Alison Frankel

Alan Kaplinsky of Ballard Spahr had a good thing going at the turn of the century. Along with a couple of partners at the firm now known as Wilmer Cutler Pickering HaleandDorr, Kaplinsky was the leading lawyer for credit card issuers considering the addition of mandatory arbitration clauses to their agreements with cardholders. Between 1999 and 2003, Kaplinsky and three Wilmer partners, Ronald Greene, Christopher Lipsett and Eric Mogilnicki, led a series of meetings with in-house lawyers for the credit card companies, virtually all of which subsequently hired Wilmer or Ballard Spahr to help them implement new cardholder agreements that mandated arbitration and foreclosed class actions.

Good business strategy or antitrust facilitation? Those long-ago meetings led by Wilmer and Ballard Spahr are now at the heart of cardholders’ claims of an illegal antitrust cartel among the credit card companies in a case that’s headed for a ruling by U.S. District Judge William Pauley of Manhattan. The long-running class action seeks an injunction forcing credit card issuers to remove mandatory arbitration clauses from cardholder agreements. Several companies have already settled, but American Express, Citigroup and Discover went to trial in January. This week, cardholders represented by Berger & Montague and Scott + Scott filed a post-trial finding of facts that portrays Ballard Spahr and Wilmer as advisors to credit card conspirators dedicated to depriving consumers of their class action rights. “The business interests of the issuing banks and their outside counsel, Lipsett, Mogilnicki and Kaplinsky, dovetailed comfortably,” the cardholder brief said. “The issuing banks desired to insulate themselves from potential class action liability, relying on (arbitration) clauses, and these outside counsel were engaged in the business of drafting (such) clauses for consumer credit businesses.”

“Wilmer and Ballard Spahr were clearly involved,” said lead class counsel Merrill Davidoff of Berger & Montague. “They were outside counsel to virtually all of the participants.”

But the firms – which, to be sure, are not named as defendants in the injunction case – maintain they did nothing but organize informational meetings with clients and potential clients. Kaplinksy told me in an interview Friday that the meetings, held between 1999 and 2003, were merely a business development effort. “I think the plaintiffs are hallucinating,” he said. “At the meetings I attended, there was no agreement made by anybody to adopt arbitration…. These were a client development initiative. We were trying to develop business, show our expertise and get clients to hire us, like we do all the time.” Kaplinsky said that outside counsel delivered standard antitrust cautions at the beginning of all of the sessions to clarify that the purpose of the meetings was to share information, not to engage in a collusive agreement. He also said that despite the plaintiffs’ portrayal of his supposedly key role in the conspiracy, he was never called as a witness by the class. “If they really thought and believed what they say is true, they would have called me,” he said.

Nor did the class depose or call as a trial witness anyone from Wilmer. The only testimony from outside counsel to the credit card companies came from former Wilmer partner Lipsett (now senior counsel at the Consumer Financial Protection Board) – and he was called as a defense witness. According to a transcript of his testimonyat trial, Lipsett was asked to respond to assertions that he and Wilmer were behind-the-scenes engineers of a collusive agreement among credit card issuers to adopt arbitration clauses. “I did not participate in any communication or other activity that I was aware of or considered to be the trading of information about business plans or the facilitation of an agreement or anything like that,” Lipsett said. (In a response to my request for comment, Wilmer sent an email statement: “Any suggestion that any WilmerHale lawyer was involved in any unlawful or inappropriate activity is absurd and untrue.”)

The 2nd Circuit Court of Appeals has been known on occasion to buck the judicial trend of deference to arbitration and champion plaintiffs’ rights to class action litigation. But not if the only justification for classwide litigation is a phantom statutory right. In a notably short and emphatic decision issued Thursday in a closely watched sex discrimination case against Goldman Sachs, a three-judge appellate panel reversed a lower-court ruling that former Goldman managing director Lisa Parisi may pursue a class action despite the mandatory arbitration clause in her employment contract. The appeals court agreed with just about every argument by Goldman’s lawyers at Sullivan & Cromwell, ruling that the bank’s arbitration clause does not preclude Parisi’s statutory rights under Title VII of the Civil Rights Act because she has no private cause of action to claim that her employer engaged in a pattern or practice of discrimination.

