Non-Lawyer representation in arbitration?

Although the right to legal representation in arbitration is well-settled, the use of non-lawyers to represent disputants in the arbitral process is not.

In Florida, non-lawyers representing parties in securities arbitrations are deemed to be engaged in the unauthorized practice of law. See Florida Bar Advisory Opinion on Non-lawyer Representation in Securities Arbitration, 696 So.2d 1178, 22 Fla.L.Weekly S388 (date). Securities arbitration may present a special case. The Florida court specifically noting that the opinion did not address the “propriety of non-lawyer representation in any other form of arbitration.” Id. Apparently, the drafters of the revised Uniform Arbitration Act thought so also. The drafters considered adding “or any other person” after “attorney” in the section providing for representation in arbitration; however, they expressed particular concern over the possibility that “incompetent and unscrupulous individuals, especially in securities arbitration,” would hold themselves out in arbitration. ULA ARB §16, Comment 2 (2000) (emphasis added). Nevertheless, the drafters purposely avoided prohibiting non-lawyer representation by noting that §16 “is not intended to preclude, where authorized by law, representation in an arbitration proceeding by individuals who are not licensed to practice law.” Id.
State law governs the unauthorized practice of law. Because the “practice of law” is defined very broadly in Georgia, representation in arbitration could easily fall into the definition. See OCGA §15-19-50; see also discussion §15:6 infra. Nevertheless, neither federal nor state arbitration law empowers a court to intervene in an arbitration when a non-lawyer is representing a party, nor is non-lawyer representation is a ground to vacate an award. In addition, there is no authority to support discipline for lawyers serving as arbitrators or representatives of other parties in such arbitrations. Arguably, the “freedom to contract” rationale that underlies so much of the pro-arbitration trend in case law, particularly at the federal level, supports the parties’ choice of representation. After all, they need not select lawyers as arbitrators. In some instances, federal law may actually preempt state limitations on representation. See, e.g., 36 USCA §220529(b)(4) (allowing parties in certain sports arbitrations to be represented by an attorney “or by any other authorized representative”(emphasis added)).
Finally, judicial deference to arbitration custom would favor non-lawyer representation in many traditional arbitration settings in which legal issues are secondary, e.g., factual and technical disputes in construction or commodities association trading, or where arbitration is part of a religious or cultural identity, e.g., Bet Din arbitration in Jewish communities. EM/DY
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11th Cir. lacks jurisdiction to hear lower court's refusal to enjoin arbitration

In ConArt, Inc. v. Hellmuth, Slip Copy 2007 WL 2994001 (11th Cir. Oct. 16, 2007), the 11th Circuit found it was without jurisdiction to hear an appeal of an Alabama federal district court’s order refusing to enjoin arbitration. Under the FAA, an appeal may not be taken from an interlocutory order refusing to enjoin arbitration. 9 U.S.C. 16(b)(4). The Court rejected petitioner’s argument that 28 U.S.C. s 1292(a)(1), which authorizes interlocutory appeals generally of orders "refusing ... injunctions," trumps the FAA. Such an argument has “too much throw weight” according to the Court. Furthermore, the lower court had retained jurisdiction over the issues and, therefore, its order was not a final order subject to review. Pointing out that the order refusing to enjoin arbitration could be reviewed after final judgment on the award was entered following the conclusion of arbitration, the 11th Circuit accepted the possibility that the parties may have to adjudicate twice if the issues are subsequently found to be non-arbitrable. SH Read more!

Should Georgia Adopt the Uniform Mediation Act?

A recent decision from the New York appellate division in Hauzinger v. Hauzinger illustrates the complex issues and implications involved in the adoption or non-adoption of the Uniform Mediation Act (UMA). In Hauzinger, the appellate division refused to enforce a confidentiality agreement that the parties entered into as part of the mediation process. The court also refused to grant a motion, made by the mediator, to quash the subpoena which required the mediator to appear for a deposition and for his records in connection with the mediation. The court noted that the UMA had yet to be adopted by the New York legislature and declined to use the case before them as an opportunity to do so.
The confidentiality of mediation proceedings is considered important to attain the level of candor that some feel is essential for the efficacy of the process. Different ways to achieve protection include privilege, evidentiary exclusion rules, and non-disclosure agreements. The drafters of the UMA adopted a privilege approach to confidentiality that can be invoked to protect mediation communications. While there are some exceptions, supporters believe the UMA will foster more candor and respect for the mediation process. Critics, however, find the privilege approach lacking and believe a broader confidentiality provision should have been utilized. Also controversial is the use of ethical disclosure requirements similar to those involved in arbitration with loss of confidentiality as the penalty for violation.

Georgia has not passed the UMA. Instead, the confidentiality of court-connected mediation is governed by the Georgia Supreme Court Dispute Resolution Rules. Under the rules there is a broader confidentiality provision for court-connected mediation with a few exceptions in the case of threats or abuse. Were Georgia to consider supplementing current laws with the UMA it would be important to take stock of exactly what protections are currently afforded, locate the gaps, and use the UMA to create broader protection. One huge gap involves private mediations which are protected only by the evidentiary exclusion rules that protect the content of settlement discussions. Something to think about. SH
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Recent Ga. App. decision misses the mark

Consider this scenario, one party says there is an arbitration agreement, and the other party says there isn’t. Wouldn’t it be prudent to resolve this question of arbitrability before the time and expense of the arbitration? In hindsight, the parties in Panhandle Fire Protection v. Batson Cook Co., Slip Copy, 2007 WL 3203072 (Ga. App. Nov. 1, 2007), probably wish they had. This case raises several interesting questions.

