Modeling for the World: Five UN Agencies Pledge to Accept Mediation Requests

By Russ Bleemer

The United Nations this week took a big step in modeling conflict resolution for resolving workplace disputes.  A new report says that, upon request, mediation will be the go-to method of resolving employment disputes for several high-profile UN agencies.

This effort not only serves the UN’s internal purposes but also provides an example for the governments world-wide that support UN efforts.

The Annual Report issued this morning by the Office of the Ombudsman for United Nations Funds and Programmes reveals that in 2021, its five associated UN agencies have elevated mediation’s role in their operations via a new Mediation Pledge in which the organizations each pledge to use third-party neutrals to address internal conflict.

The Ombudsman for United Nations Funds and Programmes works to resolve employment disputes within the United Nations Development Programme; the United Nations Population Fund; the United Nations International Children’s Emergency Fund, better known as UNICEF; the UN Office for Project Services, and the United Nations Entity for Gender Equality and the Empowerment of Women, known as UN-Women. 

Management and staff at the organizations have long been able to opt into the Ombudsman system, which, according to the Ombudsman’s website at  fpombudsman.org, provides informal grievance procedures with which the Ombudsman “may consider conflicts of any nature arising from employment“ within the organizations “and related funds and programmes.”

UN employees at the organizations can contact the Ombudsman “at any stage, for help on any work-related problem where a perspective outside of formal channels would be helpful.”

The new pledge, adopted this year by the five agencies, seeks to increase mediation use as part of the Ombudsman’s system of conflict resolution, with the signing agencies acknowledging that a mediated settlement addresses all parties’ interests and can lead to a more harmonious and less stressful workplace.   The texts of the pledges commit to increase mediation use backed by “statements of principles.” Other than the references to the adopting agencies, the pledges include the following:

  • In the event of a workplace conflict between [the signing agency] and a member of its personnel, the organization is prepared to discuss the possibility of resolving the conflict through Mediation.
  • At the request of the member of personnel or of [the signing agency], an initial discussion on the suitability of Mediation will be hosted by the Mediation Unit of the Office of the Ombudsman for United Nations Funds and Programmes.
  • At any time during the mediation process after the initial discussion, if one or both parties believe that Mediation is not viable in their case, either party may withdraw and proceed with formal options to resolve the matter.

The report further notes that the Ombudsman Office has been beefing up its mediation resources over the past year, in time for the pledge rollouts.  It has developed a new web page offering its materials at https://fpombudsman.org/what-we-do/mediation/. These include, among other items, a mediation guide (available in Arabic, English, French, and Spanish); a mediation training flyer; a guide for lawyers and parties in mediation; and a copy of the Ombudsman Office’s agreement to mediate.

The Ombudsman Office has also increased its outreach and training to promote the use and understanding of mediation services, including 14 specialized training sessions for human resources professionals worldwide that involved more than 450 UNICEF human resources staffers.

According to the new Annual Report, even in the face of the pandemic, this increase in mediation services led to record numbers of mediation cases in 2020, with a 97% settlement rate. Mediation now accounts for a greater proportion—almost double that of previous years—of cases brought to the Ombudsman office’s attention. Full details on the case breakdowns and the Ombudsman Office’s activities can be found in the report, just posted at the website link above.

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The author edits Alternatives to the High Cost of Litigation for CPR.

[END]

A Two-Time Supreme Court Arbitration Matter Is Ready to Settle

By Russ Bleemer

The long-running price-fixing matter between dental equipment suppliers that turned into an epic arbitration procedure fight, with two separate visits to the U.S. Supreme Court, appears to be over.

Documents have been filed in a Texas federal court indicating that the parties have reached an agreement in Archer and White Sales Inc. v. Henry Schein Inc, et al., Civil Action No. 2:12-CV-00572-JRG. Texas Eastern U.S. District Court Chief Judge Rodney Gilstrap, of Marshall, Texas, yesterday signed an order issuing a 30-day stay “of all deadlines” in the case because the parties “have agreed in principle on a settlement agreement and are in the process of finalizing the agreement.” Attorneys from both sides signed and submitted the stay request last week.

Just a few months ago, the case was argued before the U.S. Supreme Court a second time on the issue of who decides whether a case is arbitrated, a court or an arbitrator. The hour-long December arguments resulted in a nine-word per curiam decision on Jan. 25, when the nation’s top Court announced that the writ of certiorari was improvidently granted, and it dismissed the case.

The problem for the Court appeared to be that another issue, on the effectiveness of the incorporation of American Arbitration Association rules that speak to the decision-maker question, was needed to decide the case. 

But the Court last June had turned down a cross-petition on the incorporation-of-rules issue, which still figured heavily in the December oral arguments. The sole issue that the Court had expected to decide the abandoned case was on “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 result was that the Texas Eastern District federal court was readying the case for trial, because the Supreme Court ruling meant that the Fifth U.S. Circuit Court of Appeals case declining to send the case to arbitration stood as the law of the case.

The appeals court decision was unusual, too, in that it found that a clause effectively delegated the arbitration decision to the arbitrator via the incorporation of the AAA rules to that effect. Nevertheless, the panel didn’t compel arbitration.  It found that because of the way the clause was drafted, a  carve-out from arbitration for injunctions still applied to the contract. Archer & White Sales, Inc. v. Henry Schein Inc., 935 F.3d 274 (5th Cir. 2019) (available at https://bit.ly/2NC7EmL).

That’s the state of the case that was put on pause by Gilstrap’s order yesterday.

But it’s also only half of the arbitration history. The Supreme Court already had decided an arbitration point in the case less than two years before the December oral arguments. In Henry Schein Inc. v. Archer and White Sales Inc., 139 S. Ct. 524 (Jan. 19, 2019) (available at https://bit.ly/338gdLT), the Court held that the “wholly groundless” exception to arbitrability is inconsistent with the Federal Arbitration Act and the Court’s precedent.

Archer and White had argued that the dispute was not subject to arbitration because its complaint sought injunctive relief, at least in part. Henry Schein contended that because the rules governing the contract provide that arbitrators have the power to resolve arbitrability questions, an arbitrator—not the court—should decide whether the arbitration agreement applied. Archer and White countered that Schein’s argument for arbitration was wholly groundless–at the time, an exception to arbitration.

The Texas trial court and the Fifth Circuit agreed, but the Supreme Court, in January 2019, reversed, unanimously, and sent the case back to the Fifth Circuit.  Still, Justice Brett Kavanaugh, in his first Supreme Court opinion, wrote that the Court declined to determine “whether the parties agreed to arbitrate arbitrability” as indicated by “clear and unmistakable evidence.”

That began a road that had the case back in front of the Court again last December, and the Fifth Circuit’s reassessment that found that there still was not clear and unmistakable evidence that the parties wanted the injunctive relief arbitrated.  

Lost in the public arbitration morass was the dispute itself—a complicated antitrust matter. In 2012, Archer and White Sales Inc., a distributor, seller, and servicer for dental equipment manufacturers based in Plano, Texas, filed suit against Henry Schein Inc., a Melville, N.Y.‐based distributor and manufacturer of dental equipment, and subsidiaries of Washington, D.C.’s Danaher Corp., in U.S. federal court alleging that the defendants violated U.S. federal and state antitrust laws by conspiring to fix prices and refusing to compete with each other.

Specifically, Archer and White maintained that its competitor Henry Schein conspired with Danaher to terminate or reduce Archer and White’s distribution territory because the plaintiff was selling dental equipment at discounted prices. Archer and White sought millions of dollars in damages and injunctive relief.

The defendants had moved to compel arbitration based on the arbitration clause in the distributor contract between Archer and White and Danaher, which provided:

Disputes. This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of Pelton & Crane [Henry Schein succeeded Pelton in the contract with Archer]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association. The place of arbitration shall be in Charlotte, North Carolina.

There were no settlement details in last week’s request or Judge Gilstrap’s stay order, which was first reported yesterday for Bloomberg subscribers here.

* * *

CPR Speaks has watched the arbitration developments in the matter closely.  For information, see:

Analysis of the first U.S. Supreme Court case in the matter is available using the search features at CPR Speaks and altnewsletter.com.  A good starting point on this blog is Philip J. Loree Jr., Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court (Feb. 19, 2020).

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The author edits Alternatives to the High Cost of Litigation for CPR.

