The CPR European Advisory Board Presents: “Meet CPR Distinguished Neutrals Based in Europe: Piotr Nowaczyk”

The CPR European Advisory Board (EAB) continues its series “Meet CPR’s Distinguished Neutrals in Europe” and today it presents its next Q&A with Piotr Nowaczyk.

Piotr is based in Warsaw.  In addition to being a CPR Distinguished Neutral, he is a chartered arbitrator, advocate, the former president of the Court of Arbitration at the Polish Chamber of Commerce, a former member of the ICC International Court of Arbitration and a member of the VIAC Advisory Board. https://whoswholegal.com/piotr-nowaczyk

How did you get your start as a neutral?

In 1998 I was included on the roster of VIAC arbitrators and at around the same time I was appointed by the Court of Arbitration at the Polish Chamber of Commerce and recommended by the ICC Polish National Committee.  I believe my background as an ex-judge, advocate admitted in Poznan, Paris and Warsaw, partner at Salans (legacy firm of Dentons) and polyglot with an international background was helpful and has led to over 350 arbitration appointments in the last 20 years.

Who is your dispute resolution hero/heroine?

Pierre Karrer, Robert Briner and Eric Schwartz. 

Starting with the youngest (Eric Schwartz):  In 1991 I came to Paris, having been invited as a visiting lawyer by the Law Offices of S.G. Archibald.  Eric Schwartz was leading the arbitration practice there, together with Sarah François-Poncet.  He was an arbitrator in the dispute over the Egyptian Assuan Dam.  For me, a newcomer from Poland, it was my first introduction to a large-scale arbitration.  Later, our paths crossed many times.  Eric became Secretary General of the ICC Court of International Arbitration.  He wrote, together with Yves Derains, a Commentary on the ICC Rules of Arbitration.  About 12 years later I became a member of the ICC Court.  Eric became a partner at Salans Herzfeld & Heilbronn, where I was also a partner.  I organized his meetings and lectures in Warsaw.  To this day, I admire his calmness and composure.  He always speaks quietly and calmly about the most difficult matters.

Pierre Karrer was my favorite colleague among the members of the ICC Arbitration Court.  We usually sat side by side around the oval table at the court’s monthly plenary sessions.  I admired his comments on draft awards.  They were always light, accurate, often witty, and at the same time positive, even if critical.  We served as arbitrators on a few occasions and he gave me some practical advice.  For example, he advised me to separate the parties’ submissions.  He put the claimant’s submissions into the green file (“because, as at the pedestrian crossing, the claimant always wants to go forward”), and the respondent’s submissions into the red file (“because the respondent usually tries to stop the proceedings”).  The papers produced by the arbitral tribunal and the arbitral institution he assembled in a yellow binder.  In his house, he showed me specially designed shelves on wheels.  Each of them contained binders of documents regarding a particular case.  He moved them easily across the floor.  The files were bound in soft binders (“because they don’t damage the inside of the traveling suitcase”).  He gave me a lot of good advice. He said, “Piotr, if I have one dollar and I give it to you, it will be your dollar, not mine anymore. However, if I give you an idea or give you a thought, it will be mine and your thought, mine and your idea”.  He shared countless ideas and thoughts with me.  His famous multilingual Glossary of Arbitration and ADR was developed and expanded in Warsaw to include arbitration terminology in Czech, Polish and Russian.  It was my idea, his idea, our idea, my thought, his thought, or our common thought.

Robert Briner was the President of the ICC Court when I became a court member for Poland. He was one of the giants of international arbitration, a man of slightly old-fashioned ways, a gentleman always holding fast to his principles.  His three full terms of office making nine full years as president of the world’s biggest court of arbitration had left an indelible stamp on this institution.  He was an elegant, distinguished man, sparing in word and gesture.  He was ready to advise anyone who asked for his advice, in the simplest way possible, discreetly and briefly, sometimes in one sentence.  When the Polish National Committee put forward my candidacy for the ICC Court membership, I asked Robert Briner what he thought of it.  He looked me in the eye and asked: “Why hesitate?”  It’s difficult to forget that conversation which took place many years ago in a very unusual setting. We were both watching a pair of koalas in an Australian eucalyptus wood during a break at the annual congress of the Union Internationale des Avocats.

What is the one piece of advice you would want to give to the younger generation looking for a first appointment as neutral?

It is not easy to start out as an arbitrator.

Arbitrators are late starters.  At first, you have to establish yourself as a barrister, solicitor, judge, academic, diplomat, businessman, politician or expert.  So, it is only later in life that you would typically become an arbitrator.  Young legal eagles tend to champ at the bit, eager to get their first case.  A rude awaking often comes at the first interview when they have to field these brutal questions: “How often have you acted as arbitrator?” “How many awards have you made?” “What is your experience with arbitration?

The young hopefuls are stumped for an answer.  Imagine a patient asking a budding orthopedic surgeon eager to perform his first knee operation: “How many knee operations have you conducted, doctor?”  If the flustered doctor says, “Not even one, but I’d love to make a start,” the patient will go to see a real specialist, preferably one with more than 100 knee operations to his name.

There is no clear recommendation on how to get the first appointment.  David Rockefeller published the book “How to make a million dollars”.  In the preface he stated: “from this book you will learn how to make the second, the third or the fourth million…”.  I would rather not mention his advice on how to get the first million!  Young people are often attracted to arbitration because it offers the opportunity to publish articles, go to conferences and take part in the Vis Moot.  Many of the famous arbitral institutions sell modular training courses scaling up from introductory to advanced, from domestic to international and so on.  I would caution aspiring young arbitrators, completion of such courses does not necessarily mean that appointments will automatically follow.  Young lawyers can include an arbitration clause in every contract drafted and act as a counsel or administrative secretary.  One day, someone will offer an appointment as an arbitrator.  Currently, we have more participants in arbitration conferences than there are arbitration cases on this continent.  Telling young people “under 40” that they are well prepared and will replace us all one day is only partly true.  Parties still prefer experienced arbitrators who have earned their reputation with years of impeccable professional activity.  The patient prefers an experienced surgeon, not a young one, who is eager for the first surgery in his life.

Were you ever the first in doing something?

Yes, I was the first Polish advocate admitted to the Paris Bar back in 1993.

What makes your conflict resolution style unique?

I would like to think it is my intuition.

What has been the most difficult challenge you have faced as a neutral?

Initiating disciplinary proceedings against three young counsels who were intent on seizing my personal bank account to cover their fees in case they lost the arbitration case.

The counsel were defending the family business of one of them.  I was an arbitrator nominated by the claimant.  From the beginning, the counsel treated me as their number one enemy.  They also tried to seize the chairman’s bank account.  We learned about their activities in the middle of the proceedings.  At the hearing, we informed the claimant because we were concerned that doubts may be raised as to our impartiality and independence.  We completed the arbitration and passed a fair award, mostly in favor of these rogues.  We initiated disciplinary proceedings immediately after the award was delivered.  It lasted 5 years and resulted in discontinuation due to the statute of limitations.  The young counsel made friends with the dean of the local bar council. They became his friends and helpers, to the point of becoming members of the local bar council.  They became almost untouchable.  Time went by, and the bar members, including the dean, acting as disciplinary prosecutors dragged out the proceedings to such an extent that the claim ultimately became time barred.

What is the most important mistake you see counsel make?

Typically, they file too many documents and charge too many billable hours!

Now let’s turn to some specific topics:

  1. What is your view on the duration of arbitration proceedings?

Arbitration is like a pregnancy.  It should not be aborted or last longer than 9 months.  Every dispute can be managed within 9 months. It all depends on the energy, proactivity, devotion and dedication of the arbitral tribunal.  One of our roles is to combat delays provoked by counsel.  Unfortunately, counsel want to have as much time (billable) as possible and produce endlessly long submissions.  Counsel for the conflicting parties are able to agree on a highly extended provisional timetable, and then want to impose it on the arbitral tribunal.  Weak arbitrators spread their hands and say: “It is the parties who are the hosts of the dispute. We have to accept their joint proposal”.  I ask the co-arbitrators then: “If they are the hosts, then who the hell are we, the arbitrators? Guests?”

