Author: CPR Staff

Avoiding and Resolving Information Technology Disputes (CPR Master Guide)

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By Meghna Talwar

The latest survey released by Queen Mary University of London, in collaboration with Pinsent Masons (“the Survey”), highlights the growth of ADR in Technology, Media and Telecommunications (TMT) disputes. The Survey records 67% of the total disputes which are IT related.

Foreshadowing this important development, in 2005, CPR’s IT Committee released its master guide titled “Avoiding and Resolving Information Technology Disputes” which provides detailed information about resolution of IT disputes with the help of ADR mechanisms. The master guide’s 7 chapters provide different methods for addressing IT disputes from avoiding them in the first place to resolving them by arbitration. The first chapter gives companies a head start to set things in place prior to dealing with external parties. The chapter provides cues on how companies can assess, prioritize and define their goals and identify the possibility of dispute in the long run in order to plan their resolution techniques right from the beginning.

Chart 5 of the Survey states that 61% of the disputes related to IT systems are caused due to delay. The survey also mentions that such delay may be caused due to several attributing factors rather than one cause. Chapter 2 of the master guide suggests practices which companies may adopt to avoid delay. The chapter which is titled “Avoiding Disconnect Between Negotiation and Implementation” describes ways in which companies can formulate healthy negotiations with other parties thereby building a strong working relation with them. The chapter also focuses on how parties can develop a good understanding of the project as well as their own interpersonal relations which could ultimately lead to limiting the risk of contracting any disputes.

While Chapter 2 discusses building strong relations, Chapter 3 encapsulates the technique of building a strong project foundation based on strong partnerships. The chapter highlights the advantage of building partnerships at an early stage and describes methods to sustain such partnerships once they are formed. Also, the chapter offers interesting suggestions on conducting workshops with stakeholders to create synergistic relationships.

Often guidelines are limited to dos and don’ts of a process which are purely theoretical in nature. However, Chapter 4 of the master guide carries out case study of an IT dispute which enables companies to understand the practical implications of the master guide. The case study is an interesting concoction of facts and analysis with suggestions from the IT professionals who comprised the CPR IT Committee. Thus, the master guide provides a well-rounded view of IT disputes and the complications involved therein.

The Survey states that 50% of the respondents prefer mediation followed by 47% who prefer arbitration. Hence, there is an earnest intention on the part of the companies to resolve disputes without resorting to courts. However, it would be effective to resolve disputes at a preliminary level. Chapter 5 of the master guide speaks about the use of hierarchical positions to defuse disputes at an early stage. The chapter also emphasis on the need for protecting stakeholders, thereby maintaining a dispute-free atmosphere.

Chapter 6 introduces the concept of appointing a standing neutral. The chapter describes a standing neutral as someone who is appointed as a neutral in advance of any conflict. The appointment of a standing neutral could save the parties a substantial amount of time and cost in a way that the parties would get neutral assistance immediately on detecting a dispute without having to search for it when the dispute arises.

It is understandable that in certain cases it is impossible to avoid disputes despite adopting prevention mechanisms. Proliferation of social media is an example of unavoidable disputes. The Survey recorded 93% disputes arising out of social media attacks and 54% disputes arising out of traditional media attack. Chapter 7 of the master guide describes the dispute resolution program which companies may adopt if avoidance strategies do not work. The Survey points out the importance of Dispute Resolution (DR) policies which companies adopt. It stated that only 25% of the respondent companies did not have a DR policy. Thus, Chapter 7 could be helpful for companies which fall within the 25% bracket and could give the remaining 75% some tips for improvement, if required. The chapter also introduces the CPR Rules on Expedited Technology Dispute Resolution which includes rules for both arbitration and mediation proceedings.

The CPR master guide was introduced long before the introduction of the Survey. However, from the Survey it is quite evident that the issues revolving around IT disputes that were discussed in the manual remain to be a cause of concern, even today. Hence, the master guide proves to be an effective tool for addressing such problems and acts as a catalyst to innovate and introduce mechanisms for resolving IT related disputes.

Meghna Talwar is a fall intern at CPR.

To order a copy of CPR’s Master Guide, “Avoiding and Resolving Information Technology Disputes,” click HERE. And be sure to browse our many other publications in The CPR Store HERE.

 

Commercial Questions: CPR Board Chair John Kiernan Assesses ADR Progress and Suggests a Future Path

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kiernan

John S. Kiernan

International Institute for Conflict Prevention and Resolution Chairman John Kiernan recently told the Association for Conflict Resolution of Greater New York 2016 Annual Conference that conflict resolution practices had made great strides, and the processes and practitioners are widely used.

But he warned that in some ways, they are still facing not only growing pains, but even issues of general acceptance.

Kiernan, who also is president of the New York City Bar Association and co-chairs the Litigation Department at Debevoise & Plimpton, where he is a partner in the New York office, addressed the June 16, 2016, luncheon following ACR-GNY’s presentation of an ADR Achievement Award to Kiernan for his work in the field.

The Association for Conflict Resolution of Greater New York is the New York City metropolitan area chapter of the national, 7,000-member professional association of neutrals, educators, and others involved in the conflict resolution field. Its membership includes professional and volunteer mediators, government employees, lawyers, arbitrators, environmental public policy specialists, community and consensus-building facilitators, ombuds, educators, students, and others.

Kiernan then delivered the following address:

“It’s a pleasure to have this opportunity to gather and break bread with this impressive collection of ADR practitioners and fans. In the presence of dispute-resolvers like the folks in this room, advocates like me can practically feel the ‘adversarial-ity’ drain right out of us. If we can just infuse our clients, our clients’ adversaries and their lawyers with the same peace-mongering hormones, maybe we can get something accomplished.

“Gatherings like this provide an opportunity to pause and check the scorecard on how ADR is really doing in practice and in the general marketplace of ideas. The range of answers you can get from asking this question is broad, but the best answer from this litigator’s perspective appears to be that there has definitely been progress, to the point where partisans of ADR rightfully believe there is a widely recognized first level (as it might be called) of increased openness to ADR that did not exist in the same measure a few decades ago. And that ADR methods truly have established themselves as able to foster resolution of disputes faster, more efficiently and less expensively than litigation would do, but ADR remains far short of its full, what might be called “Level Two Maturity.”

“Universal buy-in remains held back by shortcomings in individual participants’ particular experiences with ADR efforts; by disputants’ understandable preference for winning over compromise so long as winning seems potentially achievable without intolerable expense; by institutional or personal priorities that cause litigants to feel a need for a judicial resolution, and by a wide array of cultural sensibilities among disputing parties that can be deeply felt and are hard to shake.

“Where is the progress?

