by Marnie Huff*
RULE 31 AMENDED
On February 12, 2013, the Tennessee Supreme Court amended Rule 31, Sections 11(b)(6) and (b)(12) regarding procedures for grievances filed against mediators. A copy of the Court’s Order is at http://www.tncourts.gov/sites/default/files/supreme_court_order_amending_supreme_court_rule_31_-_effective_2-12-2013.pdf.
ADR RESOURCES & ARTICLES
Alimony Bench Book from TBA Family Law Section
The TBA Family Law Section’s 11th Edition Alimony Bench Book, available for purchase in loose-leaf format for $40 or a three-ring binder for $50. To order the book, visit the TBA’s online bookstore or contact TBA at (615) 383-7421. Members of the Family Law Section can download the new edition at no charge by logging in to TBA.org and going to the Resources link on the Family Law Section's webpage. The goal of the publication is to assist judges in the consistent awarding of alimony across the state and help lawyers present their cases in court. It would, of course, also assist in mediations.
Shipley Cited in Recent Article. A recent article by Jennifer W. Reynolds, “Judicial Reviews: What Judges Write When They Write About Mediation,” Penn State Yearbook on Arbitration & Mediation, Vol. 5, 2013 (March 11, 2013), available at SSRN: http://ssrn.com/abstract=2231683(last visited March 25, 2013), includes a reference to Marietta Shipley’s article written in the 1990’s.
Symposium at Penn State. On February 22, 2013, leading procedural law and dispute resolution experts participated in the Penn State University Dickinson School of Law Yearbook of Arbitration and Mediation Symposium, “The Role of the Courts: Judicial Review of Arbitral Awards and Mediated Settlement Agreements.” Discussions included:
· Arbitral awards and judicial review
· Judicial review and Combinations of Consensual and Adjudicative Processes
A webcast of the symposium is available at:
Views on ADR - Fortune 1,000 Survey. Stipanowich, Thomas and Lamare, J. Ryan, “Living with 'ADR': Evolving Perceptions and Use of Mediation, Arbitration and Conflict Management in Fortune 1,000 Corporations” (February 19, 2013), Fortune 1,000 Survey MP Revised February 19, 2012, available at SSRN: http://ssrn.com/abstract=2221471.
Article on Stolt-Nielsen, Rent-A-Center, and Concepcion. Stipanowich, Thomas, “The Third Arbitration Trilogy: Stolt-Nielsen, Rent-A-Center, Concepcion and the Future of American Arbitration” (August 30, 2011), American Review of International Arbitration, 2012; Pepperdine University Legal Studies Research Paper No. 2012/10, available at SSRN: http://ssrn.com/abstract=1919936
ABA website. The American Bar Association Section of Dispute Resolution provides resources for mediators and arbitrators on its website. A recent addition is the ABA/College of Commercial Arbitrators Annotations to the Code of Ethics for Arbitrators in Commercial Disputes, available at http://meetings.abanet.org/webupload/commupload/DR011000/newsletterpubs/code_annotated_updated_sept_2011.pdf. Judicial decisions and other published writings from 1981 through 2011 are cited, as annotations to the 1977 and 2004 Codes. Note, however, that numerous court cases and other writings that consider issues encompassed by, but not citing, the Codes are not included in the annotations. Additional ABA resources on arbitration are at
I. U.S. SUPREME COURT
Sutter and Italian Colors Pending with Court
In Sutter, the U.S. Supreme Court will decide whether employers are subject to class and collective arbitration, when their employee arbitration agreements are silent on class or collective actions,. The Italian Colors case may clarify whether federal law allows invalidation of arbitration agreements on the basis that they do not permit class arbitration.
Sutter. The U.S. Supreme Court granted cert in Oxford Health Plans LLC v. Sutter, No. 12-135 on December 7, 2012 and heard oral arguments on March 25, 2013 (oral argument transcript at http://www.supremecourt.gov/oral_arguments/argument_transcripts/12-135.pdf). The statement of the Question Presented is the following:
In Stolt-Nielsen v. AnimalFeeds International Corp., 130 S. Ct. 1758, 1776 (2010), this Court made clear that “class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to arbitration.” In this case, an arbitrator concluded that the parties affirmatively consented to class arbitration on the basis of a contract provision stating: “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.” The question presented is: Whether an arbitrator acts within his powers under the Federal Arbitration Act (as the Second and Third Circuits have held) or exceeds those powers (as the Fifth Circuit has held) by determining that parties affirmatively “agreed to authorize class arbitration,” Stolt-Nielsen, 130 S. Ct. at 1776, based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.
Question Presented, available at http://www.supremecourt.gov/qp/12-00135qp.pdf.
The Third Circuit had distinguished Stolt-Nielsenand affirmed a district court’s order denying the defendant’s motion to vacate the arbitrator’s award. Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3rd Cir. 2012), copy available at http://www.ca3.uscourts.gov/opinarch/111773p.pdf. Sutter, a health care provider who was a party to a Primary Care Physician Agreement with Oxford, filed a class action against 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.
Italian Colors. The Court granted cert in American Express Co. v. Italian Colors Restaurant, No. 12-133 on November 9, 2012. The case was argued on February 27, 2013 (oral argument transcript at http://www.supremecourt.gov/oral_arguments/argument_transcripts/12-133.pdf). The issue in the case is, “Whether the Federal Arbitration Act permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim.” Question Presented, available at http://www.supremecourt.gov/qp/12-00133qp.pdf. The Second Circuit’s decision, Italian Colors Restaurant v. American Express Travel Related Servs. Co., 667 F.3d 204 (2d Cir. 2012), is available at http://www2.bloomberglaw.com/desktop/public/document/Italian_Colors_Restaurant_v_American_Express_Travel_Related_Servs.
Nitro-Lift: Arbitrators in the First Instance, not Courts, Decide Validity of Underlying Contract
In its per curiam decision in Nitro-Lift Technologies v. Howard, No. 11-1377, 568 U.S. ___ (Nov. 26, 2012), the Supreme Court vacated the Oklahoma Supreme Court decision that a non-compete contract with an arbitration clause was void under state law. The Court reiterated its long-standing holding that the Federal Arbitration Act declares “’a national policy favoring arbitration.’” Id. at 4, quoting Southland Corp. v. Keating, 465 U.S. 1, 10 (1984). Here, the contract had a valid arbitration clause, as found by the trial court and not questioned by the Oklahoma Supreme Court. Therefore, once the arbitration clause was found enforceable, the arbitrator in the first instance, and not the court, decides the validity of the underlying non-compete contract. Id., citing Preston v. Ferrer, 552 U. S. 346, 349 (2008); andPrima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395 (1967). Copy of opinion at http://www.supremecourt.gov/opinions/12pdf/11-1377_3e04.pdf.
