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

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–OXLEY’S 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–FRANK’S

PROHIBITION ON PRE-DISPUTE ARBITRATION AGREEMENTS SHOULD

BE APPLIED RETROACTIVELY ................................................................ 2159

A. THE SUPREME COURT’S 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–FRANK’S PROHIBITION ON PRE-DISPUTE ARBITRATION

AGREEMENTS APPLIES RETROACTIVELY: A SUMMARY OF PEZZA ....... 2164

C. DODD–FRANK’S 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).