Batson Cook (BCC), a corporation headquartered in Georgia, subcontracted a Florida company, Panhandle (PFP), to install sprinklers in an Alabama project. BCC believed the operative version of the subcontract was governed by Georgia law and contained an arbitration clause providing for arbitration under AAA rules in Georgia. In contrast, PFP believed that the operative version of the subcontract provided that all disputes be handled in a Florida court. After the relationship soured and BCC filed a demand for arbitration with the AAA, PFP notified BCC and the AAA that it wasn’t bound to arbitrate. It is important to note here that apparently BCC did not seek to compel arbitration nor did PFP file a petition in any court to stay the arbitration. The arbitrator was appointed and ruled PFP was bound to arbitrate in Georgia. The hearing was held and an award issued in favor of BCC. PFP did not participate in any way other than to give notice that it believed it wasn’t bound to arbitrate. The Troup County Superior Court confirmed the award and awarded attorneys’ fees under OCGA 9-15-14. The Georgia Court of Appeals vacated the trial court’s order and remanded with instructions for the lower court to determine whether or not there was an enforceable arbitration agreement before it could act on the confirmation of the award.

Whoa! Isn’t this a bit like trying to put the horse back in the barn, the cat back in the bag, etc. Shouldn’t it be incumbent on one of the parties to have tried to resolve the question of arbitrability before getting this far down the pipeline? On one hand, I’d argue that BCC satisfied any responsibility it had by obtaining an arbitral ruling that PFP was bound to arbitrate. After all, under BCC’s version of the situation, AAA Rules applied and R-7 empowers an arbitrator to “rule on his or her own jurisdiction including any objections with respect to the existence…of the arbitration agreement.” Although both federal and state arbitration law (the later of which the Court said would apply) allow a party to seek an order compelling arbitration, BCC should not be required to do so to have a valid arbitration. Nevertheless, on appeal, R-7 isn’t mentioned. Are we to assume that R-7 is always trumped by the “clear and unmistakable” standard of First Options? That is to say, if the parties contest whether or not they entered into an arbitration agreement, then is it impossible to have clear and unmistakable agreement to submit this particular gateway issue to the arbitrator?

On the other hand, I’d argue that PFP had a responsibility to seek an order to stay the arbitration, clearly available to it under OCGA § 9-9-6(b). Moreover, the GAC expressly provides that a party served with a demand cannot argue to vacate the award on the basis that there isn’t a valid arbitral agreement. OCGA § 9-9-13(c)(2). By not seeking a stay, PFP waived its right subsequently seek to vacate the award on the grounds that a valid arbitration agreement doesn’t exist. When we drafted the GAC, we created this bar to encourage early resolution of the gateway issue of arbitrability and to discourage challenges to arbitrability after one or both parties had incurred the costs of the process. Moreover, the law should insure that parties not have to adjudicate the same thing twice, once in the arbitral forum and again in the courts.

If after its independent examination, the Troup County court concludes that there isn’t a valid arbitration agreement, then BCC will have to retry the matter in a Florida court after having gone through the considerable expense of already adjudicating the matter and arguing the appeal and subsequent lower court hearing on remand. Ouch! If the Troup County court finds the arbitral agreement to be valid, it can simply confirm the award, in which case, the costs to BCC will be “only” the appellate proceedings and the lower court hearing, neither of which is insubstantial. If I were BCC, I’d seek attorneys’ fees again on the basis of PFP’s failure to seek a stay of arbitration. But that’s just my opinion.

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Reviving the blog and other news-- ODR gets temporary reprieve

I apologize for the paucity in posts since late Spring. It takes more discipline or change of habit than anticipated. Nevertheless, I'm trying to pick up the pace with the help of my student assistants, Elizabeth Marum and Shannon Hodder. Elizabeth is graduating in December, and Shannon will be taking over. I could also use help from the readers of this blog. If you have an issue, news, comment, etc. regarding ADR in Georgia, please sent it to me, and I'll post it.

Here's some big news: The Georgia Office of Dispute Resolution received a grant from the Georgia Legal Foundation to cover the current year's massive budget shortfall caused by some odd decision making in the General Assembly. GODR's Director, Shinji Morokuma, will have his work cut out for him during the next session to get ODR's budget reinstated. If you have friends in high places, please contact Shinji to coordinate efforts. Read more!

ADR Job available in Dekalb Co.

DEKALB COUNTY C0URTS ADR TRUST FUND

Dispute Resolution Center Director

Applications accepted: October 5-26, 2007

This is a merit exempt position funded by the ADR Trust Fund.

Under the general direction of the ADR Trust Fund Board , the Director will administer and manage all aspects of the DeKalb County Dispute Resolution program. The Director is expected to function under a high degree of accountability in ensuring the accuracy and follow through of the program requirements. Maintains overall responsibility for the program's administrative and operational functions, and program adherence to and compliance with established Federal, State and local standards and guidelines governing alternative dispute resolution. Manages assigned staff including establishing workloads, evaluating performance, resolving staff conflicts and administering employee discipline. Evaluates, recommends and implements policies and procedures for the operation of the dispute resolution center. Recruits, trains and coordinates a network of mediators, arbitrators and case evaluators to provide services. Develops forms, brochures and reports for the dissemination of ADR program information.

[The aforementioned duties are normal for this position. These are not to be construed as exclusive or all-inclusive. Other duties may be required and assigned.]

