Author: CPR Staff

Supreme Court Oral Argument on NLRB Class Actions vs. Arbitration Policy

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By Mark Kantor

The US Supreme Court heard oral argument this morning in the three consolidated cases involving the policy of the National Labor Relations Board (NLRB) prohibiting arbitration clauses in employment agreements that bar class actions (Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA).  The transcript of that oral argument will be available here later this afternoon – https://www.supremecourt.gov/oral_arguments/argument_transcript/2017

Many observers believe the Court’s decision in these cases will come down to Justice Anthony Kennedy’s vote.  For what it is worth, Reuters characterized Justice Kennedy’s questions as “pro-employer” (https://www.reuters.com/article/us-usa-court-labor/u-s-supreme-court-divided-over-key-employment-dispute-idUSKCN1C71RP).

Justice Anthony Kennedy, often the swing vote in major cases, asked questions that appeared to favor employers, as did two fellow conservatives, Chief Justice John Roberts and Justice Samuel Alito.

Kennedy indicated that a loss for workers would not prevent them from acting in concert because they would still be able to join together to hire the same lawyer to bring claims, even though the claims would be arbitrated individually. That would provide “many of the advantages” of collective action, Kennedy said.

See also Bloomberg’s take, which picked up on the same Kennedy comment –  https://www.bloomberg.com/news/articles/2017-10-02/justices-suggest-they-will-divide-on-worker-class-action-rights.

Anne Howe, the respected Court-watcher writing on her own blog Howe on the Court and on Scotusblog, started her review of the proceedings with her bottom line; “In the first oral argument of the new term, a divided Supreme Court seemed likely to uphold employment agreements that require an an employee to resolve a dispute with an employer through individual arbitration, waiving the possibility of proceeding collectively.” (http://amylhowe.com/2017/10/02/argument-analysis-epic-day-employers-arbitration-case/, republished at www.scotusblog.com/2017/10/argument-analysis-epic-day-employers-arbitration-case/#more-262296 ).

Not often noted in the analyses of these cases, the NLRB regulatory policy at issue in Epic Systems et al may in any event become moot.  Effective just a few days ago, the Board of the NLRB now has a Republican majority (http://fortune.com/2017/09/26/nlrb-labor-workers-rights-william-emanuel/).  Moreover, the incumbent NLRB General Counsel (a separate position appointed directly by the President, not the NLRB Board, and subject to Senate confirmation), who actually argued the cases for the NLRB, is scheduled to leave his post in November, thereby opening up that position to a Republican nominee who has apparently already been identified (http://www.insidecounsel.com/2017/09/19/peter-robb-trumps-pick-for-nlrb-general-counsel-is).  It would not at all be surprising for Republican control of the NLRB to result in a reversal of this NLRB policy, just as Democratic control of the NLRB led to promulgation of the policy in the first place.  This dispute is a reminder that many aspects of arbitration in the US are now a partisan political issue, with regulatory measures addressing arbitration shifting back and forth as political party control shifts back and forth.

More broadly, for those of you who feel that these individual employment cases (and similar measures by Federal regulators, under general regulatory statutes, preferring class actions in court over mandatory arbitration of individual claims) are not relevant to your commercial or investment arbitration practice, the precedential impact of a Supreme Court ruling overturning the NLRB’s pro-class action policy may extend far beyond employment and consumer-related claims.  Illustratively, for many years, the U.S. Securities Exchange Commission (SEC) has maintained an informal policy of refusing to register public offerings of stock by companies that include mandatory arbitration clauses in their charter documents for disputes between shareholders and the issuing company.  As a result, shareholder law suits (such as shareholder class actions) are brought in the US courts.

In July of this year, Republican SEC Commissioner Michael Piwowar stated publicly that the SEC is now open to the idea of allowing companies contemplating initial public securities offerings to include mandatory shareholder arbitration provisions in their company charter documents.  That idea, if implemented, could arguably kill off shareholder securities class actions in the US courts.  One might think that a Republican majority of Commissioners on the SEC would be amenable to changing the SEC’s shareholder claims policy barring arbitration.  It is not, however, yet clear whether the SEC’s new Republican Chairman Jay Clayton is also receptive to the idea. See  https://www.reuters.com/article/us-otc-arbitration/shareholder-alert-sec-commissioner-floats-class-action-killing-proposal-idUSKBN1A326T .

The SEC’s unwritten policy barring mandatory arbitration of shareholder claims came under interest group pressure in 2006-2007.  It was also the subject of several corporate efforts to cause a change in the SEC’s policy, most notably in connection with a 2012 proposed share offering by the Carlyle Group.  But the SEC policy survived due to inter alia push-back from the Democratic-controlled Congress.  A broad pro-arbitration decision by the US Supreme Court, rejecting the NLRB’s regulatory effort to preserve employment class actions by prohibiting mandatory arbitration, could easily have a significant impact on the SEC’s unwritten policy to deny registration of securities offerings covered by a mandatory arbitration provision in the issuer’s charter documents.

The SEC question is sure to trigger aggressive lobbying by both sides as it arises again – indeed, it has already done so in the blogosphere.  Illustratively:

For shareholder arbitration and against class actions  – http://clsbluesky.law.columbia.edu/2017/08/21/shareholders-deserve-right-to-choose-mandatory-arbitration/

Against shareholder arbitration and for class actions – http://clsbluesky.law.columbia.edu/2017/08/28/mandatory-arbitration-does-not-give-stockholders-a-choice/

 

Mark Kantor is a CPR Distinguished Neutral and a regular contributor to CPR Speaks. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.

This material was first published on OGEMID, the Oil Gas Energy Mining Infrastructure and Investment Disputes discussion group sponsored by the on-line journal Transnational Dispute Management (TDM, at https://www.transnational-dispute-management.com/), and is republished with consent.

A DOA Exception? California’s Law Revision Commission Looks to Reassess Mediation Confidentiality as Commenters Blast its Legislative Recommendation

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By Russ Bleemer

The prospects for a new California mediation confidentiality law that would provide an exception allowing parties to introduce evidence in a post-ADR malpractice case faded this week in the face of a frank report by the state commission that proposed the change.