2. With respect to the taking of evidence in arbitration: are you IBA Rules or Prague Rules? And why?

Prague Rules are much simpler and tailor made for Eastern and Central Europe.

What do you see as the next “big thing” in global dispute prevention and resolution?

The big problem is arbitrators’ safety.  It is time to think about arbitrators’ immunity and an international convention to grant it.

For which types of conflicts would you recommend ADR?

I think you can use ADR for all types of conflicts, with very few local exceptions.

Monster Energy and Evident Partiality

Alternatives to the High Cost of Litigation Editor Russ Bleemer is joined by veteran arbitrator-litigators Philip J. Loree Jr., in New York, and Richard Faulkner, in Dallas, to discuss the U.S. Supreme Court’s Monday cert denial in Monster Energy v. City Beverages LLC. The panel also discusses a recent Pennsylvania federal court case that follows Monster Energy, Martin v. NTT Data Inc., No. 20-CV-0686 (E.D. Pa. June 23) (available at https://bit.ly/2VwZi0V).   

By Heather Cameron

The U.S. Supreme Court this morning declined to grant certiorari on a petition requesting clarification of the Federal Arbitration Act’s “evident partiality” standard.

This means that the Court, for now, will not revisit the “evident partiality” standard for arbitrators that can be used to overturn an arbitration award under the Federal Arbitration Act at 9 U.S.C. § 10(a)(2). And a Ninth Circuit decision overturning an arbitration award because a JAMS Inc. arbitrator failed to disclose his ownership ties to the Irvine, Calif., provider, will stand.

The Court’s docket page for the case, Monster Energy Co. v. City Beverages LLC, No. 19-1333, is available HERE.

Monster Energy was an appeal from a Ninth U.S. Circuit Court of Appeals decision last October, throwing out an arbitration award in favor of Monster Energy and ruling that “arbitrators are required to disclose their ownership interests in the organizations they are affiliated with and the organizations’ business dealings with the arbitration parties.” Monster Energy Co. v. City Beverages LLC, Nos. 17-55813/17-56082 (9th Cir. Oct. 22, 2019) (available at http://bit.ly/2PjmXzq); for more background and analysis, see Daniel Bornstein, “Ninth Circuit, Overturning an Award, Backs More Arbitrator Disclosure,” 37 Alternatives 170 (December 2019) (available at https://bit.ly/2NE7Q1x).

The decision is unusual because of its emphasis on the “repeat-player” phenomenon in arbitration.  It highlighted a circuit split over disclosure requirements for arbitrators, and reflected concern over bias in favor of repeat players in arbitration—an issue usually restricted to employment and consumer arbitration cases, not big companies. See Lisa Bingham, “Employment Arbitration: The Repeat Player Effect, 1 Emp. Rights & Emp. Policy J. 189, 209–17 (1997) (available at https://bit.ly/2VuElDJ).

The questions presented to the Supreme Court were:

  1. What is the standard for determining whether an arbitration award must be vacated for “evident partiality” under the Federal Arbitration Act, 9 U.S.C. § 10(a)(2)?
  2. Under the correct “evident partiality” standard, must an arbitration award be vacated when the arbitrator does not disclose that (i) he has a de minimis “ownership interest” in his arbitration firm and (ii) that firm has conducted a “nontrivial” number of arbitrations with one of the parties?

City Beverages, which distributed its adversary’s energy drinks in the Pacific Northwest, alleged that Monster Energy committed breach of contract in 2015 when it terminated their distribution contract without good cause. Monster Energy  exercised the contract’s clause permitting such termination so long as severance of $2.5 million was paid.

Though City Beverages rejected payment, the move was upheld in arbitration and Monster Energy was awarded $3 million in attorneys’ fees.

Overturning that award, the Ninth Circuit agreed with City Beverages’ claim that the arbitrator had failed to adequately disclose his relationship to JAMS and his firm’s relationship with Monster Energy.

In the Supreme Court’s only prior case examining the FAA’s evident partiality  standard, which authorizes vacatur of arbitration awards “where there was evident partiality or corruption in the arbitrators,” a majority agreed to overturn the award in question, but no clear rationale emerged. See Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145 (1968) (available at https://bit.ly/3g766Ks); see also Petition for Writ of Certiorari at 6–8 (available at https://bit.ly/2Bo3VU7).

Commonwealth Coatings, written by Justice Hugo Black, interpreted evident partiality as coextensive with the judicial standard, finding that arbitrators must not only be unbiased, “but must also avoid even the appearance of bias.” Commonwealth Coatings, 393 U.S. at 150.

Two of the five justices joining Black’s opinion, however, wrote a narrowing concurrence, penned by Justice Byron White, concluding that vacatur was only appropriate where the arbitrator failed to disclose “a substantial interest in a firm which has done more than trivial business with a party” to the arbitration. Id. at 151­–52. They found that the mere “appearance of bias” disqualification standard for federal judges does not establish evident partiality on the part of an arbitrator. See Petition at 19.

A majority of federal circuit courts have applied something akin to Justice White’s reasoning, according to the petition. “The First, Second, Third, Fourth, Fifth, and Sixth Circuits require those seeking vacatur of an arbitration award for evident partiality to show ‘a reasonable person would have to conclude that an arbitrator was partial to one party to an arbitration.’” Id. (Citations omitted; emphasis is in the brief.)

In its Monster Energy decision, the Ninth Circuit joined the Eleventh Circuit in adopting Justice Black’s less-demanding “reasonable impression of partiality” standard.

In her dissenting opinion in Monster Energy,Ninth Circuit Judge Michelle T. Friedland wrote that such a standard will have the effect of generating endless litigation over arbitral awards, defeating arbitration’s benefits of expedience and finality, echoing Monster Energy’s claims. See Bornstein, supra at 172.

JAMS, noting its role as a neutral organization “that has always refrained from supporting or opposing challenges to the arbitral process or arbitration awards,” filed an amicus brief in support of Monster’s rehearing petition. (Available HERE).

Both Monster Energy’s petition and JAMS’ brief stressed the lack of evidence to support the Ninth Circuit’s assumption that arbitrators might be biased in favor of repeat players since the law review article it cited on the phenomenon described a single study of employment, rather than commercial, arbitrations. See Petition at 31–32.

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Cameron, a second-year Fordham University School of Law student, is a CPR Institute 2020 Summer Intern.

Understanding the Landscape of Labor Dispute Resolution in Brazil

By Yixian Sun

The CPR Institute hosted a June 4 webinar, “Resolving Employment Disputes in Brazil: Myths, Facts, and Opportunities,” organized by CPR’s Brazil Advisory Board, CPR’s Employment Committee, and the São Paulo, Brazil-based international law firm, Mattos Filho.

It provided an overview of Brazil employment disputes and the current legal and ADR framework to resolve them. The panelists offered their views and practical insights on 2017 labor and employment reform in the country, as well as how companies could benefit from and add ADR as an alternative option to resolve employment disputes.

Daniel Vergna introduced that Brazil’s labor litigation is most well-known for the enormous amount of lawsuits filed in the court system. Three main factors, according to him, contribute to this phenomenon.

First, at least before the labor reform, plaintiffs were not worried about the potential fee-shifting risk even if they lost at the end. Second, courts in Latin America are generally friendly to the employees, and thus it is relatively easy for employees to get a favorable judgment. Third, from a cultural perspective, employees in Brazil are proactive in filing complaints in the court and tend not to see out-of-court settlement as an option.

The 2017 labor reformation was introduced against this background. As Fabio Chong de Lima noted, before this radical modification of the Brazilian Labor Code, arbitration clauses were generally banned from employment agreements.

Under the new law, parties can agree to incorporate an arbitration clause in the employment agreement, with one caveat–the employees’ remuneration must exceed around BRL 12,000, since these higher-ranking employees are seen as those with better resources to access ADR services.