Minimum Requirements: Bachelor's degree in Public Administration, Criminal Justice, Social or Human Services, Court Management or a related field, five years of work experience in a court system or legal field, knowledge and experience with the Georgia state ADR rules and guidelines; three or more years of supervisory experience preferred. An equivalent combination of education and experience may be considered in determining eligibility for this position.

Work Schedule: Employee may be required to work regularly on various shifts as deemed necessary by the ADR Trust Fund Board.

Annual Salary Range: $55,000 - $75,000 (commensurate with education and experience)

Benefits: 10 paid holidays; 15 days vacation; 13 days sick leave; medical group insurance options; pension plan; deferred compensation plan.

Physical Ability: Successful completion of a job related physical examination by a County Examining Physician is required. DeKalb County does not discriminate on the basis of disability.

Submit application and resume detailing experience and skills related to this position to the Superior Court Administrator's Office, Room 405, DeKalb County Courthouse, Decatur, Georgia 30030, or to cwmccumb@co.dekalb.ga.us by close of business October 26, 2007. Applications are available online at http://www.co.dekalb.ga.us/ or at the DeKalb County Human Resources Department.

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Georgia ODR Budget Eviscerated

For those of you who might not follow the Georgia Office of Dispute Resolution, the final state budget passed by the General Assembly cut $250,000 off ODR's budget -- a 60 percent reduction, leaving a total of $144,643 to sustain the office from July 1, 2007, to June 30, 2008. The cut was a random redirection of funds in which the state judiciary took a big hit overall. Earlier in the process, ODR's budget was completely eliminated. A last minute effort by ADR proponents to educate legislators about the important role ODR plays in our legal system was to no avail. Shinji Morokuma, who recently took over the directorship of ODR, remains calm as always in the face of this setback to the Supreme Court's ADR initiative. He is exploring options which he'll present to the Commission on Dispute Resolution at its May 22nd meeting in Athens. Read more!

Collaborative Lawyers hit ethics roadblock in Colorado

The most recent ABA e-report contains an article on the advisory non-binding decision of the Colorado Bar's ethics committee that an important element of collaborative lawyering is per se unethical. In "collaborative lawyering," the lawyers and parties commit to using cooperative instead of adversarial means of resolving their dispute. Confined mostly still to divorce and family disputes, collaborative lawyering takes advantage of the possible cost of additional lawyers to motivate settlement. The lawyers and the parties agree that the lawyers will withdraw if a party decides to litigate. This is spelled out at the onset of the process in a contract known as the “four-way agreement.” However, the ethics committee said the four-way agreement creates an insurmountable conflict of interest among lawyers and clients. The agreement violates Colorado's Professional Rule of Conduct 1.7(b), barring a lawyer from representing a client if the representation is “materially limited by the lawyer’s responsibilities to ... a third person.” Ethics Opinion 115, Ethical Considerations in the Collaborative and Coopera­tive Law Contexts (Feb. 24). Nor can the client consent to the conflict because the conflict impairs the lawyer’s independent judgment about the need for litigation. In contrast, footnote 11 of the opinion opins that a two-way agreement between the parties is ok because the lawyers are not entering into an agreement with each other and the opposing parties; however, such agreements would not commit the lawyers to withdrawal and thereby arguably gut the process.

Although other states have raised eyebrows at the four-way agreement, only Colorado has gone so far as to determine it unethical. It will be interesting to see if this raises any eyebrows in Georgia which has a small but thriving collaborative lawyering practice. Moreover, the Na­tional Conference of Com­mis­sioners on Uniform State Laws has formed a drafting committee for collaborative law which will tackle this problem in drafting model statutory language. Read more!

FAA §4 confers subject matter jurisdiction

So much has happened since my last postings. While I've been busy trying to finish out the academic year, life in the ADR world continues unchecked. Most recently, the 11th Circuit decided Community State Bank, et al v. Strong, No. 06-11582 (11th Cir. Apr. 27, 2007). This case is part of the on-going battle between pay-day loan companies and class action lawyers, state regulators, and consumer advocates in which the former seek to (mis)use arbitration to avoid class actions and punitive-minded juries and the latter are looking for a way to tear down this arbitral bastion. Here, the parties were all too clever by half in their efforts.c

Community State Bank, et al v. Strong, No. 06-11582 (11th Cir. Apr. 27, 2007). This case is part of the on-going battle between pay-day loan companies and class action lawyers, state regulators, and consumer advocates in which the former seek to (mis)use arbitration to avoid class actions and punitive-minded juries and the latter are looking for a way to tear down this arbitral bastion. Here, the parties were all too clever by half in their efforts. It starts with pay-day loan stores whose interest rates are limited by Georgia usury law. To get around the restrictions, pay-day loan stores partnered with out-of-state banks. Despite Georgia’s usury laws, federal law allows out-of-state FDIC-insured banks who aren’t subject to similar interest-rate restrictions in their states (e.g., South Dakota) to extend loads to Georgia residents and charge what they want, in this case, the equivalent of an annual percentage rate of 252.692%. The pay-day lenders claim the relationship between themselves and the out-of-state banks is merely one of agency in which they market, service, and collect local loans on behalf of the bank, which extends the loan and is the true lender, thereby protecting their high interest rates under federal law. Not surprisingly, the other side argues that this alleged agency relationship is a sham, and that the local payday stores are the true lenders and that the interest rates on the loans issued by the payday stores are governed by state law, under which they are usurious. With the exception of the banks right to use the judicial forum to collect, the broad arbitration clause in these transactions states that the FAA governs the arbitration of any and all disputes. The borrower brought his class action in Georgia state court against the payday stores (not the out-of-state banks) alleging violations of various provisions of Georgia statutory and common law, asserting the arbitration clause was unconscionable and unenforceable, and specifically averring that he was not raising any federal cause of action nor claiming damages in excess of $75,000. In short, the borrower was avoiding federal court not only to stay in what may have been perceived as a more sympathetic state court but probably also to avoid a possibly more arbitration-friendly federal court.

