Copycat cases are expected if the Securities and Exchange
Commission (SEC) approves Carlyle Group’s
mandatory shareholder arbitration clause in the
registration statement for its planned initial public
And litigation could spike when mandatory arbitration shares
are sold in the secondary market.
The problem is that secondary shareholders will not
have agreed to the restrictions imposed by the registration
statement, including class action restrictions. Therefore the
contractual justification under the Federal Arbitration Act,
upheld by the US Supreme Court last April in AT&T Mobility
v Concepcion, could defer to shareholder rights, said Gibson
Dunn & Crutcher partner Andrew Fabens.
Companies are allowed to include mandatory
arbitration provisions in contracts with customers, and broker
dealers may do the same with investors according to a 1987