Still, as de Lima commented, this marked the first time when alternative dispute resolution methods, especially arbitration, were accepted by the Brazilian authorities as a legitimate way to resolve labor disputes, thereby offering employers a tunnel to avoid litigation, especially in cases with higher stakes. Besides, as Vergna mentioned, the losing party now bears a certain portion of the defendant’s attorney’s fee, which disincentivizes at least those with a weaker case.

To some, the fact that this seemingly essential reform did not take place until 2017 shows the Brazilian court system’s mistrust of arbitration. Cleber Venditti offered his insights on why. To begin with, according to traditional wisdom, labor rights are not arbitrable by nature.

While the labor reform effectively refuted this idea, it may take a while for the court system to change its understanding.

Next, misuse of arbitration is a factor. Many employers tend to choose the “most unreliable chambers,” which only charge a minimum administration fee and makes the arbitration process look more like forced settlement than neutral dispute resolution.

Thus, Venditti said, it is important for businesses to use well-known and well-qualified chambers and arbitrators in order to obtain a trustworthy award.

Last but not least, the judiciary needs to change its mindset. Currently, many courts still see themselves as the only guardians as labor rights, and believe that delegating the dispute resolution power to private entities would threaten the traditional protection of labor rights.

The Brazilian story may sound shockingly different for those who are more familiar with United States ADR programs, which have grown prevalent since Congress’s enactment of the Federal Arbitration Act in the 1920s. As Western Digital’s Michelle Dangler noted, with arbitration’s privacy and uniquely personal approach, it is a standard practice to include an arbitration clause in employment agreements. In addition, mediation is a mandatory pre-trial proceeding for labor litigation, and the settlement agreement has binding force.

While there are criticisms–for instance, over “forced” arbitration clauses used by employers to silence sexual harassment victims–Dangler reported that ADR remains to be a primary tool for resolving U.S. labor and employment disputes.

Fortunately, despite all the difficulties, the panelists noted that ADR is growing more prominent in Brazil. In arbitration, as Venditti said, companies and higher-level employees are working together to promote the inclusion of arbitration clauses in the employment agreement, since the confidential and expeditious nature of the process is beneficial for both sides.

As for mediation, more Brazil mediation chambers have been created. For example, workers in the telecommunication industry can now submit mediation applications to the telecom unions under certain circumstances. Banco do Brasil also implemented a mediation program to resolve sexual and moral harassment complaints, and has achieved significant success, the panel reported.

The active participation of unions in mediation enhances the confidence of the court system, which proves to be essential for ADR success. In the United States, courts rarely invalidate a mediation settlement agreement. In Brazil, according to Vergna, those agreements are not shielded by the principle of finality unless they are approved by the courts.

That is why most effective mediation agreements are created in labor litigation proceedings where courts “push” the parties, usually with relatively small claims, to settle by themselves.

Moreover, the Covid-19 pandemic is bringing both opportunities and challenges to the Brazil ADR scene. De Lima reported that more than one million people have lost their jobs in Brazil in the past two months, and economists expect more jobs to disappear.

While the total number of cases filed in courts has declined due to the heightened difficulty of receiving assistance from lawyers, the number of cases involving Covid-19 has increased by 20%. De Lima provided an example on how Covid-19 could give rise to disputes in the labor context. For instance, there might be disagreement about whether the virus could be classified as an occupational disease, particularly for employees who have to work in places with a higher likelihood to get exposed to the virus, or for those who have to resume working with minimal protective measures.

Amidst the pandemic, said Fabio Chong de Lima, employers have two options. They can either react negatively, or act collectively and creatively with their employees to address disputes in an earlier stage. ADR can be a part of the toolkits for creative responses. De Lima said that they anticipated that with its flexibility and promptness, arbitration could respond better to the changing pandemic situation, and thus attract more support and use.

Pfizer Brazil, according to panelist Shirley Meschke, has explored the value of ADR service, and has promoted ADR culture in Brazil. After the labor reform, Pfizer incorporated an arbitral clause into the employment agreement for qualified employees. It has also been pursuing opportunities for settlement in court proceedings.

From the perspective of an in-house counsel, it is equally, if not more important, to prevent disputes from emerging and escalating in the first place–a philosophy that the CPR Institute has consistently endorsed. The key to this goal, according to Meschke, is to help employees build a healthy work-life balance and to maintain smooth communication between employers and employees.

For instance, the Healthy Pfizer program provides confidential support for employees to deal with their psychological health issues, and offers training on how to keep physical and mental well-being. Pfizer has also taken measures to meet with new challenges brought by the pandemic, such as helping employees resolve technical issues and resist the tendency to work beyond business hours as a result of working from home.

The panelists concluded by noting that arbitration and mediation have their own virtues when compared with litigation. Despite a presumption that arbitration is always more expensive than court proceedings, Cleber Venditti demonstrated that after adding the cost of time and fee adjustment, litigation could be much costlier than arbitration. Labor arbitration usually takes about six to eight months to complete, whereas court proceedings can take up to three to four years, and can incur costs that amount to half of the total amount in dispute.

Fabio Chong de Lima added that arbitration could offer parties a higher quality and better dispute resolution experience. He said arbitration chambers can review more types of evidence, are usually less clogged than labor courts, and thus invest more time and care to prepare for and examine the cases at hand.

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The author, a second-year Harvard Law School student, is a 2020 CPR Institute Summer Intern.

Building a Boot Camp for New York’s New Presumptive ADR

By Yixian Sun

The New York State Unified Court System introduced presumptive alternative dispute resolution, with a focus on court-sponsored mediation, last year. 

Under this statewide initiative, parties in a wide range of civil cases–from personal injury to matrimonial cases, to estate matters and commercial disputes, and more–will by default be referred to mediation as the first step in the case proceeding in court.

In response to the Covid-19 outbreak, New York State Chief Administrative Judge Lawrence K. Marks boosted last year’s efforts by recently issuing Administrative Order 87-20, authorizing judges to “refer matters for virtual alternative dispute resolution, including to neutrals to court-established panels, community dispute resolution centers, and ADR-dedicated court staff.” (See the order at https://www.nycourts.gov/whatsnew/pdf/AO-87-20.pdf.)

On June 10, the leadership of this court initiative conducted a webinar to update the legal community with the past achievements, recent developments, and future implementation plans of the presumptive ADR systems. The webinar was sponsored and hosted by the ADR program at New York Law School.

The panel included Danielle Shalov, an adjunct professor of the New York Law School and the director of NYLS’s Mediation Clinic; Lisa Courtney, the Statewide ADR Coordinator for the New York State Unified Court System; Joan Levenson, the principal law clerk to New York County Administrative Judge Deborah A. Kaplan, New York County, Civil Branch, and counsel to the New York State Judicial Committee on Elder Justice; Jean Norton, the ADR Coordinator for the Supreme Court of New York County; and Daniel Weitz, the Director of the Division of Professional and Court Services for the New York State Unified Court System. (For a comprehensive list of staff contacts in the ADR Office, see http://ww2.nycourts.gov/ip/adr/contactus.shtml)

This video event attracted a diverse audience. Many participants noted in response to an informal survey at the program’s outset that they were interested in mediation and joining in the court rosters, but had not mediated before. The webinar’s primary focus, therefore, was largely on helping the participants build their capability and capacity on presumptive ADR.

“ADR,” traditionally known as alternative dispute resolution, now stands for “appropriate dispute resolution” as well. The message is clear. As Courtney pointed out, different resolution methods are suitable for different cases. After all, in most contexts, parties have been going through a hybrid process, where litigation and negotiation happen in turn until a resolution is reached.

This reality serves as the background against which courts in New York State are trying to switch the default to the less adversarial dispute resolution methods from litigation.

Presumptive ADR is not only about enhancing effectiveness and efficiency, noted Courtney, but also about promoting a greater sense of procedural justice. The initiative calls for a redefinition of a successful dispute resolution–a process where parties are given a chance to express their feelings and have their personal experience understood by the neutrals.

Dan Weitz explained that the basic infrastructure of presumptive ADR was developed through a process of collaborative program design, where various stakeholder groups, including local judges, court administrators, and bar members gathered to devise a set of protocols that would govern the program at the local level.