“The opposition to the [California Law Revision] Commission’s tentative recommendation can only be described as overwhelming,” concludes Barbara Gaal, chief deputy counsel to the California Law Revision Commission, in a 36-page report released Wednesday.  She adds, “It is not unanimous, but it is deep and widespread. California’s mediation confidentiality statute may differ from those in other jurisdictions, providing greater protection in some respects, but a broad range of stakeholder organizations and many individuals appear to be well-satisfied with that approach and offer many reasons for their position.”

The new Sept. 27 report provides 155 pages of comments on a proposal to amend the state’s evidence that the commission has studied since 2012.  (The commission’s analysis is at http://bit.ly/2xQBnON; the comments are collected at http://bit.ly/2x2Dx9Y.) The amendment would add a new Section 1120.5 to the California Evidence Code, titled “Alleged misconduct of lawyer when representing client in mediation context.”

Because of an absolutist approach by the state’s courts, concerns have been raised for years over malpractice cases.  The state courts have barred the introduction of materials made in preparation for and used at mediation sessions in most cases.

The approach has provided a boost to California’s strong mediation culture, but has left victims of attorney malpractice with tough—some say insurmountable–paths to proving their claims.

The many comments submitted on the tentative recommendation “include scattered words of praise or appreciation for the Commission, its staff, its process, and its work on this study,” Gaal writes, but “[i]n general, however, they do not have much positive to say about the Commission’s proposal.”

Gaal urges the members of the commission to go back to the drawing board—not necessarily re-do the commission’s work (“Relationship Between Mediation Confidentiality and Attorney Malpractice and Other Misconduct – Study K-402,” available at http://www.clrc.ca.gov/K402.html), but re-examine the reasons the study was undertaken, and whether the commission wants to proceed with a recommendation to the legislature.

She writes that the staff urges the commission members to “re-read” the tentative recommendation’s “key policy considerations at stake” in the study in assessing the criticisms.  (Direct access to the tentative recommendation is at http://bit.ly/2x2ePqr .)

The 15-page policy section emphasizes that protecting mediation confidentiality “rests on four key premises”: confidentiality promotes candor in mediation; candid discussions lead to successful mediation; successful mediation encourages future use of mediation to resolve disputes; and mediation use in resolving disputes is beneficial to society.

“The preparation of a Commission recommendation is not a popularity contest, but rather a quest to develop an analytically sound proposal that will serve the citizens of California well,” Gaal advices. “Nonetheless, the degree of opposition to the Commission’s proposal suggests that careful reexamination of the competing consideration is in order.”

If the commission elects to go forward with the tentative recommendation, Gaal notes that the commission’s staff will prepare a memo—presumably on the reasons for the proposal to be forwarded to the legislature—for the commission’s December meeting.

The commission’s efforts were examined extensively in Jeff Kichaven, A California Correction? Legislature Will Consider Allowing Attorney Malpractice Proof from Mediation,” 35 Alternatives 97 (July/August 2017)(available at http://bit.ly/2sNUOm1), and “How California Intends to Recalibrate the Concept of Mediation Confidentiality,” 35 Alternatives 93 (June 2017)(available with a subscription or after login at www.cpradr.org at http://bit.ly/2sWyqr1).

Kichaven’s July/August Alternatives cover article, in which the Los Angeles mediator strongly backed the proposal, which will allow evidence from mediations pertaining to attorney malpractice to be introduced in litigation, was submitted as a comment.

The article also a comparatively rare show of support in the face of the avalanche of the “decidedly negative” reaction.  Among the reasons commenters opposed the proposal, according to the commission report:

  • It will undermine confidentiality;
  • It could harm mediation participants who are not parties to an attorney-client dispute
  • It will overburden the courts;
  • The proposed mediation confidentiality exception’s benefits are minimal compared to the downsides;
  • The exception “provides insufficient protection for mediator communications and will cause mediators to quit and mediator malpractice insurance rates to rise”;
  • It will threaten the stability of mediated settlements;
  • It would create the need to warn participants about the new proposed exception, “and that will create problems”;
  • It will hurt vulnerable groups;
  • It will affect attorneys disproportionately; and
  • It “is a trap for the unwary,” will yield unpredictable results, and unpredictable protection for mediation communications.”

“In light of the generally negative input on the tentative recommendation,” Chief Deputy Counsel Gaal writes, “the Commission should take a hard look at its options and consider how to proceed. While the Commission should not base its policy recommendations on political considerations, neither should it ignore practical reality. The goal of a Commission study is to achieve positive reform of the law. That requires the crafting of a balanced reform that has a realistic chance of enactment.” [Emphasis is in the original.]

The document lays out the Commission’s options: Proceed with the current proposal in the face of what likely will be strong legislative opposition; turn the tentative recommendation into an information report for the California Legislature without recommending or proposing legislation; limit the exception to the private attorney-client discussions in a mediation context, instead of allowing litigants to introduce communications from the proceedings itself, thereby shielding the mediator or its adversaries; develop an “informed consent approach” and circulate a revised tentative recommendation; or revisit all of the options raised in the study, including leaving the current law intact.

The author edits Alternatives to the High Cost of Litigation for the CPR Institute. CPR Institute Fall 2017 Intern Angela Cipolla contributed to research.

 

Growth of Cannabis Plants and Issues Fertilizes Legal and ADR Business

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By Judge Steven I. Platt (Ret.)

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If you think lawyers who are creative, indeed entrepreneurial, should be encouraged to ply their trade, and that emerging industries are fertile ground to do so, then you should give a shout-out to the rapidly expanding business of manufacturing, packaging, selling and distribution of cannabis for medicinal and recreational purposes.

More and more states, including Maryland, are legalizing cannabis for multiple purposes. These jurisdictions are providing forums for the creation, development of new, and in some cases, eclectic business relationships. These include consulting agreements, distribution deals, partnerships, licensing relationships and even the co-authoring of “How-to Manuals.”

Like all other business dealings and organizations created for the purpose of developing new and different products for profit, the potential for disputes to arise between partners, competitors, and parties working together, one day and competing against each other the next, is present.

