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After nearly four months of loud complaints from general counsel and defense attorneys, the arbitration service JAMS has reversed its policy of refusing to enforce contract clauses that prohibit consumer and employee class actions. The arbitration firm still thinks that the clauses may be unfair to workers and consumers, said JAMS GC John “Jay” Welsh. Nevertheless, the service changed its policy to counter the perception of outside lawyers that JAMS was favoring the plaintiff bar. “People on each side of the aisle were misrepresenting our position,” said Welsh. “Plaintiffs interpreted it in a way that was beneficial to them, and defense attorneys interpreted it in a way that was detrimental.” JAMS had been the only ADR provider to refuse to enforce exclusion clauses. At least one large client, Citibank, wrote JAMS out of its contracts in response to the policy, Welsh confirmed. Discover Card also wrote out JAMS, according to the ADR Institute, which is sponsored by the National Arbitration Forum. Both plaintiff and defense attorneys said they knew other companies that had dropped JAMS, but they declined to name names. Eric Tuchmann, general counsel for the American Arbitration Association, the country’s biggest ADR provider, said he wasn’t sure whether his company had picked up any clients as a result of JAMS’ policy. Welsh insisted that image — not lost business — was the reason for changing the policy. “This was not a business issue,” he said Thursday, a day after the JAMS board voted unanimously to overturn a rule that, in November, it had unanimously approved. “People were misinterpreting the policy, and misinterpreting it to the detriment of our mission of neutrality.” The decision infuriated plaintiff attorneys who had earlier applauded the JAMS policy. “If you’re not capable of withstanding the pressure and doing what you think is right, you shouldn’t be doing arbitrations,” said Cliff Palefsky, a partner with McGuinn, Hillsman & Palefsky in San Francisco and a longtime opponent of mandatory ADR. Palefsky said that JAMS and other arbitrators violate their standards of giving people the same rights they would have in court when they honor class action preclusion clauses. F. Paul Bland Jr., an attorney with Trial Lawyers for Public Justice in Washington, D.C., agreed. “They’ve knuckled under to financial pressure,” said Bland, adding that the arbitration service had been swayed by a fierce campaign by defense lawyers and general counsel. Alan Kaplinsky, a Philadelphia-based partner with the defense firm Ballard Spahr Andrews & Ingersoll, also said that the policy change was a response to defense bar criticism. He was one of the lawyers who most vigorously fought the JAMS policy. “I have been speaking very publicly about it, and I have been writing about it,” said Kaplinsky, who published pieces about his opposition to JAMS in several trade publications. “I have been very, very critical of the policy, and I think some other lawyers who have been critical of the issue have been talking about it, and I think JAMS has taken that criticism to heart.” In addition to public griping, he said, JAMS was also pressured by corporate clients’ decision to use arbitration services that would honor class action preclusions. “I do have clients who have written JAMS out of their contracts,” said Kaplinsky, who declined to name them. Bland said he was surprised by the policy change, even though he heard Kaplinsky at a conference last week say he thought JAMS was close to reversing its stance. “I thought Alan was blowing smoke,” Bland said. “I was pretty disappointed.” Class action arbitrations are a relatively new issue and have only received substantial debate over the past two years. “The whole idea of a class action arbitration was pretty foreign,” said AAA’s Tuchmann. That changed with a 2003 U.S. Supreme Court decision, Green Tree Financial v Bazzle, 539 U.S. 444, which gave arbitrators authority to decide whether class actions were allowed under particular contracts. Since then, the debate over exclusion clauses has been “very difficult and very divisive,” Tuchmann said. Lawyers on all sides of the arbitration debate say that more definitive court rulings are needed to address whether it’s legal for a contract to rule out class actions. Until the debate is resolved, JAMS will allow such clauses in jurisdictions where they’re legal.

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