Two issues emerged the most controversial.  One is the nature of referral–should the ADR method be selected by parties’ voluntary choice or under judges’ discretion? The second is how to increase ADR program use at grassroots levels.

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Lisa Courtney led the participants through the history of the still-new court orientation of presumptive ADR. In Spring 2018, Chief Judge Janet DiFiore and Chief Administrative Judge Marks announced the formation of a Statewide ADR Advisory Committee chaired by John Kiernan, who at the time was the New York City Bar Association president, a partner in New York’s Debevoise & Plimpton–and also immediate past chairman of the board of the CPR Institute, which publishes this blog.

In early 2019, the ADR Advisory Committee issued its first interim report. The Committee recommended that the New York State court system significantly expand its statewide infrastructure for developing court-sponsored ADR; promulgate statewide uniform rules; increase connections with Community Dispute Resolution Centers; encourage and educate about court-sponsored mediation; and develop mechanisms to evaluate and monitor individual programs. (See at https://ww2.nycourts.gov/doc/18791.)

New York Chief Judge DiFiore embraced the interim report, and the initiative, wholeheartedly. In February 2019, DiFiore immediately announced the Presumptive ADR Program as a part of her Excellence Initiative. Soon after that, DiFiore and Chief Administrative Judge Marks charged the Deputy Chief Administrative Judges, Judge George Silver for New York City and Judge Vito Caruso for outside New York City, to implement the Presumptive ADR program. Throughout summer 2019, district administrative judges around the state worked with their court staff to develop and refine plans to realize this vision.

Since then, the NYLS seminar panelists reported, a massive training was conducted involving more than 550 attendees, including more than 300 court staff. The trainings varied. Some were 90 minutes, some were day-long settlement skills workshops; some required 24-hours over multiple days, and still others were comprehensive 40-hour, multi-day sessions.

The trainings were designed as an integral part of the stakeholder engagement.  For court staff, the efforts were designed for infrastructure building, to construct ADR confidence, familiarity and trust in public employees who would send the parties to mediation and other ADR services. The training also served to address the concerns of litigators and mediators who might have felt that they would no longer perform familiar tasks in a familiar forum.

Meanwhile, protocols and templates were drafted, an ADR SharePoint Intranet site was created for judicial districts to learn from each other’s experiences, webinars were hosted, and an ADR case management database was built to track efforts at local courts. The official ADR page of NYS Unified Court System can be at http://ww2.nycourts.gov/ip/adr/index.shtml; it’s an information hub for those who are interested in learning about and using New York state presumptive ADR services.

In the July/August 2019 Edition of Alternatives, the CPR Institute described the early details of the presumptive ADR program, citing Kiernan’s comments, that court-sponsored mediation “is a great vehicle proven to deactivate [litigants’] adversary synapses and activate their problem-solving synapses before they send a lot of time and resources fighting the dispute.” See “‘Presumptive Mediation’: New York Moves to Improve Its Court ADR Game,” 37 Alternatives 107 (July/August 2019) (available at https://bit.ly/2Cb2h8g).

Earlier this year, this CPR Speaks Blog reported the latest progress in the implementation of this initiative. (See at https://blog.cpradr.org/2020/01/27/progress-report-new-york-courts-presumptive-adr-settles-in/)

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Understandably, the NYLS panelists acknowledged, resistance continues to exist, and there are ways to deal with it. One solution discussed by the panel is to start in places with pre-existing infrastructure. For courts that are already equipped with rules and rosters, the task is to enhance use and to grow the presumptive ADR program to include more case types. Judicial districts were also invited to conduct a self-examination to find out in which areas the presumptive ADR efforts would be most useful in deploying to ease the caseload. The essence of reform, after all, is to address the real concerns of stakeholders, the panel pointed out.

This statewide effort to promote usage of ADR methods has been receiving massive support from the county level—even before May 2019 when the official announcement to implement presumptive ADR program was made.

Panelist Joan Levenson introduced the “Presumptive Early Mediation Program for Non-Commercial Division Commercial Cases” as a successful and illuminating example of the county court’s undertaking. This program was launched in May 2017 and called for automatic referral for certain types of commercial cases to mandatory mediation. It has been expanded ever since and graduated from its pilot status.

Cases involved usually have an amount of controversy under $500,000—contract cases below New York County commercial division jurisdictional limits (statewide limits available here) —which make up the majority of the New York County civil branch’s caseload.

Under this program, after filing a request for judicial intervention and before meeting the judge, counsel and parties will attend a preliminary conference held by New York County Supreme Court Senior Settlement Coordinator Kevin Egan. In this conference, parties discuss the discovery needed to conduct a fruitful mediation.

Then, a mediator from the commercial division roster will be assigned, and the mediation scheduled, usually within 30 days after the end of the exchange of information. Consequently, around 60% of the cases will be settled.

Not every pilot program turned out to be impressive. In 2014 to 2016, the New York Supreme Court—the state’s trial court—had launched a “One-in-Five Pilot Project.” As the name suggested, every One-in-Five cases was sent automatically to mediation.

Joan Levenson raised two reasons to explain why this project did not work. First, many referrals were not appropriate for mediation, and thus not enough cases were generated. Second, attorneys were allowed 120 days from the filing to choose a mediator or have one assigned. In many cases, the counsel simply did not respond.

But important lessons were learned, Levenson reported. First, arbitrary selection of cases for mediation does not always work. Second, to move things forward, the court needs to set a shorter period for the mediation to take place.

Another challenge faced by the courts seem to be the overzealous representation. Fortunately, panelist Jean Norton noted, many attorneys, after attending mediation with clients for several times and seeing the positive consequences, have become much more supportive of ADR. Even those who do not support ADR wholeheartedly will accept it for the clients’ interests. The key, she said, is to push the attorneys to transform the traditional mindset, and to rethink about how they can support their clients in a most constructive way.

Joan Levenson added that the 40-hour mediation training changed many litigators’ views. In fact, said Norton, the New York County Supreme Court’s matrimonial mediation rosters include some well-known matrimonial attorneys who used to object completely to the idea of mediation, but ended up joining the roster after developing a better understanding of mediation via training.

Indeed, the New York State Court System requires those who want to become mediators take a series of trainings before getting on board. As moderator Danielle Shalov described, the requirement is designed as a mix of a unified boot camp plus personalized mediation-related experience.

Under Part 146 of the Rules of the Chief Administrative Judge, “Mediators who wish to qualify for appointment to a court roster must have successfully completed at least 40 hours of approved training,” including “At least 24 hours of training in basic mediation skills and techniques,” and “At least 16 hours of additional training in the specific mediation techniques pertaining to the subject area of the types of cases referred to [the mediators].” (Part 146 details can be found at http://ww2.nycourts.gov/ip/adr/Part146.shtml.)

Besides the training, Part 146 also calls for “recent experience mediating actual cases in the subject area of the types of cases referred to [the mediators].” Lisa Courtney explained that this requirement is flexible. Those who are interested can join formal apprenticeship, seek for informal mentorship, or participate in co-mediation.

It is up to the discretion of the local administrative judge to decide what kind of experience fulfills the requirement, what additional qualification is needed, and who is finally placed on a mediation roster.

Finally, mediators should attend “at least six hours of additional approved training relevant to their respective practice areas every two years.” Specific design of such training falls within the discretion of local ADR coordinators, since each court has its unique demands.

Attorney-advocates are welcomed to get involved and increase their familiarity with mediation as well. Last year, Levenson said, a CLE program called “ADR options in New York County” attracted a great litigator attendance.

Trainings are also available for specific practice areas. For instance, as Norton mentioned, the New York County Supreme Court has offered domestic violence training for mediators in matrimonial cases.

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Once they have gathered enough technology support, courts are prepared to resume trainings interrupted by the coronavirus. Norton named a list of opportunities in the New York County Supreme Court: mediator orientation, trainings to transport previous best practices for future court mediations, and short sessions designed to ease the burden of 40-hour training and to highlight necessary skillsets.

What’s more, to address a diverse composition of case types and parties, courts at state and county levels are working together to build a sufficiently diverse roster.

