Recently, the 11th Circuit expressly distinguished mediation from arbitration. OK, so mediation and arbitration are different (duh), but another question has been raised and the waters muddied.
In Advanced Bodycare Solutions, LLC v Thione International, Inc., 524 F.3d 1235 (11th Cir. (Fla) 2008), the Court decided §3 of the FAA cannot be used to enforce a dispute resolution clause that provides for either mediation or non-binding arbitration prior to litigation. Advanced Bodycare sued Thione for breach of contract. Thione moved to stay the suit pending arbitration pursuant to §3 of the FAA. The district court denied the motion, and the 11th Circuit granted interlocutory appeal. Here’s the dispute resolution provision of the contract:A. The parties recognize that disputes as to certain matters may from time to time arise which relate to either party’s rights and/or obligations hereunder. It is the objective of the parties to establish procedures to facilitate the resolution of such disputes in an expedient manner by mutual cooperation and without resort to litigation. To accomplish that objective, the parties agree to follow the procedures set forth below if and when such a dispute arises between the parties.
B. If any dispute arises between the parties relating to the interpretation, breach[,] or performance of this Agreement or the grounds for the termination thereof, and the parties cannot resolve the dispute within thirty (30) days of a written request by either party to the other party, the parties agree to hold a meeting, attended by the Chief Executive Officer or President of each party, to attempt in good faith to negotiate a resolution of the dispute prior to pursuing other available remedies. If within sixty (60) days after such written request, the parties have not succeeded in negotiating a resolution of the dispute, such dispute shall be submitted to non-binding arbitration or mediation with a mutually agreed upon, independent arbitrator or mediator. The arbitration or mediation shall be held in Atlanta, Georgia. Each party shall bear its own costs and legal fees associated with such arbitration or mediation. If no resolution acceptable to both parties is reached through arbitration or mediation, either party may resort to instituting legal action against the other in court and all rights and remedies of the party shall be preserved in such action. This Agreement shall be interpreted in accordance with the laws of the state of Georgia.
In concluding that the FAA cannot be used to enforce this agreement, the Court used this reasoning: 1) if, in a dispute resolution agreement, a party has an unconditional right to choose between two or more ADR processes, and 2) one of them is not arbitration, then 3) the FAA cannot be used to enforce the provision. From there, it would appear pretty easy—the agreement provides for a choice of either mediation or non-binding arbitration, and mediation is not arbitration; therefore, no FAA. Courts may be able to stay litigation pending mediation on the basis of authority other than the FAA, such as the inherent authority to control dockets, etc., and mediation agreements may be enforced as conditions precedent under contract or other law. Id. at 1240. The Court expressly left open the question of whether or not §3 of the FAA could be used to enforce non-binding arbitration agreements, Id. at 1241; however, its effort to clarify the distinction between mediation and arbitration may have inadvertently undermined the enforceability of non-binding arbitration under the FAA.
Until now, the 11th Circuit had not enunciated a test for determining if a procedure is FAA arbitration. The leading case is still probably AMF Inc. v. Brunswick Corp., 621 F. Supp. 456 (D.C.N.Y., 1985), in which the court determined that the FAA applies to non-binding arbitration. In that case, the non-binding process used wasn’t even called “arbitration,” and it lacked any adversarial hearing element; nevertheless, the court determined that the FAA applied. Citing AMF for the proposition that one test of whether a procedure is arbitration is merely the submission to a third party to decide, the Court noted other possible tests, procedural resemblance to “classic arbitration, and whether enforcement serves the Congressional purposes of the FAA. It could have simply stopped with the distinction of the parties empowering someone else to make a decision; however, it went further by deciding that the existence of an award was controlling leading to the following “bright line” rule: “If a dispute resolution procedure does not produce some type of award that can be meaningfully confirmed, modified, or vacated by a court upon proper motion, it is not arbitration within the scope of the FAA.” At 1239 (footnote omitted).
This test goes well beyond AMF, whose dispute resolution process would arguably fail to meet this criterion. A non-binding arbitration award cannot be meaningfully confirmed, modified, or vacated. A quick look at the language of the FAA provides no support for such a test. Nothing in the act expressly limits its coverage to binding arbitration agreements, and while I say this without delving into the legislative history, there does not appear to be a presumption in the FAA that the arbitration award is meant to be binding. Indeed, the opposite is indicated in §9, on confirmation, which begins with “If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to arbitration,” then they can seek confirmation. Thus, §9 alone is worded so as to be applicable if the parties agreed to use the courts to enforce a binding award. By inference, the preceding provisions of the act are applicable to any arbitration agreement, binding or not, and the subsequent provisions on vacatur and modification apply to binding awards.
Both courts rely on the purposes of the FAA to support their conclusions, and this is where they seem to diverge. In AMF, the court focuses on the underlying purpose of the FAA to reverse judicial hostility to arbitration and allow the parties contractual control over their dispute resolution process and the extent and effect of the award. It concludes:Arbitration is a creature of contract, a device of the parties rather than the judicial process. If the parties have agreed to submit a dispute for a decision by a third party, they have agreed to arbitration. The arbitrator's decision need not be binding in the same sense that a judicial decision needs to be to satisfy the constitutional requirement of a justiciable case or controversy. 621 F. Supp. at 460 (cite omitted).
