Ninth Circuit, Overturning an Award, Backs More Arbitrator Disclosure

By Daniel Bornstein

The Ninth U.S. Court of Appeals ruled this week that arbitrators are required to disclose their ownership interests in the organizations they are affiliated with and the organizations’ business dealings with the arbitration parties.

In Monster Energy Co. v. City Beverages LLC, Nos. 17-55813/17-56082 (9th Cir. Oct. 22)  (available at http://bit.ly/2PjmXzq), a 2-1 appellate panel vacated an arbitration award because the arbitrator, retired California state judge John W. Kennedy, failed to disclose both his ownership interest in JAMS and the fact that JAMS had administered 97 arbitrations for one of the parties.

The decision has important implications for arbitrators’ disclosure of their financial interests. Under the majority decision by Circuit Judge Milan D. Smith Jr.–joined by Oregon-based U.S. District Court Judge Michael H. Simon, sitting by designation–it isn’t sufficient for arbitrators to vaguely state that they have an economic stake in the success of their organization, and to merely note that their organization has done business in the past with one of the parties.

Rather, arbitrators must make clear the specific nature of their economic interest—that is, their ownership–and the scope of those past business ties.

City Beverages had alleged that Monster Energy had committed a breach of contract. After an almost nine-year business relationship, Monster Energy terminated the distribution contract without cause, an act that was permitted by the contract as long as it made a severance payment. But City Beverages rejected a $2.5 million payment, invoking the Washington Franchise Investment Protection Act, which prohibits termination of a franchise contract absent good cause.

Monster Energy’s move was upheld in arbitration, and it was awarded $3 million in attorneys fees. City Beverages appealed to the Ninth Circuit on the basis that the arbitrator had not adequately disclosed his ties to JAMS, and his and his firm’s relationship with Monster Energy. See By Savannah Billingham-Hemminger, “Not Just the Arbitrator: Ninth Circuit Looks at Provider Disclosure Obligation,” 37 Alternatives 119 (September 2019) (available at http://bit.ly/2WmriUh).

As the panel opinion noted, an arbitrator is required to disclose when he has a “substantial interest in a firm which has done more than trivial business with a party.” Commonwealth Coatings Corp. v. Cont’l Cas. Co., 393 U.S. 145, 151-152 (1968). In turn, vacating an arbitration award is appropriate when the arbitrator neglects to disclose “any dealings that might create an impression of possible bias.” Id., at 149.

Judge Smith’s analysis of Arbitrator Kennedy’s “evident partiality”—a Federal Arbitration Act standard for overturning awards–is contained in two parts. First, it reasoned that the arbitrator’s ownership interest in JAMS was “sufficiently substantial” to warrant disclosure. A JAMS arbitrator who is a co-owner of the organization is entitled to a share of the profits from all arbitrations administered by JAMS, not merely the ones the neutral undertakes personally.

Because only about one-third of JAMS’ more than 400 neutrals are owners, Kennedy’s ownership interest “greatly exceeds the general economic interest that all JAMS neutrals naturally have in the organization.”

Second, the appeals court determined that JAMS and Monster Energy were engaged in “nontrivial business dealings” that were not disclosed to City Beverages. Over the past five years, JAMS had administered 97 arbitrations in which Monster Energy was a party. This is largely because the energy drink maker’s form contracts contain a provision identifying JAMS’ Orange County, Calif., office as its arbitrator source.

Kennedy submitted a disclosure statement, which read:

I practice in association with JAMS.  Each JAMS neutral, including me, has an economic interest in the overall financial success of JAMS.  In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. “

The majority opinion considered this statement inadequate because it failed to mention Kennedy’s ownership interest in JAMS, and JAMS’ business relationship with Monster.

Judge Smith wrote

We thus hold that before an arbitrator is officially engaged to perform an arbitration, to ensure that the parties’ acceptance of the arbitrator is informed, arbitrators must disclose their ownership interests, if any, in the arbitration organizations with whom they are affiliated in connection with the proposed arbitration, and those organizations’ nontrivial business dealings with the parties to the arbitration.

The opinion notes, “Prospectively, arbitration organizations like JAMS, which are already well-accustomed to extensive conflicts checks and disclosures, will have no difficulty fulfilling, and even exceeding, the requirements described here.”

Judge Smith concluded that failing to disclose the extensive business relationship with Monster Energy and the arbitrator’s JAMS ownership interest “creates a reasonable impression of bias and supports vacatur of the arbitration award.”  The panel also overturned the fees.

Circuit Judge Michelle T. Friedland dissented, noting that she disagreed that in evaluating “whether the Arbitrator might favor Monster, the additional information the majority believes should have been disclosed would have made any material difference.”

She writes that the majority opinion is unclear on the nature and extent of disclosure, and “[a]s these lingering questions demonstrate, . . . is likely to generate endless litigation over arbitrations that were intended to finally resolve disputes outside the court system.”

In addition to her view that the Monster Energy attorneys fees arbitration award should be upheld, Friedland looked extensively at the repeat-player issue regarding the relationship between JAMS and Monster Energy.  She noted

Owners of JAMS have an interest in maximizing JAMS’s amount of business, because they share in JAMS’s profits. Likewise, non-owner arbitrators have an interest in advancing their professional careers and maintaining their status with JAMS, which creates similar incentives to decide cases in a way that is acceptable to repeat player customers—otherwise, JAMS might terminate the nonowner’s JAMS affiliation.

In her dissent’s final paragraph, Friedland took a dim view of arbitration:

To the extent that the private arbitration system favors repeat players, I think it is unfortunate that so many parties forgo the protections of Article III and turn to arbitration instead. It is especially unfortunate when arbitrations involve a non-repeat player party that had no choice but to agree to arbitration in order to acquire employment, purchase a product, or obtain a necessary service. The majority laudably seeks to mitigate disparities between repeat players and one-shot players in the arbitration system. But I disagree that requiring disclosures about the elephant that everyone knows is in the room will address those disparities. It will only cause many arbitrations to be redone, and endless litigation over how many repeated arbitrations there will be.

 

The author, a 2L at St. John’s University School of Law in Jamaica, N.Y., is a CPR Institute Fall 2019 intern.

Understanding the Mediation Process to Assist Mediators, Self-Represented Litigants and Attorneys

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By:  Judge Steven I. Platt (Ret.)

The following guest post is a transcript of a speech that the author presented to the meeting of The Legal Research Institute of the Law Library Association of Maryland (LLAM), on October 11, 2019 at the University of Maryland School of Law. It is reprinted here with permission.

INTRODUCTION:

Good afternoon.

I appreciate this opportunity to discuss the role of the legal researcher in the 21st Century profession of dispute resolution from the perspective of what I now call myself, “a Recovering Judge.” I spent a total of 29 years from 1978 to 2007 on three different Trial Courts. I was also assigned to Maryland’s intermediate appellate court on multiple occasions. For the last 17 years, I have engaged in the world of private dispute resolution as an arbitrator, mediator, neutral case evaluator, Special Magistrate and Consultant on dispute resolution system design and implementation.

What I see is vastly different from what I saw from the Bench in the last quarter of the 20th Century, 1978-1999 and the first decade of the 21st Century, 2000-2007. Like every other institution of government, The Judiciary, as well as the private dispute resolution sector is rapidly changing. “Evolving” connotes too slow a process to be an accurate description of what is going on. Technology and globalization are rapidly transforming the forums and techniques of dispute resolution and with them the paradigms of the administration of civil justice.

These modifications of existing governmental institutions, corporate organizations as well as new financial products and devices, result from rapid technological development and globalization. These trends will, notwithstanding some of the subliminal messages from our recent elections, not be reversed. So, therefore, the work and role of the legal researcher must necessarily expand and diversify to accommodate these changes and trends.

I recognize, that it is ironic that almost contemporaneous with these changes and my remarks, we just recently witnessed a not-significant portion of the electorate in the country, and if you want to count “Brexit”, indeed the world, revolting at the voting booths against “elites.” Legal researchers are, at times, in the business of identifying and defining what and who are “elite.”

CHANGES IN THE METHODS OF DISPUTE RESOLUTION:

Traditionally, our citizens have had their disputes (legal and factual) resolved by a judge or jury in a courtroom. There, the role of the legal researcher has historically focused on assisting the trier of fact, and the arbiter or authority on the law, be it a judge or jury, to locate and understand the evidence and the law which applies to it. Traditionally, those legal researchers except for law clerks, staff attorneys, and law librarians have not worked for the court and are not paid by the court. Rather, they work for and are paid by the parties and/or counsel. Therefore, in many instances, their research and the advocacy based thereon are, at least initially, viewed by both judges and juries as suspect. I am sure that almost everyone in this room has encountered that barrier if not overt cynicism to your research and arguments based thereon being received and found persuasive.

That is changing. For one thing, the appointment by the Court of its own experts and reliance on its own research frankly as a reaction to the diffusion of the “mainstream” media and social media particularly in cases involving valuation issues is on the rise. Most state courts have the authority to do that and more and more are open to exercising it. Judges and Court Administrators who do not always know or understand “who you are, what you do, how you do it.” I encourage you to reintroduce yourselves to judges and court administrators who you may think you need further introduction. In doing so, however, you must educate them. As a caution, do not assume a basic knowledge except among a very few experienced judges of the terminology produced by your research including valuation techniques, particularly of intellectual property, businesses (distressed and other) as well as intangibles and other forensic accounting issues.

Courts are also increasingly relying on their own appointed Financial Forensic Experts as Receivers and Special Magistrates. In doing so, they expect their experts to be able to access complex legal research as well as multi-disciplinary research. Most state courts and all federal courts give their Judges the authority and discretion to appoint whomever they want including non-lawyers. The standard is “abuse of discretion.” Appointing someone with knowledge of the issues and industry before the courts and who can make informed and educated recommendations or even run a company for the Court, having the experience to do so, is clearly not an “abuse of discretion.”  The judges will increasingly depend on you and your research to identify who those individuals are and their methodologies.