II. U.S. CIRCUIT COURT OF APPEALS: Sixth Circuit Cases and Selected Cases from other Circuits
A. Agreements to Arbitrate
Dispute not Arbitrable. In Dental Associates, P.C., d/b/a Redwood Dental Group v. American Dental Partners of Michigan, LLC and American Dental Partners, Inc., No. 12-1008 (6th Cir. March 28, 2013)(not recommended for full-text publication), the Court held that a dispute was not arbitrable. The parties had entered into multiple contracts, but the arbitration clause in one of the agreements was not part of an umbrella agreement governing the parties’ overall relationship.
Continuity of Business after Merger. In Keith Dawson v. Rent-A-Center Inc., No. 10-2660 (6th Cir. July 26, 2012)(not recommended for full-text publication), the Court held that an employee’s agreement to arbitrate with his employer survived the employer’s merger into another corporation because there was a “continuity of business” between the two companies.
B. Appointment of Arbitrators
Multi-Party Cases. In BP Exploration Libya Ltd. v. ExxonMobil Libya Ltd., 689 F.3d 481 (5th Cir. 2012), the Fifth Circuit discussed appointment of arbitrators in a multi-party case. The arbitration provisions in a contract involving BP, ExxonMobil, and Noble North Africa Limited contemplated a dispute with only two parties. When a breakdown in agreeing on a panel of arbitrators occurs, the District Court has the authority under 9 U.S.C. § 5 to intervene and appoint arbitrators. The District Court erred, however, when it deviated from the parties’ express agreement to arbitrate before a three-member panel. It improperly required each of the three parties to select an arbitrator, with those three arbitrators to then select two neutral arbitrators, resulting in a five-member panel. Because of the express agreement, a three-member panel is required. Copy of opinion at http://www.ca5.uscourts.gov/opinions/pub/11/11-20547-CV0.wpd.pdf.
C. Waiver of Arbitration - Garcia, Rota-McLarty, and Johnson Associates.
The Circuit Courts of Appeal vary in evaluating waiver claims. Compare Garcia v. Wachovia Corp., No. 11-16029, 2012 WL 5272942 (11th Cir. Oct. 26, 2012) (defendant in class action waived arbitration), copy available at http://www.ca11.uscourts.gov/opinions/ops/201116029.pdf, with Rota-McLarty v. Santander Consumer USA, Inc., No. 11-1597, 2012 WL 5936033 (4th Cir. Nov. 28, 2012) (party may lose right to compel arbitration if “in default in proceeding with such arbitration” under 9 U.S.C. § 3; defendant did not default under analysis of two factors, (1) amount of delay and (2) extent of moving party’s trial-oriented activity; reason for delay not relevant), copy available at http://www.ca4.uscourts.gov/Opinions/Published/111597.P.pdf.
In Johnson Associates Corp. v. HL Operating Corp., 680 F.3d 713 (6th Cir. 2012), the Sixth Circuit held that the defendant waived its contractual right to arbitration in a case where, over an 8 month period, the defendant obtained an extension of time to answer the complaint, asserted 10 affirmative defenses and a counterclaim, engaged in a judicial settlement conference and other informal settlement efforts, requested changes in the Case Management Order, and engaged in discovery. The plaintiff was prejudiced in that the discovery was not fully transferrable to the arbitration process. Following prior Sixth Circuit precedent, the Court stated that “‘a party may waive an agreement to arbitrate by engaging in two courses of conduct: (1) taking actions that are completely inconsistent with any reliance on an arbitration agreement; and (2) delaying its assertion to such an extent that the opposing party incurs actual prejudice.’” Id. at 717.
D. State law v. FAA
State Law Applied; Less Deference to Arbitrator’s Decision. In Evanston Insurance Company v. Cogswell Properties, LLC, 683 F.3d 684 (6th Cir. 2012), rehrg and rehrg en banc den. (2012), an insurance policy included the following appraisal provisions: “’[a] decision agreed to by any two [umpire and appraisers] will be binding’” and “‘[i]f there is an appraisal we [Evanston Insurance] will still retain our right to deny the claim.’” The policy did not require a hearing-type appraisal process. It therefore did not constitute an arbitration agreement for purposes of the Federal Arbitration Act with its more deferential court review provisions. Under Michigan law, an appraisal clause “’constitutes a common-law arbitration agreement,’” not a statutory arbitration agreement, for the limited purpose of determining the appropriate standard of judicial review of appraisal awards. The district court correctly ruled that the appraisal award at issue “demonstrated a manifest mistake and an error of law.”
E. Scope of Arbitrator’s Authority
Telecom Arbitration. Ohio Bell Tel. Co. v. Pub. Utils. Comm'n of Ohio, No. 12-3145 (6th Cir. March 28, 2013) involved an arbitration conducted by the Public Utilities Commission of Ohio. The Court held that the Commission did not exceed its authority in its determination on how two telecom carriers should interconnect their networks to service 9-1-1 calls under the federal Telecommunications Act of 1996. Specifically, it did not exceed its authority by applying Section 251(a) of the Act when one of the carriers had petitioned only for interconnection under Section 251(c)(2).
Deciding Arbitrator Bias Issue. In Scandinavian Reinsurance Co. Ltd. v. St. Paul Fire & Marine Ins. Co., ___F.3d____, 2012 WL 335772 (2d Cir. Feb. 3, 2012), two arbitrators failed to disclose service as arbitrators in another concurrent arbitration involving common witness, similar legal issues, and a related party. To determine whether overlapping service showed bias, the Second Circuit enumerated a non-exhaustive list of factors to consider.
F. Ex parte communication with arbitrator
Ex parte communication not grounds to vacate award. In Barrick Enterprises, Inc. v. Crescent Petroleum, Inc., et al., No. 11-1778 (6th Cir. August 27, 2012) (not for full-text publication), Crescent Petroleum, Inc., one of the parties in an arbitration of a contract dispute, attacked the award on two grounds. First, the arbitrator had ex parte communications with an employee of the other party, prejudicing Crescent and exceeding the arbitrator’s authority. Second, the arbitrator applied the wrong evidentiary standard. Rejecting Crescent’s arguments, the Court of Appeals first considered the provision in the arbitration agreement on the issue of whether ex parte questioning was permitted: "[t]he Arbitrator shall be free to direct questions and request documents or records from the parties as may be needed to evaluate and render a final determination of the Account Balance so long as any such questions or requests, and the subsequent disclosures thereto, are disclosed to the opposing party." Finding that it was unclear whether the arbitrator had to just alert parties that questioning would occur and cover certain subjects (which he did), or whether he must disclose the actual questions asked (which he did not), the Court declined to set aside the award given the arbitrator’s interpretation of the disclosure requirement. Moreover, Crescent acquiesced to the ex parte questioning. Lastly, the arbitrator (an accountant) did not go beyond his expertise in his decision and did not adopt an impermissible liability standard.
