ADR news from Jim Reiman

February 29, 2016

Friends and colleagues

The days are getting longer and the weather warmer.  As we look forward to the arrival of Spring, I’ve tried to cull from the horde of cases and articles that have come across my desk a handful that I hope you’ll find of interest.

This month, as in all months, I focus on three areas:  corporate governance, alternative dispute resolution (“ADR”), and eDocuments and eDiscovery.   Additionally, I’ll include a matter of general interest for my “Interesting Case of the Month.”

Last month’s issue of this Newsletter was heavy on corporate governance, hence I thought I’d try for balance by over-weighting ADR this month.  Not sure whether I succeeded.

In the corporate governance arena, this month’s articles discuss a report published in January by the Federal Trade Commission on big data: “Big Data:  A Tool for Inclusion or Exclusion?  Understanding the Issues.”  Additionally, I relate a just announced proposed revision to China’s anti-corruption laws.

For my ADR practitioner readers, I include a summary and discussion of a US Supreme Court decision overturning a California court which had refused to enforce an arbitration clause contained in a television services agreement, a speech by Sundra Rajoo (Director of the Kuala Lumpur Regional Centre for Arbitration and President of the Chartered Institute of Arbitrators) given to the Asia-Pacific Forum of International Arbitration titled “Transformation and Expansion of Arbitral Institutional Roles amidst the Rise of Regionalism,” and an anecdote  regarding a scam which attempts to use arbitral awards as a means to export cash out of a country.

Regarding eDocuments and eDiscovery, I highlight the December, 2015 amendments to the Federal Rules of Civil Procedure which set out the scope of discovery, the new reign of “proportionality,” and the concomitant death of the “reasonably calculated to lead to the discovery of admissible evidence” standard.

Finally, for my “Interesting Case of the Month,” I continue last month’s inability to select just one case and present two:  Microsoft’s refusal to provide the government with customers’ electronic data in a case exploring many of the same issues as those in the widely publicized fight between Apple and the FBI regarding unlocking an iPhone, and a Delaware Court of Chancery decision refusing to approve a settlement of a class action that resulted in the plaintiffs’ lawyers receiving large fees and the class members little or no tangible benefit.

This Month’s Articles

Corporate Governance

  • Federal Trade Commission report: “Big Data:  A Tool for Inclusion or Exclusion?  Understanding the Issues”:  The Federal Trade Commission (“FTC”) issued a report this past January setting forth its findings regarding corporate use of big data, and its concerns.  The report’s conclusion:  “Big data presents many existing and potential benefits, but can also create great harm.”  More to the point, the FTC warns that it will “monitor areas where big data practices could violate existing laws” and “bring enforcement actions where appropriate.”
  • Proposed Revision to China’s Anti-Corruption Law:  On February 25 China’s Legislative Office of China’s State Council published a draft revision of the Anti-Unfair Competition Law (AUCL) and asked for public comment.  The revisions, if adopted, clarify certain ambiguities in the current law, but per one analyst create a “strict liability” for companies for the conduct of their employees.  Additionally, the proposed revised law creates the assumption of bribery if financial transactions are not properly recorded and accounted for in the company’s records.

Alternative Dispute Resolution

  • DirecTV, Inc. v. Imburgia:  This past December the U.S. Supreme Court overturned a California court’s decision refusing to enforce a consumer contract’s arbitration clause and waiver of class action clause.  As one reviewer put it, “the Court’s decision continues to push back against judicial hostility toward arbitration provisions generally and class-arbitration waivers specifically, and it may signal greater scrutiny of state-court interpretation of such provisions.”
  • Datuk Professor Sundra Rajoo speech: “Transformation and Expansion of Arbitral Institutional Roles Amidst the Rise of Regionalism”:  Prof. Sundra Rajoo addresses a group of young international arbitrators in Sydney, Australia and describes the history and impact of the rise of regional arbitration centers, as well as his predictions for the future economic and legal practice implications.
  • Arbitration Scam:  When doing business in China, one of the best indicia of success is whether, and how often, one is being copied.  In a twist to that truism, one might measure the success of a legal procedure by its abuse.  If true, then international arbitration awards must be hugely successful as a means of enforcement.  Here’s why, and one of the latest scams.


  • This month’s eDocuments case does not discuss a case.  Rather, the section highlights and comments on Federal Rules of Civil Procedure Rule 26(b)(1), which was amended effective December 1, 2015 and ushers in the rule of proportionality when determining the limits of discovery.