Finally, The Courts are increasingly utilizing Special Magistrates and Settlement Administrators a/k/a “Claims Adjudicators” to administer and manage settlements of high stakes, multi-party litigation particularly Class Action cases and Mass Tort cases. Court Appointed Special Magistrates and Settlement Administrators are most of the time authorized by Rule and/or Court Order to employ “such professionals, experts and consultants as they deem necessary” to carry out their court ordered duties, which likely will include recommending the allocation of damages, expert fees, and attorney’s fees to The Court. That is you! Those Settlement Administrators, Special Magistrate, and Receivers are a market which, if currently unexplored, should be on your marketing screen shortly. They need your cutting edge multi-disciplinary research.

The best-known example of this relatively recent phenomenon and “The Man” is of course, Ken Feinberg of 9-11 Fund, BP Gulf Oil Spill, and Virginia Tech fame, to name a few. In each of these cases, and others, the roles of Financial Forensic Experts and the legal and multi-disciplinary researchers they employ, has been to perform among other functions:

  1. Research and Develop formulas and algorithms to determine the allocation of economic damages based on severity indexes established by the terms of the settlement agreement and data collected to support it.
  2. Explain to the Special Magistrate, The Administrator, and/or The Court, those formulas and the allocation of damage awards based thereon.
  3. Explain to the recipients of the different categories and amounts of damage the basis for the differentiations in the size of their distribution or award.
  4. Supervise the transfer and application of data from investigations, interviews and records to the administrators formulating and implementing the settlement.

I, myself, have been involved in this process more than once as a Special Magistrate and Settlement Administrator, and I can tell you that the research needs of these Financial Forensic Experts who are qualified to, and willing to perform these functions are growing, but the number of potential legal researchers who understand those needs, and can meet them and are qualified to do so by education and experience is not large or at least not known.

THE USE OF EXPERTS IN ADR:

Furthermore, the non-traditional use of Experts, particularly Financial Forensic Experts in what is known as Alternative Dispute Resolution (ADR) is growing. As I have said, these new roles derive from the traditional role of assisting a judge or jury but are expanded to include or substitute persuading other players in the dispute. For example, in Mediation, the legal researcher can be most effective by assisting the opposing party, opposing counsel, or even the opposing expert in understanding the issues from the opposing parties’ perspective or how a court would understand it. There’s an old saying in the litigation world – “Don’t play in the other guys analytical ballpark.” However, in a Mediation, you DO play in the other guy’s analytical ballpark. That’s how you persuade him/her. If successful, it is likely that your research will result in the desired resolution of the dispute.

In an Arbitration, explaining to a single arbitrator or a three-arbitrator panel the methodology which is appropriate to value market share in order to determine as in asbestos cases the percent of allocation of damages, between defendants or in the newly emerging cannabis industry, with which I am familiar, the percentage of revenue or profits to which a consultant is entitled are examples. Here the success of the expert’s client will very much depend on the legal researcher’s ability to persuade the Arbitrator that the methodology utilized is appropriate and individualized to the valuation of the real, personal, or even intellectual property at issue in the case and not just a one size fits all over formula developed by the industry particularly the insurance industry.

Finally, it is useful to understand that in the new “Administration of Justice” paradigm, the data, opinions and related experience and information that will be sought from you will, to a certain extent, depend on the dispute resolution forum and technique being utilized by the parties and Counsel. In litigation and arbitration, your opinion as to how to determine the specific quantification of damages will be sought utilizing the theory of the case, and the valuation theory selected by the hiring authority. In a Mediation or Neutral Case Evaluation, your opinion is most likely to be sought to aid in a risk analysis designed to leverage the possible settlement of the case.

I hope I have been helpful and have adequately described the comparatively new world that you, as legal researchers have been or will shortly be operating in. As we look to the future of the field of dispute resolution and the administration of justice and specifically to your role as experts in that system, perhaps the best guidance that I can provide in conclusion is the advice of Abraham Lincoln which we would all do well to heed today, “The dogmas of the quiet past are inadequate for the stormy present and future. As our circumstances are new, we must think anew and get anew.”

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Judge Steven I. Platt (Ret.) is the Founder and Managing Member of The Platt Group, Inc., a professional Alternative Dispute Resolution Firm. He is also a member of The Maryland Board of Directors of The National Academy of Distinguished Neutrals (NADN), which, after a thorough peer review by the Board of Directors of that “invitation only” organization, selects only the top 10% of Neutrals in the country. He is also on the Judicial, Commercial, Employment, Large Complex Case, and Construction Panels of the American Arbitration Association (AAA), the International Institute for Conflict Prevention and Resolution (CPR), The International Mediation Institute (IMI). The Association for resolving business disputes to judges and lawyers both in Maryland and nationally through both The Judicial Education Program of the American Enterprise Institute (AEI) Brookings Joint Center for Regulatory Studies (served on Judicial Advisory Board), and through The American College of Business Court Judges (Past President).

Judge Platt may be reached at info@theplattgroup.com or at 410-280-0908.

His writings and other background information can be found on his website, www.theplattgroup.com and his Blog at  www.apursuitofjustice.com.

Any opinions expressed in this post are solely those of the author and do not necessarily constitute the opinions of The CPR Institute.

 

 

New California Law Prohibits Pre-Dispute Employment Arbitration Agreements

By Andrew Garcia

California last week enacted a new law that prohibits employers from requiring job applicants, or any existing employee, to enter into pre-dispute arbitration agreements as a condition of employment.

California Gov. Gavin Newsom signed the bill into law Oct. 10. It also criminalizes any retaliation against an employee who refuses to enter into a pre-dispute arbitration agreement.

Assembly Bill 5, introduced by Assemblywoman Lorena Gonzalez, D., San Diego, says that a violation of the amended California Labor Code is a misdemeanor. Despite the law’s harsh prescriptions for violators, the bill clarifies that it does not purport to invalidate any existing arbitration agreement that is consistent with the Federal Arbitration Act.

The California Chamber of Commerce identified AB 51 as a “job killer.” (See the chamber’s press release ahead of the first major hearing on the bill in March at http://bit.ly/2pmYYEu.)  The chamber said that the new law conflicts with the U.S. Supreme Court’s decision in Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.Ct. 1421 (2017), among many cited cases that it notes are part of the Supreme Court’s jurisprudence favoring arbitration agreements. The chamber predicts that the law will be challenged and overturned, preempted by federal law. (You can read the chamber’s statement in opposition to the California Legislature, joined by 41 local chamber and specialized industry groups, at http://bit.ly/33zTLIz.)

As other jurisdictions wrestle with local restrictions, courts are beginning to see challenges.  A New York federal court last spring stuck down a New York state pre-dispute mandatory arbitration bar in a decision that was mirrored by the California Chamber’s view. See Latif v. Morgan Stanley & Co. LLC, No. 18-cv-11528, 2019 WL 2610985 (S.D.N.Y. June 26, 2019), where the U.S. District Court held that a newly enacted New York state law that invalidated pre-dispute employment arbitration agreements was preempted by the Federal Arbitration Act. See also, Andrew Garcia, “Update: Legislatures on Invalidating Pre-Dispute Arbitration Agreements,” CPR Speaks blog (Aug. 1) (available at http://bit.ly/2IPg6dd).

AB 51 is one of three bills signed by Gov. Newsom, a Democrat who took office in January, that expanded California’s workplace protection laws.  “Work is about more than earning an income,” he stated, adding, “For many, a job can provide a sense of purpose and belonging–the satisfaction of knowing your labor provides value to the world. Everyone should have the ability to feel that pride in what they do, but for too many workers, they aren’t provided the dignity, respect or safety they deserve. These laws will help change that.”

That move is a big change from Newsom’s predecessor. The new law is a reintroduction of an identical 2018 bill that was vetoed by then-Gov. Jerry Brown, also a Democrat–the second time Brown vetoed legislation restricting arbitration.  The California Chamber of Commerce opposition letter quotes Brown’s 2018 veto extensively, including the Kindred Nursing decision, which noted, “A rule selectively finding arbitration contracts invalid because improperly formed fares no better under the [Federal Arbitration Act] than a rule selectively refusing to enforce those agreements once properly made. Precedent confirms that point.”

An August California court decision, however, shares the new law’s skeptical arbitration view. In OTO LLC v. Kho, 447 P.3d 680 (Cal. 2019) (available at https://stanford.io/2ON8f3x), the California Supreme Court rejected the validity of an arbitration agreement because, among other reasons, the defendant required plaintiff Kho to sign the agreement as a condition of his employment.

The court found that the porter who delivered the agreement remained at Kho’s place of work until he signed the agreement, which created an impression that he had to sign it immediately. Therefore, the court ruled that since Kho had no choice but to sign the arbitration agreement or lose his job without an opportunity to review the agreement in his native language, it could not be enforced.

To view the bill in its entirety, click here.

The author, a Summer and Fall 2019 CPR Institute intern, is a law student at Brooklyn Law School.

 

 

Committee Q&A: A Conversation with Mediation Committee Co-Chair, Marjorie Berman 

marjorieberman

As part of our continuing “Committee Q&A” series, we sat down recently with Mediation Committee Co-Chair, Marjorie Berman of Krantz & Berman (pictured), to learn more about what this committee has been up to and has planned for the future.

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The Mediation Committee consists of CPR members throughout the world and aims to enhance the quality and effectiveness of corporate mediation practice, both domestically and internationally.  The Mediation Committee recently released Mediation Best Practices Guide for In-House Counsel: Make Mediation Work for You, a CPR members-only guide with insider tips from in-house counsel on how to navigate every step of the mediation process (digital copies available to CPR members at no cost).  The Mediation Committee meets quarterly to collaborate and share best practices and put on programs of interest.   In addition, the Committee works to identify qualified neutrals to serve on CPR’s Panels of Distinguished Neutrals. You may find online, CPR’s Mediation ProcedureFast Track Rules for Mediation, and International Mediation Procedure (2017), as well as other industry-specific protocols.