G. Appeal arbitrator
Case with trial and appeal levels of arbitration; no grounds to vacate; district court addition to award not error. Stonebridge Equity, dba Stonebridge Business Partners v. China Automotive Systems, Inc., No. 12-1548 (6th Cir. March 26, 2013) (not for full-text publication), a contract dispute case, involved a trial arbitration, followed by review by an appeal arbitrator, federal district court, and the Court of Appeals. The Court of Appeals held that: 1) the arbitrator did not manifestly disregard the law by using extrinsic evidence to interpret an ambiguous contract (without the Court deciding whether manifest disregard survives Hall Street); 2) the trial arbitrator’s award drew its essence from the contract and therefore did not violate the arbitration agreement; 3) the appeal arbitrator was not required to state in her decision that she was applying de novo review of the award where she clearly knew that she was so required; and 4) the district court’s addition of a minor paragraph to the arbitration award for enforcement purposes was permissible under 9 U.S.C. § 11 (court may “modify and correct the award, so as to effect the intent thereof and promote justice between the parties).
H. Preserving issues for court review
Third party adequately objected to arbtrator’s jurisdiction; arbitrability is issue for court. In David C. Tabor, M.D. v. Glenwood Systems, LLC, dba Glenwood Systems, Inc., No. 11-5232 (6th Cir. June 26, 2012) (not for full-text publication), an arbitrator issued an award against Dr. Tabor. Crossville Medical Oncology, P.C. (solely owned by Tabor) had sued Glenwood Systems, Inc. regarding a medical billing services agreement. After Crossville and Glenwood were ordered to arbitrate, Glenwood filed a counterclaim against both Crossville and Dr. Tabor individually. At a preliminary arbitration hearing, counsel for Crossville objected that Tabor was not a proper party. Even though he never objected in writing, Tabor had not clearly and unmistakably agreed to submit the issue of arbitrability to the arbitrator. Arbitrability should have been decided by the federal district court, per First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). The Court of Appeals reversed the district court’s decision confirming the arbitration award and remanded the case to the court to determine whether Dr. Tabor was bound by the arbitration agreement.
FINRA arbitration. In Murray v. Citigroup Global Mkts., Inc., No. 11-4355 (6th Cir. Jan. 10, 2013), an employee sued his employer in state court. The employer removed the case to federal district court and successfully moved to compel a FINRA arbitration. After the arbitration, the employee moved to vacate. The Court of Appeals held that the district court properly denied the motion. The employee failed to challenge the scope of the arbitration panel’s authority and therefore forfeited his arguments that the panel exceeded its authority. Further, the employee failed to request a reasoned award from the panel which automatically doomed his manifest disregard argument.
I. Scope of decision
In Frank Barracco v. JP Morgan Chase Bank, N.A., No. 11-2106 , (6th Cir. August 7, 2012) (not recommended for full-text publication), affirming a district court’s reversal of a bankruptcy court’s decision, the Court held that an arbitrator’s decision displaced a state court default judgment.
J. Collective bargaining agreements
Seniority grievance case; extremely limited Court review authority. Brotherhood of Locomotive Eng'rs & Trainmen v. United Transp. Union, 700 F.3d 891 (6th Cir. 2012) affirms an arbitration board’s decision regarding a seniority grievance under the Court’s extremely narrow review authority. The Court’s opinion includes analysis of the terms of the collective bargaining agreements at issue, the Railway Labor Act, the U.S. Supreme Court’s Steelworkers Trilogy and its progeny, as well as Michigan Family Resources, Inc. v. Service Employees Int’l Union Local 517M, 475 F.3d 746 (6th Cir. 2007) (en banc) and Titan Tire Corp. of Bryan v. United Steelworkers of Am., Local 890L, 656 F.3d 368, 372 (6th Cir. 2011).
De novo review of alter ego determination. In Road Sprinkler Fitters Local Union No. 669, U.A. v. Dorn Sprinkler Co., 669 F.3d 790 (6th Cir., 2012), the Court held that an employer was not an alter ego of a company that had a collective bargaining agreement and, therefore, was not required to arbitrate grievances. Discussing the possibly conflicting authority in the Sixth Circuit, the Court held that de novo review is the proper standard for reviewing a district court’s determination of an alter ego issue on summary judgment, even though that determination is fact intensive.
Failure to pursue arbitration. In Emswiler v. CSX Transp., Inc., 691 F.3d 782 (6th Cir. 2012), an employee sued his employer and union after his seniority was adjusted. The district court properly granted summary judgment to the employer and union because the employee failed to pursue arbitration mandated by the Railway Labor Act.
Related entities. In Printing Service Company v. Graphic Communications Conference of the International Brotherhood of Teamsters, Local 508 of District Council 3, No. 11-3288 (6th Cir. August 2, 2012) (not for full-text publication), reversing the district court, the Court of Appeals held that the arbitrator correctly determined that the collective bargaining agreement applied to the purchase and use of a printer by the company’s related entity that was a non-union shop.
In Diaz v. Mich. Dep't of Corr., Nos. 11-1075 and 11-1213 (6th Cir. January 7, 2013), two Michigan State employees sued for violation of the Family Medical Leave Act, seeking reinstatement and damages. Held: the employees can seek reinstatement, but “cannot bring § 1983 ‘and laws’ suits to enforce their purported rights under the FMLA self-care provision.” Of interest to mediators is the Court’s dicta, discussing and distinguishing Seminole Tribe of Florida v. Florida which construed the Indian Gaming Regulatory Act. That Act, unlike the FMLA, “set up intricate procedures related to equitable relief” including good faith negotiations and submitting a proposed compact to a “mediator charged with selecting the proposal that best embodied the terms” of the Act
III. TENNESSEE CASES
Rule 31 Does Not Trump Tennessee Uniform Arbitration Act When Arbitrability Issue Pending. In Glassman, Edwards, Wyatt, Tuttle & Cox, P.C. v. B. J. Wade et al., No. W2012-00321-SC-S10-CV – Tenn. April 30, 2013), a law firm sued a former partner and a former paralegal. Both defendants moved to compel arbitration on the basis of arbitration clauses in a Shareholder Agreement (as to the partner) and an unsigned employment agreement (as to both). The firm denied any agreement to arbitrate. The trial court initially limited discovery to the issue of whether the cases were subject to arbitration. But it later ordered the parties to engage in mediation and to disclose “all necessary documents to conduct a meaningful attempt at resolution.” On an extraordinary appeal, the Court held that the trial court erred in not limiting the scope of discovery to the issue of arbitrability, and erred in referring the parties to mediation in an effort to resolve all issues. The Tennessee Uniform Arbitration Act requires that the court summarily determine whether there is an enforceable arbitration clause and limit discovery to that issue. Copy of opinion at https://www.tba.org/sites/default/files/glassman_043013_0.pdf.