“In the commercial sector, certainly, senior lawyers can all remember times when even highly sophisticated litigators and clients would breezily dismiss suggestions to consider mediation with statements like, “We can’t profitably talk settlement until we have inflicted some of the pain of litigation on the other side and seen how the case develops. Later, if the other side really becomes ready to talk settlement, we won’t need a mediator because I and my adversary can accomplish as much by talking to each other nose-to-nose, as old warhorses, as any mediator can accomplish.”

“That sensibility hasn’t disappeared, and by the way sometimes it’s exactly correct. But too many of us have seen too many disputes resolved through mediation, sometimes after efforts at bilateral negotiation have gone nowhere, for the categorical form of this view to feel like the reflexive majority sensibility today.

“Instead, it now feels as though discussion of mediation or some other form of ADR will be part of the vocabulary attached to a big percentage of disputes, often at multiple different points in the dispute.

“To the extent that ADR partisans want to claim a universally accepted new paradigm about how disputes should be resolved, though, that might be a little more self-congratulatory than the objective evidence suggests. In lots of contexts, at least absent court mandate, mediation remains exceptional rather than normal.

“Some of the best expansions of mediation have occurred because particular messes involved too many parties and too many different subgroups that had to sort out their own separate side agreements for a normal bilateral settlement negotiation to seem even potentially workable.

“Some mediations have worked simply because mediation created a process for compelling the personal attention of key business decision-makers who, unless scheduled and directed to sit in a room until a deal got negotiated, otherwise were too susceptible to getting distracted by other demands to focus as needed on the hard work of negotiating a resolution.

“Sometimes parties are drawn to ADR because they just plain need a decision so they can move on, and because they can’t get what they want from courts in a satisfactory fashion or acceptable timetable. That certainly seemed to be a big factor in the ADR boom in California that ran distinctively ahead of East Coast practice in the late 1980s and early 1990s, for example.

“Or sometimes the parties, unable to agree on anything else, have been able to agree that they simply couldn’t stand that such a large percentage of the pool of money available to resolve a dispute was being paid to litigators rather than to the settlement pot.

“In some contexts–particularly ones where the plaintiffs are individuals who feel personally aggrieved and the defendants have no principled objection to paying something or taking other formal actions if that will enable them to achieve peace–courts and other bodies have also seen that procedures giving claimants an outlet to tell their stories and then negotiate an early settlement can have a high success rate if the narratives get managed effectively and the mediators do their jobs well.

“These increasingly popular sources of resort to ADR are important. Having ADR available in these circumstances significantly advances the cause of achieving workable resolutions of disputes at tolerable costs.

“But before we over-celebrate, it’s worth recognizing the continuing ways that mediation and other forms of ADR remain in their relative infancy, with major distances yet to travel, in both the commercial marketplace and general public sensibility.

“We can take as a given that many people who bring lawsuits, and most people who are sued, correctly view the lawsuit as a problem that needs to be solved, as to which litigation to a final resolution is only one of a wide range of potential outcomes. Litigants uniformly want to win their disputes, but tend to recognize that if the case can’t be resolved or transformatively narrowed by an early dispositive motion, litigation to final judgment will likely be the most expensive possible mechanism for getting the dispute resolved.

“So if you set aside the important set of cases that seem readily susceptible to an early dispositive or narrowing motion, and accept the general starting reality that most litigations will settle instead of getting litigated to final judgment, and that expenditure of litigation dollars before any negotiations will not always significantly alter the risk-discounted value of the dispute or the price of settlement, that should objectively lead the most thoughtful participants in the process to certain kinds of pragmatic thinking and conduct.

“Now, in the face of those realities, ask any random sampling of experienced commercial litigators or in-house litigation counsel the following questions:

1. How often is your first approach in a new litigation, as a matter of agreement between litigator and client, to take an immediate deep dive into the merits as necessary to develop, at the very outset of the dispute, your best truly objective assessment of the strengths and weaknesses of the claims, the probability of success and failure, and the range of possible outcomes? For most disputes, the most common answer would probably be more often now than a decade ago, but still not very often.

2. How often do clients communicate by words or body language, or do outside litigators develop on their own, the strong sense that the client wants its litigators to be “true believers” in its position, such that no matter how the client nominally asks for the lawyers’ assessment, provision of truly objective assessments of the dispute’s merits and risks or fully candid discussion about the expected range of outcomes or the advantages of early consideration of settlement carries a major risk of damaging the client’s confidence in the lawyer’s expected zeal as an advocate–or maybe even of preventing the lawyer from getting hired?

3. When lawyers are asked to advise on disputes challenging the conduct of particular individuals within an institution, how rigorously does the client work to separate the decision-making regarding the dispute from the understandable instinct of the attacked individuals to defend their conduct, so that the risks are evaluated objectively?

4. How often do either outside or in-house lawyers think that the time would be ripe to begin exploring settlement in a litigation–in that further litigation will not likely change the settlement price by an amount exceeding the costs of that litigation–but that they can’t yet do so with any force because the ultimate business client is not ready to think in those terms? On the flip side, how often do plaintiffs’ lawyers approach mediation with the view that their goal is not to settle but to establish a floor of commitment by the defendant that can become a starting point for negotiations further down the line?

“In the arbitration world, meanwhile, how many of us have heard highly skilled outside lawyers or in-house clients say they won’t ever agree to arbitrate as a matter of policy, based on a bad experience with a mismanaged arbitration, a belief that arbitrators merely split the baby, or a hatred of giving up appeals?

“As a result of this view, these executives have preferentially consigned complex disputes to horrendously overworked trial judges who can’t set the case for trial for many years and may hand the case to someone else for trial, and to juries that likely won’t understand the issues in sophisticated ways.

“Why don’t they consider it indisputable that they would have a better prospect of avoiding unwarranted results by instead selecting highly experienced arbitrators who would carefully study the record, responsibly streamline the process, and understand the most complex issues far better than the judge will likely have time or the jury will likely have capacity to do?

“These questions aren’t offered to criticize any participants in the dispute process–a litigation is a profound human experience, and it’s usually extremely important to both parties to aim for an outright win and view that outcome as the only tolerable one. There are often highly creditworthy institutional or personal reasons for parties to a litigation to fight to a final decision rather than press for the earliest possible resolution.

“The more modest point is that further advancement of ADR will require a continuation of the evolution of cultural sensibilities–and, ultimately, the wills of disputing parties and the perspectives of their most trusted advisers–that have already advanced mediation and other forms of ADR from a position of near-institutional invisibility a few decades ago.

“Although, as many of you in today’s audience know, it has always existed in families, communities and some kinds of institutions where disputes needed to be resolved.
“So what is the next wave of ADR sensibilities that folks at CPR, JAMS, the [New York City Bar Association] and this and other organizations are thinking about?