Q. What are some of the specific issues that the Mediation Committee has focused on recently, and how?

A. I am a relatively new add to the committee but, looking back at just the past two meetings we’ve held, the first was on the Singapore Convention. We worked to fashion a program that would be meaningful – and useful – to people at all levels, including some who may not be as familiar with international law.  And at our most recent meeting, we focused on the very timely topic of confidentiality in mediation.

There has been a recent vintage of challenges to the confidentiality of mediation in the courts. Eugene Farber and Professor Nancy Rogers of the Ohio State University Moritz College of Law spoke, and the meeting was super lively and chock full of information. The event also inspired a very strong dialogue among the participants with respect to both knowledge and practice tips on anticipating that such issues could arise.

Q. Can you give us a preview of some of the important issues the Mediation Committee will be focusing on in the coming year?  

A. One long-term focus of the committee is an even closer look at this issue of confidentiality in mediation. Because candor between a mediator and parties is essential, mediation depends upon the privileges and confidentiality that protect those communications. The law protecting mediation communications is a patchwork of federal and individual case statutes, case law and rules of conduct that vary across jurisdictions.

This project will inform practitioners of the law and rules governing mediation confidentiality by jurisdiction so they can prepare themselves in the event they need to mediate in an unfamiliar locale. In fact, as people are reading this, and they have personal experiences with challenges to confidentiality and being put in the spotlight in a litigation – not where mediators wish to be! – I encourage them to share those stories with the committee.  

Q. What have you personally gotten out of participating in CPR’s committee structure, and what would you say to busy CPR members about why they should become more involved?

A. Even in the short term in which I’ve been intensely involved, participation in the committee has given me exposure to a wide variety of mediators working in many different contexts, and to a breadth of mediation practices. We can all so easily develop a narrow focus in our work, so it is especially valuable to get perspective from all angles – including from inside and outside litigators using mediation, mediators doing mediation, mediators working both in the US and around the world and academics studying mediation.

Q. Why would you encourage people to join CPR’s Mediation Committee in particular?

A. To some degree mediators tend to be in a bit of a closed world. They mediate cases and its often just them, in a room as a mediator. Being a part of such a dynamic and interactive group expands your view and allows you to process and grow both your perspective and your practice. This is valuable whether you’re a mediator trying to develop your own practice, or a litigator from a corporation or a law firm who is involved as a participant, trying to get a perspective of where mediators are coming from – because you can’t have that kind of conversation with your own mediator.

Committee participation also provides the broader opportunity to act as a thought leader, helping to improve the effectiveness of mediation and to shape best practices. Mediation is a very dynamic area where small changes can produce big results in terms of outcomes, and this committee offers an opportunity to become a meaningful part of that.

Marjorie Berman of Krantz & Berman LLP represents civil litigants in business disputes, employers and employees in employment conflicts, and individuals in white-collar criminal matters.

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CPR committees are always looking to increase membership and participation, and there are no extra fees or costs associated with joining. Learn more about CPR’s other industry and subject matter committees here. To become a committee member, log in and join the committee(s) of your choice or email a note of interest to Richard Murphy at rmurphy@cpradr.org.

Take your seat at the table, along with
other thought leaders in your industry.

JOIN A CPR COMMITTEE TODAY

 

 

A Report on the 2019 CPR European Congress on Business Dispute Management (Part II)

EU flagBy Vanessa Alarcón Duvanel and Kathleen Fadden

On 15 May 2019, CPR held its third annual European Congress on Business Dispute Management, in London. Organized by CPR’s European Advisory Board (the “EAB”) and kindly hosted once more by SwissRe in the magnificent Gherkin building, the Congress inspired thought provoking considerations on topics of dispute prevention and resolution. As with last year’s summary, we have split this reporting in two parts; Part I sharing the morning panel sessions can be found HERE

The afternoon’s session began with a keynote address by Teresa Giovannini of LALIVE in Geneva, Switzerland.  Teresa Giovannini has a wealth of experience in international arbitration having served as an arbitrator in over 200 arbitrations and held leadership positions in various institutions.  In a captivating speech entitled “what happens behind the curtains”, she gave the audience a glimpse of how arbitral tribunals operate.  The integrity of the arbitral process has often been criticized and bias, in particular, be it unconscious or conscious, can impact throughout the process.  Complete elimination of bias may be difficult and Teresa Giovannini outlined some simple steps that can minimize bias: adopting the screen selection process in the CPR Rules whereby the arbitrators do not know which party has appointed them; ensuring that the issues to be determined are identified at the outset of the proceeding and put to the parties; and strictly adhering to the principle that a case must be put aside if a party does not adduce sufficient evidence to support its case.

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“Master Mediators Answer the Most Intriguing Mediation Questions”

The first panel of the afternoon proved to be a lively discussion about mediation challenges.  The panel was moderated by Isabelle Robinet-Muguet (Orange) and Alexander Oddy (Herbert Smith Freehills).  The panelists were: Eileen Carroll (Mediator and CPR Neutral), Renate Dendorfer-Ditges (Ditges and CPR Neutral), Diego Faleck (Mediator and CPR Neutral) and Birgit Sambeth Glasner (Altenburger and CPR Neutral)

The panel addressed three intriguing mediation questions:

What are the challenges when dealing with cross border mediation and what advice would you offer?

Obviously good preparation is table stakes.  It is essential to take time to talk to the clients in order to understand what might be driving the dynamics, including whether the parties are being guided by lawyers and – in either joint or evaluative sessions – what the expectations are including how active they expect the mediator to be.  The mediator must establish the process and set a substantive agenda for the clients.  In this respect, another challenge that often arises in cross border mediations is that cross border frequently means cross-cultural.  Mediators must therefore be sensitive to, and familiar with, cultural differences as such awareness can guide the mediator in selecting negotiation strategies/tactics that are more likely to be successful.

A second challenge is one of timing of the mediation hearing.  Increasingly, mediations are being forced into short time frames, typically a day and no more.  Master mediators however criticized the efficiency of this template – check the box – practice.  It has proven helpful to require the parties to resume the following day because the interim night often provides valuable time for reflection.  Where does this 24-hour model come from?  The audience contributed suggestions pointing the finger to mediators who in most cases are lawyers and have other cases to attend to or at the insurers who tend to drive the 24-hour template.

Is the concept of a mediated settlement changing?

The concept itself may not have changed but its implementation suffers difficulties.  In line with its remarks to the first question, the panel noted that the purpose of mediation is unfortunately too often gravitating towards setting the stage for arbitration rather than settling the dispute.  It may be a function of the compressed time frames in which mediations increasingly take place (see above).

How do you deal with a conflict within a conflict?

There was no question that conflicts within conflicts impact the mediation process and therefore it is critical they be addressed effectively.  It is not an easy situation to navigate.  Good mediation process management and managing expectations are key as each case is different.  Master mediators on the panel shared illustrative examples of what can generate a conflict within a dispute such as the imbalance in the parties’ levels of sophistication and/or resourcing.  One often finds the weaker party being aggressive and/or irrational.  From a process perspective, a mediator should be equipped to handle such situation proactively by taking the time to understand the concerns (the party may be missing information or believing that its interests are unmet) and by warning the stronger side to be patient.

Mediation is an art – it requires skills, training and practice!

“The Resolution of Complex, Multi-Stakeholder, Multi-Jurisdictional Disputes”

The final panel of the day examining the use of ADR tools in large complex disputes was moderated by Cliff Hendel (Hendel IDR) and the panelists were: Gavin Chesney (Debevoise & Plimpton), James Cowan (Shell International), Ania Farren (Vannin Capital), Albert Hilber (Swiss Reinsurance) and Richard Little (Eversheds Sutherland).

Setting the stage for the discussion, Cliff Hendel offered a couple of interesting preliminary remarks.   Firstly, he reminded everyone that in large and complex disputes culture eats process for breakfast.  In other words, culture counts!  Failures often stem from the inability to understand one another.  Engaging in active listening is therefore key.  Secondly, there are of course trade-offs inherent to the co-existence of different legal systems.  Notwithstanding some European laws in the ADR field, national laws are not particularly harmonized, leading to the risk of forum shopping (among others).

This panel addressed two main issues:

What are your views on the use of co-mediation in complex disputes?

The overall view was that generally mediation, per se, remains difficult in many jurisdictions and that is for cultural reasons. For many Europeans resorting to non-binding ADR is still perceived as a sign of weakness and many parties adopt a mindset whereby if they are to spend money on a dispute resolution process, they want a binding result.  It is important to work to help parties overcome this hurdle.  There is really no substitute for having all the parties in one room and giving all stakeholders visibility as to the whole picture.  In the panel’s experience, this tends to produce more creative solutions.  On co-mediation specifically, experience shows that it works well when all involved mediators are well prepared and even better if they have worked together in the past.

Does litigation/arbitration funding have an impact on mediation?

There is an often referred to “traditional” view that third party funder involvement will make settlement less likely.  The panel did not entirely agree with that.  Ania Farren, offering a funder’s perspective, explained that having a funder on board signaled a strong case.  Funders typically do not influence the dispute resolution process and do not normally attend settlement discussions.  Funders in fact do favor early settlement often preferring less money early than more money later. That said, and unsurprisingly, different third-party funders have different risk appetites. This diversity while beneficial to parties seeking funding for their case brings uncertainty and raises concerns as to the funders’ impact on the parties’ ability to settle or mediate the dispute.  In international arbitration there is no formal regulation of the use of third-party funding and the panel agreed on the need for more transparency concerning funder involvement particularly given the potential for conflicts of interest.