Case of First Impression on Subject Matter Jurisdiction: Trial Court Order Vacating Arbitration Award Appealable under Tenn. Code Ann. § 29-5- 319(a)(3). In Morgan Keegan & Company, Inc. v. William Hamilton Smythe III et al.,No. W2010-01339-SC-R11-CV (Tenn. April 25, 2013), the issue before the Court was“whether Tennessee’s appellate courts possess subject matter jurisdiction to review a trial court’s order that vacates an arbitration award and remands the dispute to a new arbitration panel without expressly declining to confirm the award.” An investor claimed he incurred losses due to the failure of some of the investment company’s bond funds. A FINRA arbitration panel ruled in favor of the investor. The investment company petitioned the trial court to vacate the award based on alleged bias of two members of the arbitration panel. The trial court, without expressly declining to confirm the award, vacated the award and remanded the case for a second arbitration before a new panel. On the investor’s appeal, the Court of Appeals, on its own motion, dismissed the appeal for lack of subject matter jurisdiction. Morgan Keegan & Co. v. Smythe,No. W2010-01339-COA-R3-CV, 2011 WL 5517036, at *8 (Tenn. Ct. App. Nov. 14, 2011). The Tennessee Supreme Court reversed, holding that the trial court’s order is an appealable order “denying confirmation of an award” under Tenn. Code Ann. § 29-5- 319(a)(3) (2012). First, both the FAA and the Tennessee Uniform Arbitration Act apply in this case because it is a FINRA securities case being heard by Tennessee courts. Second, following the majority view of other state courts, subject matter jurisdiction to hear the appeal – a procedural matter - is governed by provisions of the Tennessee Uniform Arbitration Act that are not preempted by the FAA. Third, the trial court’s order is appealable under § 29-5-319(a)(3) (appeal may be taken from an order “confirming or denying confirmation of an award”). The provisions of Tenn. Code Ann. § 29-5- 319(a)(5) (appeal may be taken from an order “vacating an award without directing a re-hearing’) do not preclude this result. Although Tenn. Code Ann. § 29-5-312 authorizes a party to seek a confirmation order, it does not require such a petition where, as here, the investor opposed the brokerage’s petition to vacate and requested confirmation of the award in his written response. The trial court’s order did not explicitly deny confirmation of the arbitration award, but its order “necessarily denied [the investor’s] request for confirmation when it granted [the brokerage’s] petition to vacate the award.” § 29-5-319(a)(5) does not trump the provisions of § 29-5-319(a)(3); the fact that the order is not appealable under § 29-5- 319(a)(5) because it included a remand for a second arbitration, is not decisive as to the jurisdiction question. The investor is able to appeal prior to a second arbitration hearing. The Court acknowledged that Tenn. Code Ann. § 29-5-320 provides that interpretation of the Uniform Arbitration Act be consistent with other states that have adopted that Act and noted that construction of § 29-5-319(a) may be a minority view. But Tenn. Code Ann. § 29-5-320 does not require that the court always follow the majority view without further discussion or analysis. Copy of opinion atmorgankeegan_042513.pdf.
Poorly Drafted Contract and Fraudulent Inducement Considered in Investor/Broker Dispute. In Franda Webb, et al. v. First Tennessee Brokerage, Inc., et al., No. E2012-00934-COA-R3-CV (Tenn. Ct. App. April 23, 2013), the Court affirmed the trial court’s order denying the defendants’ motion to compel arbitration. Interpretation of the customer agreement, including enforceability of the arbitration clause was governed by state law. Claims of fraudulent inducement were for a court, not an arbitrator, to decide. The arbitration agreement at issue was an unconscionable contract of adhesion that was not enforceable under state law. The investor did not agree to arbitration, given her testimony that she never saw an arbitration agreement when she signed documents for the broker, and the brokerage was never able to locate pages containing a signed arbitration agreement. The investor was fraudulently induced to open the brokerage account and enter into the agreement. Copy of opinion at webbf_042313.pdf.
Tennessee Uninsured Motorist Statute Requiring Arbitration Does Not Apply in Case Involving Insurance Policy Issued and Delivered Out of State
In Donald K. Nelson v. Gerald E. Nelson et al., No. E2012-01316-COA-R9-CV (Tenn. Ct. App. February 22, 2013), an interlocutory appeal, the Court addressed whether the arbitration requirement in Tenn. Code Ann. §56-7-1206(f)-(k)(2008), a part of the Tennessee uninsured motorist (“UM”) statute, applies to policies with UM coverage that were issued and delivered in Texas to a non-Tennessee insured. Reversing the trial court’s decision, the Court of Appeals held that the arbitration requirement did not apply. Copy of opinion at nelsond_022213.pdf.
Impact of Failure to Amend Damages Claim not Avoided through Motion to Compel Arbitration. In Sheila Brown v. Rico Roland, 357 S.W.3d 614 (Tenn. 2012), the Court affirmed the Court of Appeals decision inBrown v. Roland, No. M2009-01885-COA-R3-CV, 2010 WL 3732169 (Tenn. Ct. App. Sept. 23, 2010). The Tennessee Supreme Court held that 1) the amount of damages the plaintiff sought to recover, after an appeal from general sessions to circuit court, was limited to the amount sought in the general sessions warrant because the plaintiff failed to file an amendment to increase the amount of damages; and 2) the circuit court did not err in denying the plaintiff’s motion to compel arbitration. Copy of opinion at http://www.tba2.org/tba_files/TSC/2012/browns_011812.pdf.
Proper Procedure Not Followed on Motion to Compel Arbitration. David White v. Empire Express, Inc. and Empire Transportation, Inc., No. W2010-02380-COA-R3-CV (Tenn. Ct. App. December 13, 2011) involved a truck lease-purchase agreement. At the end of the lease, the leasing company refused to transfer title to the truck to the truck driver, then repossessed and sold the truck. The driver filed suit, alleging breach of contract, conversion, and violation of the Tennessee Consumer Protection Act. The defendants asserted affirmative defenses of set-off and recoupment, based on the plaintiff's employment agreement. After a bench trial, the trial court held in favor of the plaintiff on all of his claims and awarded damages. Based on an arbitration provision in the employment agreement, it also granted the plaintiff's motion to dismiss and to compel arbitration of the defendants' affirmative defenses of set-off and recoupment. The trial court’s order dismissing defenses that it did not allow in the bench trial and compelling arbitration of those defenses was contrary to the Tennessee Uniform Arbitration Act. Tenn. Code Ann. § 29-5-303(d). The trial court should have stayed the case pending arbitration. Because of the erroneous procedure followed, the trial court failed to resolve all the rights and liabilities of all the parties. Thus, the case is not final and appealable under TRAP 3(a). The Court of Appeals did not address the issues raised on appeal, dismissed the appeal, and remanded with instructions that the trial court to stay the matter pending arbitration, and then conduct proceedings to determine whether and to what extent the plaintiff’s damage award is affected by the decision reached in arbitration. Copy of opinion at http://www.tba2.org/tba_files/TCA/2011/whited_121311.pdf.