Although the 11th Circuit gives freedom to contract a nod (at 1239), it presumes that the primary purpose of the FAA is to reduce litigation by enforcing dispute resolution agreements that actually dispose of a controversy rather than possibly burdening the courts with it. A non-binding process does not impose settlement on the matter. I think the Court could have done this better by focusing more explicitly on the meaning of “to settle by arbitration” in FAA §2. Although it and the AMF court briefly used the §2 language, they seemed to have reached different conclusions about it (it will take several pages to parse that one).
In short, the 11th Circuit left open the question of whether the FAA applies to non-binding arbitration, but it created a test under which I would have to conclude that it doesn’t. Whether it matters or not is another question. What do you think?
PS - Two additional issues to raise. What will this do to Med-Arb agreements? Why wasn’t the Georgia Arbitration Code applied? It appears to be the law applicable to the contract. The Court doesn’t address that issue, and perhaps the parties simply argued the FAA. But, unlike the FAA’s §2 which arguably enforces only agreements to “settle by arbitration a controversy,” the GAC enforces submissions to arbitration existing or future controversies without mention of the term “settle.”
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Thursday, July 3, 2008
If George Bush is “the decider,” is he an arbitrator?
Monday, April 28, 2008
2008 First Quarter Case Law Review – U.S. Supreme Court
Several judicial decisions in the first few months of this year are worthy of some discussion. Three are from the U.S. Supreme Court.
In Preston v. Ferrer. 128 S.Ct. 978 (2008), Judge “Alex” of TV fame got into a bit of a tiff with his attorney, who, seeking recovery of fees allegedly owed, initiated arbitration under the terms of their contract. Judge Alex petitioned the California Labor Commissioner for a determination that the contract was invalid and unenforceable under California's Talent Agencies Act (TAA) because the attorney had acted as a talent agent without the required license. After the Labor Commissioner's hearing officer denied his motion to stay the arbitration, Judge Alex filed suit in state court seeking to enjoin arbitration. The attorney then moved to compel arbitration. The court denied the motion and enjoined him from proceeding before the arbitrator unless and until the Labor Commissioner determined she lacked jurisdiction over the dispute. While the attorney's appeal was pending, the U.S. Supreme Court held, in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446, 126 S.Ct. 1204, 163 L.Ed.2d 1038, that challenges to the validity of a contract requiring arbitration of disputes ordinarily “should ... be considered by an arbitrator, not a court.” Nevertheless, the California Court of Appeal held that the TAA vested the Labor Commissioner with exclusive original jurisdiction over the dispute, and that Buckeye was inapposite because it did not involve an administrative agency with exclusive jurisdiction over a disputed issue. Reversing, the Supreme Court held that when parties agree to arbitrate all questions arising under contract, the Federal Arbitration Act (FAA) supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative. Procedural prescriptions of the TAA thus conflict with the FAA's dispute resolution regime in two basic respects: First, the TAA, in s 1700.44(a), grants the Labor Commissioner exclusive jurisdiction to decide an issue that the parties agreed to arbitrate, see Buckeye, 546 U.S., at 446, 126 S.Ct. 1204; second, the TAA, in s 1700.45, imposes prerequisites to enforcement of an arbitration agreement that are not applicable to contracts generally, see Doctor's Associates, Inc., 517 U.S., at 687, 116 S.Ct. 1652. The Court distinguished EEOC and Waffle House because the EEOC had prosecutorial rather than adjudicative powers.
While we’re in California with the US Supreme Court, here’s a trend to watch: On March 31, the U.S. Supreme Court let stand a California Supreme Court decision that employment arbitration agreements prohibiting classwide relief are unenforceable if class arbitration would be a significantly more effective way of vindicating employees' rights than individual arbitrations (Circuit City Stores Inc. v. Gentry, U.S., No. 07-998, cert. denied 3/31/08).
In Hall Street Associates, L.L.C. v. Mattel, Inc. --- S.Ct. ----, 2008 WL 762537 (U.S. 2008), the Court resolved the split in the lower courts by holding that the FAA’s grounds for modification and vacatur under §10 and §11 are exclusive; therefore, parties cannot expand the scope of judicial review through their arbitration agreement. The federal courts had been split over this issue.
The Court noted that Amicus for one side argued that if the Court upheld expanded review, everyone would flee the courts. Perhaps. But if they did so because of the possibility of expanded review, the courts would then find themselves still dealing with the same cases at the end of the day. Likewise, if the Court denies expanded review and the reverse might be true as argued by Amicus for the other side, parties will flee arbitration, then all those cases end up in the courts. This all related to my long held belief that the courts consciously or not have favored arbitration as much for its ability to relieve the courts of what would have been by now a completely overwhelming caseload in employment and consumer cases among others as for any other virtues or rationales supporting the process.
