TBA Dispute Resolution Section
September 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

• First Circuit Upholds District Court Authority to Mandate Mediation,
But Vacates Order in Atlantic Pipe Corp.

• Minutes of ADR Section Executive Council Meeting September 10, 2002.

• American Arbitration Association Promoting Its Consumer Due Process Protocol

• Arbitration of Class Actions.

• EEOC Loses in Ninth Circuit. Duffield is History.

• Paul Lurie on the Revised Uniform Arbitration Act

First Circuit Upholds District Court Authority to Mandate Mediation, But Vacates Order in Atlantic Pipe Corp.

In Re Atlantic Pipe Corporation (First Cir., No. 02-1339, dated September 18, 2002, on petition for a writ of mandamus, for full text see: http://www.ca1.uscourts.gov/cgi-bin/getopn.pl?OPINION=1339.01A.

In a multi-party (12), complex construction contract claims and counter-claims mess, including parallel litigation in Puerto Rican courts, Thames-Dick asked the Federal District Court to refer the case to mediation, and suggested Professor Eric Green as a suitable mediator. The District Court so ordered. Atlantic Pipe sought reconsideration, and then sought relief by way of mandamus, alleging that the District Court did not have authority to require mediation and could not force Atlantic Pipe to pay a share of the expenses of mediation. Some parties supported, others opposed the petition.

The First Circuit noted that there are four potential sources of judicial authority for ordering mandatory non-binding mediation of pending cases by a private mediator: local rules, statute, FRCP, and the court’s inherent powers. This particular District Court (Puerto Rico) adopted a rule providing for mediation by a judicial officer, and planned to, but had not on a timely basis implemented an ADR program.

The ADR Act of 1998, 28 U. S. C. §§ 651-658 requires adoption of an ADR program by local rule. 28 U. S. C. § 651 (b). But, the Court notes, this does not mean that the Act abrogates the District Court’s inherent power. In other words, the ADR Act neither authorizes nor prohibits the entry of a mandatory mediation order.

The respondents claim that Fed. R. Civ. P. 16 (9) authorizes the court to order mediation. The First Circuit rejected that argument, highlighting the language "when authorized by statute or local rule."

As to inherent powers, the Court found that a District Court can order non-consensual mediation in cases where it is reasonably likely to serve the interests of justice.

But, of course, ordering cases to non-binding mediation entails an order that preserves procedural fairness and "shields objecting parties from undue burdens. The Court rejected arguments that the District Court’s appointment of a private mediator, even one suggested by the other party, was per se improper or biased. The Court also approved mandatory sharing of the costs of mediation. However, the District Court should have set an outside limit on the number of hours and fees, and the time limit by which the mediation should be completed. For this reason, the mediation order was vacated and remanded with the statement that the District Court is free to order mediation if it continues to believe such a course is advisable.

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Minutes of ADR Section Executive Council Meeting 9/10/2002

Allen Blair, Chair, along with Jan Walden, Valarie Epstein, David Carter, Hayden Lait and Lynn Pointer, attended.
The first item discussed was the use of mediation in criminal cases. Allen reported on his conversation with Judge Russell; Jan on her conversations with persons in the field; and Lynn on her discussions with Ross Alderman about the possibility of a joint CLE program with the Criminal Justice Section on March 21, 2003. Jan, Lynn, and Ken Jackson were tasked with exploring the subject further.

Valarie and Hayden were given the task of reviewing the Uniform Mediation Act and reporting back as to whether or not the TBA should propose this UMA as part of its legislative initiative. Similarly, David Taylor was asked to report on the Uniform Arbitration Act revisions. See the item in this Newsletter on the RUAA.

The Council discussed doing a program on ethics for neutrals at a later date, and deferred this item to the next meeting.

The next meeting will be at 12:15 to 1:15 during our Dispute Resolution Forum on October 3, 2002 at the Bell South building in Nashville. Valarie will chair the meeting in Allen’s absence.

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American Arbitration Association Promoting Consumer Due Process Protocol

If you represent a business that uses a pre-dispute arbitration clause, you know about some of the problems you can encounter with those clauses – if you’ve been reading this newsletter. Anyway, the AAA is doing some neat stuff with its management of consumer disputes by focusing on standards of fairness, low fees, pro bono arbitrators, waiver of AAA fees in hardship cases, etc. Your client will thank you if you can produce a reasonable, cost-reducing, effective ADR provision. Check it all out at www.adr.org.