[END]

Part III: Deference Change–Analysis of a Shift on a Labor Arbitration Review Standard

By Antranik Chekemian

CPR Spring Intern Antranik Chekemian has provided extensive highlights on CPR Speaks of a Feb. 24 CPR online panel discussion, hosted by CPR’s Employment Disputes Committee and its Government & ADR Task Force, covering the current state of employment conflict resolution in the executive and legislative branches.  In “Part I: How Workplace ADR Will Evolve Under the Biden Administration,” Antranik covered presentations by panelist Mark Kantor, a Washington, D.C., arbitrator, who focused on prospects for legislative changes for employment and labor ADR issues, and possible regulation, and panelist Mark Gaston Pearce, Visiting Professor and Executive Director of the Georgetown University Law Center Workers’ Rights Institute, who discussed developments in decisions of the National Labor Relations Board, where he served as chairman from 2011 to 2017. In “Part II: More on Workplace ADR Under the Biden Administration,” panel moderator Arthur Pearlstein, who is Director of Arbitration for the Federal Mediation & Conciliation Service, turned to panelist Kathryn Siegel, a shareholder in Littler Mendelsohn’s Chicago office, whose presentation was highlighted, and then led a general discussion.  Here, Antranik returns to the program to highlight a piece of the discussion on the recent evolution of a key NLRB arbitration standard as discussed by panelist Pearce.

* * *

At CPR’s February webinar, “What Will Labor and Employment ADR Will Look Like Under a Biden Administration?” former NLRB board chair Mark Gaston Pearce discussed the effects of a 2019 United Parcel Service Inc. Board decision overruling its 2014 Babcock & Wilcox decision.

Babcock & Wilcox had changed the standard of post-arbitration deferral on resolution of a grievance concerning an employee’s discipline or discharge that has been alleged to violate the National Labor Relations Act.  

United Parcel Service reverted to the previous, long-running arbitration-deference standard.  NLRB Chairman John F. Ring (currently a board member), and members Marvin E. Kaplan and William J. Emanuel, all Trump appointees, unanimously decided the case.

Babcock & Wilcox Construction Co. Inc., Board Case No. 28-CA-022625 (reported at 362 NLRB No. 36) (Board summary here) (9th Cir. review Oct. 17, 2017, under the name Beneli v. NLRB), provided that the Board will “defer to an arbitral decision if the party urging deferral shows that: (1) the arbitrator was explicitly authorized to decide the unfair labor practice issue; (2) the arbitrator was presented with and considered the statutory issue, or was prevented from doing so by the party opposing deferral; and (3) Board law reasonably permits the award.”

The Babcock & Wilcox standard shifted the burden of proof to the party urging deferral. In addition, deferral was appropriate only when the party urging deferral was able to demonstrate that the specific statutory right at issue was incorporated in the collective-bargaining agreement.

In employers’ views, this made deferral to an arbitral decision less likely, with the need to prosecute cases at the grievance stage and the unfair labor practice stage. The NLRB decided to apply the standard prospectively.

During the webinar, Mark Gaston Pearce noted that it was still difficult to say whether Babcock & Wilcox had an impact on businesses, because any contract negotiated prior to the decision was not affected by the new change in standards. 

The Board in United Parcel Service Inc., 369 NLRB 1 (Dec. 23, 2019), reversed the Babcock & Wilcox decision, returning to the arbitral deferral standards established in Spielberg Mfg. Co., 112 NLRB 1080 (1955) and Olin Corp., 268 NLRB 573 (1984).

The United Parcel Service decision states that the Board will defer to an arbitration award in cases alleging discharge and discipline in violation of Section 8(a)(3) and (1), “if (1) the arbitration proceedings were fair and regular, (2) the parties agreed to be bound, (3) the contractual issue was factually parallel to the unfair labor practice issue, (4) the arbitrator was presented generally with the facts relevant to resolving the unfair labor practice, and (5) the decision was not clearly repugnant to the purposes and policies of the [NLRA].”

The NLRB stated in United Parcel Service that Babcock & Wilcox “disrupted the labor relations stability” and that the 2014 decision disfavored “the peaceful resolution of employment disputes about discharge and discipline issues through collectively bargained grievance arbitration proceedings.”

In a press release announcing the decision of United Parcel Service, the NLRB stated it “will continue to safeguard the exercise of Section 7 rights—particularly by ensuring that arbitral awards are not clearly repugnant to the Act—while better promoting the strong federal policy in favor of arbitration as the parties’ agreed-upon mechanism for resolving employment disputes.”

Mark Gaston Pearce told the CPR seminar attendees that the burden was once again placed on the party resisting deferral to the arbitration decision. He stated that the explicit authorization under the collective bargaining agreement sending the matter to the arbitrator to decide on a specific issue was not required anymore, and that there is no longer a requirement that the statutory issue be precisely articulated by the arbitrator.

Pearce concluded that it is still a “big question mark” whether a new Board under President Biden will reinstate the Babcock & Wilcox standard eliminated at the end of 2019, as it was to be effective prospectively. It was only recently that newly negotiated contracts would be subject to that standard.

* * *

The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.

[END]

In Its ‘Setty’ Decision, the Ninth Circuit Revisits Whether a Non-Party Can Compel Arbitration Under the FAA and the New York Convention

By Temitope Akande

Litigation over a non-party compelling arbitration via the contract theory of equitable estoppel lives on in the wake of a U.S. Supreme Court decision last year, and looks as though it will continue for some time, courtesy of a still-in-progress federal appeals court case–which itself already has visited the Supreme Court.

In Setty v. Shrinivas Sugandhalaya LLP, 986 F.3d 1139 (9th Cir. Jan. 20, 2021) (available at https://bit.ly/3gCLXzk),  the Ninth U.S. Circuit Court of Appeals revisits the enforceability of an arbitration clause by a non-party. The parties in the case are two companies set up by former partners, with the petitioner seeking to arbitrate under their partnership agreement.  The respondent—the original appellee—maintains that the arbitration is between the individual parties, not their companies, and the case should not be arbitrated.

The Ninth Circuit, in a January opinion on remand from the U.S. Supreme Court, agreed, and declined to compel arbitration.  The petitioner asked for a panel rehearing, or, alternatively, a rehearing en banc by the full Ninth Circuit.  A decision is pending.  The case may eventually re-trace its steps to the nation’s top Court.

The action arises from a dispute between two brothers who formerly ran a partnership in India under the trademarked name Shrivinas Sugandhalaya. The brothers’ Deed of Partnership provides an agreement to arbitrate “All disputes of any type whatsoever in respect of the partnership arising between the partners.” The brothers separated and later established their separate incense businesses at different locations.

Ninth Circuit respondents (and original plaintiffs) Balkrishna Setty and his Indian company, referred to in the Ninth Circuit case as SS Bangalore, filed suit against brother Nagraj Setty’s company, referred to in the opinion as SS Mumbai–both references to their operating locations.

Original plaintiff SS Bangalore claimed that original respondent SS Mumbai used the partnership’s intellectual property without permission. But the suit did not name SS Mumbai owner Nagraj Setty, who signed the Deed of Partnership containing the arbitration clause. Yet SS Mumbai, despite its nonsignatory status, in the current case petitioned in federal court to stay the litigation and compel arbitration pursuant to the Federal Arbitration Act and the New York Convention.

A Washington state U.S. District Court denied SS Mumbai’s motion, holding  that since SS Mumbai was not a signatory to the Deed of Partnership, it had no right to enforce the agreement’s arbitration provisions or stay the litigation. SS Mumbai appealed, and the Ninth Circuit affirmed the District court’s decision.

The U.S. Supreme Court granted certiorari, vacated the judgment, and remanded for further consideration last year in light of GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020). The district court once again denied the defendant’s motions to compel arbitration and to grant a stay pending arbitration in a civil case. 

The Ninth Circuit again affirmed in January in the case cited above, but a detailed dissent, more than twice as long as the panel decision, appears to have sparked the rehearing motions now pending before the Ninth Circuit, and could eventually be the impetus to return the case to the U.S. Supreme Court in the form of a new cert petition. 

In the most recent case decided by the Ninth Circuit on remand from the Supreme Court, SS Mumbai raised two issues. The first was whether the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention, permits a nonsignatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel or similar principles of applicable law.

