Sharing Resources:  Alternative Dispute Resolution Academics Create a Repository of Best Teaching Practices

By Ellen Waldman

What kind of legal professionals labor long and hard over their intellectual property . . . and then give it away? Law professors who teach alternative dispute resolution, that’s who.

In continuing acts of generosity not characteristic of the academy at large, educators focusing on providing students with knowledge and skills in conflict resolution mechanisms apart from litigation gather yearly to share teaching ideas and innovations with their friends and  colleagues. 

This community forum, under the banner of the American Bar Association’s Section of Dispute Resolution, often begins slowly, with participants feeling shy about presenting their newest simulation or in-class exercise as a practice worth emulating. But with the organizers’ encouragement, confidence grows, participants begin to shout out their contributions with growing enthusiasm, and the group takes on the call-and-response cadence of a jubilant church meeting.

ADR professors look forward to being with their colleagues, whether in the same room or virtually.  But, for those who can’t attend–the organizers say they hope to resume in-person gatherings soon–the ideas presented are dutifully captured in a document titled the Legal Educators Resource Share, which is made widely available.

The resource is a valuable tool for practicing attorneys and ADR professionals, too. It is now more than 25 pages long, with hundreds of more pages of appendices–the actual, ready-to-use, material that teachers can hand out in class, such as simulation roles, out-of-class assignments, in-class worksheets, etc.  

The resource is the brainchild of Sharon Press and Barbara “Bobbi” McAdoo of Mitchell Hamline School of Law, in Saint Paul, Minn. The decade-old effort, with support from the ABA Dispute Resolution Section, began when they convened a group at the ABA DR Section’s Annual Conference and encouraged attending professors to submit and describe teaching resources that could be shared with the teaching community.

They compiled those resources in a document and made them widely available on academic sites as well as the blogosphere. When Prof. McAdoo retired, Prof. Noam Ebner of Creighton University in Omaha, Neb., took her place as co-organizer.

The resource document is divided into several categories, all of which can be helpful to novices and veteran professors alike: list servs; conferences; teaching/training materials, videos, and more. A brief sampling of the ideas reveals the contributors’ creativity and focus on securing student engagement.

Here are examples of the materials:

  • A discussion of the use of mindfulness meditation in a Legal Negotiation Class, complete with references to articles exploring the connection between mindfulness practices and creativity, feelings of well-being and the reduction of bias.
  • Guidance offered by the International Council for Online Dispute Resolution website, including  the ICODR’s online dispute resolution training standards.
  • “A Trisolan Map: Getting to Yes Exercise,” designed to help students make the jump from understanding the integrative negotiation method in theory, to actually applying it before engaging in a negotiation scenario. The exercise is a solo activity where the student plays the role of a fictional character in a fictional world, making negotiation decisions that seem very real. (For non-sci-fi immersives: The exercise is based on a Star Wars-inspired scenario.)
  • An article titled “Designing binge-worthy courses: Pandemic pleasures and Covid-19 consequences,” which draws on “the literature examining psychological and neuroscientific aspects of binge-watching television shows” to suggest approaches “to designing courses our students will want to binge-learn.”
  • A website developed by the ABA’s Legal Education , ADR, and Practical Problems (LEAPS) Project, designed “to help faculty incorporate practical problem-solving . . . into their instruction of a wide range of courses, including doctrinal, litigation, transactional and ADR courses.”
  • The “Stone Soup” Dispute Resolution Knowledge Project, offered by University of Missouri School of Law, Columbia, Mo., Professor Emeritus John Lande , which contains resources and tools for those who want to incorporate practitioner interviews and case observations into their classroom assignments.
  • Links to a variety of videos demonstrating various mediation styles and techniques. One of the most prolific videographers is Boston-based Suffolk University Law School Prof. Dwight Golann, who has shot and edited many videos, housed at the ABA/Suffolk University Law School Dispute Resolution Video Center and made openly available to all dispute resolution professors.   
  • Role-play simulations treating diverse subjects, ranging from probate to community divisions, to college spats, to European Union policy wrangles.
  • Exercises to assist students with getting comfortable on Zoom.
  • “Donald Trump and Stormy Daniels: An Arbitration Case Study,” containing excerpts from Daniels’ suit seeking to invalidate the arbitration clause embedded in the settlement agreement she signed with the former president; the TRO issued by an arbitrator that she violated by filing suit, and excerpts from an article written by the submitter, Brian Farkas–a Yeshiva University Benjamin N. Cardozo School of Law adjunct professor and a New York-based Arentfox Schiff associate–examining the public policy issues raised by the case.   

The list is extensive.

What is particularly noteworthy is the alignment between what these educators profess in the classroom and what they actually do. As proponents of dispute prevention and management, they teach their students to be creative problem solvers, to search for mutually beneficial outcomes and to “grow the pie”–not just look for ways to self-servingly apportion it.

And this is how they approach their life’s work. Far from hoarding their intellectual capital, they spread it around, assuming that if the next generation of lawyers has the benefit of the best teaching and writing out there, then we all win.  

The current version of the Legal Educators Resource Share linked above, and recent past versions, are located at ADRhub.com, a website maintained by Creighton’s Negotiation and Conflict Resolution Program. There also are plans by the organizers to have open access on the Mitchell Hamline School of Law Dispute Resolution Institute web page, which provides its DRI Press books and other teaching materials.

* * *

The author, a longtime former law professor, joined CPR earlier this year and is Vice President, Advocacy & Educational Outreach.  Her bio on CPR’s website can be found here.

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Judges as Mediators, and the Issues that Won’t Go Away

By Mnotho Ngcobo

If you were to ask a layman what mediation is, the answer would probably be something along the lines of, “a private dispute resolution process where an independent private mediator would attempt to assist parties to reach an agreement/solution to whatever dispute they may be facing.”

But one of the problems with the typical layman’s mediation view is that it doesn’t account for a continually emerging group of individuals working their way into this ADR process–the judicial officers, including judges and magistrates (and noting that different countries have different names for these officials).

Often, parties go to mediation to avoid facing a judicial officer. That’s arguably the best part about ADR . . . or it used to be. Judicial officers are employed to adjudicate disputes. They are trained to uphold law and rules, while private mediators are specialists trained to facilitate disputes–they aren’t primarily focused on procedure, for example, because mediation by its nature is flexible and not rule-based.

What happens when a judicial officer AKA a judge mediates a case? What issues does it raise for the parties in disputes?

The truth is that parties often fear judicial officers, and when a judicial officer is facilitating a mediation, parties might not be comfortable. There is then a risk that a party would agree to something out of fear: What happens when the same judicial officer who facilitated the mediation between the parties is tasked with running the fairness hearing? This could cause problems, and some might cry “judicial overreach.”

An interesting case where the judicial officer facilitated the mediation and was also tasked with running the settlement agreement’s fairness hearing was decided earlier this year in McAdams v. Robinson, 26 F.4th 149 (4th Cir. Feb. 10, 2022)(available at https://bit.ly/3aECNBO).

This case arises from a class action lawsuit against Coppell, Texas, finance company Nationstar Mortgage LLC, alleging that Nationstar was in breach of the state and federal consumer protection laws, failing to timely acknowledge receipt of class members’ loss mitigation applications, respond to the applications, and diligently obtain documents to process them.

The case was litigated over six years. In 2017, a Maryland-based U.S. District Court judge referred the case for “Settlement or other ADR conference” before Magistrate Judge Timothy J. Sullivan, of Greenbelt, Md. In March 2020, the parties were ordered to conduct mediation. In June 2020, the parties filed a notice of settlement and a joint motion to proceed before the magistrate judge who had mediated the settlement. Among other things agreed upon in the proposed settlement agreement was that Nationstar would pay a $3 million relief fund, consisting of:

  1. Administrative expenses up to $300,000;
  2. Attorneys’ fees;
  3. A service award to the class’s representative; and
  4. Class claims.

Any remainder, the Fourth Circuit opinion noted, would go to a nonprofit that advocates for consumers. In exchange for the settlement relief fund, all claims against Nationstar would be released.

The magistrate granted the preliminary approval of the settlement agreement and scheduled a fairness hearing.