Ex Parte Communication with Arbitrator per Agreement; Award not Vacated. In Herbal Integrity, LLC, et al. v. Scott Huntley, Jr., et al., No. M2011-00810-COA-R3-CV (Tenn. Ct. App. January 11, 2012), the parties agreed to submit valuation of the defendants' membership in Herbal Integrity LLC to binding arbitration. An agreed order provided that “All parties may supply the Arbitrator with whatever documents or information that they deem relevant to the process. . . . [Subject to deadlines], the arbitrator shall have the discretion to determine the documents and information that the parties may be required or permitted to produce, as well as how, when, and where such documents and information will be produced. Each party shall serve counsel for opposing parties with copies of any materials that are submitted to the arbitrator.” An engagement letter with the arbitrator provided that the arbitrator would provide copies of information provided to him “upon request.” The defendants moved to vacate the arbitrator's award under Tenn.Code Ann. § 29-5-313(a) on multiple grounds. On appeal, the defendants asserted that the arbitrator exceeded his authority because certain documents were not served on them by opposing counsel and they were not given an opportunity to respond to documents and information provided ex parte to the arbitrator. Given the provisions of the engagement letter, the Court of Appeals agreed with the trial court’s determination that the arbitrator was not responsible to provide copies of the evidence absent a request from the defendants. The defendants did not dispute that they received emails advising them that opposing counsel was providing documents to the arbitrator. They never demanded copies from the arbitrator or opposing counsel. Copy of opinion at http://www.tba2.org/tba_files/TCA/2012/huntleys_011212.pdf.
Court Rejects Subcontractor’s Claims that General Contractor Failed to Represent Sub’s Interests at Mediation and Failed to Communicate During Negotiations. In Sullivan Electric, Inc. v. Robins & Morton Corporation, No. M2012-00821-COA-R3-CV (Tenn. Ct. App. February 27, 2013) a subcontractor (“sub”) sued the general contractor (“general”), claiming breach of the parties’ agreement regarding claims that both had against the owner of the construction project. The sub received $300,000 out of a $3.35 million prepayment the general received from the owner. The sub and the general agreed in a Settlement and Joint Prosecution Agreement that the sub would be entitled to a pro rata share of the settlement or judgment amount if the sub’s claims were not itemized. Also, the general would make all decisions in negotiations, mediation, arbitration and/or litigation, with any decision to accept or reject a settlement with the owner to be in the sole discretion of the general. Although the general sought an itemization of the sub’s claims by the owner, there was no itemization and the subsequent settlement agreement between the owner and the general amounted to 48% of the general’s total claim, including the prepayment. On appeal, the Court held that the general correctly determined the sub was not entitled to anything more from the settlement, as the $300,000 prepayment to the sub was more than 48% of the sub’s total claim in the amount of $529,185.68. The trial court erred in deducting the $300,000 from the sub’s claim and awarding the sub a pro rata share of the difference. Further, the Court rejected the sub’s claims that the general contractor 1) did not adequately represent the sub’s interests in a mediation with the owner; and 2) breached its agreement by failing to communicate with the sub during negotiations with the owner. Copy of opinion at sullivan_022813.pdf.
Mediated Settlement Litigation; Subpoena to Depose Mediator Quashed. In Timothy L. Wilson v. Memphis Light, Gas & Water Division, No. W2012-00889-SC-WCM-WC (Tenn. March 7, 2013), an employee agreed to a court-approved settlement of his Workers’ Comp claim in 2004. Subsequently, he alleged in this case that he suffered additional compensable injuries in 2005 and 2006, contested by the employer. The employee also filed a third-party tort action arising from the 2004 injury. The employer intervened in the tort case to protect its medical subrogation lien. At a joint mediation, the parties settled all claims. Pursuant to the settlement, the tort defendant paid a sum of money, the employer reduced its medical subrogation lien, and this workers’ comp case was dismissed with prejudice. More than a year later, the employee moved to vacate the dismissal, contending that: 1) he had not authorized his lawyer to dismiss the case, and 2) he had not signed the mediated settlement. The employee sought to depose the mediator, the third party’s attorney, and the employer’s attorney. The trial court quashed the subpoenas. At the evidentiary hearing, the employee’s attorney testified that he explained the terms of the settlement agreement and his client agreed to and signed the mediation agreement in his presence. The employee testified that the agreement he signed did not provide for dismissal of his workers’ comp action, but admitted receiving payment in accordance with the mediated settlement. After making credibility findings adverse to the employee, the trial court found that the employee had agreed to the dismissal and granted the employer’s motion to strike, holding that the mediation agreement was a binding contract. The trial court and Workers’ Comp Appeals Panel did not discuss the separate statute of limitations issue and the Panel declined to address the privilege claims related to the trial court’s orders quashing the subpoenas. Copy of opinion at wilsont_030713.pdf. Query, what steps might the mediator and lawyers have taken to reduce the likelihood of this type of post-settlement litigation?
Post-Mediation Dispute over Attorney Fees. Hill Boren, P.C. v. Paty, Rymer and Ulin, P.C. and James Eric Hamm, No. W2012-00925-COA-R3-CV (Tenn. Ct. App. March 19, 2013) is an attorney’s fee dispute involving two law firms, Hill Boren and Paty, Rymer & Ulin, and their client. The client contracted with both law firms for joint representation in a personal injury suit on a contingency fee basis. Two years later, the client discharged Hill Boren. No new representation contract was entered into and no order of withdrawal was entered in the court case. Prior to or during a subsequent mediation, Paty, Rymer & Ulin agreed to a reduction of its contingency fee from 40% to 33%. The attorney from Paty, Rymer & Ulin did not disclose to the discharged attorney that the case had settled or the favorable terms of settlement because she believed that would violate a confidentiality agreement signed by her client. Hill Boren received fees and expenses in the amount of $5,719.10, while Paty, Rymer & Ulin received a contingency fee in an amount over $480,000. In the fee dispute lawsuit, the trial court found that the client had discharged his attorney for cause and his reasons were objectively reasonable. Hill Boren had been discharged before the case was settled. Therefore Paty, Rymer & Ulin’s reduction of the contingency fee percentage did not interfere with Hill Boren’s contract with its client and Hill Boren was entitled only to quantum meruit fees, not a share of the contingency fee. Copy of opinion at https://www.tba.org/sites/default/files/hillb_031913.pdf.
Failure to Mediate Not a Basis to Set Aside Divorce Decree. In Herbert L. Hall v. Chona S. Hall, No. E2012-00394-COA-R3-CV (Tenn. Ct. App. December 21, 2012), the trial court granted the parties a divorce and divided the marital estate. Mediation had been scheduled, but the wife unilaterally canceled the mediation. One of the issues in the wife’s motion for a new trial and on appeal was whether the trial court erred in entering a decree for divorce when the parties had not engaged in mediation, as required by Tenn. Code. Ann. § 36-4-131(a). The trial court held that it had, in effect, waived mediation pursuant to Tenn. Code. Ann. § 36-4-131(b) when the parties did not raise the issue before the divorce trial and decree. The Court of Appeals affirmed. Copy of opinion at http://www.tncourts.gov/sites/default/files/hallhlopn.pdf.