On that point, the petitioner argued that FAA Chapter 1 makes written arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Therefore, it also permits enforcement of an arbitration clause “against (or for the benefit of) a third party”—i.e., a nonsignatory—if enforcement would be permitted “under state contract law.” Arthur Andersen v. Carlisle, 556 U.S. 624, 631 (2009).

Consequently, state law doctrines and concepts such as equitable estoppel prevent a party from “cherry-picking” the beneficial provisions of the contract while trying to avoid provisions it deems detrimental, such as a requirement to arbitrate disputes. 21 Richard A. Lord, Williston on Contracts, § 57:19, at 200, 202 (4th ed. 2017) (cited in Arthur Andersen, above).

The petitioner’s second issue was whether the court could issue a stay of the litigation pending the arbitration.

The Ninth Circuit denied both motions.  It declined to compel arbitration since the partnership deed provided for arbitration exclusively for disputes “arising between parties,”—here, it would have between the brothers, not the brothers’ partnership–and not by a third party.

Regarding petitioner SS Mumbai’s request for a stay of the litigation under FAA Section 3, the Ninth Circuit further held that SS Mumbai’s ability to stay the litigation depended on its right to compel and, with SS Mumbai’s request to compel rejected, the district court did not abuse its discretion in denying a stay of proceedings pending arbitration.

SS Mumbai had argued that the district court and previous Ninth Circuit decisions misconstrued the New York Convention and the FAA, leaving international arbitration agreements with less protection than domestic agreements.

The decision, written by Senior Ninth Circuit Judge Dorothy W. Nelson, joined by Circuit Judge Johnnie B. Rawlinson, is a straightforward, seven-page affirmation of a denial to compel, relying on the use of federal law to determine the ability to apply equitable estoppel to allow non-party SS Mumbai to compel arbitration under the Deed of Partnership. 

But a detailed 18-page dissent by Senior Circuit Judge Carlos T. Bea, focusing on the choice of law that is needed to make the decision as to whether equitable estoppel can be applied by the court to compel arbitration in favor of the petitioners, ensures more attention for this case before it is litigated or arbitrated.

The GE Energy Supreme Court decision was pivotal–the reason for the nation’s top Court granting cert in Setty, then vacating and remanding.  In GE Energy last spring, the Court held that nothing in the New York Convention conflicted with “the application of domestic equitable estoppel doctrines permitted under Chapter 1 of the FAA.”

As a result, the Court allowed nonsignatories to agreements governed by the New York Convention—codified in FAA Chapter 2–to request compelling arbitration as permitted under FAA Chapter 1, using state law contract grounds.  For details and analysis on GE Energy, including a link to the case, see  “Holding There Is No Treaty-FAA Conflict, Supreme Court Permits Equitable Estoppel for International Arbitration Parties,” CPR Speaks (June 1, 2020) (available at https://bit.ly/2U1QrDs).

But even post-GE Energy, the Ninth Circuit panel early this year said that the Setty question involved “federal substantive law.” Under its case of Letizia v. Prudential Bache Securities Inc., 802 F.2d 1185, 1187 (9th Cir. 1986), that means that the court looks to “ordinary contract and agency principles” in determining the arbitrability of federal claims by or against nonsignatories to an arbitration agreement.

In her opinion, Senior Circuit Judge Nelson concluded that the petitioner’s claims were not clearly intertwined with the partnership deed providing for arbitration. Accordingly, she concluded, the district court properly exercised its discretion in rejecting the argument that the original plaintiffs should be equitably estopped from avoiding arbitration and denying SS Mumbai’s motion to stay the proceedings pending arbitration.

But Senior Circuit Judge Bea’s dissent viewed the majority’s choice of federal law differently. He would have sent the case back for further consideration under different law—which perhaps would have reached a different FAA result that would have allowed equitable estoppel to be applied and sent the case to arbitration.

“The Supreme Court and Ninth Circuit,” wrote Bea, “have time and again held that whichever background body of state contract law that governs the arbitration agreement also governs equitable estoppel claims to compel arbitration pursued under [FAA Chapter 1 at] 9 U.S.C. §§ 1 et seq. We should not hold differently here.”

The problem with the majority opinion, explained Bea, was the choice of federal substantive law.  He opened his dissent noting, “On remand from the Supreme Court, we are faced with the question of which equitable estoppel law governs an Indian company’s motion to compel another Indian company and its Indian owner to arbitration based on an agreement entered into in India, signed by two Indian brothers (who own the Indian companies), and governing conduct in India. The majority holds that, not Indian, but U.S. federal common law governs the issue.”

Circuit Judge Bea points out that the first Ninth Circuit refusal to compel arbitration didn’t rule on the merits of SS Mumbai using equitable estoppel, but rather held that the doctrine wasn’t available under the New York Convention.  That was the point in focus under the Supreme Court’s cert grant and accompanying order to vacate and reconsider in light of GE Energy Power.

The dissent emphasizes that the Supreme Court now backs the use of equitable estoppel under FAA Sec. 1, because GE Energy allows nonparties under the New York Convention to use Sec. 1 to compel arbitration.  He maintains that GE Energy overrules previous Ninth Circuit caselaw that barred Sec. 1 use under the New York Convention.

The current difference in the Setty matter, notes the dissent, is that the state law doctrine to be applied in the New York Convention cases should be the foreign law that applies in the case.  In Setty, the law of India on equitable estoppel would be applied to determine whether SS Mumbai can rely on its principal’s Deed of Partnership contract, according to Senior Circuit Judge Bea’s view.

“I see no reason to hold that settled FAA Chapter 1 law should somehow apply differently to nonsignatories of agreements otherwise governed by the New York Convention” codified in FAA Chapter 2, he wrote.  Circuit Judge Bea added that “neither the Supreme Court nor the Ninth Circuit has ever relied on the subject matter jurisdiction or the nature of the claims in holding that state law governs equitable estoppel under FAA Chapter 1.”

In addition, in his choice-of-law analysis, Bea noted, “It would appear to me that India is the forum with the most significant relationship to the Partnership Deed and that the traditional principles of Indian contract law may very well govern whether a signatory may be compelled to arbitrate with a nonsignatory over an issue arising from that contract.”

That analysis, however, wasn’t developed in the parties’ briefing, so Bea concluded that he would “remand the case back to the district court to resolve in the first instance which choice-of-law principles should be used to determine which contract law should govern the equitable estoppel issue, apply the principles, and resolve the equitable estoppel issue.”

* * *

SS Mumbai has asked the panel to re-hear the case or, alternatively, for an en banc rehearing before the full Ninth Circuit, following from points in the Bea dissent. 

The petition notes that:

  1. “The majority’s decision conflicts with other decisions of the Ninth Circuit recognizing that federal common law also incorporates choice of law principles; determining whether those principles continue to apply to agreements subject to the New York Convention is a question of exceptional importance”;
  2. “The majority’s decision conflicts with other Ninth Circuit decisions allowing non-signatories to enforce arbitration agreements using equitable estoppel” and conflicts with Supreme Court decisions, “creates unnecessary confusion, and involves questions of exceptional importance regarding maintaining the uniformity of the law to be applied to arbitration agreements.”

In opposition to the SS Mumbai motion, original plaintiff-appellee SS Bangalore responded that the arbitration agreement at issue is subject to the FAA’s implementation of the New York Convention and if the federal statute in question demands national uniformity, federal common law provides the determinative rules of decision.

The court need not analyze the choice of law, the response says, but instead determine the issue based on federal common law. The reply brief notes, “By concluding that federal common law governs whether a nonsignatory may invoke equitable estoppel to force a party into arbitration, the Majority’s decision furthers the New York Convention’s goal of achieving uniformity in how courts implement international arbitration agreements. [Citation omitted.] With the Majority’s ruling, signatories to international arbitration agreements can rest assured that a nonsignatory will not be able to require arbitration unless they meet the federal standard for equitable estoppel, regardless of the forum state, when invoking federal question jurisdiction.”

The parties now await the decision of the Ninth Circuit on the pending motion to rehear the appeal en banc, with the prospect of an eventual return to the nation’s top Court looming.

* * *

Akande, who received a Master of Laws in Alternative Dispute Resolution last May at the University of Southern California Gould School of Law in Los Angeles, is volunteering with the CPR Institute through Spring 2021.