According to Dan Weitz, the court system is connecting with as many diverse bar associations as possible in recruitment of mediators, and has included cultural competency is included as a part of the mediator training.

A diversity statement has been added to the mediator application process, added Lisa Courtney, through which applicants can demonstrate how can they contribute to a more diverse roster with their personal identities, cultural backgrounds, life experience and language skills.

And court staff are a wonderful resource, Courtney said.  She noted that many court attorneys have diverse backgrounds and close connections with the local community. They can serve as trusted neutrals as well.

At the county level, the recently-launched Presumptive Matrimonial Mediation Program serves as an illustration. To deal with the highly personal issues, the New York County Supreme Court devised an extensive recruiting processes to attract mediators and attorneys with diverse backgrounds, foreign language skills, and family law expertise.

Covid-19 disrupted the original implementation plan. But Norton explained that since traffic and location is no longer a problem for Zoom mediation, neutrals with diverse backgrounds that meet the parties’ needs but live far away have become more accessible.

Despite the pandemic, the presumptive ADR initiative has continued. Jean Norton admitted that there is a learning curve for virtual mediation. Whereas it is hard for mediators to conduct their first mediation on Zoom, the experience improves with more practice.

In the matrimonial context, the concerns are different. Parents don’t want their children overhearing their divorce mediation, and mediators have to plan for a variety of factors and emergencies. It is also harder to physically separate hostile parties, so mediators have to think creatively to prevent conflicts from escalating in a single space. At the same time, virtual mediation means no time wasted on transportation and no alternative babysitting arrangement needed.

* * *

A final point: New York does not have statutes to order people to pay their mediators, but there are ways to help the mediator’s hard work get rewarded, explained Statewide ADR Coordinator Lisa Courtney. Under the May 1 Administrative Order 87/20 noted above, courts can order parties to participate in a short, initial mediation session. When parties see the value in such processes, they may continue under an agreement to pay.

As many elements of the presumptive ADR initiative, this is how fundamental changes have been brought: invite stakeholders to participate, let them see the real benefits, and build a trusted relationship.

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Editor’s Note: A video of this event can be found at https://bit.ly/3ehMenh. For details of a court-approved Part 146 Initial Mediation Training, hosted by the New York Law School, https://bit.ly/2ChuAlu. 

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The author, a second-year Harvard Law Student, is a CPR 2020 Summer Intern.

The CPR European Advisory Board presents: “Meet CPR Distinguished Neutrals Based in Europe: Fatos Lazimi”

The CPR European Advisory Board (EAB) continues it series “Meet CPR’s Distinguished Neutrals in Europe” and today it presents its next Q&A, with Fatos Lazimi.

Fatos is a partner at Optima Legal and Financial based in Tirana, Albania.  He is an expert in international arbitration law and has participated in several international arbitration cases.  He is also a member of the ICC Court of Arbitration in Paris. Please see http://optimalaw.al/2016/11/03/fatos-lazimi/

 

How did you get your start as a neutral?

It all began back in 2015 when I was a party appointed arbitrator in a domestic case and at about the same time I was handling an ICC FIDC based case.  I was appointed as an Arbitrator by a well known company based in Albania but with foreign control.  The case was very complex as it dealt with a commercial transaction in the mining industry with a State party.  The proceedings lasted longer than expected due to the involvement of many accountant experts and witnesses of facts.

Who is your dispute resolution hero/heroine?It is very hard to pick just one hero or heroine in the dispute resolution arena, but I am deeply inspired by three esteemed gentlemen arbitrators:

  • Sigvard Jarvin
  • G. Bunny
  • Christofer C. Seppala

Sigvard Jarvin: I have been lucky to be local counsel in proceedings where Mr. Jarvin was an Arbitrator (mainly FIDIC Contract based disputes).  He is extremely skilled in the management of proceedings and he demonstrates an insightful analysis of the cases before him.  His patience and thoughtfulness are very impressive.

Nal G.Bunny: I have not been so lucky to be involved in proceedings where Mr. Bunny has served as an Arbitrator but I have admired him from a distance.  He has an encyclopedic knowledge of FIDIC contracts and his Awards – which I have been able to examine – are always well reasoned.

Christofer C. Seppala: I have been honored and privileged to be in close contact with Mr. Seppala while being Member of ICC Court of Arbitration in Paris.  On the one hand, he could be characterized without any hesitation as a mentor of interpretation and implementation of ICC Rules.  On the other hand, he is an excellent and unique interpreter of FIDIC concepts which are mirrored in many ICC FIDIC based cases. 

What is the one piece of advice you would want to give to the younger generation looking for a first appointment as neutral?

They must recognize that they have to live with their cases so they must make their best professional endeavors to ensure the legal process is full of integrity, independence and impartiality.

What makes your conflict resolution style unique?

I encourage the parties in dispute to try and find the things they have in common and I insist on this as part of the process.

What has been the most difficult challenge you have faced as a neutral?

Probably having to consider and then make a decision on a procedural issue which was requested by one party after the proceedings were declared closed.  I remember a case where the Claimant asked that the proceedings be reopened more than a year and a half after they were declared closed.  It was a very difficult decision to make because the circumstances which triggered the request to reopen were rather exceptional.  In particular, evidence had come to light but for state reasons it was classified as highly confidential.  The particular difficulty I was faced with was a lack of applicable legislation covering the confidentiality matters and their reflection in arbitration proceedings.

What is the most important mistake you see counsel make?

Devising dilatory tactics and unethical conduct.  I have witnessed  cases where the parties’ counsels engage in dilatory tactics.  For example, filing numerous applications seeking permission to postpone decision making and deferring the time for making a draft award.  I view these strategies as harmful for the parties which counsel represents and for the proceedings in their entirety.  They have the potential to undermine a party’s position in the eyes of the Tribunal and this may prompt the latter to make adverse inferences.  In the long run, such delay tactics decrease the advantages of arbitration as a method for resolving disputes

If you could change one thing about commercial arbitration/mediation [please chose one], what would it be?

Adoption and enforcement of strong conflict rules, i.e. procedural controls on appointments so that the parties do not abuse the right to nominate arbitrators.

What is your approach to cybersecurity and data protection in international dispute resolution?

Data protection and cyber risks are becoming more and more important aspects in administration of arbitration proceedings.  I would support a revision of the various institutional rules e.g. ICC, ICSID, LCIA etc. so that they address these issues in stronger terms and impose penalties for breach of the applicable data protection rules.

In preliminary/ early decisions: do you attempt to identify and decide potentially dispositive issues early in the case?

Yes.  It is very important in terms of efficiency of the arbitration proceedings to identify the potential areas of dispute, in particular, those which are fundamental to the whole process, like jurisdiction matters, validity of arbitration agreements, bifurcation of proceedings on liability and quantum etc.

With respect to the taking of evidence in arbitration: are you IBA Rules or Prague Rules?  And why?

Given my professional background and personality I support a more proactive approach in administration of arbitration proceedings and I would therefore opt for the Prague Rules.

What do you see as the next “big thing” in global dispute prevention and resolution?

Extending arbitration to disputes arising from the Belt & Road Initiative.  This initiative is likely to spawn many disputes and ADR could be beneficially deployed.

For which types of conflicts would you recommend ADR?

If I had to pick one, I would say labor disputes.

In your view, what makes CPR unique?

Its philosophy and policy of conducting disputes.  I think CPR has unrivalled experience in procedural approaches and adopting final workable solutions.

Do you have an anecdote you would like to share?

Arbitration is the key but not the open door.

Supreme Court Returns Schein To Its Docket, With a Focus on Arbitrability

By Russ Bleemer & Heather Cameron

Schein is back.

The U.S. Supreme Court this morning agreed to hear a new arbitration petition on an old case. 

The Court granted cert today on the issue of “Whether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.”

The case, Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, is expected to be scheduled in the Court’s 2020-2021 term beginning in October. The Court’s docket page is available at https://bit.ly/30L3gX4.

The issue will be on the delegation agreement in the arbitration contract in a case the Court saw and decided last year, Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (Jan. 8, 2019) (available at https://bit.ly/2CXAgPw).