Interesting Case of the Month

  • Microsoft v US Microsoft, like Apple, is embroiled in a lawsuit with the US government regarding access to electronic data that it controls.  Unlike the Apple case, however, this case concerns the right of the U.S. government to compel a US company to turn-over documents that, according to Microsoft, are subject to the jurisdiction of another country.  The foreign country has not given its consent and the U.S. government asserts that such consent need not be secured.
  • Trulia Class Action Settlement:  This case might have been included in the governance section of this Newsletter, but because of its general interest I’ve included it here.  In Trulia, the Delaware Court of Chancery rejected a proposed class action settlement that did little more than enrich plaintiffs’ counsel, and further gave warning that it will scrutinize such settlements closely in the future and reject proposed settlements that provide little or no benefit to the non-present class members.

I hope you enjoy the following and find this Newsletter worthy of your time and inbox’s space.

Warm regards,

Jim Reiman

Articles / Corporate Governance

FTC report: “Big Data:  A Tool for Inclusion or Exclusion?  Understanding the Issues”

The Federal Trade Commission (“FTC”), recognizing that so called “Big Data” is already an important fact of corporate life and acknowledging that its significance on corporate policy and decision making is growing, held a workshop in September of 2014 to explore concerns raised by advocates, academics, and others that “certain uses of big data analytics may harm consumers, particularly low-income and underserved populations.”  Following the workshop, the Commission “synthesized the information from the workshop” and additional research, and this past January issued its Report.  Its conclusion:  Big Data presents many existing and potential benefits, but can also create great harm.

The FTC highlighted workshop testimony and research demonstrating that when using Big Data there is a “a potential for incorporating errors and biases at every stage—from choosing the data set used to make predictions, to defining the problem to be addressed through big data, to making decisions based on the results of big data analysis—which could lead to potential discriminatory harms.”

Why, you might ask, have I included this report in my articles covering corporate governance?  Answer:  Because the FTC makes clear in its Report that if it believes that Big Data is being used in such a way as to discriminate or otherwise harm or limit services to the lower income and underserved populations, it will “bring enforcement actions where appropriate.”  Directors need to be aware that their companies’ use of or reliance upon Big Data needs to be properly managed, and that they should be asking appropriate questions to assure that such data is not being unintentionally misused.

The FTC stated unambiguously that it will “monitor areas where big data practices could violate existing laws,” and went on to identify several Federal laws which it will focus on, including: the Federal Trade Commission Act (which “prohibits unfair or deceptive acts or practices”), the Fair Credit Reporting Act (which requires credit reporting agencies to “implement reasonable procedures to ensure maximum possible accuracy of consumer reports and provide consumers with access to their own information, along with the ability to correct any errors”), and a host of “federal equal opportunity laws, including the Equal Credit Opportunity Act (“ECOA”), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Fair Housing Act, and the Genetic Information Nondiscrimination Act [which] prohibit discrimination based on protected characteristics such as race, color, sex or gender, religion, age, disability status, national origin, marital status, and genetic information.”

 the full FTC report: “Big Data:  A Tool for Inclusion or Exclusion?  Understanding the Issues”


The Washington Post, “FTC warns companies that ‘big data’ comes with the potential for big problems”

Ballard Spahr, LLP, “Use of Big Data May Violate Federal Consumer Protection Laws, FTC Report Warns”



Revised Chinese Anti-Corruption Law

As many of you know, I spent substantial time in China and continue to have significant financial and personal interests in the country.  Thus, I monitor legal and other activities in China.  I know from my conversations with many of you that you or your clients also have interests in the PRC, hence I thought it appropriate to bring to your attention a proposed change in Chinese law.

On February 25, 2016, the Legislative Office of China’s State Council published a draft of a proposed revision to China’s Anti-Unfair Competition Law (AUCL) and asked for public comment. According to a report published by Sidley Austin’s China and Anti-Corruption Practices, “the anti-commercial bribery provision has become significantly clearer, which may help to eliminate uncertainties and increase the effectiveness of companies’ internal compliance measures – but significant ambiguities still exist.”

One scenario in particular raises concerns.  Per the Sidley report, the revised statute makes illegal the “provision of financial benefits between business operators that are not truthfully recorded in agreements and accounting books.”  Thus, the Law suggests (and if history is to be followed will likely be enforced to mean) that if a payment is not supported by a proper agreement and accounting records, it is commercial bribery. Per Sidley, “if [this provision is] finally adopted, [it] will significantly increase the risk related to inaccurate bookkeeping.”