[END]

Part II: More on Workplace ADR Under the Biden Administration

In “Part I: How Workplace ADR Will Evolve Under the Biden Administration,” CPR intern Antranik Chekemian reviewed on CPR Speaks the first half of comments during an online panel discussion hosted in late February by CPR’s Employment Disputes Committee and its Government & ADR Task Force.  Washington, D.C., arbitrator Mark Kantor focused on prospects for legislative changes for employment and labor ADR issues, and possible regulation, while Mark Gaston Pierce, Visiting Professor and Executive Director of the Georgetown University Law Center Workers’ Rights Institute, covered labor developments in decisions of the National Labor Relations Board, where he served as chairman from 2011 to 2017.  After their presentations, panel moderator Arthur Pearlstein, who is Director of Arbitration for the Federal Mediation & Conciliation Service, turned to panelist Kathryn Siegel, a shareholder in Littler Mendelsohn’s Chicago office, before concluding with a general discussion. Highlights from the second half of the program appear below.

* * *

By Antranik Chekemian

Kathryn Siegel mainly focused on the Equal Employment Opportunity Commission, which, like the National Labor Relations Board, also has five members.

Siegel noted that she did not expect to see drastic EEOC policy changes during the Biden administration. Even though the chair has recently been changed by President Biden, a Republican majority still exists in the commission.

The general counsel at the Feb. 24 seminar date, Sharon Fast Gustafson, was fired by Biden March 5, and replaced by veteran EEOC attorney Gwendolyn Young Reams, who is now Acting General Counsel. Gustafson was a Republican appointee whose term would not have expired until August 2023.

Still, Siegel pointed out, “There is still going to be a Republican [board] majority through at least July of 2022, possibly through the end of 2022 because of the terms of the Republicans,” she said.  Siegel concluded that this will prevent the Biden-appointed chair from advancing Democratic policy initiatives and significant changes through at least the middle of next year.

Regarding the impact of the changes in the EEOC on arbitration/mediation, Siegel noted the “conclusion of the two six-month pilot programs relating to the agency’s conciliation and mediation efforts.”

She provided insights on the program. “The message of the… pilot was to mediate early, mediate often, mediate late, and mediate all the time,” she said. She emphasized that parties could mediate at any stage of any charge, and that it did not have to be at the outset.

She added that the parties in Category B charges—those that require more EEOC investigation to substantiate and pursue–were the ones that were being invited to mediation.  Siegel said, “What we saw during this pilot program was that you could really mediate even the EEOC’s high-priority charges that advanced an issue of law that the EEOC potentially wanted to litigate, that had . . . kind of bad facts in it.”

After the mediation pilot’s conclusion, however, there is not going to be an opportunity to mediate high priority charges. Siegel noted that even though this is a big change, it would not be difficult to adapt to this change as the pilot program was only six months long.

She also discussed the pilot program on conciliation that was launched around the same time as the mediation pilot program. The conciliation program also was officially dropped in January. Siegel, however, noted that a rule was established just before the EEOC’s chair changed. “That final rule as to the new EEOC conciliation and how that will be handled is in place for now,” she said.

Siegel added that the rule will last until the Democrats get the majority back sometime in 2022. She said that the conciliation process rule change provided that the “EEOC must provide factual support for its reasonable cause finding and its damages calculations as part of the conciliation process.”

She then discussed another 2020 change she observed with the EEOC regarding “the number of investigations and how robust those investigations were.” Even for charges that were classed as Category B, she said, requests for position statements were lower than before, and the investigations ended more quickly. She noted that this could have been the result of both the Trump administration and Covid-19, and predicted that investigations will likely ramp up again as things get back to normal post-pandemic.

“Part of that speed in which charges were pushed through and right-to-sues were issued was a result of pressure from the administration to clear a backlog,” she said, adding to “expect that there will be a little bit of the brakes put on, slowing down, to make sure that each charge gets due time in investigation.”

* * *

Moderator Arthur Pearlstein then directed a question to panelist Mark Kantor regarding how administrative actions could potentially affect class action waivers and arbitration. Pearlstein further asked Kantor to clarify the 2019 U.S. Supreme Court Lamps Plus decision.

Kantor noted that Lamps Plus provides that “the presumption is that arbitration is individualized and there is not collective arbitration unless the arbitration clause clearly provides for that.” He also said, however, that “in most circumstances . . . the question of what the arbitration clause says would be delegated to the arbitrator.”

In Lamps Plus, Inc. v. Varela, 139 S.Ct. 1407 (2019), the U.S. Supreme Court provided that because the individualized form of arbitration was envisioned by the Federal Arbitration Act, “Courts may not infer from an ambiguous agreement that parties have consented to arbitration on a classwide basis.” The decision further notes that the class arbitration lacks the benefits of individualized arbitration. “It [class arbitration] sacrifices the principal advantage of arbitration – its informality – and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.”

Kantor said, “A very large number of arbitration clauses in employment agreements, consumer contracts and the like . . . expressly waive the right to bring a class proceeding in arbitration as well as in court.”

He concluded that “a regulatory measure from an independent agency or an executive agency would prohibit that claim . . . in a contract so long as it was aimed at all forums. Not focusing on arbitration has a good chance of passing muster under [Epic Systems v. Lewis] and that might override the literally millions of clauses out there in existing contracts that provide for waivers of class proceedings.”

Pearlstein then noted the “obvious difficulty in getting major legislation passed regarding labor and employment issues” and asked the panelists about the chances of less-dramatic piecemeal legislation passing in Congress. He also asked about the Biden administration’s role with administrative actions and whether it means agencies like the National Labor Relations Board and the EEOC “become more important than they have ever been, or, certainly, in a long time?”

Siegel said that rulemaking has already been used a substitute for doing things at the NLRB, and that this was effective in dictating policy goals. She added that this was an alternative presented at the agency level as a common law substitute. “They did not want to have to wait for the case to come up before them to rule,” she said, and “in lieu of waiting for Congress and having to pass legislation that is not exactly what they would want and as a compromise, that would be an alternative.”

Mark Gaston Pearce said that “rulemaking will show up and go the other direction and use up a lot of agency resources in that regard.” Regarding a piecemeal legislative approach, Pearce noted that it’s “more likely than a wholesale acceptance of a statute like the PRO Act, because there may not be enough Democratic senators — much less Republicans — that are going to buy into the entire measure, but as Mark Kantor suggests, it’s very possible that they can tag on particular key measures of the PRO Act into must-have legislation in order to get some of that across.”

There was a question from the audience asking whether there is proposed federal legislation that would restrict waivers of jury trials, which companies might use as an alternative to class-action waivers.


Mark Kantor responded that he was not aware of any standalone legislation aiming at prohibiting jury-trial waivers. He said, “We do know that several states have enacted legislation, for example, California and Georgia, achieving that result in their own state courts, but at the federal level, again, you’re going to run into the filibuster, so it’s unlikely you would find Republican support in the Senate for legislation like that, and it is equally unlikely that you could obtain 60 votes, a closure vote to override filibuster. It’s not going to be budget reconciliation, which means you’re looking at appending it to a must-pass legislation.”

Panelist Kathryn Siegel also noted that states attempt to accomplish certain goals when it’s not possible at the federal level, especially in the context of arbitration limits. “We have seen states,” she said, “such as Illinois, trying to . . . make their own rules as to arbitration and when you can require arbitration of disputes.” She further added even though such laws are going to be preempted by the FAA, many states pass them “hoping that they have crafted it in a way that it avoids the issues that other states have had or that no one will notice.”

An attendee asked the panel whether they “expect a Biden majority to overturn the NLRB’s General Motors decision by re-implementing the specific tests for evaluating discipline for conduct that occurred during protected concerted activity, instead of the Wright Line standard.”

According to the new standard provided by the General Motors decision, the NLRB General Counsel must show that “(1) the employee engaged in Section 7 activity, (2) the employer knew of that activity, and (3) the employer had animus against the Section 7 activity, which must be proven with evidence sufficient to establish a causal relationship between the discipline and the Section 7 activity.”

The General Motors decision provided that the conflict between the anti-discrimination laws and the setting-specific standards explained below required the adoption of the Wright Line standard. The NLRB further cited the EEOC and mentioned that discrimination laws do not forgive abusive conduct when it arises from heated feelings about working conditions or because crude language is common in the workplace. The decision also characterized the setting-specific standards to be “wholly indifferent to employers’ legal obligations to prevent hostile work environments on the basis of protected traits.”