This case is particularly interesting for what wasn’t decided. The arbitration agreement was entered into during litigation, was submitted to the District Court as a request to deviate from the standard sequence of litigation procedure, and was adopted by the court as an order, leaving some question whether it should be treated as an exercise of the District Court's authority to manage its cases under Federal Rule of Civil Procedure 16. The Court hints at the possibility of expanded judicial review if the FAA isn’t implicated and remanded for consideration of independent issues. Interesting…
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2008 First Quarter Case Law Review (continued)
Although nothing Earth-shattering, there are some other decisions to note in no particular order:
The back story in Goldsmith v. Bagby Elevator Co., Inc., --- F.3d ----, 2008 WL 150585 (C.A.11 (Ala.), is an ugly example of on-going racism. Ultimately, Mr. Goldsmith refusal to sign an arbitration agreement that would have covered his existing charge of racial discrimination pending with the Equal Employment Opportunity Commission was Bagby’s excuse for firing him. In Weeks v. Harden Manufacturing Corp., 291 F.3d 1307 (11th Cir.2002), the court ruled that a refusal to sign an arbitration agreement was not a protected activity that could support a claim of retaliation, but it did not address an employee's refusal to sign an agreement that applied to a pending charge of discrimination. Goldsmith was willing to execute an amended dispute resolution agreement that would not have applied to his pending charge, but Bagby insisted that Goldsmith sign an agreement that applied to the pending charge and fired him immediately after he refused to do so. The court concluded that Bagby was not entitled to a judgment as a matter of law against Goldsmith's claim of retaliation because there was sufficient evidence of a causal relation between the filing of his pending charge and later termination.
In Ansley Marine Const., Inc. v. Swanberg. --- S.E.2d ----, 2008 WL 427778 (Ga.App. 2008), plaintiffs sued for breach of contract, fraud, and breach of fiduciary duty following the plaintiffs' sale of certain assets and equipment to the defendants. The transaction involved two contracts, each of which provided that “any controversy or claim arising out of or relating to this Contract or the breach thereof shall be settled by arbitration.” The trial court granted plaintiffs' motion to submit the controversy to arbitration. Although the plaintiffs sought to preserve the breach of fiduciary duty claim for trial rather than arbitration, the award in their favor provided that it was “in full settlement of all claims submitted to this Arbitration. All claims not expressly granted herein are hereby denied.” Unsatisfied with the award, the plaintiffs later moved to vacate. The trial court denied the plaintiffs' motion and entered judgment on the award. The judgment, consistent with the arbitration award, provided that it was in full settlement of all claims submitted to arbitration and that the claims not expressly granted were denied. The defendants moved to dismiss the complaint with prejudice on the grounds that no issues remained which required a trial. The trial court granted the motion and the Plaintiffs appealed.
The court noted that, as a general rule, arbitration under the Georgia Arbitration Code is limited to “all disputes in which the parties thereto have agreed in writing to arbitrate.” Here, the plaintiffs initially filed a “motion to submit controversy to arbitration” but also maintained that the fiduciary duty claims were not subject to arbitration because the claims were independent of the parties' agreement to arbitrate. The trial court granted the plaintiffs' motion. The plaintiffs also filed a demand for arbitration and submission of issues for dispute resolution with the American Arbitration Association requesting resolution of only the “fraud and contract claim.” At the arbitration hearing, however, the plaintiffs argued for and presented evidence related to the fiduciary duty claims raised by the complaint. Furthermore, in the complaint, the plaintiffs contended, among other things, that the defendants had breached their fiduciary duties to ADS Marine and Marine Equipment. In light of the foregoing, the court concluded that plaintiffs presented evidence touching on all the elements of a breach of fiduciary duty on the part of the defendants. The court also found it important that the plaintiffs represented to the arbitrator that they were pursuing fiduciary duty claims in the arbitration and plaintiffs' counsel agreed that plaintiffs were claiming a breach of fiduciary duty to the extent those claims arose from the sales contracts. The court concluded that the parties at least implicitly, if not expressly, agreed to submit the fiduciary duty claims to arbitration, and that they were denied by the award.
With regards to the motion to vacate the award the court pointed out that unless one of the statutory grounds for vacating an arbitration award applies, the trial court is bound to confirm the award. According to the court, the arbitrator's manifest disregard for the law is not a proper basis for the vacation of an arbitration award as it applies to this case, because that ground is applicable only to “civil actions” filed after July 1, 2003, the effective date of OCGA § 9-9-13(b)(5). Since plaintiff's motion to vacate was filed in a civil action commenced in 2002, the court found that trial court correctly recognized that it could not vacate the award on the basis of plaintiffs' claim of the arbitrator's manifest disregard of the law. Bet they didn’t see that coming.
In Hodges v. MedAssets Net Revenue Systems, LLC. Slip Copy, 2008 WL 476140 (N.D.Ga. 2008), “any dispute” with respect to a stock option bonus provision of an employment agreement was to be referred to an Independent Accounting Firm which “shall within sixty (60) days following its selection, deliver to the Buyer and the Seller a written report determining such disputed exceptions, and its determination will be conclusive and binding upon the parties…” Although the term “arbitration” was not mentioned anywhere in the provision, the court concluded that this was a valid form of final and binding arbitration for purposes of the FAA; however, it also concluded that this was a narrow arbitration clause under which only disputes over the calculations were arbitrable and breach of contract and fiduciary duty claims were not covered.
In STG Secure Trading Group, Inc. v. Solaris Opportunity Fund, LP. Slip Copy, 2008 WL 465516 (C.A.11 2008), the attorney for the co-defendants was forced to withdraw for conflict of interest when one client made a claim against the other just prior to the arbitration hearing. The arbitrators’ decision not to postpone was neither misconduct nor abuse of discretion.