Petitioner McAdams, who had filed suit against Nationstar in a California action, filed an objection to the proposed settlement agreement. She maintained that the class notice was insufficient; the settlement was unfair, unreasonable, and inadequate; the release was unconstitutionally overbroad, and the attorneys’ fee award was improper.

Objection Overruled

The magistrate judge who mediated the case overruled McAdam’s objections and held that the distribution of the notice was sufficient; the settlement terms were fair, reasonable, and adequate; and the release was not too broad. The magistrate also went on to approve the $1.3 million attorney’s fee.

On appeal, the Fourth U.S. Circuit Court of Appeals affirmed in a unanimous opinion by Circuit Judge Albert Diaz.

The appeals court did not deal in detail with the issue of the magistrate judge having a dual role, as both a mediator and the judge approving the settlement.

Yet petitioner McAdams attacked the magistrate judge’s jurisdiction, holding that she did not consent to have the magistrate judge hear her case. Federal law provides that with the “consent of the parties,” a magistrate judge may conduct “any or all proceedings . . . and order the entry of judgment.” 28 U.S.C. § 636©(1). McAdams argued that the word “parties” includes her as an absent class member.

But the appeals court rejected McAdams’s assertion and held that absent members are not ‘within the contemporary meaning of the term “parties” as used in § 636.

McAdams also argued that this case presents a serious conflict of interest because the magistrate judge both mediated and approved the settlement agreement. The panel noted that it did not deal with this issue because McAdams did not “support that assertion” nor “preserve [it] for appeal.” The opinion states that McAdams did not move for the magistrate judge’s recusal or otherwise object. For those reasons, the Court did not deal with the conflict issue.

The Fourth Circuit has addressed with the issue of objector requirement in 1988 Trust for Allen v. Banner Life Ins. Co., 28 F.4th 513 (4th Cir. 2022) (available at https://bit.ly/3o47kvZ). In the case the objector argued that there was no burden on its part to show that the settlement was unfair, but rather the burden rested on the parties that sought settlement approval. The appeals court rejected this argument and held that the objector must clearly state its case to allow the other parties to fully respond and for the court to evaluate the issues. The court held that it is only when a sufficiently specific objection has been made, that the parties seeking settlement approval have the burden of proof.

The objector, like McAdams, failed to support it arguments.

The McAdams case creates severe implications for the absent class members. It may seem like the courts afford them less protection. Class actions not only affect the rights of the named plaintiffs, but also the rights of the absent class members. The court must play a major role in ensuring that the rights of all class members are recognized and protected.

The McAdams appeals panel held that absent class members are not parties to the action within the meaning of section 636(c), and, therefore, absent class members do not need to consent should the named plaintiff and defendant file a consent.

Removing and/or limiting such a right should be accompanied by some form of protection. This means that McAdam’s conflict-of-interest argument plays little to no role in this case since she, and others in her position, cannot object nor consent as absent class members.

The Magistrate’s Dual Role

Presiding judicial officers have long been performing this dual role of mediating and approving settlements. Some scholars argue that this dual role improves access to justice–in that there is no need to hire a private mediator, thus reducing costs for the parties involved.

Others counter that the dual role creates a conflict of interest. A judicial officer who mediated a case might be biased once the official has to decide on the same matter at a fairness hearing.

One of the biggest and most persistent issues is that a judicial officer determined to settle a case “has enormous power to coerce a settlement.” Patrick E. Longan, “Bureaucratic Justice Meets ADR: The Emerging Role for Magistrates as Mediators,” 73 Neb. L. Rev. (1994) (available at https://bit.ly/3z8fPMQ). The court can instill in the parties a fear of retaliation which would make going to trial unappealing.

Lawyers representing their clients before the judicial officer serving as a mediator might feel compelled to urge clients to accept whatever the judicial mediator is saying to avoid alienating the court, or be on the wrong side of the judicial officer, which would make their future cases before that judicial officer hard.

So while it may seem like a good idea to have judicial officers serve as mediators, it still can create some problems. A judicial officer who mediates a case might have his or her objectivity questioned later because, during mediation, parties will disclose information and the mediator would weigh in on that and might even advise the parties of the cons of going to trial. The judicial officer runs the risk of being committed to one view of the case.  

The risks of judicial officers serving as mediators far outweigh the benefits. In McAdams, the argument of conflict of interest could have been avoided if a different judicial officer had decided on the fairness hearing. The moment the magistrate judge ran the fairness hearing, the conflict arguments advanced above were triggered.

As McAdams demonstrates, the area continues to be one of intrigue both for case management efficiency, and the problems inherent in its use.  See a new article on the topic at Melissa B. Jacoby, “Other Judges’ Cases” NYU Annual Survey of American Law, Vol. 72, 2022 Forthcoming, UNC Legal Studies Research Paper (June 30, 2022) (available at https://bit.ly/3cj2PuY).

For more on McAdams, see Donald L. Swanson, “Judicial Mediator Serving As Deciding Judge In Same Case: An Overreach? (McAdams v. Robinson)” mediatebankry blog (Feb. 22, 2022) (available at https://bit.ly/3aEY3HC).

* * *

The author, a South Africa attorney who received his LLM in dispute resolution from University of Missouri-Columbia Law School in May, is a 2022 CPR Summer intern.

[END]

William Ury’s ‘The Art of Saying ‘No,’ and How it Applies in the Mediation Room

By Mylene Chan

A Harvard Law School Program on Negotiation seminar taught late last year by William Ury picked up on his legendary negotiation practice and theory from his classic work.

The session, “The Art of Saying No: Save the Deal, Save the Relationship, and Still Say No,” elaborated on the concept of interest-based bargaining, which was developed by Roger Fisher and William Ury in the 1980s through the Harvard Negotiation Project, and first explored in 1981 in what became a perennial bestseller, “Getting to Yes: Negotiating Agreement Without Giving In,” by Roger Fisher, William Ury, and Bruce Patton (Penguin Books 2011).

This approach involves parties shifting their view of the opposition to collaborators, from adversaries, to liberate their minds in order to explore the deeper interests underlying the positions.  That allows the parties to create potential trade-offs and win-win opportunities. 

The core negotiation principles underpinning the interest-based bargaining model are universal despite variations in communication and presentation styles.  This can be observed in many mediations.  See, e.g., this author’s experiences as the 2022  Founder’s Fellow of Mediators Beyond Borders International, as recounted in David A. Hoffman, “In Praise of Mediation Observers,” 40 Alternatives 89 (June 2022) (available at https://bit.ly/3wSgRtU), and Robert Angelo Creo, “The Science of Hearing Effectively,” 40 Alternatives 91 (available at https://bit.ly/38iSyx7).

Ury began by reminding attendees that in negotiation, they need to stand up for their interests while saving the deal and the relationship. That often means saying “no” to unwanted desires or behavior.

Because there is tension between relationships and power, some focus primarily on the relationship or power dynamics. One approach is to go on the attack—“high power, low relationship.” 

Another is to be accommodating—”low power, high relationship.” The most common approach to avoid is the “low power, low relationship” category.

Ury advocates that the best approach is to employ a “positive no,” where one simultaneously pays a lot of attention to save the relationship and the deal while deploying one’s power to service one’s interests.

The key to the above approach is to prepare the “yes.” Ury recommends that negotiators should keep asking about their own positions–concrete demands such as price, specific terms and amounts–and interests, including underlying motivations such as wants, needs, and values.

Seminar attendees, he urged, should ask why they want to say “no.” The key is to keep drilling down to probe interests. What are the goals we seeking to create, protect, or change?  Negotiators should think of issues such as safety and survival, economic sustenance, belonging, love, and promoting the common good. The negotiation outcome should also uncover the negotiator’s values, such as integrity and excellence, and be in alignment in a holistic manner.

* * *

 A good mediator encourages people to explore their underlying interests. I observed that Boston-based mediator David Hoffman listened actively during the early parts of a mediation he conducted, and engaged in small talk with both parties extensively. 

Like many lawyers, I am goal-oriented and thrive on completion, and therefore, view small talk as inefficient and frivolous.  Hoffman explained later that it was important to build rapport with both parties so that both sides trust him and don’t see him as favoring one or the other. 

