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After nearly four months of loud complaints from general counsel and defense attorneys, JAMS, the private judging company, has reversed its policy of refusing to enforce contract clauses that prohibit consumer and employee class actions. The company still thinks that the clauses may be unfair to workers and consumers, says John “Jay” Welsh, JAMS’ general counsel. But the company changed its policy to counter a perception among outside lawyers that JAMS was favoring plaintiffs’ lawyers. “People on each side of the aisle were misrepresenting our position,” says 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 alternative dispute resolution provider to refuse to enforce exclusion clauses. At least one large client, Citibank, wrote JAMS out of its contracts in response to the policy, an action that was confirmed by Welsh. Discover Card also wrote out JAMS, according to the ADR Institute, which is sponsored by the National Arbitration Forum. Plaintiff and defense attorneys say they knew of other companies that had also dropped JAMS but declined to provide specific names. Eric Tuchmann, general counsel for the American Arbitration Association, the country’s biggest ADR provider, says he wasn’t sure whether his company had picked up any clients as a result of JAMS’ policy. Welsh, for his part, insists that image — not lost business — was the reason for changing the policy. “This was not a business issue,” he said in mid-March, a day after JAMS’ board of directors voted unanimously to overturn a rule that it had unanimously approved last November. “People were misinterpreting the policy and misinterpreting it to the detriment of our mission of neutrality,” said Welsh. Not surprisingly, JAMS’ reversal 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,” says Cliff Palefsky, a partner at San Francisco’s McGuinn, Hillsman & Palefsky and a longtime opponent of mandatory ADR. Palefsky argues that JAMS and other arbitrators, by honoring class action preclusion clauses, violate their standards of giving people the same rights they would have in court. F. Paul Bland Jr., an attorney with Trial Lawyers for Public Justice in Washington, D.C., says JAMS “knuckled under to financial pressure” and was swayed by a fierce campaign waged by defense lawyers and general counsel. Alan Kaplinsky, a Philadelphia-based partner at Ballard Spahr Andrews & Ingersoll, a defense firm, believes that JAMS’ reversal came as a response to criticism from the defense bar. “I have been speaking very publicly about it and I have been writing about it,” says Kaplinsky. “I have been 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, Kaplinsky says JAMS was pressured by the decision among some corporate clients to switch to arbitration services that have continued to honor class action preclusions. “I do have clients who have written JAMS out of their contracts,” says Kaplinsky, who declined to name them. Class action arbitrations are a relatively new issue and have been the subject of substantial debate only during the past couple of years. “The whole idea of a class action arbitration was pretty foreign,” says Tuchmann. But that changed in the wake of 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,” says Tuchmann. Lawyers on both sides of the arbitration debate say that more definitive court rulings are needed to address whether it is legal for a contract to rule out class actions. Until the debate is resolved, JAMS will allow such clauses in jurisdictions where they are legal. Justin Scheck is a reporter at The Recorder, which publishes GC California magazine.

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