Howsarn humana and bazzle Recent cases that may affect your arbitrationADR practice.код для вставкиСкачать
Howsam, Hupndnd and Bdzzle=Recent Cases that Mav Affect Your Arbitration/ADR Practice J BY THOMAS J. STIPANOWICH This article is adapted from a March 1 5 presentation by CPR President and Alternatives Publisher Thomas J. Stipanowich. His seminar, ”The CPR Top Ten: Recent Decisions that May Affect Your Arbitration/ADR Practice,“ was presented i n Orlando, Fla., to the annual partners meeting of national law firm Holland & Knight. For information on future seminars, or t o schedule a seminar, contact CPR a t [email protected] or (212) 949-6490. ... Howsam v. Dean Witter Reynolds Inc., 123 U.S. 588 (Oec. 10, 2002)(“U.S. Supreme Court Is Ready for More Arbitration,” 2 1 Alternatives 8 (January 2003); “Top Court Puts Arbitration Back on the Docket,” 20 Alternatives 173 (October 2002)). HOLDING: A National Association of Securities Dealers arbitrator should address the question of eligibility of an investor’s claim under the six-year rule, which makes claims ineligible for arbitration “where six (6)years have elapsed from the occurrence or event giving rise to the dispute.” IMPLICATIONS:The latest in a series of cases standing for the principle that while questions of arbitrability generally are for judicial determination under Section 2 ofthe Federal Arbitration Agreement, in the absence ofclear and unmistakable contrary agreement, procedural questions that grow out of the dispute and bear on its final disposition normally are for the arbitrators. More important, the decision resolves a Iongstanding conflict among federal courts regarding the forum for resolving issues under this particular NASD Rules provision. The Supreme Court explained: The Court has found [FAA Section 2’s arbitrability language] applicable in the kind of narrow circumstances where contractingparties would likely have expected a court to have decided the matter, where they are not likely to have thought that they had agreed that an arbitrator would do so, and consequently, where reference of the gateway dispute to the court avoids the risk of ~ ~~ ~ The author i s president and chief executive office of the CPR Institute for Dispute Resolution i n New York, and i s publisher of Alternofives forcing parties to arbitrate a matter that they may well not have agreed to arbitrate. The Court‘s application of established FAA principles is paralleled by the text of the Revised Uniform Arbitration Act. Moreover, some standard contractual provisions go much further, committing to arbitrators all or many of the arbitrability issues that would otherwise be the province of courts. I n re Humana Inc., Managed Care Litigation, 285 F.3d 971 (11th Cir. Mar. 14, 2002); cert. granted as PaajiCare Health Systems In& K Book, Docket No. 02-215 (Oct. 15, 2003)(argued Feb. 24, 2003) (“U.S. Supreme Court Is Ready for More Arbitration,” 21 Alternatives8 (January 2003). HOLDING: The Eleventh U.S. Circuit Court of Appeals held that physicians could not be required to arbitrate their racketeering claims against managed care companies where the arbitration agreement barred punitive damages awards. SPECIFICS: Many physicians and physicians’ groups signed a wide range of arbitration agreements with various managed care organizations. Physicians filed a nationwide class action against 10 HMOs in 2000 claiming, among other things, that the defendants had conspired not to properly pay claims in violation of the Racketeer-Influenced and Corrupt Organizations Act. 18 U.S.C. $ 1961. The defendants responded that many of the plaintiffs had signed arbitration agreements that barred arbitrators from awarding punitive damages; in some cases, the agreements barred awards of any extra-contractual damages, including punitive or exemplary damages. The plaintiffs argued that such provisions were unenforceable because they denied recoveryof treble damages under IUCO. The Eleventh Circuit, wholly endorsingthe district court opinion, ruled that although the physicians were “sophisticated commercial parties and that the arbitration provisionsshould be enforced as written, they could not be required to arbitrate their RICO claims where the arbitration agreement barred awards of punitive damages. IMPLICATIONS: The Supreme Court has been asked to address the question of limits on punitive damages or exemplary rernedies in an arbitration provision. This is the first time the Court has been squarely confronted with the issue, which has generated a variety of responses in the federal circuits. The Pacificare decision conflicts with Larry; United Super Inc. v. Werries, 253 E3d 1083 (8th Cir. 2001). In that decision, the appellate court concluded that “[wlhether a prospective waiver of punitive damages violates the public policy underlying RICO’s treble damages provision is a matter for the arbitrators in the first instance when fashioning an appropriate remedy if a RICO claim is proven to the arbitrators’ satisfaction.” 