No Mediation Required Where Impasse Likely. In Chris Eric Strickland v. Pennye Danielle Strickland, No. M2012-00603-COA-R3-CV (Tenn. Ct. App. December 21, 2012), one of the issues on appeal involved the trial court’s order denying a request for mediation filed three weeks before trial. The trial court did not err, given its finding that mediation would not be productive due to the parties’ “vitriolic and corrosive interaction through the history of this case,” and there was only a short amount of time before trial. Copy of opinion at https://www.tba.org/sites/default/files/stricklandc_122612.pdf.
Mediated Parenting Plan Agreement Ignored During Original Trial. The Court’s opinion in Chelsea Samantha Barnes v. Daniel Adam Barnes, No. M2011-01824-COA-R3-CV (Tenn. Ct. App. October 24, 2012) mainly focuses on other issues in this divorce appeal. With regard to ADR, it is noteworthy that the parties engaged in partially successful mediation, resulting in a parenting plan agreement that would apply until the child began kindergarten. The parties and counsel signed the mediated agreement which was included in the appellate record, but it was not in the form of a court order. The parties proceeded to trial on all issues, including those they had resolved in mediation. After trial, the trial court adopted the mother’s proposed parenting plan in its entirety, based on its review of the child support history, even though that plan was “notably lop-sided” in the words of the Court of Appeals. On appeal, the Court affirmed the award of alimony, vacated the parenting plan and the award of child support, and remanded for further proceedings. It noted that the trial court is not bound by the mediated parenting plan agreement, but may take it into account. Copy of opinion at https://www.tba.org/sites/default/files/barnesc_102512.pdf.
Far-Reaching Mediated Parenting Plan. In In Re: Taylor B.W. et al, No. E2011-00352-SC-R11-PT (Tenn. February 21, 2013), a mother and father entered into a marital dissolution agreement and a parenting plan for their minor children. The mother subsequently pled guilty to attempted second degree murder of the father and was sentenced to 12 years in prison. Pursuant to a mediated agreement in 2004, the mother and father agreed to an amended parenting plan that provided for the children’s visitation with their maternal grandmother and the mother in prison, and also provided for resumption of the original parenting plan after the mother’s release from prison. The father later remarried while the mother was still incarcerated. He and his wife (stepmother) petitioned for termination of the mother’s parental rights and for adoption by the stepmother. The trial court initially found that there was a statutory ground for termination of the mother’s parental rights and that termination of her parental rights was in the best interests of the children. The court subsequently amended its order, concluding that termination of the mother’s parental rights was not in the best interests of the children, and denying the petition for termination of the mother’s parental rights. The Court of Appeals reinstated the original order. Reversing the Court of Appeals, the Tennessee Supreme Court concluded that the father and stepmother failed to prove by clear and convincing evidence that termination of the mother’s parental rights is in the best interests of the children. When the parties entered into the 2004 mediated agreement, the father was already aware of the mother’s criminal background. The parties had not anticipated that the father would remarry, but the parties had agreed that the mother would resume her participation in the original parenting plan upon release from prison. Copy of opinion at http://www.tncourts.gov/sites/default/files/tayloropn.pdf.
Partial Mediated Settlement in Divorce. In Una P. Irvin v. Ernest J. Irvin, II, No. M2011-02424-COA-R3-CV (Tenn. Ct. App. November 30, 2012), the second appeal in the case, the Court focused on issues unrelated to the mediation in the case. The case is an example, however, of the importance of getting mediated settlements (or partial settlements) approved and spelled out in a written court order on a timely basis. In this case, the parties reached a partial settlement on division of property at their mediation on July 28, 2009. The mediator filed a report on the partial settlement on July 31, 2009. The parties filed a Memorandum of Understanding and later a Stipulation. A trial was conducted in September 2009, with the trial court making some oral findings without entering a final decree at that time. Meanwhile, on March 26, 2010, the husband filed a motion to enforce the mediated agreement. On April 5, 2010 the court conducted a hearing on that motion, but did not resolve it, setting it to be heard at a later date. After a trial, the court entered a written decree on May 27, 2010 and attached the mediated settlement agreement, incorporating it by reference. That decree did not incorporate the September 2009 oral findings. In the first appeal, the Court of Appeals determined that the trial court’s decree was not final because there was no adjudication of the husband’s March 26, 2010 petition to enforce the mediated settlement agreement. Also, the decree was ambiguous, in light of all the possible interpretations as to how the court’s order, the Memorandum of Understanding, and Stipulation all fit together. On remand, a new decree was entered. On this second appeal, the Court modified the decree in part, affirmed as modified, and remanded the case. Copy of opinion at https://www.tba.org/sites/default/files/irvinu_120312.pdf.
Costly Post-Mediation Battles in Divorce Case. In Rodney W. Schutt v. Jodie Ann Miller (Schutt), No. W2010-02313-COA-R3-CV (Tenn. Ct. App. September 27, 2012), the husband and wife were divorced, based on a mediated marital dissolution agreement (MDA). The wife had backed out of two prior agreements, so for this mediation the parties agreed that any “Mediation Agreement” (apparently meaning a memorandum of understanding) had to be executed prior to leaving the mediation. The husband was unemployed at the time of the mediation; the wife was aware that he was seeking employment. A month after the “Mediation Agreement” was signed and two days before the MDA was signed, the husband accepted a job offer and did not immediately tell his wife. The wife claimed her first lawyer pressured her to sign the “Mediation Agreement.” The husband’s job only lasted two months. Disbursements from investment accounts were made after a significant drop in the market value of the assets. The wife filed more than 80 motions, sometimes seeking to set aside the MDA on fraud and other grounds, but on other occasions seeking to enforce the MDA. Among other things, the wife claimed she should have received the dollar value of IRAs as of the date of the mediation, not as of the date of their liquidation. There was testimony about what took place during the mediation; there is no indication as to whether any party raised the issue of mediation confidentiality. The Court of Appeals affirmed the trial court’s rulings denying the wife’s motions, granting the husband’s Rule 11 motion, and awarding the husband $61,500.00 in attorney’s fees and expenses. Copy of opinion at http://www.tncourts.gov/courts/court-appeals/opinions/2012/09/27/rodney-w-schutt-v-jodie-ann-miller-schutt.
Another Post-Mediation Battle in a Divorce Case. Yolanda Uria v. Steve Uria, No. M2011-02751-COA-R3-CV (Tenn. Ct. App. February 6, 2013), involves post-trial motions in a divorce case. Several years after the divorce decree, the father petitioned for modification of the parenting plan and for contempt. He later moved the court to alter or amend the original divorce decree to reduce his child support obligation and an accrued arrearage. The trial court modified the parenting plan, found the mother in contempt, and reduced child support. On appeal, the Court noted that the trial court’s order stated that, among other things, the trial court had not seen a mediated agreement that included a child support calculation. The record, however, showed that although the trial court had never approved the mediated parenting plan, it indicated its awareness of the mediation by finding that the father was not visiting the children as agreed to in mediation. Also, child support guidelines had changed after the mediation and prior to the final hearing in the divorce case in 2005. There was nothing in the record to support the trial court’s statement granting Rule 60 relief that “inaccurate” information regarding the father’s income was presented at the final divorce hearing. The case was affirmed in part, reversed in part and remanded for further proceedings. Copy of opinion at https://www.tba.org/sites/default/files/uriay_020713.pdf.
