TBA Dispute Resolution Section
July 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

• "Mediation: To Order It or Not to Order It; That is the question." By Robert S. Brandt

• Judge Don Ash and Ken Jackson’s Parenting Plan CLE Course Now Available On-Line

• Another Mandatory Arbitration Clause Bites the Dust in Montana

• West Virginia Supreme Court Puts Shoe on Other Foot Consumer arbitration clause that limits ability of consumer to obtain statutory or common law relief under state law is unconscionable unless court determines that exceptional circumstances exist that make the provisions conscionable.

• Fifth Circuit Says Closing a Case Has Same Effect as Dismissal for Purposes of Appeal and Rejects Right to Jury and Excessive Fee Arguments

• First Circuit Upholds Arbitration Provision in Rescinded Contract

• Paul Lurie Reports On Illinois Appellate Court Decision: a court order leaving open the issue of what is arbitrable does not have res judicata effect on issue of arbitrability.

• No Claim, No Fame: Ninth Circuit Says Arbitration Not Barred if Title VII Violation Not Alleged

• No Sign, No Arbitration

REMINDER: WE SOLICIT YOUR CONTRIBUTION OF ARTICLES AND INFORMATION FOR THIS NEWSLETTER.

"Mediation: To Order It or Not to Order It; That is the Question."
By Robert S. Brandt

Former Chancellor and now an excellent civil mediator in private practice, Bob Brandt of the Nashville firm of Trauger, Ney & Tuke has an exceptional perspective on the topic of court-ordered mediation. He believes in a case-by-case consideration by judges as to whether or not to order mediation, but he does not hesitate to recommend mediation even if the parties do not agree to it. For a review of the factors he recommends that judges consider, see http://www.tsc.state.tn.us/. Click on Programs, ADR/Rule 31, Information, ADR Newsletter. These factors are also important for advocates in proposing or opposing orders to mediate.

In the family law arena, court-ordered mediation under Tennessee’s Parenting Plan legislation has proven valuable and supportive of Judge Brandt’s conclusions. There are also judges who strongly suggest that the parties consider mediation, and we applaud them.

As a member of the Board of the Tennessee Alliance for Legal Services (TALS), I think there is another powerful argument for mandatory mediation, whether by legislation or court order under Rule 31. If we are to provide increased access to civil legal justice in disputes in which a low-income person is a party, we need to offer low cost alternatives to litigation for all parties involved. Mediation is an essential element in our toolkit for providing justice for all.

Judge Don Ash and Ken Jackson’s Parenting Plan On-Line CLE Course Now Available
Tennessee's Parenting Plan Overview

Effective January 1, 2001 Tennessee joined a number of other states and
nations with permanent legislation requiring a Parenting Plan in divorce cases or when there is a post-decree dispute concerning the children - custody, visitation, and the like. Just how much do you know about the nuances of this legislation? Parenting seminars and mediation may be required by the statute or waived by the court. What seminars qualify and just who can serve as a mediator? When do the Rules of Evidence apply? What services are available to those unable to afford a mediator or the victims of domestic abuse? What are the ramifications if your client refuses to comply with all aspect of the law? Judge Don Ash, who was a key player in the drafting and adoption of Tennessee's Parenting Plan law, along with Ken Jackson, a Nashville attorney and family mediator, provide the answers to these question as part of this overview of the Parenting Plan statues. Here’s where to find it:
http://www.tennbaru.com/Classrooms/Parenting/IntroParent.htm.

Another Mandatory Arbitration Clause Bites the Dust

The Montana Supreme Court on June 13th struck down a mandatory securities industry arbitration clause in Kloss v. Edward D. Jones & Co. and Paul Husted, Montana S. Ct., No. 00-507.