Additionally, the proposed revised law significantly increases the liability of companies for the conduct of its employees.  The proposed language states: “if employees have procured transaction opportunities or competitive advantages for business operators through commercial bribery, such activities shall be viewed as the activities by the business operators.” The Sidley group interprets this clause to create “a strict liability for companies, and as a result, companies may not use internal prohibition of commercial bribery as a defense.”

The Sidley Austin China Update, “China Proposes Revamp of Anti-Commercial Bribery Law


Articles / Alternative Dispute Resolution

DirecTV, Inc. v. Imburgia

Arbitration has been receiving a great deal of negative publicity lately, in particular from theNew York Times.  Much of the press’ criticism of the practice relates to the use of arbitration in consumer contracts and clauses waiving class actions, and the California courts have been the most aggressive in striking down such clauses. Thus, the U.S. Supreme Court’s decision this past December not only upholding an arbitration clause, but a class action waiver clause in a consumer contract, is especially noteworthy.  Moreover, the decision was 6-3, written by Justice Breyer, and joined by Justice Kagan as well as Justices Roberts, Scalia, Kennedy, and Alito.

At first blush, the result may seem surprising – especially given the “liberal” justices who wrote and joined in the opinion.  On examination, however, the decision turns on two fundamental legal principles:  i) the Federal Arbitration Act preempts state law, and ii) arbitration clauses must be interpreted consistent with their clear language and in the same manner as all other contracts.  Implicit in the decision is the Supreme Court’s comfort with, and legal acceptance of, arbitration generally and class action waivers in particular.

Briefly, DirecTV’s service agreement with its customers included a clause requiring that all disputes be arbitrated, and additionally included a clause stating “neither you nor we shall be entitled to join or consolidate claims in arbitration,” which the California and Supreme Court interpreted to be a waiver of class actions.  Finally, the agreement included two additional clauses:  one stating, as reported by the Court, “if the ‘law of your state’ makes the waiver of class arbitration unenforceable, then the entire arbitration provision ‘is unenforceable,” and, “the arbitration provision ‘shall be governed by the Federal Arbitration Act.’”

In an excellent summary of the decision, Sullivan & Cromwell LLP states: “the Supreme Court again reminded the California courts that the [Federal Arbitration Act] preempts state-law judicial interpretations that uniquely disadvantage arbitration contracts.”  The Supreme Court held: “we must decide whether the decision of the California court places arbitration contracts ‘on equal footing with all other contracts.’  And in doing so, we must examine whether the [California Court’s] decision in fact rests upon ‘grounds as exist at law or in equity for the revocation of any contract.’”

The Supreme Court found that the California Court applied different standards and different interpretations to arbitration clauses.  It held: “California’s interpretation of the phrase ‘law of your state’ does not place arbitration contracts ‘on equal footing with all other contracts.’  For that reason, it does not give ‘due regard. . . to the federal policy favoring arbitration.’  Thus, the [California Court’s] interpretation is pre-empted by the Federal Arbitration Act.”

DirecTV, Inc. v. Imburgia, the full Supreme Court opinion


Sullivan & Cromwell, LLP, “U.S. Supreme Court Rejects California Court’s Attempt to Invalidate Class-Arbitration Waivers”

Masuda Funai Eifert & Mitchell Ltd, “U.S. Supreme Court Again Strikes Down California Arbitration Restrictions”


Sundra Rajoo speech:  “Transformation and Expansion of Arbitral Institutional Roles amidst the Rise of Regionalism”:   

Datuk Professor Sundra Rajoo is the Director of the Kuala Lumpur Regional Centre for Arbitration and current President of the Chartered Institute of Arbitrators.  As such, he is without question one of, if not THE, leading authority on the development of regional arbitration centers and their impact on international arbitration.  He’s also a terrific guy.  Full disclosure:  I’m an active member and board director of the Chartered Institute of Arbitrator’s North America branch and was recently appointed to the Kuala Lumpur Regional Centre’s panel of commercial arbitrators.

Prof. Rajoo was the principal speaker at the Asia-Pacific Forum of International Arbitration’s (AFIA) Symposium held in Sydney Australia this past November.  That particular venue is known for the opportunity it provides AFIA’s members, and in particular their younger members, with “a forum to discuss issues and developments in international arbitration, with a particular focus on Asia-Pacific.”  Prof Rajoo used the opportunity to discuss the rise of regionalism in the international arbitral world, and how it is transforming the role of arbitral institutions and the practice of arbitration generally.

For those who practice in the international arbitration arena, the speech is a worthy read because it discusses the economic impact of these centers, the innovation and diversity of products which competing regional centers have spawned, and Prof. Rajoo’s analysis of recent trends and the future outlook, particularly with respect to arbitration in Asia.