Apparently, it’s a small world in Alabama. In McDonald v. H & S Homes, LLC. --- S.E.2d ----, 2008 WL 614815 (Ga.App. 2008), the arbitrator in this case turned out to be friends with McDonald’s counsel. Apparently, the relationship was not disclosed. Fortunately for McDonald, who won, the court found that the loser’s motion to vacate for reasons of partiality was untimely. The court noted that all the attorneys appeared to be well acquainted with each other and seemed to trade off in both serving as arbitrators and advocates in these cases. For all the critics of mandatory arbitration, please note that the consumer won this one and that any abuse of the process appeared to be on the consumer side rather than the lender/seller.
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Georgia Commission on Dispute Resolution responds to Wilson v. Wilson
At its March 22 meeting, the Commission on Dispute Resolution voted to make a change to the state's ethics rules in response to the Georgia Supreme Court’s ruling in Wilson v. Wilson.
The change adds a 10th element to a mediator's explanation of the mediation process: Appendix C, Chapter 1, Section A, Part 1A
“In order for parties to exercise self-determination they must understand the mediation process and be willing to participate in the process. A principal duty of the mediator is to fully explain the mediation process. This explanation should include:
. . .
10. An explanation that the parties, by their participation, affirm that they have the capacity to conduct good-faith negotiations and to make decisions for themselves, including a decision to terminate the mediation if necessary.”
This change addresses just one of the concerns raised by the Georgia Supreme Court's Wilson v. Wilson decision and emphasizes, both for the parties and the mediator, the importance of party capacity in mediation. The Ethics Committee is studying other possible rule changes in the wake of Wilson, including the issue of whether mediators have an ethical obligation to fight a subpoena. The Rules Committee is also studying proposed changes to the Model Mediation Rules. The updated ADR Rules, marked with a 3/28/08 date, are now posted on the GODR website .
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More news from GODR
Georgia Office of Dispute Resolution Director Shinji Morokuma distributed the latest approved parenting form. The Supreme Court has approved the new parenting plan form as a statewide uniform rule of the Superior Court. Read more!
Yes, there are abuses, but is this the way to fix ‘em?
The writing is on the wall; Congress will pass legislation sometime in the next year or two attempting to curtail the potential for abuse of consumers and employees in so-called “mandatory” binding arbitration.
Of the numerous bills pending, a couple are of some note. The “Arbitration Fairness Act of 2007” (I guess it will be 2008 or 09) introduced in the Senate as SB 1782 and in the House as HB 3010, is the most far reaching and potentially the most damaging to the entire arbitral system. In its attempt to carve out pre-dispute arbitral agreements involving consumers, employees, and franchisees (why franchisees?) as unenforceable, it also invalidates agreements to arbitrate any “dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power.” Humm…what does that mean? I hope the lobbyists for the judiciary are paying attention to this, because if it passes, there is going to be a lot of work in the courts to clarify the meaning of this last provision. In addition, the bills would erase the separability doctrine. Ouch!
There are others out there as well. Good examples of legislators responding to angry powerful constituents. For example, HB 5129, entitled the Civil Rights Act of 2008, includes a subtitle referred to as the Preservation of Civil Rights Protections Act of 2008. This subtitle provides that “any clause of any agreement between an employer and an employee that requires arbitration of a dispute arising under the Constitution or laws of the United States shall not be enforceable.” HB 5312, entitled the Automobile Arbitration Fairness Act of 2008, would disallow pre-dispute arbitration agreements in connection with the sale of automobiles. Additionally, the bill would require, at the request of any party, that any award issued include a “brief, informal discussion of the factual and legal basis for the award.”
Clearly, there have been abuses, but isn’t there a way to make arbitration a consistently fair and less expensive alternative for consumers and employees (and even franchisees) without destroying the arbitral system? Your ideas?
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The War of Words over Consumer Arbitration Heats Up
In the fight over the Arbitration Fairness Act of 2007, H.B. 3010, opposing interest groups are waging an interesting propaganda war behind the scenes.
1. Substantial Use of Binding Mandatory Arbitration by the Credit Card Industry
2. Corporations, Not Consumers, Choose Binding Mandatory Arbitration
3. Stunning Results that Disfavor Consumers
4. Biased Decision-makers
5. A Process Shrouded in Secrecy
6. A Lack of Due Process Safeguards
7. Strong Incentives to Establish Anti-consumer Rules
Also included in the report were the experiences of Harvard Law Professor Elizabeth Bartholet, who arbitrated approximately 19 cases with NAF, all involving debtor claims with a particular credit card company. In a deposition taken on September 26, 2006 in the case of William Carr v. Gateway Inc., Bartholet claims that after awarding a debtor about $48,000, NAF subsequently removed her from seven credit card cases she was scheduled to handle, sending a notice to the debtors that Bartholet had a scheduling conflict, and that credit card companies voluntarily dismissed her in four cases. After a series of events that led Bartholet “to believe that NAF was supervising and implementing an arbitration process that was systematically unfair,” Bartholet resigned. (Depo. 14). In particular, the fairness concern “was that the repeat player credit card company was allowed to eliminate an arbitrator that they found coming out against them.” If this was allowed to continue, Bartholet expressed the concern that what would be left is a panel of arbitrators that would be systematically biased. (Depo. 47)
In a separate 2006 article in the West Virginia Lawyer by former West Virginia Chief Justice Richard Neely entitled “Arbitration and the Godless Bloodsuckers,” Neely makes similar allegations while reflecting on his experience as a NAF arbitrator. Through his experience as an NAF arbitrator, Neely says he learned how “Godless bloodsucking banks have converted apparently neutral arbitration forums into collection agencies to exact the last drop of blood from desperate debtors.” (page 1). According to Neely, debtors largely ignore the arbitration paperwork and default judgments are entered without any involvement by the debtor. What really upset Neely, however, was the fact that banks also often ask for the substantial costs related to the arbitration, a situation he likens to the award of legal fees since the arbitration organization is doing all the work of collection. Neely further alleges that it was his refusal to award such litigation-related fees during an arbitration that got him black-balled from further cases. Like Bartholet, Neely argues that the banks get a list of arbitrators and are able to strike, without cause, those who they fear won’t provide favorable judgments. What results, he claims, is a problematic system where arbitrators depend upon favorable verdicts for their income.
