TBA Dispute Resolution Section January 2002 Newsletter

The Newsletter for Conflict Resolution Neutrals and Attorneys
Published by the Dispute Resolution Section of the Tennessee Bar Association

NOTE: Unless otherwise noted, this Newsletter may be freely redistributed. We request an acknowledgement that "This Newsletter [Article] was previously published in the Dispute Resolution Section's [Month and Year of Publication] Newsletter. Reprinted with permission of the Tennessee Bar Association." Contributions of articles, comments, and suggestions are solicited.

In this issue

ARBITRATORS AND ATTORNEYS’ FEES

REPORT ON TBA’S ART OF ARBITRATION SEMINAR

ENFORCING MEDIATION AGREEMENTS

MEDIATING DIVORCE CASES INVOLVING DOMESTIC VIOLENCE

"MANAGING SCIENTIFIC AND TECHNICAL INFORMATION IN ENVIRONMENTAL CASES"

EEOC v. WAFFLE HOUSE – Employment Arbitration

CONFIDENTIALITY IN MEDIATION

ARBITRATORS AND ATTORNEYS’ FEES

By Shepherd D. Tate, Esq. and
Rebecca C. Davis, Esq.
Tate, Lazarini & Beall, PLC

A question that frequently arises in arbitrations is the extent to which an arbitrator or arbitration panel has the authority to award attorneys’ fees to the prevailing party. Tennessee has enacted a statute that, if read literally, suggests that an arbitrator’s power to award attorneys’ fees is limited, if not non-existent in certain circumstances. Tenn. Code Ann. § 29-5-311 provides specifically as follows:

Unless otherwise provided in the agreement to arbitrate, the arbitrators’ expenses and fees, together with other expenses, not including counsel fees, incurred in the conduct of the arbitration shall be paid as provided in the award.i

In recent months, this statute has caught the attention of Tennessee courts which have been called upon to vacate arbitration awards wherein panels awarded attorneys’ fees. For example, in D&E Construction Co. v. Robert Denley Co., 38 S.W.3d 513 (Tenn. 2001), the Tennessee Supreme Court vacated an arbitration panel’s award of attorneys’ fees, finding that the award was improper under Tenn. Code Ann. § 29-5-311 inasmuch as the parties had not contractually agreed to confer jurisdiction upon the panel to make an attorneys’ fee award. In D&E Construction a contractor entered into a contract with a landowner to build a subdivision in Collierville. The contract included an arbitration provision in which the parties agreed as follows:

all claims or disputes between the Contractor and the Owner arising out [of] or relating to the Contract, or the breach thereof, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the [AAA] . …

The arbitration provision within the contract mentioned nothing with respect to an arbitration panel’s power to award attorneys’ fees; however, in the panel’s Award, the arbitrators granted D&E Construction $13,000 in attorneys’ fees. D&E then filed a petition in Shelby County Chancery Court to confirm the arbitration Award and, in response, Denley filed a petition for an order vacating or modifying the Award.

Chancellor Evans vacated the Award, holding that the arbitrators had exceeded their authority in awarding attorneys fees. The Court of Appeals reversed and the Supreme Court reversed and remanded but vacated the attorneys’ fee award.

While D&E argued that the language of the arbitration provision was broad enough to include a claim for attorneys’ fees, the Supreme Court held otherwise, reasoning that "the broad nature of the arbitration provision is limited by applicable Tennessee law." Id. at 519. The Court continued, explaining as follows:

In that respect, Tennessee Code Annotated section 29-5-311 states clearly and unambiguously that attorney’s fees are not to be awarded for work performed in arbitration proceedings absent the parties’ understanding to the contrary . … Therefore, because the parties did not specifically provide for the arbitration of attorney’s fees relating to the enforcement of the contract and did not otherwise agree to arbitrate this issue, the arbitration clause does not indicate the parties’ intent to override Tennessee law excluding attorney’s fees from the payment of costs and expenses incurred in arbitration.

The court also reasoned that the parties had not submitted the issue of attorneys’ fees to the arbitration panel in a written submission.

