ADR CASELAW UPDATE - Articles

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Posted by: Christy Gibson on Jul 5, 2012

by Marnie Huff*

ABA ADR RESOURCES

The American Bar Association Section of Dispute Resolution provides resources for mediators and arbitrators on its website.  A new addition is the ABA/College of Commercial Arbitrators Annotations to the Code of Ethics for Arbitrators in Commercial Disputes.  The annotations cite judicial decisions and other published writings from 1981 through 2011, as annotations to the 1977 and 2004 Codes.  Note, however, that it does not cite the numerous court cases and other writings that consider issues encompassed by, but not citing, the Codes.

LEGISLATION

TEAM Act.  On April 24, 2012, Governor Haslam signed the Tennessee Excellence, Accountability, and Management (TEAM) Act into law.  Although the statute’s new employee grievance system does not explicitly provide for mediation, the plan is for a mediation process to be set up by regulation.  See the Governor’s press release at http://tn.gov/governor/pdf/TEAMActRundown.pdf

CASELAW UPDATE

U.S. Supreme Court

In Marmet Health Care Center, Inc., et al. v. Clayton Brown et al., Nos. 11-391 and 11-394, __ U.S. __  (February 21, 2012) (per curiam), the U.S. Supreme Court reversed the holding of the West Virginia Supreme Court of Appeals that, as a matter of state public policy, all pre-dispute arbitration agreements applied to wrongful death and personal injury claims against nursing homes were unenforceable and that the Federal Arbitration Act did not preempt the state public policy.  The state court, misreading and disregarding U.S. Supreme Court precedent, did not follow controlling federal law that state and federal courts must enforce the Federal Arbitration Act with respect to all arbitration agreements covered by the Act.  A categorical rule prohibiting arbitration of a certain type of claim is contrary to the Act.  The Court remanded the case for further consideration of an alternative holding below that the arbitration clauses in two of the consolidated cases were unconscionable.

Selected Federal Courts of Appeal Cases

Third Circuit Distinguishes Stolt-NielsenIn Sutter v. Oxford Health Plans LLC, No. 11-1773 (3rd Cir. April 3, 2012), Sutter, a health care provider, filed a class action against Oxford.  Sutter was a party to a Primary Care Physician Agreement with Oxford.  The Agreement included the following arbitration provision:  “No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the Rules of the American Arbitration Association with one arbitrator.”  Oxford’s motion to compel arbitration under the broad arbitration provision was granted by the trial court.  The court also ordered that the arbitrator would decide all procedural issues, including those of class certification. Although the Agreement did not expressly refer to class arbitration, the arbitrator construed the Agreement as authorizing class arbitration, relying on the extremely broad wording of the arbitration provision.  Oxford filed a motion to vacate, arguing that the arbitrator had exceeded his powers under Section 10(a)(4) of the Federal Arbitration Act and manifestly disregarded the law, given the Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., __ U.S. __, 130 S.Ct. 1758 (2010).  Recognizing that the Supreme Court decided that arbitrators may not infer consent to class arbitration solely from the fact that parties had agreed to arbitrate, the Third Circuit nevertheless affirmed the arbitrator’s award.  It noted that Stolt-Nielsen “did not establish a bright line rule that class arbitration is allowed only under an arbitration agreement that incants ‘class arbitration’ or otherwise expressly provides for aggregate procedures.”  Rather, Stolt-Nielsen “established a default rule under the Federal Arbitration Act: ‘[A] party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.’”  The arbitrator in Sutter had a rational contractual basis for his determination that the first clause of the arbitration provision was broad enough to include class actions and the second clause sends all conceivable civil actions, including class actions, to arbitration.  