Due to the nature of the cannabis industry and its multiple levels and conflicting state and federal regulatory schemes, many individuals and businesses are choosing to use ADR instead of litigating when troubles or disputes arise. This is for a variety of reasons.

For one, there is a perception, or at least a concern, among the individuals and business organizations that are invested in this emerging industry as well as many of the lawyers and law firms who may represent them that judges and juries who don’t “like” them or “don’t like” what they do for historical and/or cultural reasons may “punish” them, i.e. not give them a fair hearing in their case. This perception can be effectively addressed by private mediation and/or arbitration by one or more Neutrals agreed upon by the parties and who hopefully have some knowledge of the industry.

This perception leads cannabis industry entrepreneurs to insert into their contracts, mandatory mediation and arbitration classes designed to avoid these negative possibilities.

Mediation, by its inherent nature, as well as, in certain situations, by statute, rule, or contract includes a confidentiality component. Confidentiality, as the state of Delaware found out the hard way, is prohibited in public dispute resolution forums, i.e. The Courts. Private Arbitration on the other hand, can be confidential if agreed upon and mandated accordingly by contract or by ADR provider rules.

Confidentiality is very important if the activity, or even part of the activity which is the subject of the dispute remains illegal under federal law even if it is legal in many states. This is the case with most of the activities associated with the cannabis industry. Evidence of this includes the refusal of most banks and other traditional financial institutions to finance the development of the industry and the companies which are forming within it. This reality is further evidenced by the refusal of colleges and universities to offer training for those who work in the medical marijuana industry. It is noteworthy that the most recent example of this trend was our own University of Maryland School of Pharmacy, acting on the advice of the Maryland Attorney General’s Office cancelling plans to offer training for those who work in the medical marijuana industry.

This development has necessitated medical marijuana industry entrepreneurs and workers to search elsewhere for education and training on everything from how to set up their business, to how to grow, store, transport, market and sell. Their product as well as bookkeeping of their business while staying within the law, i.e., not running afoul of conflicting federal and state regulations of their businesses. They have found, by process of elimination, that the only sources for that education and training are other individuals and companies located in states which legalized medical, and in some cases, recreational marijuana use in previous years. These individuals and companies alone have the education, background, and most importantly the experience to provide the education and training needed to establish and develop potentially profitable medical marijuana enterprises here.

The result has been that these new entrepreneurs and their businesses are negotiating and entering into consulting contracts with experienced individuals and companies in the medical marijuana industry in other states in order to obtain information and training. These contracts are not easily crafted and understood even by lawyers familiar with the industry.

The relationships created by the contracts between the consulting companies and those who avail themselves of their services to provide start-up training are often fraught with the risk of the disclosure of trade secrets, as well as the violation of covenants not to compete, etc. In turn, the contracts often have provisions drafted to minimize, if not eliminate, those risks.

They are not always successful which in turn creates conflicts which if not resolved quickly and efficiently can kill an emerging medical marijuana business before it gets started. The result has been mediation and arbitrations generated by the dispute resolution provisions in these consulting contracts.

I have been involved as both a Mediator and an Arbitrator in a number of these cases involving lawyers and parties from across the country. Intermingled with these is litigation usually filed in multiple federal courts in an attempt to either consolidate in a geographically convenient or perceived philosophically friendly forum the cases involving identical parties or 3rd parties spun off for tactical reasons from other parties. No end to this time-consuming and expensive as well as in many cases overlapping litigation, arbitrating and mediations is in sight.

Indeed, my favorite case and experience so far is the case in which the parties and counsel sought dismissal or transfer of a case in which I was the Chair of a 3-Arbitrator Panel. They first sought that relief from the U.S. District Court in D.C. which not only declined to dismiss or transfer our arbitration case, but instead ordered the parties to proceed before my panel in Maryland or D.C. The losing party then came to our panel requesting the same relief. When we realized that they were asking the panel to, in effect, reverse the U.S. District Court’s decision, my only comment on behalf of The Panel which accompanied our negative decision was—“I’d ask you what you are smoking-but we already know.”

This post is reprinted with permission from “A Pursuit of Justice,” a blog by Judge Steven I. Platt (Ret.) that focuses on the intersection of law, economics, politics and the development of public policy.  Judge Platt currently owns and operates his own private Alternative Dispute Resolution Company, The Platt Group, Inc. through which several retired judges and experienced practitioners offer mediation, arbitration and neutral case evaluation services to business, governmental agencies and their lawyers mostly in complex litigation and disputes.  Judge Platt’s experience and vocation make him an expert in conflict resolution particularly in complex disputes whether they are political, economic, legal, or as most often the case all of the above. Judge Platt can be reached at info@apursuitofjustice.com or via his website at www.theplattgroup.com.

Celebrate with CPR – Mediation Week: Oct. 15-21, 2017

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Celebrate Mediation Week 2017!

Of course, it’s always a good time for mediation, but CPR will be joining numerous other organizations next month to formally celebrate this effective means of preventing and resolving disputes, at Mediation Week 2017: “Mediation, Civility and the Power of Understanding, organized by the American Bar Association Section of Dispute Resolution. Please join us, won’t you?

Tuesday, October 17 – Open Forum on (In)Civility in Mediation

The CPR Institute’s Mediation Committee invites all who are interested to participate in a convenient and open-to-the-public Lunchtime Teleconference on Tuesday, October 17th, 2017 from 12:30-1:30 pm ET. Distinguished mediator and CPR panelist, Jack P. Levin, will recount some of the lessons and inevitable trials encountered in his years striving for greater civility in mediation. This dialogue will be followed by an opportunity for caller participation.

While there has been research on the cost of incivility to corporations, we will explore the effects of this behavior in the mediation process, along with strategies for promoting civility in negotiations. We hope you will join us, prepared to share any anecdotes or observations on the effects of civility (and lack thereof!) in dispute settlement. To register, contact zchanin@cpradr.org. You will be provided dial-in information and links to supplementary material upon registration.

The Mediation Committee is a consortium of CPR members throughout the world.  We are currently exploring ways to enhance the quality and effectiveness of corporate mediation practice, both domestically and internationally.  The Co-Chairs of the Committee are Erin Gleason, of Gleason Alvarez ADR, and Rick Richardson, of GlaxoSmithKline. 