Following the release of the Supreme Court’s D&E Construction opinion in January 2001, the Court of Appeals of Tennessee was confronted with a similar issue regarding the application of Tenn. Code Ann. § 29-5-311 and interpreted an arbitration provision that was almost identical to the provision involved in the D&E Construction case. In this decision, however, the Court of Appeals recognized an arbitration panel’s authority to award attorneys’ fees. In Rose Construction, Inc. v. Raintree Development Co., 2001 Tenn. App. LEXIS 961 (Tenn. Ct. App. Dec. 31, 2001), a construction company entered into a contract with a land developer wherein it was agreed that that all controversies arising out of the contract would be arbitrated "in accordance with the Construction Industry Rules of the [AAA]". Similar to the contract in D&E Construction, the arbitration provision did not specifically address the issue of attorneys’ fees.

When a dispute arose between the parties regarding performance under the contract, the dispute was submitted to arbitration and an arbitration panel awarded the construction company, among other things, $250,000 in attorney fees. When the construction company sought confirmation of the award, Chancellor Evans vacated the award, reasoning (again, as he had done in the D&E Construction case) that the arbitrators exceeded their powers in awarding attorneys’ fees.

On appeal, the Court of Appeals of Tennessee reversed, finding that the arbitration provision contained within the parties’ contract conferred jurisdiction upon the arbitrators to award fees. Referencing the D&E Construction opinion, the court recognized the general rule that:

Under Tennessee law, generally, the prevailing party may not recover attorney’s fees incurred in arbitration unless the parties’ contract provides for such recovery.

However, in this case, the court found that the arbitration provision in the parties’ contract incorporated by reference the AAA’s Arbitration Rules, one of which -- AAA Rule L-6 -- provides that an arbitration award may include "an award of attorneys’ fees if . . . it is authorized by law or [the parties’] arbitration agreement.ii

Applying AAA Rule L-6, the court found that the award of attorney fees was "authorized by law" and thus allowable under the contract inasmuch as § 66-34-602(b) of the Prompt Pay Act specifically permits the award of attorneys’ fees to the prevailing party in the type of dispute with which the court was confronted.

While the D&E Construction and the Rose Construction opinions are consistent in holding that an arbitrator or an arbitration panel lacks power to award attorneys’ fees absent a contract between the parties stating otherwise, the opinions are inconsistent with respect to how specific the language of an arbitration agreement must be so as to confer such power on an arbitrator or panel of arbitrators, the more-recent Court of Appeals opinion taking a more permissive view. In light of these recent opinions, however, it is recommended that attorneys drafting arbitration agreements or contracts with arbitration clauses explicitly address the prevailing party’s entitlement to an award of attorneys’ fees and the arbitrability of the attorneys’ fee claim. Otherwise, an arbitrator’s power to award attorneys’ fees is uncertain and the vacature of an arbitrator’s award of attorneys’ fees is a possibility.

In the event that a contract or arbitration agreement does not specifically address the issue of attorneys’ fees, there are alternative bases by which to obtain and confirm an attorneys’ fee award from an arbitrator or arbitration panel. For example, where both parties have requested attorneys’ fees in their submissions to the arbitrators, many courts construe such reciprocal requests to constitute a bilateral contract and an implied agreement to allow an arbitrator or panel to award attorneys’ fees. See First Interregional Equity Corp. v. Haughton, 842 F. Supp. 105 (S.D.N.Y. 1994) (construing Uniform Submission Agreement as permitting attorneys’ fees where both parties sought fees); U.S. Offshore, Inc. v. Seabulk Offshore, Ltd., 753 F. Supp. 86, 92 (S.D.N.Y. 1990) (holding that where both parties seek attorneys’ fees, then they agree to submit the issue to arbitration); Wing v. J.C. Bradford, 678 F. Supp. 622, 626 (N.D. Miss. 1987) (upholding arbitrators’ authority to award attorneys’ fees based on cross-motions for attorney’s fees and Uniform Submission Agreement signed by defendant containing defendant’s request for fees); see also Moser v. Barron Chase Secs., Inc., 783 So. 2d 231 (Fla. 2001), overruled on other grounds as stated in Kesler v. Chatfield Dean & Co., 794 So. 2d 577 (Fla. 2001), (holding that an arbitrator has the authority to award attorney’s fees when both parties put the issue before the arbitrator).