In response, the National Arbitration Forum labeled these allegations of bias in favor of lenders, as “irresponsible and unsupported,” and maintained instead that their efforts have helped make arbitration available to consumers and businesses alike. In fact, NAF claimed that allegations by former NAF arbitrators Richard Neely and Elizabeth Bartholet, that they were “blackballed” through the use of repeated Rule 21 removals, were inconsistent with the facts and noted that Rule 21 of the National Arbitration Forum Code of Procedure, permitting a party to request removal of an arbitrator without cause, was a common arbitration procedure which did not allow any party a systematic advantage. Instead, NAF claims that the percentage of Rule 21 removal requests is “infinitesimally small,” and that there is no evidence that it is being misused. Additionally, NAF claims that Neely’s and Bartholet’s work with NAF illustrates the fairness provided parties and the integrity of NAF procedures. With respect to Bartholet, NAF claims that all her allegations show is that she was removed pursuant to Rule 21 three times and that an incorrect notice document was sent to the responding parties by accident. According to NAF, this sort of removal is a far cry from the systematic manipulation they have been accused of but, rather, exactly the sort of procedural maneuvering also practiced in the courts. Additionally, while conceding that an incorrect notice document was sent which stated that Bartholet had a scheduling conflict, NAF chalks it up the error to a clerical mistake and points out that the proper documents were also mailed. In their defense, NAF also points to Professor Bartholet’s deposition where she stated that she issued decisions based on merits of the case by applying NAF rules and the law and noted that she was never pressured by NAF in any way regarding her decisions. As for Neely, NAF claims he was never removed by any party from an NAF arbitration case and that his report illustrates “an arbitration system operating as it should, with impartial arbitrators deciding cases under the appropriate legal and ethical standards.”
The Chamber of Commerce has also weighed in. In an article for the U.S. Chamber’s Institute for Legal Reform, Professor Peter Rutledge responds to each point of the Public Citizen report. See Report
In light of these allegations, members of the ADR community are understandably concerned, especially considering that NAF has been a prominent sponsor of the ABA Dispute Resolution Section's Annual Meeting. There has been a significant exchange of views on some listserves. Unfortunately, the war of words is creating much heat while shedding little light on the situation. Public Citizen and the Chamber of Commerce are not exactly unbiased observers. In addition, even if these damning allegations against NAF are true, are the conditions the same at the AAA and other administrative agencies? What is the best way to fix the potential for abuses without throwing out the baby with the bathwater? Unfortunately, H.B. 3010 overreaches and threatens to undermine the entire arbitration system in pursuit of a fix to these problems. As a result, the bill will probably languish and no useful reforms will be legislated.
An interesting alternative can be found in D.C. where a consumer-friendly version of the Revised Uniform Arbitration Act, B17-0050, was unanimously approved by the D.C. Council Oct. 2, 2007, and transmitted to Congress Dec. 31. If Congress takes no action by Jan. 31, 2008, the bill will become law. It has an effective date of July 1, 2009. The DC-RUAA contains a number of provisions not found in the RUAA adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) that specifically relates to consumer arbitration. For example, the D.C.'s enrolled bill will require arbitration service providers that conduct over 50 consumer arbitrations per year to make quarterly disclosures on the Internet about their consumer caseloads. According to ADR World: “The disclosures that will be required of arbitration providers that administer more than 50 consumer arbitrations annually include the names of the non-consumer party, the type of dispute, the winning party, the number of arbitrations filed involving the non-consumer party, whether the party was legally represented, the disposition of the dispute, the amount of the claim and the award, the name of the arbitrator, and the arbitrator's fee and how it was allocated among the parties. The D.C. RUAA will immunize arbitration providers from liability for publishing this information. It also targets "loser pays" provision in consumer arbitration agreements, prohibiting arbitration providers from administering consumer arbitrations where the agreement requires the losing party to pay all fees and costs related to the proceeding. In addition, the D.C. RUAA will adversely affect arbitration providers that have a financial interest in any party or attorney to an arbitration proceeding. The relevant provision will prohibit providers from administering arbitrations if within the preceding year they had such an interest. Drafters of arbitration agreements affecting consumers will have to provide in those agreements detailed information on filing fees, the average daily costs of arbitration, costs associated with in-person hearings, and how the costs will be apportioned between the parties. A failure to make these disclosures will not make the arbitration agreement unenforceable, but the failure could be considered an unlawful trade practice under the D.C. Code. Moreover, the disclosed information could be considered in determining whether a consumer arbitration agreement is unconscionable or unenforceable under other laws. Another consumer-oriented provision in the enrolled bill will make pre-dispute arbitration agreements in consumer agreements unenforceable "except to the extent federal law provides for its enforceability." Yet another will render pre-dispute arbitration agreements in insurance contract void and unenforceable. However, these agreements may be permitted if the decision to use arbitration is made at the time of the dispute and that decision is not a condition for continued policy coverage under the same terms that otherwise would apply.”