It was only through trust that people would open up, share their candid views, and allow Hoffman to probe deeper to understand their underlying interests. See Robert A. Creo, “The Large Power of Small Talk,” 39 Alternatives 139 (October  2021) (available at https://bit.ly/3PEjzvQ).

* * *

Ury explained in the seminar that an effective “no” isn’t shouted; it is respectful. “No” is a clear, clean line where we use the “no” to protect the “yes.”

It is better to say “no” through warning and educating about the logical consequences of the other party’s actions than to issue threats.

It is an interesting concept to see applied. In my practice as a transactional lawyer in emerging markets, I often see parties use power to escalate, not to educate. In contrast, I observed that mediator Robert Creo–see articles above–used preambles to gently educate parties about the legal consequences of their actions, even when one side clearly committed an offense.

Similarly, in observing Los Angeles mediator Jeff Kichaven, during caucus when a party asked him to relay an unpleasant “no” to the other side, Kichaven inquired how they thought their message would be received by the opposing side.

The party paused and rephrased their “no” in a respectful way.  This helped move things forward.

* * *

In his seminar, Ury also emphasized the importance of respecting the other side during negotiation. We show respect because it works, he said, not because someone deserves our respect. We also recognize the dignity of every human being. 

Basic respect does not mean liking the other people, approving of them, complying with their wishes, or even being nice to them. Respect means to look again, listen, and pay positive attention to the other person.

We have a valid point of view, but we also acknowledge the other side’s opinion. We validate so the other side does not just hear “no,” which they may perceive as threatening, causing a strong reaction to our “no.” In many conflicts, Ury advised, the cheapest concession we can make is respect, which, ironically, can mean everything to both sides.

During the mediation, Jeff Kichaven showed respect to parties by acknowledging the difference between a mediator and a lawyer. As a mediator, Kichaven would not present a contradictory view to the disputants in front of their lawyers even if he held superior knowledge from his litigation experience. 

Kichaven also respected parties’ will not to settle.  He kept the mediation process under his control and let the water flow without imposing his will. 

William Ury also taught the seminar participants that to stay true to their “yes,” the challenge is to manage the other’s reaction with appropriate responses. It is about understanding the stages to acceptance of bad news.

Often people go through emotions in a general sequence of avoidance, denial, and anxiety. At some point they get angry, and on the other side there is sadness, acceptance, and problem solving.

Robert Creo employed the same strategy in his mediation.  He let parties go through a few rounds of negotiation and venting before helping parties respect the mutual and divergent interests which enable a mutually acceptable resolution.

In today’s world, with toxic polarization in our societies, and with tensions in the world affecting all aspects of our lives, Ury’s exhortation of understanding, peace, and respect should be core interests for those who see their career as being a peacemaker.

William Ury, after reading a draft of this blog article, added this thought:

No. The most powerful and needed word in the language today is also potentially the most destructive and, for many people, is the hardest to say. Yet when we know how to use it correctly, this one word has the power to profoundly transform our lives for the better.

* * *

Ury’s class is available for a fee.  More information on it, along with a purchase link,  is available from the Harvard Program on Negotiation, at https://bit.ly/3lIVhmQ.

* * *

The author, as discussed above, is the 2022 Founder’s Fellow of Mediators Beyond Borders International. She was a CPR intern and contributed to Alternatives to the High Cost of Litigation and this CPR Speaks blog. Her work is profiled at Robert Angelo Creo, “Mentoring Then and Now,” 40 Alternatives 22 (February 2022) (available at https://bit.ly/3M7Br0m).

[END]

Mediating Commercial Disputes: Understanding the Process to Maximize the Benefits

By Mia Levi

Mediation is a process in which a neutral third party—a mediator—meets with the disputing parties and actively assists them in reaching a settlement. Mediation is private and confidential, flexible, and more informal than other processes such as arbitration or litigation. It is concluded expeditiously, allowing parties to settle the dispute or narrow their issues at moderate cost. The overwhelming majority of disputes in mediation (70% to 80% of commercial disputes) settle, and because the outcomes are mutually agreed upon, they have high rates of compliance.

Mediation is able to preserve relationships because the emphasis is on the interests of the parties—process flexibility allows the people involved to find the best path to agreement. Parties may adapt the procedure to their own needs and can explore a wide range of remedies that might not have been available to them in court. It’s also more predictable than a trial decided by a judge or jury, avoids a “win or lose” outcome, and allows for an amicable resolution that may preserve the parties’ relationship. The goal is to resolve problems in a principled fashion (or reach an impasse) and move on.

But often, parties may be hesitant to agree to mediation. This can be remedied by understanding which kinds of disputes are suitable for mediation, when to schedule the mediation so that it is most successful, and, finally, how the mediation process itself works.

Is the Dispute Right for Mediation?

It is possible that the dispute at hand is not suitable for mediation. The ADR Suitability Guide, published by the International Institute for Conflict Prevention & Resolution (CPR), outlines three factors parties should consider in deciding the suitability of a case for mediation: (1) the parties’ goals for managing the dispute, (2) the suitability of the dispute for a mediation process, and (3) the potential benefits of mediation in relation to the specific dispute being considered.

First, looking at the parties’ goals, if there is a desire to maintain a working relationship, maintain control over the outcome, limit costs and disruption, and maintain privacy, then mediation may be a preferable tool. Second, for the dispute to be suitable for mediation, there should be no deep desire for vindication or revenge by the parties, no need to attain legal precedent, and no extreme power imbalance. Third, the potential benefits of mediation include allowing the parties to explore mutual needs and interests confidentially, providing an opportunity to be heard, providing a “reality check” for internal decision makers, helping to clarify the issues, and providing the opportunity to have an intermediary help frame proposals and present offers and counteroffers. Parties should weigh all these factors in making the decision to mediate.

Among dispute resolution processes, mediation offers a maximum degree of confidentiality and privacy. Contractual and legal protections provide additional assurances against the use or disclosure of mediation statements or documents. These confidentiality protections contrast sharply with the public nature of the litigation process and its procedures that encourage public disclosure. If parties are looking to attain a ruling that will contribute to legal precedent or require articulation of public policy, mediation likely is not the proper forum.

When Should Parties Mediate?

There is no one right time to conduct a mediation. Including a mediation step (prior to arbitration or litigation) in the proceedings is an easy way to ensure that the parties discuss settlement options. When mediated, many cases are settled or partially settled at the initial stages of the case. Settling even part of the dispute up front can make the arbitration hearings or litigation shorter and less expensive. The opportunities to reduce the costs and wear and tear of court proceedings are greatest before litigation has commenced, but mediation may be a sensible option at any point in the litigation process, even while an appeal from a trial court judgment is pending. Parties not ready for mediation at the outset of the case may be more receptive as it runs its course.

Indeed, the timing of mediation may be rendered somewhat inflexible when parties contract for a sequential, multistep dispute resolution. While tiered dispute resolution clauses may get parties to the mediation table, these provisions may not assist parties in achieving this goal at an ideal time in the life of their dispute. Some parties may find it more beneficial to mediate their dispute after some discovery has been exchanged. Parties should continuously keep an open mind as opportunities for settlement arise throughout the proceedings. It is not uncommon for cases to settle during or even after the hearings. Sometimes, an additional mediation session after some discovery is effective in reaching a settlement.

For those parties contemplating mediation in conjunction with arbitration, the Concurrent Mediation-Arbitration Clauses and Protocol, which CPR introduced in July 2020, allows the parties to agree they will attempt to settle any dispute that is the subject of arbitration by confidential mediation conducted during the pendency of the arbitration. This process was developed to encourage the availability of mediation to parties in a more flexible manner than is provided under standard multistep dispute resolution provisions. This, in turn, creates an opportunity for parties to continue to explore settlement options based on what they learn during the arbitration proceedings and without delaying those proceedings.

What Should the Parties Expect from Mediation?

Parties who have not written mediation into their contract or dispute resolution clause may need to execute a submission agreement—essentially an agreement to submit the dispute to mediation with an alternative dispute resolution (ADR) provider—or they may agree to mediate in an ad hoc process. Notably, an ADR provider will be able to assist the parties in selecting the appropriate mediator for their dispute.