In Florida, where a statute similar to Tenn. Code Ann. § 29-5-311 has been enacted,iii courts have recognized an arbitrator’s or a panel’s power to award attorneys’ fees under the doctrine of waiver. For example, where one party submits a request for attorneys’ fees in an arbitration proceeding and the opposing party fails to contest the right to arbitrate a claim to attorneys’ fees or to reserve the right to a judicial determination of a fee award, then a waiver has occurred and an arbitrator or panel is equipped with the power to award fees.

In Cassedy v. Merrill Lynch, Pierce, Fenner & Smith Incorporated, 751 So. 2d 143 (Fla. Dist. Ct. App. 2000), a Florida appellate court reinstated an arbitration panel’s attorneys’ fee award and reasoned that both parties waived the right to have a court decide the issue based upon both parties’ execution of a Uniform Submission Agreement:

[W]e find that an express waiver occurred in this case. In their Uniform Submission Agreements, both parties agreed to submit to arbitration all the claims raised in the statement of claim, which included the claim for attorney’s fees. The parties also agreed to other provisions such as: (1) the time and place for the hearing as designated by the director of arbitration or the arbitrators; (2) that the arbitration would be conducted under NASD rules; (3) that the parties would abide by and perform any award rendered; and (4) that a judgment could be entered by a court of competent jurisdiction. The parties represented to each other in the Uniform Submission Agreement that they had read the procedures and rules of the NASD. In executing the Uniform Submission Agreement, Merrill Lynch made no reference to, and certainly no reservation of, the right to a judicial determination of the attorney’s fee claim set forth in Cassidy’s statement of claim. Based upon undisputed facts, therefore, we conclude that the parties specifically and expressly agreed, in every sense of these words, that the arbitration panel would determine the attorney’s fee issue.

While courts in Tennessee have not directly addressed the bilateral request or waiver argument within the context of Tenn. Code Ann. § 29-5-311, the Supreme Court of Tennessee, in D&E Construction opened the door for that argument to be raised at a later time. See 38 S.W.3d 513, 521 n.10.

Endnotes:

i While this provision commonly appears in state enacted Uniform Arbitration Acts, no such provision is included within the Federal Arbitration Act.

ii For individuals who practice in the area of securities industry arbitrations, the NASD Code of Arbitration has a similar provision. Specifically, Rule 10215 of the NASD Code of Arbitration Procedure empowers arbitrators to award attorney’s fees to a party, providing as follows:

The arbitrator(s) shall have the authority to provide for reasonable attorneys’ fee reimbursement, in whole or in part, as part of the remedy in accordance with applicable law.

This provision of the NASD Code is incorporated by reference into the Uniform Submission Agreement that each party executes upon or shortly after commencement of an arbitration proceeding. See Rule 10331 ("This Code shall be deemed a part of and incorporated by reference in every agreement to arbitrate under the Rules of the Association including a duly executed Submission Agreement.").

iii Fla. Stat. Ann. § 682.11 provides as follows:

Unless otherwise provided in the agreement or provision for arbitration, the arbitrators' and umpire's expenses and fees, together with other expenses, not including counsel fees, incurred in the conduct of the arbitration, shall be paid as provided in the award.

Following its enactment, several Florida courts interpreted the statute to mean that arbitrators lacked the power to award attorney’s fees and imposed a requirement that parties requesting attorney’s fees seek relief only from a court. See Fewox v. McMerit Construction Co., 556 So. 2d 419 (Fla. Dist. Ct. App. 1989); Insurance Co. of North America v. Acousti Engineering Co., 579 So. 2d 77, 79 (Fla. 1991). Today, however, the Supreme Court of Florida specifically recognizes an arbitration panel’s power to enter an award of attorney’s fees when the parties confer jurisdiction upon the panel to do so. See Turnberry Assoc. v. Service Station Aid, Inc., 651 So. 2d 1173, 1175 (Fla. 1995), wherein the Florida Supreme Court affirmed an award of attorney’s fees entered by an arbitration panel and held:

the parties by agreement may waive their entitlement to have the circuit court decide the issue of attorney’s fees and by doing so may confer subject matter jurisdiction upon an arbitrator to award attorney’s fees. . . . Absent a clear directive from the legislature, we see no reason why the parties may not also voluntarily agree to allow the collateral issue of attorney’s fees to be decided in the same forum as the main dispute.