Although many of the DC-RUAA provisions are bound to create havoc, portions of it seem to adequately address the problem of repeat players having more information than the consumers.
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New Resource on Court-Connected ADR
Jim Alfini asked that I pass this information along. The Center for the Analysis of ADR Systems (CAADRS) is changing its name to Resolution Systems Institute and has launched a brand new web site dedicated to providing information about court ADR-- the online Court ADR Resource Center at www.CourtADR.org. The new site brings together a mountain of resources and uses an elegant design that makes it easy for visitors to find what they are looking for. With all of its new features, CourtADR.org is a valuable tool for anyone wanting to make effective use of alternative dispute resolution through the court system. Read more!
Mixing Standards from Different Arbitration Schemes
I put the following question to John Allgood, and I got such a thoughtful response, I thought I would share it:
John,
Got a question for you: In Aldred v. Avis Rent-A-Car, Slip Copy, 2007 WL 2110720(C.A.11 (Fla.) (2007), used both FAA and labor arbitration standards in reviewing an award under a collective bargaining agreement. Also in Bryant Motors, Inc. v. Blue Bird Body Co., Slip Copy, 2007 WL 1832016, , M.D.Ga., June 25, 2007), modified by Bryant Motors, Inc. v. Blue Bird Body Co., Slip Copy, 2007 WL 2422133, (M.D.Ga. 2007), the court mixes standards and cases from labor arbitration with the FAA in its analysis on a motion to vacate in a commercial arbitration case. Are these judges just mixed up or is the line between the labor and commercial arbitration law more fluid than one might think?
Curious,
Doug
From John:
Doug - Let me try to give you a couple of views in answer to your questions. First, I think the federal courts (and the clerks and non-labor attorney advocates) in general are not always up on traditional labor laws under the Labor Management Relations Act. They don't appear to understand that the use of arbitration under the LMRA developed independently of the FAA standards that have occurred in employment law cases ("Statutory Rights") in the last 10-15 years. In general then I don't think they understand Collective Bargaining Agreements or the grievance procedures that are part of that area. Section 301 of the LMRA allowed the federal courts to fashion a federal policy for the enforcement of arbitration provisions in the CBA context. The federal courts in these arbitration cases are then applying a national labor policy authorized under Section 301, not the F.A.A. It is traced to the Lincoln Mills decision, 353 U.S. 448 and the Steelworkers Trilogy cited below. The standard for review of the Section 301 arbitration awards, however, is similar to the FAA. There is great deference to the decision of the arbitrator. But the standard is the Award is entitled to deference only " so long as it draws its essence from the collective bargaining agreement." Enterprise Wheel, 363 U.S. at 597 See Elkouri & Elkouri, How Arbitration Works, 6th ed. , chapter 2.
The federal circuits do not have one uniform standard on what is a basis to vacate a CBA arbitration award. But all of the circuits impose a high standard just like under the FAA. I'm going to send you a copy of a district court order vacating an award under a CBA that we recently received in the 7th Circuit.
While the Bryant case below is a commercial case, I think some of the confusion stems from the expansion of arbitration into the Statutory Rights area where there may be some similar employment matters as under CBA rights. These statutory rights employment matters are governed by the FAA. I think the courts are not always aware of the two separate derivations (1) federal labor (union) law directives in CBA arbitration cases; and (2) statutory rights. It has never been decided that the FAA applies in the collective bargaining area. These cases, however, deal with so many of the same type grievances as employment cases that I think the two get mixed up. I believe I've also seen courts cite the labor cases like the Steelworkers Trilogy , 363 U.S. 564, 363 U.S. 574 and 363 U.S. 593 in various commercial decisions dealing with a request to vacate. In the Bryant case below on page 3 you see the court citing labor cases but in the context of the FAA. I don't think this is unusual. Maybe it's because someone does a search on vacation of arbitration awards and comes up with these cases. Or maybe they are simply taking the logic fashioned by the circuits under Section 301 labor cases and trying to apply a similar [uniform] standard for review in the commercial [FAA] arena. I can't say. I believe they could find better FAA cases that could be part of the analysis without suggesting confusion with the CBA cases. It seems to go only in one direction, however. I think when you have a CBA case presented typically by labor counsel, then you don't get citations as much to the FAA but rather to the case law under 301. The Avis case, however, does raise this issue and Jackson Lewis is a traditional Labor firm. Here on page 2 of the decision is a lengthy reference to the FAA. I wouldn't have made this argument because the FAA isn't needed based on the federal labor law policies and case decisions that are in play.