“Maybe we aren’t too far away from the time when the pursuit of negotiated resolutions stops getting postponed for long periods because each side is unwilling to make the first overture out of a belief that introducing the subject is a sign of weakness that will cost big settlement dollars.

“Maybe others will emulate the Fortune 100 in-house head of litigation who recently addressed his company’s nine-digit annual litigation spend, and overwhelmingly directed to disputes with his enterprise’s biggest competitors by setting up a monthly lunch with his counterparts at each of those competitors–a step that led to a wide range of different forms of alternatives to litigation for resolving disputes, and a massive reduction in dispute-related costs.

“We have been seeing mandatory mediation or streamlined arbitration clauses in contracts and in some court rules for the past decade or two. Maybe we will increasingly see settlements actually get reached as a result of those provisions, to a degree that alternatives to litigation like these will become a matter of reflex–not only for parties that need to continue doing business with each other but also for other counter-parties that hate the pain and distraction of protracted litigation almost as much as its cost.
“Maybe, in contexts where neither party sees a major advantage in a jury trial, clients will increasingly come to value and hire lawyers in part based on their nimbleness in figuring out and working with their adversaries on ways to resolve the dispute more quickly and less expensively.

“Some recent experiences of mine–one with some really good in-house lawyers at a client who ultimately redirected their company’s business strategy based on a rigorous and candid pre-litigation assessment of a massive and complicated dispute in which no complaint was ever filed, and another matter with an unusually resourceful and pragmatic adversary where the parties found themselves litigating a billion dollar dispute under a contract provision requiring that arbitration hearings conclude no more than 45 days after they were initiated–have strongly suggested to me that these kinds of thoughts about improving the process for resolving disputes do not necessarily involve looking generations into the future.

“That kind of second-wave thinking about ADR will not eliminate the need to litigate when one or both parties feel a need for the litigation process or a determination to get to a decision, win or lose, and it will not put litigators out of a job, because there will always be disputes.

“Lawyers who think creatively about different ways to help their clients resolve disputes, and who have the capacity to pursue ADR as effectively as they pursue traditional litigation, should remain in great demand.

“It’s great to have a conference to tease out some of this new thinking, and to have a chance to talk to you about the Level 2 sensibilities of ADR that may lie in our futures. But it’s also important to remain attuned to the timing sensibilities of the mediator who, asked whether he considers himself facilitative or evaluative as a mediator, responded,

“I’m highly facilitative, relentlessly so, until about 4:30.”

“Time for me to stop talking and for you to enjoy each other’s company and your lunches. Many thanks.”

Brexit and ADR, Untangling the Complexities

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The United Kingdom’s recent referendum vote to leave the European Union (EU) is just a few weeks old, and dealmakers are rightfully concerned about its ramifications. The falling pound, the most immediate consequence, is just one of many factors that could affect pending deals with British companies. Many parties entered into contracts with UK-based companies with certain assumptions based upon the country’s membership in the EU. Now, with the UK’s situation uncertain, the lawyers are lining up to figure out next steps.

On July 18, CPR’s arbitration committee convened a panel on the topic of Brexit’s impact on cross-border arbitration and litigation involving the UK, hopefully clearing up some of the mystery. The panel was moderated by Jean-Claude Najar (France) of Lazareff Le Bars, and featured Tim Hardy (UK) of CMS Cameron McKenna LLP, Vanessa Alarcon Duvanel (Switzerland) of White & Case LLP, and Clifford J. Hendel (Spain) of Araoz & Rueda Abogados, S.L.P.

As explained by Mr. Hardy, Brexit’s main immediate impact on cross border litigation in the EU is the uncertainty as to what will happen post-exit to the existing unified regime for dispute resolution applying to all Member States. Since 1973, the UK has been required to adopt unifying arrangements to avoid duplicate litigation in different States through a series of rules intended to determine that the court of only one State can have jurisdiction and that the decision of that court should be respected by all other courts of Member States. Initially, the incorporation of these reciprocal arrangements into the legal framework of Member States was undertaken through a  series of treaties – each requiring each State to approve, ratify and implement each Treaty.  As this was extremely cumbersome and slow, subsequently, EU Regulations were implemented directly applying the rules into the law of each member state.

To exit the EU the UK will have to repeal the European Communities Act which will automatically repeal all Regulations but it will not repeal all treaties. Accordingly, a complex situation could develop where arguably some treaties will survive and may be applicable and relevant to determining parties’ positions if disputes arise. “One would hope,” said Mr. Hardy, “that the legislature will do what it can to avoid this mess. But at the moment, we don’t know what steps will be taken to address and tidy it up.”

As for the practice of international arbitration in the UK or London, Mr. Hendel explained, there is no reason to think that Brexit will have any legal effect because the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which is the lifeblood of international arbitration, is immune from what will happen with Brexit. The situation is different, however, in the world of judicial dispute resolution. Mr. Hendel referenced the falling away of important EU regulations concerning the automatic recognition and enforcement of judgments throughout the EU, jurisdiction and choice of courts, as well as choice of law, in two years’ time or so, unless the UK takes action before then through negotiation with the EU or unilateral action to keep these legal mechanisms in place. These regulations currently provide an important degree of harmonized certainty on how to deal with everyday issues that arise in EU cross-border disputes, and Brexit will inevitably undermine this certainty. Mr. Hendel noted that the UK might have an incentive to preserve this framework one way or another in order to preserve its perceived supremacy in the financial and legal industries.

Ms. Duvanel examined how Switzerland has managed in the years since it voted in 1992 not to join the European Economic Area (EEA) to overcome isolationism vis-à-vis the EU. Although it took several decades, Switzerland managed to negotiate and ratify bilateral agreements with the EU to harmonize its legislation with that of the EU. For example, the Lugano Convention addresses the issues relating to jurisdiction and recognition and enforcement of judicial decisions between Switzerland and the EU. In the end, she explained that Switzerland has its own set of legislation, but that much of it is inspired by the EU, “fully harmonized but always a bit later.” The harmonization of the two legislative systems has been long and difficult for Switzerland, and it is likely to be difficult for the UK as well. She stressed, however, that all of that had no effect on international arbitration in Switzerland. Switzerland remains very attractive. Swiss arbitrators are among the most nominated in the world in international arbitration cases. Switzerland is the second most chosen seat for international arbitration and Swiss law is one of the most chosen applicable law due to the stability of the Swiss legal system.