Doubtless, the lenders thought the federal court more likely to enforce the arbitral clause, too. They filed a FAA §4 petition to compel arbitration. Since the FAA does not by itself confer subject matter jurisdiction, the district court (N.D. Ga.) determined that it lacked subject matter jurisdiction and dismissed. Bound by its previous decision in Tamiami Partners Ltd. ex rel. Tamiami Development Corp. v. Miccosukee Tribe of Indians of Florida, 177 F.3d 1212 (11th Cir. 1999) (“Tamiami III”), a reluctant 11th Circuit panel reversed stating §4 confers subject matter jurisdiction if the underlying dispute involves a federal question. The court in Tamiami III held that the text of § 4 of the FAA, 9 U.S.C. § 4, requires a district court, in determining whether it has federal question jurisdiction over a § 4 arbitration claim, to “look through” that claim and instead ask whether the underlying dispute the petitioner seeks to arbitrate states a federal question. What was the federal question in the underlying dispute? It was whether or not the loans were lawful under federal law. The lenders argued that they would be seeking a declaratory judgment from the arbitrator that the loans were lawful under federal law thereby raising a federal question.

I describe the panel as “reluctant” because it clearly was chaffing under the precedent of Tamiami III. In his forceful and well-reasoned concurrence in Strong, Judge Marcus argues that the Court should revisit the question en banc.

It is my understanding that neither party briefed this issue, and that the court brought up Tamiami. I must admit that I have avoided trying to deconstruct the Tamiami cases. I viewed them as aberrations resulting from the complexities of federal law governing gambling operations on Indian lands. But the Strong case really highlights the impact of Tamiami in expanding the court’s jurisdiction. Essentially, if a plaintiff in state court has the power to make a federal claim, whether he has done so or not, the defendant seeking to enforce an arbitral agreement in a more arbitration-friendly federal court can create subject matter jurisdiction by simply filing a FAA §4 petition with a showing of their intention to seek a declaratory judgment on a federal claim from the arbitrator. The 11th Circuit is alone with the 4th Circuit in this interpretation of FAA §4. But it makes sense in a purely strict constructionist approach. Take a look at the language of §4. Unlike §§3, 9, 10 & 11, §4 states that one may “petition any United States district court, which save for [the arbitral agreement], would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties…” Clearly a suit over the application of federal banking laws would raise a federal question bestowing subject matter jurisdiction under Title 28.

I’m a bit puzzled by the notion that a party would seek a declaratory judgment from an arbitrator. The power to issue declaratory judgments is provided to the federal courts by statute, and while I suppose there is no reason an arbitrator could not have that power through a broad clause, it raises some interesting questions about the res judicata and collateral estopple effect of the award.

This dispute is likely to continue. At the federal level, the 11th Circuit may take it en banc, and it’s a good candidate for cert to the Supreme Court. At the state level, the state court struck down the lenders’ arbitration defense as a sanction for failing to timely respond to discovery requests relating to the unconscionability of the arbitral provision. That may also be appealed. Stay tuned. Read more!

More legislative proposals to divert disputes into mediation

GA H.B. 227 would amend local government law so as to regulate certain aspects of franchising agreements with cable and video service providers that hold a monopolistic position in the local market. Under this legislation, OCGA 36-76-7(c) (1) the Secretary of State's office will establish a uniform set of rules for the resolution of consumer disputes that will include a requirement that the service provider participate in mandatory nonbinding mediation with the affected local governing authority and the consumer. Why don't we just have a law that makes everybody mediate every dispute? Makes sense to me... Read more!

So, what gets arbitrated and what gets litigated?

Home buyers may have reason to be distrustful of arbitrating under National Academy of Conciliators rules (does this group still exist?), but spliting claims into two forums, litigation and arbitration must be costly even if you are possibly getting two bites at the apple. This is the probable outcome from Langfitt v. Jackson, - Ga. App. -, --- S.E.2d ----, 2007 WL 914330 (Ga.App.)... Home buyers may have reason to be distrustful of arbitrating under National Academy of Conciliators rules (does this group still exist?), but spliting claims into two forums, litigation and arbitration must be costly even if you are possibly getting two bites at the apple. This is the probable outcome from Langfitt v. Jackson, - Ga. App. -, --- S.E.2d ----, 2007 WL 914330 (Ga.App.). In this case, the home buyers brought claims in court against the builders. There was a construction contract and a home buyer warranty (HBW), the latter of which contained an arbitration agreement.


This case illustrates the difficulty in separating arbitral from non-arbitral claims in the absence of a broad clause covering all claims. Here, the construction contract did not have an arbitral provision, but the HBW did. Although a claim for breach of the HBW would be clearly arbitrable, it is not so clear that other claims arising from the construction contract are not. Quoting and citing a Texas case (God forbid), the Court states that “[i]n determining whether the arbitration agreement applies to these claims, we must ‘focus on the complaint's factual allegations rather than the legal causes of action asserted.’ (Citation and punctuation omitted.) In re FirstMerit Bank, N. A., 52 S.W.3d 749, 754 (Tex.2001).” The court notes that claims based on the construction agreement but framed in “the language of warranty” must be arbitrated. It’s almost a roundabout method of incorporation by reference as the Court comments on how the construction contract referred to the HBW despite no express incorporation of the HBW arbitration provision.