A contrary ruling by the 2nd Circuit would have punched a huge hole in employment agreements mandating individual arbitration. Instead, the appeals court acknowledged that employers can curtail class actions against them, even when they’re accused of violating employees’ civil rights.

The 2nd Circuit panel (Judges Barrington Parker, Reena Raggi and Gerard Lynch) said that U.S. Magistrate Judge James Francis and U.S. District Judge Leonard Sand erred when they found that Parisi could not vindicate her Title VII rights without classwide litigation. Parisi’s trial lawyers at Outten & Golden had persuaded the lower courts that she could only prove Goldman’s supposed pattern or practice of discrimination – and thus assure her statutory civil rights – through a class action, because her employment agreement prohibited classwide arbitration. But the 2nd Circuit sided with Goldman. As an initial matter, the opinion said, the Civil Rights Act of 1991 contains specific language endorsing arbitration as a vehicle for resolving discrimination claims, and courts have “consistently found” that civil rights claims can be subject to arbitration. Moreover, the court said, the pattern-or-practice method of proof is intended to enable the government to enforce Title VII on behalf of employees, not to give private plaintiffs a freestanding cause of action. And since Parisi has no statutory right to pursue a pattern-or-practice class action, the 2nd Circuit held, she cannot rely on that right to invalidate the mandatory arbitration clause in her employment contract.

In the two weeks since U.S. District Judge Barbara Crabb of Madison, Wisconsin, unceremoniously tossed Apple’s breach-of-contract against Motorola just as a trial to determine a fair licensing rate for Motorola’s standard-essential wireless tech patents was to begin, Apple’s lawyers at Covington & Burling andTensegrity Law Group have been struggling to persuade the judge to change her mind and dismiss the case without prejudice. I already told you about the bench memo Apple submitted on Nov. 5, after Crabb said at a hearing that if Apple wouldn’t agree to abide by the licensing rate she set, she would dismiss its declaratory judgment and specific performance claims. Apple argued, in essence, that since Crabb was dismissing on jurisdictional grounds, she hadn’t reached the merits of Apple’s case, so she couldn’t preclude Apple from refiling its claims. Apple repeated those arguments in a brief filed last week, responding to a Nov. 14 brief by Motorola’s lawyers at Quinn Emanuel Urquhart & Sullivan that urged Crabb to stick by her decision to toss the case with prejudice. “No litigant,” Motorola wrote, “should be permitted to try to engineer a judgment to its liking on the eve of the trial, then seek to walk away so that it can reengineer and refile its claims elsewhere, at some later date.”

That might seem like the same old bomb-throwing by two companies that have spent the last three years (and untold millions of dollars) attempting to litigate the other’s smart devices into oblivion, but last week’s briefing, as well as another brief Motorola filed Monday, revealed something new: a tantalizing step toward arbitration that could be, to quote Winston Churchill, the end of the beginning of the smartphone patent wars.

Don’t get too excited, because Apple and Motorola are still squabbling over the terms of such an arbitration. But here’s where things stand. At the Nov. 5 hearing before Crabb, Motorola suggested, apparently for the first time in open court, that it would be willing to submit to binding arbitration to set a fair and reasonable licensing rate for both its portfolio of patents essential to wireless technology and Apple’s corresponding portfolio. Apple General Counsel Bruce Sewell followed up with a letter on Nov. 8 to Motorola GC Kent Walker(cc’ing Google lawyer David Drummond). “Your offer to arbitrate made before Judge Crabb on November 5, 2012, was … welcome news,” the Apple letter said. “We agree to arbitrate the value of mutual licenses to our respective (standard-essential patent) portfolios.”