Many ADR institutions provide opportunities for parties to further streamline the mediator-appointment process. For example, streamlined mediator appointment is suitable for disputes where the parties wish the ADR provider to choose a mediator for them. Parties submit information about their dispute and the candidate sought, and the ADR provider will make the selection based on the information provided by the parties and vet the candidate for conflicts purposes before the appointment. This streamlined process lowers administrative costs and allows the parties greater speed in getting a mediator appointed and the process underway.

The process itself will depend on the mediator selected. Mediators will have different styles of mediation. On one side of the spectrum, facilitative mediators will work with parties to find creative solutions that meet the interests and needs of the parties. This will be beneficial for cases where parties wish to continue a personal or business relationship. On the other side, evaluative mediators will offer an opinion regarding the relative strength of each side’s legal arguments and generally will predict the likely outcome if the parties were to bring the case to trial. Mediators may also offer a hybrid style, combining the two.

Conclusion

Understanding the mediation process will help parties gain more advantages from the mediation itself. It is important for parties to realize that while settlement of their dispute might be the most desired outcome, an impasse does not mean that the parties have failed. If parties narrow the issues, understand the opposing side’s point of view, or simply have an opportunity to be heard, it will be successful for the parties in the long run.

* * *

Mia Levi (mlevi@cpradr.org) is the Vice President of Global Development for Dispute Resolution Services of the International Institute for Conflict Prevention and Resolution (CPR).

* * *

This post is © 2022. Published in GPSolo eReport, Volume 11, Number 9, April 2022, by the American Bar Association. (Available here.) Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

[END]

Supreme Court Preview: An Airline and an Employee Will Argue Over the Reach of an Exclusion from the Federal Arbitration Act

By Russ Bleemer

The U.S. Supreme Court reconvenes Monday morning to hear oral arguments in the third of four arbitration matters before the justices in a nine-day period.

Southwest Airlines Co. v. Saxon, No. 21-309, may have the biggest impact on workers of any of the cases.  It presents a Federal Arbitration Act Sec. 1 question:

Whether workers who load or unload goods from vehicles that travel in interstate commerce, but do not physically transport such goods themselves, are interstate ‘transportation workers’ exempt from the Federal Arbitration Act.

The distinction of whether a worker is operating in interstate commerce has a knotty history.  A restrictive reading could eliminate a workplace dispute arbitration obligation for many employees nationwide. An expansive reading could eviscerate employment agreement dispute resolution clauses.

The Court hasn’t been sympathetic to workers avoiding arbitration.  But the view isn’t categorical. A notable exception is the three-year-old FAA Sec. 1 case, New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019) (available here), in which an 8-0 opinion by Justice Neil Gorsuch held that an independent contractor—a long-haul truck driver—was exempt from arbitration because there was no employer-employee relationship.

FAA Sec. 1 defines the statute’s application to maritime transactions and commerce. The section ends noting that “nothing [in the statute] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Southwest Airlines likely will require a similar textual analysis of the so-called Sec. 1 residual clause–which New Prime needed for “contracts of employment”–on “interstate commerce” characteristics.

The Court has interpreted the law to mean that the exception from FAA application is only for transportation workers “engaged in” interstate commerce. Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) (available at https://bit.ly/2HhwYLu).

Original plaintiff Latrice Saxon, now the Supreme Court case respondent, is a “Ramp Agent Supervisor for Southwest Airlines who occasionally loads and unloads passenger baggage from airplanes,” according to Southwest Airlines’ cert petition, which is available at the docket link above.

Saxon works at Chicago’s Midway Airport. She filed a class-action suit against her employer for overtime she contended that the employees were owed under the Fair Labor Standards Act.

The Seventh U.S. Circuit Court of Appeals in the case (available at https://bit.ly/3rRA8Ln) held that the plaintiff was a transportation worker, and therefore exempt from the FAA, and didn’t have to arbitrate. Southwest Airlines requires all workers who aren’t covered by collective bargaining agreements to arbitrate workplace disputes, according to court papers.

Noting a circuit split, Southwest Airlines appealed, and the nation’s top Court agreed to decide whether the local worker was FAA-exempt, which suggests the examination of the plaintiff’s work in relation to interstate commerce.

* * *

That’s the key inquiry for the amicus filings on both sides. The briefs supporting petitioner Southwest Airlines echo the carrier’s position seeking to have a narrow FAA Sec. 1 definition and define being “engaged in foreign or interstate commerce” as meaning moving goods or people across borders. Southwest Airlines and the amicus parties want the Seventh Circuit decision reversed.  Joining the petitioner are six amicus briefs, from the

  • The U.S. Chamber of Commerce and the National Association of Manufacturers;
  • Lyft Inc.;
  • Uber Technologies Inc.;
  • Amazon.com;
  • Washington Legal Foundation, a conservative, free-market think tank and public interest law firm (which notes that “The FAA contains a discrete exemption, in § 1, for a few categories of transportation workers. Congress included the exemption not to excuse these classes of workers from arbitration, but merely to enable them to arbitrate through other congressionally created channels. The respondent here is not subject to an alternative channel of this sort; she just wants to avoid arbitration altogether. She seeks to gut the federal policy in favor of arbitration by expanding the § 1 exemption far beyond its proper bounds.”), and
  • Airlines for America, an 86-year-old trade association, which discusses FAA Sec. 1 but also emphasizes the benefits of arbitration for the airline industry.

There are seven amicus filings backing respondent/original plaintiff Latrice Saxon in asking the Court to uphold the Seventh Circuit and retain the ruling that her Chicago-based transportation work was a part of interstate commerce and she is therefore exempt under FAA Sec. 1 from arbitration in her employment agreement. The briefs are from

  • The National Employment Lawyers Association, whose members focus on representing individual workers;
  • The American Federation of Labor and Congress of Industrial Organizations–the AFL-CIO;
  • The American Association for Justice, a trial lawyers’ professional organization;
  • A brief on behalf of 17 states, their attorneys general, and the District of Columbia;
  • Public Justice, a Washington, D.C., nonprofit law firm, consumer advocacy group, and left-leaning think tank;
  • The National Academy of Arbitrators and the National Association of Railroad Referees, whose brief states, “It may appear puzzling that organizations of professional arbitrators oppose petitioner’s proposal to increase the use of arbitration under the FAA, but it is not. Amici’s position is grounded in their fundamental fidelity to the institution of arbitration, to a clear understanding of Congress’ legislative intent . . ., and to judicial precedent,” and
  • Three legal historians who maintain that the Court has recognized that Congress enacted the FAA Sec. 1 exemption “to avoid unsettling then-established dispute-resolution schemes covering workers like ‘railroad employees’ under Title III of the Transportation Act of 1920 and ‘seamen’ under sections 25-26 of the Shipping Commissioners Act of 1872,” regardless of whether the transportation workers crossed state lines in their employment, relying on Circuit City reasoning. The professors are James Pope, Rutgers Law School, Newark, N.J.; Imre Szalai, Loyola University New Orleans College of Law, and Paul Taillon, University of Auckland, in Auckland, New Zealand.

The parties’ and the amicus briefs are available on the Supreme Court’s docket page, linked at the top of this article.

* * *

While Southwest Airlines may have the biggest direct impact on workers of the 2021-2022 Supreme Court caseload, it isn’t alone in its arbitration consequences. Four of the six matters before the U.S. Supreme Court involve employment cases at their core, though often arcane legal points have brought them to the Court and will be the focus of the decisions, as well as in the two arguments still to be heard. The effect of the opinions could have a profound effect on workplace disputes . . .  or boost Congressional efforts to change arbitration in Congress. (See report on the recently signed-into-law Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 and the push for further reforms on CPR Speaks here.)

In addition to Southwest Airlines,  on Nov. 2 the Court heard Badgerow v. Walters, No. 20-1143, which awaits decision. The case focuses on the limits of state court jurisdiction and the reach of federal court jurisdiction over the provisions of the Federal Arbitration Act.  The case was brought by a financial services employee against her bosses and company for harassment and other workplace claims.  More on the November argument on CPR Speaks here.

