Update Regarding COVID-19 & CPR Mediation Services

The COVID-19 health crisis is causing unprecedented disruptions and damages to the World’s economy and business relationships. A great variety of commercial disputes are surfacing as parties find it impracticable or impossible to perform their contractual obligations. In all likelihood, this crisis will result in a surge of litigation and will also considerably slow down the resolution of pending court cases. In fact, many courts around the world have stopped holding jury trials which will create a considerable backlog for many pending cases. These unprecedented delays should encourage parties to consider alternative dispute resolution.

Last week, we shared with you the launch of a new Dispute Prevention panel, comprised of neutrals who have the experience to facilitate the resolution of a dispute before it becomes a legal conflict. At the same time, we also want to remind you that CPR Dispute Resolution and its Mediation Services are also available to assist businesses in these difficult times. As you know, mediation is a flexible, nonbinding dispute resolution process that uses a neutral third party- the mediator – to facilitate negotiation between the parties and help them find a mutually satisfactory solution to the dispute. The mediator has no authority to impose an outcome on the parties and controls only the process of the mediation itself, not its result. The process is typically faster and more cost-effective than binding dispute resolution processes, such as litigation or arbitration.

CPR’s Mediation Procedures have been drafted by dispute resolution experts and have been used to resolve hundreds of cases over the past three decades. They offer flexibility while providing ground rules for the conduct of the mediation. For example, they provide rules to select the mediator, exchange information between the parties or to preserve confidentiality. All our mediation procedures are available here.

CPR’s Panel of Distinguished Neutrals comprises those among the most respected and elite mediators in the US and around the world. It includes prominent attorneys, retired state and federal judges, academics, as well as highly-skilled business executives, legal experts and dispute resolution professionals who are particularly qualified to resolve all business disputes including those involving multi-national corporations or issues of public sensitivity. Focusing in more than 30 practice areas, CPR’s esteemed mediators have provided resolutions in thousands of cases, with billions of dollars at issue worldwide. Click here for more information about CPR’s Panel of Distinguished Neutrals.

FAQs

How do I commence a mediation with a counterparty with which I have a dispute?  You will need to execute the following mediation agreement with your counterparty:

“We hereby agree to submit to confidential mediation under the CPR Mediation Procedure the following controversy: [Describe briefly]”

What if it is an international dispute? You will need to execute the following mediation agreement with your counterparty:

“The parties hereby agree to submit to mediation under the CPR International Mediation Procedure the following controversy: [Describe briefly]”

What if it is an employment dispute? You will need to execute the model submission agreement in Appendix 1 of CPR Employment Mediation Procedure

What is the cost? 

  • You do not need to pay any filing or administrative fees to use CPR Mediation Procedures. However, if the parties cannot agree on a mediator – or if they would like to benefit from CPR’s expertise in identifying a qualified mediator for the dispute – you will need to pay US$ 1,500 fee (the fee is split among the parties). Click here for more information on how CPR’s experienced case management team assist the parties in selecting their mediator.
  • In addition, you will need to pay the mediator.  Most mediators charge an hourly rate.

What if my dispute is below US$ 500,000?  You may consider using CPR’s flat fee mediation program.  Under the program, the dispute will be mediated for a flat fee of $3,500, to be split among the parties ($2,500 when a CPR member is involved in the dispute).  This amount will entitle the parties to one day of mediation (up to 10 hours, including preparation). Thereafter, an hourly rate of $350 will apply.  Mediators are directly appointed by CPR, after the parties have agreed upon a date and venue.

How do I request CPR’s assistance for the selection of the mediator? To obtain the appointment of a mediator, send your request via email to CPRNeutrals@cpradr.org with the contact information for all parties, including email addresses.  You will also need to pay a $750 non-refundable deposit. Payments can only be accepted via credit cards or wire transfer. Please specify in your cover email how you would like to pay. Click here for more information.

How to I contact the case management team if I have additional questions? Contact Alveen Shirinyans at ashirinyans@cpradr.org or +1.646.753.8230 or Helena Tavares Erickson at herickson@cpradr.org or +1.646.753.8237

Under Consideration: The Supreme Court May Be Ready to Tackle Arbitrability–Again

By David Chung

A Fifth Circuit case on whether a matter was correctly sent to arbitration was distributed for conference at the U.S. Supreme Court for the fifth time over the past two months on Friday, March 20, so the Court could consider hearing it.

The case didn’t appear on this morning’s order list, but that fact alone may be indicative of a lot more arbitration at the nation’s top court.

Any arbitration case before the Court would gain notice on its own in the ADR world.  But the new petition for certiorari is even more noteworthy because the Court had appeared to have decided the issue just a little more than a year ago in its previous term.  Henry Schein, Inc., et al. v. Archer and White Sales, Inc., 139 S.Ct. 524 (2019) (available at http://bit.ly/2YLDkWQ), the Court held unanimously that parties to a contract have the ultimate say in whether to have an arbitrator or a court resolve disputes on questions of arbitrability.

But Schein’s main holding was that a court couldn’t refuse to enforce arbitration because it believed the claims for arbitration were “wholly groundless,” and the nation’s top court sent the case back on remand to the Fifth U.S. Circuit Court of Appeals.

The remand order was a step before actual arbitration, however.  The Court asked the Fifth Circuit to decide whether the contract’s delegation clause really pointed to an arbitrator deciding arbitrability.

The appeals panel looked at the contract again and said it didn’t, and found the decision was for the courts, again.

And the defense petitioned the Supreme Court to hear Schein, an appeal that was filed at the end of January and has not yet made it to a Court conference.  See Philip J. Loree Jr., “Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court,” (Feb. 19) (available at https://bit.ly/2U8ZumI); see also, Philip J. Loree Jr., “Schein’s Remand Decision Goes Back to the Supreme Court. What’s Next?” 38 Alternatives 54 (April 2020) (available next week at altnewsletter.com and on Lexis & Westlaw; CPR Institute membership access after logging in at www.cpradr.org/news-publications/alternatives).

But while Schein was being relitigated, at the same time and on the same issue about the extent of the reach of the clause that delegates arbitration decision making, The Rams Football Co. LLC v. St. Louis Regional Convention & Sports Complex Auth., No. 19-672, already was in front of the Court for consideration on whether it should be heard.