From an in-house perspective, explained Mr. Najar (who held various senior legal positions in GE for close to 24 years), companies must analyze the potential consequences of Brexit on their contracts governed by English law, particularly long-term contracts, and determine how to best mitigate the uncertainty related to the impact of Brexit. There is a wide array of potential issues to consider, such as currency fluctuation, access to the EU market, organization setups, employees’ rights, corporate governance, and specific regulations. Dispute resolution clauses will also need to be reviewed closely. Najar pointed out that some companies had already started to opt out of the UK, in favor of jurisdictions such as France and Switzerland, several years ago out of other concerns, such as costs or being closer to a civil law environment. Najar stressed that English law enjoys a longstanding and solid reputation as the governing law in many contracts. However, it incorporates many elements of EU law, and Brexit will therefore create some uncertainty as these elements are being pulled out of English law. Since businesses do not like uncertainty, Brexit might deter companies from choosing the UK as a seat or English law as the applicable law.

For anyone involved in business in the UK, CPR’s European Advisory Board (EAB) is an excellent resource for efficient dispute prevention and resolution. The EAB, a highly experienced and distinguished group of sophisticated practitioners and users from Europe’s leading law firms and corporations, has recently released a European Mediation and ADR Guide. Developed under the leadership of CPR’s EAB, the Guide provides a valuable overview of the most widely used alternative dispute resolution processes (particularly mediation) and when they might be suitable, with practical suggestions on how to make use of them.

While Brexit may seem like an ugly divorce, the fallout for companies doesn’t have to be messy.

Ninth Circuit Backs NLRB’s View Barring Mandatory Pre-dispute Class Waivers, Deepening a Circuit Split

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By Ksenia Koriukalova

The Ninth U.S. Court of Appeals Monday joined the Seventh Circuit in supporting the position of the National Labor Relations Board against “concerted action waivers” in employment agreements

Morris v. Ernst & Young LLP, No. 13-16599 (9th Cir. August 22, 2016) (available at http://bit.ly/2bqiU0k) contributes to deepening the circuit split regarding the enforceability of class waivers that compel employees to take their employment disputes to individual arbitration.

Morris v. Ernst & Young was the first case in which the NLRB intervened as amicus curiae to urge the court to support its view on the issue, which has been rejected by the Fifth and Eighth Circuits, but backed by the Seventh Circuit in Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016) (available at http://bit.ly/1U8lhTW).

Lewis, the first in which the NLRB argued, caused the split.  The Lewis parties requested and received an extension to decide upon and prepare a petition for certiorari to the U.S. Supreme Court.  Arbitration experts and analysts expect that employer Epic Systems will file for an appeal sometime next month.

On Monday, in the 2-1 Morris opinion written by Chief Circuit Judge Sidney R. Thomas, the Ninth Circuit vacated a federal district court order compelling individual arbitration in a class and collective action brought by Ernst & Young employees.

The action was originally brought in New York for the alleged misclassification of employees and violation of the Fair Labor Standards Act. After the case was transferred to California’s Northern District, Ernst & Young filed a motion to compel arbitration in accordance with the agreements executed by the plaintiffs as a condition of their employment.

The agreements contained provisions requiring the employees to pursue their legal claims against the accounting and consulting giant exclusively through arbitration, and to arbitrate only in their individual capacity and in “separate proceedings.”

The plaintiffs argued that the “separate proceedings” clause of their agreements violated federal law, in particular the National Labor Relations Act, or NLRA. The district court granted the employer’s motion to compel individual arbitration. The appellate court disagreed with that decision.

For full details on the November 2015 Morris argument in the Ninth Circuit, as well as information on the background of the case and resources on the class waivers-NLRA issue, see “Cutting Arbitration Classes: Facing Court Defeats on Workplace Waivers, the NLRB Refuses To Back Down,” 34 Alternatives 1 (January 2016)(available at http://bit.ly/2c3hewf).

This week, the Ninth Circuit overturned the district court decision and joined the Seventh Circuit view that class waivers mandating arbitration violate federal labor law.

Specifically, the Ninth Circuit panel held that by requiring employees to sign agreements containing “concerted action waivers,” the employer interfered with the employees’ “essential, substantive right” to “engage in concerted activity” granted by the NLRA § 7.

The panel relied on the NLRB’s decision D.R. Horton, Inc., 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8), enforcement denied in relevant part, 737 F.3d 344 (5th Cir. 2013) (Graves, J., dissenting)(PDF download link at http://bit.ly/1XRvjrM), reh’g denied, No. 12-60031 (Apr. 16, 2014).

In its original D.R. Horton decision, the NLRB concluded that an employer’s requirement that an employee sign a waiver as a condition of employment violated the NLRA. The Ninth Circuit analyzed NLRA § 7, which establishes an employees’ rights to engage in concerted activities, and NLRA § 8, which enforces collective action rights.  The circuit appeals court agreed with the NLRB’s D.R. Horton interpretation of these statutory provisions.

“This case turns on a well-established principle,” wrote Chief Circuit Judge Thomas, “employees have the right to pursue work-related legal claims together.  . . . Concerted activity—the right of employees to act together—is the essential, substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in ‘separate proceedings.’” [Citations omitted.]

Moreover, the Ninth Circuit also held that the application of the Federal Arbitration Act did not change its conclusion. The panel found that the requirement to pursue legal claims against an employer in “separate proceedings” violated the NLRA, irrespective of whether employees were required to bring their complaints in arbitration or in court.

Circuit Judge Sandra Ikuta dissented, concluding that that the arbitration agreements signed by Ernst & Young employees were enforceable, because the NLRA did not contain a “contrary congressional command” overriding the FAA.

Morris v. Ernst & Young deepens the circuit split on enforceability of class action waivers in employment agreements. In addition to D.R. Horton, the Fifth Circuit also has reversed the NLRB’s decision repeatedly, most notably in Murphy Oil USA Inc., Case 10–CA–038804, 361 NLRB No. 72, 2014 WL 5465454 (Oct. 28, 2014) (PDF download link at http://bit.ly/1LVnR8d), enforcement denied in relevant part, 2015 WL 6457613 (5th Cir. Oct. 26, 2015)(PDF download link at http://bit.ly/1TMfDFO).

The Eighth Circuit followed the Fifth Circuit’s view in Cellular Sales of Missouri LLC v. NLRB, 824 F.3d 772 (8th Cir. 2016).  Earlier the Second Circuit also found class action waiver provisions in employment-related arbitration agreements to be enforceable. (see Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013)) But the viability of Sutherland decision is in question following the oral argument in Patterson v. Raymours Furniture Co. heard by the Second Circuit this past Friday.

The Seventh Circuit supported the NRLB’s interpretation in Lewis v. Epic Systems Corp., where the appeals court reaffirmed the NLRB’s position that class action waivers contained in arbitration agreements employees were required to sign as a condition of their employment violated the NLRA.