253 F.3d a t 1086. Werries was reaffirmed in Arkcom Digital Corp. u. Xerox C o p , 289 E3d 536 (8th Cir. 2002). A variety of other holdings implicate similar issues, and take different approaches. For example, in Investment Partners v. Glamour Shots Lic. Znc., 298 F.3d 314 (5th Cir. Aug. 22, 2002), the Fifth Circuit held that it was for the district court, not the arbitrator, to decide initially whether available arbitration remedies were adequate- and proceeded to the conclusion that a prohibition on punitive damages in arbitration did not extend to statutory treble damages (“merely a mathematical expansion of the actual damages calculated by the arbitrator”). A more interesting question, which the Court could sidestep when it issues its decision, which is expected before the end of the term in June, is whether parties to a commercial contract can prospectively waive punitive damages in an executory contract provision. Another significant development on the punitive damages front is represented by Sawtelle v. Wah’ell &Reed, No. 2330 (N.Y. App. Div. 1st Dep‘t. Feb. 13, 2003). In that case, a New York appellate division tribunal vacated the largest punitive damages award ever made by arbitrators against a Wall Street firm. The court struck down a $25 million award made under the FAA, primarily on the ground that it was grossly disproportionate (continued on following page) Recent Cases That May Affect Your ArbitratiodADR Practice J (continued from previous page) to the harm suffered by the plaintiff, a mutual funds broker, and thus “arbitrary and irrational.” As a basis for its finding under the FAA, the court applied the standard set out in BMW o f North America v. Gore, 517 U.S. 559 (1995), which recognizes constitutional limits on the size of punitive awards granted by judges and juries and holding grossly excessive awards to be a violation of due process. The court noted, moreover, that because both parties were in agreement on the rule of proportionality and had specifically informed the panel of the rule, the disproportionate punitive award also was rendered in manifest disregard of the law. While some may view Sawtelle as a nose in the tent for those advocating stronger judicial review of arbitration awards, it seems clear that if arbitrators have the ability to render punitive awards in exceptional cases then courts need the ability to rein in extreme and inappropriate results. Green Tree Financial Cop. v. Bazzle, 569 S.E.2d 349 (S.C. 2002), cert. granted, Docket No. 02-634 (Jan. 10, 2003)(to be argued April 22, 2003)(”U.S. Supreme Court Is Ready for More Arbitration,” 21 Alternatives 8 (January 2003)). HOLD1NG:TheSouthCarolinaSupremeCourt affirmed damages awards to two classes of plaintiffs in class action arbitrations involving defendant Green Tree Financial Corp. for violations of the state’s Consumer Protection Code. re- jecting Green Tree’s argument that class-wide arbitration of the plaintiffs’ claims was not authorized by the arbitration agreement. SPECIFICS: Plaintiffs Lynn and Burt Bazzle and others entered into a standard financing agreement with Green Tree to cover home improvements. Plaintiff Daniel Lackey and others entered into similar agreements for purchasing mobile homes. The Bazzles later filed suit against Green Tree, alleging violations of attorney and insurance agent preference provisions of the state Consumer Protection Code. T h e Bazzlss filed an amended complaint incorporating class allegations and a motion for class certification; Green Tree sought an order staying litigation and compelling arbitration. T h e court granted class certification; Green Tree continued to pursue its arbitration motions, which the court granted. In suhsequent orders, the court directed class-wide arbitration and ordered the class action to proceed on an opt-out basis. In a parallel action against Green Tree under the Consumer Protection Code, Lackey and other plaintiffs also sought class certification, and Green Tree sought arbitration. Following a Court of Appeals decision upholding the enforceability of the arbitration provision, the parties consented to arbitrate before the same arbitrator appointed by the court to handle the Bazzle action. The arbitrator then raised the issue of class-action arbitration and, over Green Tree’s objection, issued an order directing class-action arbitration. The arbitrator personally oversaw certi- fication of the plaintiffs’ class and subsequent class notice. Both cases proceeded to awards with participation by both sides. In both matters, the arbitrator found Green Tree liable for violations of the South Carolina consumer protection statute and rendered a multimillion dollar award to the class, including attorney fees and costs. A trial court confirmed both awards and rejected GreenTree’s motion to vacate. Green Tree subsequently appealed, and the South Carolina Supreme Court assumed jurisdiction to hear a consolidated appeal. T h e South Carolina Supreme Court quickly disposed of the appellees’ argument that Green Tree waived its ability to object to class-wide arbitration by participating in the process, observing that Green Tree had unsuccessfully sought to avoid the process in both cases. It also concluded that the due process rights of absent class members were sufficiently protected. The key questions were whether the B a z h trial court and the arbitrator in the Lackey case had contractual or legal authority to order the arbitrations to proceed on a class-wide basis. The South Carolina Supreme Court‘s analysis confronted two conflicting lines of authority among federal and state courts. The Seventh Circuit ruled that courts lack authority to order class-wide arbitration under FAA Section 4,which requires courts to compel arbitration in “accordance with the terms” of the parties’ agreement, unless the parties so provide in their agreement. See Champ v. Siege1 Zading Co., 55 E3d 269 (7th Cir. 1995). ABOUT THE CPR I N S T I T U T E FOR DISPUTE RESOLUTION ORGANIZED BY PROMINENT CORPORATE COUNSEL, THE CPR INSTITUTE FOR DISPUTE RESOLUTION has become a leader in developing uses of private alternatives to the costly litigation confronting major corporations and public entities. The membership of CPR. a nonprofit organization, consists of more than 500 large companies. leading U.S. law firms, academics and judges. See “Membership” at our Web site, w . c p r a d r . o r g . 