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Arbitration of Class Actions

The Spring 2002 issue of Dispute Resolution Magazine has a nice pro-con article by Carroll Neeseman and Jean Sternlight: "Should an Arbitration Provision Trump the Class Action?"

In that connection, see Bazzle v. Green Tree Financial Corp., a South Carolina Supreme Court decision (No. 25523, 8/26/02). That was a class action arbitration under a consumer contract that was silent regarding class-wide arbitration. Since Green Tree drafted the clause, this ambiguity is held against the company. No statute prohibits class-wide arbitration, and if it serves the interests of efficiency and equity and would not result in prejudice, the silence of the clause means that the court can consolidate claims without any contractual or statutory directive to do so.

What is worth thinking about is whether a pre-dispute contract clause would be upheld if it explicitly prohibited a class action arbitration. Comments?

Full text of Bazzle available at http://www.law.sc.edu/opinions/25523.htm.

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What Happened When Law Firm Refuses to Hire Secretary Who Would Not Sign Mandatory Arbitration Agreement? EEOC Loses in Ninth Circuit. Duffield is History

In Equal Employment Opportunity Commission v. Luce, Forward, Hamilton & Scripps LLP the Ninth Circuit (Nos. 00-57222 and 01-55321, dated 9/3/02) decided that the law firm could require the secretary to agree to arbitrate potential claims as a condition of employment. Full text is available at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/E9C571F39150FF1B88256C290056416C/$file/0057222.pdf?openelement.

In L. A. Superior Court, Luce Forward’s motion to dismiss was granted, the California Appeals Court affirmed, and the CA Supreme Court denied review. While his suit was pending, the secretary, Donald Lagatree filed a complaint with the EEOC. A Federal District Court denied any award of damages to Lagatree, but granted EEOC’s request for a permanent injunction forbidding Luce Howard from requiring its employees to agree to arbitrate their Title VII claims as a condition of employment under the Duffield case, which held that Congress intended to exempt Title VII claims from compulsory arbitration. Duffield v. Robertson Stephens & Co., 144 F. 3d 1182 (9th Cir., 1998).

The Ninth Circuit in a majority decision acknowledged that its sister circuit as well as the Supreme Courts of California and Nevada had repudiated the Duffield case. While the U. S. Supreme Court did not repudiate Duffield by name, its Circuit City case contradicted its basic supposition, that there was a guarantee of a nonwaivable, substantive right to a jury trial. The Court vacated the permanent injunction. Duffield appears to be dead.

The EEOC also claimed that the law firm retaliated against Lagatree by not hiring him after he had refused to sign the arbitration agreement. The law firm contests only that the refusal was a protected activity. The Court rejected EEOC’s argument.

I think I would advise employees to sign the agreement, get on with the job, and then test the agreement for substantive unconscionability when a dispute arose. What do you think?
Apropos of Green Tree v. Randolph, 531 U. S. 79 (2000), Fifth Circuit Finds It Has Jurisdiction Of Appeal, Refuses to Replace Arbitrator Before Arbitral Decision

In Gulf Guaranty Life Insurance Co. v. Connecticut General Life Insurance Co. (Fifth Circuit, No. 01-60582, revised 9/5/02), the Fifth Circuit held that the District Court’s explicit reference to Green Tree is evidence it intended to issue a final decision compelling arbitration and thus is appealable. Full text: http://www.ca5.uscourts.gov/opinions/pub/01/01-60582-cv0.pdf. We reported earlier on an order compelling arbitration that did not precisely conform with the dismissal language of Green Tree. American Heritage Life Ins. Co., 294 F. 3d 702, 706-708 (5th Cir., 2002).

The decision is interesting for its discussion of the effects of delays in the arbitration process. Mere delay is not a waiver of right to arbitrate.

One of the party arbitrators was an executive of a reinsurance company, not a life insurance company as required by the arbitration agreement, and the other party claimed he should be stricken from the panel before issuance of an arbitral award. The Court of Appeals refused to do so unless the claim was for invalidating the contract or fraud in the inducement, and reversed the District Court.