Wednesday, October 18 – Mediation Settlement Day

CPR has been invited to speak on a panel as part of the Mediation Settlement Day Kick-Off Event on October 18, 2017 from 4:30 pm – 7:30 pm at New York Law School, 185 West Broadway in New York City.

The focus of this event will be “Diversity and Inclusion in Dispute Resolution, 2.0.” Following an open house and a remembrance of Margaret Shaw, panelists Maurice Robinson, Esq. (Moderator), CPR’s Niki Borofsky, Esq., John D. Feerick, Esq., Rekha Rangachari, Esq. and Maria Volpe, Ph.D. will discuss:

  • What is Diversity and Inclusion in Dispute Resolution?
  • How are bar associations, professional organizations, court-connected dispute resolution programs and community dispute resolution centers addressing diversity and inclusion in the field?
  • A New CLE Category: Diversity, Inclusion and the Elimination of Bias
  • Current opportunities for diverse mediators

The evening will conclude with the Frontline Champion Award Presentation and a Keynote address by John Kiernan, Esq. of Debevoise & Plimpton on Diversity and Inclusion. For more information and to register click HERE.

Tuesday, October 24 – CPR Webinar on Including Effective ADR Clauses in Contracts

Admittedly, this date is slightly outside of the formal “Mediation Week,” but we’re going to squeeze it in and keep on celebrating with this CPR members-only event, being hosted by the Fundamentals Task Force of the CPR Transactional Dispute Prevention and Solutions Committee on October 24, 2017, from 12:30 pm – 2:00 pm ET.

All transactional lawyers would benefit from an understanding of how various forms of dispute resolution can be included in contracts and other agreements. We help to accomplish this through our easily used online CPR Clause Selection Tool. Michael B. Keating of Foley Hoag LLP will demonstrate a method to train transactional lawyers to craft an appropriate ADR contract clause using this tool. Following this session, attendees will be able to do the same for their colleagues. The program will qualify for one hour of New York CLE credit–details to follow. 

For more information and to register for the CPR members-only event, click HERE or email Zoe Chanin at zchanin@cpradr.org.

And for more information about Mediation Week 2017, please visit the ABA event website HERE.

CPR, LCLD & FINRA Program Aims for Actual Selection, Not Just Training, of Diverse Neutrals

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CPR’s Diversity Task Force, in collaboration with Leadership Council on Legal Diversity (LCLD) and Financial Industry Regulatory Authority (FINRA), have been hard at work on a program that aims not only to train diverse candidates to become mediators and arbitrators, but provides meaningful opportunities to position participants to ultimately become selected as neutrals—the only thing that will ultimately have an impact on diversity in ADR.

As Noah Hanft, CPR’s President & CEO, has stated, “Diverse neutrals need experience to show quality, build their reputations and earn their selections—but, in order to gain that all important experience and develop their skills, they first need to get selected. The riddle is circular but not impossible to solve, and those who prevent, or at least fail to support, the latter cannot in good conscious unequivocally demand the former. We can, and must, do better. This next generation of talented individuals is poised to make a real difference, if we will only recognize our roles and do our part.”

The program, which launched last year in a pilot phase, provides participants with early skills development and unique access to professional development opportunities in dispute resolution through: (a) formal training in mediation and arbitration skills and practical observational experience; (b) mentoring by skilled neutrals; and (c) networking opportunities within CPR’s commercial dispute resolution community via attendance at these organization’s events at no cost or at a discount. Last year’s program produced six neutrals, and this year we have five participating—a wonderfully diverse and talented group hailing from New Jersey, Chicago, Houston, Miami and Atlanta.

joehanna.jpgAccording to Joseph M Hanna (pictured left), a Partner at Goldberg Segalla and a participant in last year’s program, “Even if you’re not engaged in arbitration or mediation, you will use the techniques and the ‘soft processes’ that you pick up during this training and from your mentors every day—whether you are practicing law, litigating cases, working with colleagues, mentoring young associates or even dealing with your family.”

“I found the program to be quite valuable on a number of levels,” explained Brenda DiLuigi (pictured right), Counsel at Linklaters LLP. brenda“The program provided access to very high-quality ADR training, mentoring by seasoned professionals, and networking opportunities in the ADR community generally. From my perspective (in particular, as counsel to clients facing the significant challenges associated with doing business in a heightened regulatory environment), the FINRA arbitration training program was extremely valuable, and I feel fortunate to have the ability to serve as a neutral in that capacity. I also enjoyed being part of a cohort of program Fellows who are beginning their careers in ADR.”

As a first step in this year’s program, participants were invited to complete the FINRA application to become an arbitrator so that they could become eligible to join FINRA’s roster of neutrals. After indicating their individual areas of interest, participants were assigned to, and have started to meet with their program mentors.

The program’s first official event will be CPR’s Corporate Leadership Award Dinner (including VIP reception) honoring David McAtee II of AT&T. Thereafter, program participants are invited to attend all CPR events that take place during the program, at no cost.

Once applications are approved, participants will be required to take FINRA’s first two training components online at their convenience. FINRA will then hold an in-person training for this group at the CPR offices in early April, following CPR’s annual meeting in Atlanta, GA taking place March 8-10, 2017. There will be no cost associated with any aspect of FINRA’s training and application process.

KristyKristy Offitt (pictured left), an Employment litigator at Ogletree Deakins and a member of this year’s program, signed up after receiving an email from LCLD. She has already been assigned two mentors and has started meeting with them. In addition to feeling that the negotiation and other skills learned in the program will be transferable, generally, to the work she is currently doing, Kristy explained, “I would love to do more mediation and arbitration later in my career, so I saw this as a great opportunity to start building a foundation toward that goal. It’s great to get this mediation experience.”

And do last year’s participants have any parting advice for the current class? As program alum Joseph Hanna aptly summarized, “Take full advantage of your mentors; they are there to help you. Take every opportunity you have to ask questions, meet with them, spend time watching them work. Nobody does it better than the mentors in this program.”