Supreme Court Denies Cert in Jock

The U.S. Supreme Court denied certiorari in Sterling Jewelers Inc. v. Laryssa Jock et al, No. 11-693 (U.S. March 19, 2011), leaving intact the Second Circuit Court of Appeal’s decision in Jock v. Sterling Jewelers Inc., No. 10-3247-cv(2nd Cir. July 1, 2011).  Distinguishing Jock from Stolt-Nielsen, the Second Circuit reversed a trial court’s decision to vacate an arbitration award allowing class arbitration.  The district court granted the plaintiffs’ motion to stay the litigation and refer the matter to arbitration.  The arbitrator decided (before the Supreme Court had issued its decision in Stolt-Nielsen) the plaintiffs could proceed with a class arbitration.  Construing the parties’ arbitration agreement against its drafter, Sterling, the arbitrator noted the agreement did not include an express prohibition of class claims and did not mention class claims.  The agreement did include, however, arbitration provisions more broadly worded than the agreement in Stolt-Nielsen:  employees may “‘seek and be awarded equal remedy through [Sterling’s] REVOLVE [dispute resolution] program’” and the arbitrator had “‘the power to award any types of legal or equitable relief that would be available in a court of competent jurisdiction.’”  Sterling had chosen not to revise its RESOLVE contract, even though several arbitral decisions in the past had permitted class claims.  The district court vacated the arbitrator’s award, finding the case factually indistinguishable from Stolt-Nielsen.  The Second Circuit reversed, holding that the lower court had “improperly substituted its own interpretation of the parties’ arbitration agreement for that of the arbitrator’s to conclude that the arbitrator had reached an incorrect determination that the parties’ arbitration agreement did not prohibit class arbitration.”  The district court substituted its own legal analysis for the arbitrator’s and failed to conduct the proper inquiry: “whether, based on the parties’ submissions or the arbitration agreement, the arbitrator had the authority to reach an issue.”  The stipulated “silence” of the parties in Stolt-Nielsen was interpreted by the Supreme Court to mean the parties “‘had not reached any agreement on the issue of class arbitration.’”  That is, there was no explicit or implicit agreement to submit to class arbitration.  Also, simply agreeing to arbitrate “does not equal an agreement to class-action arbitration.”  The issue in this case is whether the arbitrator had the power to reach a certain issue, not whether the issue was correctly decided.  An arbitrator exceeds her authority by considering issues beyond those submitted by the parties or reaching issues clearly prohibited by law or by the terms of the parties’ contract.  Section 10(1)(4) imposes a high hurdle for vacating an award.  The district court erred in engaging in a substantive review of the arbitrator’s decision.  The question of class arbitration was properly submitted to the arbitrator.  Neither the law nor the parties’ agreement categorically barred the arbitrator from deciding the issue – Stolt-Nielsen does not stand for the proposition that arbitration agreements can only be construed as permitting class arbitrations where they have express provisions permitting class arbitrations.  The agreement in this case does not prohibit the arbitrator from determining whether the agreement contemplates class arbitration.  She had a colorable justification for her decision under Ohio law – Ohio law does not bar class arbitration.  An intervening change of law, standing alone, is not grounds for vacating an otherwise proper award.  Unlike the arbitrator in Stolt-Nielsen, the arbitrator here did not base her decision on public policy grounds.

Arbitrator Exceeded Scope of Authority in Contract Interpretation; “Functus Officio” Doctrine.  In Muskegon Central Dispatch 911 v. Tiburon, INC., No. 09-2214 (6th Cir. February 3, 2012) (not recommended for full-text publication), the Court of Appeals affirmed the district court’s decision vacating an arbitrator’s award and remanded the dispute to a new arbitrator.  The arbitrator exceeded the scope of his authority: 1) by concluding that one of the parties to a contract had the responsibility to escalate and complete a contractual dispute resolution procedure, and 2) by reading a contract provision as a mandatory and exclusive procedure for the parties to seek contract damages.  A new arbitrator was appropriate on remand under the “functus officio” doctrine (non-judicial official without further authority because duties of original commission fully accomplished).

No Agreement to Arbitrate in Last Integrated Contract.  In Mark E. Dottore, v. The Huntington National Bank, No. 10-4357 (6th Cir.  May 4, 2012) (not recommended for full-text publication), the receiver of an investment fund sued the bank in connection with an investment fraud case.  Affirming the district court’s denial of the bank’s motion to compel arbitration, the Sixth Circuit held that there was no agreement to arbitrate under applicable Ohio law.  The fund accounts were opened with agreements that contained no arbitration provision.  Thereafter, when there was a bank merger, notice to all bank customers included an agreement to arbitrate.  However, later, a representative of the investment fund signed a change of signature form that included “Your Deposit Account Terms and Conditions” that governed the account unless varied or supplemented in writing.  This last contract is complete and unambiguous on its face, and is presumed integrated under Ohio Law.  It has no arbitration provision.  Therefore, extrinsic evidence of the parties’ intent is not admissible.

Remember to Get Court Order Staying Proceedings during Mediation.  One of the issues in Dixie M. Webb v. Kentucky State University et al, No. 10-6488 (6th Cir. March 14, 2012) (not recommended for full-text publication), is whether the district court made a mockery of the mediation process and sabotaged the process by granting summary judgment in an employment discrimination case while the parties engaged in mediation.  The Court of Appeals held that the district court properly granted summary judgment and noted that the plaintiff could have asked the court to stay court proceedings while the parties mediated.

