Should Courts Apply Dodd-Frank's Prohibition on the Enforcement of Pre-Dispute Arbitration Agreements Retroactively?

Author:Bradley Mark Nerderman
Position:J.D., The University of Iowa College of Law, 2013
Pages:2141-2172
SUMMARY

Congress recently passed the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") which is, according to a speech given by President Barack Obama, intended to effectuate "a transformation on a scale not seen since the reforms that followed the Great Depression" on the financial industry. Dodd-Frank’s overarching purpose is to prevent the circumstances that led to the economic... (see full summary)

 
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2141
Should Courts Apply Dodd–Frank’s
Prohibition on the Enforcement of Pre-
dispute Arbitration Agreements
Retroactively?
Bradley Mark Nerderman
ABSTRACT: Congress recently passed the Dodd–Frank Wall Street Reform
and Consumer Protection Act (“Dodd–Frank”) which is, according to a
speech given by President Barack Obama, intended to effectuate “a
transformation on a scale not seen since the reforms that followed the Great
Depression” on the financial industry. Dodd–Frank’s overarching purpose
is to prevent the circumstances that led to the economic collapse that began
in the late 2000s from happening again. To that end, Dodd–Frank created
additional financial and banking regulations, increased penalties for white-
collar crime, and increased whistleblower protections, along with many other
related items. For the purpose of this Note, Dodd–Frank’s most important
contribution is the prohibition on pre-dispute arbitration agreements for
whistleblower claims found in section 922 of Dodd–Frank. Federal courts
currently disagree over whether section 922 of Dodd–Frank should apply
retroactively to pending cases that were filed before the statute’s enactment.
This Note adopts the position that section 922 of Dodd–Frank should not be
applied retroactively based on Supreme Court precedent.
I. INTRODUCTION .................................................................................... 2143
II. THE HISTORY AND POLICY OF ARBITRATION IN THE UNITED STATES .. 2144
A. THE HISTORY OF ARBITRATION IN THE UNITED STATES ................... 2144
B. THE ADVANTAGES AND DISADVANTAGES OF ARBITRATION ................ 2148
Bradley Mark Nerderman, J.D., The University of Iowa College of Law, 2013; B.S.B.A.,
The Ohio State University, 2006. The author would like to thank Aaron Hersh for his helpful
and thoughtful comments, Jessica Uhlenkamp for her editorial expertise, Matthew Pfaff for his
technical assistance, and the entire Iowa Law Review staff for their hard work during the
authority check. And, as always, I would like to thank my friends and family for their continued
support.
2142 IOWA LAW REVIEW [Vol. 98:2141
III. THE PROTECTION OF WHISTLEBLOWERS WITHIN THE UNITED
STATES UNDER SARBANES–OXLEY ....................................................... 2149
A. THE HISTORY OF THE SARBANES–OXLEY ACT .................................. 2150
B. SARBANES–OXLEYS FAILURE TO ADEQUATELY PROTECT
WHISTLEBLOWERS .......................................................................... 2152
IV. THE EXPANSION OF WHISTLEBLOWER PROTECTION UNDER DODD
FRANK .................................................................................................. 2155
A. THE INCREASED PROTECTION OF WHISTLEBLOWERS UNDER DODD
FRANK ........................................................................................... 2156
B. CONGRESSIONAL INTENT WHEN ADOPTING DODD–FRANK ................ 2158
V. THE COURTS DISAGREEMENT OVER WHETHER DODD–FRANKS
PROHIBITION ON PRE-DISPUTE ARBITRATION AGREEMENTS SHOULD
BE APPLIED RETROACTIVELY ................................................................ 2159
A. THE SUPREME COURTS ANALYSIS OF RETROACTIVITY ...................... 2159
1. Landgraf: The Framework for a Statutory Retroactivity
Decision ................................................................................ 2160
2. The Narrowing of Landgraf: Subsequent Supreme Court
Decisions Regarding Statutory Retroactivity ...................... 2163