Closely mirroring Schein, the Rams issue, according to the team’s cert request petition is

Whether the Federal Arbitration Act permits a court to refuse to enforce the terms of an arbitration agreement assigning questions of arbitrability to the arbitrator if those terms would be enforceable under ordinary state-law contract principles in a non-arbitration context.

The case has made it to conference stage, repeatedly, without a denial or a “cert granted” or, indeed, any procedure other than rescheduling. The cert petition is dated Nov. 21, 2019, and the counsel of record is Paul Clement, a Washington, D.C., partner in Kirkland & Ellis who is a frequent participant in Supreme Court cases who, according to the Above the Law blog, argued his 101st case at the Court early this month.  See “Neil Gorsuch’s Frustration With Kirkland & Ellis Partner Paul Clement On Full Display,” Above the Law (March 4) (available at https://bit.ly/39dZS7A).

The Court had denied a stay in the case in October without comment.

Despite a government shutdown, including much of the judicial branch, the Court, after canceling oral arguments indefinitely, has continued its normal business of opinion writing and conferences, out of which come its orders, including cases it agrees to hear, and cases it denies. The Court’s Friday conference resulted in an order list earlier today, but Rams was not mentioned and should be back for consideration in the next conference, scheduled for Friday, March 27, with the latest version of Schein waiting to be listed.

The case is about a dispute between the NFL’s Rams, and three Missouri government entities, the St. Louis Regional Convention and Sports Complex Authority, the City of St. Louis, and the County of St. Louis.

The dispute is over an agreement on the Rams’ use of the former Edward Jones Dome stadium in St. Louis.  The team departed for Anaheim, Calif., after the 2015 season amidst a storm of controversy over owner E. Stanley Kroenke’s remarks about St. Louis’s viability as an NFL-hosting city. The Rams sought arbitration over whether it should pay damages in the wake of the team’s move to become the Los Angeles Rams for the second time in the team’s existence.

The agreement included an arbitration clause that incorporated terms by reference, stating that all disputes would be conducted “in accordance with the most applicable then existing rules of the American Arbitration Association.”  Those rules send the question of who decides whether a case should be arbitrated to an arbitrator, not a court.

The petitioner, the Rams, asserts that the key Missouri appellate court decision in a series of cases that include rulings by the state supreme court, should have simply “‘respect[ed] the parties’ decision as embodied in the contract’ by recognizing that it has ‘no power to decide the arbitrability issue.’” Petition for Writ of Certiorari citing Henry Schein, 139 S. Ct. at 528 (brief available at https://bit.ly/2U85jAG).

The Rams’ petition claims the “clear and unmistakable” test of whether the parties intended for an arbitrator, rather than a court, to decide whether an arbitration agreement should be arbitrated was too strict.  It contends the standard applied by the appellate court violated “an application of equal-footing principles,” which the Supreme Court requires under the Federal Arbitration Act—that is, that arbitration contracts are treated the same as other contracts.

While the Rams contend the parties clearly and unmistakably agreed to arbitrate under the then-existing AAA rule, the petition argues that the incorporation of the rule sending the arbitrability question to the arbitrator should have been recognized by state court to keep the arbitration contract on an equal footing with other contract principles.

The state respondents strongly dispute that the Missouri appellate court ignored the Court’s equal-footing principle.  It also asserted the parties could have never unequivocally agreed to arbitrate the issue because the AAA rule did not have the arbitrability provision when they signed the contract.

While conceding the applicable version of AAA rule confers power to the arbitrators to decide arbitrability, the respondents claim the incorporation principle is irrelevant to the case.  Instead, they argue that “[p]ursuant to fundamental Missouri contract law, the parties must agree to all essential terms of an agreement at the time of contracting.”  (Respondent’s Brief in Opposition to Petition for Writ of Certiorari (available at https://bit.ly/2U8ZumI).

Thus, “there must be an actual agreement to delegate at the time of contracting.” Id.

Despite the respondents’ denial of a division among federal and state courts on the applicable standard, the Rams’ petition claims that some state courts, including Missouri, are requiring an extraordinary degree of clarity for the “clear and unmistakable” test, which the petition says is contrary to how every federal court addresses the issue.

The petitioner urges that the Court provide guidance regarding the clear and unmistakable test, which it says is critical since the respondents’ position not only defies the FAA’s equal footing principle but also has been the subject of repeated requests for Court clarification, citing four cases the Court declined to hear between 2014 and 2018. The petition also notes that the situation has seen “every federal court resisting special rules disfavoring arbitration and only state courts on the anti-arbitration side of the dispute.”

Scotusblog’s case page, available at https://bit.ly/2QANwjk, contains the Rams’ cert petition, the respondent’s brief in opposition, and the Rams’ reply

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The author is a CPR Institute Spring 2020 intern.  Alternatives’ editor Russ Bleemer assisted with the research.

 

CPR COVID-19 Update

The COVID-19 virus has affected all aspects of our daily lives, and we at CPR continue to monitor developments that affect our staff, members, neutrals and those to whom we provide services. We are assessing the situation daily and monitoring all recommendations from the World Health Organization, U.S. Centers for Disease Control and Prevention, and state and local authorities. We encourage you to do the same.

SAFETY PRECAUTIONS

CPR has communicated with the appropriate parties about best practices and recommended safety guidelines, both with regards to our personal habits and CPR’s physical office space.

We do ask that our staff and any visitors exercise caution and good judgment and not come into our office when they are sick or experiencing symptoms such as runny or stuff nose, fever, cough, shortness of breath, sore throat, body aches, chills or fatigue. If there is any doubt, we advise erring on the side of caution and would be happy to assist via phone or other (e.g., videoconferencing) means.

CPR PROGRAMMING AND EVENTS

While some events scheduled for the near term are, out of an abundance of caution, in the process of being rescheduled, others have already been seamlessly transformed to online proceedings. For some time now, all CPR committee meetings already have offered a virtual component (i.e., with video or audio conferencing) so that programming will not change for the immediate future – and there are some great meetings scheduled, on timely topics.

For example, next week our Mediation Committee will be hosting a panel discussion on comparisons between domestic and international mediation. Our panelists have updated their presentation to include a discussion on how mediators are adapting to the coronavirus outbreak in the United States and abroad. We are also going to hold our Employment Committee’s Post-Epic Systems panel discussion at the end of March via video conference as well. Given that CPR’s membership spans the world, our members are able to participate remotely – and robustly – in committee programming. 

