TBA Dispute Resolution Section June 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

• ART OF ARBITRATION CLE SCHEDULE

• BAR CONVENTION ADR PROGRAM AND SECTION MEETING

• CAN YOU WRITE A PRE-DISPUTE EMPLOYMENT ARBITRATION AGREEMENT THAT’S GOOD ENOUGH? JUDGE NIXON FINDS KFC ARBITRATION AGREEMENT UNCONSCIONABLE

• ARBITRATION AWARD VACATED BECAUSE OF EVIDENT PARTIALITY

• FAILURE TO INVOKE ARBITRATION CLAUSE IN ACCORDANCE WITH AGREEMENT IS FATAL TO MOTION TO STAY PENDING ARBITRATION

• OHIO ST. J. ON DISP. RESOL.: SYMPOSIUM ON THE IMPACT OF MEDIATION 25 YEARS AFTER THE POUND CONFERENCE

• ANOTHER ALABAMA CASE: EMPLOYEES TERMINATED FOR REFUSAL TO AGREE TO NEW EMPLOYEE HANDBOOK REQUIRING ARBITRATION OF EMPLOYMENT CLAIMS. 11TH CIRCUIT FINDS REFUSAL NOT PROTECTED ACTIVITY

• ANOTHER CONSUMER ARBITRATION CLAUSE BITES THE DUST FOR LACK OF MUTUALITY

• FAA § 9 BY ITSELF DOES NOT CONSTITUTE AN INDEPENDENT GRANT OF SUBJECT MATTER JURISDICTION

• FOURTH CIRCUIT AGAIN REJECTS HOOTERS TYPE OF ARBITRATION CLAUSE

ART OF ARBITRATION CLE SCHEDULE

July 12th – Memphis at the Ridgeway Inn
July 26th – Knoxville at the UT Conference Center

Agenda - The Art of Arbitration CLE

Arbitration is fast becoming not an alternative to litigation, but as a
required and recommended way to reach final resolution of disputes. This
seminar is for lawyers who are new to this field, or who are experienced,
and will cover all aspects of arbitration, from considerations in drafting
arbitration clauses, choosing an arbitrator, what rules should apply,
preparing for a hearing and the law of appeals.

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ADR SECTION PROGRAM AND ANNUAL MEETING

Dispute Resolution Section Meeting at TBA Convention

The following is the meeting information for the Dispute Resolution Section meeting at TBA Convention in Chattanooga. If you wish to attend the Dispute Resolution Section's annual business meeting but are unable to attend the meeting in person, you may attend via teleconference. Contact sections coordinator Lynn Pointer for call in information. Please remember that Chattanooga is on Eastern Time.

Dispute Resolution Section Meeting
Friday, June 14, 2002 @ 3:00 p.m. Eastern Time
(To be held at Chattanooga Marriott Hotel - Board Room)

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CAN YOU WRITE A PRE-DISPUTE EMPLOYMENT ARBITRATION AGREEMENT THAT’S GOOD ENOUGH?
JUDGE NIXON FINDS KFC ARBITRATION AGREEMENT UNCONSCIONABLE

In a memorandum order, Tennessee’s Middle District Judge John T. Nixon, relying largely on Circuit City II [Circuit City Stores v. Adams, 279 F. 3d 889 (9th Cir. 2002)], decided that an arbitration agreement with a KFC employee was both contractually unsound under the Buraczynski test [Buraczynski v. Eyring, 919 S. W. 2d 314 (Tenn. 1996)], violative of plaintiff’s substantive rights, and of society’s rights to condemn "invidious bias" in the workplace through a private attorney. See Cooper v. MRM Investment Company, 2002 U. S. Dist. LEXIS 8098 (U. S. Dist. Ct., M. D. Tenn.), decided April 29, 2002.

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PAUL LURIE REPORTS ON ARBITRATION AWARD VACATED BECAUSE OF ARBITRATOR MISCONDUCT

Paul Lurie, of Schiff, Hardin & Waite in Chicago, brought to our attention the case of Sphere Drake Insurance Limited v. All American Life Ins. Co., No. 01 C 5226 (U. S. D. C., N. D. Ill, decided May 17,2002. One of the two arbitrators who made an award that invalidated six reinsurance contracts failed to disclose a substantial attorney-client relationship with Sphere Drake. The third arbitrator, a party arbitrator for All American, filed a dissent. Two of the arbitrators were appointed by the parties, and they selected the third. Sphere Drake’s party arbitrator made additional disclosures – stating that he had provided corporate advice to the President of a subsidiary of Sphere Drake – and All American made no objection.

