ALI Approves Restatement of the Law of Liability Insurance

By Gordon S. Woodward

On May 22 the American Law Institute voted final approval for the Restatement of the Law of Liability Insurance (RLLI). This was eight years in the making (including 29 drafts) but now sets forth ALI’s positions on numerous important coverage issues. This invaluable resource included input from insurers and policyholders and sets forth the majority and minority positions in its comments. Insurance industry professionals and business leaders may want to pay special attention to issues where the RLLI may differ somewhat from prevalent legal precedent in their jurisdiction. See ALI’s announcement and read “5 Key Rules In The ALI’s Liability Insurance Guidelines” by Law360.

 

SCOTUS Holds that Class Action Waivers in Employment Contracts Must be Enforced

By Stephen A. Fogdall

In a landmark decision, the U.S. Supreme Court has ruled 5-4 that arbitration clauses in employment contracts requiring individual dispute resolution procedures and prohibiting class actions and other collective litigation procedures must be enforced under the Federal Arbitration Act.  The Court rejected the position taken by the National Labor Relations Board and some private plaintiffs that employees’ right to engage in “concerted activities” for their “mutual aid or protection” recognized in Section 7 of the National Labor Relations Act makes such class and collective action waivers unenforceable.  The Court issued its ruling in three consolidated cases:  Epic Systems Corp. v. Lewis, Ernest & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA, Inc.  In the latter case, the Fifth Circuit reversed the NLRB’s determination that the employer violated Section 7 by including an individual arbitration clause in its employment contract.  In the former two cases, the Seventh and Ninth Circuits respectively adopted the NLRB’s position and allowed private plaintiffs to pursue collective actions under the Fair Labor Standards Act notwithstanding that they had agreed to individual arbitration clauses in their employment contracts.

The Court, in a majority opinion written by Justice Gorsuch, began its analysis by noting that arbitration clauses in employment contracts fall squarely within the FAA’s command that all arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  The Court then rejected the argument that the final clause of this command, called the “savings clause,” implicates Section 7 of the NLRA.  The Court explained that the savings clause permits a party to oppose arbitration based on defenses, such as fraud in the inducement or duress, that might apply to “any contract.”  However, the savings clause does not allow a court to refuse to enforce an arbitration agreement based on defenses that specifically target arbitration.   The Court reasoned that a putative defense to enforcement of an individual arbitration clause on the theory that such a clause violates employees’ right to engage in “concerted activities” under Section 7 is precisely the type of defense that is not preserved by the savings clause because it specifically targets the alleged illegality of such clauses in the employment setting.  It is, by definition, not a defense of general applicability.

The Court likewise rejected the argument that there is a “conflict” between the FAA and Section 7 of the NLRA such that Section 7 overrides or impliedly repeals the FAA to the extent the FAA would require enforcement of an individual arbitration clause in an employment contract.  The Court held that there could be no conflict between Section 7 and the FAA because “Section 7 doesn’t speak to class and collective action procedures” and contains no “hint about what rules should govern the adjudication of class or collective actions in court or arbitration.”  The Court reasoned that “[u]nion organization and collective bargaining in the workplace are the bread and butter of the NLRA,” and it is “more than a little doubtful that Congress would have tucked into the mousehole” of Section 7 “an elephant that tramples the work done by” the FAA and other laws governing “the particulars of dispute resolution procedures in Article III courts or arbitration procedures.”

Lastly, the Court rejected the argument that the NLRB’s position was entitled to deference under the Chevron doctrine (which requires courts to defer to a federal agency’s interpretation of the statute it administers in certain circumstances).  The Court explained that Chevron was inapplicable because the NLRB did not confine itself to interpreting NLRA, the statue it administers, but rather “sought to interpret this statute in a way that limits the work of a second statute,” the FAA.  If an agency’s “reconciliation” of allegedly competing statutes were subject to deference under Chevron, then “[a]n agency eager to advance its statutory mission, but without any particular interest in or expertise with a second statute, might (as here) seek to diminish the second statute’s scope in favor of a more expansive interpretation of its own,” thus “bootstrapping itself into an area in which it has no jurisdiction.”

The decision is a significant win for employers seeking to limit the costs and risks of class and collective litigation by employees.

Chief Justice Roberts and Justices Kennedy, Thomas and Alito joined Justice Gorsuch’s majority opinion.  Justice Ginsburg wrote a dissenting opinion, joined by Justices Breyer, Sotomayor and Kagan.  The Schnader firm submitted an amicus brief in support of the enforceability of class action waivers in employment contracts in all three cases on behalf of the Mortgage Bankers Association and several state mortgage lending associations.