The General Motors case replaced several setting-specific standards:

  • The Atlantic Steel standard on workplace discussions with management: To determine whether abusive conduct by the employee during protected concerted activity was severe enough to lose the National Labor Relations Act’s protection, the Board had  applied a four-factor standard: (1) the place of the discussion; (2) the subject matter of the discussion; (3) the nature of the employee’s outburst; and (4) whether the outburst was, in any way, provoked by an employer’s unfair labor practice. General Motors noted that because the Board had not assigned any specific weight to any of these factors, the Board’s application of these factors resulted in inconsistent outcomes over the years. Furthermore, the second factor – the subject matter of the discussion – favored the protection of the employees as the Atlantic Steel factors only applied when the subject matter was related to Section 7 activity. NLRA Section 7 provides that “employees shall have the right to self-organization, to form, join, or assist labor organizations… and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid protection.” The Board in General Motors also criticized the shortcomings of the Atlantic Steel standard as it was “giving little, if any, consideration to employers’ right to maintain order and respect.”
  • The totality of the circumstances on social media posts and coworker discussions: The General Motors decision also replaced the totality of the circumstances standard that had applied to social-media posts and coworker discussions. “The Board’s flexibility in considering a wider of range of facts in each specific circumstance promises to create the same, if not more, inconsistency and unpredictability,” noted the decision.
  • The Clear Pine Mouldings Test for conduct taking place on the picket line: Cases that applied the 1978 Clear Pine Mouldings test had found that the employees lose NLRA protection only when “it involves an overt or implied threat or where there is reasonable likelihood of an imminent physical confrontation.” General Motors noted that, “As a result, the Board has found appallingly abusive picket-line misconduct to retain protection, including racially and sexually offensive language.”

The NLRB further concluded in General Motors that absent evidence of discrimination against Section 7 activity, there is no merit of “finding violations of federal labor law against employers that act in good faith to maintain civil, inclusive, and healthy workplaces for their employees. These results [from setting-specific standards] simply do not advance the Board’s mission of promoting labor peace or any of the other principles animating the Act.”

After the General Motors decision, the Trump-appointed Chairman, John F. Ring praised the decision. “For too long,” he stated, “the Board has protected employees who engage in obscene, racist, and sexually harassing speech not tolerated in almost any workplace today. Our decision in General Motors ends this unwarranted protection, eliminates the conflict between the NLRA and antidiscrimination laws, and acknowledges that the expectations for employee conduct in the workplace have changed.” President Biden replaced Ring on Jan. 20 with NLRB member Lauren McFerran; Ring’s board term continues through Dec. 16, 2022.

Panelist Mark Gaston Pearce noted that the applicability of the Wright Line standard during protected concerted activity should be fleshed out and that it was an overreach. Even though Pearce said he believed there was a need for a fix with respect to Title 7-type situations, the test could have been within the realm of the existing test–the Clear Pine Mouldings test.

Pearce further acknowledged Clear Pine Mouldings’ shortcomings, noting that under this test, “racial and sexual derogatory remarks were not sufficient to take protection away from the actor, because they were not violence or threats of violence.” He noted that the NLRB had failed to look at the situations from the viewpoint of the recipient of those kinds of remarks, and what kind of reaction that had.

Pearce expressed his concerns regarding the new Wright Line standard that when it comes to obscene or profane remarks made during the heat of the moment or during an exchange between someone engaged in protected concerted activity and management, noting that such circumstances should be treated differently.

He further added that the Wright Line standard does not respond to what happens when management has provoked a response in the course of protected concerted activity. He further explained:

It may well be while that standard exists, these issues are going to have to be fleshed out before an arbitrator who is using the just-cause standard. Because of course if someone was provoked into something in a unionized setting, and it comes out in an arbitration, . . . [the] arbitrator has the ability to weigh those kinds of determinations and [make] an assessment as to whether or not there was just cause for them to act the way it did.

In a non-union setting, that opportunity does not present itself, so there is an inequitable situation there. Furthermore, if employees don’t know what they can say or how they should say, they will censor, self-censor and deny themselves the ability to engage in rights protected under the National Labor Relations Act. The Supreme Court says, and there are several cases that say, that the NLRB and the courts are not in the business of making civility codes.

A seminar attendee asked the panel, “What changes in labor arbitration should we expect with federal agencies like the VA, Capitol Police, Bureau of Prisons, military bases, etc.?”

Moderator Pearlstein first responded that the Capitol Police is not under the Federal Labor Relations Act authority. As to federal agencies in general, he said, “There are dramatic changes on the horizon once the makeup of the NLRB changes . . . and once things rotate into a Democratic majority.”

He said that “the changes under the Trump board at the NLRB were so dramatic, reversing so much precedent, that I think you’re going to start seeing quite a lot of change as that catches up.”

Regarding executive orders, Pearlstein noted that “the president has already reversed all the executive orders basically that applied to the federal workplace.”

There was a question asking whether the EEOC will go back to its prior policy criticizing mandatory arbitration once the Democrats get the majority.

Panelist Kathryn Siegel responded that the “EEOC and most of the federal agencies . . . once they are able to effectuate Democratic policies, they are going to pretend like the last four years were just a nightmare and return as quickly as possible to the policies and the plans that they had prior to the Trump election.”

Therefore, she said, it is likely that there will be a return to what was being advanced by Democrats four years ago.

Panelist Pearce added that NLRB’s “only issue was solely with respect to class-action waivers. The NLRB didn’t challenge mandatory arbitration, because the FAA . . . [and] other Supreme Court cases [concluded] that mandatory arbitration is the rule of the day.”

Pearce said the NLRB’s Epic Systems concern was “the flip handling of what constitutes concerted activity  . . and what kind of impact that will have on future cases.” He added, “Certainly, this Trump board did its best to clamp down on protected concerted activity definitions and issued some cases that really restricted that. I agree in that respect that the Biden board will go in the other direction.”

Another attendee asked: “Is there any attempt to have Congress address the extent to which the Federal Arbitration Act can be used?”

Said panelist Mark Kantor, “That is exactly what the FAIR Act will aim at. It will pass the House. It will get hearings and committee action in the Senate. but it seems highly unlikely that it will be enacted by the Senate over a filibuster in light of vote counting,” said Kantor (see links above to Kantor’s discussion in Part I, which also includes links to his CPR Speaks articles on the subject).

Moderator Arthur Pearlstein then asked whether there will be an effect on the market for labor and employment arbitration under the Biden administration.

Panelist Siegel replied that the NLRB Trump Board policy was to defer to arbitration as frequently and as early as possible. In 2019, the Board replaced the Babcock standard and returned to the less rigorous standards of Spielberg/Olin [cited and explained in Babcock] to defer to arbitration in cases alleging discharge and discipline in violation of NLRA Sections 8(a)(3) and (1).

Siegel noted that fewer cases were being decided by the Board when there was a parallel proceeding in arbitration. Considering the possibility of a new Board reverting to the Babcock standard which makes arbitration less likely, Siegel concluded that it followed that this could negatively affect the number of cases in the labor and employment arbitration market.

Finally, Mark Kantor mentioned that in its 2019 decision, New Prime Inc. v. Oliveira, “the Supreme Court made clear that the exclusion from enforcement of arbitration agreements under the Federal Arbitration Act for transportation workers did extend to an independent trucker, by application to independent contractors in the transportation field.”

He noted that “the Court was very careful to signal that the interpretation was only to apply to the Federal Arbitration Act and not to any other legislation. There was nothing in that decision signaling that the Court might wish to rethink its interpretation of the exclusion to go beyond transportation workers into other industries.”

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The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.

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You can read the final installment of Antranik Chekemian’s report on the CPR workplace and employment seminar at Part III: Deference Change–Analysis of a Shift on a Labor Arbitration Review Standard (April 26).

[END]

CPR Launches New Administered Employment Arbitration Rules and Updates Its Employment-Related Mass Claims Protocol

The International Institute for Conflict Prevention & Resolution (CPR) has launched its first set of Administered Employment Arbitration Rules and updated its Employment-Related Mass Claims Protocol. 

The just-released 2021 Administered Employment Arbitration Rules (Employment Rules) incorporate many innovations from CPR’s 2019 Administered Arbitration Rules, and reflect the collaboration of counsel from the plaintiff’s bar, in-house employment counsel, corporate defense attorneys, and neutrals who contributed to their creation. 