Last Monday, the Court examined a suit by a former Taco Bell employee who claimed that the franchise company had waived its right under her employment agreement to arbitrate their wage dispute.  The original plaintiff was contesting an Eighth U.S. Circuit Court of Appeals decision that found for the company because the employee had not been prejudiced by the company’s conduct.  The former employee challenged the prejudice requirement and asked the Court to focus on the company’s actions. The case of Morgan v. Sundance Inc., No. 21-328,  is expected to be decided before the current Court term ends in June; more on the argument earlier this week on CPR Speaks here.

Next Wednesday’s Viking River Cruises v. Moriana, No. 20-1573, focuses on the relationship between the FAA and California’s Private Attorneys General Act. The Court will likely revisit its extensive history on federal preemption of state laws.

The PAGA law enables an individual employee to seek a court judgment for breach of California labor laws as a “private attorney general” on behalf of the state of California. Thousands of cases have been filed under the law and, many employers say, skirt employment agreements requiring arbitration for workplace disputes. For background on Viking River, see Mark Kantor, “US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement,” CPR Speaks (Dec. 16) (available here).

* * *

A preview and an analysis of the 2021-2022 Supreme Court arbitration docket can be found at Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022), and Imre Szalai, “Not Like Other Cases: SCOTUS’s Unique Arbitration Year,” 40 Alternatives 28 (February 2022), both available for free at https://bit.ly/3GDEJEK.

* * *

A live audio stream of Monday’s argument will be available at the Court’s home page, here. Archives of recordings and transcripts for cases this term, including the three arbitration cases argued so far, are available on the Court’s website here.

* * *

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

[END]

Florida’s Top Court Takes on ‘Who Decides?’ in Airbnb Arbitration Case

By Arjan Bir Singh Sodhi

Wednesday’s Florida Supreme Court argument presented a foundational issue on the adoption of arbitration proceedings—more on the question of who decides whether a case is arbitrated, based on the incorporation into a consumer contract of a set of arbitration rules.

The Nov. 3 argument, in Airbnb v. Doe, No. SC 20-1167, explores whether contract provisions are “clear and unmistakable”—the case law standard—in allowing the arbitration tribunal to determine its jurisdiction, and in allowing an assessment of the evidence from the contract that the parties agreed to arbitrate arbitrability.

Both federal and Florida cases back Airbnb, the best-known accommodations rental app, in finding that by incorporating a set of contract rules—in the case, the American Arbitration Association Commercial Arbitration Rules—the parties are agreeing to have an arbitration tribunal decide whether a case is to be arbitrated. 

But a Florida appeals court bucked the trend, and in a detailed opinion, found that the click-thru web interface didn’t provide adequate notice to the app users that they were agreeing to arbitration via a link to the rules which stated the arbitrability provision.

In the case, an anonymous Texas couple filed a complaint against Airbnb and the condominium owner who had listed the Florida property on the Airbnb platform. The complaint includes intrusion against the condo owner, and constructive intrusion against Airbnb. The plaintiff rented the condo for three days in 2016 and later learned that the owner had installed hidden cameras and recorded the couple without their knowledge.

The Does filed their complaint in the Manatee County, Fla., circuit court. Airbnb moved to compel to settle the dispute through an arbitration proceeding. Airbnb claimed that the Does are bound to an arbitration proceeding under the signed terms and conditions when they accepted the app’s click-wrap agreement—that is, the legal contract in the Airbnb online software in which the customer indicates acceptance by typing in yes, or selecting a particular icon or link before they may use the service.

The click-wrap agreement included a dispute resolution clause stating that the parties must arbitrate under the rules of the American Arbitration Association, with a link to the rules.  The rules contain the provision that the determination of whether the case is arbitrable goes to the arbitrator, not a court.

The Manatee County Circuit Court granted Airbnb’s motion to compel the arbitration. But Florida’s Second District Court of Appeal reversed. John Doe & Jane Doe v. Natt & Airbnb Inc., 299 So. 3d 599 (Fla. 2d DCA 2020) (available at https://bit.ly/3BPYPcu). The appellate court held that reference does not clearly and unmistakably suppress the court’s power to decide the arbitrability. The decision noted that the click-wrap agreement is not clear enough on the issue of who should decide the jurisdiction of the arbitration proceedings.  It stated that the reference “was broad, nonspecific, and cursory: the clickwrap agreement simply identified the entirety of a body of procedural rules. The agreement did not quote or specify any particular provision or rule.  . . .”

The appeals court also held that AAA Commercial Arbitration Rule 7 on arbitrability is not an exclusive power for the arbitrator.

Oral Argument

At Wednesday’s oral argument, Joel S. Perwin, who heads his eponymous Miami law firm, argued on behalf of petitioner Airbnb that the click-wrap clause covered everything, including the arbitrator’s resolution of deciding the arbitrability.

Justice Carlos G. Muñiz asked Perwin to clarify whether parties who accept the contract are expected to understand caselaw and legal language—whether they should understand that the courts have deemed such agreements referring to rule to be a “clear and unmistakable” indication that arbitrability goes to the tribunal.  

Perwin replied that he does not expect the parties to read the case law. “I would never suggest that,” he said. But he quickly added that the parties “are required to read the [contract] language.” He cited the “overwhelming weight of the authority” to indicate that the incorporation of the rules is accepted and customary.

Perwin addressed the parties’ sophistication, which was an argument that the Does made against the effectiveness of the click-wrap agreement.  He said the Does introduced no evidence that they were not sophisticated, and added that the parties’ sophistication level is not even a relevant factor in the matter.  

He said that in applying an objective test—Is the contract clear and unambiguous?–as to whether the agreement applies doesn’t depend on an analysis of the parties’ sophistication. “This language is clear and unambiguous as a matter of law,” he said.

* * *

Thomas Seider, an attorney in the Tampa, Fla., office of Brannock Humphries & Berman, arguing on behalf of the respondents, the Does, opened by noting that arbitration is a matter of consent. He said the question is whether the respondents gave their consent to the arbitration proceedings.

Justice Ricky Polston strongly suggested that while looking at federal law, the AAA rules, and the incorporation by reference of the rules into the contract, that the rules indeed are a part of the contract.

Justice Polston asked why, in reading AAA Rule 7, it wasn’t clear and unmistakable that that arbitrators have the ability to decide the jurisdiction. Focusing on the contract language, Seider argued that the Does only needed to read the rules if they needed to know, for example, about how the arbitration would be conducted, or the costs, not the “condition precedent” question of whether the case was subject to arbitration.

Justice John D. Couriel was skeptical. “The trouble with the argument is that none of this is in the contract,” he said.  Seider replied that if the consumer gets to the rule, then the party would understand that the arbitrator decides.  But even then, Seider noted, the language itself was “permissive but not mandatory.”

Couriel pressed Seider on the language.  Seider said that the AAA Rule 7 language—”The arbitrator shall have the power to rule on his or her own jurisdiction”—did not exclude a decision by a court on arbitrability.

Justice Alan Lawson asked about the agreement language and whether it satisfied the “clear and unmistakable” standard for a delegation, which derives from First Options of Chicago Inc. v. Kaplan, 514 U.S. 938 (1995 (available at http://bit.ly/2WEXGnF). He said it is “basic contract interpretation,” and “you apply the basic rules” on whether the contract reflects what the parties agreed to—in this instance, whether there was a “clear and unmistakable” parties’ agreement on the arbitrator deciding arbitrability. He asked “whether the rules count” in determining what the parties agreed to under the contract.

Seider agreed that the rules count in reading the contract, and Lawson asked whether the rules’ language is clear and unmistakable evidence. Lawson said that in analyzing the contract, look at the whole agreement, leaving the rules to return to the first part of the contract, “the more conspicuous part”: The first page which incorporates the AAA rules.  With that, said Lawson, “it just seems pretty straightforward” that the parties agreed to arbitrate.

Seider said that “the clear and unmistakable standard is not supposed to require these inferential leaps” with cross-referenced rules, which he said are recognized by the U.S. Supreme Court as arcane.  He said people do not understand the concept of arbitrability.

Justice Jorge Labarga was more sympathetic to the respondents’ argument.  He said that consent must be waived for arbitration, adding, “And what I’m hearing here today is that the agreement–they can attach as many attachments as they want to online, you can have 100,000 pages, and in there, in a footnote, someplace they can say, ‘Oh, by the way the arbitrator gets to decide whether this goes to arbitration or not,’ and that is OK as long . . . as it is a part of the text of the package.”