Tennessee Cases

Settlement Agreement Enforced; Statute of Frauds Satisfied by Emails.  In a case of first impression, Earline Waddle v. Lorene B. Elrod, No. M2009-02142-SC-R11-CV (Tenn. April 24, 2012), the Tennessee Supreme Court held that:  1) the Statute of Frauds, Tenn. Code Ann. § 29-2- 101(a)(4) (Supp. 2011), applies to a settlement agreement requiring the transfer of an interest in real property; and  2) the emails exchanged by the parties’ attorneys, together with a detailed legal description of the only real estate at issue in a cross claim filed by one of the parties in the lawsuit, satisfy the Statute of Frauds under the Uniform Electronic Transactions Act (UETA), Tenn. Code Ann. §§ 47-10-101 to -123 (2001 & Supp. 2011).  The Court noted that when deciding whether the Statute of Frauds applies, courts “must consider the terms of the settlement agreement, not the subject matter of the litigation.”  Further, the Statute of Frauds does not require a written contract.  Only a written memo evidencing the parties’ agreement is required.  Also, the party to be charged (or the party’s authorized agent) must sign one of the writings, a requirement satisfied in this case under the UETA by the party’s attorney sending an email with his typed name at the end of the email.  Copy of opinion at https://www.tba.org/sites/default/files/waddlee_042412.pdf.

Parol Evidence Rule Does not Apply in Fraud in Inducement of Settlement Contract.  In Deshon Ewan And Patrick Ewan v. The Hardison Law Firm and Jonathan Martin, No. W2011-00763-COA-R3-CV (Tenn. Ct. App. April 16, 2012), the plaintiffssought rescission of a release and settlement agreement in a vehicle accident tort case.  The plaintiffs had settled the case for the limits of the defendants’ automobile liability insurance policy.  They signed a release that included the defendants, the defendants’ attorneys, and the insurance company.  The release included an integration clause, stating that all agreements were embodied in the release and plaintiffs’ had agreed to the release “without reliance on any statement or representations made by Releases except as herein set forth.”  After later discovering a substantial general liability insurance policy they thought also would provide additional coverage on their claims, the plaintiffs sued the defendants’ attorneys, seeking rescission of the release based on fraud, a declaratory judgment that the general liability policy covered the plaintiffs’ injuries, compensatory damages from the attorneys for all damages resulting from the fraud, and punitive damages.  The trial court granted the attorney defendants’ motion for summary judgment based on the release, refusing to consider extrinsic evidence.  Reversing on appeal, the Court of Appeals held the trial court erred in refusing to consider extrinsic evidence of fraud.  One of the exceptions to the parol evidence rule is a claim of fraudulent misrepresentation in inducement of a contract, even when a release states that no extra-contractual representations were made.  Copy of opinion at https://www.tba.org/sites/default/files/ewand_041612.pdf.

Failure to Mediate Religious Disagreement per Parenting Plan.  In Lauren Ephgrave Jarrell v. Emmett Blake Jarrell, No. W2011-00578-COA-R3-CV (Tenn. Ct. App. March 28, 2012), the parties’ Parenting Plan required that the parties jointly make major decisions on religious upbringing, and, if they could not reach consensus, they would submit the dispute to a mediator.  Although the parents had disagreed in the past about the appropriate age for the children to be baptized, the mother had the parties’ children baptized without father’s knowledge or consent.  The father filed a petition for civil and criminal contempt against the mother. On appeal, the Court of Appeals:  1) reversed the trial court’s finding of civil contempt because the trial court was seeking to punish past conduct, not seeking to compel future compliance with the court’s Parenting Plan order, and  2) reversed and remanded the trial court’s dismissal the criminal contempt petition, apparently for insufficient notice, because proper notice was given.  Copy of opinion at https://www.tba.org/sites/default/files/jarrelll_032812.pdf.

Mediated Partial Settlement Did Not Eliminate Need for Evidentiary Hearing on Child Support; Misrepresentation at Mediation Allegation.  Daniel Lee Coleman v. Andrea Gibson Coleman, No. E2011-00974-COA-R3-CV (Tenn. Ct. App. MAY 8, 2012) involved a divorce where the parties resolved several issues in mediation.  The trial court entered a divorce decree without an evidentiary hearing on the remaining disputed issues.  On appeal, the Court of Appeals affirmed those parts of the decree that incorporated mediated agreements, except for the division of marital debt where the husband raised issues of misrepresentations at the mediation and mistake in formation of the agreement regarding marital debt.  The Court of Appeals also vacated the judgment awarding child support because, absent a stipulated agreement, the trial court must conduct a hearing on child support.  Copy of opinion at https://www.tba.org/sites/default/files/colemand_050812.pdf.

* Marnie Huff is past Chair and currently serves on the Executive Council of the TBA Dispute Resolution Section.  She serves on the elected Council of the ABA Section of Dispute Resolution and chairs the Section’s Membership Committee.  She is an independent mediator, arbitrator and workplace conflict management consultant in Nashville.  Her website is at www.MargaretHuffMediation.com