CPR recognizes that employment disputes and employment arbitration programs differ from commercial arbitration in important ways. Among other things, employment arbitration agreements, programs, and procedures must ensure that the interests of individual workers, who as a practical matter often do not negotiate their terms, are adequately protected.

The new CPR Employment Rules give significant attention to due process concerns (described in more detail below), which are vital for individuals subject to mandatory arbitration programs.  These rules are an especially welcome contribution to the field, given the increasing frequency with which employment-related disputes are being arbitrated. (Alexander J.S. Colvin, “The growing use of mandatory arbitration,” Economic Policy Institute (April 6, 2018) (noting that 53.9 percent of nonunion private-sector employers now have mandatory employment arbitration procedures, and that percentage climbs to 65.1 percent among companies with 1,000 or more employees).

The following are some of the distinguishing features of the newly launched CPR Employment Rules:

  • Rule 1.4 (Due Process Protections):  Demonstrating the fundamental importance that CPR places on fairness to all parties, including in particular employees and individuals who may be subject to mandatory arbitration programs, CPR incorporates its Due Process Protections directly in the Rules at their outset. The provision is detailed, providing employers better guidance on when and how CPR will apply the due process requirements.
  • Rules 3.12-3.13 (joinder and consolidation, respectively): CPR has created an innovative procedure that uses an Administrative Arbitrator to address issues of joinder and consolidation when they arise prior to selection of an arbitrator, identifies factors to be considered, and makes clear that neither joinder nor consolidation is permitted if prohibited by the applicable arbitration agreement.
  • Rules 5-6 (selection of arbitrator): CPR’s Employment Rules provide for arbitration by a single arbitrator selected by the parties from a list using striking and ranking as the default procedure (like other employment arbitration providers); however, CPR’s Employment Rules also offer parties a variety of other options for arbitrator selection should they wish to innovate in this area, including allowing parties to propose arbitrators to be included on the slates for nomination or to use CPR’s unique screened selection process for three-arbitrator tribunals.
  • Rule 12.2(c) (hearings): Given the experiences gained during the Covid-19 pandemic, CPR’s Employment Rules make clear that an arbitrator may order remote hearings and provide factors to be considered in making this determination.
  • Rule 14 (emergency measures by emergency arbitrator): Clarifying a matter than can be ambiguous under other providers’ rules, CPR’s Employment Rules provide that their emergency procedures will apply automatically unless parties expressly agree they do not; at the same time, the emergency procedures are not exclusive, and parties still have the choice of going to court for emergency relief.
  • Rules 17 and 18 (administrative and arbitrator fees): CPR’s Employment Rules, consistent with most state law and with the Due Process Protections, provide that employers are generally required to pay arbitration fees but that the arbitrator has authority in appropriate cases to shift fees to the same extent a court would be able to do so. In addition, to address a matter that has become more commonly litigated, CPR’s Employment Rules set out detailed guidance to address cases where a party has refused to pay required fees to provide clarity on preserving the rights of the non-defaulting party.
  • Rule 20 (confidentiality): CPR’s Employment Rules provide that CPR and the arbitrator must maintain confidentiality. But, consistent with developing case law, these rules do not impose confidentiality by rule upon the parties. The arbitrator has the same authority as a court to issue confidentiality orders to protect evidence/discovery.
  • CPR’s Employment Rules are specifically designed to avoid ambiguity and disputes over the interpretation of the rules.

The fee structure for the administration under the Employment Rules can be found HERE.

CPR also is updating the Employment-Related Mass Claims Protocol (ERMCP), which it first launched in November of 2019.  The Protocol provides an innovative mechanism for the more efficient and effective resolution of a mass of employment-related cases.  The ERMCP now incorporates CPR’s newly launched Employment Rules as the default rules that will govern arbitrations under the Protocol.

In addition, and in an effort to provide better clarity around the procedures under the Protocol, and with the guidance from a task force of leading counsel from the plaintiff’s bar, in-house employment counsel, corporate defense attorneys, and neutrals, the updated ERMCP also:

  • clarifies the documents that need to be filed to commence the arbitrations;
  • clarifies certain timelines for triggering events, including payment deadlines;
  • specifies the kinds of grounds for challenging an arbitrator’s independence or impartiality (such as provided in the Employment Rules);
  • defines basic terms to avoid ambiguity, such as “Commencement Date,” the “Employment Mass Claims Panel,” the “CPR Panel of Distinguished Neutrals,” and a “Final Written Reasoned Award;”
  • provides greater details for how the Mediation Process will work;
  • expands the role of the Administrative Arbitrator to assist the parties in expediting the proceedings and reaching a resolution;
  • reinforces the option of the parties to resolve their cases at any point in time even apart from the Mediation Process; and
  • clarifies the authority of the arbitrator to order a remote proceeding so long as taking measures to ensure the remote proceedings remain fair.

Please also see the FAQs accompanying this revised version.

To make administration of the Protocol more cost-effective, the fee structure for the Protocol has also been modified based on efficiencies that can be achieved.  CPR still requests that any party contemplating inclusion of the Protocol in its dispute resolution program discuss the Initiation Fee with CPR both to scope out the size of any matter and to ensure there is compliance with CPR’s Due Process Protections and other guidance.

[END]


Conflict, Constructively: Damali Peterman on Managing Conflict

By Amy Foust

Commitment, communication, conflict resolution, and comradery: New York attorney Damali Peterman, founder and CEO of Breakthrough ADR, presented a Thursday, March 25, CPR-hosted discussion, “The 4 Cs to Managing Conflict in the Workplace Remotely.” 

Those “4 Cs,” she explained, establish or maintain comradery in a remote relationship. She discussed virtual coffee meetings, using the phone instead of Zoom, turning on cameras during Zoom calls to increase interactive communication, and introducing short icebreakers before getting to the substance of a meeting.  Damali modeled using “reactions” and the Zoom chat function to solicit audience involvement throughout her presentation.

Among other frameworks for understanding and preventing conflict, Damali reviewed the Thomas-Kilmann Conflict Mode Instrument’s communication styles and how they might appear in common workplace situations.  Understanding those styles, Damali said, can help in understanding behavior even if we do not know people well, as can happen in remote work relationships.  That understanding can also help us be aware of our own responses to conflict, avoiding defensiveness and adapting our response to the situation constructively.

Imagining conflict as an iceberg, Damali said that “only 10% of the iceberg is showing above the waterline.  We want to jump under that water line, and we want to see . . . more of the conflict, understand what happened and gather information.”

To gather information, she encouraged the use of the word “and.”  Rather than acknowledging other perspectives with “yes, but,” which tends to negate what came before, Damali encouraged the use of “yes, and,” which recognizes that there could be many valid perspectives.

In addition to Damali Peterman’s resources on the Breakthrough ADR website, a program of related interest will be “Yes, You Can!  Pathways to a Career in Conflict Prevention & Resolution,” a May 6 event presented by CPR’s Young Leaders in Alternative Dispute Resolution (Y-ADR) and the Metropolitan Black Bar Association’s Dispute Resolution Section.

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Author Amy Foust is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021.

[END]

Mediation Confidentiality: Misconceptions, Pitfalls and Best Practices

By Temitope Akande

CPR’s Mediation Committee presented Los Angeles mediator Jeff Kichaven on the limits of mediation confidentiality at a March 16 online program that provided attendees with cutting-edge and occasionally controversial practice guidance on confidentiality, and avoiding neutrals’ liability disclaimers, as well as ethics continuing legal education credits.

Kichaven began his presentation with a statement he attributed to the late U.S. Supreme Court Justice Antonin Scalia in 2003:

The principle of separation of powers is central to the American system of government. The framers of the American Constitution believe that that principle, as popularized by Montesquieu, was the single most important guarantee of freedom. No political truth, wrote James Madison in the Federalist Papers, is certainly of greater intrinsic value or is stamped with the authority of more enlightened patrons of liberty.

Kichaven continued, “For the separation of powers regime to work, we must have a robust and functioning judiciary, as well as executive and legislative branches to our government, and for that to happen it’s necessary for people to have confidence in the judiciary.”