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The Conference concluded with closing remarks from Noah Hanft, CPR’s outgoing President and CEO and James South, Managing Director of CEDR.  This was an opportunity to outline the fruitful collaboration between CEDR and CPR.

Noah was thanked profusely for his phenomenal contribution to CPR.

 

 

Vanessa Alarcon Duvanel is an attorney admitted to practice in New York and Switzerland and specializing in international arbitration. She is based in Geneva and serves as the Secretary to the European Advisory Board.

Kathleen Fadden is a legal consultant and member of the CPR’s European Advisory Board.

 

A Report on the 2019 CPR European Congress on Business Dispute Management (Part I)

EU flagBy Vanessa Alarcón Duvanel and Kathleen Fadden

On 15 May 2019, CPR held its third annual European Congress on Business Dispute Management, in London. Organized by CPR’s European Advisory Board (the “EAB”) and kindly hosted once more by SwissRe in the magnificent Gherkin building, the Congress inspired thought provoking considerations on topics of dispute prevention and resolution. As with last year’s summary, we have split this reporting in two parts: a Part I sharing the morning panel sessions, and a Part II covering the afternoon panels.

“The Future of ADR”

The first panel examined how the ADR community was responding to recent attacks on traditional arbitration and mediation and how ADR can remain relevant.  It was moderated by Mark McNeill (EAB member, Quinn Emmanuel Urquhart & Sullivan (then Sherman & Sterling).  The panelists sharing their perspectives were: Stefano Catelani (DuPont), Ferdinando Emanuele (Cleary Gottlieb Steen & Hamilton), Jennifer Glasser (White & Case) and Noah Hanft (CPR).

Considering the recent developments in dispute resolution, the panel’s remit was to consider whether ADR was approaching crisis point or, whether in fact, there were new opportunities to be seized.  The panel tackled a variety of topics:

Driving mediation into the arbitration process and whether arbitrators should encourage mediation.

Some jurisdictions still have limited acceptance of mediation for multifarious reasons: it can be difficult to find qualified mediators, arbitrators are reluctant to promote mediation and model escalation clauses often force a “check the box” type approach where mediation is not given adequate consideration and viewed solely as a mandatory step.  CPR has been actively encouraging mediation over the world and made a particular push in Brazil.  It has been considering a more flexible model escalation clause that whilst mandating mediation, is not prescriptive about when it shall occur – provided it is before the case is heard.  The use of mediation is referenced in the new 2019 CPR Rules for Administered Arbitration of International Disputes and mediation is now a topic for discussion within the preliminary conference (Rule 9.3e).

How will this change the ADR landscape in the coming years?

Noah Hanft offered his perspective on the evolution of ADR: In his view there is no dispute that mediation is effective so it really is in companies’ interests to adopt mediation.  He anticipates a growth in mediation even though he noted that user complaints have succeeded in driving down the average time it takes to conclude an arbitration.  But there will also be more use of hybrid approaches and the desire for efficiency and cost containment will drive innovation in the area.  These thoughtful comments led the panel to add that mediation was in fact being used nowadays in various stages of a commercial relationship.  For example, mediation is resorted to in transactions to facilitate deals and in the joint venture space consideration was being given to the early identification of those issues that may lead to a dispute with the engagement of a standing neutral and/or the introduction of turnkey provisions requiring stakeholders to focus on the health of the joint venture.

Is ADR at all relevant in investor state disputes?

When it comes to mediation or settlement negotiation, it is often politically very difficult for states to settle disputes with investors.  Andy Rogers of CEDR reported on an interesting development whereby CEDR, in collaboration with other organisations, is currently organizing training for mediators, ISDS practitioners and government officials to equip them with the knowledge and skills necessary to mediate investment disputes.

Will Brexit change the ADR landscape?

Since the Congress was hosted in the United Kingdom (UK) it would have been remiss not to consider the impact of Brexit on ADR!  English governing law and jurisdiction clauses have historically been popular choices for commercial parties and panelists were asked for their views on whether businesses should rethink this choice in light of Brexit.  The overall reaction was that there is no clear answer to the question and the area of greatest uncertainty likely concerns the enforcement of judgments.  Currently, under the Recast Brussels Regulation (Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) also known as the “Brussels regime”), a judgment rendered in an EU member state and enforceable in that member state is enforceable in all other member states.  If the UK exits the EU without an agreement on the continued operation of the Brussels regime, the latter will cease to apply and the reciprocity will be lost.  This could be remedied – to some extent – as the UK is seeking to become a member, in its own right, of the Hague Choice of Court Convention. As the panel noted, if the UK accedes to this international instrument, then as contracting state its courts must give effect to exclusive jurisdiction clauses and enforce any judgments resulting from such clauses. This blog cautions that the Hague Convention is narrower in scope than the Recast Brussels Regulation and questions still remain about the application of the Convention in circumstances where an exclusive jurisdiction clause has been entered into prior to the U.K.’s exit from the EU.   Post Congress, a new “Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters” was adopted on 2 July 2019.  The UK adherence to this new treaty would resolve many of the enforcement issues triggered by Brexit.  Although the 2018 Queen Mary & White & Case International Arbitration Survey reported that London remained the most preferred seat of arbitration and over half of the respondents thought that Brexit will have no impact on the use of London as a seat, it is clear, Brexit has created doubts and given rise to many questions that only time will answer.

This led panelists to move naturally to another new development in ADR, namely the introduction in various jurisdictions of “international” courts.  The Netherlands, Germany and Singapore to name just a few have created or contemplated the opportunity of creating “international” commercial courts.  Typically, these courts – which are established under national law rather than by international treaty – operate in English and adopt arbitration type rules.  Do these represent a threat or a challenge to arbitration?  In general, the panel did not see a significant threat.  There are, of course, pros and cons with national courts and arbitration tribunals.  A key benefit of arbitral proceedings is confidentiality, which is not necessarily guaranteed in court proceedings.  With respect to enforcement, currently, there is no global convention for the enforcement of court judgments in the same way that the New York Convention facilitates enforcement of arbitral awards.  On the other hand, summary disposition of issues is available in some court systems but historically arbitrators have been cautious about their use – even though recent revisions to most leading arbitral rules (including the CPR Rules) permit such procedures.  In summary, there is space for both fora and the panel noted that certainly from a user perspective, competition and choice could only be positive.

The last aspect concerning the future of ADR which the panel considered was: the Prague Rules and whether they will lead to increased efficiencies in arbitration.

The Rules are intended to be an alternative to the well-known IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules) and to bridge the gap between common and civil law approaches.  The panel’s position was not too optimistic.  Neither document production nor the taking of witness evidence are likely to be more efficient under the Prague Rules and the costs of arbitration proceedings are unlikely to reduce.  This is so because the Prague Rules provide a framework and do not exist in a vacuum; in many respects the level of efficiency and the nature of document production is driven more by the arbitrator.  In the panel’s view, rather than a new set of rules, it would be more useful to increase the pool of arbitrators  and even better, arbitrators that are more active!  The panel shared four examples as to why in its view the Prague Rules would not deliver efficiencies.  I) there is a conflict between article 2.1 which requires that the arbitral tribunal “shall” convene a case management conference “without any unjustified delay,” and the requirement in article 2.2 that the arbitral tribunal “shall” clarify at that same case management conference, undisputed / disputed facts and the legal grounds of the parties’ respective cases (among others). Indeed, experience shows that it would be inefficient (perhaps impossible) to clarify disputed and undisputed facts or legal positions on the basis of a Request for Arbitration and Answer to the Request since these typically do not contain sufficient detail.  II) article 4.2 on documentary evidence discourages document production but the rest of the provisions in the same section retreat from this position.  III) with respect to fact witnesses, articles 5.2 and 5.3 empower arbitrators to make determinations about calling witnesses but article 5.7 then rather diminishes that power by providing that if a party insists on calling a witness whose statement has been submitted by the other party, the arbitral tribunal should call the witness to testify at the hearing.  Finally, iv) in respect of experts, article 6.1 appears to make tribunal-appointed experts the default rule.  However article 6.5 states that a party may nonetheless submit a report from an expert appointed by that party.  Given that in practice many tribunals hear only party-appointed experts, the Prague Rules’ regime is likely to lead to arbitrations with both tribunal-appointed and party-appointed experts which will increase the volume of the parties’ submission, hearing time, and inevitably costs.

The future of ADR is in some respects uncertain (Brexit being an example) but at the same time full of interesting challenges and novelties.

“Preparing for the Robo-Revolution”

The second panel of the morning was similarly looking to the future but this time with a legal-tech focus.  The panel was moderated by Javier Fernández-Samaniego (Samaniego Law) and the panelists were: Ulyana Bardyn (Dentons US LLP), Diana Bowman (VINCI Energies), Sarah Ellington (DLA Piper) and Ralph Lindbäck (Wärtsila Corporation).

Should ADR practitioners be concerned about robots? Or do we consider that robots and computer arbitrators are still in the realm of science fiction?

To answer this question, the panel started by looking at the state and use of legal-tech today.  Certain types of dispute and several aspects of dispute management can be automated and in fact there are already automated tools deployed to handle routine and administrative tasks.  EBay was cited as an example, as it uses algorithms to generate decisions in e-commerce disputes.  Currently, automation is however mostly applied in low value disputes rather than complex cases. Whilst appropriate deployment of automated tools can bring benefits in terms of speed and accuracy, the panel noted that it also carries disadvantages and has its limitations.  For instance, it is not necessarily clear how due process will be respected if a computer arbitrator presides in an arbitration, or how algorithms could be created and comply with the confidentiality of arbitral proceedings, or how the parties would know how to pick the right algorithms for their dispute.  One significant limitation highlighted by the panel was the inescapable fact that disputes involve human beings and one cannot automate the relationship management aspect of dispute resolution!  Even if artificial intelligence were able to accurately predict the verdict in a dispute, some litigants simply want their day in court or their day in arbitration, an experience that no robot can satisfy.