BUSINESS AND DISPUTE RESOLUTION SERVICES CONTINUITY

CPR has planned and prepared for situations such as these. Our New York office remains open and operational. However, should the need arise, our staff is prepared to work securely and remotely.

In the event it becomes necessary for us to temporarily close our physical office, rest assured that CPR Dispute Resolution can and will operate virtually, offering our full suite of dispute prevention and resolution services without interruption.

“ALTERNATIVE ADR” – ONLINE AND OTHER RESOURCES

As more and more companies restrict travel and communities restrict travel and large gatherings, questions have also arisen as to alternatives to face-to-face arbitration hearings or mediations. We urge parties and neutrals to discuss these issues as they arise, and CPR has taken steps to help parties and neutrals address these challenges. Specifically, we have arranged for CPR’s neutrals to have access to a secure online platform for the management of mediations and single arbitrator cases.

We also encourage anyone utilizing video or online venues or processes to review The ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration (2020 Edition).

Please let us know if you have any questions or concerns, or if there is an issue here we have not addressed. We are all part of the same dispute prevention and resolution community, and look forward continuing to support one another as we navigate this situation, together.  Please stay safe and healthy.

Update on CPR’s Employment-Related Mass Claims Protocol

Recently, there have been reports in the news relating to the International Institute for Conflict Prevention and Resolution’s (CPR) Employment-Related Mass Claims Protocol (Protocol).  We thought some background might be useful.

As more and more mass employment arbitration claims are filed around the United States, arbitral institutions have become increasingly aware of the tremendous challenges they face when trying to bring timely – and comprehensive – resolution to these claims.  CPR responded to these challenges by borrowing techniques that had proved successful in the resolution of other mass claims and applied them to the employment space with the goal of facilitating a comprehensive resolution of mass employment claims for all parties involved. The result was the Protocol.  In developing its Protocol, CPR was aware that, in order to be successful, it was imperative that the features of the Protocol be balanced and designed to facilitate global resolution.

As noted by former Southern District of New York district court judge, Shira Scheindlin, a veteran of mass claims matters, in connection with her appointment as the Administrative Arbitrator under the Protocol:

This protocol offers advantages, not only to claimants, whose cases will likely be resolved at the defendant’s cost and far more quickly than they would be in court, where mass claims often take years to resolve, but also to defendants, with the greater odds it offers of reaching a prompt global resolution in a more cost-effective manner than the courts would offer.  And, most unusually, the defendant-employer will release an individual from mandatory arbitration if no global resolution is reached and the individual employee prefers a court proceeding to arbitration.

The terms of the Protocol itself speak to its innovative approach to facilitating resolution in the most efficient way possible.  The initial phase of the Protocol provides for “test” arbitrations (10-20) to first proceed on an accelerated track followed by a mediation process that encourages resolution of all claims.  If that process is unsuccessful in identifying a mediated solution, the Protocol allows claimants to opt-out of the entire arbitration process.  Not only does this opt-out allow for employees to pursue their individual claims in court, but it also allows for the possibility that these claimants might, with court approval, be able to proceed collectively in a class action.

The objective of the initial phase of the Protocol is to resolve all the cases as a whole as quickly as possible.  During this initial phase, the non-test cases are paused with all rights preserved in order to give the parties a chance to explore a global resolution. CPR believes that this procedure will actually encourage faster overall resolution of mass claims – especially when compared to the substantial delay that employees inevitably face while waiting for appointment of an arbitrator for, and the proceedings on, their claim when their claim is one of hundreds or thousands of mass arbitrations filed at the same time. If a mediated solution is reached, employees have the option of accepting that resolution or proceeding with individual arbitrations.  In the case of individual arbitrations, each employee – and the employee alone – nominates the arbitrator from a Master List of arbitrators provided by CPR, and the employer pays all fees – including for the arbitrators, the mediator, and the administrator.

The Protocol gained attention in the press recently after DoorDash adopted the Protocol in agreements with its workers and a dispute arose as to where DoorDash should arbitrate its workers’ claims that had previously been filed before the AAA.  In the context of that dispute in the case of Abernathy v. DoorDash, No.19-CV-07545 (N.D. Cal.), it has been suggested that CPR’s work on the Protocol may have been guided unfairly by counsel for Respondent DoorDash.  CPR disagrees with this characterization.

As made plain by the discovery already undertaken of CPR in the Abernathy case, including a deposition of CPR’s President & CEO, it was CPR, not counsel for the employer, who conceived of, wrote and controlled the Protocol.  This is underscored by the inclusion in the Protocol of the provision allowing claimants to opt out of the arbitration process and proceed in court – a provision disfavored by counsel for DoorDash. An examination of the Protocol itself shows that its provisions favor neither side; rather, the Protocol was intended to – and does – provide for an innovative and balanced solution for resolving mass employment claims for all parties involved.

With respect to interactions between CPR and counsel for DoorDash, the deposition testimony also discusses, as CPR previously explained in a letter to the Court dated December 12, 2019 (publicly available at Docket Entry 137), that counsel for the employer reached out to CPR last year to express concern over options for administration of a mass of claims and the fee structures being imposed and asked whether CPR could offer an alternative fee schedule for administering future arbitrations.  Rather than just focusing on alternative fees, CPR took the opportunity to try and develop an innovative and fair process for resolving these claims for all parties involved.  As a result, CPR developed the Protocol based on its own experiences in other mass claims areas.  CPR then sought and considered input on the Protocol from a variety of sources, including counsel for DoorDash — who was contemplating applying the Protocol in future contracts with its workers. CPR sought input from labor and employment counsel with experience representing both management and employees on an individual and class basis, and attorneys with mass claims and complex commercial litigation and arbitration experience, some of whom are also prominent arbitrators and mediators, including one of the foremost experts in facilitating the resolution of mass claims. CPR also received input from particular members of its Board of Directors, who have served as advisors to ALI’s Restatement of Employment Law and who have chaired the New York Chief Judge’s Advisory Committee on Alternative Methods of Dispute Resolution.

CPR developed the Protocol for the broader marketplace, not for any particular matter or party, and did so in the hopes that it would facilitate resolution and help solve for many of the challenges facing employees and employers dealing with mass individual employment arbitrations. We invite you to review the features of the Protocol for yourself.  CPR believes its Protocol will allow for the efficient, fair and balanced administration of employment-related mass claims for both employees and employers.

