Alternative Dispute Resolution in Georgia

The Georgia ADR Blog has Moved

2010-01-29T12:02:00.001-05:00

The blog is now located at http://georgiaadr.wordpress.com/

I, Mediator

2009-10-05T23:01:00.005-04:00

Are ADR Practitioners at risk of losing their jobs to artificial intelligence? David Allen Larson's article explores the possible (or eventual) convergence of modern technology and alternative dispute resolution.

Abstract:
As technology has advanced, many have wondered whether (or simply when) artificial intelligent devices will replace the humans who perform complex, interactive, interpersonal tasks such as dispute resolution. Has science now progressed to the point that artificial intelligence devices can replace human mediators, arbitrators, dispute resolvers and problem solvers? Can humanoid robots, attractive avatars and other relational agents create the requisite level of trust and elicit the truthful, perhaps intimate or painful, disclosures often necessary to resolve a dispute or solve a problem? This article will explore these questions. Regardless of whether the reader is convinced that the demise of the human mediator or arbitrator is imminent, one cannot deny that artificial intelligence now has the capability to assume many of the responsibilities currently being performed by alternative dispute resolution (ADR) practitioners. It is fascinating (and perhaps unsettling) to realize the complexity and seriousness of tasks currently delegated to avatars and robots. This article will review some of those delegations and suggest how the artificial intelligence developed to complete those assignments may be relevant to dispute resolution and problem solving. “Relational Agents,” which can have a physical presence such as a robot, be embodied in an avatar, or have no detectable form whatsoever and exist only as software, are able to create long term socio-economic relationships with users built on trust, rapport and therapeutic goals. Relational agents are interacting with humans in circumstances that have significant consequences in the physical world. These interactions provide insights as to how robots and avatars can participate productively in dispute resolution processes. Can human mediators and arbitrators be replaced by robots and avatars that not only physically resemble humans, but also act, think, and reason like humans? And to raise a particularly interesting question, can robots, avatars and other relational agents look, move, act, think, and reason even “better” than humans?
(http://ssrn.com/abstract=1461712)

Professor Larson raises some interesting questions throughout the article, but one I find fascinating is the role the younger, more tech-savy generation will play in the AI/ADR game. Will legal-binding settlements be as easy an an iPhone application in the near future? Would the convenience of such a program out-weigh the utter lack of a human element?

Lions and Tigers and Collective Bargaining, Oh My!

2009-09-14T23:31:00.003-04:00

Author Michael N. Widener's interesting article which advocates for collective bargaining as a way for acitivists to try to prevent animal exploitation.

In the wake of the Michael Vick dog-fighting situation, could this sort of process be a valid way of protecting the safety of animals?

If George Bush is “the decider,” is he an arbitrator?

2008-07-03T21:40:00.003-04:00

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.”

2008 First Quarter Case Law Review – U.S. Supreme Court

2008-04-28T10:05:00.002-04:00

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…

2008 First Quarter Case Law Review (continued)

2008-04-28T10:03:00.002-04:00

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.

Georgia Commission on Dispute Resolution responds to Wilson v. Wilson

2008-04-28T09:57:00.004-04:00

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 .

More news from GODR

2008-04-28T09:55:00.000-04:00

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.

Yes, there are abuses, but is this the way to fix ‘em?

2008-04-28T09:54:00.001-04:00

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?

The War of Words over Consumer Arbitration Heats Up

2008-04-28T09:41:00.008-04:00

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. “The Arbitration Trap: How Credit Card Companies Ensnare Consumers” contains the findings of Public Citizen, a non-profit organization representing consumer interests, after an eight-month examination of the use of binding mandatory arbitration by the credit card industry. In its report, Public Citizen primarily focused on credit card giant MBNA and its reliance on the National Arbitration Forum (NAF) as arbitration administrator. As a result of this study, Public Citizen claims that “binding mandatory arbitration is a rigged game in which justice is dealt from a deck stacked against consumers.” (page 1). Below is just a highlight of some of the allegations resulting from an analysis of nearly 34,000 cases in National Arbitration Forum’s California caseload:

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.

New Resource on Court-Connected ADR

2008-04-28T09:40:00.002-04:00

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.

Mixing Standards from Different Arbitration Schemes

2008-04-28T09:35:00.003-04:00

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.

Creative Settlement

2008-01-31T11:22:00.000-05:00

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.

A few comments on 2007 legislation in Georgia

2008-01-14T18:20:00.001-05:00

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.

The strange case of arbitrating divorce disputes

2008-01-14T18:16:00.000-05:00

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.”

New Year Blog about Last Year's Cases

2008-01-10T19:14:00.000-05:00

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…

Non-Lawyer representation in arbitration?

2007-11-18T17:00:00.000-05:00

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

11th Cir. lacks jurisdiction to hear lower court's refusal to enjoin arbitration

2007-11-16T18:14:00.000-05:00

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

Should Georgia Adopt the Uniform Mediation Act?

2007-11-16T17:43:00.000-05:00

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

Recent Ga. App. decision misses the mark

2007-11-16T17:17:00.000-05:00

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.

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

2007-11-16T16:51:00.001-05:00

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.

ADR Job available in Dekalb Co.

2007-10-17T12:19:00.000-04:00

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.

Georgia ODR Budget Eviscerated

2007-05-07T12:04:00.000-04:00

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.

Collaborative Lawyers hit ethics roadblock in Colorado

2007-05-07T11:29:00.000-04:00

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.

FAA §4 confers subject matter jurisdiction

2007-05-07T11:17:00.000-04:00

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.

More legislative proposals to divert disputes into mediation

2007-04-04T22:23:00.000-04:00

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...

So, what gets arbitrated and what gets litigated?

2007-04-04T21:56:00.000-04:00

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.

Arbitral provision in S.C. payday loan not unconscionable

2007-04-04T21:26:00.000-04:00

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.

Smart Arbitrator Avoids Manifest Disregard Bullet

2007-04-04T20:55:00.000-04:00

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.

Using agreements to mediate as a spear (or shield)?

2007-04-04T20:42:00.000-04:00

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.

ABA Committee to give mediators ethics feedback

2007-04-04T20:39:00.000-04:00

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.

Is this “mediation?” Foster parents beware

2007-03-21T15:48:00.000-04:00

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.

Legislation expanding workers’ compensation mediation program

2007-03-21T15:46:00.000-04:00

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.

Proposed Legislation Banning Consumer Arbitration Agreements

2007-03-21T15:41:00.000-04:00

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.

Proposed revision to the GAC

2007-03-14T22:20:00.000-04:00

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?

Email Subscription

2007-03-13T17:10:00.000-04:00

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.

Subscribe to ADR in Georgia Blog

2007-02-27T19:06:00.000-05:00

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.

Binding Non-Signatories to Arbitral Agreements

2007-02-15T14:10:00.000-05:00

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

Arbitration Under Fire

2007-02-14T09:28:00.000-05:00

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.

Test Post

2007-02-04T17:10:00.000-05:00

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.