REPORT ON TBA’S ART OF ARBITRATION SEMINAR

Our Chair, David Taylor, said that he learned the most about arbitration by spending a few days with Howard Venzie of Philadelphia on a case. Those who attended our Art of Arbitration seminar came away with the knowledge that we would be better arbitrators and counselors in arbitrations as a result of Venzie’s presentations. We also benefited from some specific topics covered by David, Greg Cashion, John Blankenship, Wearen Hughes, and Chuck Mataya.

Venzie’s approach to arbitration is above all practical. As an arbitrator he emphasizes the team concept – arbitrators and advocates working together to provide the arbitrators with what they need to make a decision. He talked about what an advocate wants from an arbitrator:

• Neutral
• In control
• Balanced hearing
• Flexibility for the unexpected
• To be allowed to be "officers of the tribunal" – i.e., team members
• Participation in the procedures for

o Closing the hearing
o Narrowing the issues for summation
o Designation of claims to be addressed in the award
o Presentation of final argument

• Be prepared
• Well-documented claims, counterclaims, defenses, detailed back-up for damages calculations
• Use simplicity and informality of arbitration process more effectively and avoid excessive reliance on litigation formality, as well as avoiding being a hired gun litigator
• Have high quality experts
• Stay with the momentum of the case
• Streamline the presentation

ENFORCING MEDIATION AGREEMENTS

Rule 31, § 7 provides that "Evidence of conduct or statements made in the course of Rule 31 ADR Proceedings . . . shall be inadmissible to the same extent as conduct or statements are inadmissible under Tennessee Rule of Evidence 408." Is a settlement memorandum such evidence? Would it be a good idea to include a clause in the memorandum of settlement that it is admissible in any action or legal proceeding to enforce its terms? That it is binding or enforceable? What is your practice as a mediator in documenting settlement agreements? How do you avoid "practicing law" when you prepare the settlement memo? Does it turn on whether the settlement memorandum is enforceable in the same manner as any other written contract? Whether or not the court incorporates the terms of the agreement in its final decree? Do you do or view it differently if it’s a family case and attorneys are not present? Can an agreement affect an outstanding court order without being incorporated into a subsequent decree?


The Texas Bar Association’s ADR Section’s January 2002 issue has an ethical puzzler that suggests that when disputes arise over drafting the final divorce decree, the mediator could serve as an arbitrator in resolving those drafting disputes. The question then is whether it is unethical for the mediator to do so. One attorney-mediator suggested that it would not be a problem if the matter in dispute had actually been decided but had not been included in the settlement memorandum. Another said it was permissible if the mediator did not receive confidential information from one party, or if he did, it is disclosed to the other party with the consent of the disclosing party or the mediator is satisfied that the confidential information will not bias or unfairly influence the arbitration decision; and service as arbitrator is with the consent and agreement of all the parties.

Can a settlement memorandum be used to show fraud, duress, or illegality relevant to an issue in dispute?

What are your thoughts on these questions? Reply to your editor via snail mail or kjackson@nealharwell.com.

MEDIATING DIVORCE CASES INVOLVING DOMESTIC VIOLENCE

There’s an important article on this subject at 17 Ohio. St. J. on Disp. Resol. 95, "Mediating Family Disputes in a World with Domestic Violence: How to Devise a Safe and Effective Court-Connected Mediation Program" by Rene L. Rimelspach. The author concludes, as I would, that in appropriate cases, there are numerous benefits over the adversary system. And there’s the rub. Under what circumstances is mediation in domestic violence cases appropriate?

On January 28th, there’s a program of the Legal Aid Society of Middle Tennessee for attorneys who volunteer to take a couple of their divorce cases, which always involve domestic violence issues. Contact Jean Crowe at 615-244-6610 for more information.