About CPR

CPR is an independent nonprofit organization formed in 1977 to, among other things, identify alternatives to litigation and ways to prevent and resolve legal conflicts more effectively and efficiently.

The CPR Institute is a think tank that has long brought leadership to the improvement of conflict management, as exemplified by work such as:

  • The Model Rule for the Lawyer as a 3rd Party Neutral and the Provider Principles developed jointly with Georgetown University
  • The Model Procedures for Mediation and Arbitration of Employment Disputes developed by a Committee of lawyers representing employees and employers as well as academics and neutrals
  • CPR’s Master Guide to Mass Claims Facilities compiled by a Commission co-chaired by Kenneth Feinberg and Deborah Greenspan
  • CPR’s book Cutting Edge Advances in Resolving Workplace Disputes published together with Cornell’s Scheinman Institute

CPR Dispute Resolution is a provider of dispute resolution services and will be administering the Employment Related Mass Claims Protocol to applicable arbitrations, along with its Panel of Distinguished Neutrals, who will be relied upon to mediate and arbitrate these claims.

Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court

By Philip J. Loree Jr.

A party fighting to arbitrate under its contract has sought U.S. Supreme Court review of a Fifth U.S. Circuit Court of Appeals case holding that an injunctive action carve-out clause effectively negates the parties’ arbitration contract delegating the decision whether the case should be arbitrated to an arbitrator, not the courts.

If the Court agrees to accept the case, which is the subject of the Jan. 30 petition, it would be the second time in about two years that the nation’s top Court has heard the case.

The decision challenged in the cert petition, Archer and White Sales Inc. v. Henry Schein Inc., et al., No. 16‐41674 (5th Cir. Aug. 14, 2019) (available at http://bit.ly/33Cb78g) (“Schein II”), was a remand of the U.S. Supreme Court’s opinion of a year ago, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (Jan. 8, 2019) (available at https://bit.ly/2CXAgPw) (Schein I).

There were several important 2019 cases concerning the application and effect of what are commonly referred to as “Delegation Clauses,” “Delegation Provisions,” or “Delegation Agreements.” These clear and unmistakable undertakings by parties to submit arbitrability issues to arbitration usually are expressly set forth in an arbitration agreement. Other times they are contained in arbitration rules that the parties incorporate by reference into their agreement.

Much of the controversy in the Delegation Agreement cases centers on whether the terms of the arbitration agreement should define or circumscribe the scope of a Delegation Agreement–or even effectively negate it.

These cases have conflated the question of who gets to decide whether an issue is arbitrable with the separate question of what the outcome of the arbitrability dispute should be, irrespective of who decides it.

The most important of the recent cases is Henry Schein Inc. v. Archer & White Sales, Inc., which for discussion purposes is conveniently bifurcated into its two most prominent components, Schein I and Schein II.

Schein I

In Schein I, the Supreme Court, in a 9-0 decision, held that where parties have clearly and unmistakably agreed to arbitrate arbitrability disputes, courts must compel the process even if the argument in favor of arbitrability is “wholly groundless.” Schein I, 139 S.Ct. at 528-531.

The Schein I Court vacated an order and judgment of the Fifth Circuit, which held that, even assuming the parties entered into a Delegation Agreement, the arbitration proponent was not required to submit to arbitration the question whether a dispute concerning injunctive relief was arbitrable because that arbitrability dispute was, according to the Fifth Circuit, wholly groundless.

The Schein I Court remanded to the Fifth Circuit the question whether the parties entered into a Delegation Agreement, an issue that the Fifth Circuit had left open, but which had to be addressed in light of the U.S. Supreme Court’s decision abrogating the so-called “wholly groundless exception.”

And that remand case is Schein II.

Schein II

In Schein II, the Fifth Circuit set out to determine whether the parties had clearly and unmistakably agreed to submit arbitrability disputes to arbitration. The essential facts pertinent to this question can be distilled down to these:

  1. Party A’s and Party B’s contract contained an arbitration agreement, which featured a “carve-out” for certain claims, including “actions seeking injunctive relief”: “Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of Party B), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [the “AAA”].”
  2. Party A commenced an action against Party B that sought, among other things, injunctive relief, which A said was outside the scope of the arbitration agreement.
  3. Party B said that A’s arbitrability argument had to be submitted to arbitration because the parties clearly and unmistakably delegated arbitrability questions to the arbitrator by incorporating AAA Commercial Arbitration Rules into their contract, including Rule 7 of those rules.
  4. Rule 7(a) of the AAA Commercial Arbitration Rules provided:

(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.

On remand, the Fifth Circuit observed that under circuit precedent, incorporating arbitrator provider rules that clearly and unmistakably require arbitration of arbitrability constitute clear and unmistakable evidence of an intent to arbitrate arbitrability. The Court therefore recognized that the parties had entered into a Delegation Agreement.

But here, stated the Fifth Circuit, the “placement of the [injunctive action] carve-out . . . is dispositive[,]” and “[w]e cannot rewrite the words of the contract.”

“The most natural reading of the arbitration clause,” said the Court, is “that any dispute, except actions seeking injunctive relief, shall be resolved in arbitration in accordance with the AAA rules.”

The agreement “incorporates the AAA rules” and therefore delegates arbitrability “for all disputes except those under the carve-out.” (Emphasis is the Fifth Circuit’s.) Because of “that carve out,” wrote Fifth Circuit Judge Patrick E. Higginbotham for the unanimous three-judge panel, “we cannot say that the Dealer Agreement evinces a ‘clear and unmistakable’ intent to delegate arbitrability.”

Accordingly, the Fifth Circuit held that the parties did not clearly and unmistakably agree to delegate the arbitrability decision and affirmed the district court’s denial of the arbitration proponents’ motions to compel arbitration.

On Aug. 28, 2019, the arbitration proponent moved for rehearing en banc. On Dec. 6, the Fifth Circuit denied the motion for rehearing.  That’s when the proponent became the petitioner at the U.S. Supreme Court. Henry Schein Inc., a Melville, N.Y.-based dental equipment distributor, on Jan. 24 obtained from the Supreme Court a stay of litigation pending its petition for certiorari, which it filed on Jan. 30.

You can download a copy of the petition  here. A response from Archer & White Sales, a Plano, Texas, distributor, seller, and servicer of dental equipment, is due March 2.