Membership Minute: A Treasure Trove of ADR Resources

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This posting is the second in an ongoing series written by Niki Borofsky, Vice President of Membership, focusing on CPR Members and ways to make the most of CPR Member Benefits.

For 40 years, CPR has been bringing together in-house counsel, outside attorneys, academics and neutrals to think creatively and forge new tools, better rules, and improved processes – all with the goal of making dispute resolution more cost effective, more efficient, and better for business in the long run.

As an independent, not-for-profit think tank and dispute resolution services provider, we have the unique ability to convene all stakeholders and pick the brains of experts from every perspective.

CPR’s corporate members bring the practical in-the-trenches advice on how they use ADR, law firm advocates speak from decades of practice in multiple jurisdictions, our neutrals illuminate what is integral to their decision-making processes, and academics inject research and theory into the equation. The result is a collection of products that have been vetted, approved and road tested by businesses and top practitioners.

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A Menu of Options for All Levels of Expertise

The fruits of CPR’s committees’ labors are available to members through our website. The first step is to register for our website (if you have not already done so). Once you are registered and logged in as a member, these time and money-saving tools are all at your disposal free of charge, so be sure to bookmark our Resource Center on your browser.

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Start with the basics.

Even if you are a master of dispute resolution yourself, there are likely other teams or lawyers in your organization who may benefit from learning the ropes. CPR’s resources can help you to bridge the gap and give you an excellent platform to share how important careful dispute resolution clause drafting is to sustaining a business relationship through difficult times. Having thoughtful contractual dispute resolution mechanisms in place is key should conflict arises, and these choices are made when drafting.

Hone in on industry-specific learning.

The classic lawyerly response to even the most straightforward question is often – “It depends.” And rightly so, different parties and diverging matters require special consideration. Thankfully, CPR has had the time, expertise and focus to explore a variety of ADR solutions that are tailored to particular industry challenges and constraints.

Resort to the Rules.

For corporations and practitioners, one of the most concrete and powerful resources CPR has to offer (not just to members, but to all parties) is the 2014 Rules for Administered Arbitration of International Disputes. These rules benefit from CPR’s emblematic multi-stakeholder engagement, and as a result encompass best practices and are streamlined, high-quality and cost effective.

Of course, the best wat to familiarize yourself with the Rules is by reading them, skimming their Key Features, and flipping through the Frequently Asked Questions. To whet your appetite, here are a few of the most talked-about features:

  • Screened Selection Process (Rule 5.4), which enables parties to appoint arbitrators without them knowing who chose them (winner of the 2016 GAR Innovation Award)
  • Default reasoned award requirement (Rule 15.2), enhancing enforceability and discouraging unprincipled “baby-splitting”

Parties also like to know that administration of all CPR cases is handled by qualified attorneys with multilingual skills (our staff speaks French, Portuguese and Spanish).

CPR has a lot to offer, and we are always happy to help guide you through our ADR resources – including scheduling a webinar or presentation for your organization on any of our rules, tools or services.

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Niki Borofsky can be reached at nborofsky@cpradr.org or 646.753.8225. 

Managing Risk in International Arbitration: Third Party Funding Developments in Asia

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By Meriam Al-Rashid (pictured left) and Diora Ziyaeva (pictured right), Dentons

blog duoAs practitioners and clients alike are well aware, international arbitration is not without its risks. Third party funding is one effective risk management tool that can curb the potential losses and soaring costs associated with international arbitration by assisting under-resourced parties. To stimulate arbitration in Asia and maintain a competitive edge, Hong Kong and Singapore recently passed legislation providing express frameworks for third party funding in international arbitration proceedings, joining the global trend supporting this alternate source of funding.[1] As the Hong Kong and Singapore laws highlight, however, third party funding is not without its own risks. So, while third party funding can provide a useful tool to engage in arbitration, clients should be aware of the pitfalls they may encounter.

Singapore

On March 1, 2017, Singapore enacted The Civil Law (Amendment) Act of 2017 (the “Act”) and Civil Law (Third Party Funding) Regulations of 2017 (the “Regulations”). Under the Act and accompanying Regulations, third party funding agreements with qualifying third party funders are no longer illegal and unenforceable under Singapore law, so long as funding is provided for an international arbitration and/or related court or mediation proceedings. The Regulations stipulate that eligible third party funders must (1) carry on the “principal business” of funding dispute resolution proceedings in Singapore or somewhere else, and (2) have a paid up share capital of at least SGD 5 million.

The new legislation in Singapore has already had an effect. In April 2017, funder IMF Bentham opened its first Asian office in Singapore, in part persuaded by this new legislation.[2] In July 2017, Burford Capital announced that it was funding a claimant in a Singapore-seated arbitration.[3]

Hong Kong

On June 14, 2017, Hong Kong passed the Arbitration and mediation Legislation (Third Party Funding) Bill of 2016 (the “2016 Bill”). Under the 2016 Bill, the doctrines of maintenance and champerty expressly do not apply to third party funding in arbitration proceedings and mediation, including proceedings before emergency arbitrators and ancillary courts.[4]  Notably, the term “third party funder” under the Hong Kong legislation has a broader meaning than it does in the Singapore law in that it is not solely limited to professional funders. Thus, anyone, even those persons or entities that do not generally have an interest in the arbitration proceedings, can potentially serve as a third party funder. For example, law firms and/or lawyers in Hong Kong could provide third party funding, so long as they are not involved in the same arbitration.

The bill does not apply to litigation in Hong Kong courts, except for those proceedings which specifically relate to arbitration – such as enforcement and challenges to an award.  

Risks of Third Party Funding

While third party funding provides alternative and much-needed sources of funding for under-resourced parties, it is not without its risks. Third party funding can require a significant cost upfront as the party’s legal team conducts its due diligence on funders, and negotiates and sets up confidentiality and funding agreements. Arrangements with third party funders can result in undisclosed conflicts of interest and can also run afoul of rules of privilege and confidentiality, which vary across jurisdictions.[5] Third party funding also raises concerns regarding the improper influence that funders may have over proceedings. Since a funder has a direct financial stake in the outcome of the dispute, it may seek to pressure a party to agree to a course of conduct, such as settlement, even when not in that party’s best interest.