Kloss, a 95 years-old client, entered into securities agreements with Edward Jones, which provided for arbitration in case of disputes. The lower courts concluded that the agreements were contracts of adhesion, that she had no opportunity to negotiate the terms, that the arbitration clause was an industry-wide practice, and that Husted failed to explain the arbitration provision and its waiver of Montana constitutional rights (access to court, right to jury trial) and its effect on rights of appeal. Because it concluded that the agreements were not within Kloss’s reasonable expectations, the court did not reach the issue of unconscionability. (The court did set forth certain factual issues that should be addressed by claimants and the lower courts in assessing unconscionability:
• Are potential arbitrators disproportionately employed in one party’s field of business?
• Is there a tendency by arbitrators to avoid decisions that will result in loss of future contracts for their services?
• What are filing fees for arbitration compared to Montana court filing fees?
• What are the arbitrators’ fees? Do they make small claims prohibitive? Do they discriminate against consumers or workers of modest means?
• Are arbitration proceedings shrouded in secrecy so as to conceal illegal, oppressive or wrongful business practices?
• To what extent are arbitrators bound by the law? By the facts?
• What opportunity do claimants have to discover the facts necessary to prove a claim such as a company’s business practices?

A concurring opinion emphasized that Kloss was not a party of equivalent sophistication and bargaining power, and did not voluntarily, knowingly and intelligently waive her rights to a jury trial and access to the courts, among others.

Full text is available at:
http://www.lawlibrary.state.mt.us/dscgi/ds.py/View/Collection-6410 or
http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=mt&vol=00&invol=507.

West Virginia Supreme Court Puts Shoe on Other Foot: Consumer arbitration clause that limits ability of consumer to obtain statutory or common law relief under state law is unconscionable unless court determines that exceptional circumstances exist that make the provisions conscionable.

A consumer purchase and financing form agreement contained an arbitration clause that provided that no arbitrator could award punitive damages and effectively prevented class action relief. The circuit court ordered plaintiff to pursue arbitration and stayed its proceedings. The West Virginia Supreme Court held that an arbitration clause with exculpatory provisions that, if applied, would prohibit or substantially limit a person from enforcing and vindicating rights and protections or from seeking and obtaining statutory or common law relief and remedies that are afforded by or arise under state law that exists for the benefit of the public was unconscionable, unless the court determines that exceptional circumstances exist that make the provisions conscionable. State of West Virginia ex rel. James Dunlap v. Hon. Irene Berger and Friedman’s, Inc., West Va. S. Ct. No. 30035, June 13, 2002. Full text is available at:
http://www.state.wv.us/wvsca/docs/spring02/30035.htm

Fifth Circuit Says Closing a Case Has Same Effect as Dismissal for Purposes of Appeal and Rejects Right to Jury and Excessive Fee Arguments

The Fifth Circuit extended the Supreme Court’s Green Tree holding that an order dismissing an action is a final decision from which an appeal may be taken. Green Tree Fin. Corp. – Ala. v. Randolph, 531 U. S. 79, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000). In American Heritage Life Ins. Co., First Colonial Ins. Co. of Florida, and Fidelity Nat’l. Ins. Corp., dba Republic Finance v. John D. Orr, et al, Nos. 01-60678, etc., Revised June 18, 2002, the Fifth Circuit held that the District Court’s action in issuing an order compelling arbitration, staying pending state court proceedings, and stating "This case is CLOSED" (but not dismissing the action) had the same finality effect as a dismissal.

Contrary to the state decisions noted above, the court rejected constitutional and unconscionability arguments in this case. For full text see:
http://www.ca5.uscourts.gov/opinions/pub/01/01-60678-cv0.htm.

First Circuit Upholds Arbitration Provision in Rescinded Contract

In Large and Large v. Conseco Finance Servicing Corp., No. 01-2136, dated June 6, 2002, the First Circuit held a borrower’s mere assertion of the right to rescind a loan transaction subject to the Truth in Lending Act (TILA), 15 U. S. C. § 1601, et seq., did not have the effect of voiding the transaction without resort to the arbitration procedure called for by the loan agreement. The District Court’s order compelling arbitration was affirmed.