Later discovery showed that there was a much more substantial attorney-client relationship, including representation in an arbitration. Accordingly, All American sought to invalidate the award based on evident partiality as the court is authorized to do under 9 U. S. C. § 10 (a) (2). While this case involved a party arbitrator, the parties had the right to approve the panel before the arbitration began, and that right, the court concluded, could only be meaningfully exercised with a full disclosure.

Lesson Learned and Repeated: Err on the side of full disclosure, even if you are a party arbitrator. This is a good case to read if you want to review the authorities on what constitutes, and (as is true in most cases) what does not constitute "evident partiality." Read it at: http://www.ilnd.uscourts.gov/RACER2/index.html.

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LURIE REPORTS: FAILURE TO INVOKE ARBITRATION CLAUSE IN ACCORDANCE WITH AGREEMENT IS FATAL TO MOTION TO STAY LITIGATION PENDING ARBITRATION

Paul Lurie also brought to our attention Kemiron Atlantic, Inc. v. Aquakem International, Inc., U. S. Ct. App. 11th Cir., No. 01-16400, decided May 8, 2002. Kemiron sued Aquakem for breach of contract and unjust enrichment and sought declaratory relief. Agreement required parties to request mediation within 15 days after notice of desire to mediate an unresolved dispute, and then arbitrate within 10 days after notice if the mediation did not result in a resolution. Neither party did so. The Court denied the motion to stay the action because of that failure to meet the condition precedent for invoking the arbitration clause. Full text at: http://www.law.emory.edu/11circuit/may2002/01-16400.opn.html.

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17 OHIO ST. J. ON DISP. RESOL. 527-710 (No. 2, 2002)
SYMPOSIUM ON THE IMPACT OF MEDIATION 25 YEARS AFTER THE POUND CONFERENCE

This issue of the excellent Ohio State Journal on Dispute Resolution takes a look, from several perspectives, at the development of mediation over the last 25 years, questions we’ve largely resolved and those we have yet to answer, the uses of court-annexed mediation, and where we might be going from here.

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ANOTHER ALABAMA CASE: EMPLOYEES TERMINATED FOR REFUSAL TO AGREE TO NEW EMPLOYEE HANDBOOK REQUIRING ARBITRATION OF EMPLOYMENT CLAIMS

11TH CIRCUIT FINDS REFUSAL NOT PROTECTED ACTIVITY

In Weeks , et al v. Harden Manufacturing Corp., No. 01-16638, decided May 22, 2002, the 11th Circuit decided in an interlocutory appeal that refusal to agree to a compulsory arbitration provision regarding employment discrimination claims was not a protected activity for purposes of alleging a prima facie case of retaliation. When they were fired for refusing to agree to the terms of a new employee handbook, the five employees’ complaint included five counts for relief, including claims for retaliation under Title VII, the ADEA and the ADA. Harden moved for summary judgment or judgment on the pleadings. The District Court granted summary judgment on all claims except for the retaliation claims. The District Court found that although the arbitration provision may have been lawful, the plaintiffs reasonably, albeit mistakenly, believed that the arbitration provision was unlawful. The District Court relied on Duffield v. Robertson Stevens & Co., 144 F. 3d 1182 (9th Cir. 1998) and the EEOC’s position that such provisions violate public policy. See EEOC Notice No. 915.002, Policy Statement on Mandatory Binding Arbitration of Employment Discrimination Disputes as a Condition of Employment (July 10, 1997).