The new case, which comes at the request of New York-based health care supplier Schein, will likely center on whether the arbitration agreement’s exclusion of injunctive relief from an arbitrator decision in favor of a court overrides the agreement’s delegation to an arbitrator a decision on whether the matter should be arbitrated.

But that’s also only half the Court’s arbitration story today.  It also denied a cross petition in the case by Texas dental supply company Archer & White Sales on two more arbitration issues that still could still work their way into the decision or, at the least, are guaranteed to see more litigation in state and circuit courts. 

The cross-petition cert denied issues were

(1) Whether an arbitration agreement that identifies a set of arbitration rules to apply if there is arbitration clearly and unmistakably delegates to the arbitrator disputes about whether the parties agreed to arbitrate in the first place; and

(2) whether an arbitrator or a court decides whether a nonsignatory to an arbitration agreement can enforce the arbitration agreement through equitable estoppel.

A question related to the latter issue already appeared just this month in the Court’s decision in an international arbitration case, GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USALLC, et al., No. 18-1048 (available at https://bit.ly/2XogerH) (see a CPR Speaks article and video analysis at https://bit.ly/2U1QrDs).

When the Court first decided Schein in January 2019, it reversed the Fifth Circuit and unanimously held that under the Federal Arbitration Act, an arbitrator, not the court, should determine the threshold question of arbitrability—whether an arbitration agreement applies to a particular dispute—when the parties have clearly and unmistakably delegated that question to an arbitrator via delegation agreement, even if the argument for arbitrability is “wholly groundless.” See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. at 526 (Jan. 8, 2019) (available at https://bit.ly/2CXAgPw).

The case was remanded to the Fifth Circuit to determine whether the parties’ contract contained a delegation agreement, sending the determination of arbitrability to a tribunal rather than a court, and satisfied the Supreme Court’s “clear and unmistakable” intent standard established in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (available at https://www.oyez.org/cases/1994/94-560).

Rule 7(a) of the AAA Commercial Arbitration Rules, which the parties incorporated into their contract in the case, explicitly gives the arbitrator power to determine his or her own jurisdiction as well as the arbitrability of any claim or counterclaim. (available at https://www.adr.org/Rules).

Following circuit precedent, the Fifth Circuit noted that by incorporating the AAA’s rules, the parties had indeed entered into a delegation agreement for at least some disputes. But in its remand, the Fifth Circuit also found an explicit “carve-out” exception in the contract for disputes, like the one at hand, seeking injunctive relief.

The appeals court, therefore, affirmed the district court’s denial of Schein’s motion to compel arbitration. Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274 (5th Cir. 2019) (available at http://bit.ly/33Cb78g).

Schein petitioned the Supreme Court again to challenge that decision. That’s the case and the issue the Court agreed to hear today, while Archer & White’s conditional cross-petition issues were not accepted.

For more on the case and an in-depth discussion of the issues involved, see Philip J. Loree Jr., CPR Speaks, “Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court” (Feb. 19, 2020) (available at http://bit.ly/3bQXQgl); Richard D. Faulkner & Philip J. Loree Jr., “Schein’s Remand Decision: Should Scotus Review the Provider Rule Incorporation-by-Reference Issue?” 38 Alternatives 70 (May 2020) (available at https://bit.ly/2C6Ksap), and Richard D. Faulkner & Philip J. Loree Jr., “Why the U.S. Supreme Court Should Review Whether Arbitrability May Be Incorporated by Reference,” 38 Alternatives 87 (June 2020) (available athttps://bit.ly/2YB0zVj).

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Bleemer edits Alternatives at altnewsletter.com for the CPR Institute.  Cameron, a second-year Fordham University School of Law student, is a CPR Institute 2020 Summer Intern.

Invitation for an Open Dialogue

A letter and invitation from CPR President & CEO, Allen Waxman

Dear CPR Members and Distinguished Neutrals:
Like many of you, we are frustrated, concerned, angry and sad: because of the grotesque inhumanity evidenced in the death of George Floyd; because the names of George Floyd, Breonna Taylor and Ahmaud Arbery are just the latest in a terrible list of fellow human beings who have had their breaths tragically snuffed out; because of the destruction with which some have responded to that inhumanity; because of the evident and understandable pain of so many; because we are so disconnected; because we haven’t earned that connection. Yet, as a community, we also believe that conflict must breed resolution, and resolution must reinforce our purpose. Our purpose has to be to combat racism, discrimination, implicit bias and injustice. We must commit to the small steps reflected in our initiatives to recruit, promote and select diverse neutrals. And, we must also commit to the giant leaps of trust, courage and sacrifice necessary for change to become reality.  Let us remember the observation that Andrew Young shared with our community in his 2018 keynote address at CPR’s Annual Meeting:  “…in every conflict there is a streak of humanity.”  

This Friday, June 12th, at 12:30 ET, via Zoom, let us come together and connect our humanity. No agenda just a safe space. Let’s open a dialogue together to share.  Our conversation will be moderated by Judge Timothy Lewis, CPR neutrals Erin Gleason Alvarez and Gail Wright Sirmans, and CPR board members: Bayer U.S. General Counsel Scott Partridge, Winston & Strawn partner Taj Clayton, and Debevoise & Plimpton partner John Kiernan.                

For CPR Members and Distinguished Neutrals Only
Contact Richard Murphy at rmurphy@cpradr.org for your registration link

Supreme Court Declines to Hear a California Supreme Court Case on Arbitration and Unconscionability

By Seorae Ko

Alternatives editor Russ Bleemer is joined once more by Richard Faulkner and Philip Loree Jr., this time talking about the Supreme Court recently declining to hear a California Supreme Court case on arbitration and unconscionability, OTO LLC v. Kho, discussed below

The U.S. Supreme Court this morning declined a certiorari petition ona California Supreme Court decision to render a wage arbitration agreement unenforceable as procedurally and substantively unconscionable.

While the issue of unconscionability overhangs the breadth of arbitration jurisprudence, the Supreme Court has used the Federal Arbitration Act to preempt such concerns in favor of arbitration’s predominance. AT&T Mobility LLC v. Concepcion, 563 U.S.333, 344, 348 (2011). Today’s cert denial can be seen as a divergence from the pattern.

On the other hand, today’s declined case, OTO LLC v. Kho, No. 19-875, reinforces the California’s top Court decision that, though it found in favor of the employee opposing arbitration, permitted an agreement to arbitrate wage disputes “so long as it provides an accessible and affordable process.” The California decision follows AT&T Mobility in that it states that the “FAA preempts a state-law rule that categorically prohibits an adhesive arbitration agreement from requiring an employee to waive access to a Berman hearing.”

The Berman hearing is a California administrative process designed to provide a quick, informal, and affordable method for resolving disputes over unpaid wages, according to a brief filed in the case by the state’s labor commissioner. (See below.)

The California Supreme Court OTO decision held that a court “faced with a petition to compel arbitration under these circumstances must grant the petition unless the party opposing the petition asserts a valid contract defense.”

In the case, the parties contested the enforceability of an arbitration agreement on wage disputes, which the employee, Ken Kho, challenged as unconscionable. OTO L.C. v. Ken Kho, 447 P.3d 680 (Cal. 2019) (available at https://casetext.com/case/oto-llc-v-kho-1).

The California Supreme Court first noted that general contract defenses such as unconscionability may be applied to invalidate arbitration agreements without contravening the FAA or state arbitration acts, citing Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC, 282 P.3d 1217, 1231 (Cal. 2012)).

The opinion then evaluated the agreement’s substantive and procedural unconscionability on a “sliding scale,” and stated that substantive fairness must be considered in the context of the agreement’s procedural unconscionability, citing Armendariz v. Foundation Health Psychcare Services, Inc., 6 P.3d 669, 689 (Cal. 2000); Sanchez v. Valencia Holding Co., LLC, 353 P.3d 741(Cal. 2015)).