Notwithstanding the challenges, law firms are preparing for the robot revolution and some have already achieved significant milestones in this respect. Law firm practitioners on the panel provided real insights into the approaches taken by their respective organizations.  Ulyana Bardyn shared with the audience some of Dentons’ leading efforts in this space including its collaborative innovation platform “Nextlaw Labs”; various programmes focused on case management enabling clients to see spending in real time, or assisting clients with finding the best pro bono help available; and the “Libryo platform” which aims to simplify legal complexity by providing a curated collection of all laws relevant to specific business sectors enabling lawyers to understand their organisation’s legal obligations in any given situation.

Sarah Ellington reported on DLA Piper’s own investments in technology and elaborated on three of the DLA tools, all of which are aimed at dispute avoidance.  A first tool is a guided pathway app geared to IT outsourcing projects and intended for commercial managers, it contains questions about project progress and status and produces a report with red flags if problems are detected.  The second is a virtual secondment tool which enables businesses to submit questions and have a response within 24 hours.  Finally, the firm has an immersive business simulation, essentially a training tool, geared toward infrastructure projects where users can engage in a facilitated session where they take on a particular role within a simulated project.

These tools are impressive from the lawyers’ perspective.  How is the business community reacting to this technology assisting their counsel?  Corporate counsels on the panel all agreed that dispute resolution should be looked upon as a value stream with a significant focus on dispute avoidance.  To reach this goal and develop successful tools, collaboration between law firms and their clients is key.  That is all the more relevant as the business community is making its own progresses in the digital arena.  Many businesses are entering into collaborations, partnerships and campus initiatives – e.g., sandbox environments where universities, startups and investors can come together to innovate– are growing.  Dispute resolution though is not always part of the picture. Would it ever be possible to predict that a dispute was coming?  In certain sectors, that Holy Grail may not be too far off.  As Diana Bowman described, VINCI Energies already attempts to obtain information about events that occur on site and shares it with the back office in real time.  With good record keeping and quality information there may be opportunities to both predict and resolve issues early before a dispute escalates.

Shifting gears slightly, the panel touched on another technology hot topic: cyber security. Cyber attacks are a significant and rapidly evolving peril for today’s businesses but the levels of security deployed, particularly in the arbitration field, varies significantly between, for example, sole practitioners and top tier international law firms.  Regardless of size, all can fall victim to an attack.  Speaking from experience, Sarah Ellington shared some of the lessons learned after DLA Piper suffered from the NotPetya malware attack in June 2017 resulting in all the firm’s IT systems globally being taken offline. The risks are real and the consequences of an attack can be devastating.  To cope with a potential problem, it is fundamental to have: an up-to-date business continuity plan including practical solutions for work continuation, a clear communication protocol, emergency contact groups, back up email, calendar and document management systems.

The digital revolution has arrived although not necessarily in all legal departments! In some of the most sophisticated companies the legal department does not even have a suite of templates.  Readers of this blog, as the audience at the Congress, are encouraged to think about the digital revolution as a wave: do you want to be bowled over by it or do you choose to ride it on a surf board?

Stay tuned for part II…

 

Vanessa Alarcon Duvanel is an attorney admitted to practice in New York and Switzerland and specializing in international arbitration. She is based in Geneva and serves as the Secretary to the European Advisory Board.

Kathleen Fadden is a legal consultant and member of the CPR’s European Advisory Board.

 

New Clear and Unmistakable Outcome Exception to the Old Clear and Unmistakable Rule? (Part II)

loreejrII

By Philip J. Loree Jr.

Part I of this post discussed how the Second and Fifth Circuits, in  Metropolitan Life Ins. Co. v. Bucsek, ___ F.3d ___, No. 17-881, slip op. (2d Cir. Mar. 22, 2019), and 20/20 Comms. Inc. v. Lennox Crawford, ___ F.3d ___, No. 18-10260 (5th Cir. July 22, 2019), suggest a trend toward what might (tongue-in-cheek) be called a “Clear and Unmistakable Outcome Exception” to the First Options Reverse Presumption of Arbitrability (a/k/a the “Clear and Unmistakable Rule”).

Under this Clear and Unmistakable Outcome Exception to the Clear and Unmistakable Rule, courts consider the merits of an underlying arbitrability issue as part of their analysis of whether the parties clearly and unmistakably agreed to arbitrate arbitrability issues.

But the Clear and Unmistakable Outcome Exception runs directly counter to the U.S. Supreme Court’s decision in Schein v. Archer & White Sales, Inc., 586 U.S. ___, 139 S. Ct. 524 (January 8, 2019), and thus contravenes the Federal Arbitration Act as interpreted by Schein. 139 S. Ct. at 527-28, 529-31.

This Part II analyzes and discusses how Met Life and 20/20 Comm. effectively made an end run around Schein and considers what might have motivated those Courts to rule as they did.

Making an End Run Around Schein?

When, prior to 20/20 Comm. we wrote about Met Life, we said it “an important decision because it means in future cases where parties have not expressly agreed to arbitrate arbitrability questions, but have agreed to a very broad arbitration agreement, the question whether the parties’ have nevertheless clearly and unmistakably agreed to arbitrate arbitrability questions may turn, at least in part, on an analysis of the merits of the arbitrability question presented.” (See here. )

But after the Fifth Circuit decided 20/20 Comm. this July, in comments we made to Russ Bleemer, Editor of Alternatives, the Newsletter of the International Institute for Conflict Prevention & Resolution (“CPR”)—which were reproduced with our consent in Mr. Zhan Tze’s CPR Speaks blog article about 20/20 Comm. (here)—we expressed the belief that the Fifth Circuit was (whether intentionally or unintentionally) making an end run around Schein, effectively creating an exception to the Clear and Unmistakable Rule.

After analyzing 20/20 Comm. and comparing it to the Second Circuit’s Met Life decision, we concluded that the Second Circuit’s decision also ran counter to Schein.

Schein’s Abrogation of the “Wholly Groundless Exception” to the Clear and Unmistakable Rule

In Schein the U.S. Supreme Court abrogated the so-called “wholly groundless exception” to the Clear and Unmistakable Rule. Prior to Schein certain courts, including the Fifth Circuit, held that even when parties clearly and unmistakably agreed to arbitrate arbitrability questions, courts could effectively circumvent the parties’ agreement and decide for itself arbitrability challenges that it determined were “wholly groundless.”

The rationale Schein used to jettison the “wholly groundless exception” to the Clear and Unmistakable Rule is incompatible with the rationales the Second and Fifth Circuit used to support their decisions in Met Life and 20/20 Comm.

Under FAA Section 2, the Schein Court explained, “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.” Schein, 139 S. Ct. at 529 (citation omitted). When those contracts delegate arbitrability questions to an arbitrator, “a court may not override the contract[,]” and has “no power to decide the arbitrability issue.” 139 S. Ct. at 529. That is so even where a Court “thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.” 139 S. Ct. at 529.

Schein explained that its conclusion was supported not only by the FAA’s text, but also by U.S. Supreme Court precedent. Citing and quoting cases decided under Section 301 of the Labor Management and Relations Act, the Court explained that courts may not “‘rule on the potential merits of the underlying’ claim that is assigned by contract to an arbitrator, ‘even if it appears to the court to be frivolous[,]’” and that “[a] court has “‘no business weighing the merits of the grievance’” because the “‘agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.’” 139 S. Ct. at 529 (quoting AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649–650 (1986) and Steelworkers v. American Mfg. Co., 363 U.S. 564, 568 (1960)).

This “principle,” said the Schein Court, “applies with equal force to the threshold issue of arbitrability[]”—for “[j]ust as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator.” 139 S. Ct. at 530.

Exception to Clear and Unmistakable Rule? Why the Second and Fifth Circuit Decisions Conflict with Schein

Both the Second Circuit and Fifth Circuit decided that the parties before them did not clearly and unmistakably agree to arbitrate arbitrability because each Court believed that there was not even a barely colorable basis for a court or an arbitrator to find that the underlying dispute should be submitted to arbitration. In other words, both courts focused on contractual provisions governing the merits of the arbitrability dispute rather than confining their analysis to the terms of the contract dealing directly with whether the parties clearly and unmistakably agreed to arbitrate arbitrability.

In Met Life the Court decided the merits of the underlying arbitrability issue before analyzing whether the provisions of the contract directly pertinent to the arbitration of arbitrability did or did not clearly and unmistakably delegate arbitrability to the arbitrators. The Court quite correctly found it implausible that the parties agreed to arbitrate a dispute that arose years after one of the parties had left the NASD and was not a member of FINRA.

But that was a conclusion about the merits of the arbitrability dispute, not about whether the parties clearly and unmistakably agreed to arbitrate arbitrability disputes. The Clear and Unmistakable Rule turns solely on whether the parties clearly and unmistakably delegated arbitrability questions to the arbitrator, irrespective of what the merits of those arbitrability questions may be.

In 20/20 Comm. the Court’s focus was on the parties’ broad class arbitration waiver. Class arbitration waivers are ordinarily dispositive of the merits of whether the parties consented to class arbitration, but the class arbitration waiver in 20/20 Comm., like most or all others we’ve seen, says nothing about who decides whether or not the parties consented to class arbitration.

Had the Fifth Circuit not focused on the class arbitration waiver, and instead on the three provisions directly relating to arbitrability, then it could have easily found that the parties clearly and unmistakably delegated class arbitration consent issues to the arbitrator.

The so-called “exception language” in those provisions (see Part I, here) was quite beside the point. There is nothing “inconsistent” with an arbitrator, rather than a court, deciding the effect of the class arbitration waiver, no matter how clear it may be that the outcome will, or at least should, be an arbitral determination that the parties did not consent to class arbitration.