The standard for showing that a plaintiff engaged in statutorily protected expression is both subjectively (good faith belief that the employer was engaged in unlawful employment practices) and objectively reasonable. Citing Gilmer, Circuit City v. Adams, and Bender, Harden argued that there was no objective reasonableness in light of the unequivocal approval of such arbitration provisions by those cases. The Court of Appeals agreed. [Gilmer v. Interstate/Johnson Lane, 500 U. S. 20, 111 S. Ct. 1647, 114 L. Ed. 2d 26 (1991); Circuit City Stores v. Adams, 532 U. S. 105, 121 S. Ct. 1302, 149 L. Ed. 234 (2001); and Bender v. A. G. Edwards, 971 F. 2d 698 (11th Cir. 1992).] Duffield was a pre-Circuit City case that has been specifically considered and rejected by other circuits and district courts. The Court also relied on Congressional encouragement of arbitration of employment discrimination claims [42 U. S. C. § 1981 app. At 509 (1994), and § 12212 (ADA)], and stated that even though Duffield and the EEOC policy statement may stand for the proposition that mandatory arbitration agreements in the employment context are unenforceable or even "illegal" does not mean that employers who require employees to sign the agreements as a condition of employment are guilty of violating Title VII, the ADA or the ADEA.

The Court said that to extrapolate from illegal activities relating to age, race, color, religion, sex, disability or national origin a premise that requiring employees to agree to an arbitration provision "would require an intellectual dishonesty in which this court will not engage."

Full text available at: http://www.law.emory.edu/11circuit/may2002/01-16638.opn.html

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ANOTHER CONSUMER ARBITRATION CLAUSE BITES THE DUST FOR LACK OF MUTUALITY

Cash In a Flash Check Advance, et al v. Spencer, et al, No. 01-1210, decided on May 9, 2002 by the Arkansas Supreme Court. Full text:
http://courts.state.ar.us/opinions/2002a/20020509/01-1210.html.

Plaintiffs alleged that Cash in a Flash was really in the loan business and that the fees it charged for the deferred presentment service were usurious. The trial court denied Cash in a Flash’s motion to compel arbitration, finding that the contract was unconscionable. Revisiting Contracts 101, the Court held that there is not the requisite mutuality of obligation ". . . where one party uses an arbitration agreement to shield itself from litigation, while reserving to itself the ability to pursue relief through the court system."

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FAA § 9 BY ITSELF DOES NOT CONSTITUTE AN INDEPENDENT GRANT OF SUBJECT MATTER JURISDICTION

Perpetual Securities, Inc. v. Julie Tang and Hua Yu Chen, No. 01-7901, decided May 9, 2002, by the U. S. Court of Appeals for the Second Circuit. NASD failure to take disciplinary action against individual broker was not issue or claim-preclusive for customer’s action against dealer. Court also rejects argument that arbitration panel manifestly disregarded tort law concept of respondeat superior. NASD not a state actor, nor is compulsory arbitration a state action violative of due process. Discussions of Rule 11 sanctions. Check it out at: http://www.tourolaw.edu/2ndCircuit/May02/01-7901.html.

FOURTH CIRCUIT AGAIN REJECTS HOOTERS TYPE OF ARBITRATION CLAUSE

In a case where the employer created a list of arbitrators, the alternate strike method was meaningless. Also, the arbitrator’s authority was limited in that the arbitrator could not alter, change or diminish the Union’s President’s authority under Union bylaws. Employee was a union organizer terminated allegedly for reverse discrimination.

However, there is an interesting dissent filed by Judge Howard in which he finds that the refusal to enforce the arbitration clause on unconscionability grounds was inconsistent with Green Tree Financial Corp. v. Randolph, 531 U. S. 79 (2000) in that an arbitration agreement’s silence as to arbitration terms and procedures, standing alone, is plainly insufficient to make the arbitration agreement unenforceable. Here the record showed that when arbitration is demanded, the Union obtains a randomly-selected list of arbitrators from the American Arbitration Association or the Federal Mediation and Conciliation Service. Howard objected to the majority’s decision to invalidate the arbitration agreement based on a speculative risk of bias, the "what if" scenario rejected in Green Tree.

Howard also argued that neither the arbitration clause nor the Union bylaws gave the President the authority to ignore or circumvent the arbitrator’s decision.

Murray v. United Food and Commercial Works International Union, Local 400, et al., U. S. Ct. App. 4th Cir., No. 01-1602, decided May 10, 2002. Full text:
http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=case&court=4th&no=01-1602.

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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.