Prof. Rajoo’s conclusions:

“This move away from having just a few established international institutions which enjoy a monopoly on international arbitration, to a wider choice of institutions (in the Asian context) should no doubt improve the users’ experience of international arbitration, thereby furthering the notion that Asia is increasingly become a trendsetter and a leader in the realm of public international law.  The roles that Arbitral Institutions [play] in the coming years will remain most crucial.  

Along with a growth in regionalism, will arise an era of regional integration. This reflects the economic growth in the region which is also deeply focussed on regional integration.  This transformation and adaptation to the expanding role and duties of arbitral institutions will ensure the quick evolution of International Arbitration and ADR in the coming era.”

The full text of Datuk Professor Sundra Rajoo’s speech



Arbitration Scam

As noted in the introductory letter to this Newsletter, one knows one is doing well in China when one is being copied.  Using that same twisted logic, arbitral awards must be hugely successful and effective if being used in a money transfer scam.

Here’s the latest, presented not as a recommended means to circumvent the law or as a threat one needs to defend against, but rather for amusement and to place an explanation point on the fact that arbitral awards are being recognized and enforced in China.

China, as many know, has strict laws governing and restricting the transfer of cash out of the country.  As the Yuan falls, many affluent Chinese are trying to move cash to Western countries and invest in Western currencies and assets (this has been reported in the New York Times and other global financial papers).  Given the PRC’s money transfer restrictions, some are trying creative ways to “circumvent” the law.  This scam is one of the more creative efforts.

Here’s how it goes: 1) Affluent Chinese individual (“Money Man”) creates a corporation (“Newco”) in the country he wishes to move the money.  2) Newco and Money Man enter into a contract, which Money Man then breaches.  3)  Newco and Money Man arbitrate the dispute and damages, with Money Man conceding liability and damages in an amount equal to the sum he wishes to move out of China.  4)  An arbitral award is entered and enforced under the New York Convention.  Result:  money “legally” transferred out of China to Money Man’s destination country.

Thanks to Dan Harris, China Law Blog, for sharing this.  If you are looking for a laugh, I commend you to it.

Dan Harris, China Law Blog, “Getting Money out of China by Losing in Arbitration”


Louise Story, Stephanie Saul, New York Times, “Stream of Foreign Wealth Flows to Elite New York Real Estate,”


Articles / e-Documents

Proportionality and FRCP 26(b)(1)

On December 1, 2015, several significant changes to the Federal Rules of Civil Procedure (FRCP) became effective.  While I typically focus only on eDiscovery and electronic documents, I thought it appropriate for two reasons to highlight and comment on the new FRCP 26(b)(1) which became effective in December:  First, amended FRCP(b)(1) represents the conclusion of a revolutionary change in US discovery law and practice.  Second, I attended a conference for senior and mid-career litigation attorneys earlier this month and at the outset of a session on rules and practice updates, the speakers asked how many in the audience knew of the new Rules and had read them.  Remarkably, only slightly more than half of those in the audience raised their hands.

While it is technically not correct to say that the new Rule 26 represents a landmark change from past practice, the new Rule is remarkable in that it attempts (and will likely succeed) to effectuate a landmark change which began with the 2010 Rules amendments.  Specifically, the long held rule that the limit to discovery is what is “reasonably calculated to lead to the discovery of admissible evidence” is no more.  The words “reasonably calculated to lead to” have been purged from the Rules and replaced by a new standard:  proportionality.

The comments to the new Rule merit inclusion here.  They state:

“The former provision for discovery of relevant but inadmissible information that appears ‘reasonably calculated to lead to the discovery of admissible evidence’ is also deleted. The phrase has been used by some, incorrectly, to define the scope of discovery. As the Committee Note to the 2000 amendments observed, use of the ‘reasonably calculated’ phrase to define the scope of discovery ‘might swallow any other limitation on the scope of discovery.’ The 2000 amendments sought to prevent such misuse by adding the word ‘Relevant’ at the beginning of the sentence, making clear that “‘relevant’ means within the scope of discovery as defined in this subdivision . . . .” The ‘reasonably calculated’ phrase has continued to create problems, however, and is removed by these amendments. It is replaced by the direct statement that ‘Information within this scope of discovery need not be admissible in evidence to be discoverable.’ Discovery of nonprivileged information not admissible in evidence remains available so long as it is otherwise within the scope of discovery.