To me it's hard to separate CBA arbitration cases from the overlay of the National Labor Relations Act and the NLRB standards applied to ULP. This is a framework that never is engaged in the commercial or statutory rights areas. At the same time I've thought that one of the reasons the S. Ct. supported expansion of arbitration of statutory rights was because they had seen the operation under CBA's of employment grievances and arbitration awards and they felt it was a good means of resolution. Employment cases obviously cannot be governed by entirely different standards of review. In both I do think there is a sensitivity for procedural standards not found to the same degree as in commercial matters.
Doug - this is probably more than you wanted but it was a slow morning and you asked. Hope you have a great new year.
John
Thanks, John.
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Thursday, January 31, 2008
Creative Settlement
Here is a most creative mediated settlement reported by one of our subscribers (name withheld to protect the innocent). In a $100,000 business dispute the parties agreed that the defendant would pay $60,000 to charity -- $30,000 to a charity of the plaintiff's choosing and $30,000 to a charity of the defendant's choosing.They also discussed the tax deduction and the plaintiff agreed the defendant could take the entire deduction. The mediator humbly stated "I can't claim any credit. It was the defendant's idea and his attorney tells me he has settled a number of disputes this way recently."
We'd love to hear of other creative settlements you've negotiated, mediated, or simply know of.
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Monday, January 14, 2008
A few comments on 2007 legislation in Georgia
Perhaps the General Assembly has lost its collective head, something long ago suspected. Anyway, its collective heart is in the right place as evidenced by its increased interest in incorporating ADR into legislative proposals, but it should consult some experts when it attempts to create new forms and applications of ADR.
In 2007, several bills made it to the governor's desk (and beyond) with the most screwed up notions of arbitration. The most notable has to be S.B.19, codified as OCGA 32-6-171(2)(c, d, & e). This is a procedure to resolve disputes over claims by the Department of Transportation that utility companies have caused damages or delay costs in the removal or relocation of utilities in the path of a project. It is called a "mediation," but it is clearly an adjudicative process by a "mediation board" that makes a final decision by majority on issues submitted. The Fulton County Superior Court gets to perform de novo reviews if a party seeks it within 30 days of being served the "final decision."
My favorite is H.B. 2, codified as OCGA 36-36-114 through 119. This is a procedure for the arbitration of annexation disputes between counties and municipal corporations. This is an entirely new arbitration scheme completely independent from the Georgia Arbitration Code. Putting aside some of the weak procedural elements for now, the weakest part of the scheme is the creation of the pool of arbitrators for the five-member (yes, five) arbitral panels. Actually, there are to be three pools, one of elected municipal officials, one of elected county officials, and one of "persons with masters degrees or higher in public administration or planning and who are currently employed by an institution of higher education in this state." As it turns out, a literal reading of the requirements for the last pool excludes most law faculty members in the state, many of which are otherwise experts in annexation, zoning, and county and municipal law problems. Seems a small thing, but the Department of Community Affairs, charged with administrating the scheme, and the Vinson Institute, charged with training the pools, had a really hard time putting this together. Rumor has it that at the initial training, the attorneys for the county and municipal associations couldn't agree on the meaning and application of the new law.
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The strange case of arbitrating divorce disputes
The arbitration of issues arising in a divorce is a legally complex, if not confused, matter. New legislation in 2007 complicated the matter...
The arbitration of issues arising in a divorce is a legally complex, if not confused, matter. Divorces must be granted by the state, and the Superior Courts have exclusive jurisdiction, but parties are free to submit their divorce-related disputes to arbitration. The few recent cases of this type have involved the division of marital property, and presumably such arbitrations are governed by the Georgia Arbitration Code. See Ciraldo v. Ciraldo, 280 Ga. 602(1), 631 S.E.2d 640 (2006) (assuming without deciding that the GAC is applicable). However, to be an effective part of the final divorce decree, does a party merely have to confirm the award, or must the award be adopted by the court and incorporated into the decree? It would appear that courts must exercise their oversight powers to insure fairness in the final settlement. In Page v. Page, 281 Ga. 155, 635 S.E.2d 762 (2006), the Court held that a settlement agreement reached prior to arbitration and incorporated into the arbitrator’s award must be reviewed by court before being incorporated into final decree. Thus, the standards for modifying or vacating an award in such cases are going to diverge from those under the GAC. Completely ignoring the standards for judicial review in modifying or vacating an award, the Court in Barton v. Barton, 281 Ga. 565, 639 S.E.2d 481 (2007), examined whether or not the arbitrator had applied the prevailing rule for the valuation of stock options.
In Page v. Page, the Court narrowly avoided the question as to whether matters of child support and custody were, as a matter of public policy, capable of being a subject of arbitration. 281 Ga. 155, at 156 n. 3. Subsequent legislation in 2007 expressly permitted the use of binding arbitration on issues of child custody, visitation, parenting time, and parenting plans. O.C.G.A. § 19-9-1.1. The relationship of this code section to the provisions of the GAC are unclear; however, this section specifically provides: “The arbiter's decisions will be incorporated into a final decree awarding child custody unless the judge makes specific written factual findings that under the circumstances of the parents and the child, the arbiter's award would not be in the best interests of the child. In its judgment, the judge may supplement the arbiter's decision on issues not covered by the binding arbitration.”