10 I T S MEMBERS, CPR OFFERS EXTENSIVE BENEFITS AND SERVICES, including research access to CPR‘s unique ADRdatabax; trainingand counse’ing; a library Of ADR pracricc tools and model procedures; and semi-annual conferences. WOULD YOU LIKE FURTHER INFORMATION ABOUT CPR? See our Web site at www.cpradr.org or complete the following form: Name: Orgrnlrihon litlr Addrcrr lelcphone RETURN TO: Mcm~rshlp andAdmln,strati,-,n, CPR Institute for Bspuce Rcjolurion 366 Madison Avenue, New York, NY 10017. Tdephone: (212)949-6430. Fax: (212) 949-8859. Internet: inf&cpradr.org The Seventh Circuit supported its argument by drawing an analogy for class-wide arbitration to decisions dealing with the authority of courts to consolidate actions under separate arbitration agreements in the same proceeding. At least three other federal circuits (the Second, Sixth, and Eighth) have refused to order consolidationwhen the agreement is silent regarding consolidation. The Seventh Circuit and other courts espoused the principle that the FAA calls upon courts to act with fidelity to the agreement, even if the result is procedural inefficiency. The South Carolina court,however, elected to follow the path of Blue Cross u. Superior Court, 67 Cal. App. 4th 42 (Cal. Ct. App. 1998), cert. denied, 527 U.S. 1003 (1999), upholding judicial authority to direct classwide arbitration. After pointing out the potential prejudice to prospective class members of proceeding separately against a party with much greater resources because of arbitration clauses in adhesion contracts, the court noted that the Blue Cross tribunal concluded that the FAA did not preclude application of a classwide arbitration rule by a state court. Bhe Cross, in hct, held that FAA Section 4 on motions to compel arbitration-the nexus of much contrary federal authority-was not even applicable to state courts,a point the South Carolina court found to be at least debatable. While the FAA would prevail over state procedural rules in direct conflict with the FAA objectives-namely, enforcementof agreements to arbitrate-a state precedent allowing class-wide arbitration did not present such a conflict. The court reviewed state authority favoring the arbitration of disputes, the rule that ambiguities should be construed against the drafting party, and courts’ authority to consolidate multiple arbitrations in a single proceeding in appropriate cases despite the silence ofthe parties’ agreement. It then reasoned that the court could rely on independent state grounds to permit class-wide arbitration, construing the “ambiguity” created by the contract’s silence as to the matter against the drafting party, Green Tree. This was reinforced, said the court, by state pro-consolidation precedents. The court concluded that class-wide arbitration may be ordered when the arbitration agreement is silent where such action would serve the goals of efficiency and equity, and would not result in prejudice. Under the circumstances, the court could not say that the court’s decision to certify a class-wide arbitration was an abuse of discretion. Nor could it vacate the arbitrator‘s rul- ing in the Lackey case under the limited grounds permitted by the FAA in reviewing arbitration awards. continues over the particulars of federal policy governing employment arbitration. IMPLICATIONS: In Southland C o p u. Keating, 465 U.S. 1 (1984, the U.S. Supreme Court failed to accept the opportunity to address the concept of class-wide arbitration. Now the issue is squarely before it, along with a chance to address two conflicting lines of authority. As recent revisions to the Uniform Arbitration Act and existing statutes in some states suggest, the mere fact that parties have not addressed the handling of multiparty disputes in an arbitration clause does not necessarily convey a mutual intent to deny consolidation of arbitrations involving the same events and resulting factual and legal issues. The Court also may take the opportunity to clarify the application of FAA Section 4 to state courts. Jing v. AT&J, 319 F.3d 1126 (9th Cir. Feb. 11, 2003)(”Appeals Court Upholds Bar t o Arbitration,“ 2 1 Alternatives 23 (February 2003)). EEOC v. Wafle House Inc., 122 S.Ct. 754 (2002) (”Case #1: Supreme Court Clarifies Arbitration Limits,” 20 Alternatives 9 (January 2002); “After Wofle House, Arbitration Gets ’New Trilogy’ of Employment Law,” 20 Alternatives 17 (Februaly 2002)). HOLDING: Because the U.S. Equal Employment Opportunity Commission was not a party to the arbitration agreement at issue in the case and had interests independent of those of an aggrieved employee, the agency could file suit seeking individual relief for the employee, such as back pay, grant pay, reinstatement or damages-even though the employee had signed a binding arbitration agreement. IMPLICATIONS: The decision made clear that no private agreement can prevent the EEOC from addressing patterns and practices of discrimination, or from seeking injunctive relief. Even if an individual employee is subject to arbitration, the EEOC can seek individual relief on behalf of that individual in court. At the same time, the Court recognized that employers may rely on doctrines such as res judicata, mootness or mitigation as defenses in EEOC suits where claims have been settled or resolved through arbitration. Interestingly, four of the six justices who joined in the majority opinion, citing Circuit CipStoresZnc. v.Adarns, 532U.S. 105 (2001), for the proposition that the FAA applies to statutory employment discrimination claims, dissented in Circuit City. However, the debate HOLDING: Various elements of the AT&T Customer Service