Schein II was Wrongly Decided

This author believes Schein II was wrongly decided. In “Back to SCOTUS’s Schein: A Separability Analysis that Resolves the Problem with the Fifth Circuit Remand,” 37 Alternatives 131(October 2019), this author argued that Schein II can be reasonably interpreted to mean either:

(a) the parties did not clearly and unambiguously agree to arbitrate any arbitrability issues; or

(b) the parties’ agreed to arbitrate only arbitrability disputes about matters that fall within the scope of the arbitration agreement.

The first interpretation would negate the parties’ incorporation of AAA Commercial Rule 7. The second interpretation would mean that the parties clearly and unmistakably agreed to arbitrate only questions that ask whether a matter that is at least arguably within the scope of the arbitration agreement, but clearly outside the scope of the carve-out, is arbitrable.

Because the presumption in favor of arbitrability deems such matters to be arbitrable as a matter of law, the second interpretation would mean that the parties agreed to arbitrate only arbitrability questions that were not only relatively rare, but also legally uncontroversial.

That makes little sense and would mean the parties’ incorporation of AAA Commercial Rule 7 was of little or no practical significance or effect.

The article proposes a solution to the interpretative problem that a Schein II-Type analysis creates, and under which courts interpret arbitration-agreement terms as overriding or defining the scope of Delegation Agreements that are made part of those arbitration agreements.

It argues that courts instead should use the analytical framework of the separability doctrine—first espoused in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), and applied to Delegation Agreements in Rent-a-Center West Inc. v. Jackson, 561 U.S. 63 (2010)—to interpret Delegation Agreements as being independent from the arbitration agreements in which they are contained, and not graft upon those Delegation Agreements scope limitations that are based on the terms of the arbitration agreement containing the Delegation Agreement.

It explains in detail why using a separability-based analytical model has a number of advantages over the Schein II approach in that it gives full effect to the terms of the separate arbitration and Delegation Agreements, gives effect to the separate but related purposes that each of those agreements serves, and otherwise helps ensure that the parties’ legitimate contractual expectations are met.

The author hopes that the Supreme Court will grant certiorari, reverse, and clarify how the lower courts should address cases where parties agree to a broad arbitration agreement, incorporate by reference into that agreement a broad, unqualified, Delegation Agreement, but except from the scope of their arbitration agreement certain types of disputes.

There are many other reasons why the author believes SCOTUS should hear and reverse Schein II, but a thorough discussion of them must await another article or post.

The whole point of Schein I was that the merits of an arbitrability question has no bearing on the question of who gets to decide that question. Schein II does not comport with Schein I and should be reversed.

* * *

Philip J. Loree Jr. is a co-founder and partner at the New York law firm, Loree & Loree. The opinions expressed in this post are his own, and not those of the blog publisher, the CPR Institute.

 

 

 

Progress Report: New York Courts’ ‘Presumptive ADR’ Settles In

By Anne Muenchinger and Russ Bleemer

The New York City Bar Association hosted on Wednesday a panel discussion aimed at assessing the progress in the implementation of a new “Presumptive ADR” initiative in the New York State Court System.

The push for conflict resolution processes ahead of litigation is part of New York State Chief Judge Janet DiFiore’s Excellence Initiative, seeking to reduce litigation costs and empower parties by introducing mediation early in the process and increasing settlement rates. See Savannah Billingham-Hemminger, “Update: ADR Breakfast on New York State’s Presumptive Mediation Implementation,” CPR Speaks (July 16, 2019) (available at http://bit.ly/38GeCfx).

Since last summer, thanks to the concerted efforts of administrative and supervising judges and court staffs, as well as ADR practitioners, courts have begun to carry out this initiative by expanding current ADR programs and designing new ones. A May 2019 announcement (see press release at http://bit.ly/32lhjkq) tasked the courts with rolling out “local protocols, guidelines and best practices” by September, re-focusing a task force report on a broader “presumptive ADR” from the report’s focus on mediation.

Administrative judge panelists at the bar association continued that emphasis, discussing a wide variety of ADR processes that courts across the board are or will be deploying for party use.

The panel began by outlining the progress over the past year in their respective courts, followed by a broader discussion on challenges the system is facing with broadening and implementing presumptive ADR.

Judge Anthony Cannataro, the administrative judge of the New York City civil courts, began the discussion by outlining some of the ADR processes traditionally used in civil court, notably binding arbitration and evaluative techniques.

He emphasized a new role that Community Dispute Resolution Centers—the local nonprofits with which the state court system partners to provide mediation, arbitration and other ADR options as a court alternative–are taking on by providing the infrastructure needed to address the great influx of cases that are now being sent to mediation.

Cannataro reported that mediation has been remarkably successful in one category of cases traditionally challenging for judges: those where a party has no representation.  Those pro se cases often have emotions running high over personal issues.

He also pointed to the successful use of judicial hearing officers in cases that are transferred from the Supreme Court (the Supreme Court is New York state’s trial-level court), as well as the increased use of settlement conferencing, and accelerated trial judgments.

Cannataro said he anticipates the need for a strong mentorship program to train new mediators, a greater use of early neutral evaluations, and the development of mass settlement conferences. The conferences would provide speedier resolution for high-volume practices, such as no-fault insurance cases, where thousands of filings presenting almost identical elements could be resolved at once.

The implementation of such a program requires negotiation with larger insurance carriers and providers in order to take a statistical value approach, which may enable a more systematic and speedier resolution, and a significant relief for crowded dockets.

For panel member Judge Jeanette Ruiz, who is administrative judge of New York City’s family court, the new initiative move is much more than a shift toward ADR.  She told the audience of about 100 that it is an opportunity to transform certain aspects of the family law practice that have historically not received much attention.

Child custody practice—particularly, custody visitation cases–Ruiz reported, is an area that will likely benefit from greater mediation use, as exemplified by the success of a small pilot program recently launched in Queens.

One of the key features for Judge Ruiz has been the development of a detailed screening process to determine which cases would better be resolved through ADR processes. This screening, which covers all parties to a dispute, divides cases along three tracks: cases to be sent to mediation, to structured conferences for some of the more complex cases, and those which are best resolved via expedited trial.

This determination occurs according to the presence of certain factors, including domestic violence, mental illness, substance abuse, and a history of litigious behavior. Cases involving these factors will likely fall into the third track.