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Thursday, January 10, 2008
New Year Blog about Last Year's Cases
We’ve been working on the 2008 pocket part for the treatise, and several cases struck us as interesting. First, has to be Wilson v. Wilson, --Ga.--, --- S.E.2d ----, 2007 WL 4124349 (Ga.), in which the Georgia Supreme Court bent the confidentiality provisions of its own ADR Rules; second, is a couple of opinions from Georgia’s federal courts illustrating how labor arbitration and commercial arbitration standards can be mixed; and, third, is an oddity from our Court of Appeals in which court-connected non-binding arbitration is once again merged somehow with private commercial arbitration.
When private mediations are really court-connected and a new exception to confidentiality --
For mediators and perhaps for ADR practitioners generally, Wilson v. Wilson, --Ga.--, --- S.E.2d ----, 2007 WL 4124349 (Ga.) is easily the most interesting case of this year. Mr. Wilson challenged the lower court’s enforcement of a mediated divorce agreement. The first issue was whether the mediation was court-connected, and therefore governed by the court’s ADR rules, or not. The divorce was filed in the Coweta Judicial Circuit, which had adopted a standing order requiring all contested divorce cases to participate in mediation. Mr. Wilson's attorney filled out a form to initiate mediation with the Coweta ADR Program, but due to a request by the attorneys not to schedule the case for mediation “pending further discovery,” the Program Director placed the case on inactive status until hearing back from the attorneys. A couple of months later and without informing the circuit’s mediation center, the parties privately chose a mediator (registered with ODR but not on the center’s list) and reached the mediated agreement without their attorneys present. The Coweta court said it was a private mediation conducted outside of its rules, but the Georgia Supreme Court determined otherwise reasoning that the mediation was initiated by the standing order, the local rules allowed parties to pick ODR-registered mediators not on the court’s list, and the parties did not avail themselves of the procedure to opt-out of the court-connected mediation. The moral of this story is that mediators may think they are handling a private mediation, but if the dispute is in court, that mediation may be “court-connected,” and the mediator should be sensitive to the prevailing rules governing the process.
The sexy issue in Wilson, however, involves confidentiality. During the lower court hearing, Mr. Wilson testified that he wasn’t sufficiently competent to enter into the agreement; however, the mediator was also called to the stand and testified about his general impression that both of the parties had the mental capacity to engage in the mediation and settlement. On appeal, Mr. Wilson argued that calling the mediator to the stand violated the confidentiality portion of the agreement to mediate, which provided, “all written and oral communications, negotiations and statements made in the course of mediation will be treated as privileged ... and are absolutely confidential.” Presumably, this also violated the confidentiality provisions of part VII. A. of the Georgia Alternative Dispute Resolution Rules, which provide that mediators cannot “be subpoenaed or otherwise required to testify concerning a mediation,” and is completely contrary to the spirit of Advisory Opinion 6 of the Commission’s Ethics Committee. Relying on an exception to confidentiality in the Uniform Mediation Act (which is not the law in Georgia), the Court rejected Mr. Wilson’s argument and concluded “that fairness to the opposing party and the integrity of mediation process dictate that we create such an exception when a party contends in court that he or she was not competent to enter a signed settlement agreement that resulted from the mediation.” This decision is similar to that made by the court in Olam v. Congress Mortg. Co., 68 FSupp2d 1110, 1137 (N.D.Cal.1999). There are many interesting questions about Wilson, not the least of which is the expertise of mediators to testify as to mental competence, but here’s the one we should be thinking about: When a mediator comes to the “confidentiality” information in the introductory statement, should he or she detail this new exception? It appears so.
Is this labor arbitration?
If you get a chance, read the following cases:
Aldred v. Avis Rent-A-Car, Slip Copy, 2007 WL 2110720 (C.A.11 (Fla.) (2007), in which the court used both FAA and labor arbitration standards in reviewing an award under a collective bargaining agreement, and Bryant Motors, Inc. v. Blue Bird Body Co., Slip Copy, 2007 WL 1832016, , M.D.Ga., June 25, 2007), modified by Bryant Motors, Inc. v. Blue Bird Body Co., Slip Copy, 2007 WL 2422133, (M.D.Ga. 2007), in which the court mixes standards and cases from labor arbitration with the FAA in its analysis on a motion to vacate a commercial arbitration award. Note that the US Supreme Court has yet to address the applicability of the FAA to arbitration clauses in collective bargaining agreements. John Allgood makes some informative comments in this regard (see his comments to this post).
Obong Redux
Who can forget that madcap case, Obong v. Ekereke, 216 Ga. App. 59 (1994), in which it was unclear whether the parties had participated in a voluntary binding arbitration or a court-connected mandatory non-binding arbitration? Needless to say, but I’ll say it - the difference is important. The Court of Appeals concluded it was the latter, and the Supreme Court concluded it was the former. Ekereke v. Obong, 265 Ga. 728 (1995). Of course, those were the formative days of Georgia ADR. Now, we have Lowe v. Center Neurology Associates, P.C., --- Ga. App. ---, --- S.E.2d ----, 2007 WL 2822420, in which the court uses the Georgia Arbitration Code for authority in a case that appears to have been referred by the lower court to court-connected mandatory non-binding arbitration, to which the Georgia Arbitration Code would not be applicable. Oops…
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