Agreement for long-distance customers, including provisions barring class actions, requiring confidentiality regarding arbitrations, and splitting arbitrator fees, were held unconscionable. SPECIFICS: After the Federal Communications Commission ended a requirement that long-distance rates and terms of service be set in accordancewith specified tariffs, it made telecommunications companies enter into service contracts with their customers regarding interstate long-distance service. AT&T included consumer services agreements, or CSAs, with bills and other mailings to customers to comply with the new rules. AT&T’s CSA included provisions requiring customers to submit disputes to binding arbitration; placing limits on damages and the time for bringing a claim; splitting arbitrators’ fees 50/50;barring class actions, and requiring customers to keep arbitration proceedings confidential. Customer Darcy Ting, on behalf of herself and others similarly situated, and San Francisco nonprofit Consumer Action, filed suit against AT&T, saying that the CSA violated California’s Consumer Legal Remedies Act and the state’s Unfair Practices Act by, among other things, prohibiting customers from seeking relief as a class. The district court enjoined enforcement of various CSA provisions under the California Legal Remedies Act (CLRA) and on unconscionability grounds. The Ninth Circuit found that the district court’s determination that the California laws were not preempted by the Federal Communications Act injunction, under a “clearly erroneous standard.” First, the appeals court determined that the Federal Communications Act did not preempt state law addressing the formation or elements of long-distance contracts, and that the California consumer legal remedies and unconscionability laws did not undermine the accomplishment and execution of the federal law, particularly in the new “de-tariffed,” market-based environment. (continued an following page) Recent Cases That May M e c t Your Arbitration/ ADR Practice (continued from previous page) The court emphasized the lower court’s extensive fact findings, noting that AT&T presented no evidence that the legal remedies or class-action limits would produce lower charges to customers. It affirmed the district court’s determination that the state legal remedies provisions did not constitute an unreasonable discrimination affecting AT&T’s rates, terms or conditions in contravention of federal law. The appellate court, however, also found that the CLRA, as a consumer statute, was preempted by the FAA because it was not a statute of “general application.” The Ninth Circuit, however, had no such difficulty with the unconscionability analysis. Addressing the issue de novo, the appellate court reviewed and affirmed the lower court’s finding that the limits on remedies, barring of dass actions and confidentiality requirements were unconscionable. The court easily found adhesive elementsa standardized contract drafted by a party of superior bargaining strength on a take-it-orleave it basis. AT&T had told customers that all providers had adopted arbitration provisions-supporting a finding of procedural unconscionability. The court observed that AT&T had conducted a market study that indicated most customers would stop reading and discard mailings after reading an initial reference to the new CSA. Three provisions were found to be substantively unconscionable: I . T h e no-class-action provision was “manifestly one-sided and would “heighten the repeat-player effect.” 2. The requirement that fees be shared “ . imposes on some consumers costs greater than those a complainant would bear if he or she would file the same complaint in court.” Although the application of unconscionability principles to fee-splitting appears to be a doctrine that only applies to arbitration, and therefore arguably adverse to the FAA, a number of courts have stated that parties agreeing to arbitrate statutory claims still are entitled to the basic procedural and remedial protections needed to vindicate their statutory rights. The court also argued that all is permissible under the banner of unconscionability, since it applies to contracts generally and does not single out arbitration agree- ments. See Doctori Assocs. Inc. ti Cmarotto, 517 U.S. 681 (1996). 3. The requirement that arbitrations were to remain confidential favored the company over individuals,since a gag order would make ir difficult for plaintiffs to mitigate the advantages the company enjoys as a repeat player handling the same claims in arbitration. IMPLICATIONS: Ting‘s determination that the Federal Communications Act does not preempt state contact and consumer protection laws is directly contrary to Roome? v. ATdT Covp., 309 F.3d 404 (7th Cir. 2002)-setting the stage for potential U.S. Supreme Court review. The decision is consistent with a number of recent decisions addressing special due process standards for consumer or employment contracts. The federal preemption analysis presents interesting questions. Why did the Ninth Circuit so easily find that the CLRA was preempted by the FAA just because it was a consumer statute, given the fact that it applies across the board whether or not an arbitration agreement is present? Another interesting proposition is that since unconscionability applies to all contracts and not just arbitration agreements, it does not run afoul of the FAA. There are circumstances, however, in which the issues are unique to arbitration agreements. Finally, how far might a court go in reforming an arbitration clause rather than simply refusing to enforce terms? At least one court has considered the possibility of structuring a class