Ruiz emphasized the importance of engaging the legal community in the transformation in the court system. A planning committee has been set up in order to collect data, get feedback and to remain in touch with community members in order to ensure a successful transition into an ADR-oriented system.

Justice Deborah Kaplan, administrative justice of New York County’s Supreme Court, expressed her enthusiasm for this transition, citing the New York court system benefits from more ADR programs throughout the state’s 62 counties.

She said she believes that efficiency–one of the goals sought through the initiative’s implementation–would be achieved in curtailing discovery to that sufficient for mediation. This will be accomplished in part through strict time limits for document production, during which a mediator would be assigned in order to schedule an initial session within 30 days of filing.

In addition, automatic early referral is a key component to the program’s success, as the parties are encouraged to think about the issues that set the case in motion.

Justice Kaplan cited a laundry list of current ADR programs, including judicial mediation programs, early settlement malpractice, matrimonial early mediation, and “skilled matrimonial early neutral evaluation.” In addition, many programs are currently undergoing expansion, including presumptive matrimonial mediation, the tort neutral evaluation program, tax certiorari cases in which property owners can challenge a real estate tax assessment, and a successful presumptive mediation pilot program for cases in New York County’s non-commercial division–cases involving less than $500,000.

She also discussed programs for summary jury trials in automobile cases and dispute resolution processes for asbestos matters, where Kaplan said more than 3,000 cases were invited to a special settlement day which she suggested would be repeated.

The panel generally agreed that summary jury trials should be expanded, but moderator John Kiernan warned that commercial-side efforts to increase SJTs had been disappointing, mostly due to party resistance.

Justice Kaplan also emphasized the importance of screening from ADR processes in matrimonial cases involving domestic violence or power imbalances, which she said is done by an outside agency.

Finally, she underlined the importance of making public a diverse roster of ADR practitioners—a searchable roster, said Kaplan, that will allow a party to find a neutral directly “so that you will never have to come visit us in the court.”

Moderator Kiernan, a New York-based Debevoise & Plimpton partner who headed the task force that issued the report that the court system used for the presumptive ADR initiative, responded that “the speed of change in the courts is amazing.”

A discussion including all panel members covered concerns about a lack of facilities, significant implementation time requirements, and a severe lack of multilingual neutrals as the challenges in the shift toward ADR moves forward.

Diversity was an important topic of discussion, in response to an audience inquiry.  Lisa Denig, Special Counsel for the ADR Initiative for the state’s Office of Court Administration, spoke at length on the issue, noting that the increased ADR use has ignited a renewed effort to recruit a diverse group of new mediators in order to better address the disputants’ needs. Several projects are in the works to provide better access to mediation training programs, she said.

Another important issue is neutrals’ compensation. Currently, parties are provided with a free 90-minute session, beyond which they may continue for a fee. This practice is particularly important in order to encourage parties to make use of these programs and to encourage higher settlement rates.

Denig acknowledged the need for discussion on this issue, which she said will intensify as programs are up and running. She noted that mediators are paid in successful programs in other states.

Panelist Lisa Courtney, the Office of Court Administration’s statewide ADR coordinator, pointed out that family court mediators already are paid, and a current goal is adding more languages capabilities. She discussed the CDRC’s “gold standard” training as essential in building mediation programs.

Kiernan—who was chairman of Alternatives’ publisher, the CPR Institute, when he organized the task force as part of his initiatives, at the same time, as the NYC Bar Association president–said that the system can expand to “tens of thousands” of mediation cases with existing neutrals and volunteers.  But he said that to get to “hundreds of thousands of cases,” programs in New Jersey and Florida needed thousands of mediators.  “You need paid mediators,” he said.

Kiernan said the court ADR programs ultimately are effective, with “staggeringly low” opt-out rates.

Audience member Roger Juan Maldonado, a litigation partner in New York’s Smith, Gambrell & Russell, LLP. who is the current NYC Bar Association president, returned to the issue of representation, urging the panel to consider the issue of appointed counsel for pro se litigants in light of the huge numbers of such cases.

Panelist Judge Cannataro said he believes all court processes are better with representation on both sides, but suggested that the courts had to address the cases as they come. Cannataro assured Maldonado and the audience that the court system would examine where ADR works with and without representation, and will monitor closely the outcomes.

Finally, the topic turned to a unification of ADR rules for the future. While the task force report initially proposed creating a set of rules, the Office of Court Administration and Chief Administrative Judge Lawrence Marks made the decision not to issue them at the outset. (For more, see “‘Presumptive Mediation’: New York Moves to Improve Its Court ADR Game,” 37 Alternatives 107 (July/August 2019) (available at http://bit.ly/2GbCWdK).

They felt it would be best to let the programs develop and evolve so that future rules would be better adapted to the multiplicity and diversity of ADR programs that were in development last summer for the September 2019 launch.

“Many were surprised about that,” said John Kiernan, but the courts statewide so far have developed “great new plans and programs without it.” He added that he expected uniform statewide rules would emerge eventually.

Lisa Denig agreed, and discussed development of a standard-setting ADR protocol in the state’s matrimonial courts, though she said that she expects it will take some time to develop it as the courts implement their local programs.

For the moment, quality control will be measured by an ADR coordinator and screening processes for newly trained mediators, though Judge Anthony Cannataro said that good mediators are instrumental in recognizing cases that should not be mediated.

 

Anne Muenchinger is a CPR Institute Spring 2020 intern, and an LLM student at the Benjamin N. Cardozo School of Law at Yeshiva University in New York City. Russ Bleemer is the editor of Alternatives.

Tuesday’s SCOTUS Argument: Can Non-Signatories Compel Arbitration in the United States Under the New York Convention?

By Doo-Won ‘David’ Chung and Russ Bleemer

When a party files for arbitration under a contract but it is not a signatory to the contract, sparks can fly.

On Tuesday, the U.S. Supreme Court heard from both sides that non-parties can compel arbitration under the Federal Arbitration Act in oral arguments for this term’s sole arbitration case, GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC, No. 18-1048.

But the arbitration falls under the international Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention, adopted and implemented as the FAA’s Chapter 2 in the United States.

And on its surface, it appears the treatment may be different.  The Eleventh U.S. Circuit Court of Appeals rejected nonparty GE Energy’s motion to compel arbitration, focusing on the first of four treaty requirements for compelling arbitration— “there is an agreement in writing within the meaning of the Convention.” Outokumpu Stainless U.S. LLC v. Converteam SAS, 902 F.3d 1316, 1325 (11th Cir. 2018) (available at http://bit.ly/2E1eSc0).

