Counsel of Record

MATTHEW WESSLER

GUPTA WESSLER PLLC

1900 L Street, NW

Washington, DC 20036

(202) 888-1741

deepak@guptaivessler. com

JEFFREY R. WHITE

AMERICAN ASSOCIATION FOR

JUSTICE

777 6th Street, NW

Washington, DC 20001

(202) 944-2839

August 16, 2017 Counsel for Amici Crriae