Before getting to the problem of which claims were covered by the arbitration agreement, the Court had to decide whether the defendants had waived their right to enforce the arbitration provision. The Court determined that defendants did not waive their right to arbitrate home buyer’s warranty claims despite one defendant’s failure to initially raise defense of arbitration at the on-set of the suit. Nor did defendants’ participation in court-ordered mediation or their failure to seek an interlocutory appeal from the denial of a motion to stay and compel arbitration waive the right to raise the issue on a final appeal. (citing Bishop Contracting Co. v. Center Bros., 213 Ga.App. 804, 805(1)(445 S.E.2d 780) (1994)). The Court cited with approval the 11th Circuit’s standard for waiver which requires not only for the party to act inconsistently with the arbitration right, but to in some way prejudice the other party in so acting. (citing USA Payday Cash Advance Center # 1, Inc. v. Evans, 281 Ga.App. 847, 849 (637 S.E.2d 418) (2006), quoting S & H Contractors v. A.J. Taft Coal Co., 906 F.2d 1507, 1514(III) (11th Cir.1990)).

The homeowners also contended that the arbitral provision in the HBW was unenforceable because they didn’t initial the provision as required under OCGA 9-9-2(8). Although it could have relied on its previous decision in Haynes v. Fincher, 241 Ga. App. 179, 525 S.E.2d 405 (1999) (OCGA 9-9-2(8) does not apply to home buyer’s warranties), the Court pretermitted the issue and found preemption by the FAA.

Yet again, the Court seems to ignore the fact that the arbitral provision clearly granted the arbitrator the power to determine what issues were arbitrable. Nevertheless, the court took it upon itself to decide the challenges to arbitrability and remanded to the trial court for determination of the scope of the clause over specific claims.
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Arbitral provision in S.C. payday loan not unconscionable

As the Georgia legislature considers whether or not to welcome the payday loan sharks back into the State, residents are crossing into South Carolina for the privilege of paying over 200% interest rates. That's what the borrower did in Crawford v. Great American Cash Advance, Inc., - Ga.App. –, --- S.E.2d ----, 2007 WL 925906 (March 29, 2007)... As the Georgia legislature considers whether or not to welcome the payday loan sharks back into the State, residents are crossing into South Carolina for the privilege of paying over 200% interest rates. That's what the borrower did in Crawford v. Great American Cash Advance, Inc., - Ga.App. –, --- S.E.2d ----, 2007 WL 925906 (March 29, 2007). The arbitration provision on the loan agreement gave the lender the option of enforcing borrower’s payment obligations through court, which it did. When the borrower tried to counter with a class action and attacked the arbitral provision as unconscionable for lacking mutuality of remedy , among other reasons. Citing Caley v. Gulfstream Aerospace Corp., 428 F3d 1359, 1378 (11th Cir.2005), the Court rejected lack of mutuality. Moreover, Crawford failed to show that the cost sharing requirement would prohibit her from pursuing her claims. Additionally, she contended that the clause was unconscionable because it is unreasonable to expect borrowers such as her to read and understand the AAA rules incorporated by reference. Court rejected this last contention not only for lack of supporting evidence but also because lack of sophistication will not render the clause unconscionable. Finally, citing the US Supreme Court's Buckeye decision last year, the Court deferred whether the payday loan agreement itself is illegal under Georgia law to the arbitrator.

None of this should be surprising considering the precedent; however, once again I puzzle over this problem: the arbitration clause contained clear language giving the arbitrator jurisdiction over all issues of arbitrability, and yet, the court says this is a matter for the court. Does this ignore Regal Lager, Inc. v. The Baby Club on America, Inc., 2006 WL 3388435 (N.D. Ga.,2006) (arbitrator empowered by parties to decide whether arbitral clause unconscionable for lack of mutuality of obligation)? What about the general rule expressed in First Options (courts decide questions of arbitrability unless the parties clearly and unmistakably agreed to let the arbitrator do so)? The Court does the same thing in Langfitt v. Jackson, - Ga. App. -, --- S.E.2d ----, 2007 WL 914330 (Ga.App.), which I review in another post. Anyway,I don't get it.


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Smart Arbitrator Avoids Manifest Disregard Bullet

Some of you have been wondering when I'd get around to Sheehan Company v. McCrory Construction Company, Inc., - Ga. App. - , - S.E.2d - , 2007 WL 738773 (A06A2005, March 30, 2007), a seemingly straightforward dispute over lying tile in Savannah's Oglethorpe Mall. The arbitrator awarded Sheehan $117,997.05, but granted McCrory a set-off in the amount of $16,062. The arbitrator also awarded McCrory, as the "prevailing party," $92,849 in attorney fees, costs, and expenses. Hold on here! Having won $101,935.05 more than McCrory, shouldn't Sheehan be the prevailing party? Sheehan thought so and moved to vacate the arbitration award, arguing that the arbitrator manifestly disregarded the law. The trial court denied Sheehan's motion, and Sheehan appealed. Some of you have been wondering when I'd get around to Sheehan Company v. McCrory Construction Company, Inc., - Ga. App. - , - S.E.2d - , 2007 WL 738773 (A06A2005, March 30, 2007), a seemingly straightforward dispute over lying tile in Savannah's Oglethorpe Mall. The arbitrator awarded Sheehan $117,997.05, but granted McCrory a set-off in the amount of $16,062. The arbitrator also awarded McCrory, as the "prevailing party," $92,849 in attorney fees, costs, and expenses. Hold on here! Having won $101,935.05 more than McCrory, shouldn't Sheehan be the prevailing party? Sheehan thought so and moved to vacate the arbitration award, arguing that the arbitrator manifestly disregarded the law. The trial court denied Sheehan's motion, and Sheehan appealed.