Ultimately, the California Supreme Court ruled that the arbitration agreement in question was unenforceable as unconscionable. It found that the agreement was made under such oppression and surprise as to produce a high degree of procedural unconscionability. In light of the substantial procedural unconscionability, the court also found substantive unconscionability in the agreement.

OTO filed a cert petition in January to have the decision reversed. Petitioner argued that the California Supreme Court’s decision violated U.S. Supreme Court precedent in two ways.

First, the petitioner argued that the decision went against precedent mandating that the FAA preempt state rules discriminating against arbitration. The California Supreme Court’s comparative approach to substantive unconscionability, unique to arbitration agreements, failed to place arbitration agreements on equal footing with other agreements. Brief for Petitioner at 4 (citing AT&T Mobility, 563 U.S. at 339-340 (2011)) (available at https://www.supremecourt.gov/DocketPDF/19/19-875/128316/20200113114622841_OTO%20cert%20petition.pdf).

The petitioner connected this approach to a broader trend in the California Supreme Court to adopt “sharply anti-arbitration rules, only to be reversed by this Court.” Brief by Petitioner at 13 (citing DIRECTV Inc. v. Imburgia, 136 S. Ct. 463, 468-471 (2015); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339-340 (2011); Preston v. Ferrer, 552 U.S. 346, 353-354 (2008); Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987); Southland Corp. v. Keating, 465 U.S. 1, 16 n.11 (1984)).

Citing Sonic-Calabasas A Inc. v. Moreno, 247 P.3d 130 (2011) (Sonic I), the petitioner explained that the California Supreme Court’s substantive unconscionability analysis was a method devised to reach “effectively the same result” as its decision in Sonic I, which had been vacated by the Supreme Court for violating the equal treatment principle. Brief for Petitioner at 13. The Sonic I decision had been condemned because its class-arbitration rule uniquely addressed arbitration agreements; by the same reasoning, the petitioner suggested, the OTO decision could not stand.

Second, the petitioner, an auto dealership, argued that the decision went against precedent mandating the FAA to preempt even a general contract defense if it interferes with the “‘fundamental attributes of arbitration,’ including lower costs, greater efficiency and speed, and the ability to choose an expert adjudicator to resolve specialized disputes.”

Accordingly, a contract defense erecting “preliminary litigating hurdles” that destroy the “prospect of speedy resolution” is preempted by the FAA. Brief for Petitioner at 6 (citing AT&T Mobility, 563 U.S. at 344, 348). The petitioner argued that the California Supreme Court’s approach erected such a litigating hurdle because it required a prolonged fact-intensive inquiry. Brief for Petitioner at 17 (referring to American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013)).

A particularly salient point pursued by the petitioner focused on the California Supreme Court’s substantive unconscionability analysis. The petitioner suggested that the court condemned the arbitration agreement, which it claimed covered a wage dispute with the respondent, a service technician, as a time-consuming hurdle to litigation when the agreement consumed time because it “offered too many of the protections of civil litigation.” Brief for Petitioner at 12. (Emphasis is in the brief.) Such an approach evaluates an agreement to be substantively unconscionable for the reason that it tries too hard to avoid unfairness.

The petitioner also stressed that the case holds enormous significance in “safeguard[ing] the [FAA]’s commitment to the enforceability of arbitration agreements.” Brief for Petitioner at 19.

Petitioner OTO was not alone in its view. Five amicus briefs were filed in support of the objections. Cautioning against “judicial hostility towards arbitration” (Amicus Brief by Atlantic Legal Foundation at 2 (citing Nitro-Lift Techs., L.L.C. v. Howard, 133 S. Ct. 500, 503 (2012) (per curiam)) (available at https://www.supremecourt.gov/DocketPDF/19/19-875/133006/20200213191401278_19-875tsac%20Atlantic%20Legal%20Foundation%20%20-OTO%20v%20Kho%20FINAL.pdf)), they called out the decision below as “a thinly veiled effort to bar wage-dispute arbitration altogether.” Amicus Brief by Washington Legal Foundation at 8 (available at https://www.supremecourt.gov/DocketPDF/19/19-875/133008/20200214090311910_19-875%20tsac%20Washington%20Legal%20Foundation.pdf).

The petitioner’s reasoning on both the equal treatment principle and the litigating hurdle assessment found support in the amicus briefs.

On the other side, respondent Kho argued that the California Supreme Court’s decision was consistent with the Supreme Court’s arbitration precedents. Brief for Respondent California Labor Commissioner at 10 (available at https://www.supremecourt.gov/DocketPDF/19/19-875/142627/20200429130457818_No.%2019-875%20DOJ%20CA%20FINAL%20BIO.pdf). Pointing to the California courts’ tradition of comprehensive and contextual approach to unconscionability, the respondent emphasized that OTO had offered “no conflicting case remotely similar which creates a need to hear [the] case.” Brief for Respondent Ken Kho at 18 (available at https://www.supremecourt.gov/DocketPDF/19/19-875/142640/20200429135355866_OTO%20v.%20Kho%20Opposition%20to%20Petition%20for%20Writ%20of%20Certiorari%2019-875.pdf). The respondent further asserted that, instead of disfavoring arbitration, the California Supreme Court had promoted arbitration by “requir[ing] an arbitration procedure that has all of the ‘fundamental attributes of arbitration.’” Brief for Respondent Ken Kho at 25.

As a tangentially related matter, Kho also challenged the jurisdiction of the Supreme Court, arguing that petitioner had failed to establish either that the FAA applies or that the dispute effects commerce as per the commerce clause. Brief for Respondent Ken Kho at 27.

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The author, a second-year Harvard Law School student, is a 2020 CPR Institute Summer intern.

Acting Naturally in a Virtual Office

By Heather Cameron

On Thursday, May 28, 2020, the CPR Institute hosted the second in its series of presentations on conflict in closed spaces entitled “Positive Culture in the Virtual Workspace.” The webinar was led by James Traeger, Director, and Carolyn Norgate, Principal Consultant, of Mayvin, a U.K.-based management consulting firm focusing on organizational development and design.

Mayvin has been operating as a “virtual” organization since long before the COVID-19 outbreak forced so many businesses to move online, the principals explained in the CPR-sponsored webinar. James and Carolyn, however, said they prefer to think of it as “remote,” rather than “virtual” working because the interpersonal connections built and maintained are still very much real.

Started in 2010 on the heels of the financial crisis, Mayvin works with organizations to help foster development and by increasing leadership’s understanding of the interests, motives, concerns, and inspiration driving their people.

The increased emphasis on flexible and virtual working James said he noticed when he co-founded the firm has only become more critical now as so many organizations have had to quickly adjust to a completely remote way of doing business.

This new environment, he said, requires a laser-like focus on business needs and the relationships required to deliver results.

Carolyn kicked off the substance of the webinar by leading participants in a process called “structured reflection.” She directed participants to reflect on what brought them to the session, to write down their thoughts, and even to reflect on different questions that may occur to them in the moment.

After a quiet minute or so, she instructed everyone to put their notes aside and look out the nearest window, focusing on what was drawing their attention, bringing their thoughts back to what they were seeing any time they started to wander.

Next, everyone was to draw a line under their notes and write down whatever they were now thinking about. Finally, participants were directed to look out the window one more time for a “grateful minute,” noting what they appreciated about the scene before them.

Carolyn explained that this exercise in shifting focus is a strategy Mayvin uses with clients to help them “slow down to go faster.” The idea is that by taking quality time to reflect, the individual may be able to problem-solve using different, more artful ways of thinking.

Conscious reflection, she said, can also play a vital role in developing a healthy, productive culture in a purely virtual organization by making space for innovation and interpersonal connection.

At its founding, the presenters explained, Mayvin was set up as an experiment aimed at shifting the mindset that an office is needed to have a real organization–an idea proving more relevant now than ever. As many are now realizing while isolating, social-distancing, and working remotely, the lack of a physical office can lead to unanticipated practical concerns: For example, how do you use technology to effectively stand in for water cooler chat, five-minute conversations over a coffee break, impromptu one-on-one check-ins, and all the other interpersonal interactions that create the “relational glue” required for an effective organization?