Mediated Co-Parenting Plan Initially Not Presented or Approved by Court. H.A.S. v. H.D.S., No. E2012-01233-COA-R3-JV (Tenn. Ct. App. April 1, 2013) involved a parenting plan dispute regarding the child of a father and mother who were never married to each other. After they each filed petitions to establish paternity, the parents entered into two mediated agreements regarding the father’s co-parenting time. The agreements were not, however, presented to or approved by a court. Also, the agreements did not explicitly make an award of custody of the child. The parties followed the agreements for a time. After conflicts developed, the father petitioned for review and modification of the agreements. He claimed a material change in circumstances and sought primary custody of the child. At a bench trial, the trial court noted that the mediated agreements were never court-approved and, therefore, correctly decided they were not binding on the court. After hearing evidence, the trial court approved the mediated agreements as in the best interest of the child, decided there was no change in circumstances warranting a change in custody, and revised the father’s co-parenting time. The evidence did not preponderate against the trial court’s decision that the second mediated agreement, put into practice two years earlier, was still in the child’s best interest. Refining the agreement was not error. Copy of opinion at https://www.tba.org/sites/default/files/has_040113.pdf.
Settlement Agreements Subject to Public Records Act. Although no mediated settlement was at issue in the case, the Friedmann case is instructive on issues that may arise when a confidential mediated settlement involves a private entity that is the functional equivalent of a governmental entity subject to the Public Records Act, Tenn. Code Ann. § 10-7-301 et seq. In Alex Friedmann, Individually and as an Associate Editor of Prison Legal News v. Corrections Corporation of America, No. M2012-00212-COA-R3-CV – (Tenn. Ct. App. February 28, 2013) the plaintiff sought copies of settlement agreements and settlement reports from Corrections Corporation of America pursuant to the Public Records Act. The Court held that these documents, arising out of inmate litigation, fell within the statutory definition of public records and were not confidential. Further, the settlement reports were not protected attorney work product because CCA failed to show that the reports were produced “in anticipation of litigation.” Copy of opinion at https://www.tba.org/sites/default/files/friedmanna_030113.pdf.
Withdrawn Consent Did Not Preclude Judgement Based on Mediated Settlement. The parties in Thomas Grigsby et al. v. W. Arlen Harris, Sr. et al., No. M2012-00370-COA-R3-CV (Tenn. Ct. App. December 12, 2012) sought to resolve a boundary dispute and quiet title. On the day of trial, they announced their agreement to settle. Their agreement was read in open court, the parties’ counsel confirmed their client’s consent to the settlement, and a diagram of the new boundary line was made an exhibit. The court approved the settlement in open court. Before judgment was entered, the plaintiffs withdrew their consent to the settlement. Over the plaintiffs’ objections, the trial court entered judgment based upon the settlement. The Court of Appeals affirmed. There is an exception to the seemingly absolute rule in Harbour v. Brown for Ulrich. Compare Harbour v. Brown for Ulrich, 732 S.W.2d 598 (Tenn. 1987) (trial court cannot enter a valid consent judgment when one party withdraws consent and makes this known to court before entry of judgment) with REM Enters. v. Frye, 937 S.W.2d 920 (Tenn. Ct. App. 1996) (unlike situation in Harbour, parties read terms of agreement in open court, expressed their consent to judge, and judge approved settlement). If the terms of a settlement are announced to the court or memorialized in a signed, enforceable contract, the court may enter a judgment on the settlement, even if one party later repudiates. In re Estate of Creswell, 238 S.W.3d 263, 268 (Tenn. Ct. App. 2007). Copy of opinion at https://www.tba.org/sites/default/files/grigsbyt_121312.pdf.
Release Did not Include Son of Company’s Broker in Workers’ Comp Case. In George Ridenour v. Darrell Carman et al, No. M2012-00801-COA-R3-CV (Tenn. Ct. App. March 15, 2013), an employee of a real estate and auction company was injured while assisting the company’s managing broker on the broker’s personal farm. The employee filed a workers’ comp claim against the company and its insurer. The plaintiff also filed a common law tort action against the broker and the broker’s son, who was called to assist after the injury occurred. The workers’ comp action was settled. Per the court approved settlement agreement, the employee released the company and its insurer, as well as their subsidiaries, affiliates, officers, directors, employees, agents and representatives “from any and all further liability and indemnity, under the terms and provisions of the Workers’ Compensation Law of the State of Tennessee, at common law or otherwise . . . .” After the settlement, the trial court granted the motion of the broker and his son for summary judgment, dismissing the tort claims on the grounds that the defendants were immune under the Workers’ Comp Law, Tenn. Code Ann. § 50-6-108(a), and has received a full release in the settlement agreement. On appeal, the Court affirmed the dismissal of the tort claims against the broker, but reversed as to the son. The son was not an affiliate, officer, director, employee, agent or representative of the employer when the employee was injured and did not come within the terms of the release. A Workers’ Comp claim is not the employee’s exclusive remedy if a third party, other than the employer, causes an injury. Copy of opinion at ridenourg_031813.pdf.
Mediation of Wrongful Death Case Failed to Include Father of Decedent’s Children. Latony Baugh, et al. v. United Parcel Service, Inc., et al.,No. M2012-00197-COA-R3-CV (Tenn. Ct. App. December 21, 2012) is a wrongful death case involving a mediated settlement for minor children approved by the trial court and placed under seal. The decedent’s husband filed suit in circuit court, after which the children’s guardian (appointed by the probate court) moved to intervene and the father of the decedent’s children also moved to intervene. The father requested a hearing on whether the husband had abandoned the decedent, thereby waiving his right as surviving spouse to participate in the wrongful death action. The trial court did not hold a hearing. Instead, it held that the husband was the proper party to pursue the action, allowed the guardian to represent the children’s interest, and dismissed the father’s petition. The surviving spouse, guardian, and tortfeasor settled the wrongful death case at a mediation. The court approved the settlement and placed it under seal. On appeal, the Court of Appeals held that the circuit court erred in failing to hold a hearing on the issue of whether the husband was estranged from the mother. It remanded the case for a hearing on whether the husband had waived his right as surviving spouse to participate in the wrongful death pursuant to Tenn. Code Ann. § 20-5-106(c). Although the Court of Appeals stated that it did not sanction the manner in which the case was prosecuted and the failure to notify the father of the settlement and court hearings, particularly given that he had custody of the children, it held that the trial court did not abuse its discretion in approving the terms of the settlement. Subject to the results of the hearing on remand regarding the husband, it affirmed the order approving the settlement. It further held that the trial court erred in placing the settlement documents under seal. Copy of opinion at baughl_122612.pdf.