Who is the “prevailing” party when the arbitration agreement provides that the prevailing party is entitled to recover costs and expenses, including attorneys’ fees and arbitrator fees? Although the net award favored Sheehan, the arbitrator determined that McCrory was the prevailing party because Sheehan was entitled to less than a fourth of the claim it asserted and that was less than what McCrory had offered previously to settle the claim. Sheehan moved to vacate the arbitrator's award in the trial court, arguing that the arbitrator manifestly disregarded the law in: (1) finding McCrory to be the 'prevailing party' for purposes of awarding attorney fees and costs; (2) considering evidence of a settlement offer; and (3) calculating the costs and fees awarded McCrory. The Court of Appeals affirmed the trial court’s denial of the motion.

The Court began its analysis by stating the correct legal standard for determining who prevailed. It then sought evidence that the standard was presented to the arbitrator, which it was through the post-hearing briefs, and that the arbitrator used the standard, which by the language of the award, he appeared to so do. Whether the arbitrator used the standard correctly was irrelevant so long as it was not ignored.

For lack of supporting authority, the Court rejected Sheehan’s contention that the arbitrator should not have considered the settlement offer in deciding who prevailed. Moreover, it would not examine whether or not a valid settlement offer was tendered because to do so would require the Court to exceed its authority by determining the sufficiency of the evidence. Here, as in most of the manifest disregard cases, lack of a transcript restrained the Court’s inquiry into manifest disregard even if it wanted to.

Was the arbitrator right? Frankly, it doesn't matter. He could have completely misapplied the legal standard on what constitutes a prevailing party and still have an unassailable award. What's admirable here is the arbitrator inserting language into his award that indicates he was aware of and applied (rightly or wrongly) the legal standard. You might recall that in the 11th Circuit's first, and so far only, use of the manifest disregard standard to vacate a case, Montes v. Shearson (1997), there was no evidence that once confronted with the legal standard the arbitrator did not disregard the standard. Of course, in Montes, one side argued that the standard should be ignored. That was not the case in Sheehan, nevertheless, this was a clever preemptive strike in award drafting.
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Using agreements to mediate as a spear (or shield)?

Ideally, an agreement to mediate presents the parties with an opportunity, but why not make it a bone of contention in a nasty ongoing piece of litigation? See Interfinancial Midtown, Inc. v. Choate Construction Company, - Ga. App. - , - S.E.2d - , 2007 WL 677863 (A06A2218, March 23, 2007), in which one party argued that the other failed to comply with the agreement to mediate. As a sidenote, the Court noted that although the agreement may have made mediation a condition precedent to arbitration or litigation, it did not apply to filing a mechanics lien. And here is the rest of it. Read more!

ABA Committee to give mediators ethics feedback

According to its mission statement, “[t]he ABA Section of Dispute Resolution Committee on Mediator Ethical Guidance has been established to provide advisory responses to requests for ethical guidance based on the American Bar Association/American Arbitration Association/Association for Conflict Resolution Model Standards of Conduct for Mediators (2005).” According to its mission statement, “[t]he ABA Section of Dispute Resolution Committee on Mediator Ethical Guidance has been established to provide advisory responses to requests for ethical guidance based on the American Bar Association/American Arbitration Association/Association for Conflict Resolution Model Standards of Conduct for Mediators (2005).” The Committee may accept an inquiry on mediation ethics from ABA and non-ABA members alike as well as from an organization. Also, it can consider an issue on its own initiative. According to the website, the Committee includes ADR practitioners, academics and leading ADR ethical experts from the public and private sectors. I must say, I’m a bit miffed for not being asked to serve; however, I take comfort in the probability that that tireless proponent of mediator ethics, Georgia’s own Wayne Thorpe, will have something to do with this thereby assuaging some of my reservations about such a project.

Like the ABA’s Model Rules of Professional Conduct, it is the adopting state’s version, interpretation, and application that really matters; however, it will be interesting to see how the ABA Committee’s opinions will influence state practice. Georgia’s Commission on Dispute Resolution has handled quite a number of cases so far, applying its standards, which differ somewhat from the 2005 ABA Standards. Note that the ABA Committee may draw on other sources of authority, such as opinions or other guidance issued by state ethics authorities, like Georgia’s.
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Is this “mediation?” Foster parents beware

While reviewing upcoming legislation, we stumbled upon Georgia S.B. 188, amending the 2004 Foster Parent’s Bill of Rights, O.C.G.A. § 49-5-14. Notably, the bill would make the grievance procedure no longer the exclusive remedy for a violation of the article; however, our attention was drawn to the grievance procedure itself, which was created by a committee empowered by the act to “develop a grievance procedure, including a mediation procedure, to be published in departmental policy manuals and the Foster Parent Handbook” within a year. The resulting “mediation” procedure shows a complete ignorance of the process and an utter disregard for the intent of the original legislation. Far from providing mediation, the grievance procedure creates a “State Mediation Committee” (SMC) that engages in an investigatory, fact-finding process, after which it issues recommendations. The findings and recommendations are sent to the Division Director, who issues a response. The SMC report and the DFCS response are final and determinative. Read more!