B. DODD–FRANKS PROHIBITION ON PRE-DISPUTE ARBITRATION
AGREEMENTS APPLIES RETROACTIVELY: A SUMMARY OF PEZZA ....... 2164
C. DODD–FRANKS PROHIBITION ON PRE-DISPUTE ARBITRATION
AGREEMENTS DOES NOT APPLY RETROACTIVELY: A SUMMARY OF
HENDERSON ................................................................................. 2167
VI. SECTION 922 OF DODD–FRANK SHOULD NOT BE APPLIED
RETROACTIVELY ................................................................................... 2168
A. THE CONGRESSIONAL INTENT BEHIND THE RETROACTIVITY OF
SECTION 922 IS UNCLEAR .............................................................. 2168
B. THE PRESUMPTION AGAINST RETROACTIVITY SHOULD BE APPLIED
TO PRE-DISPUTE ARBITRATION AGREEMENTS ................................... 2169
VII. CONCLUSION ....................................................................................... 2172
2013] PRE-DISPUTE ARBITRATION AGREEMENTS 2143
I. INTRODUCTION
Congress passed the Dodd–Frank Wall Street Reform and Consumer
Protection Act (“Dodd–Frank”) in response to the global financial crisis that
began in 2008. The overall purpose of Dodd–Frank, as stated in the opening
passage of the Act, is to “promote the financial stability of the United States
by improving accountability and transparency in the financial system, to end
‘too big to fail’, to protect the American taxpayer by ending bailouts, to
protect consumers from abusive financial services practices, and for other
purposes.”1 In the wake of the Bernie Madoff scandal,2 in debates pertaining
to Dodd–Frank Congress spoke of the need for increased whistleblower
protections and rewards to increase the likelihood that a person will come
forward with important information about a potential fraud before it is too
late.3 One such protection is found in section 922 of Dodd–Frank, which
nullifies pre-dispute arbitration agreements entered into between an
employer and employee relating to whistleblower claims. This provision has
created a disagreement between courts over whether section 922 should be
applied retroactively to cases that were pending when Dodd–Frank was
enacted.
Two separate courts have reached opposite conclusions. In Pezza v.
Investors Capital Corp., the District of Massachusetts applied the Supreme
Court’s framework for analyzing statutory retroactivity from Landgraf v. USI
Film Products4 and determined that section 922 of Dodd–Frank should be
applied retroactively.5 The District of Nevada applied Landgraf in Henderson
v. Masco Framing Corp. and found that section 922 should not be applied
retroactively.6 The main difference between Pezza and Henderson revolves
around the classification of arbitration as either substantive or procedural.
This Note discusses this important divergence (along with other aspects
central to reaching a complete and proper legal conclusion). After
completing that analysis, this Note concludes, based on Supreme Court
precedent, that section 922’s prohibition on pre-dispute arbitration
1. Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203,
124 Stat. 1376, 1376 (2010) (codified as amended in scattered sections of 7, 12, 15, 18, 22, 31,
and 42 U.S.C.).
2. See Diana B. H enriques, Madoff Is Sentenced to 150 Years for Ponzi Scheme, N.Y. TIMES (June
29, 2009), http://www.nytimes.com/2009/06/30/business/30 madoff.html?ref=bernardlmadoff
(discussing the former Wall Street trader wh o pled guilty in 2009 to running a Ponzi scheme).
3. Additional Reforms to the Secur ities Investor Protection Act: Hearing on H.R. 3817 and H.R.
4173 Before H. Subcomm. on Capital Mkts., Ins., & Gov’t Sponsored Enters. of the H. Comm. on Fin.
Servs., 111th Cong. 2 (2009) [hereinafter Reform Hearing] (statement of Rep. Kanjorski,
Chairman, H. Subcomm. on Capital Mkts., Ins., & Gov’t Sponsored Enters.).
4. Landgraf v. USI Film Prods., 511 U.S. 244 (1994).
5. Pezza v. Investors Capital Corp., 767 F. Supp. 2d. 225, 228–34 (D. Mass. 2011).
6. Henderson v. Masco Framing Corp., No. 3:11-CV-00088-LRH, 2011 WL 3022535, at
*4 (D. Nev. July 22, 2011).

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