That’s why we have the “basic rule of evidence everywhere–all relevant evidence is admissible,” Kichaven explained. If parties and advocates want courts to get things right, he said, the courts need to have the relevant evidence before them, and anytime court does not get a case right, it is eroding a key element of the law.

While evidence law recognizes certain privileges, which frustrate courts’ abilities to get relevant evidence, “those privileges serve important societal purposes,” he said, which is critical, for example, for the functioning of lawyers, doctors and clergy in their critical professions.

Kichaven explained that Wigmore’s attorney-client privilege—the prevailing standard in law and practice protecting communications—”construe[s] privileges narrowly, no more broadly than necessary to effectuate their purposes, because every time privileges are asserted, a court is deprived of relevant evidence, [and] it becomes less likely that a court will get a decision right.” So, a key element of the rule of law is eroded every time a court is unable to adjudicate a claim properly.

This led to the discussion of what Kichaven called “the mantra that confidentiality is necessary for effective mediation.” Kichaven emphasized the word “mantra” because he opined that there is no evidence to support the assertion the confidentiality is necessary for effective mediation.

He defined confidentiality for the purposes of the session in three ways–

  • Evidentiary confidentiality: “Can courts compel disclosure of what is said or done in mediation as part of discovery or trials?”;
  • Caucus confidentiality: “People say things to mediators in caucuses and mediators agree not to disclose those things to the opposing parties,” and
  • Societal confidentiality: “Are we allowed to talk to reporters, bartenders neighbors and various others about what people say or did in mediation?“

On caucus confidentiality, he said that it assumes people disclose secrets, and mediators keep them confidential. The two parts of the assumption are problematic in commercial cases, he said, because it is rare that parties volunteer weaknesses in their case of which the other side is not aware because “there is always a greater than zero percent chance that the mediator will leak” those secrets.

Kichaven said, “The best way to keep it a secret is not to tell the mediator in the first place.  . . . And also, let’s face it, mediators often leak. We can’t help it.” He discussed subconscious actions and words that result in mediator leaks.

Societal confidentiality is a problem in product liability and sexual harassment cases, among others, said Kichaven, because it is generally a subject to be covered by statutes. Still, legislatures haven’t imposed societal confidentiality as a condition of participating in settlement talks or mediation, he explained, but some mediators put it into their confidentiality agreements.

“In essence,” he said, “the mediators are conditioning their willingness to serve on people forfeiting rights that legislators wanted them to have, or at least allowed them to have. [T]hey are having people waive those rights, a condition of serving as mediator.”

Kichaven discussed at length evidentiary confidentiality, which was his key focus in the CPR seminar.  He stated that there is no evidence to prove that evidentiary confidentiality is necessary for effective mediation. In support of this assertion, he discussed the California Legislature’s request to the state’s Law Revision Commission to evaluate a possible exception to California’s mediation confidentiality law for legal malpractice that is alleged to have occurred at a mediation.

The exception—which is in the Uniform Mediation Act but which California has not adopted–would have allowed the introduction of mediation evidence from the session to back a legal malpractice claim. The mediation establishment, according to Kichaven, failed to produce any evidence to prove that evidentiary confidentiality actually is necessary to conduct effective mediation. If the evidence existed, he said, nobody was in a better position to deliver it.

He further stated that U.S. jurisdictions largely reject the need for evidentiary confidentiality in mediation, and compared the adoptions of the Uniform Mediation Act. The act is “kind of a failure,” he said, noting its adoption in only 11 states and the District of Columbia.

Neither has the act fostered “mediation tourism,” he said. If statutory confidentiality were necessary for effective mediation, there would be more mediation in states that have the statutory confidentiality, Kichaven maintained, adding, therefore, “this concern about confidentiality is just overblown.”

In In re MSTG Inc., 675 F.3d 1337 (Fed. Cir. 2012) (available at https://bit.ly/3tX8rP8), the appellate court was asked to adopt a settlement communication privilege as a matter of federal common law, which Kichaven said would far exceed the protections of Federal Rule of Evidence 408, Compromise Offers and Negotiations.  The circuit court, he reported, held that “while there is clearly an important public interest in favoring the compromise and settlement of disputes, disputes are routinely settled without the benefit of a settlement privilege. It is this thus clear that an across-the-board recognition of a broad settlement negotiation privilege is not necessary to achieve settlement.”

Kichaven repeated that parties do not conduct mediation “tourism” to take advantage of statutory confidentiality like litigators may do when the laws would be to their advantage. That is, litigators do not react to the statutory confidentiality, privilege, or rules in mediation like they might in other areas, like patents.

Kichaven discussed two cases, People v. PriceWaterhouseCoopers, 150 A.D.3d 578 (2017), and GE Company v. APR Energy (see discussion below). He noted that the first case is a complex financial matter, important to the mediation confidentiality issue, because the process and analysis has gotten much more complicated with many mediations conducted with interstate parties–with parties and advocates often living and practicing law in different states.

He focused on the PriceWaterhouseCoopers case in part because of its New York origin, noting that New York is important to commercial litigation and mediation, making it a likely site of problems.  And “New York law is kind of a mess, and it’s not a mess that favors mediation confidentiality,” he said.

In the case, the New York court applied the forum law—which does not include a statutory accountant-client privilege, in contrast to the law where the contract took place, Texas.

This led Kichaven to discuss of the 1934 and 1971 Restatement of Conflict of Laws. The 1934 restatement provides for the territoriality test–courts are to apply the law of the forum where discovery was sought in cases where there are conflicts regarding evidentiary privileges and confidentiality, regardless of where the communications took place.

But the American Law Institute’s second restatement in 1971 replaced the territoriality tests with the “significant relationship test,” where courts are supposed to apply the state privilege law with the most significant relationship to the communications at issue. Generally, said Kichaven, that’s thought to be the state where the communications took place.

Therefore, courts have a motivation to do justice in the case before them, and want to get relevant evidence to do their jobs, Kichaven explained.  That means, he said, they are inclined to pick the law of whatever state gives them the greatest ability to obtain evidence while conducting the mediation, which puts the mediation communications at risk.

The important point from General Electric Co. v. APR Energy PLC, 19-CV-3472 (VM) (KNF) (S.D.N.Y. Dec. 14, 2020) (available at https://bit.ly/2PdF9Nc), is territoriality. New York courts will not automatically apply the privilege or confidentiality law of the place where the mediation took place. That is, a written confidentiality agreement in a prior mediation may not protect a party even if the prior mediation took place in a state with stronger statutory protection for mediation confidentiality.

The result is that a New York court may compel production of materials from a prior mediation upon request in a New York matter, Kichaven said, potentially even using a general evidentiary relevance standard under FRE 26, rather than a heightened mediation “standard of need.” That could occur in New York, he said, even if the state the mediation occurred in had a higher standard of protection and even if there was a confidentiality agreement between the mediation parties.

Kichaven warned that when there is a breach of confidentiality, a mediator could be sued for ordinary negligence, negligent misrepresentation, or perhaps more severe claims on basis that the neutral induced or allowed clients to be more candid than they otherwise would have been.  So, since confidentiality may not protect mediators, it is problematic in terms of whether mediators should promise mediation confidentiality at all because they are not promises mediators have the power to keep, he said.

As an ethical issue, mediators and lawyers are not supposed to make guarantees to clients on the outcome of judicial proceedings. “But,” explained Kichaven, “when you make that airtight [mediation] confidentiality promise, is that not just precisely what you have done? . . . By so doing you’ve misled your clients as well and that’s a potential ethical issue, too.”

Advocates need to inform their party-clients on the potential persistent use of the territoriality test, said Kichaven, and decide on how candid they should be during the mediation. For these reasons, Kichaven disclosed that he does not use written mediation confidentiality agreements in order to avoid the appearance of making promises to mediation parties, or practicing law via the production of a contract that applies to the rights of both sides. “It’s up to the parties to have the kind of confidentiality agreements that suit them best,” said Kichaven.

Finally, Kichaven advised that the best practice is for mediators to ensure that they do not get sued based on a prospective waiver of liability.  He said to avoid the use of such clauses in confidentiality agreements—that is, the waivers are another reason not to provide a confidentiality agreement.

He noted that the typical clause says, “The mediator shall have no liability for any act or omission in connection with this mediation.”  Said Kichaven, “It’s a cowardly act,” something mediators would do to avoid the consequences of their conduct.  