Legislation expanding workers’ compensation mediation program

Georgia HB 661, amending O.C.G.A. 33, Chap. 9, includes a provision that refer disputes between health care insurers and workers comp insurers to the Alternative Dispute Resolution Division of the State Board of Workers' Compensation. Although the act is stated in the mandatory, i.e., “the entity´s right to reimbursement shall be resolved by referral,” the health care insurer has the choice of initiating the mediation. Reflecting an obvious misunderstanding of mediation, the act provides that the “losing party” pay the cost of the mediation. To confuse things further, despite the fact that the ADR Division is already operational and that the “loser” covers the costs, the act shall become effective only if funds are specifically appropriated and become available for expenditure. Read more!

Proposed Legislation Banning Consumer Arbitration Agreements

The Consumer Fairness Act of 2007, H.R. 1443, introduced March 9, would amend the Consumer Credit Protection Act, 15 U.S.C. §§ 1601 et seq., to bar the use of mandatory pre-dispute arbitration clauses in most consumer contracts. Basically, a binding arbitration agreement in a consumer contract would be unenforceable and deemed “an unfair and deceptive trade act or practice under Federal or State law." For purposes of the act, a "consumer contract" is "any written, standardized form contract between the parties to a consumer transaction." A “consumer transaction” means "the sale or rental of goods, services or real property, including an extension of credit or the provision of any other financial product or service to an individual entered into primarily for personal, family, or household purposes." Submissions to arbitrate existing disputes are enforceable under the act.

Previous attempts to legislate in this arena haven’t made it out of committee; however, with Democratic and presumably a more consumer-friendly House, the likelihood of passage is much better. If this bill passes, it is likely that similar legislation addressing pre-dispute arbitration agreements in employment will be proffered.

Thanks to John Allgood and ADR World for the “heads-up” on this. Read more!

Proposed revision to the GAC

Continuing the theme of arbitration under fire, the Consumer Law Section of the Georgia Bar has requested Bar support for the "Transparency in Arbitration Costs Act." As of last week, I did not see this as a bill in the current session; however, it raises some serious questions. It requires the drafter of a consumer arbitration agreement to "disclose" the cost and fees that may be associated with any future "in-person" arbitration hearing at the time of entering into the agreement. How would a drafter be able to know exactly what fees and costs would be involved at some unknown point in the future with an unknown arbitrator? The provision allows for a good faith estimate. Failure to comply with this requirement would not in itself make the agreement unenforceable. Instead, it could be used to establish the unconscionability of the agreement. In addition, failure to comply gives the Attorney General (and anyone else) the power to sue and enjoin future violations of the act. For a pdf of the memo to the Bar and the proposed, click HERE.


Admirable as the intent is (making consumers more aware of the possible costs associated with arbitration), the provision tries to avoid running afoul of the FAA, which happens to preempt any state law that treats arbitration provisions differently than other contracts, by changing the state law on unconscionability. Federal law differs to state law as the general enforcement of contracts; however, this provision does not apply to all contracts in the state, just arbitration agreements. Additionally, the provision giving persons the power to sue and enjoin the drafter's failure to comply in the future forces, in essence, a unique requirement on arbitration contracts. Therefore, my opinion is that it runs afoul of the FAA regardless.

Some other problems: "Consumer" as defined includes employees who enter into an arbitration agreement with employers. Also, it requires disclosires on costs and fees, but it doesn't educate the consumer as to the possible costs and fees associated with litigation. As most arbitrators will tell you, an expensive arbitration is more often the result of the parties' and their attorneys' own failure to take advantage of the cost savings possible in the process. Moreover, court costs can appear relatively cheap, but the undisclosed costs are the attorneys' fees.

Here again, perhaps the lesson is for drafters of consumer and employment arbitration agreements to go ahead and commit upfront to paying all costs and fees of the arbitration. What say you?
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Email Subscription

After further research on blog subscriptions, I have found a way to subscribe by email to post updates.To subscribe to email updates, just use the email subscription bar located in the right, lower side bar of this blog. Sorry for any confusion as to feed aggregators, etc. It turns out that feed aggregators can be very confusing, time comsuming, and generally not to be used by the general Web users. Once again, sorry for any time this misdirection may have cost you. Read more!

Subscribe to ADR in Georgia Blog

Here is some information regarding how to subscribe to this blog using an RSS feed.

What is RSS feed?

RSS stands for Really Simple Syndication, or Rich Site Summary. Users of RSS content use programs called feed 'readers' or 'aggregators': the user 'subscribes' to a feed by supplying to their reader a link to the feed; the reader can then check the user's subscribed feeds to see if any of those feeds have new content since the last time it checked, and if so, retrieve that content and present it to the user.

Aggregators reduce the time and effort needed to regularly check websites for updates, creating a unique information space or "personal newspaper." Once subscribed to a feed, an aggregator is able to check for new content at user-determined intervals and retrieve the update. The content is sometimes described as being "pulled" to the subscriber, as opposed to "pushed" with email or IM.

This article lists the top ten aggregators for Windows: http://email.about.com/cs/rssfeedreaders/tp/windows_free.htm

This should allow you to access a site feed that will let you know if there are any new posts on the blog. Read more!