Another Circuit Holds Magnuson-Moss Warranty Act Permits Enforcement of Mandatory Arbitration Agreements Within Written Warranties

In Davis v. Southern Energy Homes, Inc., et al, the Eleventh Circuit followed the Fifth Circuit in holding that, notwithstanding FTC regulations, the MMWA permits pre-dispute arbitration agreements in warranties. See our earlier report on Walton v. Rose Mobile Homes, No. 00-60742, __ F. 3d __ (Fifth Cir., 2002). Full text:
http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=case&court=11th&no=01-13831

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PAUL LURIE ON THE REVISED UNIFORM ARBITRATION ACT (RUAA)

Six states (AZ, NM, HI, UT, NJ and NV) have adopted the RUAA. Paul Lurie of Schiff, Hardin comments that if the RUAA becomes widely adopted, an unintended consequence of providing for full discovery and expanded vacature and appealability of arbitration decisions will be to make the arbitration process so like litigation that the values of speed, economy and efficiency will be eliminated. Here are Paul’s highlights:

HIGHLIGHTS OF THE REVISED UNIFORM ARBITRATION ACT (RUAA)

Authored by:
National Conference of Commissioners of Uniform State Laws (NCCUSL) The drafting committee’s comments and the draft of the RUAA can be viewed at http://www.law.upenn.edu/bll/ulc/ulc_frame.htm

Endorsed by:
American Bar Association
American Arbitration Association
National Academy of Arbitrators

Adopted by: (as of mid 2002 in order of adoption)
New Mexico, Nevada, Hawaii, Utah, Arizona, New Jersey

Key Provisions/Changes from Prior Model Arbitration Act: (Note: Different adopting states may have adopted amended versions of the RUAA. Parties should review the specific adopted version of the RUAA applicable to their specific state and consult legal advisers for their specific state or jurisdiction of interest). (Section references herein are to the sections of the RUAA as adopted by the State of Hawaii in 2001).

1. Arbitrator must disclose any facts that a reasonable person would consider likely to affect impartiality. The duty to disclose is a continuing duty. Lack of disclosure may be grounds for vacating an arbitration award. (Section 12).

2. The Court decides whether an agreement to arbitrate exists or a controversy is subject to an agreement or trade. The Arbitrator decides whether condition precedents to arbitration have been fulfilled and enforceability of contract containing a valid arbitration agreement. (Section 6)

4. Consolidation of separate arbitration matters may be ordered by the Court unless the agreement prohibits consolidation. (Section 10).

5. Interim relief and provisional remedies may be ordered by the court prior to appointment of an arbitrator and by the arbitrator after appointment. (Section 8).

6. Arbitrators are afforded immunity from civil liability to the same extent as a judge of a court. An arbitrator or arbitration organization representative may not be compelled to testify or produce records except with regard to vacature of an award for fraud, corruption, evident partiality or prejudicial misconduct. (Section 14).

7. As can be done in judicial proceedings, full discovery, depositions, subpoenas may be authorized by the arbitrator. (Section 17).

8. Punitive damages, awardable if authorized by law in a civil action. Similarly, reasonable attorney’s fees, expenses, arbitration fees and expenses may be awarded. Arbitrator empowered to award such remedies as are just and appropriate. (Section 21).

9. Broader grounds to vacate arbitration awards. In addition to the pre-existing grounds for vacature (corruption, fraud, evident partiality, exceeding authority, failing to consider all material evidence, etc.), an arbitrator’s conduct of a hearing "so as to prejudice substantially the rights of a party" has been added as grounds for vacature. (Section 23).
10. Expanded grounds for appeals provided. (Section 28). (This increases the potential for abuse and delay in the arbitration process).

11. Many but not all provisions of the RUAA may be waived. (Section 4). (Thus arbitration agreements may be customized to a great extent, presenting a drafting opportunity and challenge. Some key provisions that one may wish to customize include limiting discovery (Section 17), defining the arbitration hearing and evidentiary process (i.e. fast track arbitration, chess clock time limits, last best offer arbitration), limiting punitive damages (Section 21), selecting venue (Section 27), providing for Arbitrator’s retention of jurisdiction (not addressed in the RUAA)).

The new Arbitration Act resolves and answers many issues that existed under the old Arbitration statute. But, the new Act makes the arbitration process more like litigation with potentially costly full discovery and additional appeal opportunities and expanded appeal grounds. Persons who are contemplating submission of a dispute to arbitration under the new Act or who are considering including an arbitration provision in their contracts and agreements should consult counsel. Careful consideration should be given to customizing an arbitration agreement to suit the special needs and circumstances of the persons and parties involved.

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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.