Exception to Clear and Unmistakable Rule?Second Circuit Attempted to Distinguish Schein, but Fifth Circuit did not

The Second Circuit articulated the reasons it believed that Schein did not foreclose its examination of the merits of the arbitrability issue before it, but the Fifth Circuit did not address Schein.

The Second Circuit said “[t]he point of the [Schein] opinion was that, where the parties have agreed to submit arbitrability to arbitration, courts may not nullify that agreement on the basis that the claim of arbitrability is groundless.” Met Life, slip op. at 24 (emphasis in original). The Court said it “reject[s] [A’s] claim for arbitration of arbitrability not because” it considers the “claim of arbitrability” to be “groundless[,]” but “because, upon consideration of all evidence of the intentions of the arbitration agreement, including the groundlessness of [A’s] claim of arbitrability, the agreement does not clearly and unambiguously provide for arbitration of the question of arbitrability.” Met Life, slip op. at 25. That “reasoning is based on the parties’ contract, and not based on any exception to what the parties have contracted for.” Met Life, slip op. at 25.

The Fifth Circuit might have made the same or a similar argument, but said nothing about whether it thought its decision was consistent with Schein.

While the Second Circuit’s reasoning was theoretically sound, it doesn’t hold up in practice. Apart from questions concerning the existence of the contract, the merits of most, if not all, arbitrability questions turn in large part on the language of the parties’ contract. That was certainly the case in both Met Life and 20/20 Comm.

Under the reasoning of those cases, however, the language directly relating to the question whether the parties clearly and unmistakably agreed to arbitrate arbitrability must be viewed in conjunction with the language of the contract bearing on the merits of the arbitrability dispute. If the language pertinent to the merits of the arbitrability issue suggests that the parties did not agree to arbitrate the dispute (or did not consent to class arbitration), then under the Second and Fifth Circuits’ reasoning, that conclusion weakens (or eliminates) the inference that the parties clearly and unmistakably agreed to arbitrate arbitrability.

Met Life and 20/20 Comm. Contravene the U.S. Supreme Court’s Decision in Schein

The Met Life/20-20 Comm. analytical regime effectively revives—and potentially might even expand the scope of—the “wholly groundless exception” that the U.S. Supreme Court laid to rest in Schein. Remember that disputes about arbitrability of arbitrability can be analytically broken down into at least four separate questions: (a) what the dispute on the merits is; (b) does that dispute raise a question of arbitrability, which is ordinarily decided by the court; (c) if so, did the parties clearly and unmistakably agree to arbitrate arbitrability disputes (i.e, does the Clear and Unmistakable Rule apply); and (d) what is the outcome of the dispute on the merits that the proper decisionmaker should reach once he or she decides it?

The Clear and Unmistakable Rule is concerned only with question (c), above, that is, did the parties clearly and unmistakably agree to arbitrate arbitrability disputes? The “wholly groundless exception” to the Clear and Unmistakable Rule—and the analytical regime imposed by the Second and Fifth Circuits—focuses not only on  question (c), above, but simultaneously considers question (d), that is, what is the outcome on the dispute on the merits that the proper decisionmaker should reach?

Assuming the dispute on the merits is a question of arbitrability (as was the case in Schein, Met Life, and 20/20 Comm.), if the provisions of the parties’ agreement suggest that there is only one proper outcome that a decisionmaker should reach on the merits of the arbitrability dispute—the subject of question (d), above— then a Court following Met Life and 20/20 Comm. would be more chary about concluding the parties clearly and unmistakably agreed to arbitrate arbitrability—the subject of question (c), above.

Schein forecloses any consideration of the merits of the arbitrability issue (question (d), above), limiting the scope of the Court’s analysis to whether the parties’ clearly and unmistakably agreed to arbitrate arbitrability (question (c), above).

Schein explains that, if the parties clearly and unmistakably agree to arbitrate arbitrability disputes, then courts should direct the parties to arbitrate the arbitrability issue. Just as it is with any other arbitrable issue, judicial review is postponed until the final award stage, and is limited to the grounds enumerated by Section 10 of the FAA, including manifest disregard of the agreement under Section 10(a)(4), and, in Circuits which recognize it (such as the Second—but not the Fifth—Circuit) manifest disregard of the law.

In Schein the proponent of the “wholly groundless exception” argued that the “back-end judicial review” available if an arbitrator “exceeds his or her powers” impliedly authorizes courts to determine that an arbitrability question is “wholly groundless” and obviates the need to submit the arbitrability question to arbitration. Schein, 139 S. Ct. at 530. But the Supreme Court said “[t]he dispositive answer to [the “wholly groundless exception” proponent’s] §10 argument is that Congress designed the Act in a specific way, and it is not our proper role to redesign the statute.”  Schein, 139 S. Ct. at 530.

The Schein Court further explained that acceptance of the “wholly groundless exception” proponent’s “argument would mean. . . that courts presumably also should decide frivolous merits questions that have been delegated to an arbitrator.” But, said the Supreme Court, “[we] have already rejected that argument: When the parties’ contract assigns a matter to arbitration, a court may not resolve the merits of the dispute even if the court thinks that a party’s claim on the merits is frivolous. So, too, with arbitrability.” 139 S. Ct. at 530 (citation omitted).

Under Schein the proper course for the Second and Fifth Circuits was to determine whether the parties clearly and unmistakably delegated arbitrability issues to the arbitrators without determining or analyzing the merits of those underlying arbitrability issues. If the answer was “yes,” then the Courts should have directed the arbitrators to decide those arbitrability questions.

If the arbitrators, after having decided those underlying arbitration issues, decided that the issues were arbitrable, then the arbitration opponents could challenge them as being in manifest disregard of the contract (and, in the Second Circuit, perhaps also in manifest disregard of the law).

But rather than let the arbitration and post-award review process run its course, the Second and Fifth Circuit took it upon themselves to decide arbitrability issues that the parties clearly and unmistakably agreed to submit to arbitration. Met Life and 20/20 Comm. cannot be meaningfully squared with Schein.

What Might have Motivated Met Life and 20/20 Comm. Courts to Rule the way they did?

While we respectfully believe that Met Life and 20/20 Comm. are inconsistent with Schein, it would be unfair not to acknowledge that the very able and experienced judges who decided those cases were faced with unusual circumstances that would presumably be of concern to many or most other fair-minded jurists. In Met Life a FINRA arbitration claim was made against an entity that had never been a member of FINRA, and had not been a member of the NASD, FINRA’s predecessor, for several years. The claim itself arose out of conduct that took place after the entity had left the NASD.

The Second Circuit concluded the dispute was not arbitrable because FINRA had no regulatory interest in the dispute, but apparently there were no FINRA rules, or terms in the parties’ agreement, which addressed directly the unusual arbitrability question the case presented. And prior Second Circuit precedent suggested that, under the Clear and Unmistakable Rule, the breadth of the parties’ arbitration agreement, together with a provision of the applicable arbitration rules, constituted clear and unmistakable evidence of an intent to arbitrate arbitrability.

The Second Circuit might have been legitimately concerned about whether a FINRA arbitrator would necessarily reach the same conclusion as the Court did, and if so, whether the award could be vacated if the arbitrator got it wrong. That would mean that the arbitration opponent might have been forced to arbitrate not only the underlying arbitrability issue, but also the entire dispute on the merits, before there was any opportunity for FAA Section 10 review.

If the award was ultimately vacated, the parties would be forced to incur a great deal of time and expense vindicating their rights. But if the award was not, and could not be, vacated, and the arbitration opponent lost on the merits, then the arbitration opponent would effectively have been forced to arbitrate a dispute that the Second Circuit strongly believed the parties never agreed to arbitrate.

“Hard cases,” the adage goes, “make bad law.”

The Fifth Circuit might have had similar reservations about the case before it, although the stakes were probably not as high as they were in Met Life. The contract’s incorporation of AAA employment arbitration rules, which brought into play the AAA Supplementary Rules for Class Arbitration, meant that the arbitrator would have been empowered to make a “Clause Construction Award,” which the parties are deemed to agree is a final award subject to judicial review under Section 10.

There was no reason to think that the briefing, argument, and decision of the Clause Construction issue, and the rendering of the Clause Construction Award, would take a great deal of time, given how narrow the issue was, and given the clear class arbitration waiver. And FAA Section 10 review would have been available once the Clause Construction Award was made.

Thus, had the Fifth Circuit compelled arbitration of the class arbitration consent issue, and had the arbitrator made a ruling in favor of class arbitration consent by ignoring the class arbitration waiver (or at least by not even arguably interpreting it), FAA Section 10 review would be available in relative short order, and certainly long before the parties were forced to engage in a class arbitration that could drag on for several years before Section 10 review could take place.

But the Fifth Circuit might nevertheless have been very concerned that a class arbitration opponent who had taken the time to include a broad class arbitration waiver in its contract, the enforceability of which is not really open to legitimate question in light of the many U.S. Supreme Court decisions that have closed state- and federal-law enforcement loopholes, should be forced to engage in the several months of arbitration and litigation necessary to vindicate its legitimate, bargained-for right to arbitrate on a bilateral basis only. Even apart from the extra costs imposed on the class arbitration opponent, compelling arbitration would have virtually guaranteed that within a relatively short period, the district court and, possibly also the Fifth Circuit, would again have to devote substantial time and effort into matters that were the subject of the consolidated appeal in 20/20 Comm.

Those concerns about economic inefficiency and judicial economy are unquestionably legitimate. But Schein, as we’ve seen, has already said that the courts do not, in the name of public policy or judicial economy, have the power to amend or alter the post-award-review-only procedures mandated by the FAA.