Binding Non-Signatories to Arbitral Agreements

Persons who are not parties to the arbitral agreement may be bound by it in certain circumstances, See Yarn & Jones, ADR in GA, 9:14, n. 33 - 34 (2006). Following in line with the strong federal policy favoring arbitration, Georgia courts have established that arbitration will be enforced on non-signatories to an arbitration clause in at least six distinct situations. The six theories of binding non-signatory parties to arbitrate a dispute are as follows:


1. Equitable Estoppel: a non-signatory’s claims arise out of and relate directly to the contract or when the claims are “intimately founded in and intertwined with the underlying contract obligations” then non-signatories are bound to arbitrate.
In re Tom Watson v. BDO Seidman LLP, 2006 WL 1566968, McBro Planning and Development v. Triangle Electrical, 741 F.2d 342.
This also applies in the reverse. Such as when a signatory to a contract with an arbitration clause makes a claim arising out of that contract against a non-signatory, the signatory must arbitrate the claim with the non-signatory. MS Dealer Serv. Corp. V. Franklin, 177 F.3d 942 (11th Cir 1999), Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753 (11th Cir. 1993)
2. Corporate Veil Piercing/Alter Ego: Corporate entities are bound when there is a close affiliation, the party has voluntarily participated in particular events giving rise to the controversy, played an active role in the controversy, or when the interests are directly related to and congruent with those of a signatory. Parent companies are bound to arbitrate even if non-signatories when the claims are “inextricably intertwined” and arise out of the same set of facts. The Variable Annuity Life Insurance Company, 2006 WL 1737443, Comvest, L.L.C. v. Corporate Securities Group, Inc., 234 Ga.App. 277 (1998).
3. Agency: An agent who is acting lawfully and within the scope of her authority may bind the principal to arbitrate even when signed in individual capacity and not under seal.
Cochran v. Grand Theater Co., 29 Ga.App 481 (1923)
4. Assumption: A non-signatory party may be bound by the arbitration clause if the contract shows it was intended for a third-party’s benefit and/or the non-signatory ratified the contract under the general principles of contract law (ie. making payment or accepting benefits). Lankford v. Orkin Exterminating Company, 266 Ga.App. 228 (2004).
5. Assignment/Assignee of contract: An assignee of a contract acquires its rights from the assignor and is presumed to know the terms of the contract. M. Homes, LLC v. Southern Structural, 281 Ga. App. 380
6. Incorporation by reference: Where a contract incorporates by reference another contract containing an arbitration clause, a non-signatory is bound to arbitrate. ADC Construction Company v. McDaniel Grading Inc., 177 Ga.App. 223
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Arbitration Under Fire

The growing use of arbitration agreemeents in contracts with consumers has drawn considerable criticism. Georgia State University College of Law Professor Mark Budnitz has been a leading critic of this trend. Local radio host and consumer advocate, Clark Howard, becomes almost apoplectic when hitting this topic, which he often does. A recent WSB-TV Consumer Investigation segment was highly critical of the arbitral process: A couple brought claims against the builder of their dreamhouse. The construction contract included an arbitration clause, and the arbitrator found against them. The homeowners' legal fees mounted, with the arbitrator alone charging $21,000 (the cost was split between the homeowners and the builder). Not only were the claimants angry at the cost of the process (and the outcome), the builder's lawyer has recommended that his client no longer require arbitration due to the expense. Interviewed for the story, but not commenting on the case at hand, Professor Budnitz commented that an arbitrator is not required to follow consumer protection law (or any law) when he or she decides a case. The American Arbitration Association declined to be interviewed for the story. To watch this WSB-TV Consumer Investigation, click HERE.

I imagine that there is a lot more to the story than could be covered on a short TV segment. For example, were the attorneys familiar with the process and how to maximize its potential benefits for their clients? Regardless, this is damaging PR for a process that is touted for being cheaper than litigation. Moreover, this was a construction arbitration case, a more traditional area for using arbitration.

In a related development, I was approached for a consultation recently on a dispute over the enforcement of an employment arbitration agreement. Non-union employment disputes are another area in which the use of arbitration has exploded and attracted criticism and increased scrutiny. The arbitral agreement in this case requires the employee and employer to split the costs of the arbitration, and the parties are fighting over the enforceability of this provision. The employee says the costs so exceed those of filing a lawsuit that the provision impedes his pursuit of his statutory claims. Usually, employers avoid this attack on arbitration by offering to pay the entire costs, and the AAA employment arbitration rules now require the employer to do so in a case like this. This employer doesn't want to do that, and since the agreement was entered into before the AAA changed its rules on who pays costs, the employer feels that the employee should be bound by the cost-splitting provision. Although the employer recognizes that it is bound to abide by the applicable AAA rules in force at the time of the dispute, it is planning to contest the ability of the AAA to unilaterally change rules that will affect the cost-splitting terms of the arbitral agreement already in force. Read more!

Test Post

Updates:

The D.C. District court recently applied the Buckeye doctrine that a challenge to a contract as a whole is a decision to be made by the arbitrator. Qwest Communications Corp. v. Ansari, 2007 WL 172318 (D.D.C. Jan. 23, 2007).

Georgia House Bill 163 was introduced January 25, 2007. The bill provides that a written agreement documenting a deferred presentment services transaction shall not contain an arbitration clause unless it complies with the AAA National Consumer Dispute Advisory Committee standards.

U.S. Senate Bill 183 was introduced January 4, 2007 and provides for an arbitration option in resolving disputes with the Secretary of Commerce in relation to gas emission reduction credits for corporate average fuel economy standards in passenger vehicles.

U.S. Senate Bill 237 was introduced January 10, 2007 and provides arbitration procedures for aliens filing a complaint of termination from agricultural employment without just cause.

To see more updates to ADR law across the U.S. please see http://adrforum.com/default.aspx. Read more!