Monday’s Ninth Circuit Morris decision is powerful support for Lewis. As a result, while the concerted action waivers in employment-related agreements are considered incompatible with the federal labor law in the Seventh and the Ninth Circuit, the Fifth, the Eighth and the Second Circuits render them enforceable–that is, until the Supreme Court of the United States addresses the issue of the compatibility of the NLRA and the FAA nationwide.

The author is a Fall 2016 CPR Legal Intern. And please stay tuned: there will be more on the Patterson case posted here before the weekend! 

New Suit Demands Faster Work on Veterans Benefits Appeals

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By Russ Bleemer

In the latest phase of an issue CPR has been following closely for almost a decade, the American College of Trial Lawyers filed suit last month against the U.S. Department of Veterans Affairs in a renewed move to improve an agency appeals process long beset by delays that prevent military personnel from getting timely benefits determinations.

Last week, President Obama trumpeted improvements in access to benefits, and cutting veterans’ incidents of homelessness.

But on the appeals issues, the President’s report conceded that the process is “broken,” a “state of affairs [that] is unacceptable and is failing veterans.”

The Backlog Bludgeons

The appeals backlog is a persistent problem. It is a different concern than the delays in medical care, which was the principal subject of a post-White House report analysis in the New York Times Saturday. Nor does the appeals backlog at the VA address the department’s responsibility for addressing veterans’ homelessness, an editorial also appearing over the weekend.

In fact, the new case, which is filed in the Washington, D.C.-based U.S. Court of Appeals for Veterans Claims, and requests mandamus relief, relies in part on a panel decision by the Ninth U.S. Circuit Court of Appeals matter that confronted the problem directly in 2011.  The California suit resulted in an order that the VA submit to a federal court a new process that would alleviate the backlog in the stalled claims and appeals matters.

But the panel decision was reheard en banc by the full Ninth Circuit, which overturned it. The opinion acknowledged the problems but did not dispute the constitutional findings. It cited jurisdictional issues—some weighted in separation-of-powers arguments, and most because of appropriateness of the claims for the U.S. Court of Appeals for Veterans Claims–in overturning the original decision. Veterans for Common Sense v. Shinseki, 678 F.3d 1013 (9th Cir. 2012)(en banc)(available for download at http://bit.ly/2b64YKo). The U.S. Supreme Court denied certiorari.

The July 21 U.S. Court of Appeals for Veterans Claims filing–in which the American College of Trial Lawyers represents a class of veterans whose benefits requests have been denied by the VA and whose appeals have not been processed in a timely manner–relies in part on the finding in the original Ninth Circuit decision that the delays violate the veterans’ constitutional due process rights.

Fellows in the Washington, D.C.-based trial lawyers’ group prepared the petition with two partners in the Atlanta office of King & Spalding LLP, and a partner in Washington, D.C.’s Williams & Connolly LLP, according to a press release.

“Thousands of veterans die before their appeals are decided,” states the petition.  It says that benefits appeals now take nearly four years to reach a decision, a situation the filing calls “disgraceful.”

CPR on the Backlogs

The CPR Institute addressed the appeals issue, which had been a subject of controversy for two decades, in a “Why Not ADR? Burdened by Backlogs, the System That Deals with Veterans’ Disability Claims Needs Help,” 25 Alternatives 131.  That September 2007 Alternatives article by Richard M. Rosenbleeth, a retired partner in Philadelphia’s Blank Rome LLP, who works as an arbitrator, was the first to suggest that conflict resolution processes should be deployed to alleviate the strain on the benefit appeals process.

Rosenbleeth proposed that a claims facility be established to swiftly address the languishing appeals claims.

Rosenbleeth followed the issue and returned to it in Alternatives pages repeatedly over the years. The CPR Institute on its website, as well as Alternatives and the national media, covered the Ninth Circuit case filings in 2009 through the 2012 en banc decision.

Key articles, available at the links and in full text on Lexis and Westlaw, included:

  • A piece in the July/August 2011 Alternatives (second page of the issue)—“‘This Is Their Wake-Up Call’: Ninth Circuit Trashes the Veterans’ Administration Claim Processes,’” 25 Alternatives 130 (July/August 2011)—discussing the case at length and analyzing the initial victory that became a basis of the new July Veterans Claims Circuit Court of Appeals filing.

Rosenbleeth explains that the current suit follows years of approaches to various legislators, the VA’s Board of Veterans Appeals, and a veterans’ organization requesting pursuit of a post-Shinseki solution, including ADR processes. The outreach efforts, Rosenbleeth says, were conducted by Fellows of the American College of Trial Lawyers, including himself; John A. Chandler, a partner in the Atlanta office of King  & Spalding, and J. Denny Shupe, a partner in Philadelphia’s Schnader Harrison Segal & Lewis LLP.

“Finally,” says Rosenbleeth, “the College decided a suit was necessary.”

Given the broad nature of the mandamus request in the new suit, and the U.S. Court of Appeals for Veterans Claims’ ability to order innovative relief—as well as the renewed political focus on the broader VA issues in an election—the new American College of Trial Lawyers suit may provide an opportunity for improving the benefit appeals process.

“What is needed is broad reform, and the problem is only going to get worse until Congress acts,” noted the White House’s report last week, “reiterating [President Obama’s] call for comprehensive legislative modernization of the appeals process.”  The report concluded, “Congress should act on this legislation without delay–our veterans cannot afford to wait any longer.”

The Veterans Claims appeals court has not yet scheduled further proceedings on the new suit.

The author edits Alternatives for the CPR Institute.

Examining New Jersey’s Arbitration Scrutiny

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New Jersey courts’ recent arbitration decisions have opened a floodgate of controversy en route to the establishment of new precedent.

The most recent case, Morgan v. Sanford Brown Institute, 2016 WL 3248016 (N.J. June 14, 2016)(available at http://bit.ly/29mSQkS), demonstrates the discord among courts in reaching a consensus about arbitration enforcement—or, at least, a strong New Jersey trend of scrutinizing the particulars of agreements before compelling ADR processes.

The case stems from a complaint by New Jersey residents Annemarie Morgan and Tiffany Dever, who had enrolled in an ultrasound technician program provided by defendant Sanford Brown Institute, a for-profit educational company that is winding down its operations. The plaintiffs alleged that the defendant violated the Consumer Fraud Act and had committed breach of contract, breach of warranties and negligent misrepresentation. The complaint alleged the institute misrepresented the value of the ultrasound program, the quality of its instructors, and that the school used high-pressure and deceptive business tactics that led the plaintiffs to finance the classes using high-interest loans.

“This New Jersey trend should be taken as a warning for employers to address their notice provisions.”