So, what is the new scope of discovery?  While a comprehensive discussion is beyond the purview of this Newsletter, the “short” answer to that question is as follows:

Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.

Federal Rule of Civil Procedure 26(b)(1), with comments


  U.S. Supreme Court Chief Justice Roberts Jr.’s 2015 Year-End Report on the Federal Judiciary, which focuses on the amendments to the Federal Rules of Civil Procedure, their history, and the goals of the changes

Zach Warren, Legal Tech News, “The Power of Proportionality: Inside Today’s FRCP 26(b)(1) Change, The amended Rule places a higher emphasis on limiting discovery to that which is “proportional to the needs of the case.”


Articles / Interesting Case of the Month

There are just too many interesting cases out there, hence I present two “interesting cases of the month.”  First, while most are aware of and many are following the fight between Apple and the FBI over the unlocking of an iPhone, few are aware of a similar but equally significant challenge by Microsoft to a court order that it turn-over customer eMail files residing on Microsoft servers.  The second case concerns settlements of class action lawsuits – you know, those cases where the class plaintiffs receive little or no benefit and the class’ lawyers walk away with big fees.  The Delaware Chancery Court rejected such a settlement in the Trulia case.

Microsoft Privacy Case

Microsoft’s battle with the Justice Department is both similar to, and different than, the Apple case.  In the Microsoft case, Microsoft was served with a subpoena and a search warrant for emails that live in a data center in Ireland.  Microsoft turned over records it possessed residing on servers in the US, but refused to comply with the subpoena and subsequent court order regarding eMails residing on its Irish servers because it believes those emails, and its disclosure obligations, are subject to Ireland law.  Put simply, Microsoft argues that it has no duty (or right) to turn-over the data until Ireland gives the okay.  The matter is on appeal in the US Court of Appeals for the Second Circuit.  It has been fully briefed, and oral argument was this past September.

So, why doesn’t the government simply ask Ireland to approve the disclosure?  Per David Goldman, writing for CNN, “That process involves too much red tape in the digital age. . .[Also,] if a server were housed in a country with an unfriendly government, the United States might not be able to clear the necessary hurdles to extract data it could need as part of future investigations.”

A succinct article regarding the case, including a video clip of an interview with Bill Gates discussing the Apple iPhone case, may be found at


For an overview of the case and links to the relevant court filings (including Ireland’s amicus brief), see Wikipedia, Microsoft Corporation v. United States of America


New York University School of Law’s Brennan Center, The “Microsoft Ireland” Case (Amicus Brief)
Trulia Class Action Settlement Rejection

Many in the governance arena (myself included) find the proliferation of class action lawsuits that accomplish little more than lining the pockets of plaintiffs’ counsel troubling.  Apparently the Delaware Court of Chancery is troubled as well.  In January, it rejected a proposed settlement of a stockholder class action challenging Zillow, Inc.’s acquisition of Trulia, Inc. in a stock-for-stock merger.  Per the Court, “[l]ess than four months [after commencing the case], after taking limited discovery, the parties reached an agreement-in-principle to settle.”

Describing the proposed settlement as a “disclosure settlement,” the Court stated:

[Disclosure settlements have] become the most common method for quickly resolving stockholder lawsuits that are filed routinely in response to the announcement of virtually every transaction involving the acquisition of a public corporation. In essence, Trulia agreed to supplement the proxy materials disseminated to its stockholders before they voted on the proposed transaction to include some additional information that theoretically would allow the stockholders to be better informed in exercising their franchise rights. In exchange, plaintiffs dropped their motion to preliminarily enjoin the transaction and agreed to provide a release of claims on behalf of a proposed class of Trulia’s stockholders. If approved, the settlement will not provide Trulia stockholders with any economic benefits. The only money that would change hands is the payment of a fee to plaintiffs’ counsel.

Further explaining its decision, the Court wrote:

I conclude that the terms of this proposed settlement are not fair or reasonable because none of the supplemental disclosures were material or even helpful to Trulia’s stockholders, and thus the proposed settlement does not afford them any meaningful consideration to warrant providing a release of claims to the defendants. Accordingly, I decline to approve the proposed settlement.

Finally, and most significantly, the Court stated: “to the extent that litigants continue to pursue disclosure settlements, they can expect that the Court will be increasingly vigilant in scrutinizing the ‘give’ and the ‘get’ of such settlements to ensure that they are genuinely fair and reasonable to the absent class members.”

While I try hard to avoid editorializing in this Newsletter, I can’t help myself here.  Go Delaware!

  the complete In Re Trulia, Inc. Stockholder Litigation decision