By regulating third party funding, both the Singapore and Hong Kong legislations offer some protections for parties seeking such funding. For example, the Singapore Act stipulates that, where a third party funder fails to comply with the requirements laid out in the Act and Regulations, it will not only be unable to enforce its rights under the agreement entered into with the claimant but it will still be required to fulfill its obligations to the claimant. In addition to the provisions under the Act and Regulations, Singapore’s Legal Profession Rules of 2015 were also amended, making it mandatory for legal practitioners to disclose the existence of any third party funding agreement to the court or tribunal and all other parties to the proceedings in order to ensure that there is no conflict of interest.

Hong Kong’s 2016 Bill calls for an advisory body to be created to oversee funders operating in the region. This advisory body will be responsible for undertaking biannual reviews of funding activity as well as creating a code of practice that will establish standards and good practices of third party funders regarding funding agreements and minimum capital requirements, and proper internal procedures to address conflicts of interest and complaints. While failure to comply with the code will not result in any judicial sanction or other liability, the code can be used as evidence and may be taken into account in a case of non-compliance.

Conclusion

Third party funding provides a much-needed source of funding and creates access to justice for many claimants who would otherwise have no means to engage in protracted dispute resolution proceedings. However, third party funding is, itself, fraught with risk. The Singapore and Hong Kong laws, then, provide a means to regulate this previously unchecked system. Whether the laws will adequately regulate third party funding without stifling it remains to be seen. Nevertheless, potential claimants should take advantage of these new legal developments, making sure to conduct the appropriate risk analysis in their assessment of whether to move forward with third party funding.

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ENDNOTES

[1] Singapore and Hong Kong join the United Kingdom, Australia and other countries that already allow third party funding.
[2] See Douglas Thomson, Singapore’s Seismic Shift on Funding, Global Arbitration Review (June 7, 2017).
[3] See Burford finances first Singaporean arbitration matter, James MacKinnon joins Burford, Burford Capital (Press Release) (June 29, 2017).
[4] The English doctrines of maintenance and champerty were intended to prevent “…gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy…” See Sapna Jhangiani and Rupert Coldwell, Third Party Funding for International Arbitration in Singapore and Hong Kong – A Race to the Top?, Kluwer Arbitration Blog (November 30, 2016) (citing to The Hong Kong Consultation Paper, referring to Ram Coomar Coondoo v. Chunder Canto Mookerjee [1876] 2 App. Cas. 186, at 210).
[5] In the United States, for example, third party funding agreements have been held to “create confusion concerning the party who actually owns and controls the lawsuit, and create risks that the attorney-client privilege will be waived unintentionally.” See Fausone v. US Claims, Inc., 915 So. 2d 626, 630 (Fla. Dist. Ct. App. 2005).

Meriam Al-Rashid is a partner and Diora Ziyaeva is a senior associate at Dentons’ New York Litigation and International Arbitration practice groups. The views expressed in this article are exclusively those of the authors and shall not be attributed to Dentons US LLP or its clients.

Second Circuit Backs Overturning Award That Had Been Annulled At Arbitral Seat

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By Ugonna Kanu

The Second U.S. Circuit Court of Appeals this summer affirmed a New York Southern District federal court decision to vacate the trial court’s previous enforcement of an arbitral award after the award was annulled at its seat in Malaysia.

In Thai-Lao Lignite (Thailand) Co., Ltd. v. Government of the Lao People’s Democratic Republic, Docket Nos. 14-597, 12-1052, 14-1497 (2d Cir. July 20, 2017)(available at http://bit.ly/2wS9HpS)(available at http://bit.ly/2vKDHnE), a commercial dispute arose between Thai-Lao Lignite (Thailand) with its subsidiary, Hongsa Lignite (Lao PDR), and the Government of the Lao People’s Democratic Republic, which the parties submitted to arbitration in Malaysia.

According to the Second Circuit opinion, in the 2009 Kuala Lumpur arbitration, a panel of three U.S. lawyers conducting the matter under the United Nations Commission on International Trade Law Arbitration Rules found the defendants—the government of Laos–in breach over a dispute on mining rights the defendants had granted to the mining company petitioners.

The tribunal awarded the petitioners about $57 million.

The case, the opinion states, addresses “how a district court should adjudicate a motion to vacate a judgment that it has entered enforcing a foreign arbitral award, when that award has later been set aside by courts in the arbitral seat.” It examines the interaction between a Federal Rule of Civil Procedure 60(b) motion and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the New York Convention.

After a period for challenging the award expired, the petitioners successfully brought enforcement proceedings in the United States and United Kingdom. But almost a year after the award, the defendants applied at the Malaysian courts for the award to be set aside on the grounds that the arbitrators exceeded their jurisdiction by addressing disputes under contracts not covered by the relevant arbitration agreement.

The motion setting aside the award was granted in 2012. Then, returning to the United States, the defendants moved to vacate the order enforcing the award.

U.S. District Court Judge Kimba Wood relied on Federal Rule of Civil Procedure 60(b), in which the court can relieve a party from a final judgment if the judgment is based on an earlier judgement that has been vacated or reversed.

Wood analyzed the FRCP in conjunction with the New York Convention Article V(1)(e), which gives courts the discretion to refuse to recognize or enforce an award on party’s request under specific circumstances. In 2011, a year after confirming the award, Wood vacated the judgment to enforce, following the Malaysian nullification.

On appeal, the Second Circuit affirmed Wood’s decision to vacate her original judgment. In backing the district court decision, the Second Circuit referred to the clash between the federal rules and the convention. The appellate decision cited TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007)(available at http://bit.ly/2vR2S7S), where a unanimous panel, in an opinion written by Circuit Judge Susan L. Carney, noted that the convention’s “text appears to leave the District Court with discretion to enforce an award that has been annulled in the primary jurisdiction—after all, it does not say that enforcement of the award ‘must’ be refused—[but] held . . . that the scope of that discretion is ‘constrained by the prudential concern of international comity.’”