The trial court followed the ruling in Atalese v. U.S. Legal Servs. Group L.P., 219 N.J. 430, 99 A.3d 306 (2014), cert. denied, 135 S. Ct. 2804 (2015)(available at http://bit.ly/ZtfbW4), invalidating the arbitration clause because it didn’t provide proper notice that court remedies were being waived, and violated the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -195.

The Appellate Division reversed, ordering arbitration, noting that the ADR clause was sufficiently clear for all parties.

Last month, the New Jersey Supreme Court reversed again, holding that the arbitration provision and delegation clause in the school’s enrollment agreement failed to comply with the requirements of First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995), and Atalese. The arbitration and delegation clauses also failed to satisfy the elements necessary for the formation of a contract.

The defendants had argued that Rent-A-Center West, Inc. v. Jackson, 561 U.S. 63 (2010), required a specific challenge to the delegation clause by the plaintiffs, but the New Jersey Supreme Court found that the lack of the challenge didn’t matter.

“The arbitration provision did not clearly and unmistakably delegate arbitrability to the arbitrator,” wrote Associate Justice Barry T. Albin for a 5-1 court, adding, “Plaintiffs cannot be faulted for not objecting to an inadequately limned delegation clause that, in addition, did not define arbitration as a substitute for a judicial forum.”

Consequently, whether the parties agreed to arbitrate their dispute is an issue for determination by the court.

This decision does not stray far from its recent predecessors—Scamardella, et al. v. Legal Helpers Debt Resolution LLC, No. A-4170-14T3 and L-2402-14 (Middlesex County and Statewide) (April 19, 2016), and Guidotti v. Legal Helpers Debt Resolution, L.L.C., No. 15-1054 (3rd Cir. Feb. 10, 2016)(available at http://bit.ly/1QOkCSm), vacating 866 F. Supp. 2d 315, 332–36 (D.N.J. 2011)–New Jersey cases in, respectively, state and federal courts that also denied motions to compel arbitration.

Atalese, the parent case for the rest, outlined disclosure requirements that the subsequent decisions have used as the reason for invalidating the arbitration provision. The New Jersey Supreme Court found that the arbitration provision in the case did not have “clear and unambiguous” language stating that the plaintiff was waiving her right to sue in court to secure relief.

“Two more unpublished decisions show the significance of the new trend in addressing notice in arbitration provisions.”

The New Jersey Supreme Court stated in Atalese that an enforceable arbitration clause “at least in some general and sufficiently broad way, must explain that the plaintiff is giving up her right to bring her claims in court or have a jury resolve the dispute.”
Furthermore, the waiver must “be written in a simple, clear, understandable and easily readable way.”

Similarly, Scarmadella ruled that the arbitration clause failed to comply with Atalese disclosure requirements.

Guidotti determined that the plaintiff had not received the account agreement containing the arbitration provision. The court did not require or permit discovery on that issue because it concluded that the existing documentary record was sufficient. Further proceedings will be held next month.

There’s other arbitration coming out of New Jersey courts to raise eyebrows. Just before Morgan v. Sanford Brown Institute was released, a published Appellate Division decision, Kleine v. Emeritus at Emerson, Docket A-4452-14T3 (N.J. App. Div. June 9, 2016), struck an arbitration agreement because a forum suggested by the contract’s use of the American Arbitration Association rules was ruled by the court to be unavailable. The personal injury case was against a nursing home; the decision included strong wording about the presumption to arbitrate.

And there’s more. Two more unpublished decisions show the significance of the new trend in addressing notice in arbitration provisions. Shortly after the Atalese decision, in Kelly v. Beverage Works NY Inc., No. A-3851-13T4 (NJ App. Div. Nov. 26, 2014)(unpublished)(available at http://bit.ly/29kJwR6), the New Jersey Appellate Division applied Atalese to decide whether the arbitration provisions in a collective bargaining agreement barred a plaintiff’s lawsuit for wrongful termination.

The appeals court first declined to consider the employer’s argument concerning preemption because that argument was not raised prior to oral argument. The Appellate Division then held that “neither the arbitration provisions nor the employee handbook put plaintiff on notice that he was waiving his right to try his claims in court.”

Therefore, those provisions did not clearly and unambiguously waive plaintiff’s right to seek a remedy in court and, thus, were unenforceable.

Similarly, in Milloul v. Knight Capital (App. Div. N.J. Sept. 1, 2015)(unpublished)(available at http://bit.ly/1INt69V), the Appellate Division held that an arbitration agreement between a plaintiff and his employer was unenforceable because it did not “even mention a waiver of plaintiff’s right to a trial.” Therefore, the contract did not meet the minimal requirement of stating “in some express fashion that the employee is sacrificing his or her right to a trial.”

This New Jersey trend should be taken as a warning for employers to address their notice provisions. Employers should carefully review every arbitration agreement to ensure that every employee understands that they are waiving their right to bring claims in court, and agreeing to arbitrate all claims that may arise out of the contractual relationship.

This report will be expanded and updated in September’s Alternatives. For more recent background, see Daniela Albert & Russ Bleemer, “New Jersey Court Again Refuses To Compel, Demanding Better Arbitration Notices,” 34 Alternatives 66 (May 2016)(available at http://bit.ly/29lwZeG).

______________________________________

CPR would like to thank interns Daniela Albert (working towards her LLM at Northeastern) and Elizabeth Heifetz (Brooklyn Law School), supervised by Alternatives editor Russ Bleemer, for their research and writing contributions to this post. A longer version of this post, with comments from the attorneys involved, will run in the September issue of Alternatives.

UN Commission on Int’l Trade Law Adopts Text on Online Dispute Resolution (ODR)

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Today, the United Nations Commission on International Trade Law (UNCITRAL) announced its adoption of Technical Notes on Online Dispute Resolution (ODR).  The Technical Notes, which were formally adopted at UNCITRAL’s meeting in New York on July 5, 2016, are the first formal international text recognizing and supporting the use of ODR as a new method of dispute resolution. The formal press release from the United Nations Information Service can be accessed here.

The CPR Institute has been actively involved in the development and drafting of this innovative UNCITRAL text. In response to the need to develop more cost-effective approach to resolving B2B and B2C disputes in the Internet age, CPR became an official NGO Observer to UNCITRAL in the Spring of 2011.

Beth Trent, CPR’s Senior Vice President, Public Policy, Programs and Resources, was invited to serve as a member of the U.S. Delegation to UNCITRAL Working Group III (ODR) and provided an expert perspective on how to best achieve the objective of designing a system that enables parties to resolve disputes in a fast, flexible and secure manner, without the need for physical presence at a meeting or hearing.

