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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