The Thai-Lao Lignite opinion endorsed TermoRio, where the D.C Circuit affirmed a decision denying enforcement of an annulled award, stating “when a competent foreign court has nullified a foreign arbitration award, United States courts should not go behind that decision absent extraordinary circumstances.” (Quoting the TermoRio appellees’ brief).  The D.C. Circuit said the exception to enforcement would be where a judgment is contrary to U.S. public policy.

The Second Circuit opinion notes that TermoRio followed the Second Circuit view on foreign awards in Baker Marine Ltd. v. Chevron Ltd., 191 F.3d 194 (2d Cir.  1999)(available at http://bit.ly/2uQIFBN). In Baker, the appellate court upheld the district court’s refusal to enforce an award that had been annulled in Nigeria, the arbitration seat, because to do otherwise would give a losing party “every reason to pursue its adversary with enforcement actions from country to country until a court is found, if any, which grants the enforcement.”

The result would be a loss of finality and conflicting judgments, as well as overall difficulty in maintaining a uniform and predictable arbitral framework and to prevent producing regularly conflicting judgments.

The Second Circuit’s Thai-Lao Lignite opinion suggested that the result would have been different if the decision of the foreign court was contrary to the “fundamental notions of what is decent and just” in the United States.  It based this public policy exception on Corporación Mexicana de Mantenimiento Integral, S. De R.L. de C.V. v. Pemex-Exploración y Producción, 832 F.3d 92, 107 (2d Cir. N.Y. Aug. 2, 2016)(available at http://bit.ly/2xcyLXZ).

In that case, the Second Circuit affirmed a district court enforcement decision to confirm an award that had been nullified at the primary jurisdiction in Mexico, on the grounds that the Mexican appellate court had retroactively applied Mexican law and deprived the plaintiff of a remedy, contrary to fundamental U.S. public policy.

The Second Circuit Thai-Lao Lignite panel notes that it held its opinion until a U.S. Supreme Court cert petition in Corporación Mexicana had been decided. The request was denied earlier this year.

But in Thai-Lao Lignite, the U.S appeals court saw no grounds for public policy concerns.  A question as to the defendant’s delay in challenging the award, and its dilatory tactics in discovery matters arising in the U.S. courts, were viewed by as justifiable by the district court; “these factors would not have materially changed the outcome,” the opinion states, considering the district court’s reasons for vacating the award.

The author is an attorney in Nigeria who has just completed her L.L.M. in Dispute Resolution at the University of Missouri-Columbia School of Law.  She was a CPR Institute 2017 summer intern.

Second Circ. Holds Arbitration Provision in Uber App’s Terms of Service Created Valid Agreement to Arbitrate

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By Michael S. Oberman

Oberman
By opinion issued August 17 in Meyer v. Uber Technologies, the Second Circuit reversed a district court denial of a petition to compel arbitration and held that the arbitration provision within Uber’s terms of service as presented in Uber’s app interface resulted in a valid agreement to arbitrate.

Finding that New York and California law was essentially the same on contract formation but applying California law, the Second Circuit stated (at 21) that “we may determine that an agreement to arbitrate exists where the notice of the arbitration provision was reasonably conspicuous and manifestation of assent unambiguous as a matter of law.”

The court found reasonably conspicuous notice on these bases (at 24-26):

Accordingly, when considering the perspective of a reasonable smartphone user, we need not presume that the user has never before encountered an app or entered into a contract using a smartphone. Moreover, a reasonably prudent smartphone user knows that text that is highlighted in blue and underlined is hyperlinked to another webpage where additional information will be found.

Turning to the interface at issue in this case, we conclude that the design of the screen and language used render the notice provided reasonable as a matter of California law. The Payment Screen is uncluttered, with only fields for the user to enter his or her credit card details, buttons to register for a user account or to connect the userʹs pre‐existing PayPal account or Google Wallet to the Uber account, and the warning that ʺBy creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.ʺ The text, including the hyperlinks to the Terms and Conditions and Privacy Policy, appears directly below the buttons for registration. The entire screen is visible at once, and the user does not need to scroll beyond what is immediately visible to find notice of the Terms of Service. Although the sentence is in a small font, the dark print contrasts with the bright white background, and the hyperlinks are in blue and underlined. This presentation differs sharply from the screen we considered in Nicosia, which contained, among other things, summaries of the userʹs purchase and delivery information, ʺbetween fifteen and twenty‐five links,ʺ ʺtext . . . in at least four font sizes and six colors,ʺ and several buttons and advertisements. Nicosia, 834 F.3d at 236‐37. Furthermore, the notice of the terms and conditions in Nicosia was ʺnot directly adjacentʺ to the button intended to manifest assent to the terms, unlike the text and button at issue here. Id. at 236.

In addition to being spatially coupled with the mechanism for manifesting assent ‐‐ i.e., the register button ‐‐ the notice is temporally coupled… Here, notice of the Terms of Service is provided simultaneously to enrollment, thereby connecting the contractual terms to the services to which they apply. We think that a reasonably prudent smartphone user would understand that the terms were connected to the creation of a user account.

That the Terms of Service were available only by hyperlink does not preclude a determination of reasonable notice…. Moreover, the language ʺ[b]y creating an Uber account, you agreeʺ is a clear prompt directing users to read the Terms and Conditions and signaling that their acceptance of the benefit of registration would be subject to contractual terms. As long as the hyperlinked text was itself reasonably conspicuous ‐‐ and we conclude that it was ‐‐ a reasonably prudent smartphone user would have constructive notice of the terms. While it may be the case that many users will not bother reading the additional terms, that is the choice the user makes; the user is still on inquiry notice.

The Court further held (at 27), expressly reversing the district court, that although the terms were lengthy and must be reached by a hyperlink, the arbitration clause was not unreasonably hidden. “Once a user clicks through to the Terms of Service, the section heading (‘Dispute Resolution’) and the sentence waiving the user’s right to a jury trial on relevant claims are both bolded.”

Finally, the Court found manifestation of assent given the objectively reasonable notice and the user’s election to click on the registration button. “The fact that clicking the register button has two functions—creation of a user account and assent to the Terms of Service—does not render Meyer’s assent ambiguous.” (At 29). The Court added (at 30): “The transactional context of the partiesʹ dealings reinforces our conclusion. Meyer located and downloaded the Uber App, signed up for an account, and entered his credit card information with the intention of entering into a forward‐looking relationship with Uber. The registration process clearly contemplated some sort of continuing relationship between the putative user and Uber, one that would require some terms and conditions, and the Payment Screen provided clear notice that there were terms that governed that relationship.”