The Technical Notes are expected to contribute significantly to development of systems that will enable this objective.  Following UNCITRAL’s approach of issuing texts of universal application, the Technical Notes are designed to ensure that ODR systems are accessible to buyers and sellers in both developed and developing countries.

 

Delaware Chancery Defines ‘Quick’ Court Inquiry Before Referral to Arbitration

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By Kelly Zhang

An action for a preliminary injunction to enjoin arbitration proceedings by officers of a Delaware limited liability company has been denied by the Delaware Court of Chancery.

The decision supports the vitality of a limited liability company’s use of arbitration in its operating agreement. But as it develops the Delaware business court’s view of cases to be sent for arbitration, the case arguably increases the chancery court’s gatekeeping function. Angus v. Ajio LLC, Civil Action No. 11895-VCG (May 13, 2016)(available for download at http://bit.ly/1sXAChn).

The matter concerned whether a dispute was arbitrable, and the question was whether the dispute should go to an arbitrator, or be decided by a court. The underlying suit included allegations of a breach of fiduciary duties and fraud brought by some members the company, MoGo Sport LLC, against MoGo’s officers, for entering into a transaction that ultimately sold the company.

Traditionally, questions of arbitrability have been left to the arbitrators, once a court has found that parties had agreed to submit their disputes to arbitration. The landmark case of Moses H. Cone Memorial Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24 (1983) confirmed that the Federal Arbitration Act created a “liberal federal policy favoring arbitration agreements,” and that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.”

This suggested a first look to the arbitration tribunal, which further U.S. Supreme Court cases developed. But the determination of arbitrability ultimately follows the contract. First Options of Chicago Inc. v. Kaplan, 514 U. S. 938 (1995), enshrined the principle that “courts should not assume that the parties agreed to arbitrate arbitrability unless there is “clea[r] and unmistakabl[e]” evidence that they did so.” (Internal citation omitted.) The First Options inquiry turned upon what parties agreed to; the question was settled by the court once it was shown that parties had not agreed to arbitrate.

Subsequent cases like Howsam v. Dean Witter Reynolds Inc., 537 U.S. 79 (2002), and Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), further narrowed courts’ ability to decide on arbitrability.

Howsam focused on time bars on arbitration, which the Supreme Court ruled was to be determined by arbitrators. Green Tree Financial further held that an ambiguity in the arbitration provision was to be resolved by an arbitration tribunal.

But the May Angus opinion in Delaware’s Chancery Court doesn’t follow the general deference toward arbitration. It shows the Delaware business court examining the frivolity of claims.

In his 12-page opinion, Vice Chancellor Sam Glasscock III affirmed a two-pronged test to show a “clear and unmistakable” intent to arbitrate issues of arbitrability in James & Jackson LLC v. Willie Gary LLC, 906 A.2d 76 (Del. 2006)(available at http://bit.ly/1NZBonr).

The test, Glasscock wrote, requires a “’clear and unmistakable evidence’ of intent to arbitrate arbitrability . . . where there is:

‘1) an arbitration clause that generally provides for arbitration of all disputes; and
2) a reference to a set of arbitration rules that empower arbitrators to decide arbitrability, such as the American Arbitration Association . . . Rules.’”

Glasscock then expanded the test by citing McLaughlin v. McCann, 942 A.2d 616 (Del. Ch. 2008)(available at http://bit.ly/1RGfmke), noting that

only where “a non-frivolous argument in favor of substantive arbitrability exists and the first two prongs of Willie Gary are satisfied, [should] the Court . . . defer to the arbitrator.” [Emphasis added; citation omitted.]

The Angus opinion notes that the additional requirement serves the interests of justice by preventing wasted resources from the adjudication or arbitration of frivolous claims, allowing the court to strike the frivolous claims. But the court’s examination is limited; cases where “more than a quick, facial review of claims would be required” would proceed to arbitration.

Out of the four officers against whom the arbitration demand was brought, only Bruce Angus was a party to the MoGo operating agreement. Consistent with the contractual approach, the motion to halt the arbitration preliminarily against the remaining three officers was granted, as it was held that they would more likely would not be bound to arbitrate because of the lack of contractual obligations under the LLC operating agreement.

On the other hand, the court found at least one “non-frivolous” claim with regard to the original plaintiffs’ standing to force arbitration. As a result, Vice Chancellor Glasscock denied the motion for a preliminary injunction in Angus’s case, and deferred the decision to the arbitrators on the substantive issue of whether the case should be arbitrated.

The court conducted an analysis to determine if there were non-frivolous claims to arrive at the conclusion that the case should be arbitrated.

First, Angus and the other officers who sought to block the arbitration argued that the LLC members who filed for arbitration over the company’s sale lacked standing to enforce arbitration under the operating agreement when they cited a covenant not to compete. The theory was that only MoGo itself could enforce the non-compete provisions, and not the Members.

Glasscock saw these “issues of standing by signatories to a contract to enforce breaches of that contract” as non-frivolous, and that the officers failed to demonstrate that the original plaintiffs’ assertion of standing was frivolous. That finding sent the case to arbitrators for the determination of whether the case arbitrable.

In addition, the defendant officers had said that the arbitration claims against them for a breach of fiduciary duties were outside the scope of the LLC operating agreement because the contract was silent on fiduciary duty.

The court noted that the arbitration provision only covered disputes “among Members or former Member over the provisions of the Operating Agreement.” [Emphasis is the court’s.] It said that whether a breach-of-fiduciary-duties claim would arise from the agreement, and whether the agreement’s silence on the point incorporates default fiduciary duties from state law, was a “nice question” that needed deeper examination.

“This question,” Glasscock wrote, “which warrants more than a cursory inquiry by the Court into the frivolousness of the claim, should be referred to arbitration” under the parties’ agreement.

Angus arguably paves the way for courts to have more say in deciding the arbitrability of disputes despite arbitration provisions. “Litigants’ economy,” the opinion notes, mandates courts to conduct at least the “quick, facial review” of the frivolousness of claims, discussed above, before allowing them to proceed to arbitration. Cases would have to both show a clear intent to arbitrate, as well as present non-frivolous claims, in order to strike a balance between serving the economy and providing parties the benefits of their bargain.

Attorneys from both sides declined to comment.

The case proceeds. An answer and counter-claim was filed by the MoGo LLC members, as they proceed on their fiduciary and fraud claims against the officers not subject to arbitration, on May 27.

The author was a Summer 2016 CPR Institute summer intern and is a third-year LL.B. student from the Singapore Management University.

Class Act: Looking at How the CFPB Wants to Restrict Arbitration Agreements

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By Russ Bleemer

If you want to make your voice heard on federal arbitration regulation, now’s the time.
The Consumer Financial Protection Bureau in May released its proposal to ban arbitration agreement provisions that bar class processes and require individual ADR for disputes in consumer financial services contracts under the agency’s jurisdiction.