I’ll be making a presentation on this subject and how it impacts the Parenting Plan. I’ll be glad to e-mail a copy of my paper upon request.

"MANAGING SCIENTIFIC AND TECHNICAL INFORMATION IN ENVIRONMENTAL CASES"

This report, sponsored by RESOLVE, Inc., the U. S. Institute for Environmental Conflict Resolution, and the Western Justice Center Foundation, provides principles and practices for mediators and facilitators. It is available in pdf format at www.resolve.org/resources/pubs/default.htm (visited 1-15-02). Recommend reading before your next environmental case, whether you’re an advocate or a neutral.

In that connection, here’s what 9th Circuit Senior Judge Dorothy Wright Nelson has to say in her article, "ADR in Federal Courts – One Judge’s Perspective: Issues and Challenges Facing Judges, Lawyers, Court Administrators and the Public" at 17 Ohio St. J. on Disp. Resol. 1, 15. She wrote:

"Environmental cases are resource-intensive. It is hard to find credible natural scientists, and the focus on ‘dueling experts’ is a barrier to greater party involvement and exploration of the underlying interests of the parties. . . . These cases involving long-term, multiple interests require durable solutions, not just swift disposition. . . . Instead of revolving around the question of damages for retrospective harms, environmental cases often center on future problem solving. It is hard for courts to fashion solutions that are sufficiently flexible and that can account for future environmental and financial uncertainties such as changing habitat, water levels, species levels, and political settings."

EEOC v. WAFFLE HOUSE – Employment Arbitration

Refer to October 2001 issue for Joe Manuel’s article on Arbitration Clauses in the afterglow of Circuit City, and my reference in the September issue to the materials revisiting Gilmer beginning at 16 Ohio St. J. on Disp. Resol. 463.

Chuck Mataya spoke on Employment Arbitration After Circuit City in the TBA’s Art of Arbitration seminar referred to above, and referred to the split in Circuit Court decisions on whether the EEOC can recover damages and obtain other relief on behalf of an employee who signed an agreement to arbitrate.

In a 6-3 decision – with Justice Thomas, former head of the EEOC, dissenting – the U. S. Supreme Court in EEOC v. Waffle House, Inc., No. 99-1923, on January 15, 2002 decided that the EEOC was not barred from pursuing victim-specific relief in an ADA case as well as injunctive relief by an agreement between an employer and an employee to arbitrate employment-related disputes. While the Fourth Circuit had held that the Federal Arbitration Act trumped the EEOC when it sought to vindicate primarily private rather than public interests, the Supreme Court held that the arbitration agreement cannot compel arbitration by anyone who has not agreed to do so.

Interestingly, Justice Thomas refers to 42 U. S. C. § 12212 where the Americans with Disabilities Act encourages the use of alternative means of dispute resolution. In this case, the EEOC did attempt to conciliate.

CONFIDENTIALITY IN MEDIATION

By Ken Jackson

After providing some brief information about mediation confidentiality in Tennessee and elsewhere, this article addresses issues raised by the proposed Uniform Mediation Act and Tennessee’s mediation confidentiality standard. Tennessee’s standard is that "A Neutral shall preserve and maintain the confidentiality of all dispute resolution proceedings except where required by law to disclose information." Tenn. Sup. Ct. Rule 31, App. A, § 7. In my opinion, our standard is an open door for creating exceptions to confidentiality. Except as provided in Tennessee Rules of Evidence § 408, even this ethical standard does not apply to mediations conducted without an order of reference. See Rule 31, § 7.

By contrast, the Texas Civil Practice and Remedies Code provides as follows:

• § 154.053

(b) Unless expressly authorized by the disclosing party, the impartial third party may not disclose to either party information given in confidence by the other and shall at all times maintain confidentiality with respect to communications relating to the subject matter of the dispute.
(c) Unless the parties agree otherwise, all matters, including the conduct and demeanor of the parties and their counsel during the settlement process, are confidential and may never be disclosed to anyone, including the appointing court.

• § 154.073.