The Third Circuit holds that the discovery rule does not apply to the FDCPA’s one-year statute of limitations, but that the doctrine of equitable tolling might apply.

By Stephen J. Shapiro

In a precedential decision diverging from holdings in the Fourth and Ninth Circuits, the United States Court of Appeals for the Third Circuit, sitting en banc, held that the one-year statute of limitations in the FDCPA runs from the date the alleged violation occurs, not from the date a claimant discovers the violation. The Court noted, though, that the FDCPA’s statute of limitations may be equitably tolled under the proper circumstances.

In Rotkiske v. Klemm, a collection agency filed a lawsuit against a debtor in 2009 to collect an unpaid credit card debt. When the debtor did not respond to the lawsuit, the collection agency obtained a default judgment against him. The debtor claimed that he did not learn about the lawsuit or the judgment until September 2014 when he applied for a mortgage. Nine months later, in June 2015, the debtor brought a claim against the collection agency alleging that its actions in filing the lawsuit violated the Fair Debt Collection Practices Act (FDCPA).

The FDCPA contains a one-year statute of limitations: “An action to enforce any liability created by this subchapter may be brought in any appropriate United States district court . . . within one year from the date on which the violation occurs.” 15 U.S.C. § 1692k(d). Because the debtor filed his claim more than six years after the alleged violation, the collection agency moved to dismiss the suit on the grounds that it was time barred. Rejecting the debtor’s argument that the FDCPA’s statute of limitations begins to run when the debtor discovers the alleged violation, the district court granted the motion to dismiss.

On appeal, the Third Circuit affirmed the dismissal. The Court held that the language “within one year from the date on which the violation occurs” in the FDCPA’s statute of limitations made clear that Congress intended the limitations period to begin running on the date of the alleged violation, not on the date of discovery of the alleged violation.

The debtor argued that the discovery rule should apply to FDCPA claims because Congress did not expressly state in the act that the discovery rule did not apply. The Court flatly rejected this argument, holding that “Congress’s explicit choice of an occurrence rule implicitly excludes a discovery rule.” The debtor also argued that application of the occurrence rule would thwart the purpose of the FDCPA because the Act is designed to protect consumers from fraudulent debt collection practices that creditors may conceal from debtors. The Court disagreed with the premise that the Act is designed to protect consumers against concealed fraudulent practices, noting that many of the actions the FDCPA proscribes (for instance, repetitive contacts by telephone or mail) “will be apparent to consumers the moment they occur.”

The Court also backed away from its dicta in Oshiver v. Levin, Fishbein, Sedran & Berman. In that Title VII case from 1994, the Third Circuit mentioned in passing the “general rule” that limitations periods in federal statutes begin to run on the date a plaintiff discovers his or her injury. The Court noted, however, that more recent United States Supreme Court decisions, such as TRW Inc. v. Andrews, suggest that the previously-cited “general rule” is not correct and that the discovery rule may not be implied into federal statutes.

The Court also refused to follow decisions from the Fourth Circuit and Ninth Circuit in which those courts held that the FDCPA’s statute of limitations contains an implied discovery rule. The Third Circuit noted that neither court analyzed the “date on which the violation occurs” language in the FDCPA’s statute of limitations, and that the Ninth Circuit relied upon the defunct “general rule” that federal limitations period run from the date of discovery. The Court also noted that the Fourth Circuit appeared to have applied the doctrine of equitable tolling rather than the discovery rule.

Finally, after pointing out that the debtor did not pursue the issue of equitable tolling on appeal, the Court explained that “our holding today does nothing to undermine the doctrine of equitable tolling for civil suits alleging an FDCPA violation” and that “our opinion should not be read to foreclose the possibility that equitable tolling might apply to FDCPA violations that involve fraudulent, misleading, or self-concealing conduct.”

Although not addressed in the Court’s opinion in Rotkiske, the Third Circuit previously has explained that “even in situations in which equitable tolling initially applies, a party must file suit within a reasonable period of time after realizing that such a suit has become necessary.” Walker v. Frank, 56 Fed. Appx. 577, 582 (3d Cir. 2003). It is possible, then, that the debtor in Rotkiske chose not to invoke the equitable tolling doctrine on appeal because he would have had difficulty arguing that his nine month delay in filing his lawsuit after he discovered the alleged FDCPA violation was “a reasonable period of time.”

In sum, debtors who wish to pursue FDCPA claims in the Third Circuit must do so within one year of the date the alleged violation occurred, or within a reasonable period of time after discovering the violation.

 

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