The formal public announcement early last month was followed by the publication May 24 of the official proposal. “If finalized in its current form,” said CFPB Director Richard Cordray last month, “the proposal would ban consumer financial companies from using mandatory pre-dispute arbitration clauses to deny their customers the right to band together to seek justice and meaningful relief from wrongdoing. This practice has evolved to the point where it effectively functions as a kind of legal lockout.”

Public comments, due by Aug. 22, are piling up. There are 599 at this writing. (You can view them HERE, along with the full proposal and the link to provide a comment.) A day after the comment period opened, the deluge was kicked off with a letter signed by more than 200 law professors strongly supporting the agency’s proposals.

But Republicans on the House Financial Services Committee, continuing a long-running push to eliminate the CFPB and overturn the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 that created the agency, introduced on June 8 a new proposal that specifically bars the CFPB from regulating arbitration.

The June Alternatives, available now HERE, covers in detail Cordray’s remarks and those of a pro-and-con panel at the May 5 CFPB Albuquerque, N.M., field hearing that introduced the proposed regulation. (An enhanced, annotated version of the article can be accessed directly by subscribers and individuals at CPR Institute members who are logged into CPR’s website at this link.)

The June Alternatives article discusses how the agency’s research into arbitration’s effects on consumers—a voluminous 728-page report conducted over a three-year period that was released in March 2015–led to last month’s proposal.

Agency representatives, including Cordray, emphasized that the CFPB is not proposing to ban pre-dispute arbitration agreements. The key agency goal is to allow consumer class actions that the waivers have cut off.

The Albuquerque panel discussion of arbitration practice experts included three consumer advocates who congratulated the agency, and three business representatives who criticized it and suggested alternative paths–assuming what has become, for some of the panel, traditional public roles in a short period of regulatory time.

The debate continues in Alternatives in the special combined summer July/August issue, which will be available by July 14 HERE. In “Between the Lines: How the CFPB Will Police Financial Services Arbitration,” we examine the specifics of the proposal, including the mandatory language that the CFPB wants included in consumer financial services arbitration agreements.

Following the June report linked above, the new article wades through the 377-page proposal and accompanying report to highlight how the class action moves will affect arbitration parties, providers, contract drafters, neutrals and tribunals.

It will focus on the details in the CFPB’s proposal and report absent from generalized coverage of the CFPB’s move—minutiae to most, but parts of the proposal that are essential to arbitration practitioners and providers’ businesses, and which are drawing comments this summer.

Russ Bleemer edits the CPR Institute-published Alternatives to the High Cost of Litigation.

THE NEUTRAL’S NOTEPAD: Which ADR Technique – Choose Carefully

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Steven Platt

CPR is happy to present the latest installment of “The Neutral’s Notepad,” in which members of our esteemed panel of neutrals contribute their thoughts on developments and best practices in dispute resolution. 

By Judge Steven I. Platt

Which dispute resolution technique should parties and their counsel use in the courthouse or conference room of the future? That was the question with which I concluded my last column. The short answer is the classic lawyer’s response – it depends!

The decision to utilize ADR and even the choice of which ADR technique to employ is often made by a business client who thinking he or she is saving money unknowingly at his or her peril includes a “form” dispute resolution clause in its commercial documents in an attempt to anticipate problems which might arise in the transaction and/or business or professional relationship. That “form” dispute resolution clause is often pulled from a book which should be titled “Dispute Resolution Clauses For Dummies” and prepared without the assistance of counsel. This usually means it is included in the contract without a full understanding of its ramifications. A poorly conceived and drafted dispute resolution clause in a contract can wreak havoc on the operations and finances of even the better run business organizations. This is true even when counsel is involved.

I have observed countless cases as a judge and now as a private mediator and arbitrator where the dispute resolution clause was drafted by a primarily transactional lawyer obviously without consulting the litigator perhaps in the same office who ultimately would have to work within the confines of the language in the clause if a dispute arose. This inevitably puts the client in an unnecessarily exposed position.

Business cases, labor disputes, buy-sell agreements, franchise agreements, and particularly employment disputes to name only a few types of cases arise in many contexts that have not been anticipated and for that reason are not governed by the dispute resolution clause inserted in a contract without much thought. These claims and the defenses to them each carry a unique potential for their own narrative which can develop into drama in the hands of capable litigators, parties, and witnesses in a forum that favors such a presentation. Therefore, it would behoove the prudent business or individual client and his or her careful and thoughtful transactional lawyer after consultation with the experienced litigator down the hall to think about the choice of dispute resolution mechanisms and providers before typing and pressing the print key on the desktop to insert the final version in their contract. That means it is wise to keep in mind how the client and any witnesses are likely to present before different types of audiences. Will they naturally make a good impression on a judge or jury. If not, then an arbitration perhaps preceded by a mediation probably is a better choice because it would be easier to guide clients and witnesses in these more intimate and less formal ADR settings than in a courtroom.

The consequences of not being careful or not being able to visualize how a particular dispute resolution protocol and provider would play out in the future have recently become much more apparent as what has been labeled the “Deflategate” case has played out on the national stage. As a result of allegations that New England Patriot Quarterback Tom Brady ordered/aided/abetted the deflating of one or more footballs in the Patriots playoff game with the Seattle Seahawks, the arbitration provision negotiated by the NFL Players Association with the NFL became operational. This resulted in a proceeding before Arbitration Commissioner Roger Goodell who arguably was arbitrary and capricious in the conduct of the arbitration hearing and the imposition of a 4-game suspension on Brady. That was the view of U.S. District Court Judge Richard M. Berman who nullified the suspension on the grounds that the conduct of the arbitration albeit arguably allowed under the arbitration provision of the collective bargaining agreement was unfair and therefore nullified it.

That ruling was reversed by a Three Judge Panel of the U.S. Court of Appeals for the 2nd Circuit who held that “The Commissioner properly exercised his broad discretion under the collective bargaining agreement and that his procedural rulings were properly grounded in that agreement and did not deprive Brady of fundamental fairness”.

This latest ruling by a divided Panel of the 2nd Circuit (2-1) basically sent the message subject to a successful appeal to the full 2nd Circuit and/or the U.S. Supreme Court that if you aren’t careful and agree to a private arbitral procedure and/or provider which results in an unfair proceeding and result you’re bound by what you agreed to. So Buyer Beware – you make an uncomfortable arbitral bed with a headboard/Arbitrator who is unfair – you lie in it!

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.

[EDITOR’S NOTE: Please also see the two ADR Briefs “Deflategate” stories in the June issue of Alternatives HERE.]