One practical solution Carolyn and James offered was the use of what they call a “noticing channel” on Slack or Microsoft Teams–a line of communication between employees completely separate from work-related discussions and emails that functions like a virtual form of casual conversation around the water cooler.

Mayvin also uses a random channel where employees have posted photos of at-home projects, family members, and even photos of themselves as teenagers. The idea is to maintain the type of non-work-related interpersonal connections that happen organically in an office even while everyone is working remotely.

The key take-aways, they said, for successfully navigating the shift to online and remote work include treating it as an experiment and remembering it’s all about mindset. Hold the tech lightly, they said: Remain nimble when determining what works and what doesn’t, always aiming to stay focused on what is working.

Where possible, they advised, use tools people are already comfortable with, helping them apply those familiar tools to new scenarios. Give people time and support to work through the change curve, making space for employees to air their fears and concerns and work through their feelings.

James likened it to choreography or setting a stage in theater. He encouraged the use of gallery view in video conferences so everyone occupies the same amount of space.

In smaller meetings, he suggested asking that everyone unmute themselves to allow for more natural interactions. Use the type of structured reflection Carolyn led the group through to shift mindset between meetings.

Create the glue that allows virtual workspaces to work well, they said, remembering that there’s more room for misunderstandings in virtual spaces. Preventing misunderstandings helps prevent disputes and enable purpose.

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The author, a second-year law student at Fordham University’s School of Law in New York, is a Summer 2020 CPR Institute intern.

Holding There Is No Treaty-FAA Conflict, Supreme Court Permits Equitable Estoppel for International Arbitration Parties

By Russ Bleemer

Philip J. Loree and Richard D. Faulkner discuss the GE Energy v. Outokumpu Supreme Court decision with Alternatives editor, Russ Bleemer

Seeing no conflict between key international arbitration enforcement law implemented by the Federal Arbitration Act and state laws, the U.S. Supreme Court today permitted a company that was not a party to an arbitration contract to make its case in using the doctrine of equitable estoppel to enforce an arbitration agreement.

GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USALLC, et al., No. 18-1048 (available at https://bit.ly/2XogerH), reverses and remands an Eleventh U.S. Circuit Court of Appeals decision that said that GE Energy, which provided motors to Outkumpu via a general contractor, could not use the contract between Outokumpu and the general contractor to take the case to arbitration.

A unanimous opinion written by Justice Clarence Thomas held that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (available at https://bit.ly/2ZVazuK), which is codified in United States in the FAA’s second chapter, does not conflict with domestic equitable estoppel doctrines that permit the enforcement of arbitration agreements by nonsignatories.

On remand, GE Energy will be able to use the equitable estoppel doctrine to invoke the arbitration contract between Outokumpu and the general contractor, and argue that the contract contemplates that nonparty suppliers to the general contractor may use arbitration to settle disputes.

Much of the opinion centered on the role of nonparties in invoking arbitration agreements under the international and national laws, deploying, in Thomas’s words, a “textual” analysis of the Convention and the FAA.

The predecessors and affiliates of Outokumpu, a Calvert, Ala., steel manufacturer, signed a contract for the construction of three mills. The contract contained an arbitration clause. The construction company subcontracted for nine motors to run the plants from petitioner GE Energy. When Outokumpu filed suit against GE Energy after it refused repairs on the motors, all of which failed, GE Energy asked a court to compel arbitration under the Outokumpu-general contractor agreement, also objecting to Outokumpu’s attempted federal-court joinder of foreign insurers.

GE Energy was not a party to the Outokumpu construction contract. Still, an Alabama federal district court granted GE Energy’s motion, and Outokumpu appealed to the Eleventh Circuit, which reversed and sent the case back to the trial court.

The Supreme Court today reversed again, remanding the case back for further proceedings, likely eventually to the district court, which had granted GE Energy’s motion to compel arbitration with Outokumpu and an insurer. But the lower court had granted the arbitration request because it said that, in its role as a subcontractor, GE Energy qualified as a party under the contract.

The Supreme Court today used the opinion to uphold the principle of equitable estoppel, which didn’t figure in the trial court’s decision.

The Eleventh Circuit had reversed the trial court, rejecting arbitration, because it said that the Convention required that the party actually sign an arbitration agreement, excluding nonparties’ ability to invoke the contract using a state law doctrine like equitable estoppel.

Thomas’s reasoning started with the FAA, which he wrote “permits courts to apply state-law doctrines related to the enforcement of arbitration agreements.” That would allow the application of states’ equitable estoppel doctrines. 

The opinion states, “Generally, in the arbitration context, ‘equitable estoppel allows a nonsignatory to a written agreement containing an arbitration clause to compel arbitration where a signatory to the written agreement must rely on the terms of that agreement in asserting its claims against the nonsignatory.’” 21 R. Lord, Williston on Contracts §57:19, p. 200 (2017).

The Convention, noted Thomas, focuses almost entirely on enforcement, and the short Article II on agreements “in writing,” which discusses the need for a signature, wasn’t in conflict with the FAA-backed equitable estoppel doctrines.

The opinion notes that the New York Convention is silent on the status of nonsignatories. “This silence is dispositive here,” wrote Justice Thomas, “because nothing in the text of the Convention could be read to otherwise prohibit the application of domestic equitable estoppel doctrines.”

The opinion analyzes the treaty’s “negotiating and drafting history,” and says that the Court found “Nothing in the drafting history [that] suggests that the Convention sought to prevent contracting states from applying domestic law that permits nonsignatories to enforce arbitration agreements in additional circumstances.”

The opinion also dodges the need to interpret the significance of the executive branch’s view of the treaty. The United States, which argued in the case in January, backing GE Energy, claimed that the Court should give deference and “great weight” to its amicus interpretation of the treaty, which it had  submitted in another unrelated D.C. Circuit Court of Appeals case. 

Outokumpu countered “that the Executive’s noncontemporaneous interpretation sheds no light on the meaning of the treaty, asserting that the Executive expressed the “opposite . . . view at the time of the Convention’s adoption.”

But Justice Thomas concluded,

We have never provided a full explanation of the basis for our practice of giving weight to the Executive’s interpretation of a treaty. Nor have we delineated the limitations of this practice, if any. But we need not resolve these issues today. Our textual analysis aligns with the Executive’s interpretation so there is no need to determine whether the Executive’s understanding is entitled to “weight” or “deference.”

The Court’s remand order addressed the big issue in the Eleventh Circuit about the New York Convention’s requirement that the agreement in writing needs to be signed by the parties.  Noting that the Convention provisions cited by the Eleventh Circuit address the recognition of arbitration agreements, not who is bound by the agreements, Thomas wrote, “Because the Court of Appeals concluded that the Convention prohibits enforcement by nonsignatories, the court did not determine whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governs that determination. Those questions can be addressed on remand.”

The opinion concluded by limiting the holding to the issue of the Convention and domestic-law equitable estoppel doctrines, finding no conflict between the two.

Justice Sonia Sotomayor concurred separately, agreeing that the Convention “does not categorically prohibit the application of domestic doctrines. She noted, “however, that the application of such domestic doctrines is subject to an important limitation: Any applicable domestic doctrines must be rooted in the principle of consent to arbitrate.”

Sotomayor said that consent is foundational to arbitration practice.  “This limitation is part and parcel of the Federal Arbitration Act (FAA) itself,” she wrote.

For a discussion of the Jan. 21 oral arguments in the case, see David Chung and Russ Bleemer’s post on CPR Speaks, “Tuesday’s SCOTUS Argument: Can Non-Signatories Compel Arbitration in the United States Under the New York Convention?” (January 22) (available at https://bit.ly/2ZVqPfg). For an examination of the GE Energy parties’ and amicus’s briefs, see “The Friends Speak: Here’s What Scotus Will Decide In the GE Energy International Arbitration Case,” 38 Alternatives 2 (January 2020) (available at https://bit.ly/2TXmcO2).

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The author edits Alternatives for the CPR Institute.  CPR Institute Summer 2020 intern Heather Cameron, a second year law student at Fordham University School of Law in New York City, contributed research.