The Supreme Court agreed to hear the case last year on whether the New York Convention allows a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel. See “The Friends Speak: Here’s What Scotus Will Decide in the GE Energy International Arbitration Case,” 38 Alternatives 2 (January 2020) (available at http://bit.ly/2v2pJ3Z).

The Court’s strong historical preference for arbitration appeared to be a tipoff that it took the case to reverse.  But early in the opening argument by GE Energy’s attorney, Shay Dvoretzky, a Washington, D.C. partner in Jones Day, Chief Justice John G. Roberts Jr. showed a concern he focused on repeatedly, that being able to force arbitration against a party who never consented would be inconsistent with “one of the central propositions of our arbitration precedents that arbitration is based on agreements.”

Dvoretzky had urged the Court to permit the use of the equitable estoppel doctrine as part of a group of methods by which nonparties can invoke an arbitration agreement under the New York Convention. Respondent Outokumpu contended that the Convention requires a signed arbitration contract by the party invoking arbitration.

Roberts seemed to share reservations about nonparties.  Responding to his own hypothetical for Dvoretzky, the chief justice said, “here somebody who never agreed to arbitration is being forced into arbitration, even though he has a clear right to take his dispute to court.”

While admitting that arbitration is a matter of consent, Dvoretzky argued that the consent by the respondent was exhibited by the contract’s existence with its arbitration provision, even if it didn’t name the party.  The scope of that agreement, at least in the context of FAA Chapter 1, had been determined Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630–31 (2009) (available at http://bit.ly/3442FxB), which extends the agreement’s use to nonparties under a variety of doctrines, without restriction to signatories.

The case arose out of a dispute between respondent Outokumpu, a Calvert, Ala., steel manufacturer, and a subcontractor, GE Energy, which agreed to supply nine motors to run three steel mills which failed.

While the contract between Outokumpu and its construction general contractor included an arbitration agreement, subcontractor GE Energy was not yet selected, according to Dvoretzky, and not a signatory.  When Outokumpu filed suit against GE Energy in a state court, the subcontractor removed to federal court and moved to dismiss and compel arbitration under the contract.

Alabama’s Southern District federal court granted GE Energy’s motion to compel arbitration and dismissed the action, but on appeal, the Eleventh Circuit reversed.

The appeals court acknowledged that, for domestic arbitration agreements, equitable estoppel allows the non-signatory to enforce the arbitration clause under Arthur Andersen.  But the circuit court distinguished international arbitration agreements, and held “to compel arbitration, the [New York Convention] requires that the arbitration agreement be signed by the parties before the Court or their privities.”

Shay Dvoretzky opened his argument on GE Energy’s behalf by noting that the New York Convention is silent about enforcement by non-signatories.  “That silence is consistent with the Convention’s design, which sets a floor, not a ceiling, for enforcing arbitration agreements and awards,” he explained.

According to Dvoretzky, since the Convention doesn’t say states can’t do more than what the Convention requires, the rest is left to the states’ domestic arbitration laws. Dvoretzky further contended, “Other contracting states are close to unanimous that the Convention does not preempt domestic law allowing non-signatory enforcement.”

Justice Elena Kagan told Dvoretzky, “It seems odd that Congress would have passed the implementing legislation on the view that another contracting state could compel arbitration without any consent whatsoever.”

“I think this goes to the core question of what the Convention is trying to do,” countered Dvoretzky, adding, “The Convention is trying to set forth minimum standards by which other countries will recognize and enforce arbitration agreements.”

After Justice Neil Gorsuch seemed satisfied by Dvoretzky’s response that there was nothing in the New York Convention preventing the use of the equitable estoppel doctrine in matters under the treaty, Kagan jumped back into the discussion, saying she agreed with the chief justice:

If you’re talking about an alter ego or something like that, or a successor in interest, maybe that person counts as a party, even though it is not the signatory but there is some limit.  . . .

[S]o if it’s a matter of voluntary consent, and everybody thinks that that’s what arbitration is, shouldn’t we read the parties to be, you know, the parties? Nobody else.

Dvoretzky responded with a return to Arthur Andersen. “Certainly under domestic law it is understood to be a matter of voluntary consent,” he said, “but the Court saw no issue with the possibility after an equitable estoppel theory that would allow a nonparty to enforce.”

Jonathan Y. Ellis, Assistant to the Solicitor General whose amicus argument supported GE Energy, explained that the New York Convention’s role is to assist courts in the recognition of international arbitration agreements, but it doesn’t provide a comprehensive set of arbitration rules. He argued that the Convention presumes validity of arbitration agreements, and doesn’t speak to agreements’ scope.

Justice Sonia Sotomayor leaned toward GE Energy’s case during Ellis’s argument, but pushed for a rule. She appeared to agree that there are bases for the argument that contracting states can pick who the parties are, but she also said that there should be limits.  “What’s the limiting principle of equitable estoppel?” she asked, adding, “It can’t be every single type of equitable estoppel is okay.”

She added that if GE is contemplated by the contract as a supplier, the matter “seems like a fairly straightforward case to me.”

Ellis responded that the New York Convention has standards on whether an arbitration agreement was reached between the parties, and signatory states’ limits on recognizing “other types of arbitration agreements” needs to be satisfied.  But, he said he didn’t think the Convention “can be read to impose those limits.”

Jonathan D. Hacker, a partner in Washington D.C.’s O’Melveny & Myers LLP, disagreed with GE Energy’s Convention interpretation in his argument on behalf of the steelmaker Outokumpu. Instead, Hacker asserted that the Convention makes it a ceiling—declaring that a written agreement by the parties is necessary to enforce international arbitration agreements.

After a hypothetical by Justice Stephen G. Breyer that allowed a successor party to arbitrate a contract via domestic law, Hacker contended that allowing domestic law to decide who gets to enforce arbitration “creates a huge problem under the Convention because then the states can begin subjecting parties to arbitration” even without consent, which he said is against the Convention’s requirements.

In closing, Hacker argued that “extension of an arbitration agreement to non-parties” is “supposed to be the exception that you almost never see,” and if GE Energy’s interpretation is adopted, “essentially all subcontractors would suddenly be able to arbitrate, even absent a written agreement.”