He stated that the liability waiver is really saying that, as a mediator, “We are announcing to the world that we are lowering our ethical standards.  . . . We should be sending the message that we stand behind the quality of our work and that we want you to be compensated and treated fairly in the unlikely event something goes wrong.”

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CPR members can access the full video here after logging in.

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Akande, who received a Master of Laws in Alternative Dispute Resolution last May at the University of Southern California Gould School of Law in Los Angeles, is volunteering with the CPR Institute through Spring 2021.

YouTube Analysis: What Happens Next with the 3/22 Servotronics Cert Grant on Foreign Arbitration Evidence

John Pinney, counsel to Graydon in Cincinnati, joins Russ Bleemer, editor of Alternatives to the High Cost of Litigation, to set the stage on why the U.S. Supreme Court agreed Monday, March 22, to hear Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794, and what may happen if the arbitration proceeds in advance of the expected late 2021 Court arguments.

This morning, CPR Speaks examined the cert grant and provided links covering some of the policy considerations that John discusses in this video.  See Amy Foust, The Next Arbitration Matter:  Supreme Court Agrees to Decide Extent of Foreign Tribunal Evidence Powers, CPR Speaks (March 22).

Disclosure: As discussed in the CPR YouTube video, the International Institute for Conflict Prevention and Resolution—CPR, which publishes this blog, submitted an amicus brief asking the Supreme Court to resolve the split in federal circuit court opinions on the topic without taking a position on the merits. See “CPR Files Amicus Brief Asking U.S. Supreme Court to Tackle Foreign Discovery for Arbitration,” CPR Speaks (Jan. 6, 2021) (available at http://bit.ly/2PJvzBO). (CPR has created a web page for the brief at http://bit.ly/3nklaYp).

Our guest John Pinney wrote the amicus brief on CPR’s behalf.   

[END]

The Next Arbitration Matter: Supreme Court Agrees to Decide Extent of Foreign Tribunal Evidence Powers

By Amy Foust

The U.S. Supreme Court today granted review in Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794, and will be the next arbitration case on the Court’s docket.  It will likely be heard in the term beginning in October.

The case highlights law that had long appeared settled on whether foreign tribunals seeking discovery in the United States includes private arbitration panels.

In the past two years, cases on the statute in question–28 U.S.C. § 1782, “Assistance to foreign and international tribunals and to litigants before such tribunals”–have packed federal courts. See Joseph Famulari, “Section 1782 Circuit Split Update: 7th Circuit says Law Doesn’t Include Arbitration, as 9th Circuit Hears Arguments,” CPR Speaks (Oct. 22, 2020) (available at http://bit.ly/38kxyCV), an John B. Pinney, “Update: The Section 1782 Conflict Intensifies as the International Arbitration Issue Goes to the Supreme Court,” 38 Alternatives 125 (September 2020) (available at https://bit.ly/3tbgFCX).

Petitioner Servotronics presented the question formally as:

Whether the discretion granted to district courts in 28 U.S.C. § 1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” encompasses private commercial arbitral tribunals, as the U.S. Courts of Appeals for the Fourth and Sixth Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the U.S. Courts of Appeals for the 2nd, 5th and, in the case below, the 7th Circuit, have held.

The question doesn’t reveal the unusual posture of the case, because it literally created its own circuit court split. There are two decisions:  The Seventh U.S. Circuit Court of Appeals decision on appeal that was granted today had prohibited Servotronics’ requested discovery for the foreign arbitration tribunal also had been decided in Servotronics’ favor against the same adversaries, Rolls Royce and Boeing, when the case was heard in the Fourth Circuit.

The International Institute for Conflict Prevention and Resolution—CPR, which publishes this blog–submitted an amicus brief asking the Supreme Court to resolve the split in opinions without taking a position on the merits. See “CPR Files Amicus Brief Asking U.S. Supreme Court to Tackle Foreign Discovery for Arbitration,” CPR Speaks (Jan. 6, 2021) (available at http://bit.ly/2PJvzBO) (CPR has created a web page for the brief at http://bit.ly/3nklaYp).  

The evolution of the circuit split is described in John B. Pinney, “Will the Supreme Court Take Up Allowing Discovery Under Section 1782 for Private International Arbitrations?” 38 Alternatives  103 (July/August 2020) (https://onlinelibrary.wiley.com/doi/abs/10.1002/alt.21848) (Pinney prepared on behalf of CPR the Supreme Court amicus brief in Servotronics).  

Justice Samuel A. Alito Jr. didn’t participate in the consideration of or the decision to accept the petition, according to this morning’s order list, indicating that the case could be decided by eight judges later this year.

In the case the nation’s top Court agree to hear today began in January 2016, during testing at a Boeing facility, when an engine manufactured and installed on an aircraft by Rolls Royce caught fire. Boeing sought reimbursement from Rolls Royce for damage to the aircraft.  Boeing and Rolls Royce settled the matter between them.

Rolls Royce then sought reimbursement from Servotronics, which manufactured a fuel valve for the engine.  When negotiations over the reimbursement failed, Rolls Royce demanded arbitration under the rules of the Chartered Institute of Arbitrators in the United Kingdom, as permitted by an agreement between Rolls Royce and Servotronics.

During the arbitration, Rolls Royce and Boeing declined an invitation to produce evidence that Servotronics insists is critical to its defense, including information about what Rolls Royce and Boeing did after observing certain test results.  Servotronics contended those test results presaged the fire and showed a missed opportunity to intervene before the fire.

Rolls Royce countered that the discovery requested by Servotronics was reviewed and denied by the arbitral panel, in part because the request was overly broad.  Servotronics applied for leave under 28 U.S.C. §1782 to subpoena records from Boeing’s Illinois headquarters and, in a separate application, to take the depositions of three South Carolina-based Boeing employees,  where the test flight went awry.

The South Carolina application was denied, but the denial was overturned by the Fourth Circuit. Servotronics Inc. v. Boeing Co., 954 F.3d 209, 216 (4th Cir. March 30, 2020) (available at https://bit.ly/3h7s0P8). The Fourth Circuit rejected the notion that §1782 is limited to public or state-sponsored tribunals. 

Further, the court reasoned, arbitration in the United Kingdom is government-sanctioned and regulated, at least by the U.K. Arbitration Act of 1996.  Therefore, a U.K. arbitrator is acting under the authority of the state and would meet Boeing’s proposed restrictions on the scope of §1782.

The appeals court dismissed Boeing and Rolls Royce’s predictions of expanded discovery and increased international arbitration costs if a tribunal is broadly defined in §1782, reasoning that courts have discretion to consider applications for documents or testimony in view of the Congressional purpose of extending aid to a foreign tribunal.

But the case also was being litigated in the Midwest. An Illinois application was initially granted ex parte but was quashed upon intervention by Rolls Royce and Boeing. The denial of discovery in Illinois was upheld by the Seventh Circuit—the case before the Court in Friday’s conference and accepted for argument today. Servotronics Inc. v. Rolls Royce PLC, 975 F.3d 689 (7th Cir. Sept. 22, 2020) (available at https://bit.ly/3ccK7RU).

The Seventh Circuit had followed the Second and Fifth Circuits in finding that a “foreign or international tribunal,” as used in 28 U.S.C. §1782, refers to a state-sponsored tribunal, and private arbitration is not state-sponsored. 

The Seventh Circuit opinion noted that a limited definition of “foreign or international tribunal” also avoids an apparent conflict with the Federal Arbitration Act, which permits a district court to order discovery only on request of the arbitrator.  The panel observed that including private international arbitral tribunals in the scope of §1782 would result in a prohibition on a party to a domestic arbitration seeking court assistance with discovery under the FAA, while permitting a party to an international arbitration to obtain the same assistance (under §1782).

The case therefore presented the circuit split in stark relief—with discovery granted in the Fourth Circuit, and denied in the Seventh, in the same matter between the same parties before the same foreign arbitral tribunal. 

Rolls Royce argued that certiorari should be denied to allow the Circuit Courts continue to consider the issue and because this case would likely be moot before the Supreme Court could complete its review, with the final arbitral hearing scheduled for May.

Today’s order provides further review and clarification by the Supreme Court in an area that had been considered settled law until the flurry of cases hit the circuit courts in recent years.  CPR Speaks will provide more analysis later today  on the background and the future of Servotronics.

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Author Amy Foust is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021.

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