The rescission in this case was not the unconditional right of rescission within 3 days under TILA. Rather, this was a notice of rescission based on the conditional 3 year right under 15 U. S. C. § 1635 (f) and was given to the lender about one year after the transaction. It was based on Conseco’s alleged failure to make accurate material disclosures concerning the rate of interest, a claim which Conseco did not concede.
Full text is available at:
http://www.ca1.uscourts.gov/cgi-bin/getopn.pl?OPINION=01-2136.01A.

Paul Lurie Reports On Illinois Appellate Court Decision: A court order leaving open the issue of what is arbitrable does not have res judicata effect on issue of arbitrability.

Paul Lurie of Schiff, Hardin & Waite alerted us to this Illinois decision involving a class action conflict between Subway franchisees and the national franchisor. Ruth Reed, et al v. Doctor’s Associates, Inc., et al., App. Ct. of Ill., No. 5-01-0885, dated 6/27/02. The franchisor appealed an Illinois circuit court order denying its motion to stay the case in favor of arbitration as called for in the franchise agreement. A Connecticut court granted applications to proceed with arbitration, but left open the question of what claims were arbitrable. The circuit court’s decision to proceed with tort claims while contract claims were arbitrated was upheld.

For full text see: http://www.state.il.us/court/Opinions/AppellateCourt/2002/5thDistrict/June/Html/5010885.htm.

No Claim, No Fame: Ninth Circuit Says Arbitration Not Barred if Title VII Violation Not Alleged

Circuit City v. Monir Najd, No. 99-56571 (9th Cir. June 24, 2002) also involved an action to stay and compel against an employee who had signed (and not opted out as he could have done) a Dispute Resolution Agreement (DRA). The District Court rejected Najd’s claim that the DRA did not fall within the scope of the Federal Arbitration Act under Circuit City Stores, Inc. v. Adams, 532 U. S. 105 (2001), and awarded Rule 11 sanctions, concluding that his arguments ran counter to "overwhelming facts and law."

In this appeal, Najd argues that his claim under California’s Fair Employment and Housing Act (FEHA) is not arbitrable under Duffield v. Robertson Stephens & Co., 144 F. 3d 1182 (9th Cir. 1998) which held that Congress precluded compulsory arbitration of FEHA claims when brought with a Title VII claim because "parallel state anti-discrimination laws are explicitly made part of Title VII’s enforcement scheme."

However, in this case, Najd did not sue under Title VII. Also, the court noted that there was some question about Duffield’s continuing validity in light of Circuit City v. Adams and other cases casting doubt on whether Congress precluded compulsory arbitation of Title VII claims.

As to Najd’s argument that the DRA was unconscionable as in Circuit City, Inc. v. Adams, 279 F. 3d 889 (9th Cir. 2002), the court found that, given the right to opt out, the DRA was not procedurally unconscionable under Circuit City Stores, Inc. v. Ahmed, 283 F. 3d 1198 (9th Cir. 2002).

The court also rejected Najd’s challenges to the validity of the DRA as a contract. However, the court did reverse the imposition of Rule 11 sanctions since Najd would have prevailed if not for the Supreme Court’s decision in Circuit City v. Adams decided while this case was on appeal.

For full text see:
http://www.ca9.uscourts.gov/ca9/newopinions.nsf/3F6DAB5B09C0FFCA88256BDF007864CA/$file/9956571.pdf?openelement

No Sign, No Arbitration

An unsigned consumer credit contract modification providing for arbitration of disputes, even though including an opt-out provision, did not provide the basis for ordering arbitration under California’s Credit Services Act of 1984 (Civ. Code § 1789.10 et seq.), because that Act requires that such modifications be signed. The court also concluded that the FAA does not preempt this requirement. Mitchell, et al v. American Fair Credit Association, Inc., et al., Cal. Ct. App., 1st Dist., No. A092880, July 10, 2002. Full text:
http://www.courtinfo.ca.gov/opinions/documents/A092880.PDF.

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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.