action in a private setting. This, of course, requires considerable judicial resources over and above that normally associated with enforcement of arbitration agreements. University Commons-Urbana Ltd. v. Universal Constructors Inc., 304 F.3d 1331 (11th Ck., Sept. 13, 2002). HOLDING: A district court decision confirming a construction arbitration award in favor of University Commons is vacated and the case remanded for an evidentiary hearing in order to make findings of fact and conclusions of law as to the partiality of the chair of the arbitration panel. SPECIFICS: University Commons, an Illinois-based partnership formed by Capstone Development Corp., a Birmingham, Ma.based builder of campus housing, contracted with Universal to build an apartment com- plex near the University of Illinois at the Urbana-Champaign campus. After significant problems and delays, Capstone terminated Universal’s contract on the basis of alleged material breach. Capstone hired Capstone Building, a company with significant common ownership, to complete the job. University Commons filed a demand for arbitration with the American Arbitration Association. A panel of arbitrators was appointed with Edward Myerson, a Birmingham, Ala., attorney, as chairman. At no time leading up to the hearings did Meyerson disclose any involvement with the parties, the witnesses, or counsel, or make any other disclosure of a potential conflict of interest. At the hearings’ commencement,Meyerson acknowledged that he had worked with and on opposite sides from the attorneys and law firms on both sides of the matter. During the arbitration, Meyerson indicated that he had conversations with Capstone Building about doing future legal work. Also, at the time Capstone Development’s construction manager appeared as a witness, Meyerson acknowledged that he had met the man previously. After an arbitration award of more than $2 million, and interest, to UniversityCommons, Universal and its surety filed a petition to vacate, and sought discovery from University and its law firm regarding Meyerson’s potential conflicts of interest. After the court directed limited discovery, University Commons and its law firm declined most of Universal’s requests for admissions and documents. The court subsequently determined that its initial discovery order was incorrect, and confirmed the arbitration award. O n appeal, Universal sought to overturn the district court’s opinion on two bases: (1) manifest disregard for the law by the arbitrators, and (2) Meyerson’s previous contacts with University, its law firm, and project manager, establishing evident partiality. A three-judge Eleventh Circuit panel quickly disposed of the first ground, explaining that “to manifestly disregard the law, one must be conscious of the law and deliberately ignore it.”The absence of a proceeding; transcript or any rationale in the “bare bones” award meant that the court had no indication of the arbitration panel’s reasons for reaching their award, and no basis for concluding that the panel had acted in manifest disregard of the law. There was, however, a prima facie case that Meyerson was “evidently partial” in accordance with the provisions of FAA Section lO(a)(2).The court noted that arbitration law sets up “the simple requirement that arbitrators disclose to the parties any dealing that might create an impression of possible bias,” citing CommonwealthCoatings C o p v, Contl IMPLICATIONS: Arbitrator nondisclosure is probably the most common ground for motions to vacate. This decision. while laying out and applying the current law in a cogent fashion, recognizes the practical realities of Having contracted for partisan arbitrators, it seems, parties must take their chances that procedures will be significantly less pristine. Cas. Co., 393 S. Ct. 145, 149 (1969), and that this basic principle is paralleled by arbitration procedures such as the AAA’s. In the Eleventh Circuit, an arbitration award may be vacated on evident partiality grounds on the basis of an actual conflict, or when “the arbitrator knows of, but fails to disclose, information that would lead a reasonable person to believe that a potential conflict exists.” Gianelli Money Purchme Plan d Trust u. ADM Investor Sews. Inc., 146 F.3d 1309, 1312 (11th Cir. 1998).The partiality alleged “must be direct, definite and capable of demonstration rather than remote, uncertain and speculative.”Middlesex Mut. Ins. Co. u. Levine, 675 F.2d 1197, 1202 (11th Cir. 1982). The court also indicated that in examining the interactions, it might use different standards depending on whether they occurred prior to or during the same time as the instant arbitration. Finally, the court acknowledged that “familiaritydue to confluent areas of expertise does not indicate bias,” and may, in the absence of an ongoing business relationship, “be an asset” to an arbitrator. Scott v. Prudential Sec. Inc., 141 E3d 1007, 1016 (11th Cir. 1998). T h e court proceeded to find that Meyerson’s concurrent appearance as cocounsel with one of University Commons’ representatives in the arbitration established prima facie proof of partiality, as did his meeting with Capstone Building, the completion contractor that shared significant common ownership with Capstone Development, during the course of arbitration to discuss potential business. It vacated the district court decision confirming the arbitration award and directed further factfinding on the question of partiality. modern legal specialty practice and its importance in arbitration. The opinion also makes it clear that blanket statements regarding relationships are insufficient to cover concurrent relationships or connections, at