And the class arbitration opponent, a sophisticated business entity, could have drafted its contract more precisely, providing that notwithstanding anything to the contrary, disputes about class arbitration consent, including the application and interpretation of the class arbitration waiver, must be decided by courts, not arbitrators. In fact, other class arbitration opponents would be well advised to consider carefully whether they might find themselves in a situation where they are forced to arbitrate and litigate in the district court (and perhaps in an appellate court) for several months or more court, and if so, to take appropriate steps to mitigate this risk by more precisely drafting their contracts’ class arbitration waivers.

***

 

Philip J. Loree Jr. is a co-founder and partner at law firm, Loree and Loree. This post was originally published on the firm’s blog, Loree Reinsurance and Arbitration Forum, and has been republished with permission here.

New Clear and Unmistakable Outcome Exception to the Old Clear and Unmistakable Rule? (Part I)

loreejrIIBy Philip J. Loree Jr.

Arbitration law is replete with presumptions and other rules that favor one outcome or another depending on whether one thing or another is or is not clear and unmistakable. Put differently, outcomes often turn on the presence or absence of contractual ambiguity.

There are three presumptions that relate specifically to questions arbitrability, that is, whether or not an arbitrator or a court gets to decide a particular issue or dispute:

  1. The Moses Cone Presumption of Arbitrability: Ambiguities in the scope of the arbitration agreement itself must be resolved in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Rebutting this presumption requires clear and unmistakable evidence of an intent to exclude from arbitration disputes that are otherwise arguably within the scope of the agreement.
  2. The First Options Reverse Presumption of Arbitrability:  Parties are presumed not to have agreed to arbitrate questions of arbitrability unless the parties clearly and unmistakably agree to submit arbitrability questions to arbitration. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-46 (1995)
  3. The Howsam/John Wiley Presumption of Arbitrability of Procedural Matters: “‘[P]rocedural’ questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964)) (internal quotation marks omitted). To rebut this presumption, the parties must clearly and unmistakably exclude the procedural issue in question from arbitration.

These presumptions usually turn solely on what the contract has to say about the arbitrability of a dispute, not on what the outcome an arbitrator or court would—or at least should—reach on the merits of the dispute.

Some U.S. Circuit Courts of Appeal, including the Fifth Circuit, recognized an exception to the First Options Reverse Presumption of Arbitrability called the “wholly groundless exception.” Under that “wholly groundless exception,” courts could decide “wholly groundless” challenges to arbitrability even though the parties have clearly and unmistakably delegated arbitrability issues to the arbitrators. The apparent point of that exception was to avoid the additional time and expense associated with parties being required to arbitrate even wholly groundless arbitrability disputes, but the cost of the exception was a judicial override of the clear and unmistakable terms of the parties’ agreement to arbitrate.

Earlier this year the U.S. Supreme Court in Schein v. Archer & White Sales, Inc., 586 U.S. ___, slip op. at *1 (January 8, 2019) abrogated the “wholly groundless” exception. Schein, slip op. at *2, 5, & 8. “When,” explained the Court, “the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.” Schein, slip op. at 2, 8. The “wholly groundless” exception, said the Court, “is inconsistent with the statutory text and with precedent[,]” and “confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.” Schein,slip op. at 8.

But since Schein both the Second and Fifth Circuits have decided First Options Reverse Presumption of Arbitrability cases by effectively conflating the question of who gets to decide an arbitrability issue with the separate question of who should prevail on the merits of that arbitrability issue. The Courts in both cases determined whether the parties clearly and unmistakably agreed to arbitrate arbitrability questions by considering, as part of the clear and unmistakable calculus, the merits of the arbitrability question.

These two cases suggest a trend toward what might (tongue-in-cheek) be called a “Clear and Unmistakable Outcome Exception” to the First OptionsReverse Presumption of Arbitrability. But the problem with that trend is that it runs directly counter to the Supreme Court’s decision in Schein, and thus contravenes the Federal Arbitration Act as interpreted by Schein.

In Part I of this post we discuss the Second Circuit and Fifth Circuit decisions. In Part II we analyze and discuss how— and perhaps why — those courts effectively made an end run around Schein.

Clear and Unmistakable Rule: The Second Circuit’s Met Life Decision

We first wrote about the Second Circuit decision, Metropolitan Life Ins. Co. v. Bucsek, ___ F.3d ___, No. 17-881, slip op. (2d Cir. Mar. 22, 2019), in an April 3, 2019 post. In Met Life the Second Circuit was faced with an unusual situation where party A sought to arbitrate against party B, a former member of the Financial Industry Regulatory Authority (“FINRA”)’s predecessor, the National Association of Securities Dealers (“NASD”), a dispute arising out of events that occurred years after party B severed its ties with the NASD.

The district court rejected A’s arguments, ruling that: (a) this particular arbitrability question was for the Court to decide; and (b) the dispute was not arbitrable because it arose years after B left the NASD, and was based on events that occurred subsequent to B’s departure. The Second Circuit affirmed the district court’s judgment.

After the district court decision, but prior to the Second Circuit’s decision, the U.S. Supreme Court decided Schein, which—as we explained earlier—held that even so-called “wholly-groundless” arbitrability questions must be submitted to arbitration if the parties clearly and unmistakably delegate arbitrability questions to arbitration. Schein, slip op. at *2, 5, & 8.

The Second Circuit was faced a situation where a party sought to arbitrate a dispute which clearly was not arbitrable, but in circumstances under which prior precedent suggested that the parties clearly and unmistakably agreed to arbitrate arbitrability.

To give effect to the parties’ probable intent not to arbitrate before the NASD (or its successor, FINRA) arbitrability questions that arose after B left the NASD, the Second Circuit apparently believed it had no choice but to distinguish and qualify its prior precedent, and to attempt to do so without falling afoul of the Supreme Court’s recent pronouncement in Schein.

That required the Second Circuit to modify, to at least some extent, the contractual interpretation analysis in which courts within the Second Circuit are supposed to engage to ascertain whether parties “clearly and unmistakably” agreed to arbitrate arbitrability in circumstance where they have not specifically agreed to arbitrate such issues.

Met Life modified that analysis to mean that in cases where parties have not expressly agreed to arbitrate arbitrability questions, but have agreed to a very broad arbitration agreement, the question whether the parties’ have nevertheless clearly and unmistakably agreed to arbitrate arbitrability questions may turn, at least in part, on an analysis of the merits of the arbitrability question presented.

Effectively articulating a new interpretative rule necessitated by the unusual case before it, the Court said “what the arbitration agreement says about whether a category of dispute is arbitrable can have an important bearing on whether it was the intention of the agreement to confer authority over arbitrability on the arbitrators.” Slip op. at 13-14.

To that end, said the Court, “broad language expressing an intention to arbitrate all aspects of all disputes supports the inference of an intention to arbitrate arbitrability, and the clearer it is from the agreement that the parties intended to arbitrate the particular dispute presented, the more logical and likely the inference that they intended to arbitrate” arbitrability questions.  Slip op. at 12-13 (citations and quotations omitted).

The contrapositive, the court explained, was also true (at least conditionally): “the clearer it is that the terms of an arbitration agreement reject arbitration of the dispute, the less likely it is that the parties intended to be bound to arbitrate the question of arbitrability, unless they included clear language so providing . . . .” Slip op. at 13. But, added the Court, “vague provisions as to whether the dispute is arbitrable are unlikely to provide the needed clear and unmistakable inference of intent to arbitrate arbitrability.” Slip op. at 13.

What the Court appears to be saying is that where the parties have not expressly, clearly and unmistakably expressed their intent to arbitrate arbitrability questions, the strength of the inference of clear and unmistakable intent to arbitrate arbitrability is inversely proportional to how clear it is that the terms of the agreement reject arbitration of the dispute.

In other words, if the terms of the agreement strongly suggest that a court, rather than an arbitrator, should resolve the dispute on its merits, then the strength of the inference of clear and unmistakable intent to arbitrate the arbitrability of the dispute will be weaker. But, all else equal, if the terms of the agreement suggest that an arbitrator rather than a court should resolve the dispute on its merits, then the inference of clear and unmistakable intent to arbitrate arbitrability of the dispute will be stronger.

The Fifth Circuit’s 20/20 Comm. Decision

A few months after Met Life was decided, on July 22, 2019, the United States Court of Appeals for the Fifth Circuit decided 20/20 Comms. Inc. v. Lennox Crawford, ___ F.3d ___, No. 18-10260 (5th Cir. July 22, 2019). Although 20/20 Comms did not cite Met Life, it engaged in what might be roughly described as a simplified version of the Second Circuit’s reasoning in that case.

Hew Zhan Tze, an International Institute for Conflict Resolution and Prevention (“CPR”) summer intern has published— under the very able tutelage of our friend Russ Bleemer, a New York attorney who is the editor of CPR’s Alternatives, an international ADR newsletter published by John Wiley & Sons, Inc.—a well-written and insightful article about 20/20 Comm.in the CPR Speaks blog. (A shout-out also to CPR’s Tania Zamorsky, who is the blog master of CPR Speaks.)

Mr. Zhan Tze’s excellent article discusses the case and quotes some commentary I provided by email to Russ about the case, as both Russ and I were quite intrigued by the decision. You can read that article in the CPR Speaks Blog here.

Zhan Tze’s article thoroughly discusses the background of the case, its reasoning, and holding. (See here.) The case involved consent to class arbitration.

There were two questions before the Court: (a) whether class arbitration consent was a question of arbitrability for the Court; and (b) if so, whether the parties, under the First Options Reverse Presumption of Arbitrability, had clearly and unmistakably agreed to submit class arbitration consent questions to the arbitrator.

As to the first issue, the Court determined that consent to class arbitration was a question of arbitrability, thereby joining the Fourth, Sixth, Seventh, Eighth, Ninth, and Eleventh circuits, which have likewise concluded that class arbitration consent presents a question of arbitrability. See Del Webb Cmtys., Inc. v. Carlson, 817 F.3d 867, 877 (4th Cir. 2016); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013); Herrington v. Waterstone Mortg. Corp., 907 F.3d 502, 506-07 (7th Cir. 2018); Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966, 972 (8th Cir. 2017); Eshagh v. Terminix Int’l Co., L.P., 588 F. App’x 703, 704 (9th Cir. 2014) (unpublished); JPay, Inc. v. Kobel, 904 F.3d 923, 935-36 (11th Cir. 2018).