Seider quickly agreed that burying provisions in the agreement will become the norm. Justice Lawson asked about the need for conspicuous language, and Seider conceded that First Options doesn’t discuss that point in defining “clear and unmistakable.”

Justice Couriel asked Seider to clarify if there is a clear statement in the contract on how it will affect people’s rights, and how Airbnb encourages parties to read terms and conditions carefully. He asked if the advisory was “over and above” the First Options requirements.

Seider agreed that Airbnb advises parties to read the terms and conditions. He countered that reading and understanding about 60 pages of procedures and rules are hard to understand and is not clear and unmistakable.

Justice Polston wasn’t convinced, noting that the rules “were there.” Seider said they were, but again stressed that a court arbitrability determination was not excluded by AAA Rule 7.

Justice Carlos G. Muñiz asked Tom Seider to clarify why previous case law has been overwhelmingly against the petitioners. Seider said that early decisions didn’t thoroughly analyze the question of arbitrability. He pointed out a lack of discussion on how contract language can be clear and unmistakable. “The analytical foundation of these cases really isn’t there,” concluded Seider.

* * *

Airbnb attorney Joel Perwin rebutted, noting five points:

1. Every case is decided on its own merits and facts.  

2. The test for clear and unmistakable is a matter of federal law. Justice Polston pushed back and agreed that arbitrability is a federal concept, but strongly noted that contract review is state law.  

3. Party sophistication is not an issue because “clear and unmistakable” is an objective test. There is no evidence to prove that the Does are not sophisticated enough to understand the click-wrap agreement, Perwin emphasized, but regardless, it is an objective test.

4. Addressing Tom Seider’s argument that Rule 7 is permissive, Perwin noted that the language is clear enough for anyone reading it to understand that the arbitrator has “the power” to decide the matter. That is why the courts have said that when arbitrators are designated to get the power under the contract and nothing is said about the courts, it means the arbitrators have the power to decide alone.

5. The statute and contract should not be interpreted to be unreliable on arbitrability. In the past, courts have been clear on these issues.

* * *

The Nov. 4 oral arguments in Airbnb v. Doe, which were televised and streamed on several web outlets including Facebook, are archived on YouTube at https://bit.ly/3EJ0rqa.  The full Florida Supreme Court docket on the case, with links to documents, is available at https://bit.ly/3GYoZxe.

* * *

The author, a CPR 2021 Fall Intern, is an LLM candidate at the Straus Institute for Dispute Resolution, at Malibu, Calif.’s Pepperdine University Caruso School of Law.

[END]

CPR’s International Conference: European Views on the Resolution of Complex Technology Disputes

By Tamia Sutherland

During the Oct. 6-7 CPR International Conference–the first the New York-based conflict resolution think tank and publisher of the CPR Speaks blog has held combining the work of its international advisory boards–CPR’s European Advisory Board presented a virtual panel centered around resolving complex technology disputes.

The panel discussed highly technical blockchain, patent, and intellectual property disputes. Mark McNeill, a New York and London partner in Quinn Emanuel Urquhart & Sullivan, moderated the panel that included:

  • Luke Sobota, a founding partner and Washington, D.C., managing partner at Three Crowns,
  • Edith Jamet, general counsel at SoftAtHome, a Colombes, France, software company, and
  • Mark Beckett, chief information officer at ArbiLex, an arbitration analytics and funding consulting firm based in Allston, Mass.

After introductions, Moderator McNeill posed a question about the resolution of blockchain disputes. Panelist Luke Sobota explained that blockchain operates as a fixed ledger stored internationally on computers world-wide, making the recorded data hack-proof as “the block exists everywhere at once, and nowhere in particular.” Though the blockchain is secure, it cannot anticipate every mistake or account for human error.

To illustrate what types of disputes may arise as a result of blockchain use, Sobota provided the following example: Blockchain technology can be used in commercial transactions by including a QR code with delivered goods that automatically transfers the payment from the buyer’s cryptocurrency account to the seller’s account, and records the transaction on a block when scanned by the recipient, also known as an oracle.

Sobota defined an oracle as “a real-world objective piece of data that the blockchain software, itself, can retrieve and verify.” This process does not require third-party involvement, and is “both the promise and limitation” of the technology, he said.

The oracle, however, can fall short. Disputes can arise when a recipient of goods fraudulently refuses to scan the QR code; the code has a bug that results in an excessive transfer of money; or the goods are partially damaged as there is no code for partial payment or refunds.

Due to blockchain’s decentralized nature, domestic courts do not have jurisdiction to resolve these transnational disputes, and sometimes, the parties are anonymous. Sobota explained that the two forms of arbitration best suited to resolve these unique disputes are (1) on-block arbitrations and (2) traditional commercial arbitrations.

On-block arbitrations are administered through various platforms and are currently “quite minimalist and only suitable to very simple transactions,” according to Sobota. In this case, parties agree that anonymous “jurors” will resolve the dispute, and the discrepancy is remedied automatically on the blockchain by issuing a new block.

For example, an on-block arbitration can immediately provide a refund for partially damaged goods. Panelist Mark Beckett mentioned Kleros, which is an example of an arbitration platform that relies on smart contracts and anonymized jurors to resolve disputes.

While this appears to be an easy and effective solution, questions about a lack of juror guidance, financial incentives, outside pressures, and concerns regarding juror consistency are critiques of the decentralized justice method.

Moderator McNeill then asked panelist Edith Jamet about the types of disputes she sees and how she prefers to resolve the disputes in her in-house role at a software company. She said she typically deals with patent issues. She said confidentiality is essential, and thus, mediation is best to find resolutions, and arbitrations are second best when the parties cannot come to a decision. She conceded, however, that sometimes court is mandatory and can be more secure.

Jamet discussed a mediation with the French tax administration where she had to demonstrate that her company’s technology was innovative and therefore eligible for a tax credit. Emphasizing Luke Sobota’s earlier point about finding sufficiently knowledgeable neutrals, Jamet said that she had to make an analogy to train tracks to illustrate her company’s technological software advancements because it was complex and she wanted the mediator to understand her arguments.

In response to an inquiry about the arbitration’s suitability for IP disputes, Mark Beckett raised skepticism about the number of neutrals who have technical knowledge. He noted that, in court, at least there is a right to appeal. Luke Sobota noted again that suitability depends on the neutrals chosen. In the case of typical IP contractual disputes, however, no special knowledge is necessary, said Sobota.  

Moderator McNeill asked Mark Beckett about ArbiLex, its mission, and what it can do. Beckett replied that ArbiLex is a legal technology startup that uses artificial intelligence and predictive analytics in international arbitration. The company provides practitioners and institutions with data to determine whether they should litigate or arbitrate a case. Ethics guidance states that lawyers generally cannot give a percentage chance of prevailing in a dispute due to predictive limitations. But ArbiLex is providing data for parties to assess the chances of prevailing in disputes.

Beckett explained that ArbiLex’s system can run combinations of different tribunals to provide outcome prediction analysis, provide information on who appointed certain arbitrators, predict case outcomes, relate outcomes to whom a particular arbitrator is sitting with, and provide data on how counsel has performed against each other. The information and graphics provided by ArbiLex, said Beckett, could cut down on the amount of research practitioners need to make tough decisions regarding dispute resolution of complex issues, where various interests may be pulling the practitioner in different directions.

Throughout the conversation, the neutrals that participate in CPR’s Technology Advisory Committee were mentioned as resources for finding technologically knowledgeable neutrals when these complex technology disputes arise.

* * *

The author, a second-year law student at the Howard University School of Law in Washington, D.C., is a CPR 2021 Fall Intern.

 [END]

Notes on Diversity: Princeton’s Ramona Romero on Higher Education; Toronto Consultant/Neutral Verlyn Francis on ADR Ethics

By Arjan Bir Singh Sodhi

Here is a synopsis of the CPR Diversity in ADR Task Force meeting conducted online on Tuesday, Oct. 5, 2021.

Welcome & Introductions

CPR Diversity in ADR Task Force Co-Chairs the Hon. Timothy K. Lewis and the Hon. Shira A. Scheindlin welcomed and thanked the panelists and attendees for joining.