least those involving pecuniary interests. Moreover, the duty to disclose is a continuing one. Delta Mine Holding Co. v. AFC Coal Propert i e s h c . , 280 F.3d 815 (8th Cir. 2001), cert. denied, 123 5. Ct. 87 (Oct. 7, 2002)(”Review Denied in Party Arbitrator Case,” 20 Alternatives 52 (March 2002)). HOLDING: District court‘s vacarur of two arbitration awards on the basis of evident partiality on the part of a party arbitrator on a tripartite arbitration panel is reversed and remanded with directions to confirm both awards. SPECIFICS: Delta Mine entered into two leases of AFC property at sites in Illinois for coal mining. A dispute arose regarding the lease terminations. Two three-arbitrator panels were established, one for each lease site. In accordance with the contract, Delta xnd AFC each selected a mining engineer as their party arbitrator for both matters; these party arbitrators selected different chairs for the two panels. In one case, the neutral arbitrator and Delta Mine’sparty arbitrator ruled that Delta Mine could terminate its lease. In the other matter, the neutral ruled that Delta Mine could terminate, but awarded an offset to AFC; the AFC party arbitrator concurred with the offset but dissented from the termination award; the Delta Mine party arbitrator concurred with the termination but dissented from the offset. A Missouri district court vacated both decisions upon AFC’s motion, citing misconduct by Delta Mine’s party arbitrator. The court‘s decision was based on findings that the Delta Mine arbitrator failed to disclose his extensive consulting relationship with Delta Mine and its attorneys, which involved the arbitrator and several members of his staff in preparing witnesses, developing exhibits, and otherwise helping Delta Mine prepare its case. An Eighth Circuit panel overturned the order to vacate and sent the case back with orders to confirm both awards. The appellate court determined that: 1, AFC, after becoming aware of a potential undisclosed conflict on the part of Delta Mine’s arbitrator, failed to raise the issue before the arbitrators in a sufficient manner-even though it requested the arbitrator’s removal. 2. In any event, the removal request was appropriately denied by the arbitration panel because it should have been understood since the party-arbitrator is deemed to have the same degree of “evident partiality as an officer, employee, or attorney of Delta Mine.” 3, Finally, the arbitrator’s nondisclosure was not shown to have a prejudicial impact on the awards-the neutral arbitrators dealt with the party arbitrators as advocates for their parties’ positions. IMPLICATIONS: Despite repeated complaints from many practitioners and judges, tripartite panels featuring less-than-neutral party arbitrators remain a feature of the U.S. arbitration landscape. Although recent efforts such as the passage of a Revised Uniform Arbitration Act and pending changes to the Code of Ethics for Arbitrators in Cornmercia1 Disputes may bring about a change in the disclosure requirements affecting party arbitrators, domestic tripartite procedures remain a world apart where seemingly anything goes. Having contracted for partisan arbitrators, it seems, parties must take their chances that procedures will be significantly less pristine. As presented by this decision, the partyarbitrator is no different from a party or counsel. While this may be the practical result in many cases involving tripartite panels, even the old Code of Ethics for Arbitrators in Commercial Disputes (applicable in these proceedings) seems to embody a less vociferous model- namely, “predisposed but open (continued on following page) Recent Cases That May Affect Your Arbitration/ ADR Practice (continued from previous page) minded.”The Eighth Circuit, however, made clear that it did not view the code as controlling the issue of vacatur under the FAA, and seems to say that one should always assume a party arbitrator is nothing more than a creature of his or her party in the absence of specific agreement to the contrary. The Eighth Circuit’s insistence on proof of a specific prejudicial nexus between nondisclosure and the resulting award is 180 degrees from the approach of the U.S. Supreme Court in the seminal evident partiality opinion, Commonwealth Coatings, which stands for the proposition that the failure to disclose certain relationships or facts may in itself be sufficient ground for vacatur. Commonwealth Coatings C o p u, Cont’l Cas. Co., 393 S. Ct. 145, 149 (1969). Delta Mine would appear to limit that landmark holding to the conduct of neutral arbitrators. Kyocera Cop. v. Prudential-Bache Trade Svcs. Inc., 314 F.3d 1003 (9th Cir. Dec. 17, 2002)(“Kyocera Case W i l l Continue as Rehearing Is Granted,” 21 Alternatives 5 (January 2003). HOLDING: The most recent decision by a three-judge panel in this long-running case, which stands for the principle that parties may expand the scope of arbitration award judicial review, is vacated. The full Ninth Circuit was expected to hear arguments March 25, but at the last minute, as Alternatives went to press, the court ordered the parties to re-brief the case on the key issue involving the ability of parties to agree to a less-deferential review standard than that provided by the Federal Arbitration Act. SPECIFICS: This controversy lends itself to a timeline: 1985- LaPine Technology Co. and Kyocera Corp. enter into two contracts for the sale of disc drives between the two parties and a technology firm in which both had invested. The contract provides for enhanced judicial review of any arbitration award: “The Court shall vacate, modify or correct any award: (i) based upon any of the grounds referred to in the Federal Arbitration Act, (ii) where the arbitrators’ findings of fact are not supported by substantial evidence, or (iii) where the arbitrators’ conclusions of law are erroneous.” 