As respects the second issue—whether the parties clearly and unmistakably agreed to arbitrate class-arbitration consent issues— the Court held that the parties did not clearly and unmistakably so agree.

The parties’ contract contained three provisions pertinent to arbitrability questions:

1.      “If Employer and Employee disagree over issues concerning the formation or meaning of this Agreement, the arbitrator will hear and resolve these arbitrability issues.”

2.      “The arbitrator selected by the parties will administer the arbitration according to the National Rules for the Resolution of Employment Disputes (or successor rules) of the American Arbitration Association (‘AAA’) except where such rules are inconsistent with this Agreement, in which case the terms of this Agreement will govern.” (emphasis added)

3.      “Except as provided below, Employee and Employer, on behalf of their affiliates, successors, heirs, and assigns, both agree that all disputes and claims between them . . . shall be determined exclusively by final and binding arbitration.” (emphasis added)

But the parties’ contract also contained a broad class arbitration waiver, which provided:

[T]he parties agree that this Agreement prohibits the arbitrator from consolidating the claims of others into one proceeding, to the maximum extent permitted by law. This means that an arbitrator will hear only individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group of employees in one proceeding, to the maximum extent permitted by law.

(Emphasis added.)

The Court said that the first three provisions, “[d]ivorced from other provisions of the arbitration (most notably, the class arbitration bar). . . could arguably be construed to authorize arbitrators to decide gateway issues of arbitrability, such as class arbitration.” Slip op. at 8. As respects the second of the three, the incorporation by reference of the National Rules for the Resolution of Employment Disputes (or successor rules) of the AAA, the Court noted that “Rule 3 of the AAA Supplementary Rules for Class Arbitration provides that the arbitrator is empowered to determine class arbitrability.” Slip op. at 8. And, according to the Court, “the third provision states in broad terms that ‘all disputes and claims between them’ shall be determined by the arbitrator, language arguably capacious enough under this court’s previous rulings to include disputes over class arbitrability.” Slip op. at 8.

But the Court did not decide whether those “provisions, standing alone, clearly and unmistakably” required arbitration of the class arbitration consent issue, because the Court held that the class arbitration waiver foreclosed such a finding. Slip op. at 8, 6-7.

The court said “that this class arbitration bar operates not only to bar class arbitrations to the maximum extent permitted by law, but also to foreclose any suggestion that the parties meant to disrupt the presumption that questions of class arbitration are decided by courts rather than arbitrators.” Slip op. at 6-7. “[I]t is[,]” observed the Court, “difficult for us to imagine why parties would categorically prohibit class arbitrations to the maximum extent permitted by law, only to then take the time and effort to vest the arbitrator with the authority to decide whether class arbitrations shall be available.” Slip op. at 7.  “Having closed the door to class arbitrations to the fullest extent possible,” queried the Court rhetorically, “why would the parties then re-open the door to the possibility of class arbitrations, by announcing specific procedures to govern how such determinations shall be made?” Slip op. at 7.

Comparing the first three provisions “with the class arbitration bar at issue in this case, we conclude that none of them state with the requisite clear and unmistakable language that arbitrators, rather than courts, shall decide questions of class arbitrability.” Slip op. at 8.

Two of the provisions, said the Court, “include express exception clauses. . . , which “expressly negate any effect these provisions might have in the event they conflict with any other provision of the arbitration agreement—as they plainly do here in light of the class arbitration bar.” Slip op. at 9.

Even apart from “the exception clauses,” none of the three provisions “speak with any specificity to the particular matter of class arbitration.” Slip op. at 9. “[B]]y contrast[,]” said the Court, [t]he class arbitration bar. . . specifically prohibits arbitrators from arbitrating disputes as a class action, and permits the arbitration of individual claims only.” Slip op. at 9 (citations and quotations omitted).

Those three provisions “[a]ccordingly[]. . . do not clearly and unmistakably overcome the legal presumption—reinforced as it is here by the class arbitration bar—that courts, not arbitrators, must decide the issue of class arbitration.” Slip op. at 9.

In our next post we’ll analyze and discuss how Met Life and 20/20 Comm. effectively make an end run around Schein and what might have motivated those courts to rule as they did.

***

 

Philip J. Loree Jr. is a co-founder and partner at law firm, Loree and Loree. This post was originally published on the firm’s blog, Loree Reinsurance and Arbitration Forum, and has been republished with permission here.

Ready to Sign: The Singapore Convention, An International Mediation Treaty, Opens for Ratification

By Hew Zhan Tze

After years of negotiations, the Singapore Convention on Mediation last week reached the signature phase.

That means that countries around the globe can sign on, and ratify, a treaty designed to boost the use and support for mediation in cross-border transactions.

The convention is officially known as the United Nations Convention on International Settlement Agreements Resulting from Mediation, and is available at https://bit.ly/2YWbHKN.

On Aug. 7, more than 1,500 international delegates from 70 countries attended a Singapore signing ceremony.

A total of 46 countries–including the United States and China–signed the convention on the first day. (The full list is available from the United Nations at http://bit.ly/2ZPFGFl.)

The convention is a product of the efforts of the United Nations Commission on International Trade Law Working Group II to alleviate the difficulties of enforcing a cross-border settlement agreement reached from mediation. It can only come into effect after six months, and after three signatory countries ratify the treaty. See Article 14(1) of the Singapore Convention at the first link above.

Ratification is a signatory country’s domestic procedure where treaty approval is sought, and necessary legislation is enacted to give effect to the convention.

Generally, in the United States, a treaty can only be ratified by the president after receiving the advice and consent of the U.S. Senate. The Senate must pass a ratification resolution, requiring a two-thirds approval.  See U. S. Const. Art. II, § 2 (available at https://bit.ly/2zBgoge).

The Singapore Convention’s goals have been likened to a mediation version of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention. (Available at http://bit.ly/2KHaa5W.)

The large number of initial signatories to the Singapore Convention appears to show a positive reception toward easing enforcement of a settlement agreement obtained from other similarly bound jurisdictions. This is in comparison to the 10 signatures received at the launch of the New York Convention six decades ago. The increase in numbers likely reflects an increased recognition of the effectiveness of ADR methods.

* * *

More analysis on the Singapore Convention on Mediation will appear in the September Alternatives to the High Cost of Litigation, available soon at altnewsletter.com.

The author was a CPR Institute Summer 2019 intern.

 

Gov Cuomo Signs New Legislation Barring Use of Mandatory Arbitration to Resolve Workplace Discrimination and Harassment in New York State

By Anna Hershenberg

As expected, on Monday, August 12, 2019, Governor Cuomo signed new legislation that, among other things, purports to bar the use of mandatory arbitration to resolve discrimination and harassment cases in the workplace in New York state.

The prior version of this law, New York CPLR § 7515, which went into effect last year, aimed to prohibit mandatory arbitration of workplace sexual harassment claims only; this version expands the prohibition to claims of other types of discrimination.

In June, Judge Denise Cote (SDNY) found the prior version of  § 7515 to be preempted by the Federal Arbitration Act and therefore invalid. (Latif v. Morgan Stanley & Co. LLC et al. (S.D.N.Y. 2019) (available at http://bit.ly/2y9w6AL)) Her ruling should apply with equal force to the amended version of § 7515, at least with respect to interstate matters.

CPR covered this issue earlier this month on CPRSpeaks:

https://blog.cpradr.org/2019/08/01/update-legislatures-on-invalidating-pre-dispute-arbitration-agreements/

The full text of the newly enacted § 7515 is pasted below (revisions in blue).

Section 7515: Mandatory arbitration clauses; prohibited

(a) Definitions. As used in this section:

1. The term “employer” shall have the same meaning as provided in subdivision five of section two hundred ninety-two of the executive law.

2. The term “prohibited clause” shall mean any clause or provision in any contract which requires as a condition of the enforcement of the contract or obtaining remedies under the contract that the parties submit to mandatory arbitration to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment. discrimination, in violation of laws prohibiting discrimination, including but not limited to, article fifteen of the executive law.

3. The term “mandatory arbitration clause” shall mean a term or provision contained in a written contract which requires the parties to such contract to submit any matter thereafter arising under such contract to arbitration prior to the commencement of any legal action to enforce the provisions of such contract and which also further provides language to the effect that the facts found or determination made by the arbitrator or panel of arbitrators in its application to a party alleging an unlawful discriminatory practice based on sexual harassment in violation of laws prohibiting discrimination, including but not limited to, article fifteen of the executive law shall be final and not subject to independent court review.

4. The term “arbitration” shall mean the use of a decision making forum conducted by an arbitrator or panel of arbitrators within the meaning and subject to the provisions of article seventy-five of the civil practice law and rules.

(b) (i) Prohibition. Except where inconsistent with federal law, no written contract, entered into on or after the effective date of this section shall contain a prohibited clause as defined in paragraph two of subdivision (a) of this section.

(ii) Exceptions. Nothing contained in this section shall be construed to impair or prohibit an employer from incorporating a non-prohibited clause or other mandatory arbitration provision within such contract, that the parties agree upon.

(iii) Mandatory arbitration clause null and void. Except where inconsistent with federal law, the provisions of such prohibited clause as defined in paragraph two of subdivision (a) of this section shall be null and void. The inclusion of such clause in a written contract shall not serve to impair the enforceability of any other provision of such contract.

(c) Where there is a conflict between any collective bargaining agreement and this section, such agreement shall be controlling.

Anna Hershenberg is CPR’s Vice President of Programs and Public Policy