Interview with Ramona E. Romero, vice president and general counsel at Princeton University, in Princeton, N.J.

Task Force co-chair Timothy Lewis, retired Third U.S. Circuit Court judge and counsel in Schnader Harrison Segal & Lewis started the panel discussion on diversity in ADR. He gave a brief introduction for Romero and asked her to share her experience as an immigrant to the United States. Romero started her interview by thanking all the participants of the meeting. She also shared her story of moving to the United States at age 11 from the Dominican Republic. From an early age, Romero said she emphasized the value of working hard. She placed much importance on collaboration and how it helped her learn.

Task Force co-chair Shira Scheindlin, retired New York U.S. District Court judge and of counsel in New York’s Stroock & Stroock & Lavan, led the second part of the interview, asking Romero to share her views on considering characteristics that are fair for admission purposes in law schools and universities. Romero replied that she believes affirmative action is still required due to racial and ethical inequalities in schooling, housing, employment, and policing.  She discussed Students for Fair Admissions Inc. v. President & Fellows of Harvard College, No. 20-1199, which highlights the issues faced by the students regarding their university admissions.

Romero then shared her view on immigration policy, noting, “Immigration is essential to higher education as it is essential to the diverse economy of the United States.” She emphasized the importance of having a diverse U.S. judiciary as it increases trust and perception of fairness. Because, she said, the majority of people who deal with the judiciary are people of color, having a diverse judiciary with more people of color and women will aid in building trust for the judicial process.

Romero concluded her discussion by hoping that corporations, businesses and interested parties can do better in the future by promoting the advancement of women and people of color in the legal profession.

Verlyn Francis, Presentation on “Ethics in Arbitration: Bias, Diversity, and Inclusion.”

Francis is an arbitrator, mediator, and trainer at Isiko Dispute Resolution Consultants, Toronto, and a Professor of ADR at Centennial College, also in Toronto. She started her presentation by talking about the genesis of ethics and impartiality of arbitrators and how we can reduce impartiality bias in arbitration.

She stressed the importance of the code of ethics in the arbitration proceeding. Francis spoke about the consequences of applying those ethical codes to people who didn’t play any role in developing those codes. She said she hopes that many institutions will work on improving rules, ethics, and impartiality in arbitration.

She also spoke about layers of cultural affiliation that can often create stereotypes for other cultures. Hence, she said, an arbitrator should always be aware of implicit bias that can have discriminatory actions towards the parties. She then acknowledged CPR’s recent implicit bias webinar, Imperfect Impartiality: How Neutrals Can Combat Implicit Bias.

She said that often implicit bias operates without awareness of the participants, but the discrimination it produces is visible to those at a disadvantage.

She also expressed concern for the lack of diversity in arbitration that can have its roots in the legal profession, since ADR practitioners are mostly former judges or senior lawyers in law firms where minorities often remain significantly underrepresented.

She also mentioned the Jay-Z case in which the American Arbitration Association roster was challenged due to the lack of available African-American arbitrators. Since that case, the AAA has worked to develop a diverse roster. Francis also noted CPR’s initiatives to further promote diversity and inclusion in the field of ADR. She praised the steps taken by the American Bar Association by passing Resolution 105, which encourages the inclusion of diverse neutrals. She concluded her presentation by encouraging all the panelists to promote diversity in ADR.

* * *

Allen Waxman, CPR’s President and Chief Executive Officer thanked all the panelists for their participation in the discussion. Waxman discussed the importance of understanding dynamics within the tribunal to ensure that all the efforts to increase diversity translate to greater inclusivity.

CPR Announcements closed the Task Force meeting, discussing several events hosted by the CPR Institute, including the 2021 CPR International Conference on Business Dispute Management, which followed the Diversity Task Force event on Oct 6-7 (information at https://www.cpradr.org/events-classes/upcoming/CPR-International-Conference) (Watch CPR Speaks for excerpts from the conference). More events can be found here, and participants were asked to save the date for the 2022 CPR Annual Meeting,  March 2-4.

* * *

The author, a CPR 2021 Fall Intern, is an LLM candidate at the Straus Institute for Dispute Resolution, at Malibu, Calif.’s Pepperdine University Caruso School of Law.

[END]

Second Circuit Affirms on Sending a Contract’s Arbitrability to a Court, Not a Tribunal

By Mark Kantor 

It has become common to report on federal circuit court decisions deferring “who decides” gateway arbitrability issues to arbitrators based on the adoption by contract parties of a set of arbitration rules containing a “competence-competence” clause, as well as the U.S. Supreme Court consistently declining to take on that question. 

On Friday, though, the Second U.S. Circuit Court of Appeals decided that the existence of such a clause in the American Arbitration Association Commercial Arbitration Rules (here, R-7(a)) was not per se sufficient to satisfy the Supreme Court’s “clear and unmistakable” gateway test from First Options of Chicago Inc. v. Kaplan, 514 U.S. 938 (1995) (available at http://bit.ly/2WEXGnF).

 In DDK Hotels LLC et al v. Williams-Sonoma Inc., et al, No. 20-2748-cv (2d Cir. July 23) (available at https://bit.ly/3zIUIhv), a unanimous three-judge appeals panel concluded that the gateway question of whether a dispute about “prevailing party” fees was arbitrable under a joint venture agreement was “one for the district court, not the arbitrator, to decide.” 

The manner in which the U.S. District Court, and then the Second Circuit, reached this conclusion is an interesting approach toward limiting the impact of the rulings in all but one of the circuits (including the Second Circuit) that a “competence-competence” clause in arbitration rules–a provision that the tribunal decides its own jurisdiction as to whether a case is arbitrated–constitutes a “clear and unmistakable” showing that the contract parties intended for gateway arbitrability issues to be decided by the arbitral tribunal.

The core U.S. Federal Arbitration Act  (at 9 U.S.C. § 1, et seq.) test for allocating gateway issues between courts and arbitral tribunals is well known.  Gateway issues are to be decided by the courts unless there is clear and unmistakable evidence that the contracting parties intended to allocate the gateway issue to the arbitrator.  Ordinary contract law principles apply to that inquiry.

Writing for the unanimous panel, Second Circuit Senior Judge Robert D. Sack noted, “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so. First Options, 514 U.S. at 944 (alterations in original) (quoting AT & T Techs. Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986)).  . . .  We ‘apply ordinary state-law principles that govern the formation of contracts’ in conducting this inquiry into the parties’ intent. First Options, 514 U.S. at 944.”

Like every other circuit court that has ruled on the question, the Second Circuit has held that “[w]here the parties explicitly incorporate procedural rules that empower an arbitrator to decide issues of arbitrability, that incorporation may serve ‘as clear and unmistakable evidence of the parties’ intent to delegate arbitrability to an arbitrator.’” Citing Contec Corp. v. Remote Sol. Co., 398 F.3d 205, 208 (2d Cir. 2005).

The DDK Hotels appeals court, however, went on to point out a limiting aspect of those decisions: “[C]ontext matters,” such that incorporation of such rules does not per se show satisfaction with the First Options “clear and unmistakable” standard if other aspects of the parties’ agreement create ambiguity as to the requisite intent. Specifically, opinion states,

We have also advised, however, that in evaluating the import of incorporation of the AAA Rules (or analogous rules) into an arbitration agreement, context matters. 

Incorporation of such rules into an arbitration agreement does not, per se, demonstrate clear and unmistakable evidence of the parties’ intent to delegate threshold questions of arbitrability to the arbitrator where other aspects of the contract create ambiguity as to the parties’ intent.

The appellate panel stated that, “where the arbitration agreement is broad and expresses the intent to arbitrate all aspects of all disputes,” then the First Options test will be met to allocate issues of arbitrability to an arbitrator.  If, however, “the arbitration agreement is narrower, vague, or contains exclusionary language” that the parties intended to arbitrate “only a limited subset of disputes,” then “incorporation of rules that empower an arbitrator to decide issues of arbitrability, standing alone, does not suffice to establish the requisite clear and unmistakable inference of intent to arbitrate arbitrability.” (Emphasis added.)  