1986- Litigation ensues. 1987- A federal district court grants Kyoceras motion to enforce the parties’ arbitration agreement. 1994-After an arbitration process extending over four years, with hundreds of facdindings and conclusions of law, 15,000 pages of hearing transcripts, and 72 boxes of documentary evidence, an ICC arbitration panel renders a final $257 million award against Kyocera. Kyocera seeks to have the award vacated. 1997-After the initial award is confirmed by a federal district courr under FAA standards, Kyocera appeals. The Ninth Circuit determines that the parties’ original agreement for enhanced scrutiny of the award is enforceable, reverses the district court award and remands the case for review in accordance with the contractual standard. La Pine E*chnology Corp. u. Kyocera Corp., 130 E3d 884 (9th Cir. 1997). The district court subsequently finds no errors of law in the award, and determines that conclusionswere amply supported by the facts, but vacates one finding on the basis that the accounting record showed an operating loss for LaPine rather than an operating profit as found by the tribunal. The court “remands”to the arbitrators to consider the effect of the vacated finding on the damage award. The arbitrators determine there is no impact on the damages. The subsequent award is confirmed by the district court and Kyocera’s motion to vacate is denied. July 2002 - Kyocera appeals, citing numerous bases for vacating or modifying the award. Among other things, it argues that if any finding is unsupported by substantial evidence, the entire award must be vacated, and that the court erred in remanding to the arbitration panel, which was no longer operational after issuing the award. A three-judge Ninth Circuit panel affirms the district COUK ruling, examining at great length the district court‘s review ofthe arbitration panel’s efforts and thereby reviewing the latter’s factual and legal determinations regarding contract formation, causation,damages and offset, as well as Kyocera’s claim that it was excused from performance under California law. The panel considered the attorneys fees awarded the appellee, as well as interest. It determined that it was within the power of the district court to vacate a single finding of fact rather than the whole award, and that the court had power to remand the award to the arbitrators for “clarification” under applicable precedent. Kyocera COT.u. Prudential-Bache Trade Services Inc., 299 E3d 769 (9th Cir. 2002). - The panel’s decision is vacated pending a rehearing en banc by the Ninth Circuit. After scheduling the case for late March, the court pulled the case and ordered rebriefing, posing the issues widely and indicating that the 1997 issues would be reexamined. On the Ninth Circuit Web site, the court states that the issues are: “Following remand in prior appeal LaPine Tech. Corp. v. Kyocera, 130 E3d 884 (9th Cir.1997), did the district court err by confirming an award by an Arbitration Tribunal of the International Chamber of Commerce in favor of Prudential-Bache Trade Corp., LaPine Technology Corp. and LaPine Holding Company, on their claims that Kyocera Corporation breached a contract to manufacture and deliver certain computer disk drives?May a contract between private parties bind a federal court to apply a less deferential standard of review than the standard specified in the Federal Arbitration Act?” December 2002 IMPLICATIONS: The ability of parties to expand the scope of judicial review of arbitration awards has generated widely varying responses by federal and state courts. This case, which has become the jarndyce ZJ. Jarndyce of commercial arbitration, underlines the serious practical implications of a decision to experiment with a private-public hybrid. The debacle that resulted from drafting choices implicates questions of judicial resources and illustrates several of the procedural issues- including precision in setting standards of review, and the handling of a remand -that drafters of these kinds of provisions ignore at their peril. While many practitioners may question whether expanded post-award procedures are ever wise in arbitration, the decision provides a good argument for alternatives, including private appellate processes. See, e.g., the CPR Arbitration Appeal Procedure at wWw.cpradr.org/ arb-appeal-intro.htm. The Ninth Circuit‘s last-minute order for re-briefing suggests that the appellate court may wish to reconsider its earlier statement of support for contractual expansion ofjudicial review under the FAA. A concise discussion ofpertinent legal and practical issues may be found in “Commercial Arbitration At Its Best -Final Report of the CPR Commission O n The Future Of Arbitration” (Thomas J. Stipanowich & Peter Kaskell, eds. 2001), Ch. 7. Kemiron Atlantic Inc. v. Aguakem Int?, 290 F.3d 1287 (11th Cir. 2002). HOLDING: A district court order denying a motion to stay a suit for breach of sales contract, unjust enrichment, and declaratory relief is affirmed where neither party requested mediation, a preliminary step in the parties’ dispute resolution agreement. SPECIFICS: When Aguakem failed to make full payment to Kemiron under a contract for the sale of chemicals, Kemiron sued Aguakem for breach of contract and unjust enrichment and sought a declaratory judgment. The contract contained a dispute resolution clause that provided “the parties shall be free to [engage in] the prompt and effective adjustment of any ... differences ... under friendly and courteous circumstances.” Failing settlement in this fashion, the agreement provided that “the matter shall be mediated within fifteen (15) days after receipt of notice. ...” Finally, the contract provided that “[iln the event the dispute cannot be settled through mediation, the parties shall submit the matter to arbitration within ten [ 101 days after receipt of notice. . ..” Aguakem’s motion to stay Kemiron’s suit pending arbitration pursuant to the FAA was denied by the district court on the basis that there was no duty to arbitrate until the parties had first mediated their dispute, followed by a notice by a party of the intention to arbitrate. Reviewing the district court’s determination de novo, the Eleventh Circuit panel also concluded that the agreement to arbitratewas “conditioned by the plain language” of the provision requiring mediation before arbitration. IMPLICATIONS: The growing use of multistep clauses has confronted federal and state courts with questions relating to compliancewith preliminary steps to arbitration. Their response has been anything but uniform. For example, in Wellborn Clinic v. MedQuist Inc., 301 F.3d 634 (7th Cir. Aug. 29, 2002), a court ruled that a party’s failure to follow contractually mandated requirements to enter into goodfaith negotiations and provide timely notice did not undermine the enforceability of the arbitrationagreement.The courtexplained that the purpose of the preliminary step was “to encourage successful negotiations so that neither litigation nor arbitration will be neces- sary, not to prefer the courts to an arbitrator if informal discussions break down.” Kemivon is questionable in several respects. There is no specific agreement language supporting the conclusion that the prescribed preliminaries were “conditions precedent” to arbitration requiring denial of the enforcement of the arbitration agreement. Contrast HIM PortlandLLCv. Dewto Buikhrs Inc., 2002 US. App. Lexis 659 (1st Cir., Jan. 17,2003) (reaching a similar result where contract-specifiedmediation was a condition precedent to arbitration). Its decision undermines the strong FAA policy supporting broad enforceability of arbitration agreements and seemingly ignores recent SupremeCourt directives respecting the relative spheres of courts and arbitrators with respect to arbitrability determinations. See Howsam above. See also Thomas J. Stipanowich, “Contract and Conflict Management,” 2001 Wis. L. Rev. 831, 865-866 (2001). The ironic result of the decision is that the parties end up in litigation, which seems far indeed from the spirit oftheir original agreement. Perhaps on remand the district court will pressure them to mediate! Dluhos v. Strasberg, Docket No. 01-3713, 2003 WL 360964 (3d Cir. Feb. 20, 2003) (technical amendments filed Feb. 25,2003) HOLDING: District court affirmanceofapanel’s award in a dispute resolution procedure under the Internet Corporation for Assigned Names and Numbers’ (Icann) Uniform Domain Name Dispute Resolution Policy (UDRP) is inappropriate under the FAA. The order is reversed and remanded for de novo review of award under the AnticybersquattingConsumer Protection Act. plaint in federal court, all the defendants filed motions to dismiss for failure to state a claim. The court granted the defendants’ motions, and proceeded to review NAF’s decision under the grounds provided in FAA Section 1O(a) and the “manifest disregard standard. The court upheld NAF’s decision. The appeals court reversed, determining that the UDRP’s unique contractual arrangement, which does not prevent any party from filing suit before, during or after the dispute resolution proceedings, renders the FAA’sprovisions for limited, post-award judicial action inapplicable. Moreover, because a trademark holder or a holder’s representative need not use the UDRP procedure before going to court, the notion of judicial compulsion to arbitrate prior to judicial review, and the notion of a stay of litigation pending completion of arbitration, are inapposite. IMPLICATIONS: What is arbitration for the purposes of statutory enforcement?The FAA and state statutes give precious little guidance, and courts have taken a variety of approaches to address the issue; some decisions have even applied such statutes to the enforcement of mediation agreements! See generallyThomas J. Stipanowich, “Contract and Conflict Management,” 2001 Wis. L. Rev. 831, 858-865. Dluhos, while establishing no all-purpose test, lays out some reasonable boundaries for FAA application. If a given procedure is not within the purview of the FAA or state arbitration statute, there may be significant questions regarding the natute of review to be accorded the decision. Here, a specific statute provided a hook for judicial action. dh SPECIFICS: After plaintiff Dluhos registered the domain name www.leestrasberg.com, interests representing the estate of actor and acting coach Lee Strasbergfiled a complaint with provider National Arbitration Forum under the terms of the Icann UDRP procedure, alleging that the name was “identical or confusingly similar to” an estate-owned trademark. Dluhos filed a letter of limited appearance before NAF to contest jurisdiction, and announced an intent to file suit in federal court challenging the constitutionality of the process, which he did. Proceeding without Dluhos’ participation, the NAF panel issued an award directing that the domain name registered by Dluhos be transferred to the Strasberg estate. After Dluhos filed an amended, broad-based com- The 1996-2002 indexes are posted at the Alternatives link a t www.cpradr.org/ publicat/htm. 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