The Supreme Court’s decision, expected by the end of the term in June, may be crucial not just for arbitration practitioners, but also for parties engaged in cross-border transactions that involve performance by non-signatories.  If the Court affirms the circuit court’s decision, it may create the need for more detailed participation of potential parties, as signatories, for contracting.

* * *

Tuesday’s GE Energy arguments were the second of two for Chief Justice Roberts who, after the case concluded, walked across the street to the U.S. Capitol from the Court to begin his new second job presiding over the U.S. Senate impeachment trial of President Trump.

* * *

This post is based on the transcript of the arguments, posted Tuesday afternoon, and is available on the Court’s website at http://bit.ly/2RD1JMG.

Chung, a law student at Benjamin N. Cardozo School of Law at New York’s Yeshiva University, is a 2020 spring semester CPR Intern; Bleemer edits Alternatives for the CPR Institute at altnewsletter.com.

CPR Tribute to Peter Kaskell

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By Russ Bleemer

Longtime CPR Institute senior vice president Peter F. Kaskell, who spearheaded the translation of seminal commercial ADR theories into everyday dispute management processes, died Dec. 11 at 94. He lived in West Redding, Conn.

Kaskell joined the CPR Institute in 1983, soon after it was founded, following a lengthy legal career, mostly in-house.  He devoted two decades at the New York nonprofit to devising ADR procedures and leading initiatives that produced still-vital versions ADR tools.

“Peter paved the way for CPR Institute’s committees and task forces continued work on identifying better ways to resolve legal conflict,” said CPR President and Chief Executive Allen Waxman, “producing first-generation, fundamental processes in prominent areas including arbitration.”

Kaskell is best known later in his career for co-editing with Thomas J. Stipanowich, who headed the CPR Institute from 2000 to 2005, an often-cited best practices treatise, Commercial Arbitration at Its Best, a 2001 volume published with the American Bar Association.

But well before the treatise, Kaskell was an organizing force for the CPR Institute.  He set up what became a prototype for CPR Institute annual meetings, establishing cutting-edge agendas and recruiting and moderating numerous panels.

He led committee work that produced key CPR Institute Model ADR Practices and Procedures, for which Kaskell did the bulk of the writing and editing.

The first of his significant works was an analysis of the workings of the minitrial, which brought an informal way of assessing a case into a structured toolbox process for addressing and diffusing litigation.  A minitrial consists of an adversarial information exchange, followed by management negotiations directed to settling a dispute before a full-blown legal proceeding in a public court.

Kaskell wrote the minitrial rules, which were reviewed by an ad hoc committee assembled by the CPR Institute—then, the Center for Public Resources—before they were offered for adaptation to legal conflicts.

They were unprecedented–“the first model rules for minitrials and . . . designed to be flexible enough to be adopted by virtually any company contemplating submitting a dispute to minitrial for resolution.” Model Mini-Trial Agreement for Business Disputes, 3 (5) Alternatives 1 (May 1985) (available at http://bit.ly/2sDJo9k).

Kaskell returned to the subject of minitrials at CPR events and meetings.  The procedure, which was updated and supplemented twice over the years, is still used: You can read the full minitrial procedure and commentary at CPR Institute’s website at http://bit.ly/2sDJo9k.

Even more significantly, CPR’s arbitration rules began on Peter Kaskell’s desk.  When the CPR Institute first looked at arbitration in the 1980s, it saw the process as another independent means for lawyers to assist parties in resolving disputes without courts that could be used more effectively and frequently.  The CPR Institute conceived of arbitration as a nonadministered process run by the attorneys and tribunal as part of the practice of law.

Organization founder James H. Henry tasked Kaskell with heading what has become one of CPR’s longest-running committee projects.  Overseeing the Center for Public Resources’ Committee on Private Adjudication, Kaskell led a blue-ribbon commission in producing the organizations’ first set of arbitration rules in 1989.  The debut constituted a special supplement in the September 1989 issue of Alternatives, and can be found at http://bit.ly/2PD8crc.

Thirty years’ of subsequent history of the CPR Institute Arbitration Committee and rules, both nonadministered and, in this decade, administered rules, most of which included Kaskell’s input, can be surveyed at CPR’s website at www.cpradr.org/resource-center/rules/arbitration.

There were other areas that caught Kaskell’s attention and to which he contributed to making alternative dispute resolution standard practices. For example, in the environmental area, he was staff director in 1985 of a committee that produced the Superfund Multi-Party Site Cost Allocation Procedure. He led as staff director the CPR Institute’s first international committee efforts, as well as antitrust, insurance and technology committee initiatives.

Kaskell was both an expert in and fascinated by the workings of the corporate law department.  Before joining the CPR Institute as a vice president, he spent 27 years at Olin Corp., a Clayton, Mo., publicly traded chemical company.

In the 1990s, with CPR Institute Vice President Catherine Cronin-Harris, Kaskell conducted a study of in-house attorneys’ views of alternative dispute resolution.  The work charted the increasing awareness through the 1990s of the availability and efficacy of ADR.

The 1997 version of the study found, among other things, that nearly 17% of all cases in the in-house respondents’ portfolios used ADR process, more than double from just four years earlier.  See Catherine Cronin‐Harris and Peter H. Kaskell, “How ADR finds a home in corporate law departments,” 15 Alternatives 158 (December 1997) (available at http://bit.ly/2rZZ4Un).

Later, as a senior fellow at the CPR Institute, Kaskell focused on intellectual property issues.  See Peter H. Kaskell, “Is Your Infringement Dispute Suitable for Mediation?” 20 Alternatives 45 (March 2002) (available at http://bit.ly/2sL6QRV).

Kaskell was born in Berlin, Germany, in 1924, and came to the United States as a child.  He grew up in New York and completed his undergraduate work and his law degree at Columbia University.

He interrupted his Columbia education to enlist and serve in World War II, where he was a war hero.  For details on Kaskell’s wartime efforts, see Jeannette Ross, “Wilton loses war hero Peter Kaskell,” Ridgefield (Conn.) Bulletin (Dec. 17) (available at http://bit.ly/2S6SJRz).

Kaskell was a former trustee of the Aldrich Contemporary Art Museum in Ridgefield, Conn., and served as vice chairman of Connecticut Humanities.

On behalf of CPR, Waxman extends condolences to Kaskell’s wife, Joan Kaskell, who was a frequent presence at CPR Institute events over the years, and his four children and their families.

 

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.