In sum, the Court applied traditional contract principles to smartphone technology, and placed heavy emphasis on Uber’s screen design—the clarity of the hyperlink to the Terms of Service and, within the Terms of Service, the bolding of the Dispute Resolution heading. This reasonable disclosure, coupled with the user’s intent to create an account with Uber, proved sufficient for an agreement to arbitrate. In distinguishing the present case from the Court’s own recent opinion in Nicosia, the Court has provided some specific guidance on the graphic features that can separate a binding agreement from an unenforceable agreement in the smartphone era.

Mr. Oberman heads up Kramer Levin’s Alternative Dispute Resolution Practice Group. A fellow of the College of Commercial Arbitration, he serves as an arbitrator and a mediator, in addition to representing parties in ADR proceedings. He can be reached at moberman@kramerlevin.com.

Judicial Reforms in Poland – Context and Controversy

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By Maciej Jóźwiak

After November 2015, when the right-wing party, Law and Justice (PiS), won the parliamentary elections and obtained majority in the Polish Parliament, a number of judicial reforms were commenced that stirred-up dramatic controversy in Poland and in Europe. The reforms covered the two key Polish judicial institutions – the Constitutional Tribunal and the Supreme Court. The Government also introduced changes in the law regarding state courts and prosecutors.

This play called “judicial reforms” started with an amendment which combined the roles of the General Prosecutor and the Minister of Justice. Currently these two positions are handled by one man. The amendment granted to a politician (the Ministry of Justice) the right to be involved in and to supervise all penal ongoing proceedings, either conducted by a prosecutor or before the court. This amendment restored a legal status of these positions changed in March 2010 by the previous government, established by the Civil Platform (PO).

The second act in the reform drama was the amendment to the Act on the Constitutional Tribunal. The reform itself was initiated by the previous government. On 8 October 2015, PO introduced a new law regulating the nomination procedure of the Constitutional Tribunal judges. Under this law the previously tenured Parliament was entitled to nominate two additional constitutional judges (two more than the standard three) for the next nine years. The Act, however, has been sent to the Constitutional Tribunal for a determination as to whether it is constitutional. In the meantime, the President of Poland, who won the election as the representative of PiS, refused to swear-in all five judges.

On 19 November 2015, PiS introduced a reparation Act which allowed the newly tenured Parliament to again nominate five constitutional judges, three already nominated by the previous Parliament and two new ones. Moreover, under this Act, the tenure of the President and the vice-President of the Constitutional Tribunal was terminated. The whole process of the introduction by the Parliament, the signing by the President and the entering into force of the reparation Act took no longer then one week. Under the new reparation Act, five new judges were nominated on 2 December and four of them were sworn-in by the President at night, between 2 and 3 December 2016.

On 3 December, the Constitutional Tribunal issued a judgment concerning the amendment Act introduced by PO. In its judgment, the Tribunal decided that three of the nominees were appointed properly but the appointment of the other two was unconstitutional. The government refused to publish this judgment. On 9 of December 2016, the Constitutional Tribunal ruled that the provisions of the reparation Act regarding nomination of the three already appointed judges and the termination of the tenure of the President and vice-President of the Tribunal were unconstitutional. The government refused to publish this judgment as well.

After 9 of December 2016 two additional amendments acts were introduced by PiS. Both were analyzed by the Tribunal and neither was declared constitutional. Neither judgment of the Constitutional Tribunal regarding these amendments was published by the government.

The second act of the reforms focused on the Supreme Court and the National Judicial Council. The amendment to the Act on the Supreme Court was introduced by PiS, together with an amendment to the Act of the National Judicial Council and the Act of the System for the State Courts.

The two key changes at the Supreme Court concerned: (i) a default retirement of all the Supreme Court judges, with the exclusion of those who are indicated by the Minister of Justice, and (ii) an appointment of a new chamber in the Supreme Court, dedicated to hearing disciplinary actions against judges.

The amendment of the law concerning the National Judicial Council focused on the politicians having more influence on this judicial body by establishing the new chamber of the Council, made up of Parliament’s representatives. This new chamber would have the right to veto all decisions taken by the “old chamber,” where inter alia sit judges as well as representatives of government and the representative of the president, among others.

And finally, we in the audience saw the Act of the System for the State Courts, which contained the following changes: (i) the power of the Ministry of Justice to call off and nominate new presidents of the state courts was established; (ii) cases were allocated between the judges based on their “weight” which is established by the Ministry of Justice; (iii) a case would have to be examined by the same judge from beginning to end; and (iv) the Act distinguished the age of retirement between male and female judges.

The proposals described herein have raised crucial constitutional doubts and even inspired a series of street protests by Polish citizens in many cities all over Poland.

The President of Poland decided to veto two of those acts (the Act of the Supreme Court and the Act of the National Judicial Council) and has signed the third one. The Act of the System for the State Courts comes into force 14 days after being published.

The drama, however, continues. The President has announced that he will prepare and present his own proposal of the amendments to the Act on the Supreme Court and the National Judicial Council within a couple of months. Thus, we are still waiting for an epilogue.

These reforms were introduced to improve the judicial system in Poland. As it was presented, the new law was intended to speed up proceedings, making the system more transparent and understandable for citizens. Instead, however, the reforms have made the judicial system more dependent upon politicians.

In times where certainty of the independent judicial system is one of the most important factors for business development, the situation in Poland is being viewed by some with worry. To minimize the risk of adverse influence of these recent legislative changes on business, many entrepreneurs are opting to include arbitration clauses in their contracts. Despite some formal requirements for arbitration clauses under the Polish law, arbitration and other ADR methods may offer just the calming influence needed to counter the dramatic recent changes in the Polish judicial system.

Maciej Jóźwiak is an attorney at law on the dispute resolution team at Wierzbowski Eversheds Sutherland. He can be reached at maciej.jozwiak@eversheds-sutherland.pl