(a) Except as provided by Subsections (c), (d), and (e), a communication relating to the subject matter of any civil or criminal dispute made by a participant in an alternative dispute resolution procedure, whether before or after the institution of formal judicial proceedings, is confidential, is not subject to disclosure and may not be used as evidence against the participant in any judicial or administrative proceeding.
(b) Any record made at an alternative dispute resolution procedure is confidential, and the participants or the third party facilitating the procedure may not be required to testify at any proceedings relating to or arising out of the matter in dispute or be subject to process requiring disclosure of confidential information or data relating to or arising out of the matter in dispute.
(c) An oral communication or written material used in or made a part of an alternative dispute resolution procedure is admissible or discoverable if it is admissible or discoverable independent of the procedure.
(d) A final written agreement to which a governmental body . . . is a signatory . . .
(e) This section does not affect the duty to report abuse. . .
(f) If this section conflicts with other legal requirements for disclosure of communications or materials, the issue of confidentiality may be presented to the court having jurisdiction of the proceedings to determine, in camera, whether the facts, circumstances, and context of the communications or materials sought to be disclosed warrant a protective order of the court or whether the communications or materials are subject to disclosure.

(c) While serving as a dispute resolution neutral, a lawyer shall . . .

(4) as between the parties to the dispute and third persons, treat all information related to the dispute as if it were information protected by Rules 1.6, 1.8(b) and 1.9(b).
(5) as between the parties to the dispute, treat all information obtained in an individual caucus with a party or a party’s lawyer as if it were information related to the representation of a client protected by Rules 1.6, 1.8(b) and 1.9(b).

• What specifically should be in the confidentiality clause of agreements to mediate?
• What is a mediator to do when talking to the parties about confidentiality? If we ever did, we can no longer give a blanket or cursory assurance of confidentiality, nor can we expect that we would never have to go to court to seek to quash a subpoena or to give testimony or to provide our notes.
• Will the costs of these appearances, legal counsel, reproduction costs and other expenses be chargeable to one or more of the mediating parties? To the court if it is a court-ordered mediation?
• Should we adopt a policy whereby the prevailing party is awarded attorneys’ fees and other costs in cases of allegations of malpractice?
• Should the mediator effectively warn the parties not to tell him of any harmful act?
• Should a party divulge information about interests and needs and desires that might be far off from the essence of the dispute?
• What are the specific circumstances under which a mediator may be compelled to testify when the parties, but not the mediator, agree to waive confidentiality? What privilege does the mediator have, and what threshold of evidence must be met to invade it?
• Does public policy as might be adopted under the Uniform Mediation Act wholly prevent the parties and the mediator from entering into a confidentiality agreement at variance with the Act?
• Should the Act provide for eliminating certain confidentiality exceptions by agreement?
• Should there be a monetary penalty or other consequence for unauthorized disclosure of mediation communications? (The Florida cases are relevant to this question. See especially Paranzino v. Barnett Bank of South Florida, 690 So. 2d 725 (Fla. 4th DCA 1997).
• Are the confidentiality obligations and privileges of attorney-mediators different from those of other mediators?
• Should mediators be incompetent to testify?
• Should we address the kinds of cases in which confidentiality might be trumped by the public interest in disclosure, e.g.,

o Securities, Antitrust
o Environmental
o Employment
o Abuse of children and other persons
o Public health and safety
o Mediator and Attorney misconduct
o Civil rights
o Where government is a party and dispute relates to a governmental rather than a proprietary function (if the distinction still has legs in Tennessee)
o Divorce cases involving allegedly hidden assets

• What can a party disclose in a complaint regarding a mediation or a mediation agreement?
• Should the standard be manifest injustice or a balancing of interests?
• Should there be an express prohibition of recording or transcribing the mediation proceeding?
• Will our courts impose sanctions for breaches of confidentiality, e.g., where an attorney discloses to the court terms of settlement offers?

If you have questions or need information about TBA's Dispute Resolution Section, you may contact: Lynn C. Pointer, Sections/Committees Coordinator, Tennessee Bar Association, 221 Fourth Avenue North. Suite 400, Nashville, TN 37219. Email: lpointer@tnbar.org
Phone: (615) 383-7421 and Fax: (615) 297-8058.