Employer’s Subrogation Lien Sought after Workers’ Comp Settlement Did Not Include Cost of Future Medical Benefits. In Joshua Cooper et al. v. Logistics Insight Corp. et al., No. M2010-01262-SC-R11-CV (Tenn. January 16, 2013), an employee was injured at work due to the negligence of a third-party tortfeasor and suffered permanent injuries requiring future medical care. The employee filed both a workers’ compensation claim and a Chancery Court lawsuit against the third-party tortfeasor. The employer intervened in the lawsuit pursuant to Tenn. Code Ann. § 50-6-112 to protect its subrogation lien against any recovery from the tortfeasor. The employee settled the lawsuit with the third-party tortfeasor and voluntarily dismissed the case. Upon learning of the settlement, the employer moved to set the case for trial, asserting it was entitled to a lien against the settlement proceeds for the cost of future medical benefits that may be paid on behalf of the injured employee. The trial court granted a motion to dismiss for failure to state a claim. The Court of Appeals reversed, holding that the employee’s future medical benefits were not too speculative and could be included in the employer’s lien against the proceeds of the employee’s suit against the third party tortfeasor. On appeal to the Tennessee Supreme Court, the Court noted as a preliminary matter that the Workers’ Comp law “does not require an employee to obtain an employer’s agreement before settling with a tortfeasor.” Better practice, however, would have been for the plaintiffs in this case to obtain court approval of their settlement with the defendants in the Chancery Court action. On the main issue, the Court reversed, holding that the employer’s subrogation lien under Tenn. Code Ann. § 50-6-112 does not include the cost of future medical benefits to which the injured employee may be entitled. The Court followed its prior decisions on the issue, Hickman v. Cont’l Baking Co., 143 S.W.3d 72 (Tenn. 2004); Graves v. Cocke Cnty., 24 S.W.3d 285 (Tenn. 2000). Justice Koch, in dissent, acknowledged that the General Assembly should revisit § 50-6-112. Nevertheless, relying on a plain language analysis, a discussion of the purposes of the Workers Compensation program, and a criticism of the reasoning of Hickmanand Graves,Justice Koch stated that an employer’s credit is not a refund out of an employee’s recovery under Tenn. Code Ann. § 50-6-112(c)(2), (3). Rather, it negates an employer’s responsibility to pay additional benefits until the employee’s net recovery from the third party tortfeasor is exhausted. Therefore, an employee who recovers from a third party must use the net recovery to pay for future medical care until the net recovery is exhausted. The employer’s liability would then recommence only after the employee exhausted the net raecovery in paying for medical expenses from the injury. Copy of opinion at cooperj_011613.pdf;Koch dissenting at cooperj_DIS_011613.pdf.
D. Workers Compensation
Mediated Workers’ Comp Settlement Upheld. Christopher Furlough v. Spherion Atlantic Workforce, LLC,No. M2011-00187-SC-WCM-WC (Tenn. February 22, 2013) involved a mediated workers’ comp settlement. The Court reversed the Special Workers’ Compensation Appeals Panel’s dismissal of the appeal and also reversed the trial court’s decision. The Panel erred in dismissing the appeal on procedural grounds: a court may not set aside a settlement as non-final, based on the court’s determination that the SD-1 form was not “fully completed” in a case, where the settlement, involving an employee represented by counsel, was approved by the Department of Labor and the SD-1 form was submitted contemporaneously with the settlement agreement. The Court held that “when the Department of Labor approves a settlement, it implicitly approves the accompanying SD-1 form, and a court has no authority to set the settlement aside based on its independent finding that the SD-1 form was not ‘fully completed.’” The Court further found that the parties had exhausted their administrative remedies through a mediated settlement at a benefits review conference. The Circuit Court did have jurisdiction to consider the employee’s petition to set aside the Department of Labor-approved settlement. As for the merits of the petition, the Circuit Court erred in setting aside the settlement on two alternative grounds, that 1) although an attorney was present at the benefits review conference, the employee was not “represented” by counsel within the meaning of Tenn. Code Ann. § 50-6-206(c), and 2) the employee did not receive, substantially, the benefits provided by the Workers’ Comp statutes. First, dissatisfaction with an attorney’s representation does not mean that the employee was not “represented” at the benefits review conference. Second, the petition was not timely filed after the Department’s approval of the settlement, so relief under Tenn. R. Civ. P. 60.02(5) was not available in this case. Third, the Circuit Court could not grant relief under an alternative basis of inherent authority to set aside a settlement when it does not comply with applicable law. The employee failed to establish at least two of the three criteria for relief in an independent action collaterally attacking a final judgment. See Jenkins v. McKinney, 533 S.W.2d 275 (Tenn. 1976) (interpreting the “savings’ provision” of Tenn. R. Civ. P. 60.02). The employee had other available and adequate remedies – he could have timely sought relief based on an alleged mistake pursuant to Tenn. R. Civ. P. 60.02 (1) or appealed the Department-approved settlement pursuant to Tenn. Code Ann. § 50-6-206(c)(2). Also, the employee was not without fault given that the facts at issue (whether the employee had walked off the job or had been terminated) was a matter the employee was in a position to know. Copy of opinion at furloughc_022213.pdf.
Improper Venue in Workers’ Comp Settlement Case. In Michael Draine v. S & ME, Inc. et al., No. E2012-00384-WC-R3-WC (Tenn. January 22, 2013), an employee suffered a compensable injury that was settled in 2003 and approved by the Department of Labor and Workforce Development. Under the settlement, the employer was to provide medical care per the workers’ compensation law. In 2009, the employee (not represented at the time) and the employer’s insurer entered into an agreement closing future medical benefits in exchange for a lump sum payment in the amount of $80,709.45, subject to approval by Medicare. The Knox County Circuit Court approved the settlement, but Medicare declined to approve the proposed agreement and suggested a lump sum payment in the amount of $554,243.53. The employee then petitioned the Sullivan County Circuit Court to enforce the settlement agreement as amended by Medicare. After denying a motion of the employer and insurer to dismiss based on improper venue, the Sullivan County trial court ordered the employer’s insurer to make a lump sum payment in excess of $500,000. On appeal, the Tennessee Supreme Court’s Special Workers’ Compensation Appeals Panel reversed, holding that the Sullivan County court erred in denying the motion to dismiss. The employee had waived venue when he and the insurer filed their joint petition in the Knox County court. Copy of opinion at drainem_012213.pdf.
* Marnie Huff is past Chair of the TBA Dispute Resolution Section. She currently serves as an elected member of the Council of the ABA Section of Dispute Resolution and its Executive Committee, and chairs the Section’s Membership Committee. She is also Co-Chair of the ABA Advanced Mediation and Advocacy Skills Institute. Marnie is an independent mediator, arbitrator and workplace conflict management consultant in Nashville. Her website is at www.MargaretHuffMediation.com.
Unless otherwise noted, all cited websites were last visited on April 1, 2013.