Senior Circuit Judge Sack pointed to a Second Circuit ruling in NASDAQ OMX Grp. Inc. v. UBS Sec. LLC, 770 F.3d 1010, 1031 (2d Cir. 2014), to reinforce this conclusion: “[W]here a broad arbitration clause is subject to a qualifying provision that at least arguably covers the present dispute . . . we have identified ambiguity as to the parties’ intent to have questions of arbitrability . . . decided by an arbitrator.”

The Court of Appeals then applied these principles to the joint venture contract at issue in DDK Hotels.  Section 16(b) of the joint venture agreement limited arbitration solely to “Disputed Matters”:

“(b) Arbitration. The parties unconditionally and irrevocably agree that, with the exception of injunctive relief as provided herein, and except as provided in Section 16(c), all Disputed Matters that are not resolved pursuant to the mediation process provided in Section 16(a) may be submitted by either Member to binding arbitration administered by the American Arbitration Association (“AAA”) for resolution in accordance with the Commercial Arbitration Rules and Mediation Procedures of the AAA then in effect.  . . .” (Emphasis added by Court of Appeals.)”

The term “Disputed Matters” was defined in the JV agreement to cover corporate governance “deadlock” issues requiring Board or LLC Member approval or on which the Board was unable to reach agreement.

The “Deadlock” section is a corporate governance mechanism that applies only to “Disputed Matters,” which are defined as matters “requiring Board or Member approval” on which the board is unable to reach agreement.

Looking at that definition and at other provisions of the contract giving content to the term “Disputed Matters,” the Second Circuit found ambiguity as to the parties’ intent.

Payment of prevailing party fees pursuant to Section 21(h) is not on that list, the opinion notes, suggesting that disputes under Section 21(h), on prevailing party fees, may very well fall outside the scope of Section 16’s arbitration provision.

Nothing in Section 21(h), the opinion states, “suggests that such relief [compelling payment of prevailing party fees] is contingent upon board approval; to the contrary, it unambiguously directs the non-prevailing member to pay such costs and fees ‘upon demand.’”

For the Second Circuit, that ambiguity blocked a conclusion that the “competence-competence” provision in AAA Rule R-7(a) clearly allocated the “who decides” gateway decision to the arbitrator.  Consequently, under First Options, the gateway decision lay with the courts:

“While the arbitration agreement does indeed incorporate the AAA Rules, which empower the arbitrator to resolve questions of arbitrability, Section 16(b) provides that the AAA Rules ‘apply to such arbitrations as may arise under the [JV] Agreement.’ See NASDAQ OMX, 770 F.3d at 1032; SA.16.  Because Section 16(b)’s arbitration clause applies only to ‘Disputed Matters’ not resolved pursuant to the mediation process outlined in Section 16(a), the AAA Rules do not apply ‘until a decision is made as to whether [DDK Hospitality’s supplemental claim] does or does not fall within the intended scope of arbitration[.]’ NASDAQ OMX, 770 F.3d at 1032.  In other words, whether the AAA Rules, including Rule 7(a), apply turns on the conditional premise that the dispute falls within the definition of ‘Disputed Matter.’ If it does not, then the AAA Rules do not govern and no delegation of authority to the arbitrator to resolve questions of arbitrability arises.  The narrow scope of the arbitration provision therefore obscures the import of the incorporation of the AAA Rules and creates ambiguity as to the parties’ intent to delegate arbitrability to the arbitrator.”

Thus, the Second Circuit held in DDK Hotels that the contractual agreement in the JV agreement limiting arbitration to “Disputed Matters” operated to prevent allocation of the arbitrability decision to the arbitrator under the “clear and unmistakable” First Options test.  Accordingly, “[t]he district court therefore correctly determined that it, rather than the arbitrator, should decide whether the supplemental claim [for prevailing party fees] was arbitrable.”

One might reasonably ask how DDK Hotels squares with the unanimous 2019 U.S. Supreme Court decision, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019) (available at http://bit.ly/2YLDkWQ), rejecting a “wholly groundless” basis for declining to forward a gateway question to arbitrators for decision. 

In Henry Schein, the Court’s summary does a good job of setting out the core of that ruling:

“Held: The ‘wholly groundless’ exception to arbitrability is inconsistent with the Federal Arbitration Act and this Court’s precedent.  Under the Act, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.  . . . The parties to such a contract may agree to have an arbitrator decide not only the merits of a particular dispute, but also ‘’gateway’ questions of ‘arbitrability.’’ . . . Therefore, when the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is  wholly groundless.”

Under the doctrine rejected by the Supreme Court in Henry Schein, the courts would have construed the parties’ contract to determine if the claimant’s arbitrability argument was “wholly groundless.”  Even in the face of a “clear and unmistakable” agreement to delegate arbitrability issues to the arbitrator, if the court was satisfied the arbitrability argument was “wholly groundless” under the contract, then the court could determine the arbitrability issue itself instead of referring the gateway question to the arbitrator.

In DDK Hotels, the district court and the Second Circuit again construed the parties’ contract, this time to determine if the parties’ intention to delegate the gateway issue to the arbitrator was ambiguous rather than clear and unmistakable.

To distinguish DDK Hotels from Henry Schein, one must come up with a persuasive explanation for how (i) the 2nd Circuit Court of Appeals’ inquiry into whether the dispute at issue in DDK Hotels arguably fell outside the meaning of the contract term “Disputed Matters” differs from (ii) the judicial inquiry into the contract terms in Henry Schein to determine if the claim of arbitrability was “wholly groundless.” 

This is perhaps a task the US Supreme Court declined to take on when it dismissed certiorari in Henry Schein II as improvidently granted earlier this year?

Any volunteers to tackle that job? Please feel free to comment below.

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Mark Kantor is a member of CPR-DR’s Panels of Distinguished Neutrals.  Until he retired from Milbank, Tweed, Hadley & McCloy, he was a partner in the firm’s Corporate and Project Finance Groups.  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).  He also is Editor-in-Chief of the online journal Transnational Dispute Management.  He is a frequent contributor to CPR Speaks, and this post originally was circulated to a private list serv and adapted with the author’s permission.

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Arbitration for Art: Regs Seek to Provide a Better Way to Resolve Disputes

By Jacqueline Perrotta

Over the past 30 years, the Art World has become the Art Market. Selling and purchasing art has become Big Business for collectors and investors alike. In a mostly unregulated market, new regulations are emerging on resolving disputes between parties involved in art deals.

On July 13, 2020, subject-matter experts including lawyers and professors with experience in the art sector and in arbitration, gathered to form these new “Regulations on Arbitration in the Art Sector of the Venice Chamber of Arbitration” as a way to better resolve art disputes.

A January 2021 article, “Art and Arbitration: an overview in light of the new Regulations on Arbitration in the Art Sector of the Venice Chamber of Arbitration,” highlights the context of the regulations in today’s global art market, the advantages of using arbitration for art sector disputes, and the new regulations, including their importance and potential impact on how the art market resolves disputes.

Described as the first initiative of its kind in Italy, the regulations promote the use of arbitration and provide an alternatives to the Hague’s Court of Arbitration for Art, or CAfA.  Established in 2018, the Court of Arbitration for Art was founded to resolve disputes through alternative dispute resolution throughout the art market. Through CAfA, disputes can be arbitrated or mediated with the help of the Netherlands Arbitration Institute.

 Disputes that arise in art parallel commercial transactions, but with niche concerns including issues of cultural and religious sensitivity, confidentiality, and authenticity.

The use of these regulations for art arbitration comes with several upsides. The article linked above highlights a prominent advantage where arbitration is efficient and is “freely accessible”–having an arbitration clause already baked in to provide a jumping off point if a dispute arises out of difficult cultural matters or from the uncertainty of fraudulent works.

Another upside discussed in the article that comes with using arbitration is “guaranteed confidentiality,” because art-market players often are sensitive regarding “reputation and discretion,” and there is a heightened importance of privacy for collectors and dealers.

The goal of the Venice Chamber regulations is also to broaden the use and scope of arbitration to the contemporary art context and go beyond the limited definitions of national legislation.  By introducing the regulations, arbitration as a means of alternative dispute resolution is promoted as an efficient and effective way to resolve art sector disputes.

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The author, a J.D. student who will enter her second year this